Standing Committee on Economics, Finance and Public
CULTIVATING COMPETITION: PUBLIC INTEREST COMPONENTS OF THE REPORT OF
THE INQUIRY INTO ASPECTS OF THE NATIONAL COMPETITION POLICY REFORM PACKAGE
DAVID HAWKER MP, CHAIRMAN
PAPER PRESENTED TO THE CONFERENCE ON 'PUBLIC INTEREST IN THE NATIONAL
THURSDAY 24 JULY 1997
In June this year the House of Representatives Standing Committee on
Financial Institutions and Public Administration tabled in the Commonwealth
Parliament its report Cultivating competition. That report outlined the
results of an inquiry into several aspects of the National Competition
Policy reform package. I am pleased to say that the Committee reached
unanimous conclusions and recommendations.
Competition policy is a critical area of reform for the public sector.
This policy is about ensuring that where public ownership exists, competition
The inquiry included as its first term of reference an examination of
the appropriate means for applying the 'public interest test' included
in the Competition Principles Agreement.
The inquiry spanned two Parliaments and our report came two years after
the signing of the Council of Australian Governments' agreement on the
reforms by the Commonwealth and all State and Territory Governments.
The 'public interest test' is a pivotal element of competition policy.
It is the 'public interest test' that is used to determine whether the
competition reforms will be implemented.
A central tenet of competition reform is that competition is not an
end unto itself.
While in general introducing competition will deliver benefits to consumers
and businesses, there are situations where community welfare is judged
better served by not effecting particular competition reforms.
Thus in the implementation of the reforms spelt out in the Competition
Principles Agreement, governments have recognised the importance of the
concept of a weighing up process of costs and benefits to the community.
Competition is to be implemented to the extent that the benefits to be
realised from competition outweigh the costs.
Given the scope of the reforms, their potential to substantially impact
on the lives of all Australians, and the relative newness of the policy,
it is critical that there is adequate public education and consultation
about the reforms, and their progress. Holding this seminar is a very
positive step in that public education process.
Today I will outline the Committee's interpretation of the 'public interest
test' and what we see are the basic principles that should guide the application
of the test in all jurisdictions.
Since it is generally accepted that the ultimate decisions on the weighing
up of the costs and benefits are basically political ones, to be justified
by the Parliament and in the final analysis by electors, I'm sure the
Committee's views will be of interest.
The circumstances in which the weighing up process is called for, and
some of the factors that need to be taken into account in making the decision,
are set out in subclause 1(3) of the Competition Principles Agreement,
Without limiting the matters that may be taken into account,
where this Agreement calls:
(a) for the benefits of a particular policy or course of action
to be balanced against the costs of the policy or course of action;
(b) for the merits or appropriateness of a particular policy or
course of action to be determined; or
(c) for an assessment of the most effective means of achieving a
the following matters shall, where relevant, be taken into account:
(d) government legislation and policies relating to ecologically
(e) social welfare and equity considerations, including community
(f) government legislation and policies relating to matters such
as occupational health and safety, industrial relations and access
(g) economic and regional development, including employment and
(h) the interests of consumers generally or of a class of consumers;
(i) the competitiveness of Australian businesses; and
(j) the efficient allocation of resources.
In its report the Committee was required to focus on appropriate means,
including review processes, for applying the 'public interest test' included
in the Competition Principles Agreement.
'Public interest' matters in other areas of competition policy (such
as under the Trade Practices Act) were not within the scope of the Committee's
However, in a sense the whole process of competition policy reform is
a 'public interest' one. In making decisions on competition policy reform,
Governments are acting in the broad public interest as they see it.
Subclause 1(3) is relevant to:
- certain aspects of competitive neutrality;
- the structural reform of public monopolies; and
- the legislation review process.
Since this conference is focusing on the legislation review process
I will restrict my comments to that matter. However, the conclusions and
recommendations the Committee drew are also applicable to those other
areas for those who wish to follow them up.
I will address four main areas of the topic, namely:
- the interpretation of 'public interest' in the Competition Principles
- the application of the 'public interest test' to the legislation review
- some comments on the jurisdictions' legislation review timetable documents;
- the 'public interest' process.
Interpretation of 'public interest' in the Competition Principles Agreement
There is some confusion surrounding the use of the term 'public interest
test' under the Competition Principles Agreement.
The terms 'public interest' or 'public interest test' are not used in
The subclause provides a list of only some of the diverse factors that
may be relevant where the parties are weighing up the costs, benefits,
merits, appropriateness or effectiveness of particular actions.
Thus what is loosely described as the 'public interest test' is not
confined to those factors which are specifically described in subclause
In a particular case, the most important factor may not even be on the
list. For example, South Australia in applying the test to local government
included three additional factors: namely, the impact on actual and potential
competitors of the relevant local council business activity; the impact
on the local community; and the impact on state and national economies.
Further, all the items in the list may not be relevant in each case.
Those conclusions flow from the opening words of the subclause 'Without
limiting the matters that may be taken into account' and the words 'where
People interested in a matter have sought to stress particular factors
in the list or other factors that their perspective regards as of deciding
importance. For example, some business groups suggest that the other factors
in the list detract from the importance of competitiveness and efficiency.
While other groups, such as some unions and local government, place greater
emphasis on consideration of social equity issues.
While it is understandable that there will be differing perspectives
on the factors, subclause 1(3) gives no significance to the order of listing.
The importance of a factor always will depend on the circumstances of
a particular case.
The fact that a matter is specified on the list is an indication of
its status as a key public policy consideration that cannot be ignored.
Whatever else decision makers decide is relevant, at least they should
turn their minds to each of the listed items.
Questions have also been raised about whether the assessment of the
benefits and costs is a strict cost-benefit analysis and the relative
merits of a qualitative versus quantitative assessment. Several groups
also stress that the 'public interest test' should be based on long term
assessments of costs and benefits. The Competition Principles Agreement
is silent on both these matters. The Committee accepted the use of both
qualitative and quantitative assessments, where appropriate.
Application of the 'public interest test' to legislation review
As you are all aware under clause 5 of the Competition Principles Agreement
the Commonwealth, States and Territories were obligated to develop a timetable,
by June 1996, for the review, and where appropriate, reform of all existing
legislation that restricts competition by the year 2000.
That is an enormous task, with some 2000 pieces of legislation being
listed for review. The number of legislative Acts under review differ
significantly between jurisdictions.
Reviews of existing legislation are to assess and balance the costs
and benefits of the restriction on competition.
The parties are to require proposals for new legislation that restricts
competition to be accompanied by evidence that the legislation is consistent
with the principles that:
- legislation (including Acts, enactments, Ordinances or regulations)
should not restrict competition unless it can be demonstrated that:
(a) the benefits of the restriction to the community as a whole
outweigh the costs; and
(b) the objectives of the legislation can only be achieved by
Once a party has reviewed legislation that restricts competition under
the principles set out in subclause 5(3) and 5(5), then it should be systematically
reviewed at least once every ten years.
In addition, the Competition Principles Agreement recognises that the
review of legislation may have a national dimension. If the party responsible
for the review considers that the review should be a national review,
that party is required to consult with other interested parties to the
Competition Principles Agreement before it determines the terms of the
It may request the National Competition Council to conduct the review.
For example, in June this year by agreement with the States and Territory
Governments, the Commonwealth Treasurer directed that the National Competition
Council review the Australian Postal Corporations Act 1989.
Thus the responsibility for deciding whether the review should be a
national one, and if so who should conduct it and what its terms of reference
should be, rests with the initiating party.
By virtue of subclause 5(1), the 'public interest test' applies to assessing
and balancing the costs of the legislative restrictions on competition
only. The consideration of alternative means of achieving the objective
is an additional issue. Also, the issue in this case is whether the benefits
to the community as a whole outweigh the costs.
Legislation review timetable
All parties have prepared their timetables for the review of existing
legislation. Some of those documents incorporate methodology for undertaking
the reviews; others do not. Some parties have now prepared additional
guidelines on the application of the 'public interest test'.
Initially, Western Australia, the Northern Territory and South Australia
provided timetables only.
Western Australia, Victoria, Queensland and Tasmania now have detailed
guidelines on the review process; NSW and the Commonwealth use related
documents to guide the process; and the ACT is preparing documentation.
More details on the various approaches adopted by jurisdictions are
outlined in the Committee's report.
From the diverse nature of the timetable documents and related material,
it would seem that there has been very little coordination between the
jurisdictions. This is an area where some sort of common approach would
have been beneficial.
Some of the policy statements including those of South Australia, NSW,
Queensland and Tasmania point to areas where joint reviews might be undertaken.
Few national reviews have been initiated to date.
There is potential for national reviews in any of the protected registered
professions and occupations such as dentists, pharmacists, newsagents
In their timetable some jurisdictions including Tasmania, NSW, Queensland
and the ACT, specify areas for possible national review.
The Committee believes there are manifest advantages in their being
national reviews of legislation that restricts competition in the several
jurisdictions, rather than diverse separate reviews. Accordingly, the
Committee urged all governments, possibly through the Council of Australian
Governments, to work towards that end.
Evidence to the Committee and the policy statements and associated documentation
pointed to a number of significant factors that should be included in
the 'public interest test' process.
Most of the issues raised, and ultimately the process itself, are simply
However, from the evidence available it is clear that there is still
room for improvement in how the 'public interest test' is to be applied
and processes and procedures are still being developed.
In undertaking its task the Committee believed that a framework process
that provides consistency of approach through the various jurisdictions
would assist the public.
As previously highlighted, essentially, the ultimate decision as to
the weighing up of the merits and costs and benefits is one to be made
by the relevant government. While the process may involve the government
receiving assistance or advice from some outside body, it is the individual
government which takes responsibility for the decision and who must answer
for it. This fact will colour how the whole process is structured in each
jurisdiction and will inevitably mean that there will be differences,
which are sometimes substantial, in how each of the parties deal with
As I am sure the NCC will stress, generally speaking, it has no role
in the weighing up process. It is for the relevant governments to decide.
The major principles jurisdictions should follow in the process are
transparency, objectivity, analytical rigour and achieving a balance of
input from relevant and interested parties. These principles are also
reflected in the NCC's expectations.
Transparency should be the overarching concept. It goes to the heart
of concerns about implementing competition policy. It is equally important
to business, unions and community organisations.
Transparency means that the processes need to be laid down in advance
and publicised. The statements required by the Competition Principles
Agreement or the annual reports prepared by jurisdictions on their progress
may be a good place to set out the general approach. Some States, for
example Queensland, Tasmania, Western Australia and Victoria, have adopted
an approach of this nature by way of detailed supporting documentation/guidelines.
The Committee believes all jurisdictions should do this.
Parties first need to work out what the process is to be. They will
need to decide, for example, whether to have different procedures for
different types of decisions and for minor and major matters. This is
the route followed by several jurisdictions including Victoria, Queensland
Decision makers will also need to consider if coordination is necessary
with other jurisdictions or whether a national review is called for depending
on cross jurisdictional or national dimension or effect.
The process should ensure that interested persons have the opportunity
of knowing that a 'public interest' assessment is being proposed in relation
to a matter and of submitting their views. Maintaining a register of groups
known to have an interest in particular matters and making sure those
groups are informed is one suggestion, though this should not be the only
method. Newspaper advertisement is another. The nature of the inquiry
could be expected to have a bearing on the route chosen.
A decision also has to be made on who is to undertake the assessment.
The Hilmer report advocated independent reviews for legislation but this
was not included in the Competition Principles Agreement. Given the diversity
of matters that are likely to involve the 'public interest test', it is
not possible to put forward one model that will fit all. A major independent
review might be quite the thing for one matter of high priority and impact,
but quite unnecessary in another. Whatever the particular model chosen,
and this includes the choice of persons or bodies who are to make decisions,
assessments or recommendations, there must be confidence as to the integrity
and objectivity of the process.
Concerns were also raised about not duplicating studies that have already
been undertaken by reputable third parties. Most states have woven the
processes around existing legislative reviews.
Input from the public and government will be facilitated by clear terms
of reference which identify the factors, whether in the list of factors
set out in subclause 1(3) or otherwise, that the decision maker believes
is relevant. This would not prevent the public and others from pressing
other factors thought to be relevant.
There needs to be adequate opportunity for interested persons to input
their views to the inquiry or review, and the process should be such that
people can be confident that their submitted views will be given due consideration
and taken into account. In other words, the consultation process must
be, and be seen to be, bona fide.
Once a decision is made, the result must be made publicly known.
There is then the question of a possible review or reconsideration of
a decision made in relation to the application of the 'public interest
The actual decision itself is more than likely to be made by government
itself, acting on advice or recommendations as to the public interest
issues. In such cases, any review or reconsiderations would seem to be
more appropriate at the earlier stage.
Also, some matters might be quite minor, and this could influence whether
a review is necessary and if so, what form it should take.
But, however the whole process is structured, as a general principle,
there should always be provision for a review/reconsideration of the outcome
of the 'public interest test' examination where that examination was carried
out by a person or body with a close involvement with the activity in
question, and that review/reconsideration should be conducted by a person
or body with no such involvement and who is independent of the primary
It is not suggested that this needs to be someone outside the government,
for example, one suggestion is that this could be the agency responsible
for coordinating the government's national competition policy implementation.
Implicit in a review/reconsideration is:
- the initial decision and the reasons for it need to be publicly available;
- interested people need to be given a reasonable opportunity to put
their views to the reviewing body; and
- bona fide consideration of the issues by the reviewing body.
Decisions in relation to matters which are subject to the application
of the 'public interest test' do not necessarily have final and irrevocable
outcomes. There should therefore be a commitment by the parties to revisit
a matter should the position change or the anticipated benefits not eventuate.
In any reconsideration of the public interest issues, similar processes
to those that were applied to the initial consideration should be followed.
The Committee has alluded to the apparent lack of coordination by the
parties in the preparation of the legislation review statements. The same
comment can be made about the processes that apply generally to the application
of the 'public interest test'. Some consistency of approach through all
jurisdictions would obviously be of benefit to those who have to deal
with similar issues in more than one part of Australia. This does not
mean that everything need be exactly the same, but at least all the issues
set out below should be common, and to achieve this will require more
coordination than has been evident to date.
Accordingly the Committee recommended the following as necessary components
of the 'public interest' process:
a) Responsibility for commissioning reviews (ie terms of
reference, nature of the review and reviewers) should be taken at Ministerial
b) The nature of the review should be determined taking into account
the significance, importance, diversity and sensitivity of the issue
to be considered;
c) Clear terms of reference should be developed for the review
including identification of the factors, whether in the list of factors
set out in subclause 1(3) or otherwise, that the decision maker believes
is relevant. Terms of reference should be agreed by the relevant Minister;
d) The process and its timing should be as transparent as possible;
e) A plan of the review should be developed including details of
the nature of the review to be used, resources and funding, and specify
key dates (start, end, advertisement, call for submissions, closing
date for submissions, reporting);
f) Consideration should be given to variations of the process for
example joint review, national review, etc;
g) Methodology used for weighing up the benefits and costs should
take account of both quantitative and qualitative data;
h) The review should consider the overall, wider consequences and
impacts of the decision;
i) Level of consultation may vary with the significance, diversity
and sensitivity of the review. Consultation should involve key stakeholder
j) Where possible reviewers should be independent of the existing
arrangements with more significant, more major and more sensitive reviews
demanding greater independence;
k) Where reviews are undertaken by persons closely involved in
the activity in question, there should be provision for a review or
reconsideration of the initial conclusion by some person or body independent
of the relevant activity;
l) Results of reviews and relevant key stages in the review process
shall be publicly available;
m) Where a matter is reconsidered at a later date, similar processes
to those that applied to the initial consideration should be followed;
n) The Parties should coordinate their efforts to achieve a common
set of basic principles to apply the 'public interest test' as outlined
in (a) to ( m) above.
The Committee also recommended all jurisdictions should publish guidelines
encompassing the application of the 'public interest test'.
While some may be critical of some jurisdictions' performance on some
matters, overall, the Committee was impressed by the amount of effort
parties have put into meeting their obligations under the Competition
Principles Agreement. The Committee also noted that much progress has
been made, even though much, of course, remains to be done.
In its report the Committee also addressed: a specific example of the
general public interest matters - the impact of the policy on the efficient
delivery and funding of community service obligations; the implications
of competition policy for the efficient delivery of services by local
government; assessed the performance of the NCC; the arrangements for
the Competition Payments; the need for effective public education and
consultation; and gave the Committee's overall assessment on how the policy
is progressing. For those interested in those wider issues I encourage
you to contact the Committee's Secretariat for a copy of the Committee's
Again I stress the importance of the public education process. The community
needs to know what the reforms are, and what the expected outcomes are
likely to be. Without this, support and understanding of the process will
not develop and the momentum for the policy may be lost. Public education
must begin early while the areas for reform are being assessed and introduced.
The community needs to be involved with competition reform as it evolves.
In June the Committee also tabled a report reviewing the Australian
Competition and Consumer Commission's 1995-96 annual report in which the
Committee sought greater transparency in the ACCC's authorisation and
undertakings processes. Later this year the Committee will review the
ACCC's 1996-97 annual report. I encourage those who have concerns with
any matters with the ACCC to contact the Committee about those concerns.
Back to top