Paul Davidson, Economics
Competition reforms enacted more than 20 years ago have provided significant improvements to Australia’s overall welfare.
The issue facing the 45th Parliament is whether there is sufficient appetite to pursue further reforms in light of the recent competition policy review.
In 2013, the Abbott Government appointed Professor
Ian Harper to review Australia’s competition policy. Professor Harper reported
in March 2015 and the Government responded in November 2015.
The Harper Review (Harper) was the first holistic
review of competition policy since the Review of National Competition Policy (NCP)
in 1992–3, conducted by Professor Fred Hilmer. Indeed, several recommendations
were identical to those put forward over two decades ago. Several of these
reforms are the responsibility of the states and territories. In particular,
recommendations related to reviewing planning and zoning laws, regulations
affecting the taxi industry, and the regulation of retail trading hours.
Benefits of competition policy reform
In 1995, the Productivity Commission (PC) modelled
the ‘outer envelope’ of potential gains of the Hilmer competition policy
recommendations. It was found that real GDP would be 5.5 per cent
higher once the productivity gains, service price rebalancing and other
associated changes had fully worked their way through the economy.
In 1999, in modelling a subset of the NCP reforms
of relevance to rural and regional Australia, the PC found that real GDP would
potentially increase by around 2.5 per cent.
In 2005, in assessing some of the actual gains from
the NCP reforms, PC modelling of productivity and price changes in large infrastructure
sectors attributed to the NCP reforms (while only forming one part) indicated
that real GDP had increased by 2.5 per cent, worth $20 billion in
Some of the central recommendations of Harper are
set out below. See also: Australian Government response to the competition
policy review recommendations: a quick guide published by the Parliamentary
Improving institutional arrangements
Harper recommends the establishment of two bodies;
the Australian Council for Competition Policy (ACCP) and a national Access and
Pricing Regulator. The functions of the ACCP would include undertaking ‘market
studies’; that is, to examine areas of the economy where competition issues may
arise and provide recommendations to government. The other would take on the
current functions of the ACCC and in effect be incorporated into an expanded
role for the National Competition Council. The final roles and functions of
both bodies would be discussed with the states and territories.
Introducing an ‘effects test’
At present, the misuse of market power provisions
of the Competition and Consumer Act 2010 provides that it is the purpose
of a corporation in engaging in proscribed conduct that (in part) determines
whether the provision has been breached. Harper recommends that the test to be
changed to ‘purpose, effect, or likely effect’. Essentially, the change will
enable the court to look at the outcome (including the likely outcome) of the
conduct, rather than merely its purpose or intent.
The recommendation is not universally supported—the
PC says that it may lead to regulatory risks, and the Business Council of
Australia and others say that it would amount to regulatory overreach and
‘chill’ pro‑competitive conduct. Even former chairs of the ACCC, Alan
Fels and Graeme Samuel—in articles published the Australian Financial Review
in early September 2015—do not agree on the possible consequences of
introducing an effects test.
Competition in human services
Harper recommended that there should be a diversity of
competing providers of human services to stimulate innovation in service
provision and to give consumers choice. The recommendation foreshadows a new
focus for governments being one of overseeing the impact of policies on users
(‘stewardship’) rather than on service delivery. Harper cautioned governments
that where they are involved in commissioning services, it should be done with
a clear focus on outcomes.
The welfare gains from implementing competition
policy reforms into human services are potentially significant—previous
estimates by the PC suggested that improved productivity of health service
delivery alone could implicitly boost household consumption by $40 per person
in 2005–06 dollars.
Future competition policy
Harper recommends measures aimed at ensuring that
competition policy remains of central relevance to governments. It recommends
that governments commit to transparent competition principles, including:
- all government regulation that binds public or private sectors
should not restrict competition.
- consumer choice in the funding, procuring or providing of government
services should be promoted.
- government procurement should separate the roles of policy
(including funding), regulation and service provision, while also encouraging a
range of providers.
When applying the competition principles, all
governments should subject regulation to a public interest test to ensure that
governments do not restrict competition unless it is in the overall community’s
interest to do so, and that there are no other means by which the policy can be
I Harper, P Anderson, S McCluskey, M O’Bryan, The Australian Government competition policy review: final report, Treasury, Canberra, March 2015.
Productivity Commission (PC), Review of national competition policy reforms
, Inquiry report no. 33, PC, Canberra, 2005.
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