Competition and economic dynamism underpin everything we do in our daily life – whether it is shopping at the local supermarket; using our credit card to make a payment; using an app on our mobile phones to buy an airline ticket or obtain the latest news; and much more.

Some of the most important decisions we make in life, such as taking on a mortgage to buy a home, are (unknowingly) also heavily influenced by the level of competition and dynamism in the economy.

Competition and economic dynamism should be considered complementary parts of the economic ecosystem.

Competition puts downward pressure on prices as firms battle each other for our business. Competition also leads to better service – the more companies in any one sector, the harder businesses must work to retain customers and secure greater market share.

Economic dynamism includes such factors as the rate of new business formation, the efficient allocation of capital and labour, well-designed regulation and the development of new factors of production, including skills.

Competition improves economic dynamism because the entry and exit of firms and the growth of the most productive firms are key drivers in the efficient allocation of resources.

Economic dynamism drives competition by enabling the entry of new firms that can challenge incumbents. Over time, economic dynamism in conjunction with competition drive innovation and long-term productivity growth as individuals and firms strive to invent and commercialise new products and to create new markets.

Australia has one of the highest standards of living in the world. This was built on the back of decades of high productivity growth.

However, over the past 10 years, the rate of productivity growth has stalled. Moreover, since the completion of the Harper Review in 2015 and the Hilmer Review before that, the data shows declining competition and dynamism as measured by the high market share of leading firms, the margins that firms are charging in key sectors, and a declining rate of firm entry and exit in some sectors.

If we don’t improve the level of competition and dynamism within our economy, today’s consumers will get a raw deal, while future generations will be far poorer than they might have been. This is a key challenge for policy makers and this report puts forward practical steps that will help turn things around.

Australia needs to lift its game when it comes to both competition and economic dynamism. In the short-term, this will put downward pressure on prices, thereby improving the cost of living. It will also place a check on poor corporate behaviour towards consumers. If we don’t tackle this challenge, future generations will be left poorer. The potential upside is massive: higher growth rates, higher incomes and better outcomes for consumers.

First, we need to get the economy-wide regulatory settings right. We need to continue to improve the design and scope of regulation. This includes reforming mergers law and restricting the use of inefficient and unfair restraints such as non-compete clauses.

Government now plays a major role in the economy, providing health care, education, social welfare, infrastructure, defence and more. Improving the effectiveness of government services is critical to long-run productivity growth. Where these are provided through markets or quasi markets administered by governments (such as labour market programs, the NDIS, skills development, and aged care), modern economy theory and its applications demonstrate that success requires a bespoke approach. Market design and market stewardship are key.

Government also spends tens of billions of dollars procuring services. The efficiency and effectiveness of this procurement needs to be improved, by including social enterprises and SMEs and through better designed auctions and panels.

This report also examines the performance of key sectors of the economy.

The financial services sector is one of the largest in terms of value add. The need for a regulatory grid was raised repeatedly in submissions and during our public hearings. The Committee welcomes the government’s announcement that it will explore such a grid.

Other important issues include the need for a regulatory sandbox to facilitate and test sensible and timely first steps in areas of rapid product innovation where consumer harm is a risk, and well designed and proportionate licensing arrangements in areas such as the payments system.

As Paul Keating said, the banking system can be likened to the arteries of the economy. Some areas warrant regulatory tightening - such as variable interest rates charged to residential mortgage holders, particularly those who are not financially savvy; and the interest rates charged on deposits, particularly where complex bonus or introductory rates are offered.

This report sets out options for introducing behavioural prods to ensure more efficient and fair outcomes for consumers. It also suggests additional products for consumers such as tracker mortgages and ways for smaller institutional players to have access to more cost-effective funding.

The aviation sector is characterised by two large operators with a very high combined market share. To some degree this reflects capital requirements and network externalities. However, there is scope for more entrants, particularly on regional routes. Ensuring greater competition will require a combination of approaches, including potentially reallocating scarce landing slots and greater consumer protection.

The retail sector has also been the subject of considerable public debate. The Committee received evidence in relation to the high market share of the key players in the supermarket sector; profit margins; and the power imbalance in the relationship between the major supermarkets and farm-gate producers. Many agricultural suppliers are at risk of that power imbalance being used to negotiate outcomes that affect profitability and, therefore, the capacity and willingness to invest. Encouraging greater competition will involve changes to planning laws and approvals; strengthening merger laws; and improved oversight of negotiations between supermarkets and primary producers.

In other retail sectors, such as beer production, the evidence suggests that producers reap considerably higher margins than retailers do. The ACCC should continue to monitor this sector.

It is pleasing that a number of issues raised in submissions and our public hearings have already been actioned. This includes progress on the review of mergers law; the regulation and measurement of non-compete clauses; the regulation of landing slots at Sydney Airport; and the consideration of a regulatory grid for the financial services sector.

This report follows seminal reports by Hilmer and Harper over recent decades. It did not aim to replicate their breadth but, rather, to explore areas where opportunities for reform have arisen since they were published. We focused on areas of legal and regulatory reform that could be particularly impactful and sectors where the greatest technological or structural change is occurring.

Australia is at a crossroads. We are emerging from a decade of low productivity growth. The need for competition and economic dynamism is great. And as this report points out, there are many opportunities - at an economy-wide level and at a sectoral level - for meaningful reform that not only produces immediate benefits for consumers but that will also deliver higher standards of living for future generations.

Dr Daniel Mulino MP