Harper holds promise of greater competition

BRUCE BILLSON
MARCH 30, 2015
THE AUSTRALIAN
The Cricket World Cup shows how competition results in levels of performance formerly thought out of reach. Previously, 300 was a near-­certain winning score, and this year it has been the expected benchmark for most games — last night’s final aside.
This is no different from business. Competition raises the bar on commercial performance, encouraging business to be more productive, agile and responsive to meet challenges and opportunities as they arise. Implemented wisely, competition policy provides the vertebrae for a world- leading economy and improved standards of living.
The economic challenges we face as a nation are real. Trans­itioning from the mining construction boom, facing declining terms of trade and an ageing population as outlined in Joe Hockey’s Inter­generational Repor­t must be addressed.
We have a responsibility to face the challenges and ­opportun­ities head-on. The men and women of small business who I represent demand no less. I am optimistic we can do this with a sense of excitement for the possibilities ahead.
Historically, reviews of competition policy have contributed to the growth in living standards across the population. With this in mind, the Coalition’s election com­mitments included commissioning an independent review of competition policy. Upon our election to government, this is ­exactly what we have done, activ­ating an independent, objective and evidence-based review led by Ian Harper and supported by an eminent panel.
During the 1980s and 90s, we experienced the benefits of reform through the lowering of import tariffs, deregulating markets for foreign exchange, admitting foreign banks and opening services such as electricity, telecommunic­ations and rail freight to compe­t­ition — services mainly supplied locally by public monopolies or government departments.
In 1993, the federal, state and territory governments came together and agreed to the landmark Hilmer review, knowing competitive markets would achieve a more efficient allo­cation of resources within the economy and long-term benefits for consumers. The National Competition Policy reforms were built on the foundations of Hilmer. These reforms delivered substantial bene­fits to both low- and high-income­ earners, and to country as well as city Australia.
It underpinned a surge in Australia’s rate of productivity growth in the 90s, effectively boosting the “average” Australian household’s annual income by $7000.
The ­increase in Australia’s GDP and national income from NCP ref­orms also substantially boosted tax revenue, which increased the capacity of all governments to fund a range of services of benefit to the community, such as health and education, and to provide ­social-welfare support.
One of the main ways in which the NCP boosted total output was by reducing the costs and prices of many goods and services. Average electricity prices fell by 19 per cent and average telecommunication charges by more than 20 per cent.
Apart from putting downward pressure on the prices of many goods and services, the more ­competitive market environment crea­ted by reform contributed to improvements in service quality and reliability. For instance, the frequency of electricity supply outages across Australia has ­declined significantly since 1999.
Reforms also led to an expansion in the range of products and services available to consumers, such as in the energy and telecommunications sectors.
While Hilmer’s reforms drove productivity growth in the latter part of the 20th century, we cannot afford to rest on Hilmer’s laur­els. Our economic landscape has changed significantly in the intervening 20 years and Australia’s broader competition framework must be capable of upholding its role as a significant driver of prod­uctivity improvements.
The Harper review has been examining exactly how this can be achieved. With its final report due to me tomorrow, I look forward to considering its recommendations.
Hilmer’s NCP reforms show just how much competition policy reform can influence productivity and growth in Australia. While times are different, and the Har­per review is not expected to replicate Hilmer, just a 1 per cent increase in GDP would add about $19 billion to our economy.
It is too early to say where the Harper review will take us and exactly what it will mean in growth, incomes and dollar terms.
What is clear, as with this year’s World Cup, is the necessity to translate the Harper review into the new 300+ benchmark, recognising that other countries have learned from our successes in the past and lifted their economic game to new levels. The Harper review shows the magnitude of what is at play.
Let’s look at human services, which represent such a huge part of the economy that even small ­efficiency improvements in education and health can have mater­ial pay off. The Productivity Commission noted in 2005 that an efficiency improvement of 10 per cent in service delivery in the health sector would provide cost savings equivalent to about 1 per cent of GDP, as much as 2 per cent by 2050. Road transport and planning and zoning are other areas where the scope for productivity improvements is significant.
Beyond the quantitative benefits of competition reform, there are a number of less tangible, but nonetheless valuable, outcomes for Australians from increased competition. In a competitive market, businesses with stronger incentives to operate efficiently and compete on price and value generally serve the interests of consumers and families more ­effectively. A competitive market is a trigger to achieve performance levels formerly unthinkable, to the delight of consumers.
An enhanced competition framework better enables efficient businesses — big and small — to compete, thrive, flourish and estab­lish a footing for exporting. Fair and healthy competitive pressures also drive innovation and ­investment in new technologies, as well as the development of new products and services that offer better value and better meet consumer needs. Firms that have more competitors are more likely to be innovators. Business inno­v­ation, in turn, drives economic growth and improvements in living standards in the long term.
As we look toward a fluid, changing and more dynamic world, Australia’s economy will continue to be exposed to global influences. But we can be sure that enhancing the competitive proc­ess, particularly for the benefit of consumers and families, will ­become an increasingly challenging and important endeavour.
The Harper findings may be the very blueprint that guides our positioning for a prosperous and secure economic future. This work can renourish the great promise of our nation — that the next generation will have it better than our own.
The World Cup is an example of the continuous improvement that can be achieved from competition. And how, if we are to succeed against international com­-petitors to secure the economic and jobs growth within our reach, we need to win these benefits. They are not reserved for us.
I look forward to receiving the review and implementing an enduring framework that affords Australia a competitive edge well into the future.
Bruce Billson is the Minister for Small Business.