National Competition Policy

This week marks the 20th anniversary of the signing of the National Competition Policy agreements between the states, territories and the Commonwealth government, a landmark agreement for our nation. 

 

Australia then was a very different place. Almost all phone calls were made through one publicly owned telephone company, which just two years earlier had been called Telecom. Electricity was delivered by what were in effect large government departments. Prices were high, costs were inefficient and we were covered disproportionately, with high prices on businesses increasing the cost of doing business.

The National Competition Policy was controversial. Opposition to it formed a large part of Pauline Hanson's platform. It was also hugely beneficial to our country. It primarily benefited all Australians through a reduction in prices. Electricity and telecommunication prices fell by a fifth. Rail freight rates dropped by eight per cent for wheat and up to 42 per cent for coal, and port charges fell by 50 per cent. Milk prices dropped by five per cent and the reductions were the result of increased efficiency and productivity, not a marketing campaign by a large supermarket chain. Other prices did go up. Principally water prices rose by eight per cent but this followed decades of under-pricing for water and led to more responsible decisions on water use. Australian cities are some of the most water efficient in the world now, thanks in part to these changes that this delivered and this has delivered obvious benefits to our environment.

In effect, the changes allowed Australian businesses to do more with less. They allowed them to employ more people and unemployment fell to levels not seen since the 1970s. Productivity growth was the highest in 40 years and the average Australian was $7,000 better off thanks to this economic growth. The Productivity Commission estimated at the time that the changes increased Australia's GDP by 2½ per cent.

One of my first jobs as a professional economist was to work on the Productivity Commission's 2005 review of National Competition Policy. Most of the above figures come from that report. But unfortunately our record in the last 10 years has wiped away many of the hard-fought gains we had made. Since then, electricity prices have more than doubled. There has been a reregulation of our ports and coastal shipping laws leading to the absurd situation that it costs more to send sugar from North Queensland to Melbourne than it costs to send sugar from Brazil to Melbourne.

Nothing demonstrates a change in our political debate better than the debate on carbon tax, where 20 years ago Treasury and our central economic agencies would have extolled the benefits of lower electricity prices and their importance for the wider economy. During the carbon tax debate, they argued that higher electricity prices did not matter all that much because businesses could just pass them on. In 10 years I have gone from working at the Productivity Commission to becoming a Nationals Party senator for Queensland in this place. The people that I represent—small businesses and farmers in Queensland—cannot just pass it on. Many get paid based on a world price and no-one in New York or international markets is going to pay our cane growers more just because Australian governments routinely ignore their costs. We have gone from having an electricity market that is based on getting the cheapest electricity despatched first to one that gets the most expensive electricity, by definition, despatched first.

Twenty years ago when we signed the National Competition Policy agreements, we established a national electricity market. We established an auction process that every five minutes sets a price for electricity in this country. We set up that market because it would provide incentives to make sure that the cheapest electricity was bought first in that marketplace because that would benefit those purchasing electricity. Electricity was no longer sold in a Stalinist or planned way; it was sold on the basis of who could provide the cheapest electricity.

Today we have things like renewable energy targets, which, by definition, despatch the most expensive electricity first. The most expensive electricity is still renewable energy. Under the Renewable Energy Target, electricity providers must meet a mandated amount of their electricity production from those sources, from more expensive sources. That pushes up the price and the cost of production, which will ultimately flow through to businesses and households and make us less efficient, less productive, have a weaker investment climate and lead to fewer jobs.

I recognise as well that at the time the National Competition Policy came in, it was hard for the Nationals and people in rural and regional areas. Many of the adjustment costs fell on regional areas, but then those cheaper electricity and freight rates were of enormous benefit to rural industries as well. What frustrates me now as a member and proud senator of the Nationals Party is that while the man in the Akubra hat is told that he must be more efficient and he does not deserve subsidies, the man in the hard hat benefits from union controlled building sites that pay productivity allowances that do not promote productivity outcomes. Country people are told they must pay cost reflective prices for services, while a worker in a city can hop on a bus or train and pay a fare that often is lucky to recover a third of the running costs of a public transport network. At the core of national competition policy was the application of competition and price oversight to the government businesses involved in the hard infrastructure sectors of energy, water and telecommunications. Ten years ago, in 2005, the Productivity Commission recommended that some of the NCP reforms should be adopted and that they should focus on applying the same principles to the so-called 'soft sectors' of health and education and training. That has happened to some degree. We have introduced casemix funding in our health sector, and we have reformed some aspects of our education sector. But to a large degree there has been no coordinated approach from all state and territory governments and nothing to replace the competition payments that encourage states and territories to comply with those agreements.

In effect, after 20 years of experience, we had 10 years of formal agreements, with financial incentives to comply. Then in the last 10 years we have had an uncoordinated and haphazard approach that has not delivered the same kinds of clear, national and consistent benefits. I would argue that it is now time to reconsider our approach to these areas of reform. I compliment the government for bringing forward a root and branch review of the Competition and Consumer Act that it has recently reported—the Harper review. It is considering those recommendations now.

But that was only one small component of the national competition policy reforms. At the time, those reforms did make changes to the then Trade Practices Act as a result of the Hilmer review, but they did not just stop there. They did help make sure that we provide services to the Australian people in the cheapest and most cost-effective way. They did ensure that our regulations were well suited to the objectives that they were seeking to fit and did not unnecessarily restrain competition and reduce benefits to Australian consumers.

I do think it is time that we rediscover that approach. We do need to rediscover a national, consistent and broad-based approach to reform, because clearly that approach delivered great benefits to our community. That approach worked in terms of providing effective incentives for governments to implement what were at the time difficult and tough reforms. And that approach delivered enormous gains for the Australian people. Those gains are still there. We could still make many gains in these areas for the Australian people, if we were just to return productivity growth to the level we have traditionally had—not the level we have had in the last 10 years, which has been quite stagnant—we would deliver in 10 years to the average Australian an income of $6,000 per year higher. That is if we were only to hit those historical productivity targets.

The only way we can hit those targets is not by just setting a target. Setting a target does not always work. I set a target to get below 95 kilos and I have never achieved that, but I keep setting the target year after year. What we need to do is to do things that actually meet the target. It takes hard work—like running around the lake, which I don't do enough of. In our case, it will take hard work to make these difficult decisions to look into our electricity sector, and look at whether we have got the right incentives in place for the cheapest electricity to be produced. It will take hard work to look into the efficiency of our ports, which have become more inefficient over the last few years, and to look into our telecommunications sector as well, to make sure that is acting as competitively as it should, particularly with the emergence of the National Broadband Network.

I think it is right and proper that the government is focusing its debate on jobs and growth; they are the most important things facing our nation. Growth has slowed since the GFC, and jobs growth has not been as strong as it has been in the past. Recently, jobs growth has started to pick up again, but we are only going to be sustainable if we focus on the small details first; that will lead to better outcomes. You do not go to a football game concentrating on the scoreboard; you go in concentrating on the little things have to do to get that result. That is what we need to have as an approach here too. We do not want to focus on the economic growth we need; we need to focus on how we are going to get that economic growth, what reforms we are going to put in place and how we are going to make for a more efficient and cost-effective economy.

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