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Wednesday, 13 November 2002
Page: 6268


Senator CHERRY (5:34 PM) —I am pleased that Senator Mackay and Senator Lundy are in the chamber today, because I am quite happy and quite proud to defend my party's social justice principles. It will be interesting to see where Senator Lundy and Senator Mackay line up when we have another social justice debate on the sole parent pension later this week. We will see what comes out of the little deal being negotiated between Mr Swan and Minister Vanstone at the moment over whether or not we defend the rights of sole parents. As Senator Bartlett pointed out, it was disappointing to watch the Labor Party vote for a billion dollar tax cut in capital gains tax for high-income earners, so I am not going to be lectured on social justice by people from the Labor opposition.

The important thing about the package that we have put together today is that we have taken the sound economic analysis of the ACCC, in terms of the rebalancing proposals they produced last year, which recognised that such proposals produce good, solid outcomes for consumers, and we have dealt with the problem area that that created. That problem was the issue of low-income, low-usage telecommunications consumers. We said to Telstra and to the government, `You've made some progress in dealing with the issue of low-income, low-usage consumers, but too many people fall outside the boundary of your concessions.' We told them that they had to fix that. They came back and they found $10 million of new money and, lo and behold, we now have extra concessions for 341,000 households. That is something which the Democrats can be very proud of. With the package we are talking about today, we have delivered the economic benefits identified by the ACCC in their report last year and incorporated them into the new price control proposals—plus, in terms of the package we are presenting today, we are delivering the social equity of dealing with the group that fell through the cracks, namely the low-income, low-usage households. I want to deal very briefly with some of the figures that Senator Conroy referred to earlier on.


Senator Bartlett —Senator Conroy has already gone.


Senator CHERRY —I am not surprised that he has gone. Senator Conroy is someone I usually have a great deal of respect for in the figures department. He is very good on figures. On the Senate Economics References Committee, he always knows his figures. However, on this particular occasion, his figures seem to have gone a bit haywire. Let us start from one particular point of view with the $170 million figure that he produced from the departmental paper. That was a first working paper based on a new model being developed by the department.

There are three fundamental problems with that $170 million, which I am disappointed that Senator Conroy did not identify in his usual analytical and thorough way. The first problem is that the first $40 million of that money was from the reduction of the X factor, the minus CPI factor, from 5.5 to 4.5. That is obviously going to have some impact, but the key thing is that mobile phones have been taken out of that package. Why have they been taken out? Because the ACCC identified that mobile phones are in a competitive market and the vast bulk of the price reductions that occurred under the previous price control regime were in the mobile phone situation. That is why the actual market has been developing those outcomes—because people shift between carriers all the time. That is what the ACCC has said, that is what the market is saying and that is what the telecommunications carriers are saying.

The second problem that comes through is the $80 million which allegedly was going to come from the increase in line rentals. Again, this fails to compare with the current situation. Under the current balancing, the subcaps, Telstra is allowed to balance line rental increases against call increases to come up with a CPI minus zero effect. That particular aspect of the current package is something which the Labor Party really has not considered adequately. Listening to Senator Conroy, I noted there was a great long list of increases in line rentals that Telstra has been able to achieve under the current price control regime—the one that he wants to reinstate if this one falls over. I find it extraordinary that the Labor Party can come in here and put up a whole list of reasons as to why we should be voting for a disallowance so we can return to the system creating the problems Senator Conroy was pointing to in the first place. So that particular part of the analysis also falls over.

The third problem with the analysis is that $50 million of that $170 million came from an assumption that mobile phone prices would rise in the absence of price caps. The reason why the price caps are being removed from mobile phones is that they are reducing by significantly less than inflation in terms of price costs, and have been over the longer term. It is worth noting that, over the last 11 years of price caps, Telstra has failed to increase the cap in eight of those 11 years. The price cap regime of CPI plus or minus X was introduced by a Labor government in 1989 and has worked quite well in terms of delivering reasonable price outcomes for all of that period.

I am pleased that Senator Conroy has now returned to the chamber. The fundamental problem with Senator Conroy's and Labor's figures is the treatment of this terrible thing which they seem to have forgotten about, called `inflation'. All of the price cap regimes, in terms of the price caps that have been in place since 1989, deal with a CPI plus or minus X factor, which I am sure that Senator Conroy would appreciate. But the Labor Party seem to have forgotten this in their analysis, because they only deal with the X. They have forgotten about the CPI component. They have forgotten about the fact that, when you are looking at the new price cap regime, you should compare it with the old price cap regime.

The old price cap regime allowed for a balancing of sorts between line rentals and call costs to come up with a subquota of CPI plus or minus zero. When you take that figure into account, the Labor Party's figures rapidly turn around. The Labor Party's figure of $100 million, which Telstra is supposedly gaining, comes from taking Telstra's call revenue of $4.9 billion a year—CPI minus 4.5 allegedly results in a loss of $84 million. Then you take their line cost revenue of $2.7 billion. CPI plus four per cent is $186 million; $186 million minus $85 million is $101 million. That is what the Labor Party is claiming is going to happen, but that is in nominal terms. The proper analysis—the analysis done by the ACCC, by the Productivity Commission, by every person, including the Labor Party itself when it was in government—deals with these issues in real terms, because it is a CPI plus or minus factor. You do that, and that $101 million profit for Telstra turns into a $113 million profit for the consumers. In fact, if you correct that further by taking out the figures that the Labor Party failed to take out in terms of the wholesale interconnect figures which are stuck into these ones, you come up with a $115 million gain for consumers.

You have to compare it with what is happening now: every increase in these line rentals—these ones Senator Conroy was complaining about—is able to be put into place under the current cap because call prices are being reduced in real terms. They are not being, and have not been, reduced in nominal terms, but they have been reduced in real terms. That is how the averaging of the price caps comes into play. It is disappointing on this particular occasion. The Labor Party have based their position on a misunderstanding of the application of inflation to the price capping regime and also a whole range of assumptions in terms of some modelling coming out of a very early, preliminary stage of some seminars within the department.


Senator Lundy —Before they got the politics right!


Senator CHERRY —Before they got the politics right! That is what we are talking about. It is all about politics. That is right. Let us forget about the economics of it! Let us forget about benefits for consumers! Let us not worry about a $115 million benefit to the consumers! It is all about the politics! That is absolutely right. Unfortunately, the politics failed for you, because you did not even win the Cunningham by-election. You can forget about the politics of this one now, because the politics did not work for you. You can go back and try to get some credibility with some decent economic reform and social justice credentials, at which point you might deliver a better outcome for your party into the future.

The measure that we have discussed and got an agreement with Telstra on today is for $10 million of new money to extend the package to a further group of low-income, low-usage Telstra consumers—approximately 340,000 low-income, health care card concession holders. This equity measure supplements Telstra's $150 million package, Access for Everyone, announced in April this year. That included the rebalancing of money, as Senator Mackay correctly pointed out, from those low-usage, high-income people, who were getting about 90 per cent of the previous B10 program, I think it was, towards genuine low-income, low-usage individuals, particularly pensioners, who of course will pick up an extra $3 a month in terms of their rebates.

The key elements of the package announced today in terms of eligibility are that the package will extend new concessions to low-income health care card holders who are eligible for up to 12 months—even though, of course, health care cards are only issued every six months. So they actually only have to validate their eligibility on an annual basis. The connection fee will be reduced for this group from $59 to $33, to be amortised over 12 months, which will help the cash-flow pressures on low-income earners forming new households. The line rental will be reduced by $2 from the standard package, with a local call cost of 24c. Line rental increases for this particular package for low-income earners will be fixed at CPI, so over time they will be doing a lot better than they are doing from day one. Other calls—STD, fixed to mobile and international calls—are tagged at no more than 15 per cent higher than home line complete rates. Of course, they must decrease by 4.5 per cent per annum in real terms. Telstra has also agreed to better publicise its bill assistance program to financially vulnerable consumers and to trial a service option to advise consumers on the packages best suited to their call demands.

The Democrats are satisfied that these pricing arrangements for Telstra will deliver a fairer deal for more low-income groups than current arrangements do. We are also satisfied that the repackaging proposal in terms of the price control mechanism will deliver a better deal for consumers overall than the current price control mechanism so criticised by Senator Conroy in his earlier speech. If the ALP were serious in their concern for low-income households then this is precisely the sort of thing that they should have been doing, but I have now listened to two speeches in this debate and am yet to hear what the Labor Party's alternative was going to be.


Senator Conroy —The existing price cap!


Senator CHERRY —That is the one you do not like, the one that you are criticising, which allows Telstra to offset all the reductions in mobile phone charges and actually use that to increase line rentals. It has comprehensively failed. Price controls are a complex area of public policy, which would be very clear to anybody listening to the ALP's contribution so far, and they are not amenable to simple analysis. But the key difficulty is that it is impossible to predict the effects of new price controls on each household. To do that requires knowledge of household income and call usage patterns, and that data is often not available. Moreover, phone call usage is not well correlated to income levels. The primary factors in call usage are of course social networks and the numbers in a household. In real terms, the new price control determination represents a net benefit to consumers of approximately $115 million a year. However, the benefits are not evenly distributed, and of course we acknowledge there will be winners and there will be losers.


Senator Conroy —Oh, there'll be losers!


Senator CHERRY —The `winners' are those who make a high number of calls, particularly STD, international and fixed to mobile people, those ATUG consumers.


Senator Bartlett —High-income earners, Senator Conroy, like those you helped out with the business tax!


Senator CHERRY —Can I have some order from Senator Bartlett! As local calls are currently delivered at about cost price, there is likely to be no significant reduction until the removal of the access deficit starts to kick in. There is a correlation between household income and total telecommunications expenditure. However, phone line usage is not at all well correlated with income. There is no evidence to suggest that high-income households are more or less likely to have higher fixed-line expenditure. The higher telecommunications spend in high-income households reflects a greater diversity of telecommunications products. Low-spend consumers tend to have smaller social networks—for example, they have no children—and consequently high-wealth suburbs have a higher proportion of low-spend lines than battling suburbs.


Senator Conroy —How embarrassing!


Senator Bartlett —It is embarrassing to help the high-income earners.


Senator CHERRY —Yes, it is terribly embarrassing to help the high-income earners. These are the figures that come out of the social expenditure. NATSEM has been through these figures, as I am sure you know, as have ACOSS and the other groups who have been working through the different categories. You have to look at the figures. The figures actually make sense when you start to work through them. The usage figures—the work that was done by the ACCC last year—appear to have escaped the notice of the ALP in this argument. In real terms, net gains for consumers will be around $115 million.

The ALP has relied on a nominal model that ignores the effects of inflation. Quite simply, the ALP model is naive in economic terms. It is very disappointing, Senator Conroy. The model essentially says that Telstra can put its prices up by the CPI, plus or minus whatever the basket requirements are, but no-one else is compensated for inflation. All Centrelink customers, for example, are compensated for CPI annually or biannually, depending on the program. Moreover, while award wage pay rates are not typically adjusted by reference to CPI, increases are designed to capture likely CPI movements— say over two to three years—through national wage cases et cetera. It is common to have clauses in certified agreements saying that, if the CPI has moved ahead of a predicted rate, the parties will revisit the rate specified in that agreement. That is, for most Australians the effects of price control are already expressed in real terms.

In terms of the local calls and the line rental nexus, in previous determinations local calls and line rentals were in a CPI minus zero basket. According to the ALP, this meant local calls were required to be reduced by the amount related to line rental increases. This is of course not correct. Just assume that line rentals and calls were 50 per cent each— and that is not too far off the mark. Then it is obvious that if CPI were, say, three per cent Telstra could increase line rental by six per cent and calls by zero per cent, and it would have met the target without a change in local calls. That is pretty much what has happened in recent years. That is another reason that the opposition's arguments in this debate have been somewhat off the mark.

In terms of fairness to low- and middle-income earners, the key equity elements in the previous price controls were the caps on two baskets—the bottom 10 per cent and the bottom 50 per cent of bills. These were notorious for providing benefits to holiday shacks and fax lines because of low usage. Analysis provided to Telstra suggested that 90 per cent of the B10 category were in the top 90th percentile of household income and 50 per cent of the B50 category were not in the bottom 50 per cent of income. As discussed above—


Senator Conroy —You should be the minister!


Senator CHERRY —This is actually the stuff that came out of the ACCC. This is defending the ACCC. Their report actually made sense to us.


Senator Mackay —And they're always right in the ACCC!


Senator CHERRY —They are not always right, but on this particular occasion they have done a better job of defending consumers than the ALP has. As discussed above, the effects of price caps are dependent on actual call usage and not on income. Households with relatively high use of STD, fixed to mobile and international calls will definitely be better off. Those with relatively high levels of local calls may not benefit to the same extent. This means that the onus will increasingly fall on customers to self-select the right package for their call usage patterns. We have sought in all of this to ensure that there are more options for customers to choose from, to ensure that they get the right package for their respective usage patterns.

The Democrats acknowledged that we needed to ensure that the Access for Everyone package was broadened out to include more low-income groups. That is why we have negotiated this additional package to pick up more groups who were not picked up by the previous package. I might add that the first package that came out of the price control packages for low-income groups was only three years ago. It was not actually a factor in the previous price control mechanisms introduced by the Labor government.


Senator Conroy —We had hopes for you.


Senator CHERRY —I had hopes for you too. You have disappointed me. In summary, looking at what we have been trying to work through with this debate, it is a very complicated debate involving a whole range of economic offsets and economic discussions. It has been a debate that has been very important in discussing the future competitive nature of telecommunications. I hate to admit that from time to time the minister is right, but the reduction of interconnect charges, which the rebalancing will allow, is a very important component of delivering more competitive telecommunications into the future. That is why the non-Telstra carriers are so keen on this package—because it will actually result in a reduction in interconnect charges which will allow them, over time, to be more competitive and keep more pressure on Telstra to keep their prices down. That is called the market; the market actually occasionally works.

It is deeply disturbing to me to see the once great Labor Party in opposition becoming less and less attached to economic reality, economic analysis and figures, social justice, the importance of competition and the importance of all the things which previous governments held to be important. The Democrats will be voting against this disallowance, but I should acknowledge that it is important that we have this debate. It is a good debate, and I commend Senator Conroy for initiating this debate because it is a good opportunity to analyse the price control mechanisms and to work out whether they are, in fact, in Australia's interests. We have concluded that they are. We acknowledge that there was a difficulty in terms of low-usage low-income households. We have sought to address that and I think we have succeeded.