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Politics, post and performance: speech to the major mail users of Australia



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NOT FOR BROADCAST OR PUBLICATION BEFORE

12.30 Ptn 29 AUGUST 199j

POLITICS, POST AND PERFORMANCE

SPEECH BY THE HON BOB BROWN MP

MINISTER FOR LAND TRANSPORT

TO

THE MAJOR MAIL USERS OF AUSTRALIA

SYDNEY - THURSDAY 29 AUGUST 1991

MELBOURNE - FRIDAY 30 AUGUST 1991

COMMONWEALTH PARLIAMENTARY LIBRARY MiCAH

Ladies and Gentlemen, thank you for the invitation to address your gathering here today. I have met with the Executive of your organisation on a number of occasions, and it is a pleasure to also have this opportunity of meeting with the members.

I recognise the important role the Major Mail Users of Australia plays in representing the views of its members to both Government and to Australia Post. This honest and forthright approach is especially important when you

realise that your members provide a substantial proportion of the income generated by Australia Post.

The topic of my talk today is "Politics, Post and Performance". Politics, of course, is my life and I find it intensely interesting and challenging. However, I realise that I might bore you a little if I talked too much

about politics. However, you will be pleased to hear that we have taken a lot of the politics out of Post in Australia.

The other aspect of my talk, and the one that I am sure you

will want to hear about, is performance.

There is, of course, a link between the two.

Over the years the MMUA, on behalf of its members, has been interested in improved performance by Australia Post. So has the Government - both in terms of service to customers

and financial performance.

Years ago, the performance of the postal system was not good. But it is a very different story now.

These days, Australia Post is a commercially oriented, customer-driven enterprise that is achieving good results both in terms of financial performance and the return to

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the shareholder and in terms of providing service to its

customers.

There is a new focus - a new approach to running the business - that is quite apparent to me as the Minister responsible for Australia Post. The Board has adopted a hard-headed commercial attitude to the business - one that

is clearly focussed on the achievement of bottom-line results as well as identifying the needs of its customers and meeting those needs.

However, it has also shown that it accepts that the enterprise has a major role in the commercial and social life of this country. Australia Post doesn't need an act of Parliament to remind it that it serves all Australians.

It has a special role in ensuring that those citizens living in the more remote areas are provided with reasonable access to mail services at a reasonable price. These are considerations that go beyond the purely

commercial approach.

Two measures of performance that you would all recognise are profitability and the rate of return on assets

employed. Recent results, and the 1990/91 result in particular which I will talk about later, demonstrate that Australia Post is now approaching what the Government would regard as a full commercial return. At the same time as

these improved financial results are being achieved, Australia Post is now properly also liable to pay

Commonwealth, State and Territory taxes and charges as well as being subject to State and Territory laws. In short, we levelled the playing field and Post has demonstrated that it can play fair and win.

Of course, the other measure of performance, service, is

one that you are in the best position to judge. Certainly, Australia Post's performance monitoring system has been

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showing that there has been a marked improvement in recent

years. I also expect that major users, such as yourselves, would be noticing the benefits of a more commercial attitude on the part of the people you deal with in Australia Post.

What brought on these changes? Certainly I must pay tribute to the current and recent leadership of Australia

Post. The previous and current Chairmen - Bob Lansdown and now Maurice Williams - and the current Managing Director, Rae Taylor, have provided the drive and energy that has really turned Australia Post around. But, and with all modesty, I must say that the process began with the Hawke Government's commitment to micro-economic reform and to reform of the Commonwealth's Business Enterprises.

Important features of GBE reform have been the development of a new type of relationship between the enterprise on the one hand and the Government on the other, and a clear commitment to GBEs operating on a commercial basis.

Day-to-day controls were removed. Enterprise boards and management were given autonomy - within broad guidelines - over the conduct of their operations.

Through these measures, the Government fundamentally redefined its role in relation to the enterprises to more closely resemble the arms length link between a major shareholder and the management of an enterprise.

New responsibility and accountability requirements for the enterprises have been introduced. The Government as

shareholder now requires its enterprises to prepare 3 year

strategic plans with agreed financial targets. The performance of the enterprises against these targets is

then monitored. The Boards are held squarely accountable for the enterprises' performance.

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The Government's role is similar to that of a major institutional long term investor. The Government, on behalf of all Australians, has a duty to concern itself with the outlook of the enterprise and ensure that

appropriate reporting and accounting mechanisms are in place to assess the risks and return of the enterprise.

It is worth mentioning a couple of decisions in the GBE reform process specific to Australia Post. Firstly giving

Post a commercial charter was a significant change from existing arrangements where it had been only required to break even on its operations. This brought on a dramatic change in the culture of the enterprise.

Secondly, the Government continued Australia Post's monopoly over the standard letter and the requirement for it to provide a reasonably accessible postal service at a uniform price to all Australians.

This second aspect concerns the way in which we have chosen to recognise, identify and cost community service obligations. For too long, Governments had swept under the

carpet the true costs to the nation of the cross-subsidies operated by Telecom and Australia Post.

Our approach now is to specifically give Australia Post an obligation to provide CSOs, to ensure that the cost of providing these services is transparent and that they are provided as efficiently as they can be. In that way, the

Government exercises control over the provision of such services.

Australia Post is currently in the process of carrying out

a detailed analysis of the costs of meeting its CSOs based on the avoidable cost method. Once this is completed, the Government and the community will know the true cost of providing such services.

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The success of these reforms is reflected in the continuing improved performance of Australia Post. Despite the economic downturn, I understand Post has turned in a profit

exceeding its projected profit of $120 million - a result which is approaching providing the Government with an appropriate commercial return on its investment.

An important point about this performance is that it is being achieved through efficiency

improvements and not just price increases. Had the basic postal charge moved in line with the CPI since 1975, the rate in January 1992 would have been around 70 cents not 45 cents as will be the case. This represents a real price reduction of over 35 per cent.

The Government endorses the Board's approach of real price reductions in the standard postal rate while not undermining the quality of service.

As you are all no doubt aware, the Prices Surveillance Authority recently released its report on Australia Post prices which endorsed the proposed price increases on the standard letter from 1 January 1992.

The PSA also made a number of other recommendations in which you are no doubt interested. The Government is still

considering its formal response to the PSA report but I

think it is worth making a number of observations.

The PSA carries out an important arm of Government policy. In relation to Post, it is critical to have an independent arbiter advising the Government on the prices of monopoly services.

I am fully supportive of the PSA's objectives in keeping

prices down and achieving continuing productivity

improvements. However, the report raises the question of

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what is the proper role of the PSA vis-a-vis the Board of the enterprise.

Adoption of some of the proposals in the report would likely result in a significant dilution in the authority of the Board to conduct the operations of the Corporation.

This would be contrary to one of the fundamental principles of GBE reform which is to make the Boards responsible and accountable for the operations of their corporations. As such, this report has wider implications for GBEs in general and the Government is considering these matters carefully.

Specifically, the proposal to extend the PSA’s authority to advise on prices for small parcels, private boxes, large letters and parcels, and priority paid service would erode Post's ability to respond commercially. These services are

generally not reserved to Australia Post but are available from competitors. The PSA having a role in these areas of Post's operations, but not its competitors, would seem to

me to be questionable.

I recognise that the MMUA has some concerns about recent price increases in some of the non-monopoly services. All I can say there is that many of these services have been loss making and Post is moving to put them on a commercial

footing. It is only proper that some customers not be subsidised by others. Nevertheless, I understand Post's

prices in many areas are still very competitive.

The PSA also proposed a price freeze for 2 years on the

standard letter and Post adopting a CPI-X approach to pricing.

Australia Post already has a policy of price increases for

the standard letter set below the level of inflation. The

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Chairman has recently indicated to me that the Board is closely considering the practicality of implementing a CPI-X approach. I consider this approach has merit as it would provide a clear message of Post's pricing policy and maintain pressure to achieve and pass on productivity

benefits to Post's customers.

In relation to the proposed price freeze, I am sure everyone wants prices kept down. The Board certainly has this view and has indicated it presently expects no further increases in the standard letter rate until at least mid

1993. However, the Board is responsible for running the Corporation and has to be in a position to respond to changing circumstances. Therefore, I encourage the Board to take note of the PSA's views, but, if the Board considers an increase is necessary before 2 years, I would

expect the PSA to consider such a request on its merits.

Before moving away from the PSA report, it is worth making a few points about registered publications. The PSA has consistently in recent years, and again in this report, encouraged Post to eliminate the loss on this service.

Historically, this service has been subsidised but there are no sound reasons for this to continue. In fact, continuation of the subsidy could be seen as anti­ competitive as well as inconsistent with Post's commercial

charter. .

I currently have before me proposals from the Board of Post to address this issue and I would expect Post to be in a position to make an announcement shortly.

I believe that, while there was a great deal of emphasis in the GBE reform package on financial performance, the other

side of performance - service performance - has also been markedly enhanced by these reforms. The evidence available

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to me is that Australia Post has made great strides over recent years.

One very important initiative that has come from the Board, and which has my full support, is the establishment of the Postal Services Consultative Council.

This group met for the first time only last week, and will provide a forum to improve communications and understanding between Australia Post and its customers on all aspects of letter services.

I believe the Council has a broad representation of users including members of the MMUA. The importance the Australia Post Board places on this Council is evident by the fact that it is being chaired by Mr Rod Cameron, the

Deputy Chairman of the Australian Postal Corporation.

I am advised that the first meeting was very successful and I look forward to the Council making an effective contribution to Post’s operations.

Another reform that is of particular interest to major users such as yourselves is the reporting of service performance. I well recall speaking with your Executive when the point was made that you are really after certainty of delivery within a specified time. The replacement of the delivery timetables with a single uniform mail closure

time recognises that the present timetables are complicated and poorly understood by customers. Under the new schedule, letters posted by 6PM in metropolitan and major provincial areas will be delivered within a specified

number of business days.

I might add that delivery in most cases will be one day faster than equivalent services offered in other countries

of similar size, such as the United States and Canada.

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At the same time Australia Post intends commissioning an independent organisation to test and report publicly on the delivery performance of its Letter Post service. This is an important reform and one that I am sure will be welcomed by those businesses that need a reliable letter service for their livelihood.

Commencing in late 1990 Australia Post began introducing Optical Character Readers (OCR) for high-speed sorting of standard letters. In early 1991 another new type of machine, a Flats Sorting Machine (FSM), was introduced for

sorting large letters and other flat postal articles.

A total of 36 OCRs and 16 FSMs will be installed in 23 sorting offices throughout Australia between August 1990 and July 1993 at a cost of $40 million at 1988 prices.

I understand that the introduction of the new equipment is regarded by industrial relations practitioners as one of the best, if not the best, example of how to consult with staff on the introduction of new equipment in this country.

I mention this as an example of good industrial practices operating in Post and the obvious benefits they deliver.

I believe that both management and the unions deserve recognition for this achievement.

Before concluding, I wish to comment on the forthcoming Industry Commission inquiry. The Industry Commission is to

look at the efficiency of the mail, courier and parcel industry as a whole - both public and private - and report in about 12 months.

It is timely for the Government to be looking at the operation of the postal industry. The last examination was

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in 1981/82 (the Bradley Committee) and that review was largely restricted to the question of the postal monopoly.

The Industry Commission will have a wider focus as it will be looking at the operation of the entire industry and will be recommending measures to improve the efficiency of the carriage of not only ordinary postal items, but all types of articles currently carried by Australia Post and its

many competitors. This industry has grown rapidly over the past few years and it is only right and proper that we should now be having a close look at it.

The Industry Commission reference should be seen as part of the Government1s on-going commitment to micro-economic reform - we believe that we have got the postal enterprise on the right track and now believe it is time to look at

the broader industry.

I would encourage all participants in the industry, as well as users, to consider making a submission to the Inquiry.

In short, Ladies and Gentleman Australia Post has been transformed from an operationally driven bureaucracy into a

customer oriented business. Financial targets have been

exceeded, delivery performance greatly improved, price movements for standard articles restrained below the CPI, and initiatives launched to meet the changing needs of its

customers.

The Government can be proud that its policy initiatives have enabled these achievements to be made. In reality,

however, it is Australia Post - the Board, senior

management plus the thousands of people who actually move the mail - that deserve our congratulations and our encouragement. Australia Post has turned the corner.

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Many challenges and opportunities for improvement still lie ahead but I am confident Australia Post will respond to them positively.