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Prices Surveillance Act - Prices Surveillance Authority - Report - Year - 1984-85


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The Parliament of the Commonwealth of Australia

PRICES SURVEILLANCE AUTHORITY

Annual Report

1984-85

Presented 16 October 1985 Ordered to be printed 17 October 1985

Parliamentary Paper No. 308/1985

Prices

Surveillance Authority Annual Report 1984-1985

ANNUAL REPORT OF THE

PRICES SURVEILLANCE AUTHORITY

1984-1985

AUSTRALIAN GOVERNMENT PUBLISHING SERVICE

CANBERRA 1985

© Commonwealth of Australia 1985

ISSN 0814-2793

Printed by Vega Press Pty. Ltd. Melbourne, Victoria.

4 λ. A U S T R A L I A ,,^

Prices Surveillance Authority

POSTAL ADDRESS:

P .0 . BOX R .364,

ROYAL EXCHANGE,

SYDNEY, N .S .W .,2000.

FIRST FLOOR

EXPORT HOUSE

22 PITT STREET,

SYDNEY, N S W , 2000

Telex AA71605 Telephone (02)27 5677

Ref:

27 September 1985

The H o n . P.J. Keat i n g , M . P . , Treasurer, Parliament H o u s e , CANBERRA, A.C.T., 2600.

Dear Minister,

In accordance with section 44(1) of the Prices

Surveillance Act 1983, we forward the Annual Report of the Prices Surveillance Authority.

This report reviews the operations of the Authority from 1 July 1984 to 30 June 1985.

Yours sincerely,

A.H.M. EELS Member

M.N. LITTLE L.C. TOWNSEND

Member Member

H.A. ROLFE Chairman

iii

CONTENTS

PAGE N O .

1. INTRODUCTION 1

2. OPERATIONS OF THE AUTHORITY 6

3. GUIDELINES FOR PRICING RESTRAINT 15

4. ECONOMIC SITUATION 23

5. NOTIFIED GOODS AND SERVICES 36

. PETROLEUM PRODUCTS 36

. AUSTRALIAN TELECOMMUNICATIONS COMMISSION 45

. AUSTRALIAN POSTAL COMMISSION 46

. CONCRETE ROOFING TILES 48

. FLOAT GLASS 49

. TEA AND INSTANT COFFEE 49

. CIGARETTES 50

. BEERS 52

6. PUBLIC INQUIRY: FRUIT JUICES 54

7. ADMINISTRATION 58

APPENDIXES

A COMMONWEALTH OF AUSTRALIA GAZETTE NOTICES 62

[SECTION 23(2)(b)]

B INDEXES OF RETAIL PRICES: SELECTED CONSUMER GOODS - 63

MARCH 1984 - JUNE 1985

C PRESS STATEMENT BY THE TREASURER: 65

PRICES SURVEILLANCE AUTHORITY GUIDELINES FOR PRICING RESTRAINT

D PUBLICATIONS: 1984-85 67

E MINISTERIAL DIRECTION [SECTION 20]: 68

PRICING OF PETROLEUM PRODUCTS

V

PAGE NO

APPENDIXES

F MINISTERIAL DECLARATION [SECTION 21]: PETROLEUM PRODUCTS 69

G MINISTERIAL DIRECTION [SECTION 20]: UNLEADED PETROL 71

H MINISTERIAL APPROVAL [SECTION 18]: CERTAIN TELECOMMUNICATIONS SERVICE CHARGES 72

I MINISTERIAL DIRECTION [SECTION 20]: CHARGES THE AUSTRALIAN TELECOMMUNICATIONS COMMISSION BY 73

J MINISTERIAL APPROVAL [SECTION 18]: CERTAIN POSTAL SERVICE CHARGES 75

K MINISTERIAL DIRECTION [SECTION 20]: CHARGES BY THE AUSTRALIAN POSTAL COMMISSION 76

L MINISTERIAL DECLARATION [SECTION 21(1)]: CONCRETE ROOFING TILES 78

M MINISTERIAL DECLARATION [SECTION 21(1)]: FLOAT GLASS 79

N MINISTERIAL DECLARATION [SECTION 21(1)]: TEA 80

0 MINISTERIAL DECLARATION [SECTION 21(1)]: INSTANT COFFEE 81

P MINISTERIAL DECLARATION [SECTION 21(1)]: CIGARETTES 82

Q MINISTERIAL DECLARATION [SECTION 21(1)]: BEERS 83

R MINISTERIAL DIRECTION [SECTION 18]: FRUIT JUICES 84

S ORGANISATION CHART 85

T CLASSIFICATION OF STAFF POSITIONS AT 30 JUNE 1985 86

u EXPENDITURE 1984-85 88

vi

1 . INTRODUCTION

The Prices Surveillance Authority was established in March

1984 under the Prices Surveillance Act 1983 (the A c t ) . Its

functions include the consideration of notifications of

proposed price increases by declared enterprises in respect

of notified goods and services, and the holding of public

inquiries. An account of the background to the establishment

of the Authority was given in its first Annual R e p o r t , 1983­

84.

Section 44 of the Act requires that the Authority shall, as

soon as practicable after 30 June in each y e a r , prepare and

furnish to the Minister a report describing the operations,

and the results of the operations, of the Authority during

the year ended on that date. The first such report for 1983­

84 covered the initial three months of the Authority's

operations. This second report covers the period 1 July 1984

to 30 June 1985, the first full year's activity of the

Authority.

The Minister administering the Prices Surveillance Act 1983

is the Treasurer.

This report records the nature and extent of the activities

of the Authority in 1984-85. Two major activities reached

completion after the end of the reporting yea r , namely the

publication by the Authority of its "Guidelines for Pricing

Restraint" and publication of the first issue of the

quarterly "Price News". They too are reported herein,

because they are relevant to assessment of the results of the

Authority's operation in the year under review.

1

Whilst the report details activities in factual terms,

assessment of the results of the Authority's work is partly a

matter of qualitative judgment. It is clear that the

existence of the Authority is a factor in promoting price

restraint. With the selective approach to price surveillance

adopted by the Government and implemented by the Authority,

enterprises cannot be certain whether they will or will not

be declared under the Act (Chapter 2). Accordingly, they may

be expected to exercise some restraint in pricing in order to

avoid coming under the detailed scrutiny that is associated

with formal price surveillance.

Two separate consultative exercises, which preceded the

publication of the Authority's "Guidelines for Pricing

Restraint" (Chapter 3), were conducted in the year under

review. They ensured that a wide selection of businesses

became aware of the purpose of the Authority, of the

provisions of its enabling legislation, and of the need for

general restraint in pricing.

The guidelines, published in August 1985, offer a clear

framework in which restraint in pricing may be implemented by

enterprises in the public and private sectors. They are

sufficiently flexible to encompass the various market

conditions that prevail in Australia for commerce in goods

and services.

The Minister has stated (Appendix C) that it is intended by

the Government that the guidelines will be applied where

appropriate by Commonwealth authorities in pricing and price

regulatory decisions. Given the wide scope of the activities

of such Commonwealth authorities, the Authority considers

this should constitute a major impetus for restraint in

pricing.

2

Additionally, the Minister has stated that the Government

will be drawing the guidelines to the attention of the States

and the Northern Territory with a view to their also being

observed by major State authorities. Since many major

services are provided by State authorities, the pursuit of

pricing restraint w o u l d , in the Authority's v i e w , be greatly

strengthened thereby.

In the private business sector, the Authority anticipates

that the guidelines will be adopted on a voluntary basis.

The extent of their adoption will be monitored by the

Authority. It will also continue to scrutinise prices and

profits on a broad basis with the objective of identifying

activities and enterprises which might properly be

recommended for closer scrutiny through formal price

surveillance procedures.

Preparatory work for the production of the Authority's

quarterly "Price News" (Chapter 2) was undertaken in the year

under review. The first issue, relating to retail price

changes measured in the June 1985 quarter Consumer Price

Index, was published in August 1985.

"Price News" aims to analyse the causes of price changes,

particularly those relating to goods commonly purchased for

the h o m e , and to report them factually and reliably.

Information for the publication is obtained with the

assistance of manufacturers and retailers, and the Australian

Bureau of Statistics, and from the Authority's information

bases. The enterprise depends on co-operation, as has much

of the other work undertaken in 1984-85 by the Authority;

the extent of the co-operation that has been received in the

various tasks is a useful indication of the extent of

commitment in the community to restraint in pricing.

3

During 1984-85, no declared person charged prices for

notified goods higher than those which had been endorsed by

the Authority in accordance with the Act (Chapter 5) . That

the Authority had adopted stringent standards may be

concluded from public statements emanating from some

enterprises; that declared companies accepted the Authority

as a respected arbiter of price restraint may be inferred

from their compliance with the Authority's views. With only

rare exceptions, firms newly declared to be subject to formal

price surveillance during the year accepted their obligations

under the Act in a spirit of understanding of the need for

price restraint to be demonstrated, and freely offered

information resources to the Authority.

The Authority's short span of operation to date has not been

free of difficulty. Offices are located in Sydney and

Melbourne, so that they may be readily accessible to the

majority of client enterprises. However, the main career

opportunities for people employed (as is the Authority's

staff) under the terms of the Public Service Act 1922 lie in

Canberra. Additionally, there have been publicly recorded

commitments to the abolition of the Authority. The

recruitment of suitable staff in such circumstances has been

slow, and the Authority remains substantially below its full

staff complement. Compliance with various requirements of

public sector employers has taxed the limited staff resources

of the Authority further (Chapter 7). In the latter regard,

the Authority records its appreciation of the assistance

rendered by officers of the Minister's Department.

The Authority reported, in its first annual report, that a

consultative framework was being established with State and

Territory agencies concerned with consumer affairs.

4

For reasons implicit in the foregoing comments the

development of that framework by the Authority has made only

limited progress in 1984-85, and the Authority is concerned

to advance it during the current y e a r , especially with

respect to agencies in less-populous regions. Nevertheless,

it should be recorded in this report that all such agencies

consulted have gladly assisted the Authority in its work to

d a t e .

5

2. OPERATIONS OF THE A U T H O R I T Y

Industry/Product Investigations

The Authority may make recommendations to the Minister on

activities and enterprises which might be subjected to price

surveillance.

Within the framework of Government policy, enunciated by the

Treasurer in his Second Reading Speech on the Prices

Surveillance Bill 1983, that surveillance will be selective

and concentrate on areas lacking effective competitive

disciplines and where price or wage changes have pervasive

effects throughout the economy, the Authority conducted wide

ranging investigations involving 27 product groups and more

than 90 firms to 30 June 1985, to determine whether

surveillance should be recommended.

To foster a broadly based but selective surveillance program,

the Authority utilizes information obtained from a wide range

of public sources on products and firms, including market

shares, employment, ownership, imports, price movements,

marketing strategy, investment/product development, costs and

profit performances, and general evaluations of price

competition in particular markets. Discussions with State

and Commonwealth agencies concerned with consumer affairs and

the Trade Practices Commission (TPC), together with

submissions from members of the public and from organisations

are also of considerable benefit to the Authority.

In the course of the selection process, profit levels and

profit margins are monitored for a wide range of industries

and specific firms.

6

The Authority recognises that there can be no single

guideline as to what constitutes an appropriate level of

profit, as this will depend on the detailed market

circumstances in each c a s e . In general attention is focussed

on the role of prices to provide sufficient income to service

investment capital and maintain employment in a competitive

environment. The issue of discouraging persons who are abld

substantially to influence a market from taking advantage of

that power in setting prices is also relevant.

Where the criteria for declaration appear to be met, the

Authority arranges consultation with the TPC as requested by

the M i n i s t e r . Following this consultation the forwarding of

the product reference for declaration is reconsidered. If

the Authority decides to proceed, recommendations are

prepared and submitted to the Minister.

The Scope of Prices Surveillance

Goods and services, and persons supplying them, may be

declared by the Minister or by the Authority with his

consent, under section 21 of the Act. [Prices may also be

examined under the public inquiry provisions of the Act

(section 18)] .

Declared persons supplying notified goods or services are

required to give prior notice to the Authority of any price

increase proposed. The Authority considers such notices, and

may endorse the proposed increase, suggest lower prices, or

recommend to the Minister that a public inquiry be held. The

Authority makes public the outcome of its considerations. At

the beginning of the 1984-85 year declarations by the

Minister under section 21 embraced a wide range of petroleum

7

products; the transmission of standard postal articles and

registered publications by ordinary p o s t ; and certain

telephone and telegram services.

During the y e a r , following Authority recommendations, the

Minister made a number of declarations of goods and supplier

firms, thus extending to those firms the formal notification

procedures for price changes that are set out in the Act.

Goods newly declared during the year w e r e :-

. Beers

. Cigarettes

. Concrete Roofing Tiles

. Float Glass

. Packet Tea and Tea Bags

. Instant Coffee

In addition, subsequent to the issue of the Authority's final

report of 25 July 1984 on its inquiry into petroleum product

prices, the Minister amended the scope of surveillance over

petroleum products, confining notifiable petroleum products

to the major transport fuels (motor spirit, distillate,

aviation gasoline and aviation turbine fuel) and refinery

produced liquefied petroleum gas (LPG).

Comments on the products and services declared at 30 June

1985 are included in Chapter 5.

Under section 20 of the Act, the Minister may direct the

Authority to give special consideration to particular matters

in exercising its powers and performing its functions.

8

During the year four such directions were received by the

Authority. They are outlined in Chapter 5.

Price Notifications

Pursuant to section 22 of the Act the Authority received 233

notices of proposed price changes during the year. A

dissection according to product groupings is as follows:-

Petroleum Products 192

Postal Charges 1

Telecommunications Charges 1

Instant Coffee 7

Cigarettes 10

Concrete Roofing Tiles 4

Beers 18

Twenty-two notices were withdrawn, of which ten were

subsequently re-notified.

The number of petroleum products notices received was

affected by a Commonwealth Government decision that as from 1

January 1985 the import parity price of indigenous crude oil

would be reviewed every two months. Previously such reviews

were only made at 1 January and 1 July of each year.

Under section 23 of the Act, the outcome of the Authority's

consideration of notifications is recorded in the Authority's

public register and published in the Commonwealth of

Australia Gazette. Relevant Gazette references for 1984-85

are set out in Appendix A.

9

The Authority has, under the Act, 21 days to examine notices

for proposed increases, although this period may be extended

with the consent of the notifying person. Considerations of

price notices were in most instances concluded within the

prescribed 21 days, although extensions of time were required

for petroleum products (generally in cases involving State

reviews of country freight differentials and submissions on

domestic costs) and on two occasions for notices concerning

concrete roofing tiles.

Public Inquiries

Prices may be examined under the public inquiry provisions of

the Act. Such an examination may flow from a notification

under section 22, or otherwise, and is not restricted to

g o o d s , services or persons declared under section 21.

Inquiries may only be held at the direction of the Minister

or with his approval.

The public inquiry activities of the Authority during 1984-85

embraced the following matters:-

• issues related to petroleum products prices;

• charges by the Australian Telecommunications Commission

(Telecom) for certain telephone calls and rentals;

. charges by the Australian Postal Commission (Australia

Post) for postage of standard letters and registered

publications; and

• the supply of fruit juices by Sun Pak Fruit Juices Pty.

Ltd. and Life Savers (Australasia) L t d .

10

Comments on the issues and the outcomes of these inquiries

are contained in Chapters 5 and 6.

Price Monitoring

Price monitoring is an integral part of the activity of the

Authority and is undertaken in addition to the formal price

surveillance tasks conducted under the notification and

inquiry provisions of the Act.

An examination of retail price movements of food and other

items commonly purchased in supermarkets was commenced during

the year by the Authority. For this project, arrangements

have been made for the supply of detailed information on

price movements by the Australian Bureau of Statistics (ABS),

major supermarket chains, and a number of suppliers to those

chains. The Authority records its appreciation of their

assistance. In addition, the Authority monitors the prices

of a wide range of inputs used in the manufacture of food and

other household items. Comments on the price movements of

the items included in the study are made in a "Price News"

quarterly bulletin distributed to various employee and

employer groups. Publication of the first issue of the

bulletin occurred in August 1985. (Indexes of retail prices

for a selection of commonly used household items are shown in

Appendix B ) .

In monitoring retail prices, the Authority recognises that a

large volume of goods is sold outside supermarkets, in stores

where outright price competition may be tempered by

considerations such as convenience of location and trading

hours, the provision of customer service, and stock range.

Prices in such stores may well be considerably higher than

11

those of supermarket chains even though they may generally

change at similar intervals.

Shop rentals are a further influence on retail prices, and

preliminary investigations of the issues involved and their

relationship to prices were commenced by the Authority during

the year under review.

Shop rentals could be a matter of some importance in

situations where major supermarkets command substantial

rental concessions in shopping complexes. Specialist

satellite retailers usually experience a substantially lower

turnover than do supermarkets in such complexes, and

accordingly their shop rentals bear more heavily on prices.

The matters relating to the issue are complex and the

Authority expects its investigations will continue for some

t i me.

Recognising that advertising is a major cost component of

many goods and services, the Authority also commenced to

monitor advertising rates in the major media categories

during the year.

As its existence and functions have become better known, the

number of public complaints and enquiries received by the

Authority has increased. The Authority's enquiries, which

are normally directed to supplying firms, have generally been

answered co-operatively and satisfactorily. Some matters

raised by complainants, such as charges by State Government

instrumentalities, have been referred, where appropriate, to

the relevant State Government agencies.

During 1984-85 the Authority dealt with 74 representations

from complainants: some of the more important issues related

12

to charges for advertisements, pharmaceuticals, chemicals,

packaging and building materials.

Publications

In May 1984, the Authority had invited submissions from major

business, trade u n i o n , and consumer groups as to the possible

content of pricing guidelines which it might issue to assist

general participation in price restraint.

Following consideration of the responses an exposure draft of

pricing guidelines was issued in December 1984. The exposure

draft was sent to major industry and consumer groups for

comment, and public comment was sought and invited in press

advertisements. The Authority was examining the various

responses at 30 June 1985. Subsequently, a revised document,

"Guidelines for Pricing Restraint", was published in August

1985.

On publication of the guidelines by the Authority, the

Minister stated that the Government would be drawing the

guidelines to the attention of the States and the Northern

Territory with a view to their being observed by major State

authorities. The Minister said the Government also intended

that the guidelines would be applied where appropriate by

Commonwealth Authorities in pricing and price regulatory

decisions. The content of the document is set out in Chapter

3. Appendix C reproduces the Minister's press release which

accompanied publication of the guidelines.

An explanatory pamphlet on the Authority's functions and

operations was issued in February 1985. The pamphlet has

been widely distributed.

13

In addition, the Authority provided the Minister with reports

on its operations for presentation to quarterly meetings of

the Advisory Committee on Prices and Incomes.

Publications issued by the Authority during 1984-85

listed in Appendix D.

are

14

3. GUIDELINES FOR PRICING RESTRAINT

The Prices Surveillance Authority was established on 19 March

1984 as an important part of the Government's Prices and

Incomes Policy. That Policy, and the Accord agreement with

the Australian Council of Trade Unions which underlies it,

emphasises the need for all groups in the community to

exercise income restraint to assist economic recovery. With

general wage restraint being exercised under the wage

fixation principles established by the Australian

Conciliation and Arbitration Commission, the Prices

Surveillance Authority has a special responsibility to

promote pricing restraint among public and private business

enterprises in a matching effort directed to the objectives

of economic recovery, the reduction of inflation, and

expansion of employment opportunities.

Competition among businesses is usually an effective way of

restraining prices. Howe v e r , there are varying degrees of

competition apparent in the Australian economy. Some

enterprises face little or no direct competition at a l l , and

so are insulated from pressures to minimise costs and prices.

In a climate of general restraint, the pricing policies of

those kinds of enterprises are of particular importance to

the Australian community.

The Authority's operations are conducted under the Prices

Surveillance Act 1983. The legislation incorporates in

section 17(3) certain matters to which the Authority is

required to have particular regard in all its activities, and

which therefore influence strongly its attitude to price

proposals of public and private enterprises.

15

In its price surveillance activities to d a t e , the Authority

has developed approaches to these legislative requirements

which it believes can be applied consistently across most

enterprises, and which are especially relevant to activities

where competition may not be sufficiently strong to ensure

price restraint on a broad basis.

In addition, the Authority has invited and considered public

comment on an exposure draft of pricing guidelines which it

published in December 1984 with a view to the ultimate

formulation of a series of principles against which general

price restraint might be assessed.

The principles which result from this combination of

experience and consultation are published with two objectives

in min d .

In the first place, the Authority wishes to provide

enterprises subject now or in the future to the formal

requirements of the Prices Surveillance Act 1983 with a plain

guide to its approach to its statutory guidelines. A number

of the principles are also applicable, within the prime

criteria of competitiveness and pervasiveness, to the

Authority's development of recommendations for the extension

of formal surveillance to additional enterprises and

products.

Secondly, the Authority expects that publication of its

approach will assist business decision-makers to assess

whether they are observing a spirit of restraint in their

pricing that is consistent with the terms of the policy

embodied in section 17(3) of the Prices Surveillance A c t .

16

Pricing principles need to be appropriate to the economic

circumstances in which they operate: to this e n d , and as the

Authority develops its approaches to its statutory guidelines

further over t i m e , it is anticipated that the principles

stated herein will be revised.

The three statutory guidelines of section 17(3) and the

Authority's current approaches to each of them are set out

b e l o w :-

GUIDELINE A:

A. "The need to maintain investment and

employment, including the influence of profitability on investment and employment."

The Authority views this statutory guideline as permitting

enterprises to earn sufficient income to service investment

capital and maintain employment for production to continue in

line with market trends.

. Costs actually incurred in the production of goods and

services will generally be accepted by the Authority for (1)

inclusion in prices.

. Changes in product taxes (for example, excise duties and

State franchise/1 icence fees) will be permitted to flow

through to prices immediately. Where the change cannot be (2 )

precisely reflected in prices, any over-recoveries will be

required to be brought to account at the time of the next

change.

The Authority will accept cost increases occurring since the

last price change for inclusion in price increases.

17

(3)

. Where competition in markets prevents full reflection of

assessed cost increases in prices, the Authority will

generally expect enterprises to absorb the shortfall. It

will not normally favour the carry-forward of such a

short-fall for inclusion in prices in a later, less

competitive period.

It cannot be expected that individual firms will always be

profitable, or equally profitable, nor is it likely that

existing or improved levels of investment and employment can

be sustained in all enterprises. Some enterprises will fail;

some will expand; new enterprises will be established and

new products marketed as market preferences are assessed.

. The Authority is unlikely to endorse price increase

proposals that are based on bench-mark profit targets . . e \ ^ ) j

unless it is convinced that the targets are compatible with

a competitive environment.

The Authority will use its best efforts to deal with price

notifications from enterprises subject to formal surveillance

within 21 days of receipt, and to minimise the burden of

documentation associated with its considerations.

In considering price proposals based on investment needs,

the Authority will look to enterprises to demonstrate that

planned investment is based on proper economic analysis;

in such cases, the Authority's concern will be directed to

the methods by which the relevant investments are assessed,

rather than to the merits of the particular proposals.

In the area of general operating costs, the Authority will

look to enterprises to supply evidence of efforts made to

contain costs and improve productivity.

>

(5)

18

(6)

. For cost increases in excess of general cost movements,

detailed analysis and justification will be required.

Input cost increases are expected to be offset by input

cost reductions whenever applicable.

The Authority does not favour the endorsement of anticipated

cost increases as components of price increases. Expected

cost increases may never eventuate; if they do, they might

be less than expected, leaving existing or proposed prices

unnecessarily inflated. Although the requirements of sound

business planning are recognised, the Authority believes that

price increases based on remote contingencies are

inconsistent with a general spirit of restraint.

The Authority will generally be unsympathetic to price

increase proposals based on anticipation of cost

increases. It will prefer to endorse only kncwn or actual

cost increases for inclusion in prices.

(7)

In the few instances where price adjustments cannot be

made in timely fashion as cost changes become known,

budget-based pricing proposals will be assessed by the

Authority on a basis that involves compensating adjustment

for excess recoveries resulting from previous over­

estimates of expected cost increases, and offsets for

expected cost reductions.

(8 )

Hie Authority will be particularly concerned to ensure

that any allowance in prices for anticipated cost

increases will not itself cause the costs to increase, or

affect tie size of any eventual increase.

(9)

19

GUIDELINE B:

B. "The need to discourage a person who is in a

position substantially to influence a market for goods or services from taking advantage of that power in setting prices."

There are many ways in which a firm may influence markets.

For example, product promotion and advertising obviously seek

to influence buyers in favour of the promoted product or

firm. A low cost supplier may influence the market by

undercutting his competitors' prices. So long as firms

operate in an environment that permits and encourages the

mobility of resources that characterises a competitive

market, the Authority is unlikely to be concerned about these

sorts of influences.

Where markets are constrained - for example, by barriers to

new entry of competitors, or where buyers are 1 captive1 to

suppliers and demand is therefore not noticeably responsive

to price changes - the opportunity is likely to exist for

firms to take advantage of their power to influence markets,

and to charge prices that are higher than those which would

be obtainable in a really competitive market. The

maintenance of above-average profits over a sustained period

might indicate this influence.

Of course, short term profitability might well be above­

average in an expanding industry, or in other circumstances

such as recovery from recession. The Authority will not

necessarily seek to intervene, or to modify competitive

market forces in those cases.

20

(10)

. The Authority will scrutinise prices of enterprises with

sustained above-average profits with particular reference

to major barriers to competition, price responsiveness to

market changes, and risk associated with the enterprise.

Where enterprises are related to each other by common

ownership the Authority will expect transactions between them

to be priced at arm's length.

. Transactions between related enterprises which are priced

above prevailing market levels will be scrutinised closely

by the Authority, and the excess is unlikely to be

endorsed in prices unless compelling reasons are advanced.

Public enterprises often conduct their business under

statutory or practical conditions which do not subject them

to m u c h , if a n y , direct competition. Their cost structures,

reflected in their prices, may not therefore be as

disciplined as those of other businesses.

. The Authority will expect enterprises engaged in the

provision of public utility services, and in marketing of

commonly used consumer items such as rural products, to (12)

demonstrate commitment to and progress in cost

minimisation.

. Public enterprises should, as far as is consistent with

their enabling legislation, exercise restraint in pricing ^

on the basis of the principles applying to other

businesses.

21

It is common in publicly owned enterprises for legislation or

Government policy to direct that the operations of the

enterprise be conducted in specified ways, which may affect

prices charged.

. Legislative or policy constraints which affect prices of

publicly owned enterprises should be clearly identified by

the enterprise, and the cost and pricing implications

should be exposed for public scrutiny.

GUIDELINE C :

C. 'hhe need to discourage cost increases arising from increases in wages and changes in

conditions of employment inconsistent with principles established by relevant industrial tribunals."

This legislative guideline is intended to support the

commitments given by trade unions to make no extra claims

during the currency of the wage fixation principles. It

indicates t h a t , in general, cost increases arising from wages

and conditions settlements that are contrary to the wages

principles are unlikely to be accepted as grounds for a price

increase, but the legislation does not require the Authority

to disallow such cost increases automatically.

. Ihe Authority will assess on a case by case basis what

action within its functions is appropriate to discourage

cost increases arising from relevant actions that are

inconsistent with current wage fixing principles.

22

4. ECONOMIC SITUATION

The financial year 1984-85 maintained the momentum of 1983-84

with an estimated 4.6 per cent growth in Gross Domestic

Product (GDP) in real ter m s .

Recovery in real private sector consumption (3.4 per cent),

private fixed capital expenditure (3.6 per cent) and

investment in private non-farm stocks (0.9 per cent),

provided important impetus for growth in demand in 1984-85.

Private business investment as a proportion of GDP (9 per

cent) remained constant, although non-dwelling private

construction rose by 18 per cen t .

There was a further reduction in the rate of unemployment

from 9.6 to 8.6 per cent over the y e a r . Private sector

employment improved, with almost 90 per cent of the growth in

wage and salary employment to the March 1985 quarter

occurring in the private sector. Rapid growth in part-time

employment during the year reflected a shift toward service-

based industries and the increased participation of women in

the workforce.

Average weekly earnings (AWE) increases slowed, although

there was a slow drift in AWE above increases in Award Rates

of pay. Over-award increases, however, are not known to have

occurred on a wide scale. The increase of 4.1 per cent in

unit labour costs in 1984-85 implied a slight reduction in

real labour costs with factor income shares moving marginally

in favour of profits, thereby continuing a two year trend

conducive to stronger employment and business investment.

The depreciation of the Australian dollar provided a further

opportunity to improve competitiveness for exporters and

those producing import substitutes from predominantly

domestic resources.

23

The growth in Australia's dependence on imported goods and

services (now 18.7 per cent of GDP) in conjunction with the

16.9 per cent depreciation in the trade weighted index of the

Australian dollar, accelerated the growth in the Consumer

Price Index (CPI); nevertheless the growth of 6.7 per cent

(5.8 per cent after Medicare) in the CPI for the year was

less than the growth of 7.9 per cent for 1983-84.

Inflationary pressures have also been restrained by the

maintenance of relatively tight monetary conditions, and a

growing Government commitment to lower deficits.

Gross Operating Surplus (GOS) for trading enterprises rose by

11.5 per cent during 1984-85 to achieve a marginal increase

from 35.0 per cent in 1983-84 to 35.1 per cent of GDP.

Increases in GOS came largely from growth in contributions by

companies (12.8 per cent) , public sector (16.0 per cent) and

the imputed value of privately owned dwellings (17.8 per

cent) .

The Net Operating Surpluses of corporate trading enterprises

rose by 13.6 per cent during 1983-84 although larger

increases in interest and dividends (23.1 and 47.5 per cent

respectively) were achieved. In aggregate, corporate

receipts grew an average of 15.1 per cent. Net Operating

Surplus rose from a low of 30.2 per cent in 1982-83 to 34.8

per cent of Domestic Factor Incomes. W a g e s , Salaries and

Supplements, at 65.2 per c e n t , remained the major contributor

to Domestic Factor Income.

In the Corporate Trading Enterprises Income and Outlay

account, interest payments out of corporate income rose 20.2

per cent to constitute 54.5 per cent of corporate outlays

(52.2 per cent in 1983-84). Income tax payable, dividends

24

and undistributed income rose 9.8 per c e n t , to constitute

approximately 43.3 per cent of disbursements.

The restoration of profit share in Domestic Factor Income had

a limited impact on the stimulation of private investment.

Gross Fixed Capital Investment grew by 14.1 per cent to

account for 22.4 per cent of GDP compared with the 1983-84

share of 21.8 per cent. The increase was largely accounted

for by Government investment which rose 22.3 per c e n t ; the

private sector achieved growth of 9.5 per cent. After the

strong recovery of stock holding in 1983-84 there w a s , in

aggregate, a small reduction in stocks during 1984-85. This

reflected a variety of factors including improved stock

management, higher interest r a t e s , and exchange rate

volatility. Large increases in the unadjusted book value of

stocks were recorded for total manufacturing (194 per cent)

and the whole sale/re tail sector (193 per cent), but large

decreases occurred in the growth of farm (91 per cent) and

public marketing authority stocks (97 per cent) after stock

valuation adjustments.

Company Profitability

The Reserve Bank Survey (March 1985) of industrial and mining

companies in Australia during 1983 provides an historical

perspective for recent profit movements. Industrial

companies which experienced large net profit falls in the

preceding year again experienced reduced levels of net

profits in 1983. For the "All Industrials", net profit was

down 8.4 per cent on 1982 levels; net profit as a percentage

of average shareholders funds was also down from 8.0 per cent

in 1982 to 6.8 per cent in 1983, as was gross profit as a

percentage of average total assets which fell from 13.4 per

cent in 1982 to 12.2 per cent in 1983. The disaggregated

25

results show that this profit fall was common throughout the

industrial sector; for example, net profit fell in the

manufacturing sector, the wholesale and retail sectors and

the services sector. The largest fall was experienced by

wholesale traders where net profit fell by 17.1 per cent

between 1982 and 1983. The mining sector showed a marked

recovery in net profitability which improved by 91.2 per cent

over the y e a r . Net profit as a percentage of average

shareholders funds increased from 2.5 per cent in 1982 to 4.2

per cent in 1983 in the mining sector, while gross profits as

a percentage of average total assets increased from 8.1 per

cent in 1982 to 9.8 per cent in 1983.

Strong profit recovery since mid 1983 has been apparent

throughout Organisation for Economic Co-operation and

Development (OECD) countries; for Europe this reverses a

decline of more than two decades. In Australia corporate

profits have recovered to approximately 12.5 per cent of

Gross Domestic Product, their highest share since 1974.

Australia's recent profit performance has been average for

the OECD countries b u t , like most of the smaller members of

OECD, it has experienced rising interest rates, a declining

exchange rate against its major trading currencies and a slow

recovery of private sector investment.

The recent widespread recovery of profits in Australia has

been accompanied by a broadly based growth in domestic

demand; implementation of policies of wage restraint;

industry restructuring; and cost cutting. However, recovery

has not been universal.

Profit Performance by Sector

Selected public company information compiled from the Statex

data base of the Sydney Stock Exchange and allocated to

26

sectors, is summarised in Table 1. This information should

be viewed with caution because:

(a) companies do not report for identical financial yea r s ;

(b) the firms classified to the various sectors may vary

between annual reports, although all firms must have at

least four years of consecutive reporting to be

included;

(c) unlisted, but nevertheless large companies, are not

included; and

(d) multiproduct firms are classified only to those sectors

in which most profit is earned and with which most

assets are associated.

The Statex sample is nevertheless the largest and most

consistently quoted source of public company and sectoral

profit performance.

The 1979-80 to 1982-83 period reported in the table reflects

the growth and decline of the Australian economy with some

sectors, especially those benefiting by the breaking of the

1979- 82 drought, showing early signs of recovery. The recent

economic recovery phase is more apparent in growth rates for

1980- 81 to 1983-84 and the December half of 1984.

By reference to the average annual profit growth rates,

sectoral performance might be broadly classified as follows:

27

TABLE 1 COMPANY PROFITABILITY : SELECTED SECTORAL INDICATORS FOR LISTED PUBLIC COMPANIES

ANNUAL PERCENTAGE GROWTH PROFIT TO SALES RATIO e.

INDUSTRY SECTOR SALES

1979/83

SALES 1980/84

NET PROFIT 1979/83 NET PROFIT 1980/84

NET PROFIT DEC 1984 PROFIT PER EMPLOYEE

SALES PER EMPLOYEE DEC1981 DEC1982. DEC 1983 DEC 1984

a. b. a. b . c. 1979/1984 d., 1980/84 b. l 1 I l

ALCOHOL/TOBACCO 13.85 11.21 32.41 25.66 16.01 29.60 24.60 5.00 5.10

AUTOMOTIVE 15.62

n / c

12.12 -22.87 -22.80 120.20 -10.90 9.40 3.30 -0.20

BANKS 20.48 21.91 36.30 13.81 n / c n/c BUILDERS SUPPLIES 27.07 20.76 8.69 10.73 26.80 10.10 18.70 5.00 4.30 4.30 4.90 CHEMICALS 5.56 6.04 -15.26 3.59 15.40 9.90 12.00 4.50 3.10 DEVELOPERStCONTRACTR 20.33 16.42 -31.69 22.51 46.70 18.40 6.00 3.70 3.10 ELECTRICALS^DURABLES 9.52 -0.14 4.86 -31.69 39.50 15.20 6.90 3.40 -0.10 1.90 FINANCE 11.93 4.86 8.01 FOOD & HOUSEHOLD 12.17 6.61 16.62 23.57 16.60 17.30 6.30 2.70 3.30 HEAVY ENGINEERING 15.48 10.83 -7.79 -6.73 7.20 5.60 10.40 4.00 1.50 3.40 INSURANCE 21.24 32.11 43.80 31.50 n / c INVESTMENT/TRUSTEES n/c9.2623.7115.12 1.10 LIGHT ENGINEERING 4.45 -11.24 -9.60 32.30 -2.30 9.10 2.90 2.10 3.00 MEDIA 32.10 12.68 21.07 21.60 25.80 14.30 9.70 5.30 5.30 METALS 3.19 13.33 -48.57 -21.64 -97.90 -22.40 15.40 2.30 3.90 MERCHANTS 6, AGENTS 15.23 22.97 10.1318.06 20.49 13.60 10.80 8.00 1.30 1.30 MISC/DIV INDUSTRIALS 18.32 9.12 5.57 31.40 1.50 8.60 4.90 3.70 MISC SERVICES 19.41 20.22 8.87 0.32 60.80 1.30 16.70 3.20 3.40 OIL AND GAS 31.44 50.25 30.81 42.85 63.50 7.50 -7.30 35.10 18.00 PAPER AND PACKAGING 19.98 16.62 3.63 1.91 35.00 8.80 13.40 5.30 PROPERTY TRUSTS n / c15.76n / c31.95 26.08 22.20 n / c n / c n/=n R E I a IL 16.29 8.23 6.69 12.40 6.70 10.30 2.40 SOLID FUELS 15.81 12.76 -9.52 4.69 -1.20 -11.50 19.80 4.20 TEXTILES 6.52 5.61 -35.31 -3.61 0.20 -5.80 -1.80 5.90 5.602.60 TRANSPORT 23.13 20.88 5.98 -6.93 85.40 -9.90 8.10 6.50 4.30 3.90ALL COMPANY AVERAGE 15.01 13.21 -5.19 2.62 20.60 5.10 10.60 4.00 3.00 3.90 4.00SOURCE: SYDNEY STOCK EXCHANGE ’FINANCIAL AND PROFITABILITY STUDIES ' 1983/1984, 1984/1985 and STATEX RESEARCH STUDIES , APRIL 1 985 ISSUE.a. Refers to financial years 1979/80 to 1982/83b. Refers to financial years 1980/81 to 1983/84.c. Refers to profit growth in the first half of 1984/85 over the second half 1983/84.d. Estimates only of five year growth.e. Profit to sales ratios for December half only.

Consistently Superior Profit

Oil and Gas

Alcohol and Tobacco

Developers and Contractors

Insurance

Banks

Food and Household

Media

Property Trusts

Average but Consistent Profits

Finance

Builders Supplies

Merchants and Agents

Miscellaneous and Diversified Industrials

Retail

Paper and Packaging

Recent Profit Recovery

Automotive

Transport

Electricals and Durables

Light Engineering

Miscellaneous Services

S low Recovery of Profits

Heavy Engineering

Textiles

Metals

Solid Fuels

Chemicals

Recently, substantial profit growth has occurred in such

sectors as Automobiles, Light Engineering, Electricals and

Durables, and Transport. Recovery has in many cases been

from losses to profits, helped by accumulated tax credits.

Profitability in a number of industries, including Metals,

remained depressed through to the end of 1984, while Textiles

and Heavy Engineering have made only small gains. Despite

record volumes of coal exports, depressed world prices and

narrow profit margins have kept profits uncertain among firms

in the Solid Fuels sector.

29

The profit performance of some sectors, including Developers

and Contractors, has been partly assisted by public

investment programmes to stimulate the economy and by

overseas earnings. Commonwealth assistance for home ownership

and an increase in the building of public housing by State

governments have also assisted the performance of the

Building Supplies sector.

Many sectors experienced severe declines in profit/employee

ratios over the 1979-1984 period despite employment lay offs

and closures. This has been particularly true for

Automobiles, Metals, and Transport. The All Company Average

profit/employee growth rate was well below CPI and GDP

deflators for the period June 1980 to December 1984 although-

substantial growth above these rates was experienced by the

Insurance, and Alcohol and Tobacco sectors. Improvements in

profit per employee reflected growth in sales per employee in

the Alcohol and Tobacco, Builders Supplies, Miscellaneous

Services, and Paper and Packaging sectors.

Most recent profit performance, as reported from the Statex

data base of the Sydney Stock Exchange for the December half

of 1984, has been analysed using sales, profit and the

profit/sales ratio.

Profit performance across 495 listed public companies for

the first half of the 1984-85 financial year was distributed

as follows:

Profit Performance 7o Firms

Loss to profit 6.6

Profit to loss 6.8

Continued loss 6.6

Profit increase 63.6

Profit decrease 14.7

-Not classified- 1.7

TOTAL 100.0

30

Four large companies (i.e. exceeding $200m in sales) from

diverse sectors are included in those which moved from a loss

to profits position during 1984-85. Of these, two made the

top 500 in terms of profit earnings in 1983-84. One such

company increased employment (136) in the 1983-84 period.

Of the six large companies which moved from profits to losses

in the December half of 1984, five are producers in the

Metals sector. Three of these companies finished in the top

500 profit earners for 1983-84 although their sales

performances varied greatly. Of the four major mining

companies in the metals sector reporting employment, two

increased and two decreased employment in 1983-84 for a net

employment loss of 479 persons.

Of the two large companies which continued in a loss

position, one increased sales by 17.9 per cent while the

other lost sales of 17.8 per cen t ; both reduced employment,

however, for a total reduction of 600 in employees.

Some 257 firms ( 52.0 per cent) of the surveyed firms

achieved a growth in profits of 15 per cent or m o r e . Those

firms (48 per cent) which had a lower profit growth may be

deemed to have profit returns too low to stimulate growth in

internal investment given current interest rates and the real

returns available on loan funds. The ability to invest

depends also on profit levels. Median profit growth for

those firms which increased their profits in the December

1984 half year was 30.1 per cent.

Of the 354 firms which recorded increased profits, 82.7 per

cent also showed increased turnover whilst only 9.6 per cent

recorded declining sales values. The remaining firms

provided no sales figures. Altogether 37.9 per cent of firms

31

increased their sales performance by more than their profit

performance.

Analysis of movements in profit margins, that is the ratio of

profits to sales, indicates that 45.3 per cent of the 465

firms which reported both sales and profits growth, had

increased margins. In 78.6 per cent of these cases however

the percentage increase in profits was greater than the

percentage increase in the profit margins, suggesting an

increase in profit margins was not the primary reason for

improved profit performance.

Of the firms which increased their profit to sales ratios for

the half year ending December 1984, 67 per cent were found

among the lower half of firms ranked by profit growth.-

Continued monitoring of rapid profit margin movements will be

undertaken, however, only 10.4 per cent of firms were

included in this category.

Reported Reasons for Profit Improvement in the 1983-1984 Period

There have been many reported reasons for profit movement but

they have not been uniform within or among sectors.

The major factors reported in the financial press and the

Sydney Stock Exchange "Financial and Profitability Studies"

as affecting profit performance in the recovery period 1983­

1984 were:

(a) Increased turnover, especially evident in Banking

(deposits), Builders Supplies, Insurance, Metals,

Miscellaneous Services a n d , most recently, in the

Automotive and Transport sectors.

32

(b) Decreasing interest burdens, reflecting the repayment of

high interest loans obtained during the 1979-1981

period. Sectors where this is evident include Banking,

Building Supplies and Transport. A number of sectors

still have large outstanding loans, including Metals and

Solid Fuels. Where such loans have been denominated in

foreign currency, the interest burden has been increased

by devaluation.

(c) Devaluation. Profits and losses made on overseas

operations have been accentuated when denominated in

domestic currency. Devaluation is reported to have

enhanced the profitability of some Australian exporting

and import substitution sectors such as; Automobiles,

Metals, and Solid Fuels, through improved domestic price

competitiveness.

Adverse impacts of devaluation on costs and profits have

been reported among firms in those sectors heavily

dependent on imports of raw materials and capital

equipment including the Builders Suppliers, Chemicals,

Food and Household, Media, Diversified Industrials and

Transport sectors.

(d) Tax credits and extraordinary earnings. Tax credits

earned during loss periods have increased net after-tax

profits in the Automotive, Heavy Engineering/Steel,

Light Engineering, Transport and Miscellaneous Services

sectors. Extraordinary profits items have been common

among those firms rationalising assets and operations,

and have contributed significantly to the profit

positions of Insurance and Diversified Industrials

sectors.

33

(e) Industry rationalisation/diversification and alternative

corporate strategies. Many firms reported that improved

profit performance was due in part to company

rationalisation programmes with marginal operations

having been terminated or sold. Mergers and takeovers

have increased with a view to reducing product

duplication and achieving scale economies; such moves

have been particularly evident in the Food and Household

products and Retailing sectors. Simultaneously, but in

contrast, product diversification has occurred in firms

disadvantaged by slow sectoral demand recovery; recent

examples include movements by Heavy Engineering firms

into consumer products and by Paper and Packaging firms

into Household Appliances and Transport.

(f) Price increases. Few firms referred to price increases

as contributing to profit recovery; the exceptions were

those firms engaged in exporting which have benefited by

some recovery in world prices. However, general price

increases have been reported by the Australian Bureau of

Statistics in its published price indexes for

manufacturing inputs and finished goods, and in the

retail sector.

Recovery of pricing margins as indicated by the recovery

of the ratio of profits to sales has been strong in the

Household Goods (from a low base), Media and Diversified

Industrials sectors. Oil companies (Miscellaneous

Services), however, reported improved profits based on

lower levels of discounting during 1984.

34

(g) Productivity g a i n s . Productivity gains have been

derived from a combination of factors. Such gains are

reflected in the common reporting of cost cutting

achievements and improvements in efficiency. Company

annual reports have commonly claimed that technological

improvements and capital expenditures (some committed

before the recession) have contributed importantly to

profit recovery in Automobiles, Banking and

Miscellaneous Services.

35

NOTIFIED GOODS AND SERVICES 5 .

As detailed in Chapter 2 of this report, the Authority's

price surveillance activities are conducted under the

notification and public inquiry provisions of the Act.

During the 1984-85 year the Minister added b e e r s , cigarettes,

concrete roofing tiles, float glass, tea and instant coffee

to the goods and services initially under the Authority's

surveillance, namely petroleum products and certain

telephone, telegram and postal charges.

Petroleum Products

Public Inquiry

On 19 April 1984, the Minister directed the Authority to

hold an inquiry in relation to the supply of petroleum

products. The inquiry was held in Melbourne over 9 days

commencing on 23 May and concluding on 6 June 1984. An

Interim Report of the inquiry had been issued by the

Authority on 20 June 1984.

The Final Report of the inquiry was completed on 25 July

1984. By that date, the four State Governments which had

been operating price controls over motor spirit (and

distillate in the case of Victoria), namely New South Wales,

South Australia, Victoria, and Western Australia, had

indicated their acceptance of unified price surveillance for

petroleum products. All refiner-marketer companies notified

acceptance of the maximum prices set out in the Authority's

Final Report, those prices reflecting cost increases which

had been incurred with respect to domestic and supply

transactions, which were added to the base "marker" prices

identified in the Interim Report. The Final Report

36

identified a substantial body of ongoing investigation to be

undertaken with respect to price notification procedures. It

also clarified three issues which had been raised in the

Interim R e p o r t , seeking policy guidance on recommended

changes in:

(a) treatment of certain outport shipping costs, which had

not been permitted to flow through into prices since

1973;

(b) treatment of Australian flag shipping costs in excess of

international freight rates, which had similarly not

been permitted to flow through into prices; and

(c) treatment of non-metropolitan non-freight costs, which

had been included in base prices applying in

metropolitan as well as non-metropolitan are a s .

A Direction under section 20 of the Prices Surveillance

Act 1983 was made by the Minister on 17 August 1984

addressing each of these three issues, and having the effect

of requiring the continuation of previous practice (Appendix

E).

A Declaration under section 21 of the Act was also

received from the Minister accepting the Authority's

recommendations that price surveillance should be confined to

motor spirit, distillate, aviation gasoline, aviation turbine

fuel and refinery produced liquefied petroleum g a s , and that

locations for which country freight differentials are

calculated should be restricted (Appendix F ) .

37

Price Notifications

During 1984-85, the Authority received 192 notices of

proposed price changes for petroleum products. The

notifications related to the following matters:

Domestic costs (refining, marketing, wholesale distribution, administration, etc) 14

Supply costs (crude oil and other major raw material inputs) 35

Excise Duty increases 13

State Government franchise fees 44

Unleaded petrol 6

Liquefied petroleum gas price changes 6

Country freight differentials 67

Other 7

TOTAL 192

The base maximum wholesale price of premium motor spirit

to resellers (before State Government charges and low lead

premiums) rose from the 42.42 cents per litre (cpl)

determined in the Authority's Final Report of 25 July 1984,

to 49.91 cpl as at 30 June 1985. The increase of 7.49 cpl

for the year resulted from cost increases as follows:

38

CPL

Supply Costs 6.93

Domestic Costs 0.17

Excise Duty increases 0.24

Introduction of unleaded petrol 0.15

TOTAL 7.49

The principal increases in motor spirit prices arose

from the 1 March and 1 May 1985 reviews of supply costs, on

which occasions price increases of 1.66 cpl and 4.15 cpl

respectively were endorsed by the Authority. Those reviews,

in particular, incorporated substantial increases in the

import parity prices of indigenous crude oil reflecting the

devaluation of the Australian dollar against that of the

United States of America in the first half of 1985.

. Import Parity Prices for Indigenous Crude Oils

The Government decided that, from 1 January 1985, import

parity prices for indigenous crude oils would be reviewed

every two months and prices adjusted if a price change of at

least $1 a barrel was indicated. Previous practice had been

based on half-yearly adjustments. The two-monthly reviews

required the Authority in turn to review supply costs on a

parallel basis.

. Liquefied Petroleum Gas (LPG) Pricing

From October 1984 until the end of March 1987, in

accordance with a direction under section 20 of the Act

(dated 19 April 1984 and reported in the Authority's 1983-84

39

Annual Report) the Authority is to determine maximum prices

for certain categories of refinery produced LPG. The

wholesale price of refinery produced LPG is adjusted on 1

October and 1 April each year on the basis of the average of

the monthly export parity prices for Bass Strait propane from

1 April 1984 to the first day of the month preceding the

adjustment d a t e , subject to a percentage increase being

limited to the percentage increase in the fuel and light

component of the Consumer Price Index (CPI) for the latest

available six month period to the adjustment date.

. Unleaded Petrol

On 12 March 1985, by direction under section 20 of the

Act (see Appendix G) the Minister required the Authority to

give special consideration to the Government's policy tha t ,

as a broad objective, 92 octane unleaded petrol should be

priced the same as 97 octane leaded petrol at any point of

sale. On 1 April 1985 the Authority endorsed a uniform base

national wholesale capital city price of 45.59 cpl for both

products. However, the addition of State low lead premia

(and, in the case of Victoria, a lower State franchise fee

for unleaded petrol) has resulted in marginally lower maximum

wholesale prices being chargeable for 92 octane unleaded

petrol than 97 octane leaded petrol in Sydney, Melbourne,

Adelaide and Hobart.

• Freight Differentials

Freight differentials which represent the cost of moving

product to country locations, form part of maximum endorsed

prices for transport and aviation fuels at country locations.

The basic procedures for calculating freight differentials

introduced in May 1983 were retained during 1984-85 except

40

that for rates established from August 1984 onwards,

differentials were based on the average of the lowest three

costs submitted by companies instead of the lowest four costs

which applied previously. This change had been foreshadowed

in the Authority's Interim Report on its 1984 public inquiry.

During the year State reviews were completed for Queensland,

Western Australia and Northern Territory and reviews were in

progress at 30 June 1985 for South Australia, Victoria and

Tasmania. In addition, reviews of particular location

differentials were undertaken where warranted.

In the final report on its 1984 inquiry, the Authority

recommended that the calculation of differentials be limited

to locations where there is a retail site, to locations

specifically nominated by the Department of Industry and

Commerce as points remote from any retail site a n d , if so

required, to safe anchorages. This proposal was accepted by

the Minister and by 30 June 1985 the number of locations for

which freight differentials are calculated by the Authority

had been reduced from some 9,000 locations to approximately

4,000.

By letter dated 17 August 1984, the Minister advised the

Authority that the Government had decided that deliveries of

automotive distillate to safe anchorage locations in northern

Australian waters would continue to be subsidised beyond 31

December 1984 and that the zoning concept advocated by the

industry and supported by the Authority should be the basis

for determining safe anchorage locations. The Government

also agreed that the Authority should continue to determine

freight differentials for the zones.

A complete review of safe anchorage freight

differentials based on the zone concept was undertaken and

new rates were endorsed by the Authority on 11 April 1 9 8 5 .

41

Arising from its 1984 public inquiry, the Authority

convened a Joint Task Force, comprising representatives from

oil companies, State Departments of Consumer Affairs, the

Commonwealth Department of Industry, Technology and Commerce

and the Authority. It met on three occasions in 1984-85 to

consider freight differential matters, principally related to

the possible adoption of a "cab-fare" approach intended to

streamline the calculation of freight differentials by the

Authority. The "cab-fare approach" assumes that product is

delivered from seaboard terminals to a location in two

stages - a first leg from terminal to depot town, and a

second leg from depot town to linked locations. The main

feature of the approach is that the second leg delivery cost

is based on a cpl per kilometre concept using the operating

costs of a standard vehicle. At 30 June 1985 the Authority

was considering results obtained from a review of freight

differentials in South Australia based on standard procedures

and on the "cab-fare" approach.

In a press statement dated 14 May 1985 the Minister for

Resources and Energy announced that the Government had

decided, effective from 21 May 1985, that the freight subsidy

on petroleum products would be reduced, with the consumer

paid portion of freight costs being increased from a maximum

of 1.2 cents per litre to a maximum of 5.2 cents per litre.

• Profitability

In accordance with previous years, the major oil

refining and marketing companies provided detailed financial

data relating to their petroleum product operations,

excluding exploration activities, for 1984. Aggregate

profitability Tables 2 and 3 have been prepared from the

information supplied.

42

TABLE 2

PROFITABILITY - PETROLEUM REFINING AND MARKETING COMPANIES

1981 - 1984

1981

$m Ί,

1982

$m 7o

1983

$m X

1984*

$m 7o

Sales (net of Discounts, Government Excises

and Taxes)

9328 100.0 10599 100.0 9988 100.0 10404 100.0

Less

Operating Expenses 8965 96.1 10214 96.4 9832 98.4 10079 96.9

Operating Profit

363 3.9 385 3.6 156 1.6 325 3.1

Plus

Other Income

12 0.1 9 0.1 8 0.1 32 0.3

Less

Interest on Borrowed Money

135 1.4 207 1.9 193 1.9 158 1.5

Profit Before Tax

240 2.6 187 1.8 (29) (0.3) 199 1.9

* With the exception of two companies, figures were provided on a calendar year basis.

Source: Data related to petroleum operations, excluding exploration, supplied by Ampol (including Total), BP (including Amoco) , Caltex, Esso, Mobil and Shell.

43

TABLE 3

PROFITABILITY RATIOS - PETROLEUM REFINING AND MARKETING

1981 - 1984*

1981 1982 1983 1984

% % 7o %

Operating Profit/Funds 10.3 9.6 3.9 8.0

Employed

Operating Profit/Total 7.2 7.2 3.0 6.1

Assets

Operating Profit/Net Sales 3.9 3.6 1.6 3.1

* The following definitions of funds employed and total assets

were used:

Rinds Employed: Net fixed assets plus working capital being

current trade assets less short-term trade liabilities (not

including bank overdraft or other borrowed money used in the

business).

Total Assets: Fixed assets plus current assets and intangible

assets (excluding goodwill and future tax benefits).

Source: Data related to petroleum operations, excluding exploration,

supplied by Ampol (including Total), BP (including Amoco),

Caltex, Esso, Mobil and Shell.

44

Australian Telecommunications Commission

On 12 July 1984 the Australian Telecommunications Commission

(Telecom) formally notified the Authority of its proposal to

increase its charges for business and non-business telephone

rentals, to increase local call charges, and to reduce day

trunk call charges whilst increasing most off-peak trunk call

charges.

Pursuant to the approval of the Minister, dated 24 July 1984,

the Authority conducted a public inquiry into the Telecom

proposal. A Direction by the Minister under section 20 of

the Act listed a number of matters to which the Authority was

to give special attention in considering telecommunications

matters. (The terms of the Minister's Approval and his

Direction are set out in Appendixes H and I ) . The inquiry

commenced in Melbourne on 21 August 1984; a hearing was held

in Perth on 29 A u g u s t ; and the inquiry concluded in Melbourne

on 4 September 1984. Nine organisations and individuals made

submissions to the inquiry.

The Authority's report on the inquiry was issued on 23

October 1984. In the report the Authority made a number of

suggestions concerning the operations of Telecom but did not

object to the general thrust of Telecom's pricing strategy.

The proposal to change prices was based on the funding

requirements of the Commission and Telecom's general strategy

to move over time towards a set of economically efficient

charges where prices follow costs. With one exception the

Authority did not object to the new charges proposed. The

exception concerned telephone rentals where the Authority

considered it appropriate that Telecom's proposed rental

increases for non-business users be reduced from $8 to $5 in

the case of services connected to continuous exchanges, and

45

from $3.50 to $2.50 for services connected to non-continuous

exchanges. Telecom notified the Authority of a revised

proposal to increase prices which incorporated the

Authority's suggested changes and the increased charges took

effect on 1 February 1985, following approval by the Minister

for Communications.

The Authority suggested that, where Telecom is required to

depart from the principles of economically efficient pricing

for reasons of Government policy, this requirement should be

made explicit in Government directions to the Authority or to

Telecom. It also suggested that a full review of the

structure of tariffs and the time periods for which they are

applicable, to improve utilization of the network and thus

save on capital investment, might appropriately accompany a

future notification.

Periodic discussions have taken place between the Authority

and Telecom concerning matters arising out of the inquiry.

These discussions serve to prepare both parties for future

notifications of price increases.

Australian Postal Commission

The Australian Postal Commission (Australia Post) notified

the Authority on 28 August 1984 of its proposal to increase

its charges for standard postal articles and registered

publications.

On 17 September 1984, the Minister approved the Authority's

recommendation that a public inquiry be h e l d . The Minister

had previously, in July 1984, directed under section 20 of

the Act that the Authority give special attention to a number

of matters relating to postal charges. (The terms of the

46

Minister's Approval and his Direction are set out in

Appendixes J and K ) . The inquiry commenced in Melbourne on

16 October and concluded on 25 October 1984. Twenty-two

organisations or individuals lodged written submissions and

appeared as witnesses.

The proposal to increase charges was based on the funding

requirements of the Commission.

The report of the Authority was issued on 12 December 1984.

The Authority did not object to a price of 33 cents proposed

for the standard letter postal r a t e . It d i d , however, object

to the proposed weighted average increase of 20 per cent for

the carriage of registered publications. The Authority's

suggestion of a weighted average increase of 15 per cent was

incorporated in Australia Post's revised price increase

proposal and the new charges took effect from 4 March 1985,

following approval by the Minister for Communications.

In its report, the Authority observed that the postal service

was not performing adequately in New South Wales and that the

current costs of postage were inflated by approximately one

cent in the standard articles postal rate as a result. It

considered that the resolution of the difficulties did not

appear to lie in the manipulation of charges; and noted that

users were turning whenever possible to other means of

delivery. The Authority recommended that Australia Post

should publish the maximum possible detail of its operation,

and of the impact on those operations of legislative and

policy requirements. The Authority also suggested that it

might be appropriate to review the whole basis of the

registered publications service which was revealed to be a

loss maker which required cross-subsidisation from the

standard letter service.

47

Since the inquiry, discussions have continued between the

Authority and Australia Post on matters relating to the

pricing of the Carriage of standard postal articles and

registered publications.

Concrete Roofing Tiles

On 19 December 1984 the Minister declared concrete roofing

tiles to be a notified product for the purposes of section

21(1) of the Prices Surveillance Act 1983 and Monier Limited

to be a declared person in relation to the notified product.

A copy of the Declaration is at Appendix L.

The original declaration was revised in July 1985 to exempt

concrete roofing tiles sold under supply and fix arrangements

from surveillance.

In the period 19 December 1984 to 30 June 1985 four price

notifications were received from Monier Limited covering

input cost increases. Price increases as shown below were

endorsed for the specified markets:

Price Increase Endorsed

%

New South Wales metropolitan country

4.51 4.57

Southern New South Wales and Victoria 2.20

Queensland 3.38

Tasmania 2.58

48

The major manufacturing cost increases incurred by Monier

Limited during the year related to ceme n t , sand, labour a n d ,

to a lesser extent, colour additives.

On two occasions, the Authority, with the consent of Monier

Limi t e d , determined that the prescribed period for

consideration of a notice should be extended in accordance

with section 22(6) of the Act, so that further information

could be provided by the company.

Float Glass

Float glass was declared to be a notified good in pursuance

of section 21(1) of the Prices Surveillance Act 1983 on 19

December 1984. A copy of the Declaration is at Appendix M.

The original declaration was revised in July 1985 so that

Pilkington ACT. Operations Pty Ltd was nominated as the

declared person.

No price increases were proposed for float glass in the

period ending 30 June 1985.

Tea and Instant Coffee

On 7 March 1985, the Minister, under the provisions of

section 21 of the Act, placed the wholesale prices of packet

tea, tea bags and instant coffee under the surveillance of

the Authority. The persons declared in relation to these

products were Bushells Pty Ltd and Rosella Lipton Pty Ltd for

tea, and Nestle Australia Ltd, Bushells Pty Ltd, Cottees

General Foods Ltd and Cadbury-Schweppes Australia Ltd for

instant coffee. A copy of the declaration relating to tea is

at Appendix N. The original declaration relating to instant

coffee (Appendix 0) was revised in July 1985.

49

In the period 7 March 1985 to 30 June 1985 the Authority

received seven price notifications from declared companies in

relation to instant coffee. None was received in relation to

t ea.

The instant coffee notifications covered the following

matters:

Type Number

General Cost Increase (Raw Materials, Manufacturing, Marketing, Distribution, etc) 1

Exchange Rate Movement 4

New Products 2

TOTAL 7

----- )

The major contributor to price increases was the decline in

the value of the Australian dollar. This had a significant

impact on the cost of coffee bea n s , coffee powder and

imported finished product. Other cost increases arose from

the April 1985 National Wage Case decision, and packaging

materials.

The endorsed price increases were 8 per cent for Nestles, 10

per cent for Bushells and between 3.9 and 17.4 per cent for

Cottees depending on brand and pack size.

Cigarettes

On 19 December 1984, the Minister declared cigarettes to be

notified products and the three major Australian

manufacturers - W.D. & H.O. Wills (Aust) Ltd, Rothmans of

50

Pall Mall (Aust) Ltd and Philip Morris (Aust) Ltd - to be

declared persons in relation to the notified goods under

section 21 of the Prices Surveillance Act 1983 (Appendix P ) .

In July 1985 the original declaration was amended to include

R.J. Reynolds Tobacco (Australia) Pty Limited and Philip

Morris L i m i t e d , the latter replacing Philip Morris (Aust)

L t d . The revised declaration also exempted sales at the van

distributor or retail level.

The Authority reviewed 10 notices of proposed price increases

for cigarettes in the period 19 December 1984 to 30 June

1985.

The notifications were concerned with the following matters:

Type No

Manufacturing Costs (Leaf, Labour, Marketing, Distribution, Administration, etc) 4

New Products 2

Indexation of Excise 3

Exchange Rate 1

TOTAL 10

The major manufacturing cost increases incurred by all the

notified companies related to tobacco leaf, wrapping

materials, wages and salaries and the cost of wholesale

rebates granted to distributors. In the case of imported

tobacco leaf and wrapping materials, the devaluation of the

Australian dollar was a particularly significant factor.

51

The Authority rejected several cost items put forward as

justification for price increases. These costs were

associated with timing differentials (defined as the

increased costs incurred by the firm from the date of the

previous cost increase to the date of the current price

notification), an imputed interest cost, and increased

royalty payments.

Subject to compliance with certain conditions specified by

the Authority, increases in Commonwealth excise duties

announced on 4 February 1985 were immediately passed into

prices of cigarettes.

Beers

On 19 December 1984 the Minister declared beers, including

those produced as brewed soft drinks, to be notified goods,

and the following brewing companies to be declared persons:

Carlton and United Breweries Ltd

The Cascade Brewery Co Ltd

Castlemaine Tooheys Ltd

The South Australian Brewing Company Ltd

The Swan Brewery Company Ltd

A copy of the Declaration is at Appendix Q.

The Authority received 18 notifications to 30 June 1985 of

proposals to supply beers at higher prices and on different

conditions from those previously applicable. The

notifications were concerned with the following matters:

52

Type Number

Cost Recovery 8

New Products 4

Indexation of Excise 5

Amending Previous Notifications 1

TOTAL 18

Subject to compliance with certain conditions specified by

the Authority, the excise increases for beer which were

effective from 4 February 1985 were immediately passed into

prices.

The major items of manufacturing cost increases reported by

the brewers were for sugar, cartons, bottles, wages and

salaries and a significant increase in advertising. A cost

reduction was reported for mal t . The Authority informed the

relevant companies that it would not normally allow timing

(or impact) costs to be incorporated in prices.

53

6 . P U B L I C INQUIRY: F R U I T JUICES

On 13 March 1985, the Prices Surveillance Authority was

directed by the Minister to hold an inquiry in relation to

the supply by Sun Pak Fruit Juices Pty Ltd (Sun Pak) and Life

Savers (Australasia) Limited (Life Savers) of fruit juices.

The matters to be covered by the inquiry w e r e :

(a) appropriate prices in current circumstances for those

supplies, with particular reference to labour cost

increases resulting from recent negotiations with the

Food Preservers' U n i o n ; and

(b) whether surveillance under section 21 of the Prices

Surveillance Act 1983 should be exercised by the-

Authority over fruit juice prices.

The text of the reference is set out in Appendix R.

The Authority was required to complete the inquiry and submit

a final report by 13 June 1985.

The inquiry was held in Sydney on 16, 17 and 18 April and 1

May 1985. A resumed sitting was held in Sydney on 6 June

1985 to enable witnesses to present further evidence in the

light of the 15 May 1985 decision of the Australian

Conciliation and Arbitration Commission concerning the

application by the Food Preservers' Union (FPU) for a flow-on

of the 3 April 1985 National Wage indexation decision.

Witnesses from 11 organisations made submissions at the

inquiry. Those attending were Federal Government departments

(3), fruit juice companies (4), major retailers (2) and

employer organisations (2).

54

The report on the inquiry was issued on 13 June 1985. In

considering whether formal price surveillance should be

recommended for some or all fruit juice producers, the

Authority gave particular attention to issues of

pervasiveness of wage and price changes and competition in

the industry. From the submissions and the evidence given

during the inquiry, it was clear that the market for

processed fruit juices exhibited an element of price

competition and that the demand for individual products was

responsive to changes in price. Hence, the Authority

accepted that fruit juice prices were adequately restrained

by competition at that time, and found that Life Savers'

current prices (at the time of the inquiry) were appropriate

in current circumstances.

Sun Pak had increased prices for a range of products in

November 1984. A further increase, originally intended to

operate in March 1985, was not implemented because of the

provisions of section 24 of the Act. That increase was the

subject of an application on 15 April 1985, under section 25

of the Act, to the Authority for an interim price increase.

In considering the application, the Authority had regard to

section 17 (3) (c) of the Prices Surveillance Act. Sun Pak

was advised on 2 May 1985 that it was permitted to increase

prices on an interim basis to a level equal to the revenue

required to recoup the cost increases applied for less the

annualised cost of the labour cost increases which were the

focus of the inquiry. In the event, the company did not

implement that price increase. Given the decision by the

Conciliation and Arbitration Commission in which the FPU was

granted a flow-on of the 3 April 1985 National Wage Case

decision, the Authority considered that appropriate prices in

current circumstances for products produced by Sun Pak were

55

those originally proposed by the company in its interim price

application.

In regard to the pervasiveness of f j. ait juice prices the

Authority noted that fruit juice is a consumer product likely

to form part of the basket of grocery items purchased by many

households. A major supermarket witness indicated that nine

out of ten supermarket trolleys passing through its cashiers

contained fruit juice. Fruit juice does not have a high

individual weighting in the Consumer Price Index (0.251);

this may be compared with that of beer (4.178), wine (1.071)

and soft drinks (0.973).

The Authority noted that labour costs were a relatively small -

component of total costs in the fruit juice industry, so that

wage changes within individual firms like Sun Pak and Life

Savers may not be pervasive. However, should wage changes in

one firm be used as a precedent in other firms, the effects

could pervade a substantial element of the food processing

industry as a whole. This was most likely to occur in low

labour intensity firms, as the cost result of granting wage

increases in such firms would be proportionately smaller than

for high labour intensity firms. H e n c e , because of the

possibility of "flow-on" to other firms, wage changes in the

fruit juice industry might be considered as likely to have a

pervasive effect on the economy.

In view of the supplementary evidence given at the resumed

sitting of the Authority's inquiry on 6 June 1985, and the

relevance of the 15 May 1985 decision by the Australian

Conciliation and Arbitration Commission to allow the flow-on

of the 3 April 1985 National Wage increase to FPU members,

the Authority discerned no reason why price surveillance

should be exercised over Sun Pak and Life Savers or any other

56

company currently involved primarily in the production of

fruit juice. The Authority noted with concern, however, the

view of the Department of Employment and Industrial Relations

that flow-on dangers arising from the Sun Pak and Life Savers

settlements remained acute. The Authority, therefore,

proposed to consult with Sun Pak and Life Savers six months

later on those matters.

Life Savers notified the Authority on 19 June 1985 under

section 27 of the Act that the company proposed to charge the

prices endorsed by the Authority. Sun Pak notified the

Authority in similar terms on 21 June 1985.

57

7. ADMINISTRATION

Members

The Authority comprises a full time Chairman, Mrs H.A. Rolfe,

and three part-time members, the latter having academic,

business and trade union backgrounds respectively. They are

Professor A.H.M. Pe l s , Mr M.N. Little and Mr L.C. Townsend.

Membership was unchanged during the y e a r .

The present appointments of all members expire on 7 March

1989. During 1984-85 the Authority met on 25 occasions. The

venue for ordinary meetings alternated between the

Authority's Sydney and Melbourne offices. In addition,

public inquiry meetings were held on 17 occasions as

necessary in Sydney, Melbourne and Perth.

Staffing

Pursuant to section 41(1) of the Act, the staff required to

assist the Authority in the performance of its functions are

appointed or employed under the Public Service Act 1922.

Staff organisation and classification charts are attached as

Appendixes S and T.

During the 1984-85 year staff numbers increased from 18 to

26. Considerable difficulty has been encountered in

recruiting suitably qualified officers and the approved

establishment of 32 has not yet been reached.

The Authority records its appreciation of the efficient and

conscientious efforts of the staff during the ye a r .

58

Automatic Data Processing Strategic Plan

During the year the Authority purchased two Sigma Data Ngen

microcomputers with word processing facilities and one slave

work station at an initial cost, including software, of

$34,408. It also produced its first Automatic Data

Processing strategic p l a n , as required by the Public Service

B o a r d , in April 1985.

Selection of the equipment was undertaken having regard to

advice tendered by officers of the Department of the Special

Minister of State.

In addition to providing word processing facilities in the

Authority's Sydney and Melbourne offices, the plan envisaged

that the system's computing function would be utilized to

produce petroleum product freight differential calculations

and for research and administrative projects, as well as the

storage of personnel data.

Equal Employment Opportunity

Having regard to the size and resources of the Authority,

arrangements have been made with the Minister's Department,

the Department of the Treasury, to be covered by its Equal

Employment Opportunity Program, which is under development.

Smoking in the Workplace

Following Public Service Board initiatives on this matter,

the Authority is developing a policy promoting a smoke-free

work environment a n d , in consultation with staff, is actively

discouraging smoking at the workplace.

59

Repetition Strain Injury

During 1984-85 the Authority had two confirmed cases of

repetition strain injury sustained by keyboard staff. One

officer recovered and returned to keyboard duties; the

remaining officer was on sick leave at 30 June 1985 and is

yet to take up duty with the Authority following promotion

from another department on 24 January 1985. The Authority

has five keyboard positions on its approved establishment.

The Authority has provided ergonomic furniture and ancillary

aids to all keyboard officers, who have been directed to take

regular breaks from typing duties.

Industrial Democracy

The Public Service Reform Act 1984 requires that the

Authority produce an Industrial Democracy Plan. During the

Authority's development stage, consultation has been

maintained between individual officers and senior management,

represented by the Chairman in Sydney and the Acting Chief

Executive Officer in Melbourne.

A more formal avenue for involving staff in relevant decision

making processes is envisaged. In this regard, consultations

have been sought with the appropriate Trade Unions.

Expenditure

Total expenditure by the Authority for 1984-85, its first

full year of operation, amounted to $1,148,592. A small

increase in expenditure is anticipated in 1985-86, depending

principally on whether staff recruitment is successful.

60

Details of all outlays, with the exception of those made in

respect of office rentals under the control of the Department

of Administrative Services, are shown in Appendix U.

Freedom of Information

During 1984-85 two requests were received by the Authority

pursuant to the Freedom of Information Act 1982.

One request sought documents relating to the Authority's

surveillance of the wholesale price of b e e r , and the other

sought a copy of the previous request. Access was granted

only in part to the former request within 30 days, and an

appeal against the decision was lodged with the

Administrative Appeals Tribunal in July 1985. Access was

granted in full for the second request.

The relevant decisions in each instance were made by the

Authority's Principal Officer, the Chairman.

No charges were waived under the Act during 1984-85 and total

charges collected were $38.76. The estimated cost of staff

time associated with the implementation and administration of

the Freedom of Information Act during the year was 0.083

staff y e a r s . This workload has been absorbed by existing

staff resources.

Formal staff training and development in Freedom of

Information was not undertaken in 1984-85. However, the

expertise available within the Minister's Department, the

Department of the Treasury, was utilised on these matters

when required.

61

A P P E N D I X A

COMMONWEALTH OF AUSTRALIA GAZETTE NOTICES

PUBLISHED IN 1984-85 PURSUANT TO SECTION 23(2)(b) OF THE

PRICES SURVEILLANCE ACT 1983

GAZETTE NO DATE OF GAZETTE

G25 3 July 1984

G35 11 September 1984

G43 6 November 1984

G48 11 December 1984

G8 26 February 1985

G13 2 April 1985

G19 14 May 1985

G23 11 June 1985

6 2

APPENDIX B

INDEXES OF RETAIL PRICES: SELECTED CONSUMER GOODS MARCH 1984 - JUNE 1985

Weighted Average of Eight Capital Cities (Base: December Quarter 1983 = 100)

QUARTER Mar 84 Jun 84 Sep 84 Dec 84 Mar 85 Jun 85

% Change Jun 84-Jun 85

Cereal Products

Bread 103.8 106.2 107.4 106.4 107.6 112.41 + 5.8

Flour 109.7 108.5 112.9 110.1 112.3 117.6 + 8.4

Breakfast Cereals 103.6 107.7 112.4 112.6 114.0 115.9 + 7.6

Biscuits 101.1 103.6 105.4 106.4 108.3 108.91 + 5.1

Dairy Products

Milk 102.4 102.3 102.2 102.4 104.4 104.7 + 2.3

Cheese 99.2 98.4 98.7 97.1 98.1 102.5 + 4.2

Ice-Cream 99.9 100.4 101.3 100.6 100.5 107.3 + 6.9

Other Food Products

Eggs 99.5 99.5 98.8 99.1 100.8 101.2 + 1.7

Margarine 102.9 108.3 114.7 108.8 115.9 125.3 + 15.7

Meat

Chicken (Frozen) 101.9 98.6 97.4 103.1 107.5 108.9 + 10.4

Beef R Veal (Fresh) 101.6 102.6 104.8 106.1 105.5 109.0 + 6.2

QUARTER Mar 84 Jun 84

Vegetables

Processed Vegetables 99.2 98.8

(Frozen) Potatoes 96.5 69.3

Tomatoes 82.3 66.8

Beverages

Tea 105.3 121.2

Coffee 102.0 98.6

Soft Drinks 102.1 102.7

Fruit Juice 100.2 103.6

Beer 102.6 105.6

Personal Care Products

Toilet Soap 101.9 104.7

Toothpaste 98.7 99.0

Household Supplies Items

Facial Tissues & 98.8 99.7

Toilet Paper Laundry Detergent 103.1 106.3

Kitchen Detergent 99.7 104.0

Source: ABS

Sep 84 Dec 84 Mar 85

101.1 99.0 100.6

55.5 122.7

60.3 147.2

63.8 104.3

125.7 104.2 105.2 106.2

106.7

127.1 108.2 106.5 107.0

108.6

132.5 114.7 108.0 111.5 110.2

109.0 102.8

110.3 105.1

,111.9 108.1

101.7 99.0 102.9

104.9 104.3

104.5 108.9

106.5 114.8

X Change

Jun 85 Jun 84-Jun 85

100.7 + 1.9

63.1 8.9

107.6 + 61.1

135.4 + 11.7

114.4 + 16.0

108.8 + 5.9

114.4 + 10.4

111.7 + 5.8

118.0 + 12.7

111.3 + 12.4

103.1 + 3.4

114.0 + 7.2

117.9 + 13.4

A P P ENDIX C

PRESS STATEMENT BY THE TREASURER, THE HON. PAUL KEATING, MP

PRICES SURVEILLANCE AUTHORITY

GUIDELINES FOR PRICING RESTRAINT

The Prices Surveillance Authority has today released a paper

setting out "Guidelines for Pricing Restraint". The

guidelines indicate the Authority's approach to price

surveillance and are intended to provide a basis for price

restraint by business generally.

The paper has been prepared by the Authority in the light of

its experience in its work so far and after considering

submissions received on an exposure draft of voluntary

pricing guidelines which the Authority issued for public

comment in December 1984. The exposure draft was itself

prepared after inviting submissions from peak organisations

representing business, trade unions and consumers as to the

possible content of voluntary pricing guidelines.

The paper reflects the approach which the Authority can be

expected to take in its price surveillance activities, and

contains principles by which businesses not subject to

surveillance, whether in the public or private sector, may

voluntarily assess their own pricing decisions.

Copies of the guidelines are being sent to the wide range of

business and other organisations that contributed to their

compilation.

In addition, the Government will be drawing the guidelines to

the attention of the States and the Northern Territory with a

6 5

view to their also being observed by major State authorities.

It also intends that the guidelines will be applied where

appropriate by Commonwealth authorities in pricing and price

regulatory decisions. This intention was announced at the

National Economic Summit in April 1983 and in my Second

Reading Speech introducing the Prices Surveillance Bill.

The release of these guidelines is especially relevant at the

present time when there is additional pressure on prices

following the depreciation of the Australian dollar. it is

particularly important in this context that price restraint

be exercised by business so that full advantage can be taken

of the boost which the depreciation can provide to employment

and to the prospects for continuing economic growth.

CANBERRA ACT

8 August 1985

66

A P P ENDIX D

PUBLICATIONS RELEASED BY THE

AUTHORITY DURING 1984-85

1. Reports on Public Inquiries

. Final report on an inquiry in relation to the supply

of petroleum products (25 July 1984)

. An inquiry in relation to the supply of

telecommunications services (23 October 1984)

. An inquiry in relation to the supply of certain

postal services (12 December 1984)

. An inquiry in relation to the supply of fruit juices

(13 June 1985)

2. Exposure draft of Voluntary Pricing Guidelines (December 1984)

3. List of maximum endorsed wholesale prices of the declared petroleum products (issued monthly).

4. A pamphlet outlining the functions of the Authority (February 1985) .

The publications listed above are obtainable, free of charge, from the Authority's Offices at:

1st F l o o r , 22 Pitt Street, Sydney, 2000 (PO Box R364, Royal Exchange) Telephone: (02) 275677 Telex: AA71605

10th Floor, 10 Queens Road, Melbourne, 3004 Telephone: (03) 267 3700 Telex: AA32504.

5. Annual Report 1983-84 (September 1984)

Copies of the Authority's Annual Report are available for purchase at Australian Government Publishing Service bookshops in all capital cities.

6 7

A P P E N D I X E

UNDER SECTION 20 OF THE PRICES SURVEILLANCE ACT 1983

SPECIAL CONSIDERATIONS IN RELATION TO THE PRICING

OF PETROLEUM PRODUCTS

DIRE C T I O N BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DIRECTION

I, the Treasurer, in pursuance of section 20 of the Prices

Surveillance Act 19 8 3 , hereby direct the Prices Surveillance Authority to give special consideration, in exercising its powers and performing its functions under that Act, to the following matter:

in relation to pricing of petroleum products, the Government's policy th a t :

(a) costs of sea freight presently excluded from freight differentials for outports and locations supplied from outports

should not be added to those

differentials;

(b) non-freight costs of non-metropolitan distribution should not be included in differentials for locations listed in the Authority's schedule of differentials;

(c) additional freight costs on imported

crude oil above international freight rates (determined at the appropriate

Average Freight Rate Assessment

prevailing at the date of commencement of loading for tankers carrying oil imports) should not be accepted as a basis for

pricing of petroleum products.

Dated this 17th day of August 1984.

P.J. KEATING Treasurer

6 8

A P P ENDIX F

DECLARATION BY THE MINISTER

UNDER SECTION 21 OF THE PRICES SURVEILLANCE ACT 1983

DECLARATION IN RELATION TO PETROLEUM PRODUCTS

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DECLARATION

I, the Treasurer, in pursuance of section 21 of the Prices

Surveillance Act 1 9 8 3 , hereby:

(a) revoke my declaration of 13 March 1984 relating to

petroleum products, published in the Commonwealth of Australia Gazette No. S 1 0 6 ; and

(b) declare:

(i) the goods described in Schedule 1 to this

declaration to be notified goods for the purposes of the A c t ;

(ii) the persons listed in Schedule 2 to be, in

relation to the goods described in Schedule 1,

declared persons for the purposes of the A c t ; and

(iii) a supply of the goods described in Schedule 3,

being a supply in a man n e r , of a kind or in the

circumstances specified in Schedule 3, to be an exempt supply for the purposes of the Act.

Dated this 17th day of August 1984.

P.J. KEATING Treasurer

6 9

SCHEDULE 1 Notified Goods

Aviation Gasoline Aviation Turbine Fuel Automotive Distillate Motor Spirit Refinery Produced Liquefied Petroleum Gas

SCHEDULE 2 Declared Persons

Ampol Limited Ampoi Petroleum (Victoria) Pty Limited Ampol Petroleum (Queensland) Pty Limited Total Australia Limited BP Australia Limited BP Oil Distribution Limited Caltex Oil (Australia) Pty Limited Esso Australia Limited Mobil Oil Australia Limited The Shell Company of Australia Limited Neptune Oil Company Pty Limited

SCHEDULE 3 Exempt Supplies

(a) a supply of goods described in Schedule 1 from a retail

si t e ;

(b) a supply of goods described in Schedule 1 to a declared

person or a subsidiary of a declared person;

(c) a supply of refinery produced liquefied petroleum gas for use as a petrochemical feedstock, or for use as a

fuel in metal smelting or power generation;

(d) a supply of goods described in Schedule 1 in pursuance

of a written agreement concluded by a declared person after the person has responded to a public request for tenders for the supply of those goo d s ;

(e) a supply of goods described in Schedule 1 to a locality

not listed in the Authority's freight differential

schedule;

(f) a supply of refinery produced liquefied petroleum gas beyond the refinery gate.

70

APPENDIX G

UNDER SECTION 20 OF THE PRICES SURVEILLANCE ACT 1983

UNLEADED PETROL

D I RECTION BY THE M I N I S T E R

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DIRECTION

I, the Treasurer, in pursuance of section 20 of the Prices

Surveillance Act 1 9 8 3 , hereby direct the Prices Surveillance Authority to give special consideration, in exercising its powers and performing its functions under that Act, to the

following matter:

the Government's policy that, as a broad objective, 92 octane unleaded petrol should be priced the same as 97 octane leaded petrol at any point of sale.

Dated this 12th day of March 1985.

P.J. KEATING Treasurer

71

A P P E N D I X Η

UNDER SECTION 18 OF THE PRICES SURVEILLANCE ACT 1983

INQUIRY INTO CERTAIN TELECOMMUNICATIONS SERVICE CHARGES

A P P R O V A L BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

APPROVAL TO HOLD AN INQUIRY

I, the Treasurer, in pursuance of section 18 of the Prices.

Surveillance Act 1 9 8 3 , hereby approve the holding by the

Prices Surveillance Authority of an inquiry into the

following matters, being an inquiry in relation to the supply by a particular person, namely the Australian

Telecommunications Commission, of standard telephone services for rental; telephone calls made within Australia, other than special services provided in connection with those

calls; and the transmission within Australia of telegrams that are lodged at telegraph offices otherwise than by means of a telecommunications service:

(a) the basis for establishing prices for those services; and

(b) appropriate prices in current circumstances for those services.

The inquiry is to be completed and a report submitted by 23

October 1984.

Dated this 24th day of July 1984.

P.J. KEATING Treasurer

7 2

A P P ENDIX I

UNDER SECTION 20 OF THE PRICES SURVEILLANCE ACT 1983

CHARGES BY THE AUSTRALIAN TELECOMMUNICATIONS COMMISSION

DIRE C T I O N BY THE M I N I S T E R

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DIRECTION

I, the Treasurer, in pursuance of section 20 of the Prices

Surveillance Act 1983, hereby direct the Prices Surveillance A uthority, Γη exercising its powers and performing its

functions under the Act in relation to prices charged by the Australian Telecommunications Commission (the Commission) in respect of the provision of standard telephone services by the Commission for rental; telephone calls made within

Australia, other than special services provided by the

Commission in connection with those calls; and the

transmission within Australia of telegrams that are lodged at telegraph offices otherwise than by means of a

telecommunications service provided by the Commission, to give special consideration to the following matters:

. the functions and duties of the Commission as set out in

sections 5 and 6 of the Telecommunications Act 1975 and to such directions given to the Commission by the

Minister for Communications under section 7 of that Act as may from time to time be in force;

. the Commission’s obligations, pursuant to sub-section 72(1) of the Telecommunications Act 1975, to obtain the approval of the Treasurer for the borrowing of moneys necessary for the performance of its functions, and the

level of any such approvals;

. the Commission’s obligation to pursue a financial policy in accordance with section 73 of the Telecommunications Act 1975 and in particular the implications for pricing and running of telecommunications services;

73

the liability of the Commission to pay to the

Commonwealth, at such times and by such instalments as the Minister for Finance from time to time determines, amounts in accordance with section 71 of the

Telecommunications Act 1975;

the employment policies applicable to the Commission as a public sector employer and the established terms and conditions of employment applicable to officers and

employees of the Commission; and

the provision of section 94 of the Telecommunications Act 1975.

Dated this 25th day of July 1984

P.J. KEATING Treasurer

74

APPENDIX J

UNDER SECTION 18 OF THE PRICES SURVEILLANCE ACT 1983

INQUIRY INTO CERTAIN POSTAL SERVICE CHARGES

A P P R O V A L BY THE M I N I S T E R

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

APPROVAL TO HOLD AN INQUIRY

I , the Treasurer, in pursuance of section 18 of the Prices

Surveillance Act 1 9 8 3 , hereby approve the holding by the

Prices Surveillance Authority of an inquiry into the

following matters, being an inquiry in relation to the supply by a particular person, namely the Australian Postal

Commission, of the transmission within Australia by ordinary post of standard postal articles and registered publications:

(a) the basis for establishing prices for those services; and

(b) appropriate prices in current circumstances for those services.

The inquiry is to be completed and a report submitted by 12

December 1984.

Dated this 17th day of September 1984

P.J. KEATING Treasurer

75

APPENDIX K

UNDER SECTION 20 OF THE PRICES SURVEILLANCE ACT 1983

CHARGES BY THE AUSTRALIAN POSTAL COMMISSION

DIRECTION BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DIRECTION

I, the Treasurer, in pursuance of section 20 the Prices

Surveillance Act 1983, hereby direct the Prices Surveillance Authority, in exercising its powers and performing its

functions under the Act in relation to prices charged by the Australian Postal Commission (the Commission) in respect of the transmission within Australia by ordinary post of

standard postal articles and registered publications to give special consideration to the following matters:

. the functions and duties of the Commission as set out in

sections 6 and 7 of the Postal Services Act 1975 and to

such directions given to the Commission by the Minister for Communications under section 8 of that Act as may

from time to time be in force;

• the Commission's obligation, pursuant to sub-section

75(1) of the Postal Services Act 1975 , to obtain the

approval of the Treasurer for the borrowing of moneys necessary for the performance of its functions, and the level of any such approvals;

• the Commission's obligation to pursue a financial policy in accordance with section 76 of the Postal Services Act 1975 and in particular the implications for pricing and running of postal services;

7 6

the liability of the Commission to pay to the

Commonwealth, at such times and by such instalments as the Minister for Finance from time to time determines, amounts in accordance with section 74 of the Postal

Services Act 1 9 7 5 ;

the employment policies applicable to the Commission as a public sector employer and the established terms and conditions of employment applicable to officers and employees of the Commission; and

the provision of section 85 of the Postal Services Act 1975. ..................

Dated this 25th day of July 1984

P.J. KEATING Treasurer

77

APPENDIX L

UNDER SECTION 21(1) OF THE PRICES SURVEILLANCE ACT 1983

CONCRETE ROOFING TILES

D E CLARATION BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DECLARATION

I, the Treasurer, in pursuance of sub-section 21(1) of the Prices Surveillance Act 1983, hereby declare:

(a) concrete roofing tiles to

purposes of the A c t ; and be notified goods for the

(b) Monier Limited to be, in relation to those g o o d s , a

declared person for the purposes of the Act.

Dated this 19th day of December 1984.

P.J. KEATING Treasurer

7 8

APPENDIX Μ

UNDER SECTION 21(1) OF THE PRICES SURVEILLANCE ACT 1983

FLOAT GLASS

DECLA R A T I O N BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DECLARATION

I, the Treasurer, in pursuance of sub-section 21(1) of the Prices Surveillance Act 19 8 3 , hereby declare:

(a) float glass to be a notified good for the purposes of

the A c t ; and

(b) Pilkington ACI Limited to be, in relation to that g o o d , a declared person for the purposes of the A c t .

Dated this 19th day of December 1984.

P.J. KEATING Treasurer

7 9

A P P ENDIX N

UNDER SECTION 21(1) OF THE PRICES SURVEILLANCE ACT 1983

TEA

DECLARATION BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DECLARATION

I, the Treasurer, in pursuance of sub-section 21 (1) of the Prices Surveillance Act 1983, hereby declare:

(a) packet tea and tea bags to be notified goods for the

purposes of the Act;

(b) Bushells Pty Ltd and Rosella Lipton Pty Ltd to be, in

relation to those goods, declared persons for the

purposes of the Act; and

(c) a supply of the goods described in (a) being a supply:

(i) from a retail site;

(ii) to a declared person or a subsidiary of a

declared person; or

(iii) in pursuance of a written agreement concluded by a declared person after the person has responded to a public request for tenders of the supply of

those goods

to be an exempt supply for the purposes of the Act.

Dated this 7th day of March 1985

P.J. KEATING Treasurer

80

A P P ENDIX Ο

UNDER SECTION 21(1) OF THE PRICES SURVEILLANCE ACT 1983

INSTANT COFFEE

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DECLARATION BY THE MINISTER

DECLARATION

I, the Treasurer, in pursuance of sub-section 21(1) of the Prices Surveillance Act 1983, hereby declare:

(a) instant coffee to be a notified good for the purposes of the A c t ;

(b) Nestle Australia Ltd, Bushells Pty Ltd, Cottees General Foods Ltd and Cadbury-Schweppes Australia Ltd to be, in relation to that good, declared persons for the purposes of the A c t ; and

(c) a supply of the good described in (a) being a supply:

(i) from a retail site;

(ii) to a declared person or a subsidiary of a declared person; or

(iii) in pursuance of a written agreement concluded by a declared person after the person has responded to a public request for tenders for the supply of

that good

to be an exempt supply for the purposes of the Act.

Dated this 7th day of March 1985.

P.J. KEATING Treasurer

81

APPENDIX P

UNDER SECTION 21(1) OF THE PRICES SURVEILLANCE ACT 1983

CIGARETTES

DECLARATION BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DECLARATION

I, the Treasurer, in pursuance of sub-section 21(1) of the Prices Surveillance Act 1983, hereby declare:

(a) cigarettes to be notified goods for the purposes of the Act; and

(b) Philip Morris (Aust) Limited, R.othmans of Pall Mall

(Aust) Limited and W.D. & H.O. Wills (Aust) Limited to be, in relation to those goods, declared persons for the purposes of the Act.

Dated this 19th day of December 1984.

P.J. KEATING Treasurer

82

A P P ENDIX Q

UNDER SECTION 21(1) OF THE PRICES SURVEILLANCE ACT 1983

BEERS

D E C L A R A T I O N BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

DECLARATION

I, the Treasurer, in pursuance of sub-section 21(1) of the Prices Surveillance Act 19 8 3 , hereby declare:

(a) b e e r s , including those produced as brewed soft drinks, to be notified goods for the purposes of the Act; and

(b) Carlton and United Breweries Ltd, The Cascade Brewery Co Ltd, Castlemaine Tooheys Ltd, The South Australian

Brewery Co Ltd and The Swan Brewery Company Ltd to be,

in relation to those goods, declared persons for the

purposes of the Act.

Dated this 19th day of December 1984.

P.J. KEATING Treasurer

83

A P P E N D I X R

UNDER SECTION 18 OF THE PRICES SURVEILLANCE ACT 1983

INQUIRY IN RELATION TO THE SUPPLY OF FRUIT JUICES

D I RECTION BY THE MINISTER

COMMONWEALTH OF AUSTRALIA

Prices Surveillance Act 1983

REQUIREMENT TO HOLD AN INQUIRY

I , the Treasurer, in pursuance of Section 18 of the Prices

Surveillance Act 1983, hereby require the Prices Surveillance Authority to hold an inquiry into the following matters,

being an inquiry in relation to the supply by particular

persons, namely Sunpak Fruit Juices Pty Ltd and Life Savers (Australasia) Limited, of fruit juices:

(a) appropriate prices in current circumstances for those supplies, with particular reference to labour cost

increases resulting from recent negotiations with the Food Preservers' U n i o n ; and

(b) whether surveillance under section 21 of the Prices

Surveillance Act 1983 should be exercised by the

Authority over fruit juice prices.

The inquiry is to be completed and a report submitted by 13

June 1984.

Dated this 13th day of March 1985.

P.J. KEATING Treasurer

84

ORGANISATION CHART

C/D

X H

g ω Dh & ccCLERICALADMINISTRATIVEPERSONAL ___________ -------------ηSECRETARY |CLERICAL STENOADMINISTRATIVE SECRETARYj TYPISTCLERICALASSISTANTADMINISTRATIVESTENOSECRETARY CLERICALASSISTANTJ L •SYDNEY OFFICE 30.6.85MELBOURNE OFFICE

APPENDIX T

CLASSIFICATION OF STAFF POSITIONS SHOWN BY

ORGANISATION PROVISION AND PHYSICAL OCCUPANCY

AT 30 JUNE 1985

POSITIONS ON POSITIONS PHYSICALLY

CLASS/LEVEL DESIGNATION ESTABLISHMENT OCCUPIED

SES Level 3 Chief

Executive Officer

1 1

SES Level 1 Director 1 1

Clerical Administrative Class 11

Supervising Project Officer

2 2

Clerical Administrative Class 9

Senior Project Officer

7 5

Clerical Administrative Class 8

Project Officer 7 5

Clerical Administrative Class 8

Administrative Officer

1 1

Clerical Adminis trative Class 7

Project Officer 1 1

Clerical Adminis trative Class 4

Clerical Administrative

2 2

Assistant Research Officer

Assistant Research Officer

2 1

Clerical Administrative Class 2/3

Clerical Administrative Class 2/3

1 1

86

POSITIONS

CLASS/LEVEL DESIGNATION

POSITIONS ON ESTABLISHMENT PHYSICALLY OCCUPIED

Grade 2 Personal Secretary 1 1

Grade 2 Steno-Secretary 1 1

Grade 1 Steno-Secretary 1 1

Grade 3 Clerical Assistant 1 -

Grade 2 Typist 2 2

Grade 1 Clerical Assistant 1 1

32 26

87

A P P ENDIX U

PRICES SURVEILLANCE AUTHORITY

EXPENDITURE 1984-85

TREASURY DIVISION 672

Sub-Division 1

Salaries and Payments in the Nature of Salary

Sub-Division 2

Administrative Expenses

Remuneration and Allowances - Authority Members

TREASURY DIVISION 976

Sub-Division 1

Capital Works and Services

N O T E : Administrative expenses include costs of transport for Authority Members.

$ 794,683

$ 208,088

$1,002,771

$ 109,368

$ 36,453

fares and

88