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Wednesday, 29 March 1995
Page: 2434


Senator CROWLEY (Minister for Family Services) (5.00 p.m.) —I table the explanatory memorandum and draft intergovernmental agreements relating to the bill and move:

  That this bill now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

  Leave granted.

  The speech read as follows

  This bill is the central element of a new national competition policy.

It will establish processes and institutions to encourage competition, not just in particular sectors, but across the whole economy. This bill, and the associated draft agreements between the Commonwealth and State and Territory Governments, have the potential to trigger reform initiatives for many years to come. Implementing this policy is the most important single development in micro-economic reform in recent years. Ultimately, the ability of the economy to grow, to provide jobs and an improved standard of living, depends upon how well the productive potential of the economy is employed and enhanced.

As the Federal Government set out clearly in its White Paper on Growth and Employment, creating the conditions for new job growth is its principal task. The payoff from this bill for ordinary Australians is very real. It paves the way for cheaper prices, more growth and more jobs. It is an important element of our ambition to reduce unemployment to around 5% by the end of this decade.

These reforms affirm the role of competition policy as an explicit element of the broad range of considerations the Federal Government brings to policy decisions; complementing social justice objectives delivered through comprehensive social security and community services programs; protection for consumers, employees and the environment through specific laws; industry development through infrastructure investment and business assistance programs; and stable macro-economic policy settings which maximise the rate of sustainable economic growth.

The origins of the bill may be traced to 1991 when the Commonwealth and the States and Territories agreed to examine a national approach to competition policy. In 1992, the Government commissioned the National Competition Policy Review, chaired by Professor Fred Hilmer. The Hilmer Report was completed in August 1993. Since then the Government has been engaged in extensive consultations with State and Territory Governments on implementation of the Report. The Report was discussed by the Council of Australian Governments in February 1994 and August 1994.

The vision of the Hilmer Report was for a national competition policy in which the Commonwealth, States and Territories cooperated to ensure that universal and uniformly applied rules of market conduct apply to all market participants regardless of their form of ownership. The Commonwealth has worked hard to realise this vision with the cooperation of the States and Territories. While there are still some issues to be resolved, the Commonwealth sincerely hopes that the issues can be resolved at the forthcoming COAG meeting in April. In this regard the Commonwealth welcomes the strong support for a co-operative national approach to competition policy as expressed in the communique from the States and Territory forum held in Adelaide on 24 February 1995. Agreement at the COAG meeting would see the signing of the draft agreements at that meeting and the subsequent application by the States and Territories of the competition provisions of the Trade Practices Act 1974 to those areas which are outside the Commonwealth's Constitutional reach.

Australian business is increasingly operating on a nationally integrated basis, and a more national approach is needed for business regulation. Businesses and consumers will benefit from the uniform protection of consumer and business rights that a national competition policy will provide. The full measure of these benefits can only be achieved with all governments working together to provide consistent and certain competition rules.

This bill has been prepared with the benefit of wide ranging consultation with the public since 1992. The Hilmer Committee received more than 130 public submissions. In preparing draft legislation in response to the Hilmer Report, officers of Commonwealth, State and Territory Governments, met with a range of business, consumer, union and environmental representatives. A package containing a draft of this bill and draft intergovernmental agreements was released in September 1994 for public comment. The package attracted more than 60 substantive submissions from the public. The broad thrust of the package met with general community approval.

As a result of public comments received, various changes were made to the draft bill to tidy up matters of detail and to streamline and increase the flexibility of processes established by these reforms. The package was also amended to better reflect the fact that competition policy occurs in the context of the broader policy concerns of governments and the community.

The main elements of the bill take the form of amendments to the Trade Practices Act and the Prices Surveillance Act. The Trade Practices Act will be amended so that, with State and Territory application legislation, the prohibitions against anti-competitive conduct can be applied to all businesses in Australia. A new legal regime will be created which facilitates businesses obtaining access to the services of certain essential infrastructure facilities. The Trade Practices Commission and the Prices Surveillance Authority will be merged to form the Australian Competition and Consumer Commission, and a new advisory body, the National Competition Council, will be established. Prices surveillance processes will be streamlined, and their jurisdiction extended to State and Territory government businesses.

The bill is complemented by two draft inter-governmental agreements. The first of these agreements, the Conduct Code Agreement, sets out processes for amendments to the competition laws of the Commonwealth, the States and the Territories, and for appointments to the Commission.

The Competition Principles Agreement sets out arrangements for appointments to, and deciding the work program of, the National Competition Council. It also sets out the principles governments will be agreeing to follow in relation to prices oversight, structural reform of public monopolies, review of anti-competitive legislation and regulations, access to services provided by means of essential facilities and elimination of net competitive advantages enjoyed by government businesses where they compete with the private sector.

By signing the Competition Principles Agreement, Governments will be agreeing to processes for further micro-economic reforms. In general, individual Governments will be responsible for setting their own timetables and agendas for progressing these reforms.

The Agreement does not compel specific reforms by Governments. It is not about competition for competition's sake. This is reflected in the fact that the Agreement provides a consistent requirement for public benefit tests to guide policy decisions. Many such decisions are taken currently by governments without the discipline of public benefit tests, other than through the normal parliamentary processes.

In particular the Agreement, and indeed the package of reforms in total, does not compel, or even encourage, Governments to privatise government business enterprises, nor to abandon or reduce community service obligations. The package, as with the report by the Hilmer committee, is silent on the issue of public versus private ownership. The Agreement sets out certain processes that should be followed where a government business enterprise is to be privatised or exposed to competition for the first time. The decision as to whether, and when, a government business enterprise might be privatised remains the exclusive responsibility of the owning government.

As the Commonwealth has illustrated in the telecommunications industry, privatisation and the introduction of competition are entirely separate decisions. It is possible, and in many cases clearly desirable, to introduce competition and realise its economic benefits while retaining public ownership.

The Competition Principles Agreement will facilitate a more careful and systematic consideration of the delivery of community service obligations (CSOs) by State and Territory governments where they decide to undertake structural reform of their business enterprises. It includes no mechanisms or incentives for governments to reduce their commitment to the effective delivery of these CSOs.

The Commonwealth already has in place a set of administrative arrangements for the delivery of CSOs by its business enterprises. These are contained in the Accountability and Ministerial Oversight Arrangements for Commonwealth Government Business Enterprises. These arrangements provide for CSOs to be explicit and transparent, to be provided at minimum cost and, where provided by government business enterprises through cross-subsidies, to be reflected in the financial targets of those enterprises. These arrangements are already operating effectively in the delivery of CSOs such as those in telecommunications and in postal services.

Taken together, the bill and the two draft inter-governmental agreements represent a complete response to the recommendations of the Hilmer Committee. In many respects the package is simply a statement of common sense. It is not a radical notion that businesses should not be permitted to engage in anti-competitive conduct. It is not a radical notion that consumers generally benefit from greater competition, and that where possible, greater competition should be encouraged. It is not a radical notion that in reviewing legislation or market structures, due consideration should be given to opportunities to enhance efficiency through competition. But the great step forward made by this package is that it sets out these statements of common sense for all to see; it creates new institutions better able to encourage businesses and governments to act in accordance with these statements of common sense; and the resulting principles will be applied to all Australian businesses regardless of ownership or legal form.

The Government is very proud of its record on micro-economic reform, which is delivering significant benefits to Australian consumers and businesses. Until now these reforms have largely focused on particular industry sectors such as telecommunications or domestic aviation. The reforms which result from this package may not be individually as large as some of the earlier initiatives, but taken together they will produce significant gains for the Australian economy.

The Industry Commission's analysis of the growth and revenue benefits of Hilmer and related reforms shows that these reforms are overwhelmingly good for the Australian economy and will produce gains in output, consumption and employment. Moreover these benefits are widely distributed throughout the community, with very few industries projected to lose from the reforms.

Nevertheless, the Commonwealth recognises that while the benefits of reform are shared widely throughout the community, any adjustment costs may be borne by much smaller groups. The introduction of competition in previously protected sectors can, for instance, affect the employment conditions of people working in those sectors. The Government has developed labour market programs (including training and retraining) to assist the process of adjustment for these people.

It is important to understand that this Government is not interested in reform or competition for its own sake. The package recognises that economic efficiency is one element of a broader public policy context which also includes social considerations. Explicit recognition is given to these broader elements of the public interest in the bill and in the Competition Principles Agreement. The package gives appropriate recognition, not only to competition and efficiency considerations, but to all the other policy objectives which governments must balance in making policy decisions, such as ecologically sustainable development, social welfare and equity considerations, community service obligations, and the interests of consumers.

The package gives clear recognition to these other objectives, with the clear intent that governments should give full and proper consideration to these matters when they make decisions about economic reform.

There has been some concern that implementing a national competition policy will lead to the wholesale dismantling of the public sector. This is a serious misunderstanding of the proposed reforms. For the most part, these reforms are relevant only after governments have taken the threshold policy decision to introduce competition, and then only to `significant' business activities. Many public sector organisations have both commercial and non-commercial functions, and these reforms are not designed to affect the non-commercial functions undertaken for governments.

In sectors such as education, health, welfare, community services and labour market programs where the public sector has, and will continue to have, a dominant role, the relevance of competition policies will be limited to those circumstances where enterprises are engaged in business activity. In most cases where this is an issue at all, this is a small part of their overall role, or ancillary to the provision of core services.

For instance, government schools are not normally engaged in business activity. While they may be seen as competing with private schools (for students), this is not competition to earn revenue and profits, and is therefore not a `business' activity to which the competitive neutrality principles apply. Similarly, these reforms will not be relevant to public hospitals treating public patients or providing in-house hospital services, but may be relevant where those hospitals are treating private patients or operating commercial cleaning services. In these areas a public hospital would be directly competing with private firms.

There will always be a legitimate role for the public sector in Australia, but this role is evolving and changing over time. The Government does not see these reforms accelerating those changes in the public sector's role, but the competition principles will provide a coherent framework for responding to the implications and consequences of those changes, particularly in the areas of third party access, prices oversight and competitive neutrality.

In view of the evolving nature of the public sector, the Commonwealth has established arrangements to provide safeguards for its employees. The treatment of employment conditions in Commonwealth public sector agencies is primarily governed by legislation, including when those agencies undergo changes such as a transfer of ownership.

Employees in Commonwealth agencies derive most of their employment conditions from awards and enterprise agreements. Where there is no change of employer (ie. where the agency is incorporated and the sale is by way of sale of shares) awards and enterprise agreements are unaffected by the change. Where there is a change of employer (eg. where the agency's assets are sold), it is usual for awards and enterprise agreements to transmit to the new employer by operation of s. 149 of the Industrial Relations Act 1988. If there is any doubt as to transmission, it has been the Government's practice to consider taking other steps to ensure transmission, such as including appropriate provisions in sale contracts. There may be occasions when some conditions (such as long service leave) are not derived from industrial agreements. In such cases, the Government has encouraged the parties to negotiate any changes to these conditions with an objective being to maintain broad equivalence in the overall package of employment conditions.

The Commonwealth considers that all governments have a responsibility to have in place appropriate safeguards for their employees. The Government does not see this package as a device for reducing the wages and conditions of public sector employees. Erosion of their wages and conditions does not equate with the `benefits' in the Competition Principles Agreement against which policy changes need to be assessed. The Government's vision, as enunciated in Working Nation, is to achieve an economy based on high wages and high productivity.

The package provides strong incentives for State and Territory governments to participate in the new regime. Participating governments will retain the capacity to exempt specific conduct from the competition laws. They will also have a role in making appointments to the new institutions, in determining the work program of the new National Competition Council, and in a range of other matters. Non-participating governments will not obtain the benefits of involvement in the new regime. For example, they will not have the power to exempt conduct from the competition laws, although in all jurisdictions it will be possible to obtain administrative authorisation for anti-competitive conduct which on balance is in the public interest.

If agreement cannot be reached at the forthcoming COAG meeting the Commonwealth is determined to continue alone with the proposed competition policy reforms, although this would require some changes to the bill. The Commonwealth realises that this would be a less desirable outcome to a truly national and cooperative approach between the Commonwealth and the States and Territories. However, many of the reforms could still be implemented by the Commonwealth proceeding on its own. The payoff from these reforms for ordinary Australians is too great for the Commonwealth to allow the whole process to falter.

I turn now to examine the main provisions of the bill.

Amendments to the Competitive Conduct Rules of the Trade Practices Act (Part IV)

Part IV of the Trade Practices Act prohibits various forms of anti-competitive conduct, such as contracts which substantially lessen competition, misuse of market power and mergers and acquisitions which substantially lessen competition. One of the main features of the bill is that it extends the operation of these competitive conduct rules to currently exempt businesses, and facilitates their further extension by State and Territory legislation.

Limitations on the Commonwealth's constitutional power have meant that unincorporated businesses operating solely in intra-State trade are currently not covered by the competitive conduct rules in the Trade Practices Act. This sector of the economy includes major businesses, such as those operated by some legal firms. This bill is part of a co-operative legislative scheme, involving the Commonwealth and the States and Territories, which will apply the competitive conduct rules to these businesses. To achieve coverage of these businesses, the bill creates a form of text to be known as "the Competition Code". The Competition Code contains the rules set out in Part IV of the Trade Practices Act, modified to refer to "persons" rather than "corporations". The text of the Competition Code is to be made operative by State and Territory laws which will apply the Code within each jurisdiction. It is envisaged that the State and Territory legislation will commence within 12 months of the commencement of this bill.

In order to ensure there are no gaps in coverage, there will be overlap between Part IV and the Competition Code. Most businesses will be subject to both. However, it will not be possible to award penalties under both Part IV and the Competition Code, in respect of the same conduct. There will only be one enforcement agency, the Australian Competition and Consumer Commission, and all enforcement action will be brought in the Federal Court. The draft intergovernmental Conduct Code Agreement indicates a commitment to maintain consistency between the prohibitions in Part IV and the prohibitions in the Competition Code.

Another major extension of coverage which is achieved by the bill is the removal of "shield of the Crown" protection from State and Territory Government businesses. A State or Territory government department or authority, which represents the Crown, will now be required to comply with Part IV of the Trade Practices Act to the extent that it carries on a business. Certain forms of government activity, such as taxing, licensing and compulsory acquisition of primary products are unlikely ever to be legally construed as "business". To avoid any doubt, provisions have been included which expressly indicate that such activities do not amount to business. Similarly it is not legally possible for an individual entity to carry on business with itself. Provisions have been included which make clear that there is no "business" activity when two government departments deal with each other, because they are both part of a single legal entity, the Crown.

Presently, the Commonwealth and the States and Territories can legislate or make regulations which provide for exemptions from the competitive conduct rules of the Trade Practices Act. Under this bill the potential for such exemptions from the Trade Practices Act will be considerably restricted. The Commonwealth and participating States and Territories will only be able to make exemptions by laws which expressly refer to the Trade Practices Act. Existing laws which do not comply with this new requirement will cease to provide exemption after three years. The Conduct Code Agreement requires parties enacting such legislation to inform the Commission in writing within 30 days of the legislation being enacted. Where there is an urgent need for exempting legislation, regulations may be passed, but these will only be operative for two years. In addition to these measures, the Commonwealth will remove from the Trade Practices Act the provision which expressly permits regulations exempting particular classes of conduct.

An objects clause is to be inserted into the Trade Practices Act, indicating that its purpose is to enhance the welfare of Australians, through the promotion of competition and fair trading practices and provision for consumer protection.

Some modifications to the competitive conduct rules are being made, prior to extension of the rules to currently exempt businesses. These will give the act and the Commission a greater capacity to deal with modern business practices and minimise the need for separate exempting legislation.

The modifications will make it possible for the Commission to authorise agreements between competitors to fix the price of goods, and to authorise firms to engage in resale price maintenance. The Commission will only give such authorisation where it assesses there is a benefit to the public in the arrangements. The prohibition against price discrimination is to be repealed as the provision is largely redundant, and the conduct it is designed to address is adequately covered by other provisions of the act. Prohibitions dealing with the re-supply of goods are to be extended to deal with the re-supply of services. A scheme of notification is to be introduced in respect of conduct known as third line forcing, which includes practices such as selling goods or services on condition that the buyer also buys goods or services from a third party. Under the notification scheme, people proposing to engage in third line forcing may notify the Commission of the proposed conduct, and they will gain immunity from legal action in respect of the conduct. The immunity commences a prescribed period after notification and operates unless or until the Commission issues a notice to the effect that the detriment of the conduct outweighs any benefits.

Access

The bill inserts a new Part into the Trade Practices Act, to establish a legal regime to facilitate third parties obtaining access to the services of certain essential facilities of national significance. The notion underlying the regime is that access to certain facilities with natural monopoly characteristics, such as electricity grids or gas pipelines, is needed to encourage competition in related markets, such as electricity generation or gas production. Access to such facilities can be achieved if a person seeking access is successful in having the service "declared" and then negotiates access with the service provider.

The new National Competition Council will consider applications for declaration of particular services. It may recommend declaration of a service if it is satisfied that access to the service would promote competition, that it would be uneconomical for anyone to develop another facility to provide the service, that the facility is of national significance, that access would not cause undue risk to health or safety, that access is not already the subject of an effective access regime, and that access would not be against the public interest.

The Council's recommendation will be considered by the designated Minister, who will decide whether or not to declare the service. Where a facility is owned or operated by a State or Territory authority and that State or Territory is a party to the Competition Principles Agreement, the designated Minister will be the responsible State or Territory Minister. Otherwise, the designated Minister will be the responsible Commonwealth Minister. Ministers' decisions will be subject to appeal to the Australian Competition Tribunal.

Once a service is declared, parties will be free to negotiate their own terms and conditions of access, including through private arbitration. If it is not possible to reach agreement, they can notify the Australian Competition and Consumer Commission of a dispute, and the Commission can make a determination setting the terms and conditions of access. Private arbitration can be enforced using the new access regime if, subject to a public interest test, they are registered by the Commission. Determinations by the Commission may be appealed to the Tribunal.

As an alternative to this process, the owner or operator of a facility can offer an undertaking to the Commission about the terms and conditions on which it will provide access to third parties. If the Commission accepts such an undertaking, the services provided by the facility cannot be declared by the Council. This provides a means by which the owner or operator can obtain certainty about access arrangements, before a third party seeks access.

Prices Oversight

The existing functions of the Prices Surveillance Authority will be taken over by the Australian Competition and Consumer Commission, and to the existing functions of prices surveillance and price inquiries will be added price monitoring. Under prices surveillance, the price of a declared product will not be permitted to be increased above its highest endorsed price in the previous 12 months, without notification to the Commission. Price inquiries involve studies of limited duration of matters relating to prices for the supply of particular goods or services, and result in reports to the Minister. Under prices monitoring, the Minister may request ongoing monitoring of prices, costs and profits in any industry or business.

It is expected that price monitoring will be less intrusive and involve less administrative burden for businesses than prices surveillance. Surveillance will continue to be appropriate for firms with substantial market power in substantial markets, where there is strong reason to believe firms will use their market power to increase prices. Price monitoring may be appropriate where there is concern about the effectiveness of competition, a history of price problems, or community concern about price levels or movements, or where industries have been recently reformed or deregulated. Where price monitoring fails to resolve unacceptable pricing practices or uncovers structural problems in the market, firms may be declared for prices surveillance.

In keeping with the aim of achieving a truly national competition policy, the Prices Surveillance Act 1983 will be amended to permit, in certain circumstances, price oversight of State and Territory Government businesses. Prices surveillance will be possible where the State or Territory concerned has agreed or where the National Competition Council has, on the request of an Australian government, recommended declaration of the authority and the Commonwealth Minister has consulted the appropriate Minister of the State or Territory concerned. The Council can not recommend declaration if the government business is already subject to effective prices oversight. Price monitoring of State or Territory businesses will only be permitted with the agreement of the State or Territory concerned.

Institutions

The new Australian Competition and Consumer Commission will be formed by merging the Trade Practices Commission and the Prices Surveillance Authority. The Commission will be responsible for enforcement of the competition and consumer protection provisions of the Trade Practices Act and the provisions of the Competition Code. It will also make determinations under the new access regime, and be responsible for prices surveillance, inquiries and monitoring under the Prices Surveillance Act.

The National Competition Council will be an entirely new body, with a Council President and up to four other Councillors, and around 20 staff. It will make recommendations about access declarations and prices oversight of State or Territory government businesses. It may also conduct, or provide assistance with, reviews under the Competition Principles Agreement. The reviews it undertakes will be in accordance with a work program determined by participating governments.

The Trade Practices Tribunal will be renamed as the Australian Competition Tribunal. It will retain its current responsibilities, including appeals from authorisation decisions of the Commission, and it will assume new responsibilities for appeals from decisions in access matters.

Timing

It is anticipated that amendments to the competitive conduct rules will commence in July 1995, and that State application laws will be operative within a further 12 months. The new institutional arrangements, the access regime and amendments to the Prices Surveillance Act will commence in the second half of 1995.

Financial Impact Statement

The bill will result in a substantial increase in the workload of the Commission and, possibly, the Tribunal. The competitive conduct rules will extend to areas of the economy now excluded, both by virtue of the amendments directly made in the bill and pursuant to the conferral of functions by State and Territory laws which the bill facilitates. The Commission and the Tribunal will also have important new functions under the access regime.

The Commission will therefore require additional resources to those currently provided to the Trade Practices Commission and Prices Surveillance Authority.

The National Competition Council will require resources for up to five Councillors and around 20 staff.

The Commonwealth will be funding both the Commission and the Council. Resource arrangements for the two bodies will be considered after the April meeting of the Council of Australian Governments and announced closer to the time of their establishment.

Conclusion

This bill ushers in a new era in national competition policy. The new integrated and complete approach to national competition policy, which balances economic efficiency and broader elements of the public interest, will give Australia one of the most sophisticated competition policies in the world. It will help to dismantle private and regulatory barriers to competition, and to promote competition across the economy. It will provide the domestic policy arrangements we need to realise the opportunities arising from our external trade policies and the dynamic developments in the international economy. The reward will be an economy that provides more opportunities to satisfy the aspirations of all Australians.

  Ordered that further consideration of the second reading of this bill be adjourned until the first day of sitting of the winter sittings, in accordance with the order agreed to on 29 November 1994.