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Monday, 26 June 1995
Page: 1763

Senator CHAPMAN (5.26 p.m.) —The significant elements identified in the introduction of national competition are, first, to extend the trade practices law to all businesses, including state owned enterprises and unincorporated entities; secondly, to establish a national access regime for the provision of essential infrastructure facilities; and, thirdly, to establish a national prices surveillance system. Further proposals provide for the integration of a national approach to competition administered by one set of institutions and continued progress in specific reforms such as to electricity and gas. These were the elements outlined in a statement by the Prime Minister (Mr Keating) in July 1994, after meeting with the Business Council of Australia.

  The result is this legislation, the Competition Policy Reform Bill 1995, which provides for an integrated approach to competition policy. On 11 April at a Council of Australian Governments meeting the states agreed to this approach as the means by which the so-called Hilmer report would be implemented. The Hilmer report, by the independent committee of inquiry, chaired by Professor Fred Hilmer, assisted by members Mr Mark Rayner and Mr Geoffrey Taperell, was released in August 1993 and has been the subject of continuous discussion and analysis ever since.

  The main impetus for competition policy reform, as a micro-economic reform measure, is the anticipated benefit reform would have for Australia's gross domestic product. The benefits which are regarded as being obtainable from the implementation of these recommendations are described in the Industry Commission's report The growth and revenue implications of Hilmer and related reforms. Among them are an estimated 5.5 per cent annual increase in GDP, representing a $23 billion annual increase in 1993-94 dollars, resulting in a benefit to households of an estimated $1,500 per year. After tax, wages are estimated to rise by 3 per cent, while employment and government revenues will also increase. The Industry Commission also found that small impacts of individual reforms add up to widespread and substantial gains. It could well be that the estimated 5.5 per cent increase in gross domestic product proves conservative once all the reforms are in place.

  The April 1995 COAG meeting resulted in the signing of the following: first, the conduct code agreement, providing for the extension of the Trade Practices Act and the establishment of the new Australian Competition and Consumer Commission—this will invoke the abolition of the Trade Practices Commission and the Prices Surveillance Authority; secondly, the competition principles agreement, establishing agreed principles on structural reform of public monopolies, competitive neutrality between public and private sectors, prices oversight, access to essential infrastructure and services—the agreement also deals with appointments to the National Competition Council; thirdly, the national competition policy and related reforms agreement, providing for maintenance of financial assistance grants to the states.

  In October 1994, some 20 years after the establishment of the Trade Practices Commission under the Trade Practices Act 1974, the Chairman, Professor Allan Fels, stated that it was his belief at the time that the Trade Practices Act was `one of the, if not the, single most important pieces of Australian micro-economic reform undertaken'. He described competition policy reform in the 1990s as `a new era with the endorsement by the state and federal governments of the principles of the national competition policy'. The merger of the Trade Practices Commission and the Prices Surveillance Authority, giving overall responsibility for the administration of the new policy to a single new commission, is described as building on `a strong foundation of experience in competition policy'. He expressed confidence that the new commission `will be as strong a pro-competitive force in the future as the current commission has been for the past 20 years'.

  That this legislation and the micro-economic reform that it proposes to deliver are significant is apparent to all. It is worth noting the comment of Mr Paul Barrett, of the Business Council of Australia, when quoted in the Financial Review on 28 February this year. When discussing the Labor government's lack of commitment to tie this micro-economic reform process to a commitment to industrial relations reform, he said:

The Prime Minister certainly procured the big decision but he has yet again deferred the hard one.

Mr Don McGauchie, the President of the NFF, echoed those sentiments in his address to the Making Hilmer Happen conference held in Canberra in March this year. He said:

NFF considers that the Hilmer blueprint is a less-than-complete package. The exclusion of the labour market is unforgivable . . . it is illogical and unacceptable to have rigorous competition rules applied to product and services markets, to Governments, to finance and equity markets and then to leave out the one other major factor in all economic activity—the labour market.

Those sentiments strongly reflect my own view and, I am sure, the views of my Liberal and National Party colleagues.

  A major shortcoming of the Hilmer report is its failure to examine the labour market. There was nothing in the brief which prevented an examination of this key factor in productivity improvement. I understand that the Hilmer committee thought hard about it and realised that labour market deregulation is fundamental but thought that if it were tackled in the same brief it would ensure that everything else would be pigeon-holed by this government. In other words, the Hilmer committee recognised the complete lack of political will on the part of this federal Labor government to tackle the hard decisions. Let us face it, reform decisions which do not affect your mates are not hard decisions at all. It is stepping on your mates' toes which is hard. That is something this government persistently refuses to do.

  The best the Hilmer committee could hope for was that if competition was extended to the whole of the national economy then pressure would be put on the labour market anyway to accelerate reform. Therefore, the Hilmer committee decided that, rather than throw the baby out with the bath water, it would acknowledge the need for labour market reform but leave it alone. It has been criticised for this ever since. The best that can be said for its strategy is that there is substantial implication of the committee's other recommendations occurring. The federal government stands condemned for requiring this strategy of the committee.

  Clearly the states have agreed to the implementation of the Hilmer committee's reforms for competition. This is just as well, as the burden of implementation will rest with them. We should note, however, that there are some reservations by the smaller states that they may suffer discrimination and that the negotiation processes which resulted in the COAG agreement earlier this year involved an element of railroading by the larger states. Nevertheless, it should not be forgotten that this inevitable process of competition reform has benefits for all Australians, and the concept should be embraced to take advantage of those benefits.

  Much of the detail, particularly the practical effects on small business, as highlighted in the hearings of the Economics Legislation Committee on this bill, may not be apparent until much further down the track. The significance of the burden placed on small business is obviously an issue. My colleagues Senators Abetz and Gibson and I made reference to the need to tackle business concerns with sensitivity in our minority report to the Senate following our participation in the legislation committee hearings.

  The touted benefits—lower prices for the consumer and a wider range of choice, benefits from efficiencies created, including removal of some of the deficits which are funded by the taxpayer—have been met with mixed reaction in the community. For example, the re-examination of contracts which are currently exempted by the Trade Practices Act and the extension to include the professions have been well received by the legal profession, which has been openly competitive for some time. However, the medical profession—and doctors, in particular—see this competition as potentially jeopardising quality of service and as impacting on the fiduciary relationship inherent in their professions. None of the professions should be exempt from competition. The claim that they are setting industry standards is nothing more than an excuse for price setting. Standards of practice should certainly be maintained but limits to entrance to the professions and price setting are unacceptable.

  The president of the NFF, Mr McGauchie, commented that agriculture would support its statutory marketing authorities to a public benefit test of the extent of anti-competitive nature of centralised marketing but would not bear the cost alone if other politically sensitive sectors were treated softly. He stated that it `is not without some trepidation' that agriculture supports competition policy reform.

  Let us never forget that it is farmers who, thus far, have borne much of the brunt of deregulation with, for example, the loss of single-desk selling on the domestic wheat market, dairy industry reforms and the collapse of the wool reserve price scheme. But they have received little benefit to the cost input side of their business equation, with protection and regulation remaining untouched in many other sectors of the economy.

  That is why, in support of Hilmer, Mr McGauchie stated:

. . . these reforms to water and electricity authorities and in transport and ports are important to alleviate some very onerous cost pressures on agriculture and to restore its competitiveness.

On balance, this legislation is supported widely by governments, industry and small business in the belief that the benefits outweigh the political disadvantages.

  It is unfortunate that the unions do not necessarily agree, as indicated in the public sector newspaper Public Eye, issue No. 199 of May 1995, which carries the headline on its lead article `More PS jobs set to go under new competition policy says economist'. The article then goes on to quote an Associate Professor of Economics at Cook University in Queensland, Dr John Quiggin, who said:

. . . most of the productivity gains anticipated from the new policy would come from reducing jobs in the public sector or from increasing the workload of public servants . . . there will be an increase in people from the public sector being pushed out into the private sector.

Interestingly enough, Dr Quiggin rebuts his own argument. Efficiencies do not necessarily result in unemployment, which is one of the anti-privatisation lobby's most popular but fallacious arguments.

  Private enterprise can succeed in lowering the costs of basic inputs into business, including freight, travel and communications services. With GBEs subjected to the same competitive pressures as private enterprise, this is even more apparent.  Of course, what needs to be recognised is that decreased business costs mean an increase in the volume of activity and the generation of new jobs in response to demand, rather than artificially protected or union protected jobs.

  If public sector employees are, to quote Dr Quiggin, `pushed into the private sector' but nevertheless have employment, where is the problem? Union resistance is hardly surprising because these changes reduce their strategic power, and that has already proven to be a stumbling block for this legislation.

  This Labor government's failure to initiate much needed industrial relations reform in conjunction with competition policy reforms essentially means that, despite this legislation and the honest intent by Hilmer and others to provide structure to improve productivity, real competition in Australia is thwarted when union monopoly power is underpinned by the Minister for Industrial Relations and Transport, Laurie Brereton, and his Industrial Relations Act.

  It cannot be overstated that this federal Labor government simply refuses to introduce workable industrial relations reform because it refuses to tread on the toes of its political mates. The truth is that there will be no genuine competition while union resistance continues, and we have seen the record of this federal government telling that story.

  This government watered down the Industry Commission's recommendations to open up competition within the postal services sector. It weakened protection for employers against secondary boycotts and has shackled small business with ludicrous unfair dismissal laws. The government has failed to allow international competition in coastal shipping, maintains an illegal shipping accord between the maritime unions in Australia and New Zealand, and has imposed industrial bans on shipping. It has also backed down on the trans-Tasman aviation market. These are but a few examples of the failure of this government with regard to introducing greater competition.

  Even the negotiation of the latest Accord Mark VIII highlights the union monopoly power structure. The measures in this bill simply reinforce the bottom line that the federal government is happy to pass off—if you will pardon the trade practices pun—the burden to the states, but will do nothing itself for this country if it is detrimental to the leverage of its political mates. Therefore, some of the resistance on the part of state governments—if not outright rejection in parts—to the break up or sale of government monopolies is entirely predictable.

  Given the pressures of time and the agreement to limit our remarks to about 10 minutes, I seek leave of the Senate to incorporate in Hansard the remainder of my remarks and those parts of my prepared speech that I have omitted.

  Leave granted.

  The remainder of the speech read as follows

  Turning to the government's second reading speech, the minister stated, concerning employment:

While 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 . . . affect 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.

This is a bold statement which should give Dr Quiggin a warm feeling were it not for the federal Labor government's decision to cut funding to those programs in the 1995-96 budget. Consequently, this statement is extraordinary and quite unbelievable.

  The government claims that this bill and the two inter-governmental agreements `represent a complete response to the recommendations of the Hilmer Committee'. Part of the reason for this claim is perhaps because Hilmer was silent on the issue of privatisation, asserting that the ownership of a business is not of direct concern to competition policy.

  Des Moore, former deputy secretary of the Commonwealth Treasury, in an Institute of Public Affairs paper on reforming public trading enterprises under the new competition regime, noted the political sensitivities associated with privatisation. He stated that Hilmer's failure to address privatisation directly `will lead to the conclusion that corporatisation rather than privatisation should be the preferred course' and that the `main focus should not be on change of ownership but on the introduction of competition.'

  The privatisation issue in relation to public utilities was highlighted by British industry minister Heseltine in January 1994 when the UK parliament introduced the Coal Industry Bill to privatise British coal, after nearly 50 years of public sector ownership. In introducing the bill, Heseltine argued that the original nationalisation policy had been `designed to transfer the commanding heights of the economy to state control.' He went on to explain that this `naive political rationalisation' did not come to pass. He said, and I quote:

In reality, power rapidly shifted to monopoly providers and monopoly producer unions.

Over the years, Telecom has provided a classic example of this in Australia and union power continues to hinder the introduction of full competition to telecommunications in this country. The corporatisation versus privatisation argument is an issue which has already been addressed by the states, with some opting for privatisation of public utilities and some opting for corporatisation or a combination of both, with varying degrees of success. By comparison, despite its rhetoric, the performance of the Federal Government on privatisation has been sadly lacking. Let us not forget the four years it has taken to get to first base with the Qantas float, nor the recent $1 billion extraction from Telecom.

  The Government has chosen instead to entrench union monopolisation in the corporatisation of government enterprises. These organisations are ultimately subject to ministerial intervention which essentially equates to policy meddling. GBEs only operate in a quasi-commercial sense and although they are at arm's length from government, they are kept on a tight rein and restructuring generally has been kept at the statutory level. The enterprises are heavily politicised, controlled and influenced and their boards frequently stacked with the government's `mates'. They are thus not commercially orientated. Only full privatisation can remove assets from government control.

  Until such time as the Federal Government shows more leadership in introducing genuine competition, it can hardly expect the states to do likewise. In spite of this, some state governments have boldly bitten the bullet.In South Australia, the Brown liberal government has chosen a path of combining corporatisation and privatisation in a laudable attempt to rehabilitate the South Australian economy. Recent examples of privatisation are the sale of the State Bank of South Australia, which the state Labor government left in ruins, and the sale of the pipeline authority.

  In relation to public utilities, the SA government, unlike Victoria and NSW, has chosen the corporatisation route. There have been and will be some stumbling blocks but it should be noted that the recent stumbles have been in negotiations with the unions which have shifted the base-line in negotiations and threatened to cut power supplies to South Australians. This was after the unions had agreed to the terms of the negotiation. Suffice to say that genuine competition is still being hampered by union resistance.

  While on the road to true competition corporatisation is often viewed as a stepping stone to privatisation, there are obvious and significant benefits to be gained from corporatisation for the states, particularly in relation to public utilities.

  SA industry and infrastructure minister and former Senate colleague, John Olsen, stated recently in response to criticism and scare-mongering over the corporatisation of the engineering and water supply in South Australia that there is a distinction between the South Australian scheme and the British water privatisation scheme in that:

Unlike Britain, we will hold the assets, [and] retain the price-setting mechanism and quality control programs.

Under the part-privatisation of the EWS, the management of the water supply will be `outsourced' that is, handed over to private enterprise on a long term contract (15 to 20 years) but the government will retain ownership and set prices. This retention of control of basic mechanisms conforms with the COAG competition principles agreement which provides for consumer protection elements in monopoly markets.

  In conclusion, while in Australia state sovereignty remains important, especially for the smaller states and it remains an important role of this Senate to protect that sovereignty, in today's economic circumstances state boundaries are irrelevant. Australia desperately needs a massive increase in export income if we are to solve our trade deficit problems and begin to reduce the foreign debt which has burgeoned to $170 billion under this government's mismanagement. But we need to fix the national market before we can tackle the international, otherwise the attempt is akin to having one hand tied behind your back. It is only 10 years since the removal of State preferences. We need to ensure that markets are exposed to international competition in order to improve the productivity of domestic industry. As a nation we have addressed the issue of competition somewhat late.

  Twenty years ago there was fear at the introduction of the Trade Practices Act. It was fear of the unknown. The same emotion applies to the introduction of the Hilmer reforms but they are essential to our future well-being.