Joe Kelly, 26 October 2015

Competition tsar Ian Harper is urging Malcolm Turnbull to act swiftly to prevent Australia’s productivity growth stagnating, warning that the government needs to recapture the reforming mentality of the 1990s in order to head off a long-term decline in living standards.

Professor Harper, the architect of the most sweeping review of competition policy in two decades, is promoting the 56 recommendations in his report as central to achieving the Prime Minister’s vision of unleashing a new wave of entrepreneurialism.

He said there should be greater competition and contestability in the delivery of public schools and hospitals — a strategy that has been embraced by Scott Morrison.

The Abbott government received the review in March but struggled with its response, fin­ally shelving indefinitely its ­recommendations for strengthening abuse-of-market-power provisions.

The Prime Minister and the Treasurer both see strengthening competition as the key to lifting innovation and productivity, with Mr Turnbull recently saying “the more competition, the more power you give to the individual, to the consumer.”

In an interview with The Australian, Professor Harper warned that the task would prove politically difficult and require a new institutional framework to engage the states, but he has pointed to the Hilmer review of competition policy in the early 1990s as evidence that Australia had “done this before.”

Welcoming the new-look ­Coalition government, Professor Harper said Mr Turnbull had the understanding and background to successfully pilot reform and welcomed the elevation of competition policy from small business to the Treasury portfolio held by Mr Morrison.

“I hope we would hear back from the government before Christmas so we finish the year with a clearer view of what the New Year agenda looks like,” he said. “Australia’s productivity challenge is not going away and policy responses on this area take time to formulate and even more time to implement,” he told The Australian.

“ Then there’s more time before we see results in terms of productivity benefits. In short, the sooner we can make a serious start on the competition agenda, the better for Australia.”

Setting out the imperative for change, Professor Harper warned that Australia’s productivity challenge would constrict income growth and drive debt accumulation in coming decades.

The Treasurer has taken personal charge of the competition reforms and has already had extensive briefings from Professor Harper.

He presented Professor Harper’s call for reform of the delivery of human services, opening them up to more choice for consumers, in his first meeting with state and territory ministers and has marked this as one of the government’s early achievements.

Professor Harper said productivity growth risked stagnating to 1 per cent per annum.

The government needed to recapture the reforming mentality that saw productivity growth running at well over 2 per cent per annum in the 1990s, he said.

“Our income isn’t going to grow as fast as we’ve been used to,” he said. “People are going to discover they can’t enjoy the same lifestyles. They will start ­accumulating debt. Wages growth is already historically slow. Yields on investments are historically slow … The answer is to drive productivity growth.”

While some key changes, including removing parallel import restrictions, could be achieved at the “stroke of a pen,” Professor Harper said the review’s major reform to shake up delivery of human services would require agreement of states.

Throwing open the management of public schools and hospitals to greater contestability by service providers would require strong federal government ­leadership and the possible ­creation of a new body to drive forward competition policy. “It involves what’s called commissioning. This is not a privatisation agenda,” he said. “We already have private schools and hospitals. I am talking about improving the productivity of the public sector.

“We need leadership for this to occur, because any change involves disruption … People are frightened by things they don’t understand and, yes, there will be a lot of change involved in this but on the other side of this process there are higher living standards, better schools, better hospitals (and) more money to spend on the environment.”

Professor Harper said Mr Turnbull was uniquely placed to embrace his review, given the Prime Minister’s business background and enthusiasm to harness the disruptive potential of new ­innovations.

“The thing about Malcolm is that he gets the innovation disruption story partly because of his investment baking heritage,” he said.

Mr Turnbull has indicated he wants the states to be part of the discussion on reform, telling The Weekend Australianthat “everybody has got to play a part’’ in the next wave of productivity ­improvements.

The Australian and The Australian Financial Review organised a summit and that was a very good thing to do and one of the things to come out of the subsequent discussion was that the states have got to be part of this, and it’s not just state taxes but how the states spend their money,” Mr Turnbull said.

“It’s always easier to ask for more money.

“There is a tendency with public services not to examine their own efficiency. There are powerful arguments that in our next wave of productivity, everybody has got to play a part.”

NSW Treasurer Gladys Berejiklian said the state was committed to further reforms to increase the attractiveness of NSW as a “place (in which) to live, work and do business’’.

“We would welcome the introduction of competition payments. Any improvements in competition by the states would result in a boost in revenue for the commonwealth so it makes sense for the federal government to incentivise further competition reforms through payments.

“Competition payments would also help share the economic growth revenue benefits from competition reforms that largely accrue to the commonwealth government,’’ she said.

“Our first priority remains ­addressing the looming fiscal gap faced by all states and the commonwealth over the next 20 years as a result of our growing health funding needs.

“NSW will continue to argue for the GST rate to be increased to 15 per cent with compensation for households with incomes of $100,000 or less.”

Victorian Treasurer Tim Pallas said: ‘The states require certainty of funding, especially given the increasing funding fiscal gap created by the last two commonwealth budgets.

‘We look forward to seeing the federal government’s views arising out of Harper and will consider them in due course.”

Professor Harper said Mr Morrison’s carriage of competition policy would also help free the review from perceptions it was about small versus big business instead of being about unlocking growth across the economy.

He described the new Treasurer as “very committed” to pursuing reform and welcomed Mr Morrison’s meeting with his state counterparts earlier this month in which his review of competition policy was given a new urgency.

Professor Harper sees his planned overhaul to human services as the new frontier in competition policy and says his 56 recommendations, as a whole, could unlock additional economic growth of up to 2.5 per cent of GDP over the coming decade.

Extracted in full from The Australian.