David Uren, 25 November 2015

Scott Morrison has declared that a new era of competition reform will reverse the long decline in Australia’s productivity, as the federal government offered financial rewards to state governments that open their health and welfare services to competition and remove barriers to trade.

The Treasurer has foreshadowed that consumers will benefit from reforms ranging from road pricing to cheaper books, longer shopping hours and greater choice in government-funded services.

Releasing the government’s ­response to the review of competition policy led by professor Ian Harper, Mr Morrison said: “The government wants to unleash a spirit of competition, to put Australian consumers and choice front and centre, because it is the economy and all Australians that ultimately will be the winners.”

The Treasurer said the reforms, which will be linked to the tax package and new arrangements for funding the federation, could create an even greater dividend than the 2.2 per cent lift to economic growth delivered by the ­Hilmer competition reforms implemented by the Keating government 20 years ago.

Mr Morrison said productivity growth had slowed from 1.5 per cent before the mining boom to just 0.4 per cent over the past decade. Along with the government’s planned reforms to innovation, tax and federation, the competition reforms had the potential to boost growth and narrow the budget deficit. Treasury yesterday confirmed that the mid-year budget update, to be delivered next month, would reveal a blowout in the deficit, ­reflecting its conclusion that Australia’s long-term potential growth rate had dropped to only 2.75 per cent, down from more than 3 per cent.

Professor Harper said he was pleased with the government’s ­response to the review, which would bring benefits for the budget. “There’s a fiscal dividend for these reforms, they raise productivity, they raise growth,” he said.

The government has accepted in full or in principle 39 of the 56 recommendations made by the Harper Review and a further five in part, while pushing the controversial recommendation for changes to the law on companies abusing their market power to a further review, and expressing reservations about a number of other recommendations.

Mr Morrison said the reform to Section 46 on abuse of market power was one of the least important recommendations in the ­report. “There’s a lot in this report that’s going to drive the economy, jobs and growth, not technical ­arguments in a lawyers’ picnic about Section 46,” he said.

Mr Morrison will call on state and territory treasurers to sign up to a new “framework agreement” on competition policy at their meeting, expected on December 10. That agreement will include ­establishing a new joint commonwealth and state authority to oversee the progress of states on competition reform and their ­eligibility for payments as rewards for reforms delivering improved growth or productivity.

Mr Morrison said financing of this would be linked to the reform of federation arrangements and tax reform, and would not be an additional drain on the commonwealth budget.

Labor Treasury spokesman Chris Bowen said Mr Morrison should make clear whether increases in the GST would be used to “bind” the states and territories to the competition reform process.

Mr Morrison said the government would not dictate what states should do, but would provide financial rewards for states that delivered reforms. It would “ensure we’re paying on delivery, not just on a promise”.

The Howard government abandoned competition payments to the states because it believed they were being rorted.

State governments would be encouraged to separate their role in setting policy and funding health and welfare services from the actual service delivery, which could be contracted out to private providers, as already occurs with the jobs network, vocational education and training and the National Disability Insurance Scheme. The Productivity Commission will be asked to conduct a review of human services to set out the lessons for improving consumer choice.

The commonwealth will also consider payments to the states for reforming road pricing and planning and zoning regulations, although it cautioned that getting drivers to pay directly for roads, according to their use, was a long-term reform.

The government has deferred responding to the Harper recommendation that restrictions on competition in enterprise agreements should be outlawed, saying it will await the final report of the Productivity Commission. Professor Harper said the Australian Competition & Consumer Commission should be empowered to intervene in Fair Work Australia hearings.

However, the government has backed a call for the prohibition on secondary boycotts to be strongly enforced, and is drafting legislation that would raise maximum penalties from the current $750,000 to match the $10 million penalties for other breaches of competition law.

Mr Morrison foreshadowed that the government was looking at a compromise on Section 46 of the competition act. The Nationals and many Liberal backbenchers support the strengthening recommended by the Harper report while many key ministers, including deputy Liberal leader Julie Bishop and Finance Minister Matthias Cormann, have backed the Business Council’s claim there is no problem with the existing law.

When the issue came before cabinet under the Abbott government in August, it was indefinitely shelved. The existing law says companies that take advantage of their market power with the purpose of lessening competition are committing an offence, however this has been hard to prove. Professor Harper said conduct should be illegal if it had the effect of lessening competition.

Extracted in full from The Australian.