Key Takeaways:
- The Department of Treasury in Canberra needs to be strengthened to drive a new national program to reinvigorate Australia’s economy.
- Australia requires a shot of micro-economic reform to reinvigorate competition and unleash a wave of productivity growth.
- The National Competition Policy program, which began in 1995, needs to be replicated to address the country’s economic challenges.
- A commitment of $20 billion in funding over a 10-year reform period is needed to support the new National Competition Policy effort.
- The Australian Competition and Consumer Commission (ACCC) needs to be given stronger powers to prevent companies from making repeated under-the-radar acquisitions that could harm competition and consumers.
Introduction to the Problem
The Australian economy is facing significant challenges, including declining competition and deteriorating productivity. The Policy Institute Australia (PIA), a new public policy think tank, has called for the Department of Treasury to become the driving force behind a new national program to address these issues. The PIA believes that a serious bout of pro-competition reform is needed to reinvigorate the economy, similar to the National Competition Policy program that began in 1995. This program, which was catalyzed by the Hilmer Report in 1993, helped launch Australia out of its economic malaise in the 1970s and 1980s.
The Need for Micro-Economic Reform
The PIA argues that Australia desperately needs a shot of micro-economic reform to reinvigorate competition and unleash a wave of productivity growth. The think tank believes that a commitment of $20 billion in funding over a 10-year reform period would be consistent with the commitment to the 1995 National Competition Policy effort. This funding would support a range of initiatives, including the development of new industries, the removal of regulatory barriers, and the promotion of competition in key sectors such as banking, supermarkets, and energy.
The Role of the ACCC
The Australian Competition and Consumer Commission (ACCC) plays a critical role in promoting competition and protecting consumers. However, the PIA believes that the ACCC alone cannot grow a more competitive Australia. The think tank argues that the ACCC’s mandate is to slow or stop the substantial lessening of competition, not to proactively identify problematic sectors where competition has declined and advance solutions to encourage more competition. To address this, the PIA recommends that the Commonwealth empower Treasury as the national steward of pro-competition policy reform, building on the Competition Taskforce, including a mandate and resources to design and implement a bold pro-competition reform agenda over a 10-year time frame.
The Decline of Competition in Australia
The PIA’s report highlights the decline of competition in Australia, citing a range of indicators, including industry concentration, firm entry and exit, and labor mobility. The report notes that industry concentration has increased in Australia in the 21st century, with the top four players controlling between 70 percent and 90 percent of the market in key sectors such as banking, supermarkets, and energy. The report also notes that the entry of new firms into the economy, and the exit of failing firms, has declined, leading to a lack of dynamism and innovation.
The Consequences of Declining Competition
The decline of competition in Australia has significant consequences, including higher prices, reduced innovation, and lower productivity growth. The PIA’s report notes that the most direct measure of poor competition in an industry relates to pricing power, which is measured by tracking "markups". The report cites a paper released by Treasury in 2023, which found that, on average, firms had increased their markups by about 5 percent between 2003 and 2017, suggesting that competition across the economy had weakened over that period.
The Way Forward
The PIA believes that a new National Competition Policy is needed to address the decline of competition in Australia. The think tank recommends that the Commonwealth government lead the states and territories in laying the foundations for a revitalized National Competition Policy, with a specific focus on how to remove from industry incumbents the power to set rules that determine who can compete with them, or impose unnecessary costs to impede competition. The PIA also recommends that Treasury be empowered to design and implement a bold pro-competition reform agenda over a 10-year time frame, with a commitment of $20 billion in funding to support the effort.
Conclusion
In conclusion, the Australian economy is facing significant challenges, including declining competition and deteriorating productivity. The PIA’s report highlights the need for a new National Competition Policy to address these issues, with a focus on promoting competition, innovation, and productivity growth. The think tank’s recommendations, including the empowerment of Treasury and the provision of $20 billion in funding, provide a roadmap for addressing the decline of competition in Australia and promoting a more dynamic and innovative economy. By implementing these reforms, Australia can unleash a wave of productivity growth, promote competition, and improve the living standards of all Australians.