Remove the road blocks

The Policy Institute is attempting to shake the belief that Treasurer Jim Chalmers is not a big believer in competition by recommending a revamped Hilmer part two to lead an assault on road blocks to productivity. 

The institute headed by former banker and Treasury official Amy Auster has lodged a submission to the productivity roundtable arguing removing the road blocks to competition is the best pathway to increased productivity. 

The submission was written in part by former ACCC and National Competition Council boss Graeme Samuel and former Productivity Commission chief Peter Harris. 

The institute was founded this year by the John and Myriam Wylie Foundation to promote long-term policy discussion and this week added former PM&C boss Glynn Davis to its board, which includes Harris, Olympian Jenn Morris and former State Library of Victoria boss Kate Torney. 

In 1992, then prime minister Paul Keating appointed Fred Hilmer to revamp competition based around compensating state governments to clear regulatory road blocks. 

This was backed with $16bn in funding from the federal government over 10 years, and while the Albanese government made a small gesture a couple of years back with $900m in funding, the Policy Institute suggests for its National Productivity Fund at least $20bn in funding is needed. 

The focus should be on gatekeepers such as the boards of medical colleges groups limiting doctor supply and bank regulations making it difficult for smaller banks newcomers. 

The reality is something like 80 per cent of regulations are delivered at state level and key bureaucracies such as health, education and infrastructure are delivered by the states but competition policy is led by the feds. 

The ACCC has a more limited mandate to intervene where there has been a substantial lessening of competition and while its merger powers were updated recently, ironically increasing regulation by mandating merger notification, the institute said the competition review had a broader remit. 

Under the ACCC’s watch industry has become more concentrated and last financial year it blocked zero mergers, underlining the difference between competition law and policy. 

Politically the competition fund delivers the government a big showcase policy, on which is inherently difficult to track performance. 

The submission backed recent calls to keep a close watch on the regulators. It also urged more data sharing by governments, noting the feds through the Australian Taxation Office, Medicare and Centrelink control most personal data with the states limited to licences and payroll. 

It said: “Competition is a powerful driver of productivity growth. It strengthens firm performance, improves efficiency and encourages innovation. It also reallocates market share and resources to more efficient firms, raising productivity. 

“Competition in labour markets gives workers more choice of employers, as well as more bargaining power.” 

On Productivity Commission figures the taxpayer outlay would be repaid by a boost to annual GDP of up to $45bn, increase annual commonwealth net revenue by up to $9bn, and increase annual household income by up to $5000 (over 10 years). 

The submission focuses on knocking over problematic gatekeepers which create costly or unreasonable impediments to firms entering or exiting a market, impediments to consumers exercising informed choice, or impediments to workers or employees having choice in jobs, or fully using their qualifications. 

Climate of change 

Ross Garnaut argues the first question Prime Minister Anthony Albanese and Chalmers need to ask themselves at this month’s productivity summit is whether they want to use Tony Abbott’s policies to run their agenda. 

On climate Garnaut would hope the answer is no, and given they have said all options are on the table, asking for ideas to boost economic resilience, a sustainable budget and increased productivity on climate, the answer is a carbon tax. 

Climate Change Minister Chris Bowen this week ruled out a carbon tax, which is at odds with the summit ground rules saying nothing has been ruled out. 

Garnaut suggested Bowen and Albanese on climate are tinkering around the edges and their policies are doomed because they have failed to hand the ball to markets to make the necessary ground. He suggested the very much second-best alternative to a carbon tax would be to expand and lengthen the renewable energy target. 

“Apply neither of the remedies, and we are headed for energy and climate policy crisis within a few years, with demands from the energy sector contributing to severe budgetary problems,” he noted.

The whole idea is to reduce the reliance on government handouts to increase investment and instead let the market work it out. 

Big companies from BHP to Qantas and Ampol have long used a carbon price to help guide investment decisions, so Garnaut rightly wonders why Canberra doesn’t simply bite the bullet.

The proposal such as the cash flow-based levy proposed by the Productivity Commission is directed at the user level – in this case the polluter. 

Cost of living is a live issue and politically a carbon tax would take courage even for a government fresh from a landslide election victory. A carbon tax on Garnaut’s numbers would raise $25bn in new revenue while also leaving the argument over whether coal or gas or nuclear or wind or carbon capture and storage is desirable to the market. 

All forms of energy and all ways of reducing emissions can compete on a level playing field. 

Households could be compensated for increased costs and industries supported by a European-style carbon adjustment mechanism which would tax imports from countries with no carbon price. 

The household subsidy would be paid for by the new tax and other mechanisms could help, such as a road congestion tax to replace the fuel excise levy. 

Garnaut suggests unused large generation certificates from the renewable energy target would be credited at an appropriate carbon exchange rate against future carbon price liabilities. 

The carbon price reduces contingent budget liabilities from the capacity investment scheme and other underwriting schemes. 

Garnaut has long banged this drum and while supporting the concept of a well-run offsets policy has in some eyes ignored the effective price set by the carbon credit unit or the revamped Abbott-era safeguards mechanism which requires companies to cut emissions or pay a penalty. 

But there are obvious limits to progress towards Albanese objectives using Abbott policies. These policies include the safeguard mechanism and heavy reliance on voluntary commitments to using renewable energy. 

The logic is simply imposing a price that covers the cost of the damage that a firm’s carbon emissions imposes on others. 

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