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Building economic activity: the role of the National Competition Council

By Alan Moran - posted Tuesday, 24 January 2006


The National Competition Council (NCC) was an offspring of the Hilmer competition review set up by the Keating Government in the mid 1990's. It had, and still has, two broad functions. The first was to assess whether suppliers or end-users could demand access to monopoly facilities (pipelines, rail and so on). If it decided in favour of granting access, this was followed by the Australian Competition and Consumer Commisssion (ACCC) or an acceptable state based regulator determining the price and other aspects of that access. A particular focus was on government owned monopoly facilities that had been built exclusively for their own use or to cater for specific producers, for example in gas supply.

The second NCC function was to establish a program of regulatory reviews across all jurisdictions (including, in theory, the Commonwealth) and to vet whether those reviews have been satisfactorily conducted. These reviews brought with them a $16 billion bag of money available on a pro rata basis to the states and territories with deductions for bad behaviour. The last of the NCC reports on this aspect of its work was handed to Mr Costello in October and publicly released in December.

With both of these roles, the NCC, though only a small agency and having only “advisory” powers, has had an immense influence on competition policy approaches.

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In its early days it tended to be over-zealous in promoting competition for gas pipelines. Its requirements for opening access, in conjunction with the ACCC’s predilection for playing to the short term interests of a consumer gallery and under-pricing that access brought some deterrence to new investment. Similarly, to be seen as an inclusive body it advocated “social programs” and was at pains to stress that it was not bent on pursuing “so called economic rationalism”. These aspects of its style doubtless owed much to the influence of its former Chairman, Graham Samuels who was promoted to the more hands on regulatory role of Chairman of the ACCC.

The NCC assessments of progress to the “economic rationalism” it affected to reject applied the blowtorch to government interventions that impeded competition. The deductions it threatened to recommend and in some cases did recommend represented highly visible lost revenue. Not only was income foregone but the state governments which had to forego funds also had the badge of reform recalcitrants pinned to their chests. The NCC’s willingness to act in such a way could well have proved to be life-threatening. It tested the water back in 1998 when it deducted $10 million from NSW, which had refused to dismantle its restrictive marketing arrangements for rice.

More recently it has assembled a superior set of analytical resources and has grown in confidence. It even recommended deducting funds from Western Australia for not opening up shopping hours even though it was merely giving effect to a referendum on the subject.

Similarly, the NCC has shown a greater maturity in its treatment of pipelines. It recommended lifting the controls on the Moomba-to-Adelaide pipeline, recognising that there is now active competition between it and a pipeline from Victoria.

It speaks volumes about where we have come this last decade or so in that we would now be astonished to learn that governments were using their control of a railway, pipeline or electricity system to keep out competition. The NCC and its reports were the catalysts for reforms on shopping hours, liquor licensing, and regulations of many professions as well as the big ticket items.

Where to from here?

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The issue of access to monopoly facilities is likely to be reduced in future. State based decision making will assume greater importance, as the only monopoly facilities will be those involved in local distributions.

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Article edited by Patrick O'Neill.
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Alan Moran is the principle of Regulatory Economics.

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