Forget the RBA, Chalmers needs to push the productivity button

Stockland chief executive Tarun Gupta. Illustration: Sturt Krygsman

We’ve seem dismal GDP numbers – including consecutive negative productivity figures – but Treasurer Jim Chalmers is yet to bang the national competition drum. Hopefully this may be about to change.

It all comes down to political will, federal-state agreements on priority areas and the right governance.

Treasury last month began formal consultations (a government specialty) on national competition policy, with public comments due on September 23.

The Productivity Commission is reviewing a confidential list of potential reforms, modelling which ones would have the most economic impact. Its report is due in November.

Just what happens now is up to Chalmers and his state colleagues. For a politician competition policy is tricky because reform takes a while to work through the system and requires detailed and often unglamorous policy work.

Its not as simple as Stage 3 tax cuts or $300 electricity handouts.

The RBA has found that if the 1995 (Hilmer review) reforms were continued, GDP would be 1 to 3 per cent higher – the equivalent of $3500 in every household’s pocket.

In 1995 the states told Paul Keating ‘We are doing the work and you will be collecting the increased revenue’, so he responded with $16bn in incentives over 10 years.

This was written into the states’ forward estimates and every time a shortsighted premier wanted to renege on commitments, the state treasurer would protest – backed by some gentle reminders from Competition Council chief Graeme Samuel that if the promise was broken the money would disappear.

It worked.

Now Chalmers must defy the constraints of a timid government and follow his mentor’s lead.

Merger reform grabs most of the headlines but adding a few words to the competition laws is a sideshow compared with the national gains that could come from a major national competition policy drive.

There is much talk about competitive neutrality. Some say government agencies can’t use the benefits of the state to compete, and there are also agencies like Australia Post, which is serving as the quasi bank to regional Australia but also enjoys monopoly last-mile delivery rights.

The reforms needed are in the government sector, health and education. In health, the aim is to make the system patient-centric, not provider-centric.

Technology is helping but governments need to flick the switch to better targeted user pricing on roads, which would help boost cities by keeping cars out and also negating the free ride that electric vehicles now enjoy.

There is no shortage of items on the to-do list, as former PC chiefs Peter Harris and Gary Banks will attest, but so far there is a big shortage of political will.

The PC’s next quarter productivity report will highlight how the country is going backwards.

Airline grounded

Politics has delayed Qatar Airlines’ proposed purchase of 20 per cent of Virgin, even though it would undoubtedly strengthen the airline and maximise the value of Bain’s exit from ownership.

The value of Virgin is twofold, both related to outbound flights, with passengers able to book tickets on Virgin from, say, Sydney to London (with Qatar handling the international route), and this also boosts the value of Virgin’s Velocity frequent flyer program.

The latter would have increased miles and use.

In-bound connections don’t matter as much, and to be fair this could all be done without an equity stake.

When running Qantas Alan Joyce was able to convince then Transport Minister Anthony Albanese that Qatar should not be encouraged, and ever since the government has leapt on any issue to “justify” its stance.

Virgin backed Qatar publicly, which didn’t win friends with the government, and its name isn’t Qantas – brand loyalty remains in Canberra even after all the damage the airline caused.

FIRB approval is needed, which means Treasurer Jim Chalmers has absolute discretion to reject Qatar’s investment.

A stronger Virgin is undoubtedly better for the Australian ­consumer.

Stockland success

Stockland’s Tarun Gupta should finally get his hands on Lendlease’s unwanted residential properties, with the ACCC expected to clear the $1.3bn deal next week with a minor undertaking.

Gupta is expected to sell his Forest Reach development near Wollongong, which will ease ACCC concerns he would own too much development property in the Illawarra when combined with Lendlease’s neighbouring Calderwood valley community estate.

The latter is much bigger than Forest Reach and not as close to completion, so it wasn’t a tough choice to sell the small, more developed project.

The surprise is the ACCC would clear the undertaking without more formal market tests, which also tells you most in the game figured it was the logical step to get the regulator off Gupta’s back.

The ACCC worried that Stockland, Australia’s biggest residential land developer, would have too much land in the Illawarra, which would give it more pricing power.

Normally undertakings on asset sales are subject to full disclosure but this time around it seems the ACCC figured after a couple of calls the sale was the bleeding obvious. 

Merger reform

After the two-step review process, the proposed threshold for compulsory notification was released on August 30, 17 days after comments closed on the first half of the reforms.

Corrs’ Ian Reynolds complained about the complexity: “The monetary thresholds are likely to over-capture transactions for review and the market concentration thresholds will be challenging to apply in practice, leading to conservative over-reporting from merger ­parties.”

ACCC chief Gina Cass-Gott­lieb noted the commission has the right to waive mandatory notification when people ask.

She also made clear the ACCC would prefer a monetary threshold rather than the combination of dollar value plus market share.

While Cass-Gottlieb noted the flexibility which may minimise case numbers, the European Court of Justice put a dent in regulatory discretion by ruling against the EC in the Illumina-Grail case.

US gene sequencing company Illumina acquired cancer diagnostic test company Grail for $US7bn three years ago in a deal that fell below the EC merger mandatory notification thresholds.

The Court of Justice said the EC could make arbitrary interventions to look at mergers, albeit important ones, noting the rules should be applied to give companies some certainty and foreseeability. In other words regulatory discretion was overruled by business certainty, a decision which will feature in the Australian reform consideration.

Canva conundrum

The folk in Silicon Valley are watching with interest as software darling Canva muddles through the appointment of a new CFO after the departure of Damien Singh in February.

Tech newsletter The Information has noted the lack of CFO makes the planned float problematic.