Revitalise National Competition Policy to boost productivity

Treasurer Jim Chalmers. Picture: NewsWire / Martin Ollman

We should all remember or have heard of the Hilmer National Competition Policy (NCP) reforms of the 1990s. They were a key driver in a surge of productivity growth that has underpinned Australia’s current pros­perity.

As this newspaper constantly and correctly points out, productivity growth has stalled or worse in recent years.

Jim Chalmers in a speech to the Australian Business Economists on November 13 said: “In the 10 years to 2020 productivity growth averaged just 1.1 per cent a year; worse than the decade before and barely half the rate achieved during the 1990s.”

Whatever else Australia needs, another round of NCP reforms must be in the mix to ensure Australia’s continuing prosperity and resilience. The Treasurer’s announcement that $900m will be offered to the states to progress pro-competitive reforms should, therefore, be welcomed.

Many policy levers sit with the states and so commonwealth-state co-operation is required to address particular productivity and cost-of-living challenges.

Payments to the states are required given that much of the benefit from these reforms that grow our GDP will accrue to the commonwealth.

Rod Sims. Picture: NCA NewsWire / Gary Ramage

As the Hilmer reforms recognised, payments that allow for the sharing of these benefits are a way to achieve national reform to boost our economy.

Before the Hilmer reforms, our non-traded sector was lumbered with lots of anti-competitive legislation and practices that kept ­prices high and services poor.

Hilmer opted for a national ­approach to removing them, recognising that as a small open economy we can ill afford such waste. These reforms were credited by the Productivity Com­mission with boosting GDP by 2.5 per cent, which is about $5000 per household per year.

In his speech to Australian Business Economists, Chalmers said that Productivity Commission modelling of a further round of reforms in a revitalised NCP could lift GDP by about $45bn each year, while reducing prices by 1.45 percentage points.

I have heard it said many times that all the “low-hanging” microeconomic reform “fruit” has been picked. Nonsense. The reform tree is weighed down by fruit that you can reach without a ladder.

Chalmers mentioned just four examples in his speech. First, adopting trusted international product safety standards rather the reinventing the wheel in Australia. Imagine how this approach could be replicated in other areas.

Second, adopting a general right to repair, rather than seeing companies tying repairs on their products to their own outlets; replacing a phone screen is a classic example where the work can be done at a fraction of the cost.

Third, streamlining commercial planning and zoning, particularly to minimise the number of planning categories and removing restrictions on competition. After Victoria loosened planning restrictions in 2013-14, for example, 14 of the 53 Aldi stores that opened since have been on sites that were previously restricted.

Fourth, removing barriers to uptake of modern construction methods such as prefabrication and modular construction.

But once under way a modern NCP process can consider so much more. Regulatory settings should ensure that labour can move to where it is most needed.

We need to ensure our care workers, for example, can take up similar jobs wherever they are most needed across sectors and anywhere in the country without facing expensive and time-consuming requalification processes. Inconsistent requirements and duplication of assessment across borders and occupations work against a dynamic labour force.

Australia’s stringent occupational licencing requirements are out of step with other OECD countries, especially for workers in personal services.

Requirements for driving instructors, electricians, painters, plumbers, registered nurses and architects are particularly stringent in Australia. There are also variations between jurisdictions.

Consider also introducing competition to e-conveyancing, removing exemptions for the anti-competitive conduct of shipping companies, removing particular parallel import restrictions, removing certain barriers to telehealth, improving access to a range of data, removing restrictions to emerging technologies such as robotics and drones, and improving competition in government procurement, to name just some further reforms that could be considered.

The agenda above is very different to the Hilmer agenda. That is to be expected as the structure of our economy and technology changes. Indeed, this is why a new agenda is needed.

Let’s hope Chalmers’ announcement is the first step in what should be another 10-year agenda, as the Hilmer process was.

This is an agenda that should get the support of all those interested in boosting Australia’s productivity.

Rod Sims is professor of public policy at ANU, and is also an expert adviser to the Treasury Competition Task Force. He was heavily involved in instigating the Hilmer Review.