Big super funds are clipping the ticket on the cost of living crisis
Almost every time you land at an Australian airport, buy an imported good or drive on a toll road, an industry superannuation fund profits, and that’s a productivity problem.
It’s one of those little known facts: Almost every time you land at an Australian airport, buy an imported good, or drive on a toll road, an industry superannuation fund profits.
As a nation we have become used to thinking of Qantas, Woolworths and Coles as the price-gouging bad guys, making money while families struggle with the cost of living crisis. It’s a notion quietly spurred on by both state and federal governments.
Yet the industry super funds, who own most of the ports, airports and toll roads, can put their prices up largely unchecked (toll roads are often CPI-linked) and those costs are passed on via airfares, and shelf prices for any good shipped in or trucked via the toll roads snaking the nation.
Two of the nation’s three former Australian Competition and Consumer Commission chairmen say productivity is being hampered and there needs to be change.
“Airports have got no incentive to provide satisfactory services or reasonable prices… that’s why the airlines have been trying to get something in place to constrain their monopoly power,” says Graeme Samuel, who chaired the ACCC after Allen Fels and before Rod Sims.
“For the ports it’s the same thing, and Sims came out and said you cannot keep privatising these assets. Ultimately what governments are found to be doing is acting in the interests of their budgets… knowing that the highest possible price is achieved by bequeathing to the new owners monopoly power,” says Samuel.
Because consumers don’t pay these charges directly, there is a disconnect, he says, between who is actually to blame.
“The consumer doesn’t know because they have no idea what they are paying for,” says Samuel. “It’s very easy to blame Qantas and Virgin.”
“In the case of the stevedores it’s easy to say ‘oh it’s the bloody unions’ that are the problem. Well, it’s not,” says Samuel. “We need to be looking at the charges the ports are imposing because they flow through in terms of the costs of the goods that are in those containers, which flows through to the consumers.”
It should be noted that Graeme Samuel is Chair of Airlines for Australia and New Zealand (A4ANZ) which is an airline advocacy group.
The airlines have had multiple stoushes with the airports over landing charges over many years.
Because Australia’s major ports are privately operated, their owners have been able to increase land based charges without repercussions.
As a result, Patrick and DP World - the two biggest stevedore operators - increased their land-based charges at East Coast ports by about 26 per cent for imports and up to 50 per cent for exports, according to the Freight Trade Alliance (FTA). Fremantle is still owned by the state government and has caps on price rises stevedores can charge.
Director of the Freight & Trade Alliance Paul Zalai says that these charges are then passed on to the transport operators.
“While not privy to the commercial rents charged by privatised ports, stevedores claim this as a part of their justification for exorbitantly high Terminal Access Charges (TACs) administered against transport operators – a sector of commerce that has no ability to influence service or price and must pay whatever is demanded to pick up and deliver sea freight containers to our international gateways”.
The Australian has seen documents that show charges for container imports at Port Botany in Sydney have risen 13 per cent in three years. And for exports prices have risen 12 per cent.
The Association of Superannuation Funds Australia (ASFA) has defended the pricing and pointed out that members of these funds “consist of most of the adult Australian population.”
“I note that consideration of airport and port pricing by groups such as the Productivity Commission and the NSW government has resulted in no finding of a case for further regulation,” says ASFA CEO Mary Delahunty.
IFM Investors Head of Infrastructure, Australia, Michael Hanna points out that by taking stakes in assets such as airports and ports it gives “working people” exposure to multibillion-dollar infrastructure investments.
“In line with long-standing practice, IFM regularly takes board positions at the unlisted infrastructure companies our funds invest in to help maximise returns for our clients and the millions of working people they represent,” says Hanna.
Some kinds of checks and balances may soon loom though.
The federal government has commissioned a number of reports and task forces that may consider these issues, including an aviation white paper due in the next few months and a Competition Review that should look squarely at the monopoly pricing power of airports, ports, toll roads, and parts of the energy sector.
But Samuel says it struck him as “pretty odd” that its task force panel set up to consider Australia’s declining productivity includes Sydney Airport chair David Gonski.
Global law firm Norton Rose Fulbright says “the government is mindful of recent OECD recommendations that suggested competitive tension has reduced in the Australian economy.”
Productivity, or declining levels of it, are at the heart of concerns for the first ACCC chair Allan Fels who said “there is a strong case for price control.”
“Airports have really strong monopoly power that enables them to charge high prices, and myself, Graeme Samuel and Rod Sims have always said there should be price regulation of airports. Airlines have no choice but to use airports. They can’t land on highways,” points out Fels.
Ports, he says, fall into the same boat.
“The absence of any controls on ports means that not just consumers but businesses also suffer,” Fels says. “A lot of small businesses are most unhappy with port charges.
Rod Sims declined to comment for this article but Samuel believes there should be a mandatory arbitration process for customers of airports or ports when intractable disputes occur over pricing.
Fels takes it a step further.
“Another approach is that the ACCC directly sets the price,” Fels says. “I lean to the ACCC doing it. “It’s widely accepted in economics that whilst you should be wary of price regulation it should still apply to monopoly situations like ports and airports. It’s having a significant impact on other businesses, not just the Qantas’s but the many big and small businesses that are customers of the ports.”
Australian Airports Association chief executive James Goodwin said the current arrangements remain fit for purpose with no evidence from any of the four Productivity Commission reviews suggesting any misuse of market power.
“Indeed, the countervailing power of the two major airlines holding 95 per cent market share remains a concern,” he said.
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