Productivity Commission urges scrutiny of unions and IR system

PRODUCTIVITY tsar Gary Banks has challenged the government to expose the industrial relations regime and unions to greater scrutiny.

PRODUCTIVITY tsar Gary Banks has challenged the government to expose the industrial relations regime and unions to greater scrutiny as part of a sweeping review of laws governing anti-competitive conduct.

Lamenting recent backsliding on competition policy in areas ranging from the National Broadband Network to coastal shipping, Mr Banks said "a second wave of reviews undertaken under national competition policy would be particularly timely now".

The Productivity Commission chairman said there was a strong case for including workplace laws in a review because of "the pervasiveness of industrial relations regulations across the economy and their influence on the ability of enterprises to innovate and adapt and meet market opportunities and challenges".

He attacked the long-standing rationale for exempting unions from anti-competitive conduct provisions - that labour markets are more complex than product markets because they involve a human dimension.

"Are these good reasons for forgoing scrutiny of whether the benefit to society of particular restrictions on competition in the labour market exceed the costs, and where they do, are they the best way of achieving those benefits?" he asked.

Mr Banks told an Economics Society conference in Melbourne that the commission's recent review of the retail industry had raised questions about whether Labor's Fair Work legislation had shifted the cost-benefit balance "adversely".

The commission had highlighted problems faced by retailers caused by the legislation's test for whether workers were better off overall, individual flexibility agreements and high penalty rates of pay.

Similar concerns had been raised in the commission's current review of the default arrangements under which superannuation contributions were allocated to industry funds.

"While ensuring people are treated fairly, any trade-offs with productivity and competition with specific regulatory instruments need to be carefully considered and reassessed over time," Mr Banks said.

He said the national competition policy had been a landmark policy achievement, delivering widely distributed benefits and helping to overcome the legacy of decades of flawed policymaking. However, he said 170 pieces of anti-competitive legislation had been left in place at the final review in 2004, while more had been added since.

He cited the example of the competition protection granted to the NBN, with Telstra and Optus authorised to make undertakings that they would not compete with the network in return for a payment.

Mr Banks noted that the Organisation for Economic Co-operation and Development had concluded that this represented the restoration of a de-facto public monopoly over the supply

of wholesale internet services, which would frustrate innovation. He said the decision to stop competition had to be seen in the context of the government's policy to roll out broadband nationally and to "unscramble the Telstra structural egg" to lower the barriers to retail service providers.

However, he added: "The superiority on cost-benefit grounds of that approach to delivering broadband remains to be publicly verified."

The government's recently imposed restriction on foreign-flagged vessels engaging in coastal shipping has been one of the most overt contradictions of national competition policy. This was acknowledged in the official regulatory impact statement, which declared that the intent was to restore a preference for Australian operators.

Another example where the government had ignored competition principles was its rejection of the commission's recommendation that anti-dumping actions to stop the flood of cheap imports should have to satisfy a public-interest test. Even worse was that a forum set up to advise the government on new anti-dumping policy was dominated by import-competing interests.

He said the review he was urging should include anti-competitive regulation left over from the first round of competition policy reform, including issues such as community pharmacies and taxi licensing, as well as more recent regulation. Addressing the same conference, former Treasury secretary Ken Henry said that although reforms to lift productivity were always desirable, there was no feasible way that it could restore the international competitiveness the non-mining sector of the economy had lost in the past five years.

"We do need another round of productivity reform," Dr Henry said. "Nobody in Australia has argued the case more strongly than I have. Yes, we desperately need it. But I do not kid myself into thinking that will somehow restore the international competitiveness of the non-resource sector back in 2000 or 2001."

He said the rise in the dollar caused by the resource boom, combined with the steady increase in wage costs, meant that the loss of competitiveness was too large to be overcome with productivity improvements.

He said firms were adjusting by sending business offshore and shedding labour. Japanese firms that had had to adjust to a very high exchange rate had remained highly profitable by establishing strong Asian regional production networks and supply chains. "If Australia is going to navigate . . . the structural adjustment to the terms of trade shock presented by the extraordinary growth of China and others, a new mindset will be required: a new mindset in government, certainly; but a new mindset in business and the broader community also."

Former West Australian Labor premier Geoff Gallop last night joined the calls for Labor to reform industrial relations, saying its Fair Work Act had gone too far to the Left.

Speaking candidly at his book launch in Sydney last night, Dr Gallop gave a wide ranging critique of the Labor Party and emphasised the need for the ALP to reform in order to survive.

"I think Labor's got some hard work to do on workplace relations," he said. "With our modern economy focused largely on the service sector, I think we need reform in industrial relations.

"Unions have to rethink the way they're operating, and simple-minded protectionism is just not going to work. I think we can devise a good system there, that ensures that people have the flexibility they need as individuals and organisations can preserve the concept of fairness."

He said both of the major parties lacked a "national plan" and were living politically day-to-day rather than focusing on the big-picture issues.

"I think Labor has lost its strategic orientation," Dr Gallop said. "Somewhere along the line since 2007 it became a party that was simply trying to deal with politics on a day-to-day basis. It lost its consistency, it lost a currency and ballast and has battled ever since."

Additional reporting: Mitchell Nadin