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damaging market competition « Previous | |Next »
August 9, 2004

The Australian Financial Review (subscription required) is carrying a report that the states would like to change national competition reform by shutting down the NCC and reducing the influence of the federal govenment in microeconomic reform. What they want to prevent is the Commonwealth being able to dictate which reforms should be undertaken before it provided payments through the NCC.

The competition policy deal to improve the flexibility and competitiveness of the Australian economy was signed in 1995 under the Keating Government. It comes up for renewal in 2005. National Competition Policy recognizes that there are winners and losers, but that the costs imposed on some groups do not provide a justification for foregoing reform where the costs are significantly out-weighed by the benefits to the wider community. The solution is to ease the burden of adjustment associated with the policy change.

A review is under way. An issues paper can be found here.

The state's opening gambit in the COAG and national competition review is more money for less reform. Now that would suit SA. It would mean less action on water reform, such as breaking up of SA Water's regulatory and commercial functions. It would also suit NSW, which is dragging its heels on water reform to restore environmental flows to the Murray-Darling Basin's rivers. There needs to be a far greater emphasis on competition policy helping to achieve the goals of sustainability.

On the other hand, the NCC has a tendency to think that the growth of the duoply of the supermarket giants (Woolworth and Coles) at the expense of independent butchers, greengrocers, supermarkets, and petrol & liquor retailers stands for market competition. This is not seen as the misuse of market power. I cannot see how this use of competition strengthens the incentives for better economic, social and environmental outcomes.

August 10
The Federal ALP has said that it supports the NCC and the competition reform process given the squeezing of competition out of the economy by the duopoly and oligopoly trend. Telecommunications is a classic example. Given the way the market is structured and regulated to favour the Telstra gorilla, there is little hope that there will be new investment in new infrastructure by new entrants. We are left with Telstra's old copper-based access network and Telstra blocking competition.

Federal Labor also recognizes that the States have dragged their heels on key reforms because they are beholden to powerful economic interests.

| Posted by Gary Sauer-Thompson at 10:19 AM | | Comments (0)