Government writing reform cheques it’s unlikely to cash
Published at The Conversation, Thursday 2 April
Just a day after Joe Hockey kicked off a national conversation on tax, economist Ian Harper has brought the government into another difficult conversation, this time on competition policy reform. Both the tax and competition policy debates are about improving Australia’s productivity and growth. But both come with considerable political challenges for the government.
Tax reform is hard, particularly when governments don’t have money to compensate the losers, because many voters end up paying more. Competition reforms are hard for a different reason – the losers are fewer in number but tend to be well organised and vocal. Many of Harper’s priority reforms are likely to come up against this type of well-resourced opposition.
Removal of pharmacy ownership laws – one of the areas Harper nominated for immediate reform – is unfinished business from the National Competition Reforms of the 1990s. The current restrictions, which prevent new pharmacies opening within 1.5 kilometres of existing ones and stop anyone other than a pharmacist from owning a pharmacy, stifle competition and restrict consumer choice. As Harper’s review panel points out, there are far less restrictive ways to ensure the provision of quality advice and care to patients. But pharmacists are a formidable lobby group, even winning PR awards for their government scare campaigns.
Less well funded, but with better scope to wheel out celebrated authors such as Tim Winton, is the book publisher lobby. Parallel import restrictions on books (and second-hand cars) remain in place long after similar restrictions were removed for CDs and other products. These import restrictions protect local producers from overseas competition, allowing them to charge higher prices. The Harper review has joined the Productivity Commission in recommending these restrictions be removed, subject to transitional arrangements.
Perhaps more significantly the panel also recommended a review to make it easier for wholesalers to import branded products, such as coffee and software, to Australia from countries where they are being sold more cheaply. This would reduce opportunities for trade-mark owners to charge higher prices in Australia than in other countries.
The Harper panel also highlights the taxi industry as one where reform is “long overdue”. Licensing conditions restrict the number of taxis on the street, making it harder to get a cab in peak times. This artificial scarcity has created valuable property – taxi licences command almost A$400,000 in NSW and A$300,000 in Victoria. Licence owners have a strong interest in maintaining the status quo.
Despite more than two decades of reviews recommending changes to these arrangements, the biggest upset to incumbent operators has come not through legislation but technological disruption – ride-sharing apps such as Uber that directly connect passengers with private drivers. The Harper panel challenges state and territory regulators to ensure regulations respond to these new technologies in a way that puts consumers ahead of protection of existing business models.
The Harper review also recommends deregulating retail trading hours, cabotage (local crewing) restrictions on airlines and coastal shipping and more cost reflective road pricing. Yet all come with their own set of highly motivated losers.
Picking fights everywhere
Will governments dare to take on these powerful vested interests? The reform environment is very different to the one that existed in 1993, when Fred Hilmer handed down the last major review into competition policy. His report – which precipitated the successful National Competition Policy (NCP) reforms of the 1990s and early 2000s – sat squarely within the Keating government’s broader microeconomic reform agenda. In contrast, the Harper review was born from a subset of an election commitment to “grow small business” made by the then Opposition leader, Tony Abbott, and his Shadow Minister for Small Business, Bruce Bilson. A focus on protection of certain market segments is a very different mindset to the type of pro-consumer reforms advanced by Harper.
The NCP reforms succeeded because the states, territories and the Federal Government co-operated. State and territory governments endorsed the need for a national competition policy. National competition payments from the Commonwealth encouraged state progress.
The Harper report comes at a low ebb in Commonwealth-State relations. The Commonwealth Government’s decision in the last budget to cut payments to the states for hospitals and schools has understandably been unpopular with state premiers. And the government’s ongoing budget woes make compensation payments to the states for reform highly unlikely.
When the government is already spending huge amounts of political capital trying to reform the Federation, tax, the welfare system, university funding and childcare, the prospect of the brave Harper proposals going anywhere soon is slim at best. Perhaps there is a lesson for governments here: don‘t start a difficult conversation you don’t have the will to finish.