Government Inc: time to revisit competitive neutrality

With more private sector involvement in aged care, health and education, competitive neutrality will become more important than ever. Julian Smith/AAP

A month after receiving the first round of submissions, the Harper review of competition policy is knuckling down to work. With around 300 submissions received to date, the range of issues raised is diverse.

Earlier this month, the review committee released a video highlighting the five major issues identified to date. These include small business, the conduct of supermarkets, the state of the law generally and the role of the Australian Competition and Consumer Commission. A sleeper issue, however, has been that of competitive neutrality.

Competitive neutrality is the principle that where government competes with private business, it should do so on an equal footing. This means that the advantages enjoyed by the government sector need to be netted out. These range from tax breaks to improved purchasing power to the big whammy: the absence of the imperative to make a profit. Government businesses also face some disadvantages that should be taken into account.

Competitive neutrality was first introduced into the Australian economy as part of National Competition Policy (NCP) - the policy platform implemented following the Hilmer review. NCP is one of the best examples of federal-state co-operation, and competitive neutrality reflects that co-operation (and its gradual breakdown over the last two decades).

In essence, the states were enticed to give up the advantages enjoyed by their businesses via a series of national competition payments. If they implemented NCP effectively, they’d get lots of money from the Commonwealth. If the states held back, however, then so too would the feds.

Compliance with competitive neutrality was one of the key measures by which the states’ performance was assessed. Consequently, all governments set up frameworks to deal with competitive neutrality complaints.

Not so neutral

But it’s been almost a decade since the last NCP payment was made. Unsurprisingly, the various governments around Australia are less willing to hamstring their businesses now that they’re not getting anything in return. Most competitive neutrality complaints units are dormant and the Commonwealth itself is proving recalcitrant: the most recent complaint against one of its enterprises was upheld by the Productivity Commission but never acted upon.

A successful but ignored complaint doesn’t give rise to any further options. An aggrieved party might be able to morph their complaint into some general allegation of anti-competitive conduct (never easy), but they can’t sue the government for failing to comply with competitive neutrality.

Given that compliance now seems optional for governments, it’s hardly surprising that complaints are becoming fewer and fewer. After all, what’s the point?

But the principles of efficiency that first underpinned its recommendation by the Hilmer Committee hold. In fact, if - as the terms of reference for the Harper Review suggest - we are to see more private sector involvement in aged care, health and education, then competitive neutrality will be more important than ever.

That said, not too many people seemed to have noticed its demise. Even the Productivity Commission - the body now charged with overseeing Commonwealth compliance (and whose recommendations were ignored in the complaint referred to above) - seemed to think it was working okay when reviewing Australia’s general access regime last year.

So it was interesting that the Australian Chamber of Commerce and Industry (ACCI) raised competitive neutrality as part of its submission to the Harper inquiry.

Specifically, the ACCI wants the obligations of competitive neutrality to be more widely published so that businesses know to take advantage of them.

It also wants the framework reviewed so that governments throughout Australia are held to account. Indeed it wants the motherhood statements of competitive neutrality to be turned into legal obligations.

One further issue raised by ACCI - closely linked with the effectiveness of the competitive neutrality regime - is the ability of small business to obtain “access to justice”. Indeed, many submissions have raised the problems that businesses face in getting prompt and effective action in the face of anti-competitive conduct.

The reasons for this systemic failure are long and complex and are causing concerns around the globe: it remains to be seen whether the Harper Committee can devise a silver bullet or two to help.