Economic Analysis Unit
Economic Reform Unit
In April 1995, the Tasmanian Government (along with the Australian Government and all other state and territory governments) signed three inter-governmental agreements relating to the implementation of National Competition Policy (NCP). These agreements include the Conduct Code Agreement (CCA), the Competition Principles Agreement (CPA), and the Agreement to Implement NCP and Related Reforms.
The principal objective of NCP is to promote competition within the economy where it is considered to be in the public benefit. The underlying premise is that increased competition in a market leads to greater efficiency and productivity throughout the economy.
All jurisdictions were eligible for competition payments from the Australian Government, allowing for the sharing of anticipated benefits arising from the implementation of NCP reforms. Tasmania was highly successful in meeting its commitments under the NCP agreements. This resulted in approximately $90.8 million in payments from the Australian Government to the State between 2001-02 and 2005-06.
In the 2003-04 and 2004-05 Budgets, the Australian Government did not provide estimates of the 2006-07 payments pool, instead indicating that payments would be the subject of negotiations with the states and territories. However, despite the reference to negotiations, the then Prime Minister subsequently announced that competition payments would cease after 2005-06.
Under new arrangements, the Australian Government reallocated NCP payments for 2006-07 and 2007-08 to the National Water Initiative. Accordingly, competition payments were directed to fund eligible water projects over these years.
In June 2005, the Council of Australian Government (COAG) agreed that a further round of NCP reform was necessary to maintain Australia’s competitive position in the world economy. On 10 February 2006, COAG agreed to the new wide-ranging National Reform Agenda (NRA).
The public benefit aspect of NCP ensures that governments, when reviewing particular reform options, take into account all government and community objectives and weigh up all the advantages and disadvantages of any measures before determining the policy to be adopted.
The public benefit test is satisfied where the benefit provided to society of a proposed policy outweighs the costs. Public benefit is to be distinguished from a private benefit, which is a benefit to a specific industry or sub-group of society, often at a significant cost to other sectors of society.
The factors used to determine what is in the public interest are outlined in clause 1(3) of the CPA. These considerations include:
Restrictions on Competition
Restrictions on competition are generally only warranted where there is market failure, or if there is a social equity objective, and where the benefits of the restriction outweigh the costs.
While almost no regulation is completely neutral in its implications for competition, legislation may be regarded as affecting competition where it directly or indirectly:
The NCP principles require that legislation should not restrict competition unless it can be demonstrated that:
The two mechanisms for legislation review in Tasmania are:
Under the Government’s Legislation Review Program, proposed new and amendment primary legislation that restricts competition or significantly impacts upon business must be justified as being necessary and in the public benefit. Under the Subordinate Legislation Act, subordinate legislation that imposes a significant burden, cost or disadvantage on a sector of the public must also be justified as being necessary and in the public benefit. In addition, the Subordinate Legislation Act seeks to ensure that only necessary, effective and efficient subordinate legislation is made and retained on the State’s statute books.
Where public benefit justification is required, this is documented in the form of a Regulatory Impact Statement (RIS). A RIS incorporates a cost-benefit analysis of the restrictions or significant impacts and considers alternative options for achieving the objectives of the legislation. Public consultation is also a mandatory component of a RIS.
In line with the Government's commitment to legislative reform, the Economic Reform Unit regularly prepares Legislation Repeal Acts to repeal acts and rescind subordinate legislation identified as being no longer necessary.
NCP encompasses a range of measures designed to promote competition including:
Monopoly Prices Oversight
Before COAG had formally agreed to prices oversight of publicly owned monopolies, the Tasmanian Government established the Government Prices Oversight Commission (GPOC). GPOC is responsible for conducting price investigations in relation to Metro Tasmania and the Motor Accidents Insurance Board.
Under clause 3 of the CPA, each government is required to apply competitive neutrality principles to its significant business activities where the benefits to the community would outweigh the costs. Competitive neutrality aims to promote the efficient use of resources in public sector business activities by removing any net competitive advantage that businesses may have solely as a result of public ownership. Government business enterprises are subject to tax equivalents, dividends and debt guarantee fees under the Government Business Enterprises Act 1995. GPOC is responsible for investigating complaints regarding competitive neutrality.
The following link to the State Government Entities Directions Paper sets out competitive neutrality principles as they apply to recreational vehicle camping facilities.
Structural Reform of Public Monopolies
Clause 6 of the CPA requires that prior to introducing competition into a sector traditionally supplied by a public monopoly, governments must review the structure of that monopoly business and remove any regulatory function or responsibility from the public monopoly and relocate industry regulation functions. This is to prevent the business from having any regulatory advantage over its existing (or potential) competitors.
The establishment of a competitive electricity market in Tasmania commenced in 1998 with the disaggregation of the Hydro-Electric Corporation into separate generation (Hydro Tasmania), transmission (Transend Networks) and distribution and retail (Aurora Energy) businesses.
Under the National Electricity Market (NEM) arrangements, retailers, end users and other organisations bid for electricity sold into the wholesale pool by competing generators, while retailers compete for customers. Tasmania entered the NEM in May 2005, joining Queensland, New South Wales, the Australian Capital Territory, Victoria and South Australia to become the sixth jurisdiction to become a member of the national market.
Joining the NEM, and the commissioning of Basslink, has facilitated competition in the electricity supply industry in Tasmania. Tasmania has been planning full retail contestability in stages which will encompass households and businesses. The first tranche, which covered around 19 customers, was introduced on 1 July 2006, with the remaining four tranches to be implemented on 1 July each year. Full retail contestability, which is scheduled to occur on 1 July 2010, subject to a positive cost-benefit assessment. On 25 September 2007, the Tasmanian Treasurer requested the Tasmanian Energy Regulator to undertake this assessment. Details can be found on the Office of the Tasmanian Economic Regulator’s web site.
Tasmania’s participation in the NEM is currently overseen and facilitated by the Economic Policy Branch of the Department of Treasury and Finance.
Third Party Access to Essential Infrastructure
Under clause 6 of the CPA, each state and territory has the option of establishing its own regime or regimes for access by third parties to services provided by means of significant infrastructure facilities, or allowing the regime or regimes established by the Australian Government to apply. The Australian Government enacted Part IIIA of the Trade Practices Act to provide three pathways for a party to seek access to an infrastructure service: by declaration, through an existing effective access regime, or by meeting terms and conditions set out in voluntary undertakings approved by the Australian Competition and Consumer Commission (ACCC).
Tasmania’s entry in the NEM involved implementing a suite of structural, regulatory and transitional arrangements to allow for third party access to the Tasmanian transmission and distribution network. Such electricity reforms have opened electricity generation and retailing to competition, while addressing bottlenecks in the transmission and distribution grid.
Key reforms include:
The National Third Party Access Regime for Natural Gas Pipelines (Gas Access Regime) was established in November 1997 by agreement of the Australian Government and all state and territory governments. The Gas Pipelines Access Law, including the National Third Party Access Code for Natural Gas Pipeline Systems (the Gas Code) implements the access objectives agreed by all jurisdictions.
Under the Gas Code, pipeline operators must submit an access arrangement to an independent regulator, the ACCC, for approval. An access arrangement must set out the terms and conditions of access, including reference tariffs for reference services (benchmark prices for services likely to be sought by a significant part of the market). The ACCC undertakes a public consultation process in deciding whether to approve a proposed access arrangement.
In December 2002, Duke Energy International completed construction of the transmission pipeline from Victoria to Tasmania and the Government signed an Agreement with PowerCo Limited in 2003 to develop the State’s distribution network. The first stage of the project, which was completed in July 2005, involved the laying of 100 km of gas pipe in the urban areas of Hobart, Launceston, Longford, Westbury, Bell Bay, Wynyard and Devonport. The second stage of the project is currently underway. The gas retail market is fully contestable, with customers free to choose their gas supplier. There are now two licensed retailers in Tasmania.
On 13 October 2004, the Tasmanian Government applied to the National Competition Council (NCC) for a recommendation that the State’s access regime for gas pipeline services be classed as an effective access regime under Section 44M of the Trade Practices Act. The NCC adopted a public consultation process assessing this application. In April 2005, the NCC forwarded its final recommendation to the relevant decision maker, the Parliamentary Secretary to the Australian Government Treasurer. On 17 July 2006, the Parliamentary Secretary to the Treasurer decided that the proposed regime for natural gas pipeline services is an effective access regime under the National Access Regime and certified it for a period of 15 years.
The Tasmanian rail transport system is small and is not currently profitable without subsidies for the maintenance and upgrading of infrastructure. In May 2006, Pacific National agreed to fund $38 million in rolling stock, with the State and Australian Governments contributing $40 million and $70 million respectively for infrastructure. Under the agreement, ownership of the railway land and sleepers was transferred back to the State and the service is now open access.
Under clause 5 of CPA, each government was required to review and, where appropriate, reform all existing legislation (as at June 1996) that restricted competition to ensure that those restrictions were fully justified as being in the public benefit. Under the CPA, governments were required to publish an annual report describing progress in implementing reforms following the application of competitive neutrality
In Tasmania, a total of 238 Acts were reviewed between 1996 and 2004, which resulted in many being amended or repealed.
The NCC published annual reports detailing jurisdictions progress in implementing NCP reforms. These reports can be accessed on the National Competition Council web site.