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HANSARD EXTRACT

Trade Practices Amendment (National Access Regime) Bill 2005: Second Reading

8th & 9th February 2006

 Mr HAYES (Werriwa) (7.15 p.m.)—I rise to support the opposition’s second reading amendment to the Trade Practices Amendment (National Access Regime) Bill 2005. Despite the victory of commonsense over pig-headedness when the government backflipped on the inclusion of pricing principles in this legislation, which has been the consistent position of the opposition, the government have nevertheless still been caught short. While they have reluctantly been dragged along in the debate and did finally concede that some pricing principles should be enshrined in this legislation, the government have been caught short because, quite frankly, they have squibbed on the bill. They have rushed to introduce some pricing principles and some parts of Labor’s position, but they did not have the stomach for the whole deal. Instead of accepting Labor’s amendment, the government have placed some principles in the bill but have certainly retained an escape clause. Granted, the escape clause is a little more difficult to use than leaving everything to the Treasurer’s discretion through a set of regulations; nevertheless, there is an escape clause.

In yet another example of the opposition leading the government on issues of national economic significance, some semblance of competition will finally be introduced in this bill. After four years of hand wringing about how it might respond to the report of the Productivity Commission, the government has come through with another half-baked effort. The importance of investment in infrastructure has received considerable attention of late as the Australian economy now starts to reach capacity restraints. Infrastructure is the veins and arteries of our economy. It is the roads, ports, railways, airports, powerlines, pipes and wires that allow people, goods, commodities, inputs and information to move efficiently between economic agents. Infrastructure is a critical source of our economic competitiveness. It represents the basic building blocks of our economy, and the efficient management of our infrastructure is critical to the long-term success of our economic progress.

But, Mr Deputy Speaker, you would not know the importance of infrastructure from the way this government treats it. Labor realises the importance of sound investment in infrastructure. We on this side of the House have realised that if you do not have the basics in place—if the building blocks are not right—you really are starting from behind. The Hawke and Keating governments realised the importance of efficient access to significant economic assets. The reforms of a decade ago were critical to boosting the competitiveness of the Australian economy, boosting economic growth and increasing the living standards of all Australians.

When I started my career I worked for Sydney Water. Of course, back then it was known as the Metropolitan Water, Sewerage and Drainage Board. It was set up as a monopoly and operated as one. During my time there nobody would have thought it possible for someone else to be able to use its network as part of their own business rather than simply using water provided by the network. At that time, natural monopolies were just that—monopolies.

Times have certainly changed and so has technology. The network businesses that were previously thought to be natural monopolies are now at a stage where more than one retailer can use the existing distribution network to deliver their product. The technological chains that allow access to network monopolies prompted the development of national competition policy and the Competition Principles Agreement. They led to the development of access regimes so that distribution businesses previously thought to be natural monopolies could become subject to competition. This led to cost reductions for businesses’ inputs and certainly cost reductions to residential consumers.

I do not remember the exact figures, but not too long ago I recall reading that small businesses in New South Wales had experienced a real reduction in their electricity costs in the order of 20 per cent. A similar reduction was experienced in port charges. Furthermore, there was about a 40 per cent reduction in rail freight charges. This is not to mention the impact that national competition policy has had on the cost of water, sewerage and gas. Not only is it business customers who benefit from these significant cost reductions but also domestic consumers benefit through lower prices for goods and services, and the Australian economy benefited as it became increasingly competitive on the world stage.

A significant proportion of the economic growth that we are experiencing today can be attributed to the micro-economic reforms introduced in the 1980s, of which competition policy was among the most significant. Fundamental to the reforms were the sound underpinnings of the Trade Practices Act and the Competition Principles Agreement. While it is important when setting about such reforms that businesses seek access to significant infrastructure assets and owners and operators of those assets have some certainty about how access arrangements will be developed and implemented, even more important, and critical to access decisions, is price. Pricing arrangements are the key determinant of the economic viability of a project. Access arrangements live and die by the pricing arrangements. Owners seek to maximise their revenue and return while those seeking access look to minimise their costs—a natural economic balance.

Price is critical to access arrangements, yet the government has not taken the issue seriously enough to introduce some real competition principles into this bill. While it will claim that its changes to the bill are a great achievement and are pivotal to the future of the economy, the truth is that it is selling the infrastructure short.

In the amendments to its own bill which the opposition has forced on the government, the government has left an escape hatch to be used in times of emergency—an escape hatch that will allow monopolists to dodge the rules and continue to extract monopoly rents and impose deadweight losses on our economy. The escape clause I refer to is in the government’s decision to include regulatory risk in its pricing principles. Regulatory risk is an interesting concept. It is often cited by those seeking to increase their prices to a level slightly above what would be regarded as economically efficient. Regulatory risk is used by companies to defend bloated pricing proposals by using the concept to pump values that are used in the calculation of appropriate rates of regulatory return.

Labor considers regulatory risk to be a concept that can be included in the pricing principles, while the government believes that regulatory risk must be included in the pricing principles. I am confident that over the coming years, because of the unwillingness of this government to truly commit itself to implementing full and proper pricing principles, we are sure to hear many debates about the level of regulatory risk associated with an investment. Monopolists will claim that they have a higher degree of risk for their entire investment and will use that argument in a false effort to boost the beta values, which will become so important in the calculation of rates of return. The argument they will use to boost the beta values used to calculate the required economic return will feed through to the final price and be passed on to consumers.

Regulatory risk should be included as only a subclass of commercial risk and not a separate class of risk. The government has not had the courage of its alleged competition convictions on this, and that is why the Labor amendment should be adopted. I find it particularly concerning that these amendments introduce potential for the granting of immunity from declarations. Under these amendments, immunity may be granted to new infrastructure projects that have been developed through competitive tendering processes. The minister noted in his second reading speech that this is because competitive tendering processes are likely to see the removal of the potential to extract monopoly rents. While I agree that it is likely that the potential to extract monopoly rents from these projects will be minimised through the use of competitive tendering, it assumes that infrastructure is tendered for and built in a highly competitive market. However, if the market is not highly competitive, the potential for the successful tenderer to extract monopoly rents remains. It may be somewhat reduced, but nevertheless it remains.

While the amendments in this bill are cause for concern, I cannot help but wonder how these changes will mesh with the recent decision of the Council of Australian Governments and the findings of the Prime Minister’s Exports and Infrastructure Taskforce. Any examination of such issues must necessarily examine the effectiveness of current regulatory arrangements. The taskforce report makes interesting reading. It says that regulators have been too focused on removing monopoly rents. I find that extraordinary because, as I understand it, part of the purpose of the regulation of monopolies is to reduce the scope to extract monopoly rents. Continuing to allow the extraction of monopoly rents is in direct conflict with trying to produce a competitive and efficient economy. It seems that, in the interests of speed rather than getting the process right and having inefficiencies removed, it is better to settle for reasonable access arrangements than to settle for ‘near enough is good enough’.

Based on the previous statement of the government, I would have thought that entering into reasonable access arrangements, which would no doubt include reasonable pricing arrangements, would result in some monopoly rents continuing to be extracted and would accordingly result in an artificially inflated input cost. Hence, exporters in this country would be left at a competitive disadvantage. I find it odd that the Prime Minister’s taskforce would recommend an approach which would result in exporters being less competitive, which flies in the face of the government’s objective of doubling the number of exporters by this year.

The minister’s second reading speech claims that this bill is consistent with the recommendations of the taskforce. However, they certainly cannot be considered to be consistent with the findings of the COAG review of national competition policy. That is likely to be a hot topic for debate when the Prime Minister meets the premiers, possibly later this week. Importantly, after considering the issues surrounding infrastructure, COAG last year at least acknowledged that the process of reform must continue. It said:

It is important not to be complacent about the continued performance of the Australian economy. Resting on the achievements of the last decade will cost the Australian community opportunities for greater prosperity.

Australia’s productivity performance is under threat, with further reform essential if the economic expansion of the last 14 years is to continue.

So while the collaborative efforts between the states, the territories and the Commonwealth are being developed, we stand here today debating amendments to a system of rules that govern access arrangements without reference to or knowledge of the findings of that COAG review.

Debate interrupted.

In continuation February 9, 2006

Mr HAYES (Werriwa) (9.01 a.m.)—Speaking on the Trade Practices Amendment (National Access Regime) Bill 2005 prior to the adjournment last night, I indicated that the development of a sound framework that gives certainty to all businesses—both owners and access seekers—involved in using infrastructure for the purpose of moving goods and services is essential to our economy. In most instances the negotiation of access arrangements involves significant information asymmetry, and this information gap can only be reduced through effective and well-structured oversight.

Businesses in south-west Sydney realise the importance of infrastructure that operates efficiently. That is why the Hume Highway’s on-ramps and off-ramps at Ingleburn were a critical issue in my election campaign. The ramps are needed to allow effective and efficient access to Ingleburn’s industrial park so that businesses there are able to move their products to domestic and international markets. The construction of these ramps continues to be one of the biggest concerns for local businesses—both those who are seeking to expand their markets and those who just want to make sure their business has the best opportunity it possibly can in our region. These businesses know it is essential that our road and rail transport networks are operating efficiently and effectively so that they can move their product to other parts of the country and overseas. They know how important it is to move their products through efficiently operating ports so that they can compete on a world scale—and they do.

Given that the Hume Highway is a federally funded highway and the Ingleburn on-ramps and off-ramps cost $13 million, it is regrettable that local businesses and residents were forced to raise $4.5 million to secure this essential piece of infrastructure in our region. Businesses that operate in the Ingleburn industrial estate will be levied about $2 million of that $4.5 million and residents of Campbelltown will be footing the rest of the bill for this critical piece of infrastructure.

I agree that timely, transparent and accountable decisions need to be made on important issues relating to access. Timely decision making adds to the certainty surrounding access arrangements. This bill applies ‘target’ time limits to various decisions under part IIIA. This is an important first step but, quite frankly, after all this time, I think the government has missed an important opportunity to produce a single, clear and pro-competitive legislative framework for infrastructure regulation. The micro-economic reform agenda that led to the development of the national competition policy, the relevant sections of the Trade Practices Act and the competition principles agreement are being left to wither on the vine.

The micro-economic reforms of the Hawke and Keating governments that led to the strong period of growth that this government has inherited are now being squandered as the government fails to introduce the legislative framework that is needed. The efficient operation of our roads, rail, ports, airports, water, electricity and gas assets is essential to lower the input costs of Australian businesses, which ultimately results in Australian businesses being more competitive in global markets and reduces the price for domestic consumers. Efficient infrastructure is a critical part of removing impediments to exports. (Time expired)

 

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