Major Areas of Reform
This page provides a summary of the reforms implemented under the National Competition Policy. Other sections of this website provide information on the history, implementation and outcomes of the National Competition Policy including on the specific reforms.
Australia's governments created a vision for a national approach to competition policy reform in October 1992 when they established the Independent Committee of Inquiry into a National Competition Policy for Australia. Known as the Hilmer Committee after its chairperson (Frederick Hilmer) the independent committee reported in August 1993, making recommendations in six policy areas:
- extension of the reach of the Trade Practices Act 1974 to unincorporated businesses and state and territory government businesses
- extension of prices surveillance to state and territory businesses to deal with circumstances where other competition policy reforms had proven inadequate
- application of competitive neutrality principles so government businesses do not enjoy a competitive advantage over their private sector competitors simply as a result of public sector ownership
- restructuring of public sector monopoly businesses
- review of all legislation that restricts competition
- provision for third party access to nationally significant infrastructure.
On 25 February 1994, the Council of Australian Governments agreed to the competition policy principles articulated in the Hilmer Committee report.
On 11 April 1995 the Council of Australian Governments reached three intergovernmental agreements. These agreements were the Competition Principles Agreement, the Conduct Code Agreement and the Agreement to Implement the National Competition Policy and Related Reforms. The agreements set out a comprehensive nationally-coordinated microeconomic reform program (the National Competition Policy) that broadly aligned with the Hilmer Committee recommendations. The agreements also contained undertakings to implement pre-existing intergovernmental reform agreements in the sectors of electricity, gas, water and road transport (the Related Reforms).
The Competition Principles Agreement reforms
Legislation review and reform involved the Australian Government and all state and territory governments identifying existing legislation that restricted competition, and reviewing, and where appropriate, reforming that legislation. The guiding principle was that legislation should not restrict competition unless the benefits of the restriction to the community as a whole outweighed the costs and the objectives of the legislation can only be achieved by restricting competition. There was also to be evidence to show that new legislation that restricts competition is consistent with the guiding principle.
Governments undertook to develop a comprehensive legislation review timetable by June 1996, complete all reviews and appropriate reforms by 2000, ensure there is evidence supporting any restrictions in new legislation and report annually on progress with implementing their review and reform programs. (See the Competition Principles Agreement clause 5)
The Council of Australian Governments subsequently agreed that the timeframe for completing the legislation review and reform program should be extended to 2005.
Competitive neutrality reform involved the Australian Government and all state and territory governments ensuring that their publicly owned businesses did not enjoy any net competitive advantage simply because they are publicly owned. For significant government businesses, governments undertook to adopt a corporatisation model where appropriate and to impose on the business full taxes or tax equivalents and debt guarantee fees to offset advantages from government guarantees, and to apply to the business regulations normally applying to private sector businesses.
Governments were to publish a competitive neutrality policy statement by 1996, which was to outline its implementation programme and mechanism for handling complaints. Governments were to publish annual reports on implementation including allegations of non-compliance. (See the Competition Principles Agreement clause 3)
Structural reform involved the Australian Government and all state and territory governments, before introducing competition to a market traditionally served by a public monopoly, to remove from the monopoly any responsibilities for industry regulation. Before introducing competition and before privatising there was to have been a structural review of the business, including the merits of separating any monopoly and potentially competitive elements of the business. (See the Competition Principles Agreement clause 4)
Access to infrastructure services involved the introduction of a national regime providing for access to the services provided by significant monopoly infrastructure facilities. (See the Competition Principles Agreement clause 6)
The National Competition Policy Reform Act 1995 (Cth) introduced a new Part IIIA into the Trade Practices Act 1974 providing three routes through which a business can get access to the services of nationally significant monopoly infrastructure services:
- A business can apply to the National Competition Council to have a service ‘declared’. If the designated Minister declares the service, the business can enter negotiation, supported by legally binding arbitration, with the infrastructure operator to determine the terms and conditions of access.
- A business can use a state or territory access regime applying to a particular infrastructure service. Where that regime is certified as an ‘effective’ means of seeking access, then the service cannot be declared under the national access regime.
- Where an infrastructure operator has made a voluntary access undertaking approved by the Australian Competition and Consumer Commission, a business can get access to the infrastructure service under the terms and conditions of that undertaking. An infrastructure service cannot be declared where there is an approved undertaking in place.
The National Competition Policy reform agenda was extended to local government. States and territories undertook to work with local government in applying legislation review and reform, competitive neutrality and structural reform principles. States and territories undertook to prepare a statement by June 1996 on the application of these principles to local government. (See the Competition Principles Agreement clause 7)
The prices oversight undertaking involved states and territories agreeing to consider establishing independent sources of prices oversight of their monopolistic business enterprises. (See the Competition Principles Agreement clause 2)
The ‘Related Reforms’
Arising from the Agreement to Implement the National Competition Policy and Related Reforms, governments undertook to implement pre-existing reform agreements covering the electricity, gas, water and road transport sectors. These were known as the Related Reforms.
The major electricity reform undertaking was the agreement to establish the National Electricity Market (NEM) in southern and eastern Australia.
The NEM operates in New South Wales, Victoria, Queensland, South Australia and Tasmania and in the Australian Capital Territory. Western Australia and the Northern Territory are not part of the NEM because of the distances between their load centres and the interconnected electricity network in the southern and eastern states, but committed to the other electricity reforms. An important initial step was the structural separation of the monopoly electricity transmission functions and the competitive generation and retailing functions. (See Attachment to the Agreement to Implement the National Competition Policy and Related Reforms)
The major gas reform undertaking was the agreement to implement pre-existing measures necessary to achieve the objective of free and fair trade in gas between and within states and territories by 1 July 1996. The pre-existing gas reform agreements aimed to achieve free trade in gas and develop intra-field and interfield competition. (See Attachment to the Agreement to Implement the National Competition Policy and Related Reforms)
The Council of Australian Governments adopted a strategic water reform framework on 25 February 1994, which it later incorporated into the National Competition Policy agreements. The main reform objectives were to establish an efficient and sustainable water industry and to arrest widespread natural resource degradation, for which water use is partly responsible. The framework covered pricing, the appraisal of investment in rural water schemes, the specification of, and trading in, water entitlements, resource management (including recognising the environment as a user of water via formal allocations), institutional reform and improved public consultation.
The Council of Australian Governments originally envisaged that the strategic water reform framework would be implemented by 2001. Subsequently the Council of Australian Governments extended the implementation timeframe to 2005. On 25 June 2004 the Council of Australian Governments reached the Intergovernmental Agreement on a National Water Initiative, which developed and extended the original strategic framework. (See Attachment to the Agreement to Implement the National Competition Policy and Related Reforms)
Road transport reform involved governments committing to agreements to adopt nationally uniform road transport regulation though the National Competition Policy agreements did not specify a particular reform agenda. In 1998 through the Australian Transport Council, governments endorsed a reform package encompassing a nationally consistent regulatory framework for heavy vehicle registration, driver licensing, heavy vehicle mass and loading restrictions, commercial driver fatigue management and the national exchange of vehicle and driver information. (See Attachment to the Agreement to Implement the National Competition Policy and Related Reforms)
Extension of the Conduct Code
Undertakings on the Conduct Code involved the states and territories enacting legislation to extend the application of the general pro-competitive market rules in the Trade Practices Act (with the effect that they would apply to all businesses in Australia).
States and territories also undertook to report publicly where they enact legislation that relies upon section 51 of the Trade Practices Act to authorise conduct that would otherwise breach the Trade Practices Act. (See Conduct Code Agreement)