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Rod Sims: ”I always find it irritating when people say Australia has picked all the low-hanging micro-economic reform fruit. We have not; and besides, there is never only one crop,’

Rod Sims warns on privatisation impact on competition

June 23, 2014

Brian Robins

The head of the consumer watchdog has warned that competition policy needs to be reinvigorated, with governments increasingly failing to make competition central to the privatisation of public assets.

As a result, the federal government needs to ensure the present review of competition policy, the so-called Harper review, is used to both strengthen competition policy as well as to help reinvigorate so-called ”micro-economic reform”, ongoing changes to government policy to revitalise the economy.

”Australia has lost a lot of its pro-competition culture that it gained from the 1990s National Competition Policy. Clearly we need ‘Hilmer Mark II’, as the current Harper review is styled,” Australian Competition and Consumer Commission chairman Rod Sims will say at Monday’s State of the Nation Conference organised by CEDA.

Effective competition policy depends on using competition and other incentives to boost productivity, effective competition laws and creating processes and institutions that continually foster competition. In particular, the present approach to the privatisation of public assets raises particular concern, Mr Sims will say.

”Where governments are increasingly failing is in how to privatise,” Mr Sims will tell the conference.

”Privatising in ways that limit competition in order to maximise the one-off sale proceeds is the wrong way. Such an approach increases the sale proceeds by effectively taxing future generations and Australia’s future competitiveness.”

Mr Sims was speaking after the ACCC moved to block the $1.5 billion acquisition by Australian Gas and Light Co of the largest electricity generator in the country, Macquarie Generation, which it claimed would lessen market competition, since it would result in just three companies controlling more than 80 per cent of power generation.

The ACCC decision has been challenged by AGL, with the Australian Competition Tribunal expected later this week to make its ruling on the matter.

In the field of micro-economic reform, infrastructure is an area of unfinished business, with road supply and usage, congestion pricing and shipping three areas that should be tackled.

”I always find it irritating when people say Australia has picked all the low-hanging micro-economic reform fruit. We have not; and besides, there is never only one crop,” Mr Sims will say.

Foreshadowing the content of the ACCC’s submission to the Harper review, principles including efficiency, universality and clarity are important in determining where competition laws could be improved.

”While the ACCC recognises competition laws must strike a careful balance, and not inhibit healthy competitive behaviour, if competition laws are too weak there are large efficiency and welfare losses from systematically poor conduct.”

Mr Sims nominated Section 46 of the Competition and Consumer Act as a provision that is particularly deficient, and outlined two areas for improvement.

One area of success has been the integration of competition enforcement, consumer protection and economic regulation into a single agency with the sole purpose of making markets work as they should.

To address Australia’s diminished commitment to competition, Mr Sims will say the role of market studies needs to be considered in order to gain an in-depth understanding of how markets or market practices work.

”The inability of the ACCC to initiate market studies using our information-gathering powers means we are out of step with overseas regulators, and Australia is losing an opportunity for a continuing competition focus on particular sectors and activities.”

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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