Infrastructure reforms can help restore productivity

4 September 2015

The proposed Harper competition reforms can boost national prosperity and help turn the tables on many years of past poor infrastructure policies and practices, ACCC Chairman Rod Sims said today at an Infrastructure Partnerships Australia conference in Sydney.

“We see policies that prevent competition in coastal and liner shipping, inadequate dedicated rail freight paths, a poor policy framework for road investment, limits on supply and competition in urban water, costly past rules for energy network regulation, limits on infrastructure competition in many areas, and I could go on,” Mr Sims said.

“Into this environment comes the Harper Review of competition policy. It is extremely timely, and has important recommendations on many fronts.”

In his speech to infrastructure experts, Mr Sims discussed three areas which will do further harm to Australia’s future productivity and prosperity if not addressed.

Mr Sims pressed the need for road reform outlining a way ahead that is “entirely doable and saleable” with two steps.

“First, the revenue raised from road use should flow directly to the entities that build and maintain our roads.”

“Second, the level of these road user charges should be set based on the need for future road expenditure.”

Mr Sims also warned against privatising infrastructure assets with the wrong objective in mind. He said governments should avoid a situation where immediate financial benefit comes at a cost of an effective ‘tax’ on future generations.

“Some of Australia’s key infrastructure assets, including significant ports and railways, are likely to be privatised in the coming years. The value of the assets to be sold is likely to be high and governments have begun announcing projects they will invest in as a result of the profits generated from these privatisations.”

“This creates a strong incentive for governments to structure their privatisation processes in a manner that maximises the sale price they receive. In order to maximise sale prices, governments will have little incentive to closely examine whether the market structure and regulatory arrangements that will apply post-privatisation are conducive to competition and appropriate outcomes.”

Mr Sims also raised concerns about the costs that will follow if infrastructure owners engage in monopoly rent extraction.

He challenged the view that policy makers should pay no attention to the ability of a bottleneck monopolist to extract rents from upstream or downstream firms in a commodity export supply chain.

“Monopolies can be harmful in that they can limit investment and innovation in upstream or downstream industries. Monopolies, therefore, generally require effective economic regulation.”

The Chairman's speech is available: Competition key to restoring Australia’s productivity


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