Time to review govt’s competitive neutrality policy: PC

Brandon How

A review of the federal government’s almost 30-year-old competitive neutrality policy is being urged by the Productivity Commission amid recent moves by the Commonwealth to acquire or stand up new public enterprises.

According to the policy, introduced under Paul Keating, competitive neutrality “requires that government business activities should not enjoy net competitive advantages over” private sector competitors just because they are publicly-owned.

The 1996 policy applies to “significant businesses” that are publicly owned and aims to “remove resource allocation distortions arising out of public ownership” and support competition.

However, Productivity Commission (PC) acting chair Alex Robson said there is “little guidance or principles on what constitutes ‘government’ and ‘significant government business activities’”, calling for them to be updated and reviewed.

A need for clearer guidance on what a public interest test should embody under the competitive neutrality policies, improved processes for ensuring policy compliance, and what complaints process should be undertaken for business activities with multiple government owners, are among a number of issues highlighted by Mr Robson.

He said the recently announced competition policy review, run by a new Treasury taskforce, presented a good opportunity to evaluate the competitive neutrality policy.

The comments were made in a public hearing for the ongoing House Economics committee inquiry to promoting economic dynamism, competition and business formation on Friday.

The Australian Government Competitive Neutrality Complaints Office is an autonomous business unit that operates within the PC and administers the Commonwealth’s competitive neutrality complaints mechanism.

Mr Robson backed a recommendation from the 2013 Competition Policy Review that called for an update to the competitive neutrality policies and complaint handling mechanism.

This was agreed to by the former Coalition government and the competitive neutrality policy review process was initiated in 2017. A final report has not been released, and no changes have been made to the 1996 policy.

Mr Robson also highlighted that Australia has already signed up to the 2021 OECD Council Recommendation on competitive neutrality.

He highlighted that the energy and telecommunications sectors are industries in which Australian governments are looking to re-enter.

While National Competition Council councillor Martin Wallace, who also appeared at the hearing, noted that issues caused by government ownership of corporations “is not [now] as widespread as it was” in 1995, he said there has been “some significant creep in relation to the lack of competitive neutrality between the partly or wholly owned by government enterprises”.

In 2020, Treasury has noted that the investment activities of the Australian Business Growth Fund, which takes a minority share in companies up to 49 per cent, should be subject to the Commonwealth’s competitive neutrality policy.

As such, the Productivity Commission argued in a 2021 report that “even part Australian government ownership in a significant business activity is sufficient to render it subject to the competitive neutrality policy and complaint mechanism”.

On this basis, it’s possible that equity investments through the government’s $15 billion National Reconstruction Fund and the Clean Energy Finance Corporation, which it is based on could, be subject to the policy.

The Department of Defence recently spent $500 million to become the majority shareholder in Canberra-based military radar manufacturer CEA Technologies. By the end of 2024, the government will hold 72 per cent of the company’s shares.

The Victorian government meanwhile, recently re-established the State Electricity Commission to deliver $1 billion in renewable energy investments, while the New South Wales government last week announced plans to establish a new state-owned energy corporation with $1 billion of seed investment.

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