Can infrastructure reforms restore productivity?

AUSTRALIAN competition reforms – proposed by the Harper Review – can boost national prosperity and recover from many years of poor infrastructure policies and practices.

That is the view of Australian Competition and Consumer Commission (ACCC) chairman Rod Sims.

“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 told the recent Infrastructure Partnerships Australia conference in Sydney.

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

Mr Sims said three areas would further harm Australia’s future productivity and prosperity if not addressed: road reform, privatising infrastructure assets with the wrong objectives in mind, and monopoly rent extraction by asset owners.

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

Mr Sims warned against privatising infrastructure assets in situations where immediate financial benefit became a ‘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,” Mr Sims said. “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 warned about infrastructure owners possibly engaging in “monopoly rent extraction” – challenging 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.”

www.accc.gov.au

 

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