The National Competition Policy

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The National Competition Policy (NCP) is a set of reforms introduced in the mid-1990s to promote competition in various sectors of the Australian economy.
What are the main aims and objectives?

The National Competition Policy (NCP) had several key aims and objectives designed to reshape the country's economic landscape. Its primary goal was to enhance economic efficiency and boost Australia's international competitiveness by promoting competition across various sectors of the economy. The policy aimed to improve consumer welfare by providing more choices, lowering prices, and enhancing the quality of goods and services. It sought to reform regulatory frameworks by reviewing and amending laws that restricted competition and removing unnecessary barriers. By encouraging microeconomic reform and fostering intergovernmental cooperation, the policy aimed to drive efficiency improvements, stimulate innovation, and ensure consistent implementation of competition principles nationwide.

How does the program work?

The National Competition Policy (NCP) in Australia encompassed a wide range of reforms aimed at promoting competition and enhancing economic efficiency. These reforms included:

Legislation Review:

  • Systematic review and reform of laws that restricted competition
  • Removal of unnecessary regulatory barriers across various sectors

Structural Reform of Public Monopolies:

  • Separation of regulatory and commercial functions in government-owned businesses
  • Corporatization of government entities to operate on a more commercial basis

Competitive Neutrality:

  • Implementation of measures to ensure government businesses compete fairly with private sector firms
  • Adjustments to pricing policies, tax equivalent regimes, and regulatory neutrality

Access Regime:

  • Establishment of a national framework for third-party access to essential infrastructure
  • Creation of state-based access regimes for significant infrastructure facilities

Pricing Reforms:

  • Introduction of cost-reflective pricing for government services
  • Removal of cross-subsidies in various sectors

Extension of Trade Practices Law:

  • Application of competition law to previously exempt sectors and government businesses
  • Strengthening of the Australian Competition and Consumer Commission (ACCC)

Reforms in Specific Sectors:

  • Electricity: Separation of generation, transmission, and distribution; creation of a national electricity market
  • Gas: Removal of barriers to interstate trade; introduction of third-party access to pipelines
  • Water: Implementation of water trading and cost-reflective pricing
  • Transport: Reforms in road and rail sectors to improve efficiency and competition

Labor Market Reforms:

  • Increased flexibility in workplace agreements
  • Reduction of restrictive work practices

Agricultural Marketing Reforms:

  • Dismantling of statutory marketing authorities
  • Deregulation of various agricultural markets

Professional Services:

  • Review and reform of regulations governing professional services (e.g., legal, accounting, architectural)

Retail Trading Hours:

  • Liberalization of shopping hours in many states

Intergovernmental Cooperation:

  • Establishment of mechanisms for coordinated implementation of reforms across federal, state, and territory governments

One of its key features was the extensive review and reform of legislation that restricted competition. This process involved scrutinizing existing laws and regulations at all levels of government to identify and eliminate unnecessary barriers to competition, fostering a more open and dynamic business environment.

Another significant feature of the NCP was the structural reform of public monopolies. This involved separating the regulatory and commercial functions of government-owned businesses, particularly in sectors such as electricity, gas, and water. By doing so, the policy aimed to create a more level playing field and encourage private sector participation in these industries, ultimately leading to increased efficiency and improved service delivery for consumers.

The principle of competitive neutrality was also a crucial aspect of the NCP. This feature ensured that government businesses competing with private sector firms did not enjoy any unfair advantages due to their public ownership. It required government entities to operate on a commercial basis, accounting for all costs that a private business would incur, including taxes and regulatory compliance expenses. This measure was designed to promote fair competition and encourage efficiency in both public and private sectors.

The NCP also introduced a national access regime, which was a groundbreaking feature of the policy. This regime established a legal framework for third-party access to essential infrastructure facilities, such as railway lines, ports, and telecommunications networks. By allowing competitors to access these critical facilities on reasonable terms, the policy aimed to promote competition in related markets and prevent monopolistic behavior by infrastructure owners.

Intergovernmental cooperation was another key feature of the NCP. The policy was implemented through a collaborative effort between the federal, state, and territory governments, with the National Competition Council (NCC) overseeing its progress. This cooperative approach ensured a consistent application of competition principles across the country and facilitated the sharing of best practices among different jurisdictions.

Lastly, the NCP included a system of competition payments from the federal government to the states and territories. These payments were contingent on the satisfactory implementation of agreed-upon reforms, providing a financial incentive for subnational governments to actively participate in the reform process.

What is the overall cost?

The National Competition Policy (NCP) implementation involved significant financial commitments from the Australian Government to incentivize states and territories to implement reforms. The cost of implementing the NCP can be primarily understood through the National Competition Policy payments made to states and territories which totaled:

  • $200 million (in 1994-95 dollars) for the first tranche
  • $400 million in the second tranche commencing in 1999-2000
  • $600 million in the third tranche commencing in 2001-02
How was it implemented?

The National Competition Policy (NCP) in Australia was created as a result of a comprehensive review of Australia's competition laws and policies in the early 1990s. The process began with the establishment of an independent committee led by Professor Fred Hilmer in 1992. This committee, known as the National Competition Policy Review Committee, was tasked with examining the need for a national competition policy and recommending ways to improve competition in the Australian economy.

In 1993, the Hilmer Committee released its report, which identified numerous areas where competition was restricted in Australia and proposed a series of reforms to address these issues. The report's recommendations formed the basis of what would become the National Competition Policy. Following extensive negotiations between the federal government and the state and territory governments, the Council of Australian Governments (COAG) agreed to implement the NCP in April 1995.

The implementation of the NCP was a collaborative effort between all levels of government in Australia. The policy was formally established through three intergovernmental agreements: the Competition Principles Agreement, the Conduct Code Agreement, and the Agreement to Implement the National Competition Policy and Related Reforms. These agreements set out the principles of the NCP and the commitments of each government to implement the reforms.

To oversee the implementation of the NCP, the National Competition Council (NCC) was established in 1995. The NCC's role was to assess the progress of governments in implementing the agreed reforms and to make recommendations on competition payments. These payments were a key feature of the implementation process, with the federal government providing financial incentives to state and territory governments for satisfactory progress in implementing the reforms.

The implementation of the NCP involved a wide range of reforms across various sectors of the economy. This included reviewing and amending legislation that restricted competition, restructuring public monopolies, introducing competitive neutrality principles for government businesses, and establishing a national access regime for essential infrastructure. The reforms were implemented gradually over several years, with regular assessments and reports on progress.

One of the significant aspects of the NCP's implementation was the legislation review program. This involved all governments systematically reviewing and, where appropriate, reforming all laws that restricted competition. This process was extensive and covered a wide range of sectors, from professional services to agricultural marketing arrangements.

The implementation of the NCP was not without challenges. It required significant changes to long-standing practices and structures in many industries, which sometimes met with resistance from vested interests. Additionally, there were concerns about the potential impacts on regional areas and certain sectors of the economy. To address these issues, the implementation process included mechanisms for assessing the public interest and considering the broader impacts of reforms.

By the early 2000s, most of the major NCP reforms had been implemented, although the process of reviewing and reforming competition policy in Australia has continued beyond the initial NCP framework.

What impact has been measured?

Several analyses have been conducted of the NCP finding that: 

  • It contributed to a productivity surge that underpinned 13 years of continuous economic growth.
  • The policy reforms are estimated to have increased real GDP by 2.5% annually above what it would have otherwise been.
  • More recent estimates suggest that the NCP could boost GDP by $26–45 billion in 2023-24 dollars (or 1.0–1.7% of GDP)
What lessons can be learned?

The National Competition Policy (NCP) in Australia has provided several benefits to entrepreneurs, fostering a more dynamic and competitive business environment. Here are some key ways the NCP has benefited entrepreneurs:

  1. Reduced Barriers to Entry: The NCP has worked to remove unnecessary barriers to starting, running, and growing a business. This has made it easier for entrepreneurs to enter new markets and compete with established players.
  2. Level Playing Field: By promoting competitive neutrality between government and private businesses, the NCP has helped create a more level playing field. This allows entrepreneurs to compete more fairly, even against government-owned enterprises.
  3. New Market Segments: The policy reforms have made it easier for businesses to break into new and growing market segments. This provides entrepreneurs with more opportunities to innovate and find niches in the evolving economy.
  4. Increased Consumer Choice: By stimulating business innovation and customer responsiveness, the NCP has led to increased consumer choice. This creates more opportunities for entrepreneurs to differentiate their products and services.
  5. Productivity Boost: The NCP has contributed to a productivity surge that has underpinned years of continuous economic growth. This overall economic expansion creates a more favorable environment for entrepreneurial ventures.
  6. Innovation Incentives: The competitive environment fostered by the NCP encourages the development of new products, services, and business models. This push for innovation benefits entrepreneurs who are often at the forefront of creating novel solutions.

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom