QUEENSLAND Premier Peter Beattie has made the astonishing suggestion that he will turn national competition policy into an election issue if he can't continue subsidising rural electricity prices. The subsidy is paid by city dwellers in higher electricity bills.
Beattie said: "National competition policy reforms have hit rural and regional Queensland hard in recent years and Cabinet decided we had to draw a line in the sand". His assault doubtless tugs at some populist strings and closes the gap between himself and economic irrationalists like Bob Katter. But it is absurd to say that the policies have hit at rural Australia.
National competition policy has formally been in place for only six years but governments had already begun to open up the economy to increased competition. These moves have lifted national productivity and seen the economy develop greater flexibility. This has brought more resilience to workplaces and allowed them to adapt to sudden changes in demand. The policy has served us particularly well given the world economic turbulence of the past five years. It has allowed the economy to ride through the Asian economic crisis without suffering.
Greater efficiency throughout Australia as a result of competition reforms leaves our economy well placed to minimise damage from the current world economic downturn. The lift in productivity means Australians on average are now some 10 per cent better off then we would have been.
Nor are these gains confined to urban areas. In fact, the Productivity Commission has found that 32 out of 50 rural areas grew faster than the national average. This strength in rural areas is a sharp break with the past. It is in contrast with the period of the 1980s which saw a decline in rural areas.
Some of the Queensland Government's detractors could present its proposal to prevent retail competition for the household consumer as a self-interested strategy. This is because stymieing full retail electricity competition would bring a windfall gain to the state Treasury. By preventing consumer choice of electricity retailer, average prices to households are held higher to the benefit of the state-owned suppliers. This in turn means higher profits can bc funnelled to the Treasury.
Queensland's wholesale electricity prices have fallen as a result of the increasedcapacity brought on stream and the operations of the National Electricity Market. As aresult, once competition in supply to households is allowed, commercial rivalry would mean lower prices would be passed on to consumers. If Beattie prevents this, he slugs the Queensland consumer with a hidden tax while pretending he's looking after country folk. This is good politics but it is appalling economics.
While it would doubtless work to Queensland's overall advantage if the Government were to stop the city-to-bush cross subsidy, national competition policy does not require this. Indeed, many states already provide subsidies to different consumer segments without attracting any competition policy issues. Competition policy seeks to prevent governments distorting prices by shutting out some suppliers from the market. It does not prevent governments from offering benefits to particular regions or to the less well off.
If Queensland wishes to cross subsidise in different regions there are ways that this can be accomplished without abandoning all the benefits that competition can bring. The most obvious approach, and one to some degree followed by Victoria, is to equalise the states electricity distribution fine charges. Like any government intervention, such an approach brings efficiency costs, for example by discouraging generators and customers from setting up in low-cost locations. But these costs are not as great as if all elements of competition were to he abandoned.
Allowing competition in choice of retailer has brought marked cost reductions to the business customers who are already free to choose their own supplier. That was acknowledged by the Queensland Government as recently as last June in the joint communiqué of the Council of Australian Governments. Nothing has changed since then to justify the Government now walking away from this.
National competition policy has been the key reason why the Australian economy has done so well in the past six years. The lower costs it has brought have considerably assisted the Queensland economy's growth in industries as diverse as tourism and raw material processing. To abandon it would jeopardise these gains, undermine living standards and make the economy highly vulnerable to a world economic downturn.
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