‘Australia at a crossroads’: Living standards under threat from lack of competition
By Shane Wright
Borrowers would be offered mortgages that track official interest rates, travellers compensated for late flights and small businesses given a better chance of winning government contracts under plans from a wide-ranging review that warns without more competition, all Australians’ living standards will fall.
The bipartisan report from the House of Representatives’ economics committee also says the competition watchdog should be informed of substantial mergers, backs a full investigation into businesses’ use of non-compete clauses, and argues that banks should be required to tell customers when they are about to lose “bonus” interest on their deposits.
Australia lacks economic “dynamism” and local firms aren’t producing new ideas, a parliamentary report has found. Credit: Bloomberg
The inquiry into competition and dynamism was started because of growing concerns about Australia’s poor productivity growth since 2010. While there has been a slight improvement over the past six months, productivity – both in Australia and around the developed world – has slowed to its lowest level since the 1950s.
Some economists believe this decline and associated lack of economic dynamism are linked to a fall in competition across the private sector and the dominance of a few businesses in key parts of the economy.
Committee chairman, Labor MP and trained economist Dan Mulino said the country needed to become more competitive if people were to enjoy higher standards of living.
“Australia is at a crossroads. We are emerging from a decade of low productivity growth. The need for competition and economic dynamism is great,” he said.
“There are many opportunities – at an economy-wide level and at a sectoral level – for meaningful reform that not only produces immediate benefits for consumers, but that will also deliver higher standards of living for future generations.”
The report said that the slowdown in productivity over the past decade was due to a range of factors, including reduced competition among businesses, an increase in market concentration, slower company-level investment in new technology and the shift across the economy towards services.
It cited research showing that in the two years to mid-2021, 60 per cent of Australian businesses did not introduce a new process to their operations, and almost 80 per cent did not introduce any significant new good or service.
Across a range of sectors, it found there had been a decline or stagnation in competition, arguing there had been a significant rise in market concentration with large businesses increasing their market share as they effectively killed off competitors.
Consumers and small businesses were the biggest losers from this reduced competition.
In banking, it recommended financial institutions introduce a trial under which deposit holders would be told they were about to lose “bonus” interest on their savings or told when they are close to activating an interest rate bonus.
Many overseas bankers offer customers mortgages where the interest rate tracks movement in official cash rates. Australian banks have long pushed back against these, in part because they use “teaser” interest rates to win new customers, which are effectively subsidised by higher rates on existing clients.
The committee said the idea of a tracker mortgage, first raised by the Australian Securities and Investments Commission in 2016, should be re-examined.
“People with tracker mortgages are at less risk of paying an interest rate above the best available rate at the time, even if they do not pay attention to the market,” it found.
Economics committee chair Dan Mulino says the country is at a crossroads that requires a lift in competition.Credit: Alex Ellinghausen
To boost competition in the banking sector, the committee also urged the Australian Prudential Regulation Authority to examine the capital holding requirements it imposes on smaller banks to ensure they can compete with the big four.
Another ongoing complaint has been about the nation’s airlines, particularly their treatment of customers due to delayed or cancelled flights.
The committee recommended the current aviation white paper process consider introducing compensation for passengers left waiting hours for flights, in line with some of the financial penalties imposed in overseas jurisdictions.
While resisted by Australian airlines, the committee found the introduction of rules in the United States where passengers are compensated for delays and compensation has found “a noticeable improvement in the treatment of travellers”.
Government spending is also a focus of the committee’s report, which advocates making it easier for small businesses to win public contracts. It raised concerns that some of the tens of billions of dollars worth of federal contracts are often only open to a small number of bidders.
It argued there was scope to open this process up or to break up major contracts so small firms had a chance to win work, which would then bring competitive pressures to the contract process.
Independent MP Allegra Spender, who served on the committee, backed its overall recommendations but also urged changes to taxation and industrial relations.
She said the government should re-introduce competition payments to the states, giving them financial incentives to improve the operation of their economies, and also offered assistance to move from stamp duty to land taxes.
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter.