Microeconomic Reform Agenda—Progress and Prospects

One longer-term economic issue that is likely to face the newly elected Rudd Government will be how best to renew or extend the microeconomic reform agenda of the 1980s and 1990s, particularly in areas such as water, transport and infrastructure. Microeconomic reforms, if appropriately targeted, designed and implemented, can improve efficiencies in key markets and lift economic growth in a non-inflationary way.

In 2005, the National Competition Policy (NCP) concluded following a decade of considerable reform achievements. These included:

• extending the coverage of the Trade Practices Act 1974 to previously exempt government business activities and unincorporated enterprises
• the introduction of significant changes to the structure and governance arrangements for government business enterprises in a range of sectors
• a range of reforms effecting the pricing, governance and regulation of key infrastructure, and
• a broad-ranging program of legislation review to assess whether existing regulatory restrictions on competition were in the public interest.

A considerable share of the NCP reform program is also yet to be completed, but the payoffs from the reforms that have been completed appear to be considerable. For example, analysis undertaken by the Productivity Commission (2005, p. xvii) indicates that the ‘observed productivity and price changes in key infrastructure sectors in the 1990s—to which NCP and related reforms have directly contributed—have increased Australia’s GDP by 2.5 per cent, or $20 billion’. Influential international bodies such as the International Monetary Fund and the Organisation for Economic Co-operation and Development also support the view that the benefits from NCP reforms have been substantial.

Some significant developments have taken place since the end of the NCP in 2005. In February 2006, the Council of Australian Governments (COAG) issued its comprehensive plan for further reform, the National Reform Agenda (NRA). This is an integrated, multi-sector program for further reform across three key ‘streams’: competition, regulatory and human capital.

In April 2007, the Commonwealth, states and territories agreed on the implementation of some elements of the NRA within COAG. In the competition stream, this included further reforms in energy, transport and infrastructure. In the human capital area, there was agreement to:

• develop a core set of nationally consistent teacher standards for literacy and numeracy
• implement diagnostic assessment systems for children in their first year of school, and
• develop a nationally agreed diabetes risk assessment tool.

In June 2007, the establishment of the COAG Reform Council was also announced, its role being to monitor progress in implementing the NRA and assess the costs and benefits of reforms.

Many economists view further economic reforms as essential, given problems such as an ageing population, the increasingly binding supply-side constraints in many key infrastructure areas, and an apparent lack of education and job skills among many younger Australians. A broad array of policy bodies, including (to name just three) the Committee for Economic Development of Australia, the Business Council of Australia and the Australian Institute of Health Policy Studies, have also recently published interesting discussion papers on the need for further reform in key sectors.

Documentation
Council of Australian Governments, Meeting, 10 February 2006 Communiqué, Canberra, 2006.
Council of Australian Governments, Meeting, 13 April 2007 Communiqué, Canberra, 2007.
Productivity Commission, Potential Benefits of the National Reform Agenda, Report to the Council of Australian Governments, Canberra, 2006.