Economic survey of Australia 2008: Enhancing the functioning of product and labour markets

 

Contents | Executive summary  | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise chapter 4 of the Economic survey of Australia 2008 published on 10 October 2008.

 

Contents                                                                                                                             

The current industrial relations reform has to safeguard flexibility

The simplification and gradual decentralisation of industrial relations since the early 1990s has made the economy more resilient. But the pursuit of reforms towards a greater individualisation of labour relations, following the WorkChoices Act in March 2006, did stir much controversy, because of equity concerns. The most contentious aspects of this Act are being phased out and a reform launched, the specifics of which will be discussed in the second half of 2008. The reform will strengthen collective bargaining at the firm level, widen the minimum employment conditions safety net, restore the right to appeal against unfair dismissal and introduce a uniform national system of labour relations in the private sector. While equity concerns need to be addressed, care should be taken not to undermine labour market flexibility. To maintain a close link between productivity gains and wages, the future organisation of collective bargaining must remain within the company framework, as recognised by the government. Harmonising the system of industrial relations across the states is an important goal, but the result must not be alignment on the most restrictive standards. Lastly, in order to protect the most vulnerable wage earners better and help them into work, a strategy combining minimum wage moderation and the introduction of employment linked benefits should be considered. However, such a scheme would need to be carefully designed so as to avoid increasing marginal effective tax rates.


The segmentation of product markets needs to be overcome

Although product market regulation is competition friendly overall, the functioning of markets could be improved, particularly by reducing their segmentation arising from differing regulations across the states. Regulatory harmonisation and coordination across jurisdictions, which the authorities revived in the context of the National Reform Agenda and more recently, the COAG reform agenda to achieve a seamless national economy, is a key challenge for the years ahead. It is important, for example, to establish a uniform national consumer protection system. Continuing efforts must be made to reduce red tape and the number of different regulations concerning construction codes, the environment and workplace health and safety. The implementation of a competitive domestic energy market needs to be accelerated, with companies still under government control privatised and the ceiling on electricity retail prices removed. Public control over electricity companies is neither necessary for securing power supply nor a guarantee of efficiency. Electricity prices have risen faster in New South Wales, where there is still a public monopoly, than in other states in eastern and south-eastern Australia since the creation of the National Electricity Market, whereas productivity gains have been smaller. The regulations covering heavy goods vehicles and access to rail infrastructure need to be made more homogeneous. These measures should be accompanied by regulatory changes that take advantage of technological progress by, for example, introducing road haulage charging which takes account of the place and intensity of network utilisation. In telecommunications, the government’s massive financial involvement (AUD 4.7 billion) in constructing a fibre optic Internet system must not strengthen the dominant position of the incumbent, Telstra. To raise competition, consideration should be given to separating infrastructure management from service provision.


The commitment to combat climate change is welcome

Climate change policy shifted substantially with the ratification of the Kyoto Protocol in late 2007 and the commitment to reduce greenhouse gas emissions by 60% in 2050 from the 2000 level. The government has defined the broad lines of its strategy and is conducting consultations to finalise its action plan, in particular, to define the emission reduction trajectory by the end of 2008. This strategy includes the introduction of a national emission trading scheme, planned to commence in 2010, with a broad sectoral coverage. To ensure a smooth implementation of the scheme, the government will set emission caps each year for at least the following five years and cap the carbon price between 2010/11 and 2014/15. It will also allow unlimited banking of permits and authorise a limited amount of short-term borrowing. These measures go in the right direction as they will reduce abatement costs. To reduce these costs further, too rapid a decline in emissions should be avoided in the short term. The authorities have also indicated their intention to use all revenues provided by the auctioning of the emission permits to help households – especially low-income households – and businesses to adjust to the impact of the scheme and invest in clean energy options. As long as support to households is not directly linked to their actual fossil fuel consumption, they should not affect the relative price changes required to modify their behaviour. However, the government’s intention to fully offset the increase in fuel prices for motorists by cutting fuel excise for at least three years is counterproductive. Subsidising heavy vehicles, fishing and farm fuel energy costs is also a disincentive to improving energy efficiency and reducing greenhouse gas emissions. Any assistance to industries should avoid compensating businesses which can pass the cost of permits on to consumers, such as coal-fired electricity generators, except for reducing the possible impact of higher risk premiums for investments due to potentially significant declines in asset values induced by the regulatory changes. The authorities have ruled out nuclear energy, but have decided to double the amount of electricity generated from renewable energy sources by 2020, bringing it up to 20%. The renewable energy target operates under a market based system of tradable renewable energy certificates, which will limit the distortions and increased costs of emission reductions that this target is likely to cause.

 

Carbon dioxide emissions from fuel consumption is high

Kilogrammes of CO2 /US dollar, 20051


1. Using 2000 prices and purchasing power parities.
Source: IEA (2007), CO2 Emissions from Fuel Combustion, 1971–2005, International Energy Agency, OECD Publishing/IEA.

 

 

How to obtain this publication                                                                                   

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of Australia 2008 is available from:

 

Additional information                                                                                                  

 

For further information please contact the Australia Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Claude Giorno and Vassiliki Koutsogeorgopoulou under the supervision of Peter Hoeller. Research assistance was provided by Desne Erb.

 

 

 

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