UN Division for Sustainable Development

Case Study Detail Record

Organization type:	Government

Name of Ministry/Agency:

Country:	Australia

Initiative Title:	Australia's Industrial Development Experience

Internet links:

Scope:

Status:	Ongoing

Timeframe:	Start: End:

Lead Institution:	Australian Government State and Territory Governments

Stakeholders/Partners:

Relevent issues:

Objectives/Challenges:

Macroeconomic stability – creating a stable environment in which industry can invest with confidence and businesses can build their international competitiveness. The focus is thus on achieving high levels of growth, employment and business investment in a low and stable interest and inflation rate environment.

Microeconomic reform – creating an environment that contributes to improved competitiveness of business in domestic and international markets. Reforms include those to labour and financial markets, to corporate law, taxation, competition and regulation.
- Specific interventions – focusing on the key drivers of growth: innovation, investment and international competitiveness.

Current Australian industry policy recognizes the importance of sustainability and the need for economic growth objectives to meet the needs of the present without compromising the ability of future generations to meet their own needs. It promotes productivity growth rather than focusing solely on bringing additional inputs into production as a means of increasing output (economic growth), recognizing the latter scenario is not sustainable where the supply of natural resources is approaching finite limits, or where the overuse of the resource could lead to irreversible environmental damage.

Australian Government policy is that intervention should be undertaken where it is judged that economic, social or environmental objectives cannot be achieved in the marketplace and there is a clear net public benefit in intervening. The rationale for any proposed intervention is considered from the point of view of the economy as a whole, as opposed to specific firms or industries.

Innovation is one of the immediate causes of productivity improvement, and hence the Australian Government actively promotes innovation through specifically targeted incentives. Investment is encouraged by the Australian Government through creating a macroeconomic environment conducive to domestic and foreign investors and microeconomic reform which reduces costs and improves investment returns.

Similarly, international competitiveness is fostered through maintaining sound macroeconomic fundamentals, undertaking microeconomic reforms and encouraging market forces to operate. Competition encourages innovation, new ideas, better service provision and sustainable industries and often results in more efficient allocation of resources across society.

The key objective of Australia’s National Competition Policy is to develop a more open and integrated Australian market that limits anti-competitive conduct and removes the special advantages previously enjoyed by government business activities, where it is in the public interest to do so.

The objective of the Government’s automotive industry policy is to provide transitional assistance to encourage competitive investment and innovation in the Australian automotive industry in order to achieve sustainable growth, both in the Australian market and internationally, in the context of trade liberalisation. This policy is supported by strategies that are designed to minimise disruption to production and employment during the transition period.

The Government's objective for the small business sector is to secure improvement in their economic environment, promoting greater economic and employment growth in this vital sector.

Lessons Learned:

Key lessons learnt from the 2005 Review of National Competition Policy Reforms:

A broadly-based reform program improves the prospect that those who might lose from a specific reform still gain overall. This can make it easier to progress reforms that might be difficult to implement on a stand-alone basis.

A reform framework which embodies agreed principles, while providing for some flexibility in implementation, is well-suited to a multi-jurisdictional reform agenda.
- Reform is likely to progress more effectively where commitments are specified in advance and there is prioritisation of the reform task.
- An effective public interest test is essential to secure beneficial reform and to enhance community acceptance of the reform process.
- Independent and transparent review and assessment processes are critical to secure good outcomes, especially on contentious issues; prevent backsliding; and promote public understanding of the justification for reform.
- In any reform program, the potential adjustment and distributional implications should be considered at the outset, with decisions about transitional assistance guided by appropriate principles.
- Where reforms involve the establishment of new regulatory arrangements, it is important that those regulations be well scrutinised in advance and periodically reviewed to ensure the benefits continue to exceed the costs.
- Providing financial incentives for jurisdictions to follow through with agreed reforms can be very useful in promoting effective outcomes, although the rationale and value of such payments clearly depend on the nature of the reforms.

Policy Options:

Major microeconomic reforms began in the 1970s with large reductions in tariffs. The rate of microeconomic reform increased dramatically in the 1980s and 1990s as the Australian economy became more open and competitive. These reforms were accompanied by significant labour market reforms which established a stronger link between wages and labour market productivity.

This policy shift recognised the importance of efficient resource allocation, productivity improvement and international competitiveness in sustaining economic growth, employment and improved living standards. As part of this process, industry protection/assistance has been markedly reduced, partly through a reduction in tariffs and quotas, and significantly greater emphasis placed on improving domestic and international competitiveness to support better trade and investment outcomes.

More recently, the policy focus has been expanded to support improved productivity and innovation in the context of better international understanding of the interaction between these and other drivers of sustainable economic growth. In addition, increasing importance has been placed on achieving strong economic growth, low unemployment and improved living standards in a manner which is consistent with principles of sustainable development.

Summary:

The 2005 Framework for Industry Policy Development (FIPD is an example of a tool for making industry policy decisions that explicitly considers environmental and social aspects, increases the consistency of advice, promotes greater transparency and accountability, emphasizes the need for wide consultation across government and with other stakeholders and aims to ensure that policy advice from one Department is consistent with other elements of the Government’s policies and with Australia’s international obligations. The National Strategy for Ecologically Sustainable Development (NSESD) is explicitly recognised in the FIPD.

Australia’s National Competition Policy provided for: the extension of the Trade Practices Act (TPA) to previously excluded businesses; governance and structural reforms to government businesses to make them more commercially focused and competitive; regulatory arrangements to secure third-party access to ‘essential’ infrastructure services and, more generally, to guard against overcharging by monopoly service providers; and a process for reviewing and amending or rescinding a wide range of legislation which restricted competition. NCP also incorporated previously agreed reform programs for the electricity, gas, water and road transport sectors.

As a part of the automotive industry policy, tariffs on PMVs and derivatives and components for these vehicles dropped to 10 per cent on 1 January 2005, and a staged phase out will continue, with tariffs dropping to 5 per cent on 1 January 2010. As a means to facilitate the transition to lower assistance, the Australian Government has operated the Automobile Competitiveness and Investment Scheme (ACIS) since 2001, which provides eligible participants with tradeable import duty credits based variously on their production, R&D and investment activities.

To assist the small business sector by reducing administrative procedures and costs related to business start-up and operation, Australia established the Office of Small Business (OSB), which has policy responsibility for the Small Business Assistance Program and the Regulation Reduction Incentive Fund (RRIF). Local governments may compete for payments from the RRIF based on their proposals to reduce red tape, regulatory complexity and compliance requirements for the small and home-based business sector. Australia also established an on-line Business Entry Point (BEP) to provide small businesses with government information and services.

Results achieved:

The 2005 Review of National Competition Policy Reforms found that the NCP had delivered substantial benefits which, overall, greatly outweighed the costs. It contributed to a productivity surge and associated strong growth in household incomes; directly reduced the prices of goods and services such as electricity and milk; stimulated business innovation, customer responsiveness and choice; and helped meet some environmental goals, including the more efficient use of water.

Reductions in assistance to the Australian automotive industry have encouraged automotive firms to improve productivity and quality. Consumers and user industries have benefited through real price declines for motor vehicles and greater choice. Exports of vehicles and components increased tenfold between 1985 and 2001, and a number of home-grown multinational component firms have emerged. Vehicle and component producers have not only revealed a capacity to adjust, but also demonstrated strong competencies in world competitive niche manufacturing.