Pie in the sky from Hilmer 'reforms'


By Eva Cheng

The government's plan to corporatise and privatise public services under the proposals of the Hilmer Committee threatens to widen the gap between rich and poor. As well, there are serious doubts whether the extensive benefits being promised would be delivered.

Having already privatised many public services piecemeal, state and federal governments decided in October 1992 to extend the privatisation agenda to most essential public services, first by corporatising them in the mirror image of private business. Academic Fred Hilmer, who was then asked to translate the idea into policy proposals, came up with a report in August 1993 on National Competition Policy known as the "Hilmer Report". The Industrial Commission (IC) was then asked to examine the economic benefits that are likely to arise from the Hilmer proposals.

In its final report in March, the IC confidently projected that the economy would gain an extra $23 billion worth of output or 5.5% extra growth (measured in gross domestic product), a 14% jump in net exports, a 3% gain in real wages, 30,000 more jobs and $9 billion extra consumption — averaging $1500 per family.

These bold claims hit the headlines, leaving the general impression that everyone has something to gain from the reforms. Left out or confined to the small print were the shaky basis on which the claims were made, and the long list of qualifications that had to be satisfied before they could come true.

For example, the costs for rail, water, electricity and gas would go down for big businesses as a result of the reforms but up substantially for families, especially rural and low-income ones. So much for "increased" family consumption.

There are clear measures under the Hilmer scheme to force workers to work harder — to increase labour productivity — in order to make Australian business more "competitive" and "efficient". Supposedly, the resulting bigger profits would be reinvested and would generate private sector jobs.

But there's little certainty that profits would be transformed into jobs; what businesses do with their profits is totally at their discretion.

The projections contain a bagful of good wishes, based on the best scenarios and unfounded assumptions. A key assumption is that perfect competition — which exists only in textbooks — has been achieved. Projections are then made on that basis, presuming that any cost savings gained by an industry would be passed on to purchasers. This is a daring assumption indeed, considering there is no provisions at all in the Hilmer framework to ensure that benefits would be passed on. A lot seem to hinge on the benevolence of business owners.

The virtues of free competition were much glorified in the IC's arguments, but nothing was said on its limitations for the capital intensive essential services of a small economy like Australia. The relatively small demand in relation to the investments required would normally make it uneconomical to accommodate more than a few competitors. In extreme cases, there is room for only one supplier — a case of so-called natural monopoly.

The IC has also assumed there won't be a change in the government's fiscal stance, either in terms of real expenditures or taxes — despite a central expectation of the reforms that governments would receive a windfall in increased revenue. But if substantial extra income does come through, how it is spent will certainly affect economic growth and possibly income distribution.

Similarly, the projection that exports will far outpace imports is based on the assumption, which the IC itself concedes is "artificial", that government's real expenditure will be constant, thus checking overall domestic spending and import growth.

In short, the promised gains of the Hilmer "reforms" are at best highly qualified promises. They are far less certain than the transfer of income from working people to business.