FAQ Answers

• The VCEC accepts complaints from a directly affected person or business, as well as from industry or community groups if they believe they have evidence that a Victorian State or Local Government business is not complying with the Competitive Neutrality Policy.

• Yes, the VCEC recommends that potential complainants discuss their complaint to help them define the issues that may require investigation.

Are all complaints investigated?

• The Victorian Government’s Competitive Neutrality Unit (located within the VCEC) receives many inquiries about competitive neutrality and possible breach of policy. Some inquires will result in the lodgement of formal complaint where the issue relates to Victorian State or Local Government business activities. Complaints must be lodged on the CN Complaint Proforma.

• The VCEC will investigate all CN complaints unless it concludes they are frivolous, vexatious, not made in good faith or do not warrant investigation having regard to all the relevant circumstances. If the VCEC does not proceed with an investigation, it will provide written advice to the complainant outlining the reasons for its decision.

• Some inquires may relate to Trade Practices (which should be raised with the Australian Competition and Consumer Commission, www.accc.gov.au), purchasing by State government entities (which can be raised with the Ombudsman, www.ombudsman.vic.gov.au), local government (which should be raised with Local Government Victoria, in the Department of Planning & Community Development www.dpcd.vic.gov.au/localgovernment/ or government grants (which should be raised with the relevant department).

• Some inquiries may relate to the activities of government businesses of the Commonwealth, other State or Territory Governments. Inquirers are referred to the complaint unit within the relevant jurisdiction.

• It is desirable for the complainant to seek to resolve their concerns with the government business directly. The VCEC encourages an open process as this will often be the most efficient and effective way to resolve the issues.

• However, will be circumstances where complainants may have legitimate concerns about making their identity known to the Government business. Issues of confidentiality and discretion should be raised in the first instance with the VCEC’s staff who will provide advice on making a confidential complaint.

• There is no charge to lodge a competitive neutrality complaint.

• The VCEC is an independent Commission that reports to the Treasurer. The reports of its investigations are published on its website.

• The VCEC will abide by principles of procedural fairness and will investigate all complaints fairly, independently and rigorously and will come to a finding on the basis of the best available information.

• Yes. Under the Victorian Government’s Competitive Neutrality Policy, the VCEC cannot initiate complaints on its own account. A pro-forma for complainants to complete is on the VCEC website.

• Yes. The VCEC needs to ensure it is not devoting resources to vexatious or frivolous complaints.

• Provision of industry knowledge derived from complainants, in addition to the information provided on the complaint proforma, often helps the VCEC to investigate some industry specific issues effectively. This often requires only a minimal amount of your time and assistance.

• The VCEC provides its report and recommendations to the government business and the complainant. Where the government business is not compliant with Competitive Neutrality, the report will outline what actions the government business needs to take to ensure compliance.

• The report is provided to the Treasurer (as Minister responsible for National Competition Policy) and released on the VCEC website.

• The Government is a signatory to the inter-governmental Competition Principles Agreement where, among other things, all Governments agreed to implement competitive neutrality. Victoria has never incurred a penalty for breaches of competition policy on grounds of competitive neutrality, but in the past, another State had its Competition Payments from the Commonwealth Government reduced for a CN breach.

• The Victorian Government’s Competitive Neutrality Policy provides no provision for compensation or termination of contractual arrangements where a breach of the Competitive Neutrality policy is found.

• However, if the Government accepts the VCEC’s recommendations, the government business will be need to change its practices to ensure it complies with CN in the future.

• Ombudsman Victoria (OV) provides a free, impartial and independent service to all Victorians who have a complaint about a Victorian public sector agency. The Ombudsman has jurisdiction over 600 such agencies including 79 local municipal and shire councils, 12 professional boards, universities and government schools, public and private prisons and authorised officers on public transport. OV can also monitor investigations of private agencies contracted to perform activities for government agencies and investigate private agencies associated with the Transport Accident Commission and WorkCover.

• OV promotes fair and reasonable public administration and enhances accountability in the Victorian public sector. Its principal function is to independently enquire into any administrative action taken by a government department, public statutory body or local council and to report the results to complainants, departments, statutory authorities and Parliament, as appropriate.

Childcare is something of a special case in the application of CN which, in accordance with the Competition Principles Agreement, is to be applied across all significant publicly owned businesses. The Government recognises that childcare is often provided by local councils in response to specific community needs and public policy objectives. However, it is not always the case that the full cost of the provision of childcare is transparent and therefore recognised by councils or their constituents.

A key feature of the new CN Policy - Competitive Neutrality Policy Victoria 2000 - is the public interest test which allows government businesses to balance CN objectives with other policy objectives, including Best Value and the provision of childcare, in an open and transparent manner. Fundamentally CN is about making appropriate resource allocation decisions and a starting point for this is understanding the full costs associated with running the business. Assessment of cost should include the impact of any net competitive advantages, that is the net cost of advantages and disadvantages resulting solely from government ownership. The CN Guide assists agencies in determining the net cost of these advantages and disadvantages.

Publicly owned childcare facilities frequently operate in competition with private sector childcare providers. It is appropriate that in determining fees, the council considers the specific market or circumstances which the public policy objectives are addressing. For example are they providing subsidised childcare for all families, their own council employees or only disadvantaged families? This environment may change over time. Initially an area may lack any childcare facilities, so the council fills a void for all families. Over time private centres could be established, enabling the council to reconsider its priorities and tailor the policy in relation to childcare more specifically to the emerging community needs. Best Value principles will prompt the consideration of options in addressing these changed priorities.

The treatment of childcare under the Government’s new CN Policy requires the implementation of a public interest test prior to the application of CN pricing because of the inherent public policy issues associated with childcare. Under the new policy, for all other Government businesses, a public interest test is not mandatory and only applies where the activities of Government business may have broader social, environmental and other impacts.

The scope for childcare exemption from introducing CN pricing is stated clearly in the CN Guide. However, local councils can choose to apply CN pricing should they wish to do so after they have undertaken a public interest test. In undertaking the public interest test the council should explore a range of options, clarifying the public policy objectives, scoping the market, consulting all stakeholders (including competitors), identifying the costs/benefits of different approaches (including suggestions of stakeholders), and determining which option would most benefit the community. For example, two options might be to make a subsidy to aid low-income earners available regardless of which childcare centre (public or private) was used or have lower prices only for disadvantaged users of the council centres. Finally as noted in the CN Policy, the process and any subsidy provided should be transparent and publicly documented.


What is a significant business in the Competitive Neutrality context?

1. Introduction

The first stage of the process of complying with Competitive Neutrality Policy Victoria is to determine whether the policy applies to the activity in question. The policy applies only to a business activity that is ‘significant’ in a relevant market.

It is common for private businesses (including both for profit and not-for-profit entities) to coexist with government businesses in a variety of markets. They do not always compete on equal terms. Differences in size, assets, skills, experience and culture, may underpin an entity’s competitive advantage. To the extent that a competitive advantage arises solely from public ownership, it is the intention of Competitive Neutrality (CN) policy to neutralise this advantage. In that way, where governments undertake significant business activities in markets, they do so on a fair and equitable basis.

To determine whether a government business activity is significant in a relevant market it is necessary to define the market and then determine the impact of the activity on that market.

Markets are defined by examining substitutability of products within geographic areas, at the points of sale and over time. Significance relates to the importance of competition in a relevant market – Is the business a major supplier? Can it influence prices or have a competitive impact? What is the consequence of the business operating inefficiently?

Sometimes, a government business will be a local monopoly. It is still the expectation that even where there is no private competitor CN pricing should be considered to ensure resource allocation decisions reflect a true estimate of the implicit subsidy to the activity by ratepayers or the community.

The remainder of this advice breaks the answer to the primary question—“What is a significant business in the CN context?”— into three component questions:

• Is an activity a business activity?
• What defines a relevant market?
• What constitutes significance?

Competitive neutrality is relevant only to significant government businesses. A public sector agency must make its own two-part assessment to determine whether, in each case, an activity is:

• a business; and, if it is,
• a significant business.

• sale or provision of goods, services or works in competition (actual or potential) with other providers;
• activity undertaken primarily for commercial purposes or profit and involving a degree of financial risk, e.g. a municipal enterprise;
• application of commercial systems, accounting and marketing to the service and/or product, e.g. tendering to supply the product or service to an external entity.

In order to determine whether a business is ‘significant’ in a relevant market, it is important to define the relevant market in which the business competes.

Concept of a Market

‘Substitution’ is the key concept underpinning the identification of a market.1 The original statement that set out substitution as the key to market definition was provided by the Trade Practices Tribunal (since renamed the Australian Competition Tribunal) in 1976.. This concept has become the foundation on which many subsequent market analyses have relied. The feasibility of substitution between products either to produce or to buy may depend on a number of factors, including customer attitudes, technology, distance, cost and price incentives. All of these factors are relevant when determining the feasibility of substitution.

Both demand and supply–side substitution may be relevant when defining market boundaries.

• Demand–side substitution involves buyers switching their demand from one good to another good in response to a change in price.
• Supply–side substitution occurs when sellers alter their production or distribution supply in response to a change in price. This description follows the tradition of introducing market definition in relation to price changes;2

While the prime focus of most market-related inquiries is on the product (the identification of substitutable goods / services in the market), other considerations include:

• the geographical area within which substitutes of a good are an effective constraint on the market power of sellers of that good (spatial);
• the potential for competition at a different level of supply (manufacturing, wholesale or retail) to constrain market power (functional); and
• the timeframe over which competitive constraints can emerge (temporal).

To make an accurate assessment of the relevant market one has to analyse:

• the products/services/facilities provided by the business; and
• the products/services/facilities provided at a range of similar business entities.

• demand substitution between the businesses, despite their different services. While there may be core consumers who are unwilling (or unable) to switch, many consumers do switch; and
• supply substitution where businesses tend to know the pricing regimes of other competitors and respond to ensure that their policy is not ‘out of line’. Supply substitution is an ‘operative consideration’.3

Different businesses will attract different catchment areas, i.e. the distance consumers are willing to travel to access the product or service. In regional districts these catchment areas may be larger than in metropolitan zones. Catchment areas are affected by travel times, access including public transport, and so on.

Temporal

Temporal boundaries refer to the time within which new competitive constraints can develop. For example, while current businesses might not offer all the services/facilities of a particular business, over what time can (or could) they develop similar services/facilities? If the time scale is “too long” then it is unlikely that they are in the same market. The temporal dimension draws attention to the likely patterns of consumption and production in the longer run.4

This desire to take a long-run perspective has implications for the concept of single product markets. Except in the most unusual of circumstances, it is unlikely that a single product (narrowly defined) will constitute a market on its own.5

Functional

Functional boundaries relate to whether the business operates as a producer, wholesaler or retailer. There is potential for competition at a different level of supply (manufacturing, wholesale or retail) to constrain market power. However, in general, aspects of product, geographical proximity and time are most relevant to the definition of a market for CN policy purposes.

4. What constitutes ‘Significance’?

‘Significance’ is indicated by the extent to which the government business activity can impact upon the demand, supply or price to the consumer or user.

Although the Competition Principles Agreement does not define ‘significant’ business activities, the concept of ‘significant’ for the purposes of CN Policy is based on the importance of competition in the relevant market.

Significance is relative to the market in which the service operates. Competitive Neutrality Policy Victoria identifies a number of issues to be considered in assessing whether or not a business activity is ‘significant’, including:

• the size of the business activity in relation to the size of the relevant market;
• the influence or competitive impact of the business activity in the relevant market;
• the resources the business activity commands and the effect of poor performance; and
• whether the costs of providing the goods or services by the entity are being predominantly met by users.

• acceptance of service delivery with a council subsidy
• a modified or rationalised service delivery
• canceling the service
• service delivery with no subsidy, (i.e. application of CN measure such as full cost reflective pricing)
• lease/sell the service/centre to others
• provide similar subsidies to all the competitors.

• feasibility studies
• policy's/strategy's
• municipal health plans
• corporate plans
• community satisfaction surveys
• best value reviews

• identify all other service providers

• help in establishing appropriate marketing package for the consultation process

• centre entry surveys
• questionnaires
• user surveys

• associated clubs
• community groups, e.g. young mothers, aged, youth
• ethnic groups
• industry suppliers and service sub contractors

• using community networks, e.g. advertise in their newsletters
• using service groups, e.g. give a talk at a Rotary meeting to spread the word
• liase with community leaders
• attend regular community meetings
• use of mail back questionnaires and telephone survey
• use of talk back radio and community TV stations
• asking for written submissions

• public advertisements
• internet
• notice boards at Council and other service provider's centres
• community newspapers/bulletins
• PR consultants
• mail outs
• direct letter to other service providers
• random mail outs for services used by a broad section of the community

• centre closure
• regionalisation of rural services
• change to contract management

• choose a neutral location

• give sufficient notice for the public meeting

• choose an accessible, safe and easy location

• use of a neutral professional company/facilitator experienced in the industry to run the public meeting

• have a range of Council staff to answer all questions

• have a minimum number of Council staff present

• possibly have no Council staff present at public meetings, can reduce meeting hijack by anti-staff

• have Council staff present only as observers

• invite a representative from the CN unit to attend all public meetings. This will create an unbiased

• Have set controversial questions asked from the floor

• choose mid week/after hours/business hours, maybe one of each

• safe and well lit car park, if the meeting is after dark

• must have two way discussions

• can have separate meetings for the public and other service providers

• can meet with other service providers individually

• tape record the meeting to ensure accurate minutes

• Council's public policy objectives statement
• future service delivery options with their cost/ subsidy
• Councils fees and charges for each service delivery option