About Competitive Neutrality

Competitive neutrality policies aim to promote efficient competition between public and private businesses. Specifically, they seek to ensure that government businesses do not enjoy competitive advantages over their private sector competitors simply by virtue of their public sector ownership.

The Australian and all State and Territory Governments have agreed to implement competitive neutrality policies as part of the National Competition Policy reform package.

The principle of competitive neutrality does not extend to competitive advantages arising from factors such as business size, skills, location or customer loyalty. Further, the application of competitive neutrality is always subject to the proviso that the benefits outweigh the associated costs.

How is it applied to government businesses?

The Australian Government's approach for implementing competitive neutrality is set out in its Competitive Neutrality Policy Statement of June 1996 and Competitive Neutrality Guidelines for Managers. In essence, the Australian Government requires its businesses to:

  • charge prices that fully reflect costs
  • pay, or include an allowance for, government taxes and charges such as Goods and Services tax, payroll tax, stamp duties and local government rates
  • pay commercial rates of interest on borrowings
  • generate commercially acceptable profits
  • comply with the same regulations that apply to private businesses (such as the Trade Practices Act and planning and environmental laws).

The policy statement also specifies that Australian Government businesses are not to be commercially disadvantaged (or advantaged) by requirements to deliver 'non-commercial' services or to provide services at subsidised rates to particular groups of consumers.

What businesses does it apply to?

Some Australian Government business activities are automatically subject to competitive neutrality requirements. They include:

  • all government business enterprises (such as Australia Post) and their subsidiaries
  • designated business units of budget sector agencies
  • all Australian Government in-house units that tender for competitive contracts.

Competitive neutrality requirements may also apply to other Australian Government business activities if the benefits outweigh the costs. Application to these activities may result from the Government's ongoing assessment of the coverage of its policy, or from a complaint that an activity should be exposed to competitive neutrality requirements.

The Competitive Neutrality Policy Statement sets out a number of criteria for determining whether a particular government activity is a 'business'. These include the requirements that:

  • that the activity must charges for its services
  • there must be actual or competitive competitors
  • managers of the activity must have a degre of independence in relation to the production or supply of the goods and the price at which they are provided.