The Australian Competition and Consumer Commission met with representatives of the Regulators Forum yesterday to discuss the impact of the New Tax System on regulated industries.
The Regulators Forum includes the ACCC and State and Territory regulators which oversight essential service prices, including telecommunications, postal services, electricity, gas and water.
"The ACCC is anxious to ensure that other regulators take full account of the Guidelines aimed at preventing price exploitation issued by the ACCC in July this year", ACCC Chairman, Professor Allan Fels, said today.
"It is sensible to cooperate with other regulators as far as possible in the ACCC's efforts to ensure efficient compliance with the Guidelines to avoid unnecessary duplication of regulatory effort and added cost for business.
"As is the case with business generally, regulated industries will be subject to the Goods and Services Tax but will also receive benefits through reduced input costs due, for example, to the elimination of Wholesales Sales Tax and other elements of the New Tax System. These benefits should be taken into account in setting prices".
An important issue discussed by the regulators was the possible over-recovery of New Tax System related costs where CPI-X price cap arrangements are in place.
Over-recovery could occur if a regulated business was allowed to pass through into prices the estimated cost impact of the tax changes and then later also obtained higher revenues as a result of the impact of the tax changes on the Consumer Price Index.
The ACCC expects to clarify its treatment of this issue in new Guidelines to be issued later but is strongly of the view that regulated industries should not obtain windfall profits as a result of the tax changes.
"The ACCC expects that regulated industry prices paid by final consumers will rise by less than 10 per cent on account of the New Tax System changes alone, including the effect of the GST. The exact size of any price changes will depend on the specific circumstances of each regulated industry. The Commonwealth Government is imposing a cap on the standard letter rate and local call telecommunication prices to benefit consumers of these services. Water and sewerage services will benefit from being GST-free.
"Business customers should obtain cheaper essential services when input tax credits are taken into account.
"Given the importance of these industries in the economy, it is essential that prices rise by no more than unit cost increases and fall by at least as much as unit cost reductions where this is the case", Professor Fels said.
The ACCC is mindful that its Guidelines should be applied in a competitively neutral manner between public and private enterprises. This means that government-owned enterprises should not receive favoured treatment.
"At the end of the day the obligation to comply with the ACCC Guidelines rests with the regulated businesses, not the regulators", he said. "Contravention of the Guidelines could result in enforcement action by the ACCC. The penalties for price exploitation are very severe, including fines of up to $10 million for corporations and $500,000 for individuals".
