The Age’s economics editor, Peter Martin, has written a good article today which, among other things, urges the Abbott Government to free-up competition in the pharmaceutical and taxi industries as part of its full-scaled review of competition policy:
The Community Pharmacy Agreement between the government and Pharmacy Guild prevents a new pharmacy from opening up within 1.5 kilometres of an old one (unless it’s in a shopping centre)...
If the red tape mollycoddling existing pharmacies was removed altogether supermarkets would be able to dispense medicines at all hours of the day using qualified pharmacists. They could force down prices.
It would be in the spirit of the Hilmer reforms, but whenever a politician suggests pharmacists should face the same sort of competition as other businesses, friendly chemists hit their customers with petitions to sign while they are waiting for prescriptions.
And there’s taxis. At the seminar to commemorate the 21st anniversary of the Hilmer reforms, Productivity Commission chief Peter Harris noted similarities…
Tony Abbott has just commissioned the first full-scale review of competition policy since Hilmer 21 years ago... It’ll show whether he hates red tape enough to take on his friends.
Martin’s singling-out of the pharmacy and taxi industries is justified.
In the case of pharmacies, the Productivity Commission has for more than a decade pushed for changes to pharmacy ownership rules to enable pharmaceutical products to be sold in supermarkets (amongst other places), and has described the current restricted arrangements as adding “to health care costs for little apparent benefit”. Of course, the rent-seeking Pharmacy Guild opposes such changes, as it would open the industry up to competition and reduce pharmacist’s ability to extract super profits.
Moreover, even logical reforms – such as the previous Federal Government’s minor changes to the Pharmaceutical Benefits Scheme (PBS), in which it proposed to shorten the time limit required for drug manufacturers to tell the Federal Government the price at which they sell medicines to pharmacists to 12 months from 18 months (reducing the cope for pharmacies to earn fat margins at taxpayers’ expense) – were subjected to heavy lobbying by the Pharmaceutical Guild, along with calls for taxpayer compensation (on top of the $3 billion already received to dispense PBS drugs).
It’s a cosy arrangement that must be broken in the interests of both consumers and taxpayers alike.
Ditto the taxi industry, where the number of licences have been artificially restricted via government regulation, resulting in escalating licence values.
The lack of competition and “closed shop” mentality has also meant that there is minimal incentive to improve performance and provide better services, while driving a wedge between the driver, who typically earns a pittance, and the customer, who pays too much for the service. For example, according to the agency which sets taxi fares in New South Wales, a taxi driver earns a paltry $29,000 a year, whereas customer surveys of taxis costs and service typically show widespread disatisfaction.
As with land, the rental value component of taxi fares goes to the owners of the plates, just like rents on land. So taxi drivers are typically left paying the licence holder an exorbitant share of their fares – often 50% – leaving them with little left over.
The restriction on taxi licences is totally unnecessary, punishing drivers whilst also leaving customers paying high prices for (often) poor service. They serve no useful purpose and are a relic from Australia’s protectionist past.
The Abbott Government would do well to work with the states to set performance standards and allow anyone who wanted a taxi licence to obtain one, subject to meeting those standards.
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