Australia Post set to face competitors

Since the 1980s, Australia Post has transformed itself from a dowdy utility, with poor technology and worse industrial relations, into a model government business with a chief executive, Graeme John , who earns nearly $2 million. Now it is time to let this state-owned Cinderella face its competitors without artificial props.

Although its central business is based on the letter, a fading product, the corporation increased revenues last year at about the rate of its high-tech big brother, Telstra. And while the Reserve Bank of Australia is significantly more profitable in absolute terms, Australia Post reports a consistent 14 per cent return on its assets, several times the rate earned by the Reserve Bank.

Much of Australia Post's success has come from its productivity growth of more than 23 per cent in the past five years, including nearly 4 per cent last financial year. This has enabled it to maintain profitability while holding steady the price of its basic product for 11 years, until January this year, when the charge for standard letters rose to 50 ¢.

But none of these results allows us to conclude that Australia Post is efficient. It enjoys several important advantages over its private sector competitors, especially in its monopoly over the delivery of standard letters. It uses those advantages to grow its business by competing with newsagents, financial businesses, printing shops and logistic firms in the private sector.

While these activities represent only 20 per cent of Australia Post's revenues and 15 per cent of pre-tax profits, it continues to extend its services to the 1 million customers it sees each business day.

In one respect, these departures from the delivery of mail are proper. They allow better use of its facilities and skills. On the other hand, the government cannot be sure that Australia Post is not cross-subsidising these pursuits at the expense of its competitors and its core functions.

More importantly, the lack of competition for the delivery of mail means no one can be certain Australia Post is performing its core function efficiently. The corporation reported this month that Australia's standard letter charge is lower than the rate charged in the four major countries it chose as comparators, but that offers scant comfort, especially as there is no information on differing costs and benefits in each country.

If the government is serious about extending Australia's economic capacity it should open up mail delivery services to competition. That is the only way to test Australia Post's confidence in its own efficiency.

In explaining why Australia's economy faltered in past years, the chairman of the Productivity Commission, Gary Banks , recently observed, "Australian government policy throughout much of the 20th century had almost systematically, if unwittingly, undermined the country's productive potential by distorting price signals and protecting producers from competition."

The government's monopolistic mail policy is a continuation of those disastrous policies. Conversely, opening up mail delivery to competition would increase Australia's standard of living. Australia Post is no minnow: its annual revenues approach $4 billion, and if it were a listed company it would be one of Australia's top 25 corporations.

But the government first has to wean itself off the tax benefits it garners from Australia Post's operations, which further distort the costs of the mail monopoly. These come from the cross-subsidy between metropolitan and rural and remote mail. Instead of raising taxation and subsidising country mail to provide a uniform stamp charge across the nation, the government allows Australia Post to impose a higher than warranted price, amounting to hundreds of millions of dollars, on metropolitan mail users. The excess revenues are then applied to ensuring that Australia Post can sustain its more costly country mail business.

This practice is not used in the telephone industry to contain the cost of rural telephone calls. Here, the government gives telephone providers a subsidy funded from government revenue to hold down the price of rural calls.

While economists understand that the excess charge levied on city letter writers is akin to a tax, the definition of tax used by the Australian Bureau of Statistics ignores the economic consequences of the statutory monopoly and treats all stamp revenue as mere business revenue.

Hoping that the government will unwind these arrangements by raising tax and lowering city letter costs is probably a forlorn wish, especially as it cannot sell Telstra and has no wish to sell Medicare Private, a government body that serves no government function. But without such reforms Australia's "economic miracle" will stall.