TCCI Submission on the Tasmanian Non-Contestable Vesting Contract and Tasmanian Derogations from the National Electricity Code ACCC Draft Determinations

September 2001 Contents

Page

1.0 Tasmanian Chamber of Commerce & Industry ……………………………………..………….… 3

2.0 Executive Summary …………………………………………………………………………………. 4

3.0 Introduction …………………………………………………………………………………………… 5

4.0 The Background Environment ……………………………………………………………………… 6

5.0 Basslink Benefits to Tasmania ……………………………………………………………………… 7

6.0 TCCI Comment on ACCC Draft Determination ………………………………………….………… 10

Appendices

1.0 Constraints on Business Growth …………………………………………………………………… 11

2.0 The Tasmanian Economy - July 2001 ……………………………………………………………... 13

TCCI Submission on the ACCC Draft Determinations Page 2 1.0 Tasmanian Chamber of Commerce & Industry

1.1 As the peak business organisation in Tasmania, the Tasmanian Chamber of Commerce & Industry (TCCI) welcomes the opportunity to provide comment on the Australian Competition and Consumer Commission' (ACCC) Tasmanian Non-Contestable Vesting Contract and the Tasmanian Derogations from the National Electricity Code Draft Determinations. Electricity costs are a significant business input and in some cases impact on investment/location decisions. It is thus essential that careful consideration is given to this process.

In TCCI's view Basslink and Tasmania's National Electricity Market (NEM) entry represent one of the most important milestones in Tasmania's history. They offer massive opportunities for Tasmania's economic future.

1.2 The TCCI is Tasmania's largest business organisation. It has a statewide membership drawn from all industry sectors and is Tasmania's peak employer body.

The Chamber seeks to work with Government and other groups to shape Tasmania's economic and social environments in a way that promotes business growth and community prosperity.

1.3 A profile of TCCI membership is contained below.

The TCCI directly represents in excess of 1,790 businesses employing 58,700 Tasmanians approximately 40% of the Tasmanian private sector workforce.

TCCI member average number of employees (FTE) is 31.9, however, the mean number of employees is 8.

TCCI Members by Company Size

0 - 4 employees 31.4% 5 - 9 employees 23.5% 10 - 19 employees 18.5% 20 - 49 employees 14.6% 50 - 99 employees 4.9% 100 + employees 7.2%

TCCI Members by Industry Classification

Individual 0.8% Accommodation, Cafes & Restaurants 4.4% Agriculture, Forestry & Fishing 3.8% Communication Services 1.1% Construction 5.8% Cultural & Recreational Services 2.7% Education 1.3% Finance & Insurance 3.7% Government Administration & Defence 0.6% Health & Community Services 13.7% Manufacturing 21.4% Mining 1.1% Personal & Other Services 4.0% Property & Business Services 13.9% Transport & Storage 5.6% Wholesale/Retail Trade 15.6%

TCCI Members by Region

South 59.7% North 21.8% North West 14.8% Interstate 3.6%

TCCI Submission on the ACCC Draft Determinations Page 3 2.0 Executive Summary

2.1 Basslink and Tasmania's NEM entry represent one of the most important milestones in Tasmania's history. They offer massive opportunities for Tasmania's economic future.

2.2 The TCCI believes itself to be well placed to provide representative and informed comment on the Draft Determinations and does so on behalf of all Tasmanian businesses.

2.3 The TCCI recognises the vital role that energy plays in building and sustaining the Tasmanian economy and consequently has been actively involved in facilitating and promoting discussion and understanding on the benefits of Basslink and Tasmania's NEM entry.

2.4 The TCCI has urged Tasmanian businesses not to become complacent and automatically assume that this process will gain approval. The TCCI has prepared this submission to provide objective comment which we believe is the responsible way to participate in this process.

2.5 Consistently TCCI surveys have identified the cost and reliability of energy as a major constraint on business growth. The lack of a competitive electricity market has been identified as negatively impacting on investment/location decisions.

2.6 ACCC's consideration of Tasmania's NEM entry is taking place against a background environment which must provide a reality check to the range of considerations to be taken into account. These factors include that the Tasmanian economy has throughout the 1990's seriously under performed the national economy.

2.7 Tasmania is currently at the crossroads in deciding whether significant capital investment projects are welcome or not. The State Government has been working hard to overcome the significant handicap to arise from the debacle of the Wesley Vale Pulp Mill that sent a very real message that Tasmania was closed for business. Approval of the Basslink Project and Tasmania's NEM entry provide a great opportunity to send to investors a signal that Tasmania is once again seriously open for business.

2.8 Due to the considerable number of benefits to arise the TCCI has been highly supportive of the Basslink project and NEM entry. Indeed the Chamber is unaware of any other projects that have such positive ramifications for the State.

2.9 The ACCC has issued a draft Determination authorising Tasmania's electricity derogations and vesting contract that paves the way for Tasmania's entry into the NEM. As part of this process the ACCC has made a number of further recommendations that in TCCI's view enhance the public benefits of NEM entry.

2.10 The TCCI is highly supportive of the current Draft Determination.

2.11 The TCCI believes any further consideration of the Tasmania's NEM entry must be based on informed evidence and not unsubstantiated assertions based on commercial interests.

TCCI Submission on the ACCC Draft Determinations Page 4 3.0 Introduction

3.1 The TCCI recognises the vital role that energy plays in building and sustaining the Tasmanian economy and consequently has been actively involved in facilitating and promoting discussion and understanding on the benefits of Basslink and NEM entry to Tasmania.

3.2 Tasmanian businesses believe energy related matters to be of crucial importance in their operating environment. Consistently TCCI surveys have identified the cost and reliability of energy as a major constraint on business growth. The past two Tasmanian Surveys of Business Expectations have each identified the cost of energy to be a major constraint on business growth and have firmly placed this constraint in the top ten of all impediments (Appendix One). The State Government Industry Audit Reports released during May 1999 after extensive consultation with industry not surprisingly also identified the cost of electricity as a major impediment to growth in Tasmanian businesses. Indeed the lack of a competitive electricity market was identified as negatively impacting on investment/location decisions in a number of cases.

3.3 In light of this importance the TCCI has been highly involved in energy related matters.

• The TCCI has provided submissions to the 1996 Government Prices Oversight Commission's Inquiry into Electricity Prices and the 1999 Electricity Regulator's Electricity Supply Industry Pricing Policies Inquiry.

• The TCCI is a representative on the Tasmanian Electricity Supply Industry Act 1995 Review Group.

• The TCCI is a representative on the Electricity Regulator's Electricity Customer Consultative Committee.

• The TCCI has received regular progress reports and briefings from the Tasmanian Department of Treasury and Finance and the Office of Energy Planning and Conservation on Basslink, Tasmania's process of joining the National Electricity Market and the Natural Gas Project.

• The TCCI has provided a detailed submission to the Australian Competition and Consumer Commission's process to consider Tasmania's application to join the National Electricity Market.

• The TCCI has provided a detailed submission to the Basslink Joint Advisory Panel's consideration of the Intergrated Impact Assessment Statement.

• The TCCI held a Natural Gas Forum on the 23 April 2001 at the Hotel Grand Chancellor with over 165 attendees. Organisations that presented at the forum included the Tasmanian Minister for Energy, Secretary of the Department of Infrastructure Energy and Resources, Duke Energy, Aurora Energy / Agility and Origin Energy.

• The TCCI held a Basslink Benefits to Business briefing session on the 16 August 2001 at the Hotel Grand Chancellor with over 80 attendees. Organisations to present at the briefing session included Hydro Tasmania, Basslink Pty Ltd and the Basslink Development Board.

• The TCCI has run numerous articles in the Tasmanian Business Report (TCCI's newspaper circulated to 17,200 businesses throughout Tasmania) on Basslink's progress and the Natural Gas Project.

3.4 The TCCI believes itself to be well placed to provide representative and informed comment on Basslink and Tasmania's NEM entry.

3.5 The TCCI has urged Tasmanian businesses not to become complacent and automatically assume that NEM entry will gain approval. The TCCI has prepared this submission to provide objective comment which we believe is the responsible way to participate in this process.

TCCI Submission on the ACCC Draft Determinations Page 5 4.0 The Background Environment

4.1 ACCC's consideration is taking place against a background environment which must provide a reality check to the range of considerations to be taken into account. These factors include that the Tasmanian economy has throughout the 1990's seriously under performed the national economy.

4.2 Since the commencement of the 1990's:

• Gross State Product in Tasmania has increased by only 18.8% compared to the National rate of 40.7%.

• State Final Demand has increased by only 20.0% compared to the National increase of 41.6%.

• Business investment has fallen by 20.2% compared to a National increase of 41.0%.

• Retail turnover within the State has increased by 19.9% compared to the national rate of 30.5%.

• The State's population has only grown by 2.4% compared to the national rate of 13.6%.

• Employment levels within Tasmania are 1.5% lower compared to a National increase of 16.5%.

• Business confidence has been consistently lower.

• Both the Department of Treasury and Finance and Access Economics confirm that the widening gap between the National and Economic performances is not expected to alter in the immediate future.

4.3 This sobering economic picture has translated into a particularly difficult operating environment for business. It is only in the past two years that the Tasmanian economy has recommenced growing although the most recent six months have seen a plateauing of this promising progress. For further information refer to Appendix Two.

4.4 We would not suggest that Tasmania's electricity costs have been the major determinant of this serious economic downturn. Nonetheless, it does constitute a significant business input cost, and as with other 'costs of doing business' issues within our control the TCCI will continue to champion the need to be competitive. The TCCI believes NEM entry will ensure competitive pricing (see Section 5.0) and will provide a solid foundation for economic and employment growth in the State.

For potential major industrial customers NEM entry also provides competitive energy price certainty that will enable them to seriously consider Tasmania as an investment location.

4.5 Tasmania is currently at the crossroads in deciding whether significant capital investment projects are welcome or not. The State Government has been working hard to overcome the significant handicap to arise from the debacle of the Wesley Vale Pulp Mill that sent a very real message that Tasmania was closed for business.

The successful development of Basslink and the State’s entry to the NEM will boost business confidence within the State and provides a great opportunity to send to investors a signal that Tasmania is once again seriously open for business.

Conversely, failure to secure Basslink and NEM entry at this stage will send very strong signals regarding the difficulty in progressing major developments in Tasmania.

4.6 Increasingly Tasmanian businesses are looking at not just the benefits of Basslink and NEM entry but at the message that the success of major projects such as these sends to would be investors that Tasmania is open for business.

TCCI Submission on the ACCC Draft Determinations Page 6 5.0 Basslink Benefits to Tasmania

5.1 Basslink will deliver increased flexibility by providing Tasmania with access to the NEM and will help ensure the State's future energy needs are provided at a competitive cost. More specifically the TCCI has been highly supportive of the Basslink project and NEM entry for the following reasons.

Basslink and NEM entry provide:

• a reliable and flexible electricity supply to meet the State's future and changing electricity needs at a competitive cost; • a cost effective means of mitigating both physical and financial aspects of hydrological risk or the loss of one or more of the State's major electricity users; • establishes a regulatory framework that maintains the reliability of the electricity supply industry and protects electricity customers, whilst encouraging new entrants; • introduces sustainable competition and customer choice in electricity generation and customer choice in electricity generation by providing access to the Tasmanian market for interstate generators and encouraging new market entrants in retailing; • ensures competitive prices by linking Tasmanian electricity costs with the mainland; • provides a catalyst for further investment in the Tasmanian electricity supply industry particularly in renewable generating capacity; • enhanced telecommunications links that will assist Tasmania's emerging information services sectors; • as an investment project, Basslink provides a significant positive impact on the Tasmanian, Victorian and National economies in the construction and operational stages; and • enables the State to secure additional major capital projects that will mean further investment and employment opportunities.

5.2 The TCCI wishes to discuss in further detail a number of these advantages of this fundamentally important process to the State.

5.3 Meeting the State’s Future Electricity Needs

Currently the State has reached its capacity in the generation system and is unable to meet any future increases in electricity demand. Basslink providing access to the NEM and Tasmania's Natural Gas Project now overcome this constraint. Should Tasmania’s electricity demand increase Basslink will help enable the State to secure additional electricity at nationally competitive prices.

5.4 Improved Management of Water Resources and Mitigation of Hydrological Risk

Basslink and NEM entry will provide a much more flexible and low cost mechanism for hydrological management. Basslink provides the ability for Tasmania to import electricity in times of drought.

Alternatively Basslink in periods of high rainfall, when not all water can be used for generation, as existing requirements are already met, enables further generation of electricity for export to other NEM jurisdictions.

Furthermore should Tasmania’s electricity needs fall significantly (for example, if a major industrial customer were to leave the State), Basslink and NEM entry provides a mechanism to enable surplus electricity capacity in Tasmania to also be exported and utilised by other States.

TCCI Submission on the ACCC Draft Determinations Page 7 5.5 Establishes an Understood Regulatory Framework

The NEM represents a proven framework within which further private sector provision of electricity infrastructure can occur. The adoption of the NEM arrangements will provide Tasmania with a well- understood national framework for the operation of an electricity market. NEM and Basslink will enable the introduction of competition and new entry to the generation and retail sectors of the Tasmanian electricity supply industry in a framework understood and accepted by investors both domestically and internationally. This will lower the sovereign and regulatory risk new entrants would face under a set of unique State-based arrangements.

5.6 Sustainable Competition

Without Basslink it would not be possible to develop a fully functioning market of the quality and strength of the NEM. The establishment of Basslink and NEM entry will create a more attractive environment for the entry of new generators into the State. A new entrant generator may have significant concerns about competing with a hydro generator in a ‘closed’ Tasmanian system if it led to a situation of excess supply.

Importantly, under the arrangements negotiated for Basslink, other Tasmanian-based generators do not contribute to the cost of opening this additional market and are free to access it via the NEMMCO bidding process (Hydro Tasmania does not have any form of ‘firm access’ to Basslink ahead of other generators).

The introduction of competition will drive greater efficiencies in the generation and retail sectors of the Tasmanian electricity supply industry. NEM entry will facilitate direct generator competition and market forces will place heightened pressure on Hydro Tasmania to maximise efficiencies and to price competitively. In the retail sector, direct competition from other electricity retailers will provide the stimulus for the development of new energy products and place downward pressure on margins, leading to lower consumer costs and improved performance standards.

5.7 Linking Tasmania’s Electricity Prices with the NEM

As part of the pricing inquiry for the current Pricing Determination made by the Tasmanian Electricity Regulator for the period 1 January 2000 - 31 December 2002 the TCCI produced overwhelming evidence pointing to the uncompetitive tariff regime in Tasmania compared with market rates in Victoria and NSW in particular.

The cost disadvantage in Tasmania was particularly evident with medium and larger manufacturing businesses, sectors where power costs are particularly significant in terms of location investment decisions. Analysis performed as part of the TCCI submission concluded the cost disadvantage in Tasmania ranged on average between 20% and 60% and in some cases was more than double that applicable in Victoria and NSW for similar businesses.

As part of TCCI submission to the inquiry the Chamber consistently argued that Tasmanian electricity users strongly desired NEM consistent energy pricing in Tasmania to ensure they remain competitive with similar businesses in other NEM regions.

Basslink and NEM entry will ensure that Tasmanian energy prices are linked to the prices prevailing in the NEM, particularly the Victorian region. It is far better for Tasmanian energy prices to be determined via market mechanisms than by pricing inquiries by an independent body.

As Tasmanian prices will tend to track NEM prices with the construction of Basslink, Tasmanian industry should be placed on a level playing field with respect to electricity costs compared to their mainland competitors.

5.8 The development of renewable resources

Tasmania is very well positioned to play a pivotal role in the development of the sustainable National energy sector. Tasmania with its abundance of wind will develop wind farm generation as a significant source of electricity within this country and are sufficient to meet a significant proportion of the Commonwealth’s mandated renewable energy target.

TCCI Submission on the ACCC Draft Determinations Page 8 Basslink will be critical to achieving this outcome in a cost-effective manner. Without Basslink and NEM entry, there will be limited investment in wind development in Tasmania as it would be unlikely that load growth would be sufficient in Tasmania to exploit the State’s renewable resources.

5.9 Basslink economic impacts

The Basslink project will involve an investment of around $500 million and in the operational phase will deliver substantial positive economic impacts for the Tasmanian, Victorian and national economies.

Importantly, the Basslink project capitalises on a specific business opportunity arising from the gains available from trading electricity between Tasmania and Victoria. In this sense, it is not a project that could be undertaken elsewhere in Australia should it fail to proceed in Tasmania. Failure to secure the project would result in a loss of $500 million investment in Australia.

National and Regional Economic Impacts 2004 Tasmania Victoria Other States Australia Real Gross Product ($m) 60 155 35 250 Real Consumption ($m) 20 90 61 171 Real Investment ($m) 2 -2 54 54 Real Foreign Exports ($m) 16 61 -13 65 Real Foreign Imports ($m) 5 22 12 40 Employment 485 1,545 690 2,720 CPI (% change) -0.06 -0.02 0.01 0.00

National and Regional Economic Impacts 2010 Tasmania Victoria Other States Australia Real Gross Product ($m) 110 62 -112 60 Real Consumption ($m) 55 31 -56 30 Real Investment ($m) 11 8 -12 7 Real Foreign Exports ($m) 36 14 -27 23 Real Foreign Imports ($m) 11 6 -19 -1 Employment 944 370 -1,314 0 CPI (% change) -0.19 -0.01 0.00 -0.01 Source: Centre for Regional Economic Analysis

The economic and employment benefits of Basslink have alone been projected to increase GSP by $60 million in 2004 and up to $110 million in 2010 for Tasmania. Employment will also be significantly enhanced with 485 extra jobs in 2004 increasing to 940 by 2010. In light of Section 4.0 the economic benefits to flow from Basslink are considered to be significant.

It is important to highlight that the CREA analysis does not seek to quantify the benefits that would be expected to flow to the Tasmanian economy through an improved investment climate created from the establishment of a competitive electricity market. Consequently the TCCI considers the cited economic benefits to be on the conservative side.

5.10 Benefits to Victoria and other NEM participants

Tasmania's NEM entry will enable up to 600 MW to enter this market at peak times and will significantly increase competition during this period. In addition, the State's NEM entry will have a price stabilising effect as high price “spikes”, due to insufficient peak generation capacity, will be reduced. This will reduce the need for load shedding.

5.11 In the absence of the development of Basslink the Tasmanian electricity system will remain isolated from the NEM and will miss out on the benefits of interconnection and participation in the NEM. Those States that are part of the NEM will not receive the significant benefits arising from Tasmania’s participation in the market via Basslink.

5.12 For these reasons the TCCI has been highly supportive of the Basslink project and NEM entry. Indeed the Chamber is unaware of any other projects that have such positive ramifications for the State.

TCCI Submission on the ACCC Draft Determinations Page 9 6.0 TCCI Content on ACCC Draft Determinations

6.1 The ACCC has issued a draft Determination authorising Tasmania's electricity derogations and vesting contract. That is the draft Determination potentially paves the way for Tasmania's entry into the NEM.

During the determination process the ACCC has made a number of recommendations that in TCCI's view enhance the benefit outcomes cited in the previous section.

The ACCC has determined that the public benefits of NEM entry outweigh any anti-competitive detriment. This view is also is shared by the TCCI.

6.2 The TCCI is highly supportive of the current Draft Determination.

6.3 The TCCI believes any further consideration of Tasmania's NEM entry must be based on informed evidence and not unsubstantiated assertions based on commercial interests.

TCCI Submission on the ACCC Draft Determinations Page 10 Appendix One

Tasmanian Survey of Business Expectations Constraints on Business Growth

Survey respondents were asked to indicate the level of constraint various factors were on their business' growth at the present time:

Total No Slight Moderate Large Critical Rank Index Constraint Constraint Constraint Constraint Constraint

Non - Wage Labour Costs (Super & Workers Comp etc) 1 66.9 3.6 10.9 25.0 34.9 25.5 Insufficient Demand / Economic Activity 2 64.8 8.8 12.9 17.0 33.0 28.4 Wage Costs 3 52.7 7.7 22.2 31.4 28.9 9.8 High Level of Local Competition 4 48.8 15.7 20.4 28.8 23.0 12.0 Availability of Suitably Qualified Employees 5 48.7 19.3 20.3 20.8 25.5 14.1 Business Taxes and Government Charges - Federal 6 47.2 14.4 21.8 32.4 23.4 8.0 Business Taxes and Government Charges - State & Local 7 46.4 14.3 22.8 32.8 23.3 6.9 Cost of Energy 8 44.6 18.3 26.7 22.5 23.0 9.4 Compliance with IR Legislation (Awards & Unfair Dismissals) 9 42.9 23.0 26.8 19.1 18.0 13.1 State & Local Government Regulations 10 42.7 19.1 26.6 28.7 15.4 10.1 Transport Cost & Reliability 11 38.3 29.8 23.4 20.2 17.0 9.6 Employee Productivity 12 36.3 21.1 33.7 27.9 13.7 3.7 Federal Government Regulations 13 35.5 27.7 27.7 25.5 13.0 6.0 Resistance to Workplace Change from Unions/Employees 14 34.1 29.0 31.7 18.8 14.5 5.9 Current Level of Business Debt 15 31.0 38.5 22.4 19.8 15.1 4.2 High Level of Import Competition 16 29.1 49.7 15.2 13.1 13.1 9.0 Cost of Finance / Interest Rates 17 29.0 33.3 31.8 24.0 7.3 3.6 Exchange Rate 18 28.6 50.6 13.9 15.8 9.5 10.1 Availability of Training 19 28.4 37.4 31.1 18.4 6.8 6.3 Availability of Finance 20 22.8 48.4 27.9 12.6 6.3 4.7

June 2001 March 2001 Rank Index Rank Index

Non - Wage Labour Costs (Super & Workers Comp etc) 1 66.9 1 63.1 Insufficient Demand / Economic Activity 2 64.8 2 62.8 Wage Costs 3 52.7 5 53.7 High Level of Local Competition 4 48.8 6 46.0 Availability of Suitably Qualified Employees 5 48.7 7 45.5 Business Taxes and Government Charges - Federal 6 47.2 3 56.3 Business Taxes and Government Charges - State & Local 7 46.4 4 55.5 Cost of Energy 8 44.6 8 45.2 Compliance with IR Legislation (Awards & Unfair Dismissals) 9 42.9 10 41.9 State & Local Government Regulations 10 42.7 9 43.2 Transport Cost & Reliability 11 38.3 13 37.0 Employee Productivity 12 36.3 12 38.9 Federal Government Regulations 13 35.5 11 41.7 Resistance to Workplace Change from Unions/Employees 14 34.1 16 30.4 Current Level of Business Debt 15 31.0 14 35.1 High Level of Import Competition 16 29.1 20 24.7 Cost of Finance / Interest Rates 17 29.0 15 34.0 Exchange Rate 18 28.6 18 28.1 Availability of Training 19 28.4 17 29.1 Availability of Finance 20 22.8 19 25.4 Total 818.8 837.6

TCCI Submission on the ACCC Draft Determinations Page 11 Appendix Two

TCCI Submission on the ACCC Draft Determinations Page 12 The Tasmanian Economy July 2001

Summary

The Tasmanian Economy in the aggregate has experienced relative improvement in the past two years although the rate of growth has tapered significantly.

The past two years without doubt can be described as sound for the Tasmanian Economy. Positive progress was made in most areas with the State embarking on bridging the substantial gap between its own and national economic performances that has characterised the last decade.

The TCCI is of the view that this improvement has arisen primarily due to the continuing strong performance of the National economy, the resurgence of Tasmania’s export destinations and a majority Government within Tasmania which has boosted confidence.

Despite this positive progress the current IIAS process is being considered against a State backdrop that has softened in line with the National Economy in the past six months.

As demonstrated by the below table quite strong growth was achieved in the 1999/2000 financial year although this performance has not been matched in the 2000/2001 financial year.

According to the Reserve Bank of Australia the softening of the National Economy was largely attributed to a post Olympics plateauing and a downturn caused by a pulling forward of housing activity related to the GST.

With the RBA now firmly of the belief that these ‘one offs’ are behind the National economy, an easing of monetary policy and initiatives to boost the housing industry, the stalling of the National and subsequently Tasmanian Economy is hopefully anticipated being temporary. This prediction has been further boosted by the recent expansionary State Budget that will facilitate business growth into the future.

As previously stated the TCCI believes that the ACCC's consideration of Tasmania's NEM entry should not proceed with disregard to the state of the Tasmanian economy.

Annual Growth Rates

TAS AUS 2000/2001* 1999/2000* 2000/2001* 1999/2000* Gross State Product 1.10% 5.00% 4.30% 5.40% State Final Demand 2.60% 4.31% 2.06% 5.28% Business Investment 11.10% 7.85% -1.20% 3.23% Consumer Price Index 5.25% 1.12% 5.27% 1.85% Ave Weekly Ordinary Time Earnings 3.80% 2.32% 5.05% 3.05% Total Employment 1.00% 1.78% 2.05% 2.75% Unemployment Rate (ave) 8.70% 8.79% 6.41% 6.63% Participation Rate (ave) 59.15% 58.88% 63.68% 63.38% Retail Trade -1.16% 3.37% 1.23% 5.28% New Dwelling Unit Approvals -33.13% 23.64% -33.40% 13.69% Population -0.11% -0.20% 1.17% 1.10% Business Confidence 42.43 47.20 45.18 56.23 * Time period is 12 months to the latest available measure. % Growth is year on year.

All figures are reported in trend terms and are expressed in 1998-99 prices unless otherwise indicated. Analysis is based upon latest ABS data available at 12 July 2001.

TCCI Submission on the ACCC Draft Determinations Page 13 Gross State Product

Following a significant revision upwards for the 1998/99 financial year the latest 1999/2000 financial year measure has indicated only moderate growth for the State economy. The 2000/01 measure is not yet available.

Gross State Product

3 TAS AUS 2 % change from previous year 1

0 Jun.1991 Jun.1992 Jun.1993 Jun.1994 Jun.1995 Jun.1996 Jun.1997 Jun.1998 Jun.1999 Jun.2000

-1 Source: ABS Catalogue 5220.0

State Final Demand

State Final Demand performance over the past two years has virtually matched the National average. Strong growth has occurred since the December quarter 1998 although this growth has tapered since the June quarter 2000. State Final Demand

150.00

140.00

130.00

120.00 TAS AUS 110.00

100.00 Index: 1989-90 = 100 (trend series, cvm)

90.00

80.00 Mar.1990 Mar.1991 Mar.1992 Mar.1993 Mar.1994 Mar.1995 Mar.1996 Mar.1997 Mar.1998 Mar.1999 Mar.2000 Mar.2001 Sep.1990 Sep.1991 Sep.1992 Sep.1993 Sep.1994 Sep.1995 Sep.1996 Sep.1997 Sep.1998 Sep.1999 Sep.2000 Source: ABS Catalogue 5206.0

TCCI Submission on the ACCC Draft Determinations Page 14 Business Investment

Following the lows of 1998/99, business investment rebounded quite strongly across the four quarters to the September quarter 2000. The improved performance came largely through increased investment on plant and equipment. Unfortunately in the past six months business investment within Tasmania has come dangerously 'off the boil'. Business Investment

160.00

140.00

120.00

100.00

TAS 80.00 AUS

60.00

40.00 Index: 1989-90 = 100 (trend series, cvm)

20.00

0.00 Mar.1990 Mar.1991 Mar.1992 Mar.1993 Mar.1994 Mar.1995 Mar.1996 Mar.1997 Mar.1998 Mar.1999 Mar.2000 Mar.2001 Sep.1990 Sep.1991 Sep.1992 Sep.1993 Sep.1994 Sep.1995 Sep.1996 Sep.1997 Sep.1998 Sep.1999 Sep.2000 Source: ABS Catalogue 5206.0

Consumer Price Index

The Consumer Price Index as a consequence of the implementation of the New Tax System spiked in the September quarter 2000. Following this aberration the December and March quarter CPIs have risen by relatively modest amounts indicating inflationary pressures are still within check. The Reserve Bank of Australia and the ACCC have indicated that the GST impact on CPI has been in the range of 2.5 to 3.0 per cent. Consumer Price Index

10.0

9.0

8.0

7.0

6.0

5.0 TAS AUS 4.0

3.0

2.0 % change on same quarter of previous year 1.0

0.0

-1.0 Mar.1990 Mar.1991 Mar.1992 Mar.1993 Mar.1994 Mar.1995 Mar.1996 Mar.1997 Mar.1998 Mar.1999 Mar.2000 Mar.2001 Sep.1990 Sep.1991 Sep.1992 Sep.1993 Sep.1994 Sep.1995 Sep.1996 Sep.1997 Sep.1998 Sep.1999 Sep.2000 Source: ABS Catalogue 6401.0

TCCI Submission on the ACCC Draft Determinations Page 15 Average Weekly Ordinary Time Earnings

Following a relative lagging in the 1998/1999 financial year, average weekly ordinary time earnings growth in Tasmania in 1999/2000 matched National growth. A similar trend as occurred in 1998/99 appears evident in 2000/01. Average Weekly Ordinary Time Earnings

850.00

800.00

750.00

700.00 TAS AUS 650.00

600.00 $ per week (trend series, current prices)

550.00

500.00 Feb.1990 Feb.1991 Feb.1992 Feb.1993 Feb.1994 Feb.1995 Feb.1996 Feb.1997 Feb.1998 Feb.1999 Feb.2000 Feb.2001 Aug.1990 Aug.1991 Aug.1992 Aug.1993 Aug.1994 Aug.1995 Aug.1996 Aug.1997 Aug.1998 Aug.1999 Aug.2000 Source: ABS Catalogue 6302.0

Total Employment

Tasmania’s labour market experienced considerable improvement throughout 1999/2000 and the first half of 2000/01 with employment increasing strongly (matching national growth) in the September and December quarters 2000. This improvement was predominantly due to the increase in part-time jobs with full time jobs showing only modest growth. In the past six months employment levels within Tasmania have declined.

Total Employment

120.00

115.00

110.00

105.00

TAS 100.00 AUS

95.00

Index: 1989-90 = 100 (trend series) 90.00

85.00

80.00 AUG.199 AUG.199 NOV.199 NOV.199 NOV.200 MAR.199 MAR.199 JUL.1992 JUL.1997 JAN.1990 JAN.1995 JAN.2000 JUN.1990 FEB.1992 JUN.1995 FEB.1997 JUN.2000 SEP.1991 SEP.1996 APR.1991 APR.1996 APR.2001 DEC.1992 DEC.1997 OCT.1993 OCT.1998 MAY.1993 MAY.1998 Source: ABS Catalogue 6202.0

TCCI Submission on the ACCC Draft Determinations Page 16 Participation Rate

As employment prospects improved more people moved into the Tasmanian labour market with the participation steadily improving signifying an increasing level of confidence in the prospects of employment within Tasmania. Due to the recent decline in employment levels the participation rate has also fallen signifying a similar fall in confidence. Participation Rate

TAS 60 AUS

57 % of working age population (trend series)

55 NOV.199 AUG.199 NOV.199 AUG.199 NOV.200 MAR.199 MAR.199 JUL.1992 JUL.1997 JAN.1990 JAN.1995 JAN.2000 JUN.1990 FEB.1992 JUN.1995 FEB.1997 JUN.2000 SEP.1991 SEP.1996 APR.1991 APR.1996 APR.2001 DEC.1992 DEC.1997 OCT.1993 OCT.1998 MAY.1993 MAY.1998 Source: ABS Catalogue 6202.0

Unemployment Rate

The uptake of new jobs across the first half of 2000/01 was enough to make inroads into the unemployment rate. Despite the deterioration in Tasmania's labour market in the past six months the unemployment rate has continued to fall. This is solely as a result of persons discontinuing their search for employment rather than employment creation.

Unemployment Rate

8 TAS AUS 6

4 % of labour force (trend series)

0 NOV.199 AUG.199 NOV.199 AUG.199 NOV.200 MAR.199 MAR.199 JUL.1992 JUL.1997 JAN.1990 JAN.1995 JAN.2000 JUN.1990 FEB.1992 JUN.1995 FEB.1997 JUN.2000 SEP.1991 SEP.1996 APR.1991 APR.1996 APR.2001 DEC.1992 DEC.1997 OCT.1993 OCT.1998 MAY.1993 MAY.1998 Source: ABS Catalogue 6202.0

TCCI Submission on the ACCC Draft Determinations Page 17 Retail Trade

Despite relatively buoyant consumer sentiment retail turnover in real dollar terms was relatively flat during the 1999/2000 year. Of encouragement retail turnover is performing well in the 2000/2001 financial year.

Retail Turnover

140.00

130.00

120.00

TAS 110.00 AUS

100.00 Index: 1989-90 = 100 (trend series, cvm) 90.00

Residential Building Activity

Residential Building Activity after considerable activity in the 12 months to the December quarter 1999 associated with the pre-New Tax System boom fell dramatically in the 12 months to the December quarter 2000. It is only recently that approvals have recommenced growing following the implementation of the new home buyers and building grants.

Dwelling Unit Approvals

160.00

140.00

120.00

100.00

TAS 80.00 AUS

60.00

Index: 1989-90 = 100 (trend series) 40.00

20.00

0.00 Jul.1992 Jul.1997 Apr.1991 Oct.1993 Apr.1996 Oct.1998 Apr.2001 Jan.1990 Jun.1990 Jan.1995 Jun.1995 Jan.2000 Jun.2000 Feb.1992 Mar.1994 Feb.1997 Mar.1999 Nov.1990 Sep.1991 Dec.1992 Aug.1994 Nov.1995 Sep.1996 Dec.1997 Aug.1999 Nov.2000 May.1993 May.1998 Source: ABS Catalogue 8731.0

TCCI Submission on the ACCC Draft Determinations Page 18 Population

Whilst still in decline the population reduction continues to reduce with State Government forecasts for growth to recommence in the first quarter of 2001. However, this view is not shared by Access Economics.

Population

115.00

110.00

105.00

TAS AUS

100.00 Index: 1989-90 = 100

95.00

90.00 Mar.1990 Mar.1991 Mar.1992 Mar.1993 Mar.1994 Mar.1995 Mar.1996 Mar.1997 Mar.1998 Mar.1999 Mar.2000 Sep.1990 Sep.1991 Sep.1992 Sep.1993 Sep.1994 Sep.1995 Sep.1996 Sep.1997 Sep.1998 Sep.1999 Sep.2000 Source: ABS Catalogue 3101.0

Business Confidence

Business confidence after record highs in 1999 fell throughout 2000. This reflects extremely accurately the impact / lead time of business confidence on actual economic activity. Tasmanian businesses are now forecasting an improvement in both the State and national economies over the next twelve months.

Business Confidence

40 TAS AUS 30

10 a score below 50 indicates weakening growth prospects A score above 50 indicates strengthening growth prospects and 0 Jun-95 Jun-96 Jun-97 Jun-98 Jun-99 Jun-00 Jun-01 Mar-95 Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Sep-95 Dec-95 Sep-96 Dec-96 Sep-97 Dec-97 Sep-98 Dec-98 Sep-99 Dec-99 Sep-00 Dec-00 Source: Tasmanian Survey of Business Expectations

TCCI Submission on the ACCC Draft Determinations Page 19 Forecasts

Access Economics' latest 'Five Year Business Outlook', is more optimistic than in recent years. Historically their forecasting and analysis have overwhelmingly and increasingly portrayed Tasmania in a negative manner. Whilst the latest June report would not be classified as optimistic there are a number of positive inferences that have been missing in recent quarters.

The 5 Year Business Outlook is in part a recognition of the positive progress the State has made in the past two years. Positive aspects aside there remain a number of serious implications for the State.

Access highlight that the catalyst for future economic growth, investment, remains dangerously low. It would also appear that any improvement in the unemployment rate is only attributed to an exiting of persons from the labour force travelling to the mainland for improved employment opportunities.

Forecasts for the 2001/2002 financial year reveal that the State Economy should grow in real terms, however, the rate of growth remains below the National average and confirms that a widening gap between the National and Tasmanian economic performances is expected to continue into the foreseeable future.

Access Economics Forecasts TAS AUS 01/02 02/03 03/04 04/05 01/02 02/03 03/04 04/05 GSP 2.1 2.0 0.8 0.9 3.4 4.6 3.0 2.2 Real Final Demand 1.2 3.4 1.3 0.0 3.1 5.3 3.5 1.2 Total Population -0.5 -0.5 -0.4 -0.4 1.1 1.0 1.0 1.0 Employment -0.5 0.9 0.7 -0.5 1.1 2.0 2.0 0.7 Unemployment Rate 8.3 7.6 7.3 8.1 7.1 6.5 6.2 6.8 Consumer Price Index 1.6 1.3 3.9 2.6 2.4 2.4 3.8 2.3 Average Weekly Earnings 2.1 3.0 3.5 3.8 2.4 4.2 4.6 4.5

Interest Rates

Most recent indications from the Reserve Bank of Australia reveal that the easing of monetary policy has ended and that any adjustment to official interest rates will be upward.

Official Cash Rate

10 % cash rate 8

0 23/01/90 23/05/90 23/09/90 23/01/91 23/05/91 23/09/91 23/01/92 23/05/92 23/09/92 23/01/93 23/05/93 23/09/93 23/01/94 23/05/94 23/09/94 23/01/95 23/05/95 23/09/95 23/01/96 23/05/96 23/09/96 23/01/97 23/05/97 23/09/97 23/01/98 23/05/98 23/09/98 23/01/99 23/05/99 23/09/99 23/01/00 23/05/00 23/09/00 23/01/01 Source: Reserve Bank of Australia

TCCI Submission on the ACCC Draft Determinations Page 20