Why is industry so disappointed in the charges outcome?

It’s pretty widely understood that industry accepts the principle of having to ‘pay it’s own way’.

In the ALRTA, we haven’t tried to argue that absolutely no increase in charges is acceptable.

Indeed, the ALRTA’s National Council actually formally endorsed an Annual Indexation increase of 5.7%, in aggregate. We went to governments with the message that this figure would be very tough on our members, but we would respect it as an appropriate decision.

We’re not just saying ‘don’t charge us’.  And we’re not just saying ‘that’s too high’.

So what is our criticism?

Our criticism is this: governments have breached established expectations of how industry will be treated, without notice. They’ve done so in two key areas.

Breach of Expectations No 1: Lack of access to relevant information

Back in December, the NTC published this paper: Heavy Vehicle Charges Issues – Discussion Paper, December 2012. This paper provided the basis for the NTC’s formal consultation with industry.

You’d hope that an ‘issues paper’ would openly tell industry what ‘the issues’ were, right? Especially, the really big issues. The ones that would have a big impact on the final outcome.

Sadly, for some reason, this simply didn’t happen.

Now that Ministers have taken their decision, we can compare what industry was told in the formal consultation paper from December, with what Ministers were told in the formal submission which the NTC sent to them in February.

You don’t need to read past the second page to discover that this February submission openly and directly advises Ministers of a major problem in the charging system:

“ … were the Annual Adjustment simply applied to current charges (status quo), this would result in an under-recovery of historic expenditure of $144 million. Year on year, the annual adjustment has slightly under-recovered costs and has now reached levels of under-recovery that triggered the 2007 Heavy Vehicle Charges Determination.”

(Page vi, second page of Executive Summary)

And here’s the first breach.

No-where in the December consultation paper that was sent out to industry will you find any mention at all of this $144 million per annum ‘under-recovery’.

No-where in the December consultation paper will you find any advice to industry explaining that the Annual Adjustment has been ‘under-recovering’.

To the contrary, on page 2 of the December paper, you’ll find some seemingly reassuring words which inform the reader that, in the 2007 Determination, the NTC fixed up the Annual Adjustment formula to make sure it didn’t under-recover.

No wonder Ministers have hit industry for six. They’ve been officially told, in writing, that there is a major shortfall in the revenue that industry owes them. And they haven’t been told that we haven’t been told.

Do a word search of the two documents. It’s very striking:

Number of times the following phrase appears … December: industry consultation paper February: submission to Ministers
“$144 Million” Zero. Five.
“Under-recovery” Three.

One mention is just about the concept.

Two other mentions   criticise proposals raised by the ATA


Now, I don’t claim to know exactly when the NTC came to the conclusion that there is a $144 Million per annum under-recovery in the revenue that is already collected from industry.

I’ll assume that the NTC didn’t know about this issue in December. But that means it’s a real tragedy that they didn’t release an Information Bulletin when the problem became clear.

The disappointment and raw disbelief that’s now being directed by our members towards Ministers might possibly have been avoided.

Breach of Expectations No 2: Abandonment of the statutory Annual Adjustment formula

The second breach of expectations also flows directly from the advice that’s in the submission that’s been given to Ministers. Read through the submission and you’ll basically see this:

  • Ministers have been advised that the appropriate use of ‘the formula’ for an Annual Adjustment will produce an increase of 5.7%; I put this at about $148 Million per annum.
  • They’ve been advised that they are already missing out on $144 Million per annum (but are not told that industry hasn’t been told).
  • Ministers have also been told that COAG has asked them to maintain ‘ongoing full cost-recovery’,every year.
    • In other words, the Ministers have an instruction ‘from the boss’ to scoop up any missing money that they’re owed, in any year that a shortfall occurs.
    • (This is completely true and correct. The decision was taken in April 2007, towards the end of John Howard’s time as Prime Minister. And even though it was a decision of the former government it still ‘counts’ as part of the official rules of the system.)
  • And, consequently, Ministers have been advised that they can increase charges to industry so as to recover both amounts in a single year (I put this at about $292 Million, per annum).

There’s one important thing that seems to be missing from the advice given to Ministers.

So far as I can see, the submission doesn’t tell the Ministers that what they’re being advised to do has never been done before.

No-where can I see any advice that warns the Ministers that, up until now, an Annual Adjustment has only ever increased charges to industry by the amount that flows from the statutory formula.

No-where can I see any advice to Ministers that this will be the largest ‘Annual Adjustment’ ever delivered.

Once again, it’s no wonder Ministers have hit industry for six last week. They’ve been officially told, in writing, to go for it and grab the big bucks, and they haven’t been told that this is unprecedented and that industry may find this quite shocking.

Again, that’s quite a tragedy. Ministers have to take tough decisions all the time, but it seems reasonable that they be told upfront when they are being asked to do something out of the box.

Meanwhile, how did this black hole emerge?

Consider what we’ve learned from this:

  • In April 2007, the then Prime Minister, at COAG, asked for the Council of Transport Ministers to maintain ‘ongoing full cost-recovery’ every year.
  • But the NTC has just advised Ministers that “Year on year, the annual adjustment has slightly under-recovered costs and has now reached levels of under-recovery that triggered the 2007 Heavy Vehicle Charges Determination.”

An alleged black hole of $144 Million per annum has opened up since the last Determination.

And this has happened, even though, in the very year in which that Determination was prepared, John Howard gave an instruction that this must not happen.

How is this even possible? Surely someone in government must be seeking some answers!

This is not the time for a new Determination …

There was one other surprise in the submission that was given to Ministers.

The NTC has officially asked the Ministers for permission to commence a new National Charges Determination.

The official announcement of the Ministers’ decision reveals that they have deferred taking a decision on this request. They will decide what to do when they next meet, sometime in May this year.

The ALRTA’s National Council has already met to discuss this proposal.

The ALRTA is formally opposed to the launch of a new National Charges Determination, at this time. President Beer is now writing to every Minister to express our views.

We certainly don’t want to see a Determination commenced unless and until there is very clear agreement with industry about what questions it will seek to examine and what goals it will seek to advance.

And there’s no need for a Charges Determination just to keep governments’ total revenues in order. Last week’s decision has shown that this can now happen through the Annual Adjustment.

Frankly, we doubt that a Determination is the right avenue to advancing our members goals.

Consequently, President Beer has written to the Prime Minister to explain what we’re looking for out of a new charging system. You can find the ALRTA’s statement of goals here.

… the urgent priority for all parties should be to ‘fix the relationship’

But before we even get to the question of what a Determination might look at, can there be any doubt that industry and the NTC urgently need to sit down and work on ‘the relationship’?

If the industry and the NTC can’t create a better process for how we manage consultation on charging issues, and a better dialogue for how to resolve and advance all the differences and issues we face, then even running a dozen Determinations won’t help.

Our National Executive offered our first suggestions in a submission to the NTC just 45 days ago:

… The ALRTA is concerned that the current dialogue between industry and the NTC requires a large resource commitment and is characterised by too great a level of confusion and frustration. This does not assist either party.

The ALRTA strongly recommends that industry and the NTC should work together to improve this dialogue.

It is evident that the NTC desires to engage directly with operators in consultation events. Few operators are familiar with the workings of PAYGO and it may be helpful for the NTC to provide a short user-friendly outline of PAYGO for operators to study, prior to and after consultation events.

Within their businesses, many of the ALRTA’s members are accustomed to offering or receiving clear and firm price-quotations. The iterative nature of the NTC’s work is not a familiar practice and can cause confusion.

There are some disagreements between industry and the NTC regarding certain assumptions and design choices adopted within PAYGO. It may be helpful for the NTC to maintain a publication that acknowledges, describes and explains these issues. For issues that can be resolved through research or benchmarking, this publication could establish a joint work program.

An essential step to improve this dialogue is for the NTC to release the PAYGO model.

The NTC has been reluctant to take this step and has very recently declared to industry that ‘no other pricing regulator publishes its models’.

The ALRTA accepts that this is the NTC’s sincere belief but, regrettably, it is mistaken …

To provide on-going certainty, the ALRTA also strongly recommends that the NTC should seek the Ministerial Council’s agreement to entrench a permanent commitment and well defined procedure to the routine release of the current edition of the PAYGO model and the Annual Adjustment formula.

Frankly, before there’s any suggestion of launching a new Determination, what the country needs is a process of reconciliation between the NTC and industry.

We need to open the books, share the data and eliminate the disagreements that are due to simple mistakes and differences in calculations.

But much more importantly, we need to see reconciliation in the relationship. The unspoken assumptions and, yes, suspicions about what each party is up to need to be resolved or set aside. The rules of engagement need to be re-set.

In my view, that’s going to take six months solid work, just to lay the foundations.

And let’s take this opportunity to be clear that this is not a one-way street.

When an NTC officer comes out to meet industry, s/he should not have to put up with being repeatedly shouted at.

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