COMPETITIVE NEUTRALITY
Every tender from a government-owned business must include evidence which shows that the tender price incorporates the adjustments necessary to offset net competitive advantages that result from government ownership. The table below shows some potential advantages to be considered and the order of magnitude generally accepted on the tender price.
Potential advantages / Likely order of magnitude(% of total cost)
Opportunity cost of capital (rate of return) amount on all non-current assets, including the written down replacement cost of buildings, equipment and the cost of financial leases / More than 5
Exemption from payroll tax / 1 to 5
Exemption from wholesale sales tax / Less than 1
Exemption from land tax / Less than 1
Exemption from council rates / Less than 1
Exemption from stamp duties / Less than 1
Exemption from financial institutions duty and debits tax / Negligible
RMIT University Competitive Neutrality Policy – RMIT Compliance
1. Overview
Private business co-exists with government business in a variety of markets. They do not always compete on equal terms. It is the goal of Competitive Neutrality to offset these inequalities where possible. The inequalities arise from differences in tax treatment, differences in the need to provide a return on investment, and related cost advantages and disadvantages which might impact on the prices that are set by government businesses.
Full cost reflective pricing is the primary tool for implementing competitive neutrality. RMIT is a government funded entity that also undertakes commercial business activities in competition with the private sector it is therefore required to comply with the Victorian Government's Competitive Neutrality Policy.
2. Compliance
RMIT is required to demonstrate full observance of the requirements of the Policy. The Vice Chancellor is required to affirm compliance with the Policy for all significant business activities.
In the event that a competitive neutrality complaint is made against RMIT, information will be requested by the Independent Competitive Complaints Unit.
3. Significant Business Activities
RMIT undertakes the following significant business activities to which the competitive neutrality policy should apply.
· Collaborative and Contract Research and Consultancies
· Fee for Service Teaching (Not Higher Education Award Programs)
· Seminars and Conferences
· Retail Activities
Full cost reflective pricing should be applied to these types of business activity.
Full cost reflective pricing must be rigorously applied to competitive tendering for government contracts where competitive neutrality principles are stated as a requirement of the tender.
4. Full Cost Reflective Pricing
Full Cost Reflective Pricing takes into account:
· All costs that can be attributed to the provision of the good or service. This includes all direct and indirect (overhead) costs.
· RMIT’s competitive cost advantages as a result of its government entity status.
· RMIT’s competitive cost disadvantages as a result of its government entity status.
5. RMIT’s Competitive Advantage
An analysis of the policy has shown that RMIT has a potential competitive advantage in four areas.
(i) Opportunity Cost: The Policy states that a government entity should of Capital include a rate of return on capital (the value of RMIT’s land and buildings) for the purpose of competitive neutral pricing at 8%.
(ii) Land Tax: RMIT is exempt from land tax. Land tax is calculated at $54,880 plus 5% of excess over $2,700,000. RMIT’s notional Land Tax exposure is $10.3M.
(iii) Council Rates: RMIT is exempt from Council Rates. Rates are calculated on the improved value of a property. RMIT’s notional Rates exposure is $3.7M.
(iv) Stamp Duty: RMIT is exempt from Stamp Duty. Stamp duty is payable at various rates for transactions including; transfers of real property, leases of land, mortgages, insurance and acquisitions of motor vehicles.
6. RMIT’s Competitive Disadvantage
RMIT incurs higher accountability and reporting costs than could be expected in private industry. These higher costs are due to the university's dual Higher Education and VET reporting requirements.
It has been calculated that RMIT’s additional reporting costs total $307,000. RMIT’s overhead costs in 2001 total $90.5m. Additional reporting costs therefore add 0.34% to the university's overhead costs.
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C:\My Documents\RDU\Tenders\2003 online resources\COMPETITIVE NEUTRALITY statement.doc