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Competitive Neutrality Procedure

Section 1 - Purpose

(1) RMIT is required to comply with the Competition Principles Agreement (CPA), which is one of the three state government agreements that underpin the National Competition Policy (NCP). This procedure describes how RMIT complies with the CPA.

(2) Private businesses coexist with government business in a variety of markets. They do not always compete on equal terms. Competitive neutrality aims 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 that might impact the prices that are set by the government businesses.

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Section 2 - Authority

(3) Authority for this document is established by the Financial Management Policy.

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Section 3 - Scope

(4) This procedure applies to all business activities that originate at RMIT University, RMIT Online and RMIT University Pathways.

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Section 4 - Procedure

(5) RMIT is required to demonstrate full observance of the requirements of the CPA. The Vice-Chancellor is required to affirm compliance for all significant business activities.

(6) If an individual or organisation (including a government body) lodges a complaint with the Australian Government Competitive Neutrality Compliants Office (AGCNCO) against RMIT, information will be requested by AGCNCO. Colleges and schools must ensure that all relevant documentation regarding the costing and pricing of activities can be produced should a complaint against RMIT be made.

(7) Staff are required to contact the Senior Manager, Strategic Modelling if they receive an enquiry from AGCNCO.

Significant Business Activities

(8) RMIT undertakes the following significant business activities to which the CPA should apply with full cost reflective pricing:

  1. collaborative and contract research and consultancies
  2. fee for service teaching (non-higher education award programs)
  3. seminars and conferences
  4. retail activities.

(9) 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.

Full Cost Reflective Price

(10) Full cost reflective pricing takes into account:

  1. all costs that can be attributed to the provision of the goods or service. This includes all direct and indirect (overhead) costs. Financial Services has a Project Costing Model (commercial project) to assist with this task.
  2. RMIT’s competitive cost advantages and disadvantages as a result of its government entity status.

RMIT’s Competitive Advantage

(11) RMIT has a potential competitive advantage in four areas: opportunity cost, land tax, council rates and stamp duty.

Opportunity Cost

(12) The CPA states that a government entity should include a rate of return on capital (the value of RMIT’s land and buildings). For competitive neutral pricing, the cost of capital is valued at 8%.

Land Tax

(13) RMIT is exempt from land tax. Land tax is an annual tax levied on the owners of the land in Victoria. It is calculated by applying the appropriate tax rate to the total taxable value of all land RMIT own, excluding any exempt land. The concessional land tax treatment is incorporated in the model.

Council Rates

(14) RMIT is exempt from council rates. Rates are calculated on the improved value of the property. This calculation is also incorporated in the model.

Stamp Duty

(15) 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 vehicle.

RMIT’s Competitive Disadvantage

(16) RMIT’s competitive disadvantage is due to its dual higher education and vocational education sector reporting requirements.

(17) RMIT incurs higher accountability and reporting cost than could be expected when compared with private industry.

(18) RMIT’s reporting and governance services areas are factored in the indirect allocation model.

Calculating RMIT’s Competitive Neutral Cost

(19) An Excel model (maintained by Finance’s Strategic Modeling team) calculates RMIT’s competitive advantage in the areas of opportunity cost of capital, council rates and land tax. The model is simple to use, includes detailed instructions and requires little input. The model calculates the competitive advantage as a dollar figure.

(20) RMIT’s competitive disadvantage is also calculated in the model and arrives at RMIT’s competitive neutral position. This amount should be added to the costs of an individual project, clearly labeled as a competitive neutral adjustment and taken into account when making pricing decisions.

(21) Full cost reflective pricing is the primary tool for implementing competitive neutrality.