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Shifting the Dial: 5 year productivity review

Appendix B: Regulation Reforms

Many sound recommendations have been made that would work toward addressing impediments to markets operating more efficiently, but are yet to be implemented or are progressing more slowly than desired. This appendix pulls together a number of these recommendations from a selection of reviews that formed the basis for chapter 5. They are organised into two sections:

  • improving competition
  • removing unnecessary regulatory burdens.

Each section identifies beneficial recommendations yet to be implemented, or those where progress has been slow. Identified recommendations are summarised in tables along with the review source. Where possible the benefits that they are expected to deliver are quantified, or the nature of the benefits is described (box B.1). While the Commission has attempted to review the progress on each of the entries in these tables, this has not been an easy task. Even where government has formally responded to a recommendation the response is reported in the tables, but even in these cases it can be difficult to track down progress on the implementation, and the extent to which the implementation matches the commitment made in the response. This experience points to the lack of accountability for progress in many areas, even of those recommendations that governments have agreed to implement.

The annual net gains to the economy from the reforms quantified in the tables below come to about $3 billion a year, to which can be added potentially large gains (in the order of another $5 billion) from reforms to industry assistance, government procurement, and intellectual property (IP). While the actual impact of many of the individual estimates are uncertain, taken together they add to a considerable case for reforming regulation and industry assistance. Deloitte Access Economics has estimated that, with favourable economic conditions in Asia, a package of microeconomic reform could raise Australia’s GDP by 2.5 per cent (Deloitte Access Economics 2017).

Box B.1 Estimating the net benefits of recommended reforms

  • The tables include estimates of the net benefits of reform. In most cases these are indicative only as very few reviews have undertaken a comprehensive cost benefit analysis of the proposed reforms. Ideally net benefit estimates take into account the cost of implementing the reform, and estimate the gains net of costs relative to a counterfactual — what would have happened without the reform. This is a substantial task, with inherent uncertainty as it requires projecting the future. But even indicative estimates can be a useful guide for policy makers to both prioritise and make the case for reforms.

    The estimates in the following tables should only be regarded as indicative, and where possible reflect the likely annual benefits that would be sustained over time. In keeping with the focus on efficient markets the estimates are of economic benefits arising from:

    • cost savings to businesses or to consumers — usually estimated for a typical or average business or consumer and scaled up by the size of the industry. So those goods and services that are widely used, or where a lot of businesses are affected, will deliver higher benefits. Cost savings flow directly to improvements in productivity and should be reflected in GDP
    • increases in activity — usually estimated as a growth in demand (which can be stimulated by removal of price distortions, or where barriers that have rationed demand are removed). Again the size of the benefit depends on the scale and scope of the activity, and usually a percentage increase is applied to this base to get an estimate of the benefit. However, as expanding activity can take resources away from other (lower value) activities a ‘dampening’ factor should be applied. Running the shock through a CGE model is the best way to get a reliable estimate, and the results will depend on whether the expanding activity is able to attract new resources into the economy (such as foreign investment, increased labour participation, or targets those more likely to be unemployed)
    • improvements in the quality of goods and services (for the same level of inputs) — these can be reflected in higher prices, and hence profits for firms, and modelled as an increase in measured productivity and hence GDP. Implicit in this approach is the rise in productivity (higher quality for the same inputs) flows through to a rise in income for the workers and/or owners of firms, that supports higher prices for some goods and services without having a major impact on the overall demand for others. Improvements in quality are not captured in price benefits to consumers, and so add to consumer surplus.

    If a price increase or cost reduction driven by an improvement in productivity can be estimated, it is relatively straight forward to estimate the benefit to GDP, which on average is about 1.1 times the productivity shock. It tends to be slightly higher than this where the improvement is to products that are inputs into many other industries (energy has a higher multiplier for example), and slightly lower when the gain is mainly in final goods and services. To work out how this is distributed across industries a CGE model is required. Multiplier analysis overstates the effect as it assumes that there are resources available to work in any expanding sector, at no cost to any other sector. Estimating the impact on consumer surplus can be done in a CGE model, on the basis of the impact on the representative consumer. A household model is needed for more detailed analysis of the distribution of impacts.

    In many cases, reforms result in transfers, where one party has been able to earn economic rents, due say to lack of, competition. Reforms transfer these rents back to consumers, so there is a distributional effect, but the effect on GDP is limited to the benefits from an improved allocation of resources. Estimating these allocative effects requires a model of demand and supply, which is beyond the scope of this review to develop for each reform. The estimates provided in this appendix draw on available estimates of changes in costs, activity, quality, transfers, and reductions in dead weight loss, where these estimates are available.

B.1 Improving competition

Competition is a means to an end — driving firm efficiency and controlling market power to get consumers the goods and services they want at the least cost. Competition can also encourage firms to innovate, although this seems to depend on the overall level of competition and current market share in quite complex ways (Aghion and Griffith 2008).

Regulation can both enforce and erode competition. Australia ranks relatively well on the OECD indicators of product market regulation (ranked 4th in the OECD for the least product market regulation and for ease of trade and investment flows) (OECD 2014), and the extent of restrictiveness has returned to pre-global financial crisis days, but that should not be grounds for complacency.

Competition can be eroded by barriers to market entry or exit created by governments (through selective subsides, regulations or laws). Competition is also eroded by abuse of market power. In many countries the degree of industry concentration has risen, in part due to merger activity. This trend is evident in Australia, which starts from a relatively high base.17

In addition to market forces operating in the direction of reduced competition (Supporting Paper 1 (SP 1)), market power from control over networks and data can be exploited to the significant detriment of consumers and the efficient functioning of the market (PC 2016b). Regulatory vigilance is necessary as market forces can operate in the direction of reduced competition, and even well-meaning regulation can come to restrict competition to the net detriment of the community. In some cases regulation, or better regulation is needed to create a more competitive market.

In considering the reform agenda in relation to improving competition, the recommendations are organised by the problems they seek to address:

  • impediments to exit or entry
  • preferential treatment of some firms over others
  • impediments to the allocation of labour and/or capital.

Removing impediments to entry or exit

Restrictions on entry reduce the competitive pressures on incumbents, while those on exit make it harder to move resources to more productive uses. There can be good reasons to both restrict entry and manage exit, for example, to ensure that a service provider, such as a medical doctor, is competent, or in relation to exit to give clients time to find a new supplier. But such restrictions need regular review to ensure they remain fit for purpose. This section reports on recommendations that have been made to:

  • remove or reduce restrictions on who can undertake activities
  • remove or reduce restrictions on what, when and where activities can be undertaken
  • allow other firms to access resources that one firm has control over.

The priority reforms under this problem area were identified as: addressing competitiveness in the pharmacy sector, phoenixing, and product standards.

For pharmacy, the current Review of Pharmacy Remuneration and Regulation (DoH 2017) will lay down a roadmap for reform. The Independent Financial Analysis (RSM Australia 2017, p. 84 table 25) suggests the introduction of a flat dispensing fee of $10 would save government almost $280 million in 2015-2016, and an economic gain of some $352 million, rising over time. The difference comes from the cost of financing and the deadweight loss associated with taxation, so the net economic gain is approximately $75 million.

A number of barriers to exit were identified in the Business Set-up, Transfer and Closure Inquiry (hereafter Set-up Inquiry) (PC 2015b). The Government has responded to the recommendations to improve insolvency and liquidation processes that should increase the ability of firms to recover and for entrepreneurs to start again. More is needed however, to address the risk of phoenixing, where firms close down without meeting their obligations to staff and creditors, only to start up again with largely the same business. The Australian Securities and Investments Commission (ASIC) has identified 11 494 companies as potentially engaged in phoenix activity, while the Australian Taxation Office (ATO) put the number at 19 800 (Gartrell 2017). The Commission recommended that company directors present 100 points of identification and register with ASIC to reduce the scope for this activity. Introducing such company director identification numbers would be a start, and one that the Government has committed to implement (Australian Government 2015c). The Commission reported PwC estimates that such activities cost employees (in lost wages and superannuation), other businesses (creditors) and the government (in lost tax payments and meeting workers entitlements) between $1.8 and $3.2 billion a year, so a reduction of even 10 per cent would be of considerable value (however, a substantial share of this is a transfer). The real gain comes from more efficient use of resources and the improvement in trust that a reduction in the risk of phoenixing would bring over time. The gains will not just be found in tax revenue improvement; sub-contractors and staff are often casualties of phoenixing.

A priority area for review flagged by the Competition Policy Review (2015) (Harper Review) was mandatory product standards, which can create significant barriers to competition by restricting substitution. Mandatory product standards can also hamper innovation and also cost firms more than is needed in order to meet safety or other regulatory objectives. In light of the greater potential for product disclosure and consumer feedback available with digital technologies (SP 13), review is timely. The potential for savings varies with the product and current regimes. For example, moving to adopt international standards in children’s toys is estimated to save the industry $5.9 million in compliance costs (ACCC 2017). While reviews to assess the need for ‘made in Australia’ regulation and identify the least cost way to achieving the objectives take time and effort, if savings similar to toys applied to as little as 1/25th of gross national expenditure, product standard reforms would be worth about $350 million a year in 2016-17 (which is likely to underestimate actual costs).18

Other notable areas where there are benefits from reform include addressing restrictions in: retail trading hours, taxi regulation, professional and occupational licensing, the national access regime, and air services agreements.

Queensland, South Australia and Western Australia retain restrictive rules on retail trading hours, and the Economic Structure and Performance of the Australian Retail Industry (Retail Inquiry) recommended their removal (PC 2011a). The net benefits of removing such restrictions have been assessed in the order of $200 million in Queensland alone (QCA 2013). These benefits should be similar for Western Australia and South Australia, making the change worth approximately $600 million.

Deregulation of taxis, like pharmacy, were unfinished business from the National Competition Policy (NCP) era. Previous reviews have identified the benefits of deregulation, further reviews are not needed. For example the NSW Independent Pricing and Regulatory Tribunal (IPART) found that between 15 and 20 per cent of Sydney taxi fares are received by taxi plate owners as economic rent (IPART 2014). For taxis, the horse has bolted with ride sharing services now legalised in almost all jurisdictions (and technology may well also undermine unduly beneficial pharmacy arrangements — see chapter 2). Nevertheless, as recommended by the Inquiry into Microeconomic Reform in Western Australia (ERA 2014) (WA Reform) the rules around taxis need attention in order for this section of the ride sharing industry to be able to compete. Greater competition reduces rents to the owners, returning these in lower costs and better services to consumers. Deloitte Access Economics has estimated that 60 per cent of the estimated 14.5 million Uber rides are new business, with 36 per cent induced by the differentiated service and 25 per cent due to the lower price. Taxis provide about 350 million passenger movements a year, so if Uber induces an additional 2.5 per cent activity, with an average fare of $20, the industry will grow by approximately $175 million (ATIA 2014; Deloitte Access Economics 2016). This expenditure will crowd out some other areas of expenditure, but on net, as many of the workers are using ride sharing to expand their working hours and use capital that would otherwise sit unused, there is a net gain that would be lost if governments try to regulate the services like taxis.

There are other more specific changes that have been recommended that could warrant attention. For example, the Annual Review of Regulatory Burdens on Business (Regulatory Burden Review: Business and Consumer Services) (2010) recommended changes to the 1958 Migration Act, to exempt lawyers holding a current legal practising certificate from the requirement to register as a migration agent in order to provide ‘immigration assistance’ under section 276. While the overall gain is small, such default licencing would expand the options available for those seeking migration services and reduce any rents that licenced agents can earn.

Other recommendations relating to restrictions on who, what and where, require more planning to implement well. The Harper Review suggested that while professional and occupational licensing can promote important public policy aims, such as quality, safety and consumer protection, restrictions on competition should be revisited given licensing that restricts who can provide services in the marketplace can prevent new and innovative businesses from entering the market. It can also limit the scope of existing businesses to evolve and innovate. There are professional and occupational licensing requirements in many areas, most of which are important (for example there is a high societal value placed on ensuring that architects and surgeons are competent and follow well developed codes of practice). The problem lies in the scope of services that they have control over and the opportunity that regulation offers to exclude others with sufficient skills from providing competing services. Agencies that restrict who can do what should regularly test how valid such restrictions remain as technical change opens up new ways of interacting and service delivery. A move to competency testing in some professions (chapter 3) should also open up new pathways into professions, so planning to manage this transition and maintain consumer protection needs to be progressed. Opening up professions to greater competition could offer substantially cheaper options for essentially equivalent services. The gains for consumers could be considerable. Restrictions from occupational licensing have been estimated to result in up to 2.85 million fewer jobs in the United States, with an annual cost to consumers of $203 billion (Kleiner, Krueger and Mas 2011).19 Scaling US cost estimates of licensing requirements (required for 29 per cent of workers) (Kleiner 2015) for Australia, licensing could be costing consumers up to $15 billion a year. This is largely a transfer from consumers to licenced workers, so the net gain must come from an expansion in the number of workers who are able to enter the market.

Air services agreements also restrict entry. The Harper Review noted that where these agreements restrict capacity, costs will be borne by travellers through higher prices and fewer options. Improved competition in air services has the potential for considerable pay-off to Australian consumers and businesses, not least in the contribution it can make to increasing tourism, including in regional areas (PC 2015a). The OECD (2014) reports estimates of market growth of up to double the volume and falls in fares about 25 per cent as a result of opening up air services markets across several OECD countries. Many of these gains may have already been realised in the Australian market, but greater competition could be achieved that should put downward pressure on airfares, largely to the benefit of consumers at a cost to airlines.20

Under the area of control of resources by firms, there are several changes currently before the Parliament in regard to the National Access Regime under Part IIIA of the Competition and Consumer Act 2010 recommended by the Harper Review and the inquiry into National Access Regime (Access Inquiry) (PC 2013c). These are important to clarify when infrastructure assets can be declared in order to improve investment certainty. Estimating the impact of greater certainty is difficult, and most investments are likely to proceed regardless, so the savings are more likely to be in later court costs in defending against declarations.

These recommendations are summarised in table B.1.

Table B.1 Recommendations to address impediments to entry and exit

Reform recommendation

Source

Government response

Benefits

Regulation restricts who/what/when can undertake specific activities

Implement the recommendations on pharmacy

Pharmacy Review

Harper Review 14

Pharmacy: N/A

Harper: Noted

Fiscal savings estimated to be over $280 million in 2015-16, with a net gain of $75 million

Implement company director identification numbers

Set-up Inquiry 15.6

Noted

A 10% reduction in phoenixing is worth between $180 and to $320 million in lower debts, with a smaller net gain over time

Review mandatory product standards

Harper Review 8

Supported

Could be in the order of $350 million a year in cost savings for firms

Remove restrictions on retail trading hours

Retail Inquiry 10.1

Harper Review 12

Retail: Noted

Harper: Supported

$200 million for each of the 3 states, totals $600 million a year

Accelerate taxi reform and adopt best practice for ride sharing regulation

WA Reform 30-40

N/A

Contribution to industry revenue of about $175 million, but benefits already largely being realised

Review occupational licensing, combine with a move to competency testing where suitable

Harper Review 8

Set-up Inquiry 3.3

Harper: Supported

Set-up: Supported

Savings for consumers could be up to $15 billion, but worker income declines so small net gain

Embed consideration of competition impact in air services agreements

Harper Review 8

Supported

Gains to consumers largely at a cost to airlines, but scope to increase tourism, including into regional areas. Tens of millions

Firms control resources required for others to compete

Implement reforms to Part IIIA [7]

Harper Review 42

Access Inquiry: all

Harper: Supported all but one

Access: Supported

Potential savings from lower future dispute costs. Low millions

Preferential treatment of some firms relative to others

Treatment that favours one firm relative to others undermines competition. It can arise through trade policies — tariffs, anti-dumping actions, non-tariff barriers in health or inspection or standards — that treat imports differently from domestically produced goods, or that favour exports. It can also arise where governments provide subsidies or other forms of industry assistance to some firms, giving them an advantage over their competitors.

Regulation can also benefit some firms at a cost to their rivals, as can government procurement rules and guidelines. IP rules can protect firms beyond what is needed as an incentive for innovation, and some firms are exempted from competition law. Preferential treatment does not only relate to private firm, government businesses can receive preferential treatment, undermining the principles of competitive neutrality.

The protection offered to firms by these types of restrictions allow them to be less productive than they would be if they faced greater competition. This can be a substantial drag on the economy — for example, while tariffs benefit some (as they can charge higher prices), they impose additional costs on businesses that require imports (or the higher price domestic equivalent) as inputs to their businesses. Tariffs imposed an input tariff penalty on these businesses of $7.2 billion in 2015-16, much of which is inevitably passed through to consumers (PC 2017c).

A number of reforms have been recommended to reduce preferential treatment of some firms. Of these, three stand out as having considerable benefit: reducing the array of direct industry assistance, improving choice and innovation in procurement arrangements, and removing the restrictions on coastal shipping.

The annual Trade and Assistance Review (TAR) reports on industry assistance programs funded by the Australian Government. Many programs are targeted at industries and support activities, such as R&D, that have the potential to benefit other firms and industries through positive spillovers. Putting aside the question of whether these programs do deliver such benefits (and about this there is some doubt (SP 12)), some of these arrangements clearly benefit selected firms or activities relative to their competitors. This is the case with arrangements to support the biofuel industry, including excise arrangements (which are increasing from zero in 2015-16 rising to 32.8 per cent over 5 years for domestic production, compared with 39.5 cents a litre for imports) and ethanol mandates (3 per cent in Queensland and a target of 6 per cent in New South Wales). The Regulation of Agriculture Inquiry (PC 2016h) (Agriculture Inquiry) found that these subsidies and mandates delivered negligible environmental benefits and imposed unnecessary costs on farmers and the. The potential savings are relatively small, now that the ethanol production subsidy program has been abolished (in 2015), but equal treatment with exports and removing the mandates will reduce distortions and reduce costs. Another example of poorly targeted assistance is the drought support programs of concessional loans (up to $250 million a year over 11 years (Australian Government 2015a)) that the Government Drought Support Inquiry (Drought Inquiry) found discriminates between farmers, and does not encourage better management for drought (PC 2009a, 2016i). The benefits of removing this subsidy go beyond the budgetary savings, as farmers who prepare for drought will no longer be effectively penalised by this decision. Gains to farmers, and the economy, from shifting to risk management rather than crisis management are hard to quantify, but the benefits go beyond the economic to social and environmental gains.21

There is merit in planning to reduce and remove industry assistance that discriminates between firms and competing activities, and does not deliver a net public benefit. For example, Queensland Sugar Ltd has been given charity status that allows it to access payroll tax and other concessions giving it an advantage over other sugar marketers (PC 2016h). It will take some planning to develop specific recommendations to remove assistance that restricts competition, while retaining those that generate large public benefit (Banks 2012; NCOA 2014). This effort is worthwhile as the saving to budgetary assistance could be considerable given that the Australian Government spent $4.6 billion on assistance and gave out $3.7 billion in tax concessions in 2015-16 (PC 2017c). For example, a 20 per cent reduction would save the budget $1.5 billion, and conservatively another $200 million in avoided deadweight loss of taxation. However, it is the removal of distortions and improvement in competition that brings longer term gains. The big saving will be in shifting the management effort of firms in industries commonly known to seek taxpayer support away from this behaviour and instead towards productivity improvements and other structural responses. Governments have persisted in making too many rescue attempts in a small, but intensely supported set of industries. Employees are misled and communities suffer when, eventually and usually irresistibly, markets catch up with mendicants.

There are two areas where recommendations relate to embedding better processes: ensuring that government procurement is competitive, and that competitive neutrality is maintained. This requires attention to the institutions as well as the regulations. The Harper Review noted that governments can take steps to encourage diversity, choice and innovation in procurement arrangements and recommended that all governments review their policies governing procurement and commercial arrangements. While the Australian Government supported this in principle, recent activities such as submarine and rail track purchases suggest that the principles are not yet embedded (PC 2016i, 2017c). Recommitment to transparent and competitive procurement processes would give confidence that public money is being well spent, which is needed to build trust in the capacity of governments to deliver. Poor infrastructure procurement processes have been estimated to cost governments approximately $239 million a year, and improvements could deliver gains worth $2.5  billion over a 15 year period (Deloitte Access Economics 2015). With government procurement making up 34 per cent of government expenditure and 12.4 per cent of GDP (OECD 2015, 2013 data) even a 1 per cent improvement is worth $2.1 billion in 2017.

The Harper Review and the Set-up Inquiry made a number of recommendations that would address areas of preference given to domestic producers at a cost to consumers. The removal of restrictions on coastal shipping have long been advocated. Coastal shipping is only 6.5 per cent of sea freight by weight, of which 65 per cent was carried under licence (BITRE 2017). The recommendations relate to removing restrictions on cabotage (Harper Review) and on entry of foreign vessels (Agriculture Inquiry). These recommendations seek to undo some of the 2012 changes that have been estimated to have increased freight rates by 16 per cent, and cost between $242 and $466 million over the period 2012-2025 (Deloitte Access Economics 2012). In a slightly different vein, international liner shipping is the only industry that is exempt from Australia’s competition laws, and this exemption should be removed (Harper Review). This means that if the international companies collude on cargo pricing to the detriment of Australian consumers, there is no capacity for action to be taken.

At least nine reviews have recommended the removal of parallel import restrictions on books, the inquiry into Intellectual Property Arrangements (IP Inquiry) (PC 2016c) is the latest. This Inquiry found the number of books that could be sourced more cheaply overseas could be substantial, leading to an annual saving of about $25 million for Australian consumers. The Government has agreed to the recommendations, but is yet to act (Australian Government 2015b).

Several reviews (The Harper Review and the Australian Automotive Manufacturing Industry Inquiry (PC 2014a) (Automotive Inquiry)) have recommended that the restrictions on the import of second hand motor vehicles is unwarranted and costly and should be removed. It has been estimated that these restrictions mean second hand cars cost twice in Australian what they do in New Zealand, which does not restrict imports. With 4.5 million second hand cars traded each year (Ludlow 2015) removing these restrictions would greatly benefit consumers (if the saving applies to half the market with an average price of $12 000 falling to $6 000, this is a saving of $13.5 billion). However, those selling their cars would pay for much of this. On a net basis, the gains are modest, although the competitive pressure may help to drive down new car prices, which would be a direct gain to Australian consumers.

Containing anti-dumping activity is a clear area where action is needed. Policies in this area are hard to reconcile with the trade liberalisation objectives that have underpinned Australia’s microeconomic reform program in past decades (PC 2016a). Like other forms of industry assistance, the direct saving to governments or consumers is small relative to the dynamic effects as firms that have sought this form of protection will have no other option than to focus on improving their productivity and developing new market opportunities.

To stimulate investment in innovation, IP rights entrench benefits to firms that own the IP. Where the inventiveness of the step is minimal, or the rights are too generous, this comes at a cost to other firms, and consumers. For example, the IP Inquiry estimated that reforming extensions of term will lower the cost of pharmaceuticals, benefiting consumers and saving the government an estimated $258 million each year. Additional public health benefits will arise from improved access to affordable medicines. To better foster creative endeavour and to benefit consumers, recommendations included raising the inventive test for patent eligibility and reforming the extensions of terms for patent term for pharmaceuticals. Raising the inventiveness test will elevate patent quality over time, improve the signal value of patents, reduce thickets, limit strategic misuse and shorten pendency, which should stimulate innovation and business activity. Restructuring renewal fees will reduce the risk that poor quality patents remain entrenched. In addition, the recommendation to change copyright law from ‘fair dealing’ to ‘fair use’ has the potential to liberate one-off use of content to the benefit of all (chapter 5). Collectively these reforms can remove barriers to other patents and efforts to develop new products. It is difficult to estimate what these changes are worth, but since innovation is a main source of productivity growth, even shifting it by 0.1 percentage point, would be worth $1.9 billion to the Australian economy.22

The Harper Review highlighted the value of embedding the principle of providing consumer choice where possible in the delivery of government funded services. Well informed choice can be used to promote competition, and has intrinsic value as it empowers consumers. The principles in relation to choice and competition do, however, need to include consideration of the capacity of individuals to make and act on choices, the potential costs to some individuals of being given the responsibility of making choices, and the value for public money that can be delivered through enhanced choice and competition. The benefits of such changes will vary greatly with the service and program design, and are more likely to result in better outcomes for clients than necessarily reducing government expenditure. The Commission’s draft report on Human Services (2017b) provides an indication of the types of benefits that could be achieved through the greater use of contestability, competition and choice, for example being able to access any dentist using a publicly funded voucher, rather than waiting for an appointment with a public dental clinic, could significantly improve attendance and with this oral health. As with ensuring competitive neutrality for government business activities that compete with private providers, institutional arrangements need to be robust. The need for improvements in competitive neutrality policy, complaints processes and reporting identified by Harper deserve attention. While all State and Territory Governments and the Commonwealth have processes in place, these are costly to firms to use, so ensuring that the principles are adhered to will avoid these costs.23

Table B.2 Recommendations to address the preferential treatment of some firms over others

Reform recommendation

Source

Government response

Benefits

Industry assistance benefits some firms over others

Remove subsidies for ethanol and mandate for use

Agriculture 9.6

N/A

Potentially low millions through less distortions

Plan to reduce industry assistance that discriminates between firms and competing activities

Harper Review 7

NCOA 32

Agriculture 9.6

Harper: Noted

NCOA: Included in 2014-15 Budget

Agriculture: N/A

A 20 per cent reduction would save the budget $1.5 billion, but more importantly redirect firm effort toward productivity enhancing activities, worth in the tens of billions over time

Government procurement is not fully competitive

Review public procurement and commercial arrangements

Harper Review 2,18

Harper 2: Supported

Harper 18: Supported in principle

Cost savings to governments in the order of several billions are possible. Even a 1 per cent improvement is worth $2.1 billion

Trade policies provide protection from competition

Remove restrictions on cabotage and entry of foreign shipping

Harper Review 5

Agriculture 9.5

NCOA 4

Harper: Noted

Agriculture: N/A

NCOA: Will be considered

Between $19 and 36 million a year

Remove parallel imports of books restrictions

Harper Review 13

IP Inquiry 5.3

Harper: Supported in part

IP: N/A

Annual savings of about $25 million for Australian consumers

Remove restrictions on the importation of second hand motor vehicles

Harper Review 13

Automotive Inquiry 5.4

Harper: Rejected for second hand vehicles

Automotive Inquiry: Noted

Mainly transfers, low millions, but could put downward pressure on new car prices

Scale back or remove anti-dumping duties

Anti-dumping 2009 & 2016

NCOA 32

NCOA: Included in 2014-15 Budget

A-D 2009 6.6: Not accepted

Low millions from refocused effort and lower input costs for industry

Exemptions from consumer & competition law

Remove the exemption of international liner shipping from the CCA

Harper Review 4

Remains open to

Addresses a possible risk

IP provides unwarranted protection from competition

Raise the inventiveness step in IP patents, move to fair use & reform plant breeders rights

IP Review 6.1, 6.2, 7.1, 7.2, 7.3, 7.4, 8.1 & 13.1

N/A

A 0.1 percentage point boost to productivity from greater innovation is worth $1.9 billion to the economy

Reform extension for pharmaceutical patents

IP Review 10.1

N/A

Government saving of $258 million each year plus less tangible benefits to health

Government supported firms violate competitive neutrality

Review institutions to ensure competitive neutrality is embedded for government business activities that compete with private providers

Harper Review 15, 16, 17 & 24

Senate Inquiry into Australia Post

Harper: 15 & 16 Supported, 17 Remains open to 24 Supported in principle.

AusPost: Partially supported

Relatively small second-order gains

Impediments to the efficient allocation of capital and labour

To make the best use of the resources available to firms in Australia, capital and labour need to be able to move freely to where the opportunities arise. Firms also seek flexible resources that don’t lock them into specific production systems and markets, although this is inevitable with some specialised types of capital. Such flexibility benefits the Australian economy, for example it was estimated that ‘perfect’ labour mobility of registered workers during the mining boom would add 0.3 percentage points to GDP, an increase of 14 per cent (PC 2009b, p. 73).

Actions that could make a significant difference might include workplace relations reform, phasing out stamp duty, and changes to foreign investment rules.

On the labour side, there are some impediments to the flexibility of workers, but most of the workplace relations law works well to get the balance right between the desires of firms for a fully flexible resource and the need to protect workers from exploitation.24 The Workplace Relations Framework Inquiry (Workplace Inquiry) (PC 2015d), made recommendations to improve the system to reduce costs for business while maintaining protection for vulnerable workers. The Commission did not go as far as some commentators had hoped (for example, Institute of Public Affairs, sub. 15), finding that adversarial relationships between employers and employees were more a function of poor relationship management than the workplace relations framework. The recommendations to separate the wage regulation function from the Fair Work Commission, with a new body to determine minimum and award wages, would go some way to addressing the concerns of employers. In particular, a refocus on substance rather than process should reduce costs and improve effectiveness. Along with other recommendations on transfer of ownership of businesses, better security for greenfield investments, less obdurate industrial bargaining, more difficulty in deploying strategic strikes for capital-intensive businesses, higher penalties for unlawful conduct, eliminating restraints on the use of subcontractors (these mainly affect construction, but it is a large industry), and more control over secondary boycotts, could readily increase GDP by 0.05 per cent. This would add some $850 million a year to the Australian economy, an amount that would grow in line with economic growth.

Commonly held views that Australian workers are not very mobile have been found to be misplaced (PC 2014c), with the mining industry having the most mobile workforce. Nevertheless, there are some impediments in the tax treatment of housing that raises the costs of buying, and hence moving, that should be on the agenda of State Governments to phase out and replace with more efficient land taxes (as the ACT Government has done, and was recommended by the Henry Review of Taxation (2009)). This issue is considered in more detail in chapter 4.

On the capital side, the Set-up Inquiry concluded that access to finance was not a barrier for most small businesses, as most do not seek finance from external sources (instead drawing on personal finance, including owner savings, personal credit cards and personally secured bank loans). Developments in FinTech, which should provide lower cost options, are likely to expand the access of small businesses to credit and equity in the future. The Financial System Inquiry (2014) (Murray Inquiry) made a number of recommendations to improve competition in the financial system, and with this access to finance, and reducing information imbalances for small and medium-sized business. The Australian Government has also recently moved to improve the ability of the regulatory regime to accommodate FinTech (SP 13). Most of the Murray Inquiry recommendations have been acted on, and identifying areas for reform should be deferred until the current inquiries into competition in the banking sector and the superannuation system are completed.

As a net capital importer, Australia relies on access to foreign capital to meet our investment needs. Discrimination against foreign capital arises where the government goes beyond what is needed to ensure national security in setting lower thresholds for approval by the Foreign Investment Review Board. The Agriculture Inquiry recommended that thresholds should be increased and applied equally regardless of the origin of the investor or the sector of the economy, an approach also recommended by the Annual Review of Regulatory Burdens on Business: Business and Consumer Services (2010) (Business Review) and non-residential commercial real estate. The savings from reversing these restrictions, and more generally improving the approval processes for foreign investment, could be substantial. ATA (sub. 19) cites ITS Global estimates that the annual cost of the approval process of foreign investment and costs of delay is $4 billion (p. 2). Treasury estimates put the cost of restricting foreign investment by one per cent of GDP at about half a per cent in Gross National Income (GNI) each year over the following decade(Gali and Taplin 2012). So the benefits of reversing recent changes could be considerable. If the effect is to reduce direct foreign investment by 2 per cent, this reduces total investment by approximately 0.22 per cent (as direct foreign investment makes up approximately 11 per cent of investment), assuming there is no response by domestic investment to changes in foreign investment. This would reduce GNI by about 0.027 per cent, or about $450 million.

Table B.3 Recommendations to address impediments to the efficient allocation of labour and/or capital

Reform recommendation

Source

Government response

Benefits

The rules setting mechanisms in the labour market reduce flexibility

Implement the workplace relations inquiry recommendations, in particular reform of the Fair Work Commission

Workplace inquiry: all

WR: N/A

Net gains in the order of 0.05 per  cent are worth $850 million

There are tax and other barriers that reduce people’s capacity to move for work

Plan to move from a reliance on stamp duty to land taxes

Henry Review 50 & 51Geographic Labour Mobility 12.2

Not supported

Substantial benefits from increased labour mobility, investment and more productive use of land

Foreign investment faces different restrictions

Remove recent changes to thresholds and discriminatory conditions

Agriculture 13.1Business Review 3.1, 3.2

Ag: N/AReg: Partially and broadly supported

If the chilling effect reduces foreign direct investment by 2%, this has a cost of $450 million

B.2 Removing unnecessary regulatory burdens

While rules matter to ensure that markets operate efficiently, they are also required to manage risks to consumers and to the environment. While these regulations deliver benefits, they also impose costs on businesses and the economy as they restrict the activities of firms. Accordingly, the task of policy is to implement proportionate well-designed regulations — that balance the benefits to the community and future markets against the costs in today’s market.

Regulation that impedes efficient investment

Regulation should aim to achieve its regulatory intent without unintended distortions to investment. This can come about through price regulation that creates incentives to under invest if it constrains returns to below the market rate, as California found when electricity prices were set at below the cost of supply, which led to regular blackouts. Price regulation that provides returns that exceed the market rate can result in over investment, as in the case of ‘gold plating’ of the poles and wires in electricity distribution in Australia (PC 2013a). Uncertainty about regulation can also hamper investment, as do long delays in decision making. For example, the decline in investment in electricity generation has been attributed to uncertainty around Australia’s emission policy (chapter 5). Lack of regulation can be another problem, particularly when it comes to common property assets, and lack of guidance on responsibilities means that resources are over exploited. Regulation that locks in particular technologies can also restrict investment in new technologies. These distortions to investment have longterm consequences that can be severe, hence reviews that have identified regulations that do distort investment incentives deserve policy attention.

A major area ripe for reform for many years is land use zoning. In some cases zoning regulation prevents activities even though they would not impact negatively on the surrounding land uses. In other cases it is the uncertainty about what is permitted that is the problem for investment decision making. These issues are taken up for cities and towns in chapter 4, and SP 10. The Agriculture Inquiry made a number of recommendations in regard to improving land use decisions, and to accelerating reform to land tenure arrangements that should be implemented.

The Major Project Development Assessment Processes Study (PC 2013b) (Major Projects Study) found that although less publicly evident today with the end of the mining boom, major infrastructure and resources projects (including agriculture) are still delayed or subjected to other cost-inflation by unco-ordinated and ill-designed regulation. It is generally not that the objective of the regulation is in question — environmental considerations, for example, are not second-order matters. It is inconsistency, constant moving of targets and opposition without consideration of solution that are at the heart of poor approvals processes.

The problem of delays is particularly acute for major project approvals. A one year delay in a major offshore LNG project was estimated to have cost between $500 million and $2 billion, while for an average size project the equivalent delay costs are approximately $40 million (PC 2013b, p. 201). Taking the number of announced projects as a guide to how many enter the system in a year (it was 55 as at April 2015 (DoI 2015)), and assuming that better processes would reduce the delay costs for this group as a whole by 10 per cent, the gain is $220 million in avoided costs. In the agricultural sector a more significant issue is investment not going ahead at all, given a proponent’s knowledge of potential costs, timing and uncertainty of outcome.

A recent report on major project approvals by the Business Council of Australia (BCA) (2016a) endorsed the recommendations in the Major Project Study that were aimed at reducing the costs of the application and approval processes, noting that little action had yet been taken on many of the recommendations. This is clearly an area where action is needed. Concerns about vexatious litigation seeking to increase costs for projects by causing delays have led to calls to repeal section 487 of the EPBC Act (including the BCA (2016b)) and Institute of Public Affairs (sub. 15)). Such a change would remove the ability of environmental groups to challenge development approvals, substantially shifting the balance of power in the favour of the mining companies and others seeking land use approvals. As the courts have the ability to deal with vexatious litigation, and environmental groups play an important role in getting the balance right between protecting the environment and its economic and social benefits and the economic benefits that flow from development, from a community-wide perspective this change is unlikely to be an improvement.25

An area where reforms have largely been achieved has been in the removal of agricultural marketing restrictions. It is included in this category as restrictions such as quotas and pooled pricing had a major impact on the incentives to invest in process or quality improvements, or in expanding production. Governments have moved recently to remove the last of these restrictions (on potatoes in Western Australia, which had added an extra dollar per kilo for consumers, although the 2015 ‘Real Choice’ Act sugar marketing in Queensland has yet to be repealed). Controls remain on rice marketing, which the Agriculture Inquiry recommended should be removed. Moreover, governments should commit to not responding to calls to reregulate by the vested interests who benefit from these types of restrictions at a cost to other agricultural producers and consumers (as happened with sugar in Queensland).

Lack of regulation can also impede investment. This arises mainly with common property resources. The recent inquiry into Marine Fisheries and Aquaculture Inquiry (2016e) (Fisheries Inquiry) identified the need for regulation of recreational fishers where they compete for the resource with commercial fisheries. While fisheries are a small industry, the health of the marine environment matters for many other industries. The recommendations that land–use proposals take into account their impact on fisheries and that all governments adopt fishery harvest strategies and allocation policies has much greater potential to protect marine areas than many other costly policies related to fishery management.

Another priority area for review is private health insurance, as regulation of prices restricts competition and impedes investment in the development of new products. However, any consideration of removing price regulation must form part of a larger reform of health insurance (social and private) (chapter 2).

Table B.4 Recommendations to address regulation impeding efficient investment

Reform recommendation

Source

Government response

Benefits

Regulator uncertainty delays investment

Implement land use recommendations and accelerate land tenure reforms

Agriculture 2.1, 2.2 & 2.3

Set-up Review 4.2

Ag: N/A

Set-up: Supported in principle

Included in cities estimate. Impacts on agriculture in the millions

Development approvals cause unwarranted delays

Implement the Major Projects study recommendations

Harper Review 9

Major Projects

Harper: Supported

Major N/A

A 10 per cent reduction delay costs for announced projects would save about $240 million

Agricultural marketing regulations distort incentives

Remove the remaining restrictions on rice marketing and hold the line against backsliding on potatoes and sugar

Harper Review 8

Agriculture 12.1, 12.2 & 12.3

Inquiry into Microeconomic Reform in WA

Harper: Supported

Ag: N/A

MicroWA: N/A

Largely done, benefits in preventing backsliding

Regulation is insufficient to support market activity

Include recreational fishers in allocation policies in multiple-user fisheries

Fisheries 4.1, 4.2 & 4.3

4.1 supported in principle, 4.2 and 4.3 supported

Benefits to fishers in low millions, but potentially large benefits to the environment and in avoiding conflict

Embed inclusion of fisheries impact in land use assessments

Fisheries 2.1

Noted

Sustainability benefits for fishers

Implement fishery harvest strategies

Fisheries 2.2, 2.3 & 2.4

Supported

Benefits to fishers in currently unregulated areas. Low millions

Price regulation creates incentives to over or under invest

Review private health insurance price regulation

Harper Review 8

Supported

Reform of health insurance potentially has very large benefits, but may be negative unless part of a holistic reform

Regulations restrict activities beyond what is needed to achieve the regulatory objective

Regulators and policy departments need a process to identify where regulations go beyond what is required. In some cases this is desirable because technologies and tastes have moved on and so the restrictions are no longer necessary. In other cases the restrictions could have been too stringent from the start.

Regulatory stocktakes are a useful means to identify where these situations arise, and governments should continue to seek feedback either through ad hoc reviews or by embedding processes where regulators can identify these cases so that action can be taken to revise or remove the regulation. Some States and Territories signed up to a new round of NCP style reviews in December 2016 that provides a good opportunity to also consider how to reduce regulatory burden. This implements a new framework for competition and productivity-enhancing reforms. At this stage, Victoria, South Australia and Queensland have yet to sign up to the agreement (COAG 2016) — they should do so. The agreement contains the essence of the Harper Review recommendations, including a new set of competition policy principles and a recommended agenda of reviews. However, the agreement differs from the Harper recommendations by not supporting the establishment of a new agency to provide leadership and drive implementation of the evolving competition policy agenda, and instead retaining the National Competition Council (NCC). While the NCC oversaw the NCP and its independence was seen as an important contributor to the success of the NCP, the Harper Review noted that the NCC now retains only a limited role in relation to advising ministers on infrastructure and gas access matters and it has not maintained the capacity to readily step into a broader role again. The NCC will need to be reinvigorated and re-staffed26 so it has the capability to do this work effectively.

The areas for reform identified below are in no way comprehensive, drawing mainly from the recent Agriculture Inquiry, but do give a starting point for things where the work has been done to identify regulation that imposes unnecessary restrictions.

There is a clear case for removing restrictions include the ban on genetically modified (GM) crops, where there is no evidence to support the claimed harm. In Tasmania and Victoria reviews of the moratorium on cultivating genetically modified organisms estimated the economic costs of extending the moratorium. Extending the moratorium for a further 5 years in Tasmania (in 2014) was estimated to impose a net cost of $1.5 million. Similarly extending for a further eight years in Victoria (in 2007) was estimated to impose a direct net cost of $110-$115 million (PC 2016h). Removal of the remaining moratoria could result in cost savings of about $330 million over a similar time period.27

Rules around heavy vehicle movements could be substantially improved giving farmers and transporters greater scope to move machinery and get products to market. Agriculture accounts for nearly 27 per cent of road freight by volume, costing farmers approximately $1.1 billion a year. For farmers, these costs average 21 per cent of the farm gate price (ranging from 4 to almost 50 per cent), so even a small improvement can be of considerable benefit. A 1 per cent reduction in costs from relatively simple changes to regulations should be easy to achieve without sacrificing any safety or raising other concerns, and is worth $11 million to farmers.

In the area of infrastructure, there are often caps, curfews and other restrictions on how infrastructure is operated. Infrastructure Australia (2016) identified these restrictions as impediments to the efficient operation of infrastructure assets. Regulations can be particularly insidious when developed as part of a privatisation plan to either force the new owners into existing practices, or to ensure that rents can be achieved, which boost the sale price. A better understanding of how to regulate privatised utilities, that can be put in place as part of a privatisation program, is required (chapter 5).

One area that attracted public support in the IP Inquiry was the recommendation on geo blocking. This is the practice of restricting a consumer’s access to websites and digital goods and services within their home market, usually to price discriminate between markets. The Inquiry found that geo blocking technology is widely imposed on Australian consumers and it frequently results in Australian consumers being offered a lower level of digital service (such as a more limited music or TV streaming catalogue) at a higher price than in overseas markets. The Inquiry recommended that the Copyright Act be amended to make it clear that it is not an infringement to circumvent geoblocking technology, and to avoid international agreements that would prevent or ban this activity.

Table B.5 Recommendations to address regulations that restrict activities beyond what is needed to achieve the regulatory objective

Reform recommendation

Source

Government response

Benefits

Agriculture

Remove ban on GM crops

Agriculture 6.1

N/A

$330 million

Infrastructure

Review the need for caps, curfews and other restrictions on operations

Infrastructure Australia 1.3

Supported in principle

Potentially large – part of the set of reforms to infrastructure worth billions

Copyright

Strengthen Copyright Act to make clear circumventing geo-blocking is not a copyright infringement

IP Inquiry 5.2

N/A

Greater consumer certainty will drive competition and reduce price differentials between Australian and overseas markets — which were about 49 per cent in professional software, 67 per cent in music, and 61 per cent in games in 2013

Regulation imposes unnecessary compliance costs

Reducing the compliance costs of regulation has been a major focus of government over the past decade. ACCI (sub. 37) reported the result from their National Red Tape Survey, that nearly half respondents agreed that the impact of regulation had prevented them from ‘making changes to grow their business’ (p. 32). The IPA (sub. 15, p. 12) reports estimates that red tape costs the Australian economy ‘at least $176 billion’ a year in foregone economic output (11 per cent of GDP), although it is likely that at least some of these costs are necessary to achieve output. Estimates reported by the Commission put the cost of red tape closer to 4 per cent of GDP (PC 2011b). Red tape reduction campaigns and regulatory budgets claim to have saved billions, but firms still report feeling swamped in red tape. One of the problems is that governments have been less successful in reducing duplication across departments and jurisdictions. Resolving this will require ceding decision making authority to one regulator, or developing data sharing and coordinated protocols. Resolving the problems with Commonwealth recognition of State and Territory environmental approvals should be a priority area.

The Regulation Impact Assessment (RIA) process is largely aimed at ensuring that governments go about regulating in the way that is least costly for businesses, not-for profit organisations and the community. The effectiveness of the RIA processes in delivering better (and less costly) regulation was reviewed by the Commission in the Regulatory Impact Analysis Benchmarking Study (2012). This study found that the problem is not the RIA guidelines, but factors such as commitment to their implementation in time challenged environments, and an apparent culture of risk aversion in some public services, which defaults to regulation as a policy lever. While the study did not make recommendations, it pointed to better practice, yet as touched on briefly in chapter 6, even adhering to these suggestions may not be sufficient to achieve the more efficient and effective regulation that good process should deliver. Culture change is an essential element.

As with regulation that imposes unnecessary restrictions, regulatory stocktakes and feedback processes from regulators can assist in identifying where unnecessary costs arise. In many cases, it has been found to be the way a regulation is implemented that imposes unnecessary costs. The study on Identifying and Evaluating Regulation Reforms (Regulation Study) (2011b) reported that the behaviour of regulators accounted for up to 50 per cent of the unnecessary compliance costs. The Public Governance Performance and Accountability Act 2013 (PGPA Act) includes a new framework for assessing the performance of Commonwealth regulators. The performance assessment process requires consultation with the regulated entities to assist in identifying the best metrics for each regulator to report against under these six areas (Australian Government 2014). Regulators have to undertake a self-assessment, which is validated by a stakeholder consultation mechanism, and certified by the regulator’s accountable authority (usually the portfolio department). Regulators are responsible for taking action to address areas for improvement. At the portfolio level, departments have to establish a program of external reviews of their regulators, which has to be agreed by the Minister. The self-assessments are inputs into these Review panels, which then report to the regulator’s accountable authority, and the portfolio’s deregulation unit. This report is provided to the Minister and made public. The government may then decide whether to commission annual external reviews of major regulators.

This process is similar to that proposed by the Commission in the Regulator Audit Framework (PC 2014e) that was follow-up work to the Regulator Engagement with Small Business Study (RIA Study) (PC 2014e). These guidelines for auditing the performance of regulators proposed that the KPIs for each regulator be selected based on the areas where improvements were most needed as identified by the regulator and their client base. In this way, the priority for performance improvement would be driven more by where it was likely to make the greatest difference for the regulated entities. It would have meant that regulators would not necessarily have reported against all the KPIs at the same level of detail. This design feature was aimed at reducing the reporting burden for regulators and by extension their regulated entities. It would also have required regulators to engage constructively with their regulated entities, in a way that the current framework may not achieve given it only requires the regulators to ‘consult’ and ‘validate’. But the framework is, none the less, a major advance on transparency and accountability for Commonwealth regulators. Like all such reform, it should be reviewed to assess if it has been effective in reducing the regulatory burden imposed by regulator behaviour, and is contributing the improvement in the efficiency and effectiveness of the regulatory system. With regulators, as with policy departments, good processes and systems are not sufficient — culture change is necessary. This was a central focus of the recent ASIC Capability Review (Australian Government 2016b), and many of the recommendations of this review may well be of benefit to other regulators.

Compliance costs associated with planning systems and development approvals continue to be a priority area for reform, reflecting the substantial progress made in streamlining application processes for other types of approvals, such as business registration. The Centre for International Economics has estimated that reform of NSW’s development assessment processes could result in potential net benefits of between $358 and $550 million (CIE 2013) (further discussed in SP 10).

The Business Review (along with other Regulatory Burden Reviews) identified reporting requirements and the ability to access accurate information as a major source of frustration for business. Ways of using digital technologies to improve communication and application and approval processes are discussed in SP 13. Governments should be encouraged to expedite the single portal approach to accessing regulatory information and attaining approvals, and to draw on successful examples, such as the New South Wales service portal. A one-stop shop for major development approvals, as recommended by the Hawke Review of the EPBC Act in 2009 (Hawke 2009) and the Commission’s report, has recently been established.

The major projects approval process highlights an area that consistently came up as imposing unnecessary compliance costs — that of cross jurisdiction differences in regulation that require activities to achieve multiple approvals or licences. Other areas identified where existing recommendations could be implemented include achieving nationally consistent laws on electrical goods safety (Australian Consumer Law Enforcement and Administration (PC 2017a) (Consumer Law Study) and agreement on the requirements for responsible serving of alcohol (Business Review). There are other areas where planning is required, with the Agriculture Inquiry proposing a review of the National Heavy Vehicle Regulator as part of the planned review of national transport regulation reforms. The Harper Review also asked why the regulations surrounding retail, including treatment of liquor and tobacco displays, were so different across jurisdictions, and whether this is warranted. More generally, governments should seek to embed processes that facilitate the coordination of regulatory requirements in areas such as occupations that will facilitate mutual recognition of licences across jurisdictions. The Review into Mutual Recognition Schemes (Mutual Recognition Study) (PC 2009b) recommendations reflected the view that mutual recognition should be implemented on a more opportunistic basis as problems arise, as previous efforts have proved costly and business groups have raised the question of whether the costs of establishing mutual recognition or harmonisation are worth the benefits.

In other areas recommendations flag the need for preparatory work to be able to implement the recommended approaches. For example, the Independent Review of the Environmental Protection and Biodiversity Conservation (EPBC) Act 1999 (Hawke Review) recommended that state environmental assessment processes should be fully accredited under the EPBC Act, with the Australian Government retaining oversight via monitoring and reporting arrangements. But questions have been raised about the capacity of the state institutions to implement the requirements effectively (Quinlan, Heenan and Govinnage 2016). The Major Projects Study made a number of recommendations aimed at developing the cooperation needed to achieve such recognition. Resolving this should reduce costs to firms needing approvals, and facilitate the use of state environmental assessment processes in developing markets for offsets.Table B.6 Recommendations to address regulation that is unnecessarily burdensome

Table B.6 Recommendations to address regulation that is unnecessarily burdensome

Reform recommendation

Source

Government response

Benefits

RIA process fails to contain unnecessary compliance costs

Institutional change to embed RIA as a regulatory development tool

RIA Study

Supported

Potentially large in terms of improved policy making processes

Slow, complex and duplicative regulatory processes

Accelerate rollout of one-stop shop, single portal access to information and approvals

Business review

Progress underway

Savings in copying best practice

Streamlining development assessment processes

Retail Study 8.1, 8.2, 8.3 & 8.4, CH 4, SP 10

Supported in principle

Reduce risks and costs associated with development (SP 10)

Cross jurisdictional differences in regulations can impose additional costs

Implement consistent laws on electrical goods safety

Consumer Law Study 6.1

To be considered later 2017

Small savings for business and hence consumers

Harmonise responsible service of alcohol requirements

Business Review 3.4

Accepted in principle

Small savings for often young and mobile workers

Take an opportunistic approach to mutual recognition for occupations

Mutual Recognition Study 5.2, 5.3, 6.1, 6.2

N/A

Lowers costs by being reactive to where need arises

Develop reliable and comparable state environmental assessment processes to allow recognition one project, one assessment, one decision approach to be implemented

Major Projects Study 6.1, 6.2, 7.1, 7.2

N/A

Potential for savings for land use projects, and improved basis for offset arrangements


Footnotes

  1. The four firm concentration ratio in Australia estimates suggest oligopolies dominate in supermarkets and groceries (91 per cent), domestic airlines (91 per cent), internet service providers (90 per cent), pharmaceutical products manufacturing (58 per cent), pharmacies (59 per cent), rail freight transport (72 per cent), and postal services (98 per cent) (Leigh and Triggs 2016). Locate Footnote 17 above
  2. The ACCC (2017) estimates the saving to firms of adopting international standards or a light handed approach as $5.9 million – which is about 0.5% of industry revenue (NPD Group 2012). Bearing in mind that not all goods and services must meet specific Australian standards, even if the compliance cost share of GNE was even one 25th of that, then the same gain from product standard reform to the economy (GNE is $1.75 trillion), would be around $350 million. Locate Footnote 18 above
  3. They estimate the national costs of licensing by assuming the estimated 15 per cent wage premium comes from market power (as opposed to greater productivity from enhanced human capital), that labour supply is perfectly elastic and the labour demand elasticity is 0.5. Then the 38 million licensed workers in the United States in 2010 (about 29 per cent of the eligible workforce) is multiplied by the wage premium multiplied by the elasticity of 0.5 which results in a loss of 2.85 million jobs. With average annual earnings of $41 000 this would be $35 652 if there is no wage premium for licensing. Therefore, $41 000 – $35 652 = $5 348 is the economic rent for a licensed worker. Consequently, licensing results in an annual cost to consumers of $5 348 x 38 million which is approximately $203 billion (Kleiner 2015). Locate Footnote 19 above
  4. The International Air Transport Association (IATA) (2015) estimate that a 1 per cent fall in airfares increases domestic air passenger kilometres by 0.7 per cent. They predict that the real best discounted airfares will continue to fall over the next 6 years, but at a slower rate (-1.4 per cent compared with -5 per cent over the 1999 to 2014 period). If competitive pressures from reform pushes airfares down, this would result in greater growth in passenger miles, which are currently about 65 million kilometres. How this translates into economic benefits is hard to estimate, and depends largely on additional growth in international travellers. The net gain from domestic travellers is small, as most of the effect would be a transfer in revenue from airlines to passengers. Locate Footnote 20 above
  5. The savings to government in relief costs can be considerable — the US Federal Emergency Management Agency estimated that they save at least $2 in future disaster costs for every dollar spent on drought risk mitigation (WMO and GWP 2017).  Locate Footnote 21 above
  6. In 2017, Australian GDP was $1.7 trillion, and the multiplier (in a CGE model framework) is about 1.1, so a 0.1 percentage point improvement in MFP raises annual GDP by $1.9 billion. If MFP averages 0.7 per cent, this is a 14 per cent improvement in MFP. Locate Footnote 22 above
  7. In addition to the firm’s time, government resources are applied to resolving these claims. For example, the Commission has completed 15 investigations since 1999, which take about 2 weeks of staff time to address. In the states there is a similar number of investigations for example, the Victorian Commissioner for Better Regulation has published 7 investigation reports since 2007.  Locate Footnote 23 above
  8. For example, several submissions to this Productivity Review (Institute of Public Affairs, sub. 15, Minerals Council of Australia, sub 30) pointed to the workplace relations system as restricting management’s ability to manage, but a management benchmarking study found that Australian had the second lowest labour market rigidity score of the 16 countries in the study (Green 2009, p. 36). Grattan (2012) noted that attempts to correlate historic changes in workplace relationship regimes with economic outcomes are either inconclusive or unconvincing. They suggested a priority for research, therefore, is to ‘quantify the economic impact of IR on workplace flexibility and thus economic growth’. They argued that ‘without this assessment, it is impossible to judge whether industrial relations arrangements strike an acceptable balance between employer and employee interests, at a reasonable economic cost.’  Locate Footnote 24 above
  9. The recent House of Representatives Standing Committee on the Environment (2016) made nine recommendations to improve the administration and transparency of the register of environmental organisations. While most would improve transparency, recommendations requiring additional reporting, and that registered charities be required to allocate a share of the budget to on-ground work and limit their advocacy work, would treat environmental organisations differently to other charities and impose an unnecessary regulatory burden. These organisations have recently been asked to report on the share of their expenditure that goes to different activities (such as advocacy and on-ground works), which is not required of other organisations that have deductible gift recipient status (Taylor 2017). Locate Footnote 25 above
  10. The NCC no longer employs its own staff. Since July 2014, secretariat services have been provided by the ACCC. (NCC 2015) Locate Footnote 26 above
  11. Assumes South Australia would face similar costs as Victoria and New South Wales would face greater costs as crop production is almost 2 times that of Victoria (DAWR 2017), (3 x $110m). Locate Footnote 27 above

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