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Structural Adjustment - Key Policy Issues

Commission research paper

This paper was released on 5 October 2001. It sets out the Commission's views, drawing on its own research and experience over the course of many public inquiries, as well as input from leading policy analysts who participated in a Commission workshop, on matters related to the structural reforms that have been undertaken in Australia and other countries over the past decade.

From the Commission's perspective, two distinct sets of issues are central to this debate. The first is the adequacy of the processes and analytical framework used to evaluate reform proposals, particularly in relation to identifying the likely costs and distributional impacts. The second is the importance of effective design and implementation of policy reforms in securing sound outcomes. A continuing challenge for policy makers in this respect is to identify the circumstances in which the social safety net and other generally available measures may be insufficient or inappropriate, and the basis for choosing among additional measures.

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The continuing debate in Australia about the future course of microeconomic reform and, in particular, National Competition Policy, reaffirms the importance of policy choices being made on the best available information on the likely benefits and costs, including adjustment and distribution consequences, according to a report released today by the Productivity Commission.

The Commission Research Paper Structural Adjustment - Key Policy Issues observes that this debate highlights two challenging issues for policy advisers and policy makers alike.

The first relates to the evaluative framework used for assessing reform proposals and in particular:

  • the way in which the benefits, costs and distributional effects of a proposed policy change are assessed when deciding whether a particular reform is in the interest of the community, and
  • the approach taken to handling policy trade-offs - in particular, those which can arise between efficiency and distributional objectives.

The second relates to the development of implementation strategies to give effect to policy changes, namely:

  • the circumstances in which there is a role for additional measures, beyond the social security and tax systems and other generally available adjustment measures, to support the implementation of policy changes, and
  • the relative merits of each of the additional measures as aids to the implementation of policy changes.

Chairman Gary Banks said 'This paper sets out the Commission's views on these important issues, drawing on its own research and experience over the course of many public inquiries, as well as input from leading policy analysts who participated in a Commission workshop. While some of the issues lend themselves to useful decision rules, many can only be resolved on a case-by-case basis - as part of the assessment process and implementation strategy for particular reforms'.

Background information

Leonora Nicol (Media, Publications and Web) 02 6240 3239 / 0417 665 443

Cover, Copyright, Contents, Foreword, Acknowledgements, Abbreviations, Overview

1 About this paper

2 The benefits and costs of policy changes
2.1 The benefits of making policy changes
2.2 The costs of making policy changes

3 The distributional impacts of policy changes
3.1 Why distributional impacts matter
3.2 Assessing distributional impacts in practice
3.3 Incorporating distributional considerations in an evaluation
3.4 Handling policy trade-offs

4 Should governments assist when policy changes?
4.1 Policy-induced changes versus market-based changes
4.2 Equity and fairness
4.3 Buying-off opposition to reform
4.4 Efficiency considerations
4.5 Few hard and fast rules

5 Adjustment policy - making the right choices
5.1 Overview of additional measures
5.2 The relative performance of additional measures
5.3 Some general comments

A The social safety net and other generally available measures
A.1 A broad profile of generally available measures
A.2 Advantages of relying on generally available measures
A.3 Some weaknesses of generally available measures
A.4 The need for ongoing review and modification