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Potential Benefits of the National Reform Agenda

Commission research paper

This commission research paper was released on 28 February 2007. An errata (updated 9 March 2007) was issued with the report.

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  • Key points
  • Media release
  • Contents
  • Errata

This study assesses the potential maximum (outer-envelope) gains that could be achieved through COAG's National Reform Agenda (NRA) in the long run — assuming full implementation of the NRA, and full adjustment of the economy to the effects of reform.

There has been limited information on which to base such estimates and the results should be viewed as exploratory or, at best, broadly indicative.

Because of inherent differences between the competition and regulatory reform streams and the human capital reform stream, it is not possible to aggregate results into a single measure of the 'impact of the NRA'.

  • That said, the NRA as a whole could be expected to significantly raise activity levels and incomes in all jurisdictions. The benefits would be additional to benefits from 'ongoing' reform programs.

Improving productivity and efficiency in energy, transport, infrastructure and other activities through the competition and regulatory reform streams could provide resource savings of around $10 billion.

  • After a period of adjustment, GDP could be increased by nearly 2 per cent.
  • Governments' combined net revenues could rise by up to around $5 billion, with the distribution between governments varying across reform areas.

Achievement of a 5 per cent improvement in the productivity of health service delivery could equate to resource savings (or additional resources to spend on health care) of around $3 billion.

  • After a period of adjustment, this would imply a potential increase of nearly $4 billion in net revenues of Australian governments after 10 or more years.

Enhancement of workforce participation and productivity though the NRA stream directed at health promotion and disease prevention, education and work incentives could potentially result in increases in GDP of around 6 and 3 per cent, respectively, after 25 or more years.

  • However, the magnitude of prospective net gains in GDP, and in governments' fiscal balances, would depend on the magnitude of costs incurred by governments in implementing specific reform programs.

Background information

Paul Gretton (Assistant Commissioner) 02 6240 3252

COAG's National Reform Agenda (NRA) has the potential to significantly raise national output and incomes in Australia, according to a Productivity Commission study released today.

The study examines the benefits potentially available in the long term from further enhancing competition in key infrastructure areas, reducing regulatory burdens on business, achieving more cost-effective health services and raising workforce participation and productivity.

Productivity Commission Chairman, Gary Banks, said 'Australia has greatly benefited from National Competition Policy and the other structural policy reforms of the past two decades. This analysis suggests that there is just as much at stake in pursuing COAG's National Reform Agenda.'

The Commission found that reforms aimed at improving productivity and efficiency in energy, transport and related infrastructure and reducing the regulatory burden on business, if fully implemented, could increase GDP in time by up to around $17 billion or nearly 2 per cent. This would translate into $400 additional income per person in today's dollars. The Commission also considered that there was potential for a 5 per cent improvement in the productivity of health service delivery which, if achieved, would increase GDP by some 0.4 per cent.

In addition, 'human capital' reforms to enhance workforce participation and productivity — targeting health promotion and disease prevention, education and training, and work incentives — could potentially yield even larger gains, depending on program implementation costs (which were not modelled and will depend on Governments' decisions about specific measures).

The Commission found that all jurisdictions would receive increased tax revenues flowing from reform-induced growth. For the competition and regulatory reform streams, Governments' combined net revenues could rise by as much as $5 billion, with a 60:40 split between the Commonwealth and the States/Territories, respectively. Potential net revenue outcomes are more speculative for the 'human capital' reforms, varying significantly across different reform areas and requiring case-by-case assessment taking into account program outlays.

Gary Banks observed 'The implications of the NRA for the size and distribution of government revenues cannot be determined definitively at this stage. What seems clear, however, is that people in all jurisdictions stand to benefit significantly from their governments getting on with identified reforms.'

 

Background information

Paul Gretton (Assistant Commissioner) 02 6240 3252

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

Preliminaries
Cover, Copyright, Foreword, Acknowledgments, Contents, Abbreviations, Key points, Overview

PART A - FRAMEWORK AND OUTCOMES

1 Introduction
1.1 This study
1.2 What can be delivered
1.3 The approach
1.4 Consultation
1.5 Structure of the report

2 Potential economic and revenue implications of NRA competition and regulatory reform
2.1 Scope of the NRA competition and regulatory reform streams
2.2 The potential direct impacts on productivity and prices
2.3 Key economic and regional effects
2.4 Sensitivity testing

3 Potential economic and revenue implications of NRA human capital reform
3.1 Scope of the NRA human capital reform stream
3.2 Potential impact of reforms to health system effectiveness
3.3 Potential impact of workforce participation and productivity reforms

PART B - COMPETITION AND REGULATORY REFORM STREAMS

4 Electricity
4.1 NRA reforms and outcome objectives
4.2 Approach to estimating outer-envelope reform impacts
4.3 Impediments in liberalised electricity markets
4.4 Scope for improvement
4.5 Possible outer-envelope effects
4.6 Summary of direct impacts

5 Gas
5.1 NRA reforms and outcome objectives
5.2 Australian gas industry
5.3 Scope for improvement
5.4 Summary of direct impacts

6 Road and rail transport
6.1 NRA reforms and outcome objectives
6.2 Australian road and rail freight transport
6.3 Potential effects of NRA reforms
6.4 Scope for improvement
6.5 Summary of direct impacts

7 Ports and associated infrastructure
7.1 NRA reforms and outcome objectives
7.2 Significant ports in Australia
7.3 Scope for improvement
7.4 Summary of direct impacts

8 Regulatory burden
8.1 NRA reforms and outcome objectives
8.2 Regulatory developments in Australia
8.3 Regulatory compliance costs
8.4 Scope for reducing compliance costs
8.5 Efficiency costs of regulation
8.6 Implementation costs to reduce excessive regulatory burden
8.7 Summary of direct impacts

PART C - HUMAN CAPITAL STREAM

9 Productivity of health services delivery
9.1 Tops-down approach used
9.2 The dimensions of the health sector
9.3 NRA reform and outcome objectives
9.4 NRA and the productivity of health service delivery
9.5 Exploring the potential for improvement
9.6 Potential scope for NRA to improve health services productivity
9.7 Summary of direct impacts

10 Framework for assessing the potential impacts on workforce participation and productivity
10.1 An overview of the key elements and links associated with the human capital stream
10.2 The analytical framework

11 Health promotion and disease prevention
11.1 Health promotion and disease prevention
11.2 Adopting a case study approach
11.3 Effects of chronic disease on workforce participation and productivity
11.4 Scope for improvement
11.5 Linking improved health outcomes to workforce participation and productivity
11.6 Potential workforce participation and productivity effects
11.7 Implications for indicative costs
11.8 Summary of direct impacts

12 Education and training
12.1 Target groups and scope for improvement
12.2 Potential workforce participation and productivity effects
12.3 Implications for indicative costs
12.4 Summary of direct impacts

13 Work incentives
13.1 Operationalising the key groups
13.2 Mature aged participation
13.3 Participation of women aged 25-44
13.4 Disability Support Pension recipients
13.5 Potential productivity effects
13.6 Implications for indicative costs
13.7 Summary of direct impacts

14 Consolidating the effects of human capital reform
14.1 Consolidating the human capital substreams
14.2 Workforce participation
14.3 Hours worked
14.4 Labour productivity
14.5 Implications for States and Territories
14.6 Summary of direct impacts

APPENDICES

A Study guidelines

B The MMRF-NRA model

C The demographic modelling framework

D Modelling the potential impacts of the NRA

E Detailed results for competition and regulatory reforms

F Detailed results for health services delivery reforms

G Detailed results for workforce participation and productivity reforms

References

The chapter on the web site version has been amended to reflect these errata.

Chapter 8 Regulatory burden

Page 153, paragraph 5 should read: If a 20 per cent reduction in Australian compliance costs were to be achieved through full implementation of NRA-consistent reforms, this would result in a saving of as much as $8 billion in 2005-06 (0.8 per cent of GDP per annum).

Page 156, paragraph 3, 2nd sentence should read: It is considered that NRA-consistent reforms have the potential to reduce these costs by up to 20 per cent (0.8 per cent of GDP per annum or as much as $8 billion in 2005-06 values).

Chapter 11 Health promotion and disease prevention

Page 221, Table 11.3 Estimated changes in the number of sufferers (a) should read as below.

Chronic disease Base (2001) 2030 Projected increase
Mental health 1 544 000 1 779 000 15
Cardiovascular disease 3 409 000 4 108 000 21
Type 2 diabetes (b) 894 000 2 941 000 229
Injury (serious) (c) 2 242 000 2 967 000 32
Cancer 357 000 629 000 76
Musculoskeletal (d) 1 403 000 3 171 000 126

(a) Assuming no change in trend patterns of behaviour or health promotion and disease prevention initiatives over the projection period.
(b) Diabetes numbers were estimated as twice the number of cases in the National Health survey based on evidence that close to 50 per cent of sufferers are unaware they have the condition (Dunstan et al. 2002).
(c) Injury projections based on average five year trend in years lost due to injury over period 1991-2001 and increases in population using ABS projections.
(d) Numbers reported for arthritis only.

Sources: ABS (National Health Survey: Summary of Results, Cat. No. 4364.0, Canberra); Vos et al. (2004a); and Productivity Commission estimates.

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