Transcript Document

CAPACITY BUILDING ON MODERNISING
BUSINESS REGULATION
13 January 2011
Sue Holmes
Productivity Commission
MODERNISING BUSINESS REGULATION :
DAY 2
(1)
(2)
Elements of Regulation Impact Analysis
Exploring Elements of RIA More Fully
• Identifying and describing the problem
• Identifying options and recommendations
(3)
Business Burdens Case Study: Oil and Gas
(1)
Principles and values of the Productivity
Commission
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Key elements of a RIS
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Problem
Objective(s)
Options
Impact analysis
Consultation
Conclusion and recommended option
Implementation and review
You need to adequately address each element to draft an
adequate RIS
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RIA
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(1) Preparing a Regulation Impact Statement
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Objectives of preparing a RIS
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Provide information to the decision maker
Provide evidence of the steps taken in good policy
development
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Element 1:
Identifying the Problem
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What is the problem?
• Why should Government intervene? May be
• to deal with market failure
• to correct a regulatory failure
• to attain a social goal
• to address an unacceptable risk
Is there existing regulation? If there is, why is
further action needed?
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Element 2:
Objectives of government action
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What are the objectives of government action?
• link it to the identified Problem
• do not be too specific (so as to preclude any options)
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Element 3:
Consider a broad range of Options
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Include non-regulatory and regulatory options
Distinguish feasible options from those that are not
feasible
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Explain why some options are not feasible (detailed analysis
of these options is not required)
For the feasible options identify the key elements of each
option and clearly explain how each would work
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Element 3:
Examples of options
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Start with the status quo and/or no regulation, then consider
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Non-regulatory options
• information and education
• market instruments (tax/subsidy, tradeable right)
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Self regulation
• Industry codes of practice
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Quasi-regulation
• industry/government agreements
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Explicit government regulation
• Including different regulatory options
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Element 4:
Impact Analysis
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For each option
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Identify who is affected
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Analyse costs and benefits (to whom do they accrue?)
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Quantify compliance costs - BCC
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Quantify other impacts where possible
Remember
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the level of analysis should be commensurate with the level of
impacts
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identify key considerations in deciding why one option is ‘better or
worse’ than others
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restrictions on competition require a higher level of analysis
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Element 4:
Formal Cost Benefit Analysis
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Formal Cost Benefit Analysis (CBA) provides a quantitative
estimation of the net benefits associated with each option
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It allows ranking of the options according to their overall
benefit to the community
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It encourages analysts to think about the size and
importance of each cost and benefit
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While not mandatory for all proposals it has been strongly
encouraged by the Government
The OBPR has established a CBA unit to assist departments and
agencies
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More information can be found on the OBPR website
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Element 4:
Restrictions on competition
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Regulations that restrict competition may:
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govern the entry or exit of businesses into markets
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control input or output prices
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restrict the quality, quantity or location of goods and services
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restrict advertising and promotional activities
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provide advantages or impose costs on only some
businesses/activities
In Australia, for proposals that restrict competition the RIS
must demonstrate that restricting competition will result in a net
benefit for the community and that the objective of the
intervention can not be achieved in any other way
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Element 5: Consultation
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To meet the consultation requirements the RIS must detail:
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Who has been consulted?
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How was consultation conducted?
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What are their views (highlight dissenting views)?
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How did their views affect the outcome?
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If their views were not addressed, explain why
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If consultation was limited or not undertaken, explain why (if
there is a legitimate reason the RIS will still be assessed as
adequate)
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Element 6:
Conclusion / recommended option
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Provides a summary of the options and their
impacts
Identifies which option is preferred and why other
options are not preferred
Reiterates why the benefits of the preferred option
outweigh the costs
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Element 7:
Implementation and review
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How will the preferred option be implemented? (For instance, will
there be transitional arrangements? Who will administer the
regulation? How will it be enforced? How will compliance costs be
minimised)
Will it be subject to sunset provisions?
Will it be reviewed? (if so, by whom and according to what criteria)
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Remember, if there is no sunsetting provisions the instrument is likely to
require review under the government’s five yearly review process
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Analysis is the key
“ … experience makes clear that the most important
contribution to quality decisions is not the precision
of calculations, but the action of analysis questioning, understanding real-world impacts,
exploring assumptions.”
OECD 1995, Control and Management of Government
Regulation
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Like to know more?
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Visit the OBPR website - www.obpr.gov.au
Consult the Best Practice Regulation Handbook
(which includes additional information on what should be
included in a RIS as well as the adequacy criteria for each
element of a RIS)
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problem
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Element 1:
Identifying the Problem
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What is the problem?
• Why should Government intervene? May be
• to deal with market failure
• to correct a regulatory failure
• to attain a social goal
• to address an unacceptable risk
Is there existing regulation? If there is, why is
further action needed?
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Market Failures – consumer product safety
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Information failures
• gaps in knowledge between the producer and the
consumer
• and not in the interest of the party with the
knowledge to share it with the other
• the supplier knows more about the hazards of a
product than the consumer – delayed on set
• the consumer has more knowledge than the
supplier about how and in what context the
product will be used.
• limitations in some groups (such as children) being able
to assess and respond to risks realistically – familiarity
breeds under-estimation of risks
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Market Failures – consumer product safety
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Negative spillover effects
• where someone gains from costs they impose
on others the market does not produce the best
outcome:
• costs to taxpayers due to subsidised health
care
• impacts on third parties such as injury
incurred by bystanders
• a pedestrian may be hit by a motor
vehicle
• a fire caused by a faulty product may
cause substantial collateral loss
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Market Failures
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Positive spillover effects
• where some actions benefit others but receive
no payment for it then they are likely to be
undersupplied, ie the market undersupplies the
action (or product):
• vaccinations
• forests
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Market Failures – airports, dams,
telecommunications
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Monopoly
• sole suppliers can abuse their market power:
the market tends to result in them supplying
less at a higher price than is optimum
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Government failures
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over-reaction to a risk
adverse side-effects
get band-aid responses
assess the case for the original regulation
• should it be removed rather than add extra regulations?
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Pursuing social goals
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Why regulation?
Often direct income redistribution a more effective
mechanism with fewer side effects?
Explore the underlying reasons for wanting this
redistribution.
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options
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Identifying options and
recommendations
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no action - rely on the body of existing law
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better definition of property rights where they are unspecified or vague
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general liability laws - strict liability, negligence or ‘no fault’
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information strategies - product labelling or media campaigns
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market-based instruments - taxes, subsidies, tradeable permits, performance bonds
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standards and rules - principle-based, outcome-based or prescriptive
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schemes for testing products/services before they are supplied to the market - listing,
certification, registering and licensing
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measures for excluding products/service suppliers after they have been supplied to the market bans, recalls, licence revocation, ‘negative’ licensing and lists of poor suppliers
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community right to know
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mandatory audits
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quality assurance schemes, self-regulation and co-regulation
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changing awareness and culture
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Regulatory options
• prescriptive standards or rules
• outcome-based standards or rules
• performance standards or rules
• systems management – accrediting and auditing
processes
• changing culture – changing motivations so do
need less external regulation
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Prescriptive regulations
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prescriptive rules focus on the inputs and processes of an
activity, specifying the technical means used in undertaking
an activity (as in the mandatory installation of speed
limiters or restrictions on vehicle engine capacity)
The temptation for a regulator is to lay down a prescriptive
rule that must be adhered to. This encourages certainty,
because it can be measured and monitored and there is no
uncertainty about compliance.
Best where want no room to move for very high cost risks
but may still not be the best option.
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Outcome-based regulation
• Outcome-based rules specify an outcome in precise
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terms (as in a speed limit
Gives much greater freedom to businesses to find the least
cost way of meeting the specified outcome
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principle-based standards
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principle-based standards outline the desired outcomes by
specifying the spirit or broad intention of the regulation and
require interpretation according to the circumstances
(requiring drivers to travel at a speed ‘appropriate to the
conditions’ or ‘not in a manner dangerous’)
much greater freedom and flexibility to businesses but
much greater uncertainty
for example, a general duty of care in OHS
reduces need to add subsequent bandaid regulations
deemed-to-comply provisions
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Building code structure
Objectives
Functional
Statements
Performance Requirements
Guidance
Levels
Compliance
Levels
Building Solutions
Deemed-to-satisfy
provisions
Alternative solutions
Assessment Methods
Documentary evidence
Verification methods
Expert judgements
Comparison to deemed-to-satisfy provisions
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Benefits of performance-based regulation
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In theory, performance-based regulations have several
advantages when compared with the use of prescriptive
regulation:
• Flexibility — by allowing builders and designers to use
any solution that complies with the performance
requirement(s)
• Innovation — practitioners are at liberty to innovate
and use any solution that meets the performance
requirements.
• Cost savings — practitioners can choose the cheapest
option
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The Code in practice: gains from performance
standards
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the Code has encouraged the use of modern and efficient
building practices and significantly reduced construction
costs.
Examples include:
Federation Square
State Library of Victoria
Westfield Hornsby Shopping Centre
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The Code in practice: gains from performance
standards cont.
•Federation Square
• structural deck spans Jolimont
Railway Yards
• could not have been
constructed using deemed-tosatisfy provisions
• greater flexibility in terms of
internal design and a greater
amount of useable space
• $18 million cheaper
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The Code in practice: gains from performance
standards cont.
•State Library of Victoria
• redevelopment sought to
preserve heritage aspects of the
building and public safety
• solution was reduced number of
fire stairs and level of fire
compartmentalisation, such that
much of the old materials
(glass, frameworks and
balustrades) was retained
• cost savings of $2 to $3 million
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The Code in practice: gains from performance
standards cont.
•Westfield Hornsby Shopping Centre
Cost savings to this typical suburban
mall included:
• Fire ratings for floor slabs reduced
from 3 hours to 2
• Fire ratings for parking spaces were
reduced from 4 hours to 1.5
• Number of fire stairs and emergency
exits required was reduced
significantly
•Saving of 3-4% of project costs
•Lower maintenance costs
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How to choose?
• work with the market
• market-based instruments
• outcome standards > prescriptive standards
• choose the option that provides the greatest net
benefit
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Identifying options and
recommendations
• non-regulatory options
• smart regulation
• greatest net benefit
• regulating for risk
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Burdens
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4.
Annual Review of Regulatory Burdens
on Business - Background
• Building on a broad agenda of work set in train by
COAG and individual governments
• Regulation Taskforce 2006
• COAG’s National Reform Agenda
• Undertake a five-year cycle of reviews
• 2007:
primary sector
• 2008:
manufacturing & distributive trades
• 2009:
social & economic infrastructure services
• 2010:
business and consumer services
• 2011:
economy-wide generic regulation
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Scope of Task
• Focus is the impact on business
• Regulation is broadly defined
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The Task – terms of reference
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Identify regulations that
• are unnecessarily burdensome, complex or redundant or
• duplicate regulations or the role of regulatory bodies,
including in the states and territories
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Develop a short list – the greatest productivity gains
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For the short list
• identify options or recommend ways to alleviate the
regulatory burden
• identify reforms that will
• enhance regulatory consistency across jurisdictions
• reduce duplication and overlap in regulation or in
the role of regulatory bodies
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Scope and approach
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Primarily about existing Australian Government regulation but
includes
• areas of overlap and duplication between the Commonwealth
and states/territories
• national initiatives that involve the Commonwealth
Impacts on the primary sector – directly or indirectly
The exercise is bottoms up
• complaints driven analysis
• public submissions received
• informal consultations held with governments, peak industry
groups and with a number of mining companies and farmers
• farm and mine visits
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Constraints
• In providing recommendations the review needs to
have regard to :
• other reviews or recent reviews affecting
regulatory burdens
• the underlying policy intent of the government
regulation
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Identifying and estimating regulatory burdens
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Administration and operational costs
• Notification
• Education and training
• Permission
• Record keeping
• Cooperation
• Publication and documentation
• Procedure
• Other
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Identifying and estimating regulatory burdens cont.
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Changing the way things are produced
• altering inputs to production
• altering production processes
• using a less preferred technology
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Changing what is produced
• altering the characteristics of goods or services
• ceasing the production of goods or services
• missing opportunities to produce goods or services
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Identifying and estimating regulatory burdens cont.
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Estimating the size of the burden
• materials and equipment purchased to meet requirements
• on-going or start-up cost
• hours per year used in satisfying the regulatory
requirement
• value per hour of that labour
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Identifying and estimating regulatory burdens cont.
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Estimating unnecessary burden
• purpose of the regulation
• what costs are unnecessary to achieving the policy goal?
• unnecessary burdens could result from:
• excessive coverage
• overlap or inconsistency
• unwieldy approval processes
• heavy-handed regulators
• poorly targeted or too complex regulation
• excessive reporting
• unduly prescriptive regulations
• perverse incentives
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Identifying the ‘unnecessary’ part
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Farmers and miners were asked what proportion of total costs is
unnecessary to achieving the policy goal
Asked for estimates of the additional time, skills and materials
required to fulfil these unnecessary burdens or the size of the
missed opportunities
Guided on how to estimate the costs
• materials and equipment
• hours spent X value of the time
• opportunity costs: value of foregone sales; extra costs
from using less preferred technology or inputs, etc.
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Quantitative evidence
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From farmers
• stories of burdens which not only included burdens from
• all three levels of government,
• but also included
• Banking, accounting and legal costs
Little identification of which parts were unnecessary
From miners
• statements about where we should go in the future but little
about what was specifically wrong with existing regulation
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Output
• The report delivered lists for reform based on our
best judgements, with little quantification of
• the size of the unnecessary burden
• potential gains in productivity to the whole
economy
• the number of recent, current and prospective
reviews was surprising
• once filtered, not as much left as expected
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Findings:
Some actions can be taken now
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Remove duplication in applying for drought assistance
Amend Part IIIA of the Trade Practices Act to make public
the reasons for all decisions
Consolidate the assessment of environmental export
approvals for uranium into the Environment Protection and
Biodiversity Conservation Act
Ensure the technical capacity of visa verification systems
Improve environmental risk assessment of the imports of
live animals under the Environmental Protection and
Biodiversity Conservation Act
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Some changes are taking too long
• In some cases, where the need for reform has been
agreed, implementation is taking too long
• bilateral agreements on environmental approvals
under the EPBC Act
• National Mine Safety Framework
• barriers to the recognition of skills acquired under
the vocational education framework and across
borders
• water rights and trading
• inter-jurisdictional inconsistencies in road transport
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Areas where policy review is needed
• Some regulatory burdens can only be removed after
a full policy and framework review
• market arrangements for wheat
• onshore and offshore petroleum
• coastal shipping as part of COAG’s national
transport reform
• science-based assessment of risks of uranium
mining
• aspects of the National Pollutant Inventory
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Take no action
• no lower-cost alternative to achieve the regulatory
objective:
• barriers to attracting overseas workers to work on
farms near metropolitan areas
• role of the Gene Technology Regulator in relation
to moratoria on GM products in some states and
territories
• the testing regime relating to on-farm production
and use of bio-diesel fuel
• using waste wood for power generation.
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Federalism issues
• Some complaints were about state-based regulation,
not under reference
• Many businesses operate in more than one
jurisdiction
• Regulatory inconsistencies and duplication across
state borders persist
• hinders achieving economies of scale
• Recent COAG reforms to bolster adoption of uniform
regulatory models may assist
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Regulatory issues facing the sector
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Some regulatory changes reduce property values
Inadequate use of scientific assessment of hazards & risks in
some cases
Overuse of regulation to manage risk
High costs when decision-making is slow
• policy development and implementation (water, carbon
emissions trading, national mine safety)
• regulatory actions (environmental approvals, water
allocations)
Regional differences in administration and enforcement
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Looking forward
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An opportunity to avoid unnecessary regulatory burdens when
developing new national frameworks for
• water
• greenhouse gas emissions trading and reporting
Remove existing piecemeal ad hoc state schemes
These should facilitate market transactions to establish prices to
encourage the allocation of scarce resources to their highest
value uses
Avoid exemptions without full justification against national
interest criteria
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Big issues were the effect of federalism and
the capacity of regulators
• Many complaints were about inter-jurisdictional
differences
• A particular problem for businesses operating in more
than one jurisdiction
• Various models of harmonisation have been
employed in the quest for a national approach but
many appear to be failing to realise their objectives
• Resource inadequacy particularly state enforcement
of nationally agreed regulations
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Common concerns with risk management
through regulation
• Minimisation of risk through regulation is a common
theme
• Overuse of regulation – ‘risk elimination’
• excessive and duplicative reporting requirements
• overly prescriptive regulations
• narrow interpretation of regulations by regulators
• regulation in response to isolated adverse events
applied across the whole sector – not targeted at
high risk areas alone.
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PC’s
principles
and values
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(1) Principles and values of the Productivity
Commission
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history
Act
resources
independence
transparency
whole community focus
competition and a level playing field
economy, society and environment
economic framework interpreted broadly
interdependence
evidence based
wide consultation
strong analytical tradition – skilled staff
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