Transcript Document

Capacity Building On Regulatory Review
System Design Module
‘Designing a RIA system that works effectively’
21-25 March 2011
Rod Bogaards
Productivity Commission
Australian Government
Productivity Commission
Some disclaimers!
• These are my own personal views although reference
is made to Productivity Commission work
• While the Australian RIA system is highly regarded
by international standards, I will focus on some of its
pitfalls – no RIA system is perfect!
• How can we improve or enhance RIA institutional and
analytical regulatory settings - that are already
reasonably robust - to generate better and more
consistent regulatory outcomes?
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‘Every political party believes in the idea of
better regulation. And yet every political
party, once in government, fails to achieve
better regulation.’
Boyfield (2007)
Productivity Commission
Foundations of an effective RIA system
• Adequacy criteria
• Gate-keeper
• Transparency and accountability
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Objectives of Regulatory Impact Analysis
• RIA aims to informs political decision makers
on whether to regulate and how to regulate
• It aims to communicate information about the
expected effects of regulatory proposals that
can be used by decision makers
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Good regulation addresses market failures …
• While allowing for:
• greater consumer choice, convenience and
lower prices
• enhanced flexibility and competitiveness
• increased productivity
• greater transparency, accountability and public
confidence in governance
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‘Good regulation’ checklist
• Minimum necessary to achieve objectives
• Not unduly prescriptive
• Accessible, transparent and accountable
• Integrated and consistent with other
regulations
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‘Good regulation’ checklist
• Communicated effectively
• Mindful of the compliance burden imposed and
• Enforceable
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What is Regulatory Impact Analysis?
• RIA processes follow a formalised sequence of steps
to establish whether particular regulatory proposals
would be in the community’s interest - by delivering
a net benefit to the community
• RIA processes do this by taking a community-wide
perspective of their effects, to ensure that the
benefits to society of a regulation (broadly
conceived) are greater than the costs (also broadly
conceived)
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7 Steps in a Regulation Impact Statement
1. Identifies the problem the regulation seeks to
address
2. Outlines the objectives of government action
3. Identifies a range of feasible options for addressing
the problem
4. Assesses the costs and benefits of the feasible
options
5. Documents community consultation
6. Proposes a recommended option
7. Outlines implementation and review mechanisms
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Practical operation principles
• All seven elements of RIS adequately
addressed
• Benefits should outweigh costs and (usually)
net benefits maximised
• Analysis commensurate with size of likely
impacts
• Objective, balanced public statement, not
advocate’s document
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The adoption of RIA processes is now
widespread
• RIA have proved popular with governments trying to
improve the quality of regulation:
• in 1980, only 2 or 3 countries were using RIA
• in 2000, 14 of 28 OECD countries had adopted
RIA programs
• in 2010, all 31 OECD countries and many nonOECD countries had mandated the use of RIA
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2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
Number of jurisdictions
Trend in RIA adoption across OECD
countries (1974-2010)
31
30
25
20
15
10
5
0
Australia was an early adopter of RIA
• In 1985, Australia was one of only eight OECD
countries with formal requirements for
regulatory impact analysis
• In 1995, RIA was extended to cover the
development of all national standards
• In 2009, all Australian states and territories
had their own individual RIA processes to
cover state government regulations
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What should a good RIA process deliver?
• A well designed and implemented RIA process can
improve the quality of new regulations:
• by demonstrating that a non-regulatory option is a
better solution to the problem (or that the status
quo is preferable)
• by identifying the most effective and efficient
design elements to build into the new regulation,
thereby increasing the benefits and/or reducing
the costs
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What should a good RIA process deliver?
• A well designed and implemented RIA process can
improve the quality of new regulations:
• by building stakeholder support for proposals
• by reducing the risk of over-regulation
• by influencing over time the ‘regulatory culture’
within government agencies
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Is RIA quality very good? OECD view
• The OECD (2009) has identified a number of issues
with the performance of RIA:
• not well integrated in the decision-making process
• not applied to the most significant regulatory
proposals
• fails to fully assess the costs and benefits of
proposals
• no serious consideration of feasible alternatives
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Findings of the OECD EU 15 Country
Reviews
• The reviews revealed major weaknesses across most
countries
• Relative lack of integration of RIA in the policy process,
assessments are done too late, consultation is often not
robust and oversight needs more teeth – methodological
challenges
• Late timing of impact assessments is a widespread issue
• Setting up an oversight function in a single central unit has
been difficult for many countries
• In order to force change a few countries are making RIA a
legal requirement – with sanctions for non compliance
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What is the quality of RIA? Has it improved
regulatory outcomes? US experience
• A US study said most agencies failed to quantify
costs and benefits, discuss alternatives, use
consistent analytical assumptions, report their results
clearly or make them accessible (Hahn 2000)
• A more recent US study said ‘… although there is
some evidence economic analysis can improve the
benefit-cost ratio of regulations, there is insufficient
evidence that economic analysis of regulatory
decisions has actually had any substantial impact’
(Hahn and Tetlock 2007)
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What is the quality of RIA? Has it improved
regulatory outcomes? UK experience
• A study of the UK RIA process also found the
standard of RIA to be poor, a ‘bureaucratic sham’,
treated ‘as a bolt-on extra designed to justify a
regulation’ rather than being used to shape and
inform policy formulation (Boyfield 2007)
• A study of UK Government RIAs by the British
Chamber of Commerce concluded, ‘… we question
whether RIAs have changed the political reality that
ministers introduce regulations because they want
them as distinct from being able to justify them’
(Ambler et al 2007)
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What is the quality of RIA? Has it improved
regulatory outcomes? EU experience
• A study of RIA processes and practices in the
European Union and all Member States found:
‘In almost all cases we have examined, there is a
large gap between requirements set out in official
documents and actual Impact Assessment in practice
… typically assessments are narrow, partial and done
at a late stage. In many countries, a large share of
proposals is not formally assessed or is assessed with
a ‘tick box mentality’’ (Jacob et al 2008)
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How effective has RIA been in improving
regulation? Australian experience
• In Australia the results of RIA requirements have also
been somewhat mixed
• 21 years after the RIA process was established, the
2006 Taskforce on Reducing Regulatory Burdens on
Business pointed out the dramatic growth in the
volume of regulation
• Quality of regulation was also at issue as
complaints about growing regulatory burdens led to
the Regulation Taskforce inquiry
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Findings of the 2006 Regulation Taskforce
• Too much regulation imposing an unnecessary cost
on business due to:
• unclear or questionable objectives
• failure to target the regulation – too blunt or
disproportionate to the size of the problem
• undue prescription
• excessive reporting or paperwork requirements
• overlap, duplication or inconsistency with other
regulation, either within or between jurisdictions
• poorly expressed and confusing terms
• unwarranted differentiation from international
standards
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How did this happen?
•
Rising phenomenon of risk aversion in society
•
Over reliance by governments on the development of
regulatory solutions – ‘regulate first, ask questions
later’ culture
•
The requirements for good regulatory process had
not been effectively discharged
•
Taskforce said all of the above
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Beginning of a new phase of regulatory
reform
• Unless the underlying reasons for regulatory
failures are addressed the regulatory problems
will simply re-emerge
• The Regulation Taskforce recommended six
principles of good regulatory process which
were endorsed by the Australian Government
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6 Principles of good regulatory process
1. Governments should not act to address problems
through regulation unless a case for action has been
clearly established
2. A range of feasible policy options – including selfregulatory and co-regulatory approaches – need to
be assessed within a cost-benefit framework
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6 Principles of good regulatory process
3. Only the option that generates the greatest net
benefit for the community (taking into account
economic, social, environmental and equity impacts)
should be adopted
4. Effective guidance should be provided to regulators
and regulated parties to ensure that the policy intent
of the regulation is clear, as well as what is needed
to be compliant
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6 Principles of good regulatory process
5. Mechanisms such as sunset clauses or periodic
reviews need to be built in to legislation to ensure
that regulation remains relevant and effective over
time
6. There needs to be effective consultation with
regulated parties at the key stages of regulation
making and administration
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Changes to the RIA process in response to
Regulation Taskforce recommendations
• ‘Preliminary assessments’ for all regulatory proposals
to determine the level of regulatory impact analysis
required
• A formal assessment of business compliance costs,
using the Business Cost Calculator (or an approved
equivalent), and greater use of cost-benefit analysis
generally
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Changes to the RIA process in response to
Regulation Taskforce recommendations
• A clear statement in the RIS adequacy criteria that
the RIS should demonstrate that:
• the benefits of the proposal to the community
outweigh the costs
• the preferred option has the greatest net benefit
for the community, taking into account all the
impacts
• A whole-of-government consultation policy
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Changes to the RIA process in response to
Regulation Taskforce recommendations
• Improved gate-keeping arrangements that
prevent a regulatory proposal from proceeding
to Cabinet (or other decision maker) unless an
adequate RIS has been prepared
• Post-implementation reviews are required
within two years of implementation when a
proposal proceeds to a decision maker without
an adequate RIS
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Changes to the RIA process in response to
Regulation Taskforce recommendations
• The existing Office of Regulation Review was
renamed the Office of Best Practice Regulation
(OBPR) – to reflect a new focus to assist
agencies to develop regulatory best practice
• A specialised cost-benefit analysis unit was
created in the OBPR to provide advice and
support to agencies preparing RIS
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Regulation Taskforce had high expectations
that it would create a better RIA system
“In the Taskforce’s view, the single most
important way of strengthening compliance with the
principles of good process would be for government
to adhere to a rule that regulatory proposals that fail
to meet the RIS requirements will not be permitted
to proceed to consideration by Cabinet or other
relevant decision maker, except in specially defined
circumstances. Together with stronger analytical
requirements, this would ensure the processes were
taken more seriously and at an earlier stage”
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RIA compliance rate following Regulation
Taskforce reforms
• Compliance with Australian Government best practice
regulation requirements is measured by compliance
with the requirement to prepare adequate RIS (and
BCC reports)
• To be assessed as adequate, a RIS must contain a
degree of detail and depth of analysis that is
commensurate with the size of the potential impacts
of the proposal
• The OBPR used the criteria in the BPR Handbook
(2007) to assess whether each element of a RIS is
adequate
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RIA compliance rate following Regulation
Taskforce reforms
Type of RIA
2007-08
2008-09
RIS
43/48 (90%)
45/53 (85%) 63/75 (84%)
BCC
7/7 (100%)
4/4 (100%)
2/2 (100%)
Exceptional
Circumstances
3
6
4
Preliminary
Assessments
753
662
823
Productivity Commission
2009-10
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What does a high RIS compliance rate
mean?
• Does it mean the gate-keeper is doing a good job?
• A low compliance rate from a failure to conduct RISs
indicates the RIS process is being evaded
• But a high compliance rate does not necessarily tell
us much about the quality of the RIS supporting a
regulatory proposal
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Role of the Australian gate-keeper
• Independent (but within the Department of Finance &
Deregulation)
• Advises on whether a RIS is required
• Examine/advise on adequacy of RISs
• Provide training and advice on RIS process
• Reports annually on RIS compliance
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Are gate-keeper’s prone to Type I errors?
Pass
Fail
Adequate RIS
Correct Decision
Type II Error
or
‘false negative’
Inadequate RIS
Type I Error
or
‘false positive’
Correct Decision
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Reasons why gate-keepers could be prone
to Type I errors
• Political pressure - from government departments or
Minister’s offices to pass a RIS can be intense
• And as the penalties for non-compliance were raised
in 2007 – since the gate-keeper could effectively veto
regulatory proposals, preventing them from going to
decision makers - the pressure to pass RISs may
have increased even more
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Reasons why gate-keepers could be prone
to Type I errors
• Insufficient transparency – publication of RIA (and
the OBPR’s adequacy assessment) potentially
occurred up to 18 months after a decision to proceed
with a regulatory proposal had been made by
government
• this may have provided the gate-keeper with poor
incentives to perform its role and enforce the RIA
process properly
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How does Australia’s 2007 RIA model rate
with respect to the key drivers?
• Strong adequacy criteria
• Strong gate-keeper
• Weak transparency and accountability
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But did the 2007 changes lead to better RIA
system?
• The existence of robust adequacy criteria and gatekeeper are necessary criteria for an effective RIA
system – but they are not sufficient criteria
• The ultimate effectiveness of any RIA system
depends on the level of transparency and
accountability in the system
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A case study of a proposed regulation
• Let’s examine a regulatory proposal and see how the
RIS for the proposal engages with the policy
development process
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Productivity Commission’s 2009 Annual
Review of Regulatory Burdens on Business
• The Productivity Commission proposed a
strengthening of the best practice regulation
requirements and made a number of key
recommendations
• Industry submissions commented on the
ongoing failure of government to properly
assess the risks, costs, and benefits of
regulation and called for further scrutiny of the
process by which regulation is developed
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Productivity Commission’s 2009 Annual
Review of Regulatory Burdens on Business
• The concerns raised suggested there remains scope
for the Australian Government to do more to improve
regulatory outcomes, through:
• more systematic and rigorous application of the
existing best practice regulatory process
• refinements and enhancements to aspects of the
design and implementation of this process
• increasing the transparency and accountability of
the current regulatory process
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Productivity Commission’s 2009 Annual
Review of Regulatory Burdens on Business
• The Commission recommended the Australian
Government should develop a central online register
of regulatory impact analysis that would include:
• RISs (and importantly, the OBPR’s adequacy
assessments) published at the time government
decisions are made public
• post-implementation reviews (and the OBPR’s
adequacy assessments) published at the time
these reviews are made public
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Productivity Commission’s 2009 Annual
Review of Regulatory Burdens on Business
• The Commission also recommended the Australian
Government:
• incorporate a ‘consultation’ RIS in its regulation
making process
• establish an independent public review of the
current best practice regulation requirements
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OECD’s 2010 Review of Regulatory Reform
in Australia
• The OECD said Australia rates highly among OECD
countries on the design and performance of its RIS
process
• But said there are some potential improvements that
could strengthen the Australian Government RIS
process
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Requirements for RIA processes used by central governments
2005 and 2008 (RIA 1)
27
25
20
15
10
5
2005
2008
ESP
SVK
PRT
FRA
TUR
ICE
NOR
NLD
HUN
AUT
BEL
EU
LUX
ITA
IRL
USA
SWE
GRE
CHE
DNK
DEU
POL
FIN
NZL
KOR
MEX
JPN
CZE
AUS
CAN
UK
0
Note: This figure summarises information about the existence of key elements of RIA processes in OECD member countries. It does not offer information on
the quality of specific RIAs.
Questions:
a) Is regulatory impact analysis (RIA) carried out before new regulation is adopted?
c) Is a government body outside the ministry sponsoring the regulation responsible for reviewing the quality of the RIA?
e) Is there a clear "threshold“for applying RIA to new regulatory proposals?
h(i) Is RIA required by law or by a similarly strictly binding administrative instrument?
h(ii) Is RIA required for draft primary laws?
h(iii) Is RIA required for draft subordinate regulations?
h(iv) Are regulators required to identify the costs of new regulation?
If yes:
Is the impact analysis required to include the quantification of the costs?
h(v) Are regulators required to identify the benefits of new regulation?
If yes:
Is the impact analysis required to include the quantification of the benefits?
h(vi) Does the RIA require regulators to demonstrate that the benefits of new regulation justify the costs?
h(vii) Are RIA documents required to be publicly released for consultation with the general public?
k) Are ex post comparisons of the actual vs predicted impacts of regulations made?
l) Is there an assessment of the effectiveness of RIA in leading to modifications of initial regulatory proposals undertaken?
Weights:
a) if no=0, in some cases=1, always=2
c) if yes, weight=3
e) if yes, weight=2
h(i) to h(vii):
if no=0,
in other selected cases=1,
only for major regulation=1,
always=2
k) if yes, weight=1
l) if yes, weight=1
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Source: Question 10 / OECD Regulatory Management Systems’ Indicators Survey 2005 and 2008. www.oecd.org/regreform/indicators
Extent of RIA processes
2005 and 2008 (RIA 2)
24
20
15
10
5
2005
2008
PRT
ICE
LUX
TUR
ESP
HUN
FRA
KOR
NLD
SVK
NOR
EU
GRE
POL
ITA
SWE
DEU
BEL
AUT
CHE
JPN
MEX
IRL
DNK
FIN
AUS
CZE
NZL
CAN
USA
UK
0
Note: This graph summarises information about the extent of RIA processes in OECD member countries. It does not gauge whether these processes have
been effective.
Questions:
d(ix) Is the RIA required to include assessments of other specific impacts: Impacts on the budget, impacts
on competition, impacts on market openness, impacts on small businesses, impact on specific regional
areas, impact on specific social groups, impact on other groups (not for profit sector including charities),
impact on the public sector
e) Is risk assessment required when preparing a RIA?
For all regulation, for health and safety regulation, for environmental regulation?
If “yes”:
Does the risk assessment require quantitative modelling?
f(i) Does the RIA require regulators to explicitly consider compliance and enforcement issues when
preparing new regulation?
f(ii) Are reports prepared on the level of compliance with the above RIA requirements?
f(iii) Are these reports published?
Productivity Commission
Weights:
d(ix), Impacts on the budget, competition, market openness, small
businesses, specific regional areas, specific social groups, the
public sector: if no=0, in other selected cases=1, only for major
regulation=1, always=2
d(ix), Impact on other groups (charities, not for profit sector): if
no=0, in other selected cases=0.5, only for major regulation=0.5,
always=1
e) if no=0, in other selected cases=1, only for major regulation=1
always=1
if yes, weight=1
f(i) if yes, weight=1
f(ii) if no=0, ad hoc basis=1, regularly=2
f(iii) if yes, weight=2
Source: Question 10 / OECD Regulatory Management Systems’ Indicators Survey 2005 and 2008. www.oecd.org/regreform/indicators
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OECD’s 2010 recommendations to improve
Australia’s RIS process
• Ministerial certification of each RIS – to establish
greater accountability at Ministerial level
• RIS training could be extended to Ministerial offices
• OBPR should report on compliance by government
agencies with the obligation to quantify costs and
benefits of regulatory proposals
• the RIS should be published in draft format for public
consultation – a two stage approach
• the Australian National Audit Office should periodically
review the quality of RISs – ‘Sed quis custodiet ipsos
custodes’?
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Recent changes to the Best Practice
Regulation Handbook: Some positive
• Development of a central online RIS register (but
only includes a ‘Yes’ adequacy assessment by OBPR –
but no explanation of why ‘Yes’)
• Earlier signalling of non-compliance with the RIS
process (previously took up to 18 months for the
public to find out)
• Post-implementation reviews to be published on the
central online RIS register (but adequacy assessment
by OBPR not reported online)
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Recent changes to the Best Practice
Regulation Handbook: Some questionable
• That no explicit comparison of options will be
required in a RIS
• That Cabinet may direct government agencies
regarding which options to examine in a RIS
• That election commitments to introduce
regulations will only be subject to a ‘modified’ RIS
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Recent changes to the Best Practice
Regulation Handbook: Some questionable
• That a RIS no longer has to demonstrate that the
preferred option has the greatest net benefit for
the community, taking into account all the impacts
(economic, social, environmental and equity)
• That a RIS can be modified after the decision
maker’s consideration but prior to publication to
allow the inclusion of an option not considered in
the original RIS – but without the public knowing
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Recent comments by the Business Council
of Australia on 2010 RIA model
• ‘ … changes to the RIS process may inhibit the
independence and robustness of the policy analysis
and advice received by Ministers from the
bureaucracy, and this will have major implications for
the outcomes of policy and its effectiveness’
• ‘These reforms may also reduce the effectiveness of
the OBPR as an assessor of RISs … narrowing the
requirements for analysis in RISs means that the
OBPR will have less ability to assess them as being
non-compliant with the process ... further diminishing
the power of the OBPR to reject RISs’
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How does Australia’s 2010 RIA model rate
compared to the previous model?
2007 RIA model
2010 RIA model
Adequacy criteria
Strong
Weaker?
Gate-keeper
Strong
Strong
Transparency and
accountability
Weak
Weaker?
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A perverse outcome of Australia’s ‘strong’
gate-keeper model?
• Giving the gate-keeper the power to veto
regulatory proposals in 2007 - if the RIS
process was not followed – may have led to
increased pressure on the gate-keeper to pass
RISs
• Gate-keepers do not need a ‘veto power’ to be
effective so long as their adequacy
assessments are made transparent in a timely
manner
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How can we improve the effectiveness of
the RIA system?
• Transparency and accountability is the most
important driver of an effective RIA system
• A RIA system must take account of, and improve, the
incentives that face Ministers, departments and gatekeepers
• This requires a significant effort to improve
transparency and accountability – the
‘inconvenient’ driver of an effective RIA system!
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Foundations of an effective RIA system
Effective
RIA System
Adequacy criteria
( )
Productivity Commission
Gate-keeper
()
Transparency
and
accountability
(  )
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Future work by the Commission that could
impact on Australian RIS processes
• In 2012, the Commission will undertake a
benchmarking study of the efficiency and quality of
both COAG and all Australian jurisdictional RIS
processes
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Opportunities for Malaysia ...
• Design opportunities – would extending the
requirements for RIA to Malaysia improve the
regulation-making system?
• Governance opportunities – how to build oversight and
quality control within the administration?
• Training opportunities – providing a strong support
function within government – help desks
• Experience suggests that RIA is always a work in
progress, governments must always return to
strengthen and support the process
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