2
Improving the regulatory management
system
2.1
Introduction
Victoria has a solid foundation for better regulation, as acknowledged by the
OECD (2010a) and the Business Council of Australia (2010). Regulation should
contribute to improving community wellbeing, while not undermining economic
competitiveness; for example, by imposing unnecessary burdens on individuals
and businesses.1 Improving Victoria’s competitiveness is even more important at
present, while businesses face sustained pressure from the strong Australian
dollar, driven by commodity exports from other states.
The previous chapter described the Victorian regulatory management system
(VRMS), noting that, although Victoria’s regulatory system performs well
compared with other jurisdictions, there are reasons to review the system as a
whole. This chapter takes a system-wide approach. It recommends that the
Victorian Government articulate regulatory policy objectives, and embed
effective governance and processes to ensure ongoing improvement. Indicators
developed by the OECD are used to assess the VRMS and develop
recommendations for increasing its capacity to support better and more
responsive policy outcomes. Later chapters consider improvements to specific
components of the VRMS.
2.2
Criteria for assessing Victoria’s regulatory
management system
Over the last 15 years or so, the OECD has developed indicators to assess the
regulatory management systems of its member countries (outlined in (OECD
1995, OECD 1997, OECD 2005b). The most recent results were reported in
2009 (OECD 2009). ‘Core policy issues’ that the OECD set out to address
include:

comparing regulatory management systems, including regulatory policies,
tools processes and institutions across OECD countries
Recent studies have investigated the link between regulation and economic growth. Djankov, McLiesh and
Ramalho (2006), using World Bank data from 135 countries from 1993 to 2002, found that government
regulation of business is an important determinant of growth. The authors found a positive and statistically
significant relationship between countries with less burdensome business regulation and economic growth.
Moving from the worst-to the best-performing quartile was estimated to result in a 2.3 per cent increase in
annual growth (Djankov, McLiesh, and Ramalho 2006). Jalilian et al. (2007), found a strong positive and
statistically significant causal link between regulatory quality and economic performance.
1
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
11

developing evidence as to any increased reliance on regulatory tools, more
structured regulatory policies and stronger institutional capacities (OECD
2009, p. 8).
While the indicators are focused at a national level, the OECD believes that
‘similar regulatory management arrangements are required at the national and
sub-national levels of government’ (OECD 2010a, p. 53). This suggests that the
OECD’s indicators are equally applicable to the VRMS.
Table 2.1 draws on some of the indicators that the OECD uses to assess the
quality of regulatory management systems, and outlines where these are
addressed in the report. The indicators provide an insightful framework for
assessing the VRMS and suggesting ways to improve it.
Table 2.1
Quality indicators of Victoria’s regulatory
management system
Indicator
Where addressed
Is there an explicit published regulatory policy promoting
regulatory reform and which establishes reform
objectives, sets out principles for good regulation and
establishes responsibilities for reform at ministerial
level?
Section 2.3.1: Regulatory policy
Is a specific minister accountable for promoting
government-wide progress on regulatory reform?
Section 2.3.2: Accountability
Are the business sector, consumer groups and other
community groups lobbying for, or strongly in favour of,
regulatory reform?
Section 2.3.2: Accountability
Is there a dedicated body responsible for promoting
regulatory policy, monitoring regulatory reform, reporting
progress by individual ministries and analysing
regulatory impacts?
Section 2.3.3: Regulatory
oversight
Is there training in regulatory quality skills?
Section 2.3.4: Training programs
Are legislation and regulations accessible?
Section 2.3.5: Accessibility
Have attempts been made to measure trends in the
aggregate burden of regulation over time?
Section 2.3.6: Measurement
Are there formal co-ordination mechanisms between
national and sub-national governments?
Chapter 8
Are there effective consultation mechanisms?
Chapters 3, 4, 5, 6 and 7
Is there clarity in the process for developing and
implementing new regulations?
Chapter 3
(continued next page)
12
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
Table 2.1
Quality indicators of Victoria’s regulatory
management system (continued)
Indicator
Where addressed
Has guidance been issued on alternative policy
instruments?
Chapter 3
Is there justification for regulatory actions?
Chapters 3 and 5
Are there review programs to hold regulators accountable?
Chapter 5
What strategies are in place for improving the quality
of existing regulation?
Chapters 6 and 7
Is periodic ex post evaluation of existing regulation
mandatory?
Chapter 6 and 7
Sources: OECD 2008, VCEC.
2.3
Applying the criteria
2.3.1
Is there a regulatory policy?
Is there a statement of regulatory policy?
Regulatory policy is ‘an explicit, dynamic, and consistent “whole of government”
policy to pursue high quality regulation’ (OECD 2010b, p. 68). It:
… addresses the permanent need to ensure that regulations and regulatory
frameworks are justified, of good quality and “fit for purpose”. An integral part
of effective public governance, regulatory policy helps to shape the relationship
between the state, citizens and businesses. (OECD 2010b, p. 9)
While an increasing number of countries appear to have a regulatory policy, the
OECD notes that:
… the data needs to be interpreted with caution…. Although most countries
had adopted a regulatory policy by 2008, a closer look reveals that their
regulatory policy often consists not of one but of a series of often disjointed
regulatory policies. (OECD 2010b, p. 10) … regulatory policies tend to be
scattered across different parts of government. This can mean that high-level
political support is weakly expressed, achievements understated, and that
regulatory policy is not always clearly linked to high-level public policy goals.
(OECD 2010b, p. 68)
Victoria’s approach to regulatory policy appears consistent with this
characterisation, involving:

a series of initiatives, including the reducing the burden initiative, and a
record of action in promoting regulation reform
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
13




a long and effective history of regulatory impact assessment, although there
is scope for improvement (chapter 3)
less attention being devoted to system-wide improvements to the
implementation, administration and enforcement stages of the regulatory life
cycle (chapters 4 and 5). The OECD suggests that this is the case in ‘virtually
all’ countries (OECD 2010b, pp. 10-11)
limited ex post evaluation of regulation (chapter 6)
little information about the objectives or outcomes of the Government’s
regulatory policy (with the exception of the burden reduction targets).
A government’s policy objective is the cornerstone of its regulatory policy. The
Commission’s terms of reference refer to ‘streamlining and reducing the
regulatory burden … while enhancing the effectiveness of regulation, to benefit
the community’. This reference reflects two distinct aspects of regulatory policy
— reducing unnecessary costs and improving regulatory outcomes.
There are several reasons why an explicit focus on reducing regulatory burden
may be warranted:



Agencies, regulators and ministers may look to regulation as a ‘first resort’,
particularly in times of crisis when pressures to take action and address
community concerns are strong. In contrast, the pressure to remove
inappropriate, unnecessary or burdensome regulation is generally much
weaker, especially if vested interests are concentrated and the benefits of
removal are fragmented. As a result, regulation tends to accumulate in the
absence of strong systems for review, testing and challenge.
While regulatory impact assessment processes can strengthen incentives to
improve the design of new regulatory proposals, a full picture of costs and
benefits may not be understood in advance. Complementary processes, such
as evaluation, are needed to support better regulation.
Finally, regulatory costs imposed on business and not-for-profit
organisations impact on Victoria’s competitiveness and productivity. The
regulatory burden in Victoria, relative to other states, may influence
investment decisions. It is difficult to factor the cumulative effects of
regulation on competitiveness into case-by-case assessments of individual
regulatory proposals.
David Cousins and Rod Overall suggested that regulatory policy should do more
than reduce regulatory burden and improve competitiveness, arguing that while
these were important, they:
… should not be the overall focus for judging whether regulation is appropriate
or not. The focus should be on the impact of regulation on the broader
community, including, for example, on consumers as well as on businesses. The
test for regulatory efficiency should involve consideration of net social benefits,
not net benefits to one group in the community. (sub. 24, p. 1)
14
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
And, the Environment Defenders Office also suggested that regulatory policy
‘must impose limits on regulatory reform, and the extent to which it will go to
cut red tape’, noting:
Reducing the regulatory burden is just one of many ways that the Government
can create a net benefit to all Victorians, and it must not be allowed to
overshadow the many benefits — especially non-monetary and intangible
benefits — which existing regulation currently secures. (sub. DR36, p. 1)
Those regulations that impact on government also need to be considered, as they
impose opportunity costs, and can have important flow-on effects for the
community (for example, regulation governing education providers has an
important impact on the cost and quality of education available to the
community).
The VRMS needs to include governance, processes, and capability that support
‘better regulation’ — regulation that improves living standards while controlling
costs on all sectors, especially those that are critical to productivity growth. In
practice, this means simultaneously taking a robust evidence-based view of the
net benefits of regulation, while reducing aggregate regulatory burdens. The
policy objective of the then Canadian Government, outlined in box 2.1, captures
the importance of regulation being structured in the interests of the community
as a whole, and administered without unnecessary cost.
Box 2.1
Government of Canada Regulatory Policy
This statement sets out the:





policy objective: ‘to ensure that use of the government’s regulatory powers
results in the greatest net benefit to Canadian society’
policy statement: a description of the way in which the Government will achieve
the policy objective
application: the authorities to which the policy applies
policy requirements: principles that regulatory authorities must respect
responsibilities: of key agencies.
Source: Government of Canada 1999.
The Commission considers that the Victorian Government should set out a
broad statement of regulatory policy, covering its policy objectives, principles to
guide behaviour and the responsibilities of key agencies. This would provide a
unifying framework for its regulatory activities, making it more likely that they
would be conducted consistently towards a common goal.
The policy objective is a matter for the Victorian Government to determine. In
the Commission’s view, an objective of ensuring the VRMS facilitates the
achievement of net social benefits would be a good starting point for discussion.
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
15
The principles to guide behaviour, and the responsibilities of key agencies, are
discussed later in this chapter.
Recommendation 2.1
That the Victorian Government issue a statement of its overall regulatory
policy, to set out clearly what it wants to achieve through regulatory reform
and how those objectives should be achieved. The regulatory policy
statement would cover:
the policy objective
principles to guide the behaviour of those responsible for achieving the
objective
responsibilities of key agencies.
Have principles for better regulation been adopted as part of the
policy?
Principles for delivering better regulation play an important role in regulatory
policy. The principle of proportionality, for example, encourages impact
assessment to be focused on regulations with the largest impact (chapter 3) and
regulators to target enforcement on activities where the net benefits from
reducing risks are largest (chapter 5). OECD member countries have collectively
adopted a set of principles for effective regulatory management, based on
OECD research that began in the mid-1990s (OECD 2010b, p. 18).
The Victorian Guide to Regulation (VGR) sets out characteristics that the ‘nature of
regulation’ should meet (Government of Victoria 2007a, p. 3.1). These
characteristics are similar to the principles espoused by the OECD.
The foreword to the VGR states that it is the ‘definitive guide to developing
regulation’ (Government of Victoria 2007a, p. i), rather than a guide to the full
regulatory cycle. As such, the VGR does not provide extensive guidance on
implementing, administering and enforcing, and evaluating regulation.
The characteristics in the VGR are similarly focused on regulatory design, rather
than implementation, administration and enforcement, but also comment on the
other stages.2 This could cause confusion about whether these characteristics are
also intended to guide the behaviour of those involved in later stages of the
regulatory life cycle. The Department of Primary Industries appears to believe
that they are not adequate for later stages, because it has developed its own
For example: ‘Proportionality. Regulatory measures should be proportional to the problem that they seek to
address. This principle is particularly applicable in terms of any compliance burden or penalty framework
which may apply. This characteristic also includes the effective targeting of regulation at those
firms/individuals where the regulation will generate the highest net benefits’ (Government of Victoria 2007a,
p. 3.2).
2
16
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
enforcement principles. And Consumer Affairs Victoria has developed best
practice principles applicable to each stage of the regulatory cycle (VCEC 2011c).
To increase consistency among regulators and across stages of the regulatory
cycle, the Commission believes that the Government should review the best
practice principles in the VGR. One option would be to have a single set of
principles, and some interpretation under each one, to articulate its meaning for
each stage of the cycle. Another option is to have an overarching set of general
principles, and a separate set of more focused principles for each stage. The
choice between these options is largely a matter of presentation. The most
important considerations are that the principles are consistent, accessible,
workable and concise.3
To provide guidance on implementing principles at different stages, the
Commission also considers that the Regulatory Policy and Performance Unit4
(RPPU) should update the VGR to provide a more holistic statement of the
Governments expectations for regulations throughout their life cycle. Later
chapters note the lack of Government guidance relating to regulation beyond the
design stage. Improved guidance on government expectations, and support for
departments and agencies implementing regulatory policy, would help the
Government’s regulatory policy to be better implemented.
It is important, however, that the VGR remains usable for different audiences.
While some audiences may value whole-of-life-cycle guidance on the
Government’s approach to regulation, others may be interested in a single
component — such as designing regulation. To manage the needs of different
audiences, the VGR could be published and downloaded in separate sections.5
In developing principles, the Government needs to be aware of the range of principles it is bound by — for
example the Environment Defender’s Office drew attention to the importance of considering ecologically
sustainable development principles. (sub. DR36, pp. 5-6)
3
The Commission uses the name ‘Regulatory Policy and Performance Unit’ to describe the policy unit in a
government department responsible for advising on regulatory policy and performance (discussed later in this
chapter). The term draws attention to a whole-of-life-cycle approach to regulation. This is currently the Better
Regulation Unit (BRU) in the Department of Treasury and Finance (DTF).
4
For example, separate sections could include the Victorian Guide to:
 Regulation (including an overview, policy statement and general principles)
 Designing Regulation (including most of the information currently in the VGR)
 Implementing Regulation
 Administering and Enforcing Regulation
 Evaluating Regulation
5
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
17
Recommendation 2.2
That the Regulatory Policy and Performance Unit review the
characteristics of good regulatory systems in the Victorian Guide to
Regulation, to ensure that they provide consistent guidance for the
operation of Victoria’s overall regulatory management system and for its
various components.
That the Regulatory Policy and Performance Unit expand the Victorian
Guide to Regulation to include Victorian Government guidance on its
expectations across the regulatory life cycle.
2.3.2
Is there clear accountability for tasks?
Have specific ministerial responsibilities for regulatory policy been
established?
Effective regulatory policy relies on comprehensively undertaking the following
key tasks:






maintaining and improving the VRMS
specifying tasks within various parts of the system and allocating
accountability
ensuring that resources and capabilities exist to enable tasks to be carried out
allocating overall effort across various parts of the system
coordinating better regulation activity across government
monitoring the performance of the system and using the information
gathered to improve outcomes through, for example, resource reallocation
and system redesign.
This section describes each of these roles and discusses who might be
accountable for delivering tasks.
Maintaining and improving the VRMS
The OECD suggests that regulatory management systems need to be robustly
designed to operate in challenging circumstances.
Initial plans and programmes can be blown off course by events, new
information and not least crises …
Capacities and mechanisms do not always function effectively, especially when
the political context becomes highly charged and at certain parts of the election
cycle …
Policy coherence may be achieved at the stage of policy development and
decision, only to be lost at the stage of implementation, which is usually in the
hands of different actors …
18
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
As the term “trade off” implies, policy coherence is not necessarily attainable, if
the meaning of policy coherence is to satisfy fully the attainment of high-level
policy goals in equal measure. Some ‘incoherence’ may be unavoidable. Policy
trade-offs may only become apparent once the process of developing policies in
detail has been engaged. (OECD 2010b, pp. 36-37)
How the overall VRMS is designed will have a significant impact on its
performance. Amongst the issues that need to be considered are:



interdependencies among the various components of the system — parts of
the system can be complementary or detract from other components
evolutionary development of the VRMS — such as amendments to the
Subordinate Legislation Act 1994 (Vic) and the creation of the Commission
step changes in the external environment that dramatically alter how
regulatory ‘problems’ are approached — these can be system-wide, or more
localised.6
The overall design of the VRMS can help government to manage challenges
effectively.
An effective regulatory policy needs to be built around the capacity to foresee,
manage and respond to complex and continuously evolving policy and
regulatory challenges… This implies the need for regulations and regulatory
frameworks to be flexible and to be adapted before a crisis forces the need for
change. An approach is needed which is capable of giving early warning that a
regulatory framework is not working as intended; a feedback loop that informs
policy makers and rule makers of the need for change, before too late. Among
other issues, this requires identifying the players who are best placed to provide
this feedback, and who know their clients. (OECD 2010b, p. 52)
The OECD argues that effective regulation will only be maintained through
stronger regulatory governance, by which it means an:
… integrated approach to the deployment of regulatory institutions, tools and
processes… A core challenge for effective regulatory governance is the
coordination of regulatory actions, from the design and development of
regulations, to their implementation and enforcement, closing the loop with
monitoring and evaluation which informs the development of new regulations
and the adjustment of existing regulations. (OECD 2010b, p. 49)
Later chapters discuss how to make each part of the regulatory cycle work more
effectively, but this begs the question of who should be accountable for making
sure that this happens.
An example of a system-wide change is the development of frameworks for risk-based regulation, which
have changed how regulation is developed, administered and enforced. More ‘localised’ step changes might
occur outside of the regulatory space — such as the development of nanotechnology, or the rise of online
gambling — and lead to comprehensive changes in how regulation in these areas must be approached.
6
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
19
Governments are ultimately responsible for regulatory policy, which means that
they are also responsible for defining who does what. In particular, governments
need to ensure that there is effective leadership and oversight of the regulatory
governance process. (OECD 2010b, p. 51)
The Commission’s view is that the VRMS is a key system of Cabinet, that
governs an important aspect of the work of virtually every minister. The
Commission’s view is that a single point of formal accountability for the VRMS
— a Minister for Regulatory Reform — would improve the capacity of Cabinet
to monitor and improve its core system. The role would include being the
steward for the VRMS, devising system-wide improvements, and ensuring that
the VRMS has fit-for-purpose tools and processes to facilitate better regulation.
As with other ministerial responsibilities, it is likely that this role would be
undertaken in combination with one or more other portfolio responsibilities.
A specific Minister for Regulatory Reform would be an improvement on the
status quo as it would provide clear accountability and focus on:



an explicit whole-of-government approach to regulatory policy, rather than
driven, for example, primarily from economic, business, or public
administration perspectives
a whole-of-system view of regulatory policy, rather than ad hoc
improvements to current initiatives
monitoring and foreseeing necessary changes to the VRMS over time.
Having a Minister for Regulatory Reform is by no means a ‘silver bullet’.
Ultimately, Cabinet decides and drives the rigour in regulatory processes. If
Cabinet’s commitment to observing the VRMS is weak, with, for example, easy
exemption from impact assessment or low levels of external scrutiny, then the
appointment of a ministerial watch dog would have little impact. However, if
there is a strong Cabinet commitment to good regulatory policy, a Minister for
Regulatory Reform could facilitate the implementation of that commitment and
deliver the benefits outlined above.
The Commission has been quizzed on its views about the appropriate location of
a regulatory reform ministry within Government. Clearly there are several
options. Each has strengths and weaknesses. For example, if the Minister was
situated within a business or industry portfolio, regulatory policy may be more
business-focused. If the Minister is within the Treasury portfolio, tensions
between reducing regulatory burden and finding ways to address issues that do
not increase government expenditure would need to be managed. On the other
hand, some have suggested that locating the ministry within the Treasury
portfolio may help to recognise the ‘key role regulatory reform plays in driving
productivity gains’ and align regulatory reform ‘with other economic levers’
(Building Commission and Plumbing Industry Commission, sub. DR 41, p. 3).
20
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
In choosing the location of the ministry, the Government would need to
minimise potential conflicts and biases, while ensuring the portfolio can
effectively perform its key responsibilities. The Commission considers that this is
most likely if the Minister is able to take a whole-of-government perspective
(unencumbered by sector-specific considerations), with any remaining conflicts
of interest managed transparently. The Minister for Regulatory Reform would be
the focus of efforts to improve the VRMS, although his or her capacity to
succeed would depend on whether the Government as a whole is committed to
regulatory reform.
The role of the Minister for Regulatory Reform in overseeing the VRMS would
not take away from the important existing responsibilities of portfolio ministers
and independent regulators in managing regulation and the activities of
regulators. The role of the Minister for Regulatory Reform is to lift the standards
in the system governing regulation and regulators, rather than focusing on
individual regulation and regulators.
Recommendation 2.3
That the Victorian Government establish a Minister for Regulatory Reform,
at a senior minister level, who is accountable for maintaining and improving
Victoria’s regulatory management system.
To support the Minister for Regulatory Reform in maintaining and improving
the VRMS, the Commission proposes a Regulatory Policy and Performance Unit
(RPPU). The RPPU would perform the roles currently performed by the BRU,
in the DTF, as well as other roles required to support the Minister in his/her key
responsibilities. The reference to ‘policy and performance’ draws attention to the
responsibilities of the unit throughout the whole of the regulatory life cycle. The
additional responsibilities that the Commission envisages the RPPU undertaking
are outlined throughout this report.
Task allocation
Closely related to the responsibility for maintaining and improving the VRMS is
assigning responsibility for the many specific tasks involved in operating the
system. As the APEC and OECD point out:
… the assignment of specific responsibilities for aspects of reform and the
creation of a framework for accountability are essential for the success of the
programme. (APEC and OECD 2008, p. 6)
Across the VRMS a range of tasks, accountabilities and participants would need
to be set. For example, the following tasks need to be allocated in managing and
improving the design of regulation:
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
21






developing the policy for impact assessment (which sets the objective that is
being sought with respect to the flow of new regulation and the broad
strategy for achieving it)
consulting with relevant stakeholders about changes to the broad framework
(for example, there would need to be considerable consultation about the
changes recommended in chapter 3)
designing the instruments to deliver the policy, such as regulatory impact
statements (RISs)
building the capacity to implement the mechanisms as part of the VRMS
implementation of decisions
reviewing and improving the framework.
An important role for the Minister for Regulatory Reform is to ensure that
relevant tasks have been specified and accountabilities for them are allocated.
Strengthening regulatory governance to support an integrated regulatory policy starts
with the question of who exercises regulatory power, and a comprehensive
understanding of “who does what” in terms of regulation, and how the different
actors interact (including, and not least, private sector actors). A core challenge for
governments is to build up a more comprehensive picture of the regulatory landscape.
This complete overview tends to elude countries… (OECD 2010b, p. 55)
Clear role allocation that removes ambiguities and overlaps in accountability
would:




strengthen regulatory governance
clarify accountabilities
avoid gaps and overlaps
provide a basis for performance reporting.
The allocation of responsibilities would have regard to the appropriateness of
roles being allocated to different parties, recognising existing strengths,
capabilities and resources; fit with existing functions; and ensure that the
independence of independent regulators is not compromised. This framework
would build on existing practice, and incorporate such relevant
recommendations from this inquiry as are ultimately accepted by Government.
22
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
Recommendation 2.4
That the Minister for Regulatory Reform develop, for the approval of
Cabinet, an accountability framework, addressing clear and explicit roles
and accountabilities for the following processes in Victoria’s regulatory
management system:
designing new regulations
implementing regulations
administering and enforcing regulation
evaluating existing regulations.
This accountability framework would incorporate such recommendations
from this report that are supported by the Victorian Government.
Allocating effort across the regulatory system
Task specification needs to be backed by sufficient authority and resources to
enable the tasks to be carried out. There are many different ways to operate and
improve the VRMS. Because resources are limited, trade-offs need to be made
between competing activities; for example, the relative effort to devote to:




the various stages of the regulatory life cycle
improving the VRMS as compared with operating it
COAG regulation reform processes
developing frameworks for ensuring the resilience of regulation in the face
of economic circumstances, as compared with simply responding when
situations arise.
As noted above, Victorian governments have devoted more attention to the first
stage of the regulatory cycle than to others. The Commission is not aware of any
government statements explaining why this is the case. An explicit process for
working out system-wide priorities would ensure that priorities emerge by
conscious decision.
The Commission’s view is that regulatory outcomes would be improved if the
Government were to publish periodically its priorities for improving the VRMS.
Developing its priorities and the strategy for achieving them provides a
framework within which the Government could explain how priorities are set,
decide to move resources towards areas where it saw a need for improvement.
Once this had been achieved, it might shift resources to another stage of the
cycle.
If the Government were to publish an overall regulatory policy and an
explanation of how it intends to improve the VRMS to achieve the policy
objectives, it would be a natural development to report progress towards
achieving the objectives. This would provide information about the efficiency
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
23
and effectiveness of the current resource allocation and whether it needs to be
amended.
Recommendation 2.5
That the:
Victorian Government clarify its priorities for, and encourage improvement
in, Victoria’s regulatory management system by publishing annually
the outcomes it is seeking from the system (and the matters covered in
recommendation 2.1) and its strategy for improving it
Minister for Regulatory Reform report annually to Parliament on the
progress of the regulatory reform agenda, including improvements to
the regulatory management system.
Coordination of better regulation across government
With so many participants across government in the regulatory framework:
… to be effective, reform will have to be co-ordinated across a number of areas,
with clear roles to be played by department/ministry officials, front-line
regulators, senior officials, oversight bodies (if any), the courts, stakeholders, the
public, and political leaders. (APEC and OECD 2008, p. 6)
Responsibility for ensuring that coordination occurs across portfolios sits best
with Cabinet, while responsibility for ensuring coordination among agencies
within a portfolio is likely to be allocated to the portfolio minister. The
regulatory policy would provide a framework within which coordination would
occur.
Effective coordination does not require that responsibilities for various tasks are
centralised. Decentralised responsibilities may be well coordinated, provided that:
tasks are clearly allocated, accountabilities are specified, unnecessary overlaps
(and gaps) are avoided, and there is a process for handling the interdependencies
which are common in the administration of legislation and regulation. The
Business Licensing Authority noted that the more systemic view of regulation
promoted in this chapter is
… especially pertinent to whole-of-government initiatives…For instance, the
SmartForm platform would be more widely and readily understood…if there
was a centralised resource responsible for oversighting how Victoria’s regulators
operate and integrate. (sub. DR42, p. 3)
24
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
Recommendation 2.6
That the:
Minister for Regulatory Reform be responsible for monitoring and
advising Cabinet on the effectiveness of coordination of regulatory
effort across different portfolios
relevant portfolio ministers be responsible for coordinating effort among
agencies within their portfolios.
Promoting regulatory policy
The inquiry terms of reference require the Commission to report on ways to
strengthen support for regulatory reform. Communication between government
and those who are regulated is crucial for at least three reasons. First, it can build
support for reform.
If governments do not communicate what they are doing and why this is
important for the economy and social welfare, they cannot expect support.
(OECD 2010b, p. 64)
Second, it informs business.
Reforms are only useful if businesses learn how to take advantage of them.
(World Bank Group 2007, p. 14)
Third, it helps government to learn about what works and what does not.
The advocacy function is important for ensuring that reform is understood,
accepted and it also provides a feedback loop for the views of business and
citizens. Advocacy requires interaction with business and civil society, seeking
support, but also seeking external assessment and perceptions, which will help to
drive future regulatory improvements. (OECD 2010b, p. 53)
There is some debate about who should be responsible within government for
advocacy? Assigning responsibility to a minister gives it more ‘weight’.
Alternatively, putting it:
… with an external advisory body … has the merit of ensuring that a truly
external view of business and citizen needs is captured, countering the
bureaucratic view and helping to broaden the “tunnel vision” which can prevail
inside government. (OECD 2010b, p. 53)
The Commission’s view is that the Minister for Regulatory Reform, supported by
an appropriate unit within the Minister’s department, should lead the promotion
of regulatory reform on behalf of the government, encouraging participation
from across the community. Reporting to Parliament on the achievements of
regulatory reform would promote reform, but needs to be supported by other
forms of dialogue with the community.
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
25
Even if a Minister has primary responsibility for advocacy, this does not mean
that he or she does all of the work.
Ministers, regardless of how well-respected they may be, do not relate to
businesses as much as other business people do. If the main audience for
regulatory reform is the businesses, select some entrepreneurs and use them in
the information campaigns … feature public events where entrepreneurs are
invited to talk about existing problems, as well as what improvements they see.
(World Bank Group 2007, pp. 13-14)
Businesses and not-for-profits organisations with an interest in regulatory reform
have an associated interest in participating in the reform process.
The Commission also has a
Order-in-Council, which specifies:



role,
consistent
with
its establishing
the Commission is responsible for achieving awareness of competitive
neutrality policy
the Treasurer may require the Commission to publish a draft report on
inquiry topics that the Treasurer refers to the Commission
the Commission must report annually on issues such as its performance
against its annual work program; developments in regulation and their
enforcement within Victoria; the nature and extent of compliance with
published policies currently applying to government bodies in relation to
RISs and business impact assessments (BIAs) (Victorian Government
Gazette, 1 July 2004, pp. 1862-1866).
Recommendation 2.7
That, to build support for and understanding of the regulatory
management system and improvement processes, the Minister for
Regulatory Reform, lead the promotion of regulatory reform on behalf of
the government, encouraging participation from across the community.
2.3.3
Is there a dedicated body responsible for regulatory
oversight?
The location and form of agencies that oversee the delivery of regulatory policy
are important features of regulatory frameworks. The OECD argues that:
… beyond the basic need to check that procedures have been followed (the task
of co-ordination/supervision), there is a further need for independent, objective
assessment of the quality of a proposal, which includes checking whether impact
assessment, consultation and burden reducing processes have been properly
carried out. The underlying issue is that regulators cannot self-assess their work.
This challenge may be the most difficult function as it can be perceived as (and
in some cases is formally set up to be) a gate-keeping function, where the
26
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
relevant body has the power to hold back a proposal until it is deemed fit to be
considered and approved by the government. In some cases, the oversight body
may publish its comments and assessments, thus providing a powerful ‘shaming’
pressure for improved performance. (OECD 2010b, pp. 52-53)
In Victoria, the key regulatory oversight bodies are the BRU, the Commission,
the Victorian Auditor-General’s Office (VAGO), and, to some extent, Cabinet.
VAGO’s role is to provide independent assurance to Parliament on the
accountability and performance of the Victorian public sector. Its role extends
beyond regulators and regulatory reform, although examples of reports on
regulatory issues include: the Victorian Regulation and Qualifications Authority
(2010c), regulation of operational rail safety (2005) and management of food
safety (2002).
The Government established the Commission in 2004 to be ‘the State’s foremost
independent advisory body on business regulation reform and identifying
opportunities for improving Victoria’s competitive position’ (Government of
Victoria 2005, p. 10). The Commission carries out its advisory role through three
complementary functions:



undertaking inquiries into matters referred to it by the Government
reviewing and advising on the economic impact of significant new legislation
and regulation and the adequacy of measurements of the administrative
burden of regulation
operating Victoria’s Competitive Neutrality Unit.7
The Commission undertakes some of the oversight issues described by the
OECD, through reviewing the adequacy of RISs and BIAs (chapter 3) and some
measurements relating to reducing regulatory burden (chapter 7). Through its
inquiry role it assesses regulatory arrangements in particular sectors (such as
housing construction), or areas (such as environmental regulation). The
While the Commission is accountable to the Treasurer, the following arrangements underpin its capacity to
develop independent advice.
7



The Governor-in-Council appoints Commissioners, and their appointments can be terminated only on
the basis of misbehaviour, or physical or mental incapacity.
A framework agreement exists between the Treasurer, the Secretary of the DTF and the Chair of the
Commission to ensure the independence of the Secretariat’s advice to the Commission.
The transparency of the Commission’s processes is established by the Order-in-Council, which specifies
that:
 the content and action taken in respect of any direction made by the Treasurer to the Commission
must be reported in the annual report, which the Treasurer should publicly release within three
months of receiving it
 the Treasurer should publicly release final inquiry reports within six months of receiving them from
the Commission.
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
27
Commission does not have a role in monitoring or reporting progress by
individual ministries in achieving the Government’s regulatory policy objectives.
The BRU in DTF is currently responsible for managing:



whole of government strategies to reduce regulatory burden and guidance on
best practice regulation-making processes
policy advice
Victoria’s input to national regulatory reform initiatives.
If the Minister for Regulatory Reform, with the support of the RPPU (the
expanded BRU, described earlier), were assigned the expanded role identified
earlier in this chapter, the Minister would need to consider whether the roles and
resourcing of the RPPU (as policy advisor) and the Commission (as provider of
key independent support and service functions) were adequate. This would in
turn depend on which of the inquiry’s final recommendations the Government
decides to accept.
2.3.4
Is there training in regulatory quality skills?
Successful operation of the VRMS requires that those who are allocated tasks
have the capability to deliver them. Guidance and training are available in
Victoria.




The VGR provides guidance on regulatory impact assessment.
The Commission provides training in the impact assessment process and
cost-benefit analysis for people involved in preparing RISs and BIAs.
The BRU has prepared a regulatory change measurement manual to support
the preparation of proposals for reducing regulatory burden and, with the
Commission, conducts training on undertaking change measurements.
DTF facilitates training on the use of market-based instruments at the
University of Melbourne.
The OECD’s regulatory indicators also, however, suggest that training is
important in areas where Victoria’s approach is not so well developed, for
example:




training on how to inform and communicate with the public
general guidance on the regulatory policy and its underlying objectives
general guidance on compliance and enforcement
other strategies to promote changes in the regulatory culture consistent with
the objectives of the regulatory policy8 (OECD 2009, p. 27).
Training is available in Victoria in some of these areas. For example, the Australia New Zealand School of
Government (ANZSOG) runs a course on managing risk regulation, enforcement and compliance. The
8
28
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
If the Government decides to articulate its regulatory policy, it would be prudent
to assess existing capabilities for delivering its policy objectives and where
responsibility for training lies. Later chapters discuss ways to improve capabilities
in the various components of the VRMS, and consider the scope for delivering a
‘community of practice’, to share experience and good practice.
Capabilities are more likely to be developed if there is a clear accountability for
ensuring that this happens. The Commission considers that accountability is best
allocated to the Minister for Regulatory Reform for the overall system, and to
portfolio ministers for developing the capability of policy officers in their area of
portfolio responsibility.
Recommendation 2.8
That:
the Minister for Regulatory Reform report on the adequacy of training for
roles in Victoria’s regulatory management system
ministers are accountable for ensuring attention is given by portfolio
agencies to the effectiveness of training and capability development for
policy officers responsible for developing regulation and regulators in
the minister’s area of portfolio responsibility.
2.3.5
Are legislation and regulations accessible?
The OECD argues that:
… Transparency represents a key feature of good public governance….Because
it is so important, regulation needs to be easily available to and understandable
by citizens and business. (OECD 2009, p. 36)
Assessing Victoria’s approach against the OECD’s accessibility criteria, indicates
that:



current Acts and statutory rules are accessible, but instruments such as
ministerial orders and directions, standards and codes are accessible on an
ad hoc basis
recent changes to legislation are publicly available, but advance notice of
primary and subordinate legislation is not (although the Commission
publishes information on forthcoming sunsetting regulation in its annual
reports)
only some subordinate legislation is available in a consolidated register.
Commission has not reviewed the adequacy of training on regulatory issues across the Victorian public
service.
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
29
In its first annual report, in 2005, the Commission pointed out that:
… legislation can also provide for regulatory instruments in the form of
ministerial Orders and Directions, mandatory codes of conduct, licence or
accreditation conditions, and so on. No-one knows how many of these
regulatory instruments are in place in Victoria … or their aggregate impact.
These forms of regulation are mostly subject to less rigorous scrutiny, do not
have sun setting requirements and are not required to be held centrally, so may
be less readily accessible. As noted, they can impose significant impacts on
business and the broader community. (VCEC 2005a, p. 34)
The Commission pointed out that a program of regulatory reform could
consider:
… Making regulation easier to find by creating a database of all regulatory
instruments, with legal backing to ensure it becomes comprehensive. (VCEC
2005a, p. 35)
Developing a more comprehensive database of legislation could involve
considerable costs, depending on, for example, its coverage, ease of accessibility,
the frequency with which it is updated, and the level of centralisation; but could
also create considerable benefits. A cost benefit analysis of different options for
improving access to legislation could consider the:



primary purpose for which the database might be used (for example,
whether it is intended to be used by the community as a whole, or targeted at
use by specific groups (such as the business sector, courts, legal profession,
academics, government employees)9
costs (including both initial and ongoing) and benefits of different options
for achieving this purpose, with options covering issues such as
–
coverage — the range of instruments to be included
–
accessibility — the extent to which the database is user-friendly and
accessible to wide audiences
–
timing — how long might be given to establish a database, whether the
database is retrospective or implemented progressively by including only
new instruments
–
integrity — whether a database includes only ‘authorised’ versions of
instruments that have evidentiary value
costs and benefits of achieving a nationally consistent approach.
The OCPC, who is responsible for the current register of Acts and statutory
rules, would be well-placed to administer a more comprehensive centralised
The Office of the Chief Parliamentary Counsel (OCPC) emphasises ‘…the importance of a register that can
also reliably be used by the courts, lawyers generally, and other professionals including those who advise
persons whose activities are regulated. Professional users of legislation need access to authoritative versions
of the law’ (sub. DR43, p. 2).
9
30
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
database, if this resulted from the cost benefit analysis. The OCPC notes that the
register ‘… falls within our area of expertise [and is] the best means of ensuring
the accuracy and authoritative nature of the register’s content’ (sub. DR43, p. 3).
Recommendation 2.9
That the Regulatory Policy and Performance Unit, with the Office of the
Chief Parliamentary Counsel, undertake a cost benefit analysis of the
options for increasing accessibility to legislation; for example, by
extending the existing electronic database of Acts and statutory rules to
include legislative instruments.
Following the cost benefit analysis, the Regulatory Policy and Performance
Unit and the Office of the Chief Parliamentary Counsel publish their
intended response to improve the accessibility of regulation in Victoria.
2.3.6
Have attempts been made to measure trends in
regulation?
The availability of information on trends in regulation is an important part of
regulatory policy because it assists stakeholders to understand issues such as
whether the growth of regulation is accelerating, the broad outcomes of the
regulatory management system and the performance of regulators.
The Commission regularly publishes data on trends in the number and form of
regulators, the number and length of the Acts and Regulations administered by
these regulators, and the number of Regulations produced annually for which a
RIS is required (VCEC 2011e, VCEC 2010c). While these are crude indicators,
developing better ones would be costly, and the Commission notes that the
OECD also reports data on the number of Acts and Regulations (OECD 2009,
pp. 84-87).
Information about regulators’ enforcement activities, licensing and registration
activity, review mechanisms and public reporting is published by the
Commission (VCEC 2011e). This permits comparisons between regulators and
enables their progress to be tracked over time, given that a series of reports has
been published. The OECD has commended this aspect of the Commission’s
work:
Benchmarking has also the potential to further develop at the sub-national level,
as Victoria tends to be the most advanced for systematically collecting key
performance information on State regulators. (OECD 2010a, p. 70)
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
31
In addition, the Commission publishes estimates of the costs and benefits of new
regulation in its annual reports. The Commission’s experience suggests that it
would be very costly to measure the baseline costs of existing regulation.10
Little information is available on the perceptions of those who are regulated
(such as businesses, not-for-profit organisations, or even government service
delivery bodies). The survey prepared for the Commission by the Wallis Group
(2011b) has few, if any, antecedents in Victoria. This survey has provided
considerable information about which levels of government are perceived as
imposing most regulation, which areas of regulation are most important, and
perceptions about the complexity of regulation and whether it is increasing.
Such surveys, undertaken regularly, could inform the Government about whether
programs intended to simplify regulation are having the desired effect on
perceptions, while also signalling priority areas for regulatory reform. Such
surveys engage the community and could encourage them to become more
involved in regulatory reform. Business and industry organisations could make a
constructive contribution by commissioning and reporting such surveys of
business and not-for-profit organisations (chapter 5).
2.4
Conclusion
This chapter has argued — relying on cross-country research conducted by the
OECD — that the cornerstone of an effective regulatory management system is
a regulatory policy, which establishes clearly defined policy objectives, sets out
principles for good regulation and establishes responsibility for reform at
ministerial level (recommendations 2.1 and 2.3).
Figure 2.1 sets out the most important accountabilities and roles in the VRMS.
As regulation affects most areas of government, Cabinet should retain overall
responsibility for the VRMS, with ultimate authority for its design. The
Commission’s view is that a single senior Minister for Regulatory Reform should
have accountability for managing, promoting and advising on how to improve
the system.
DTF has estimated the administrative burden of existing regulation, but this does not include substantive
compliance and delay costs (chapter 7).
10
32
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
Figure 2.1
Organisational architecture of the Victorian
Regulatory Management System (VRMS)
Source: VCEC.
Specifically, the Minister for Regulatory Reform, with the support of the RPPU,
needs to:






develop, for the approval of Cabinet an accountability framework addressing
clear and specific roles and accountabilities for involved in operating the
VRMS (recommendation 2.4)
report on the adequacy of training for these roles (recommendation 2.8)
monitor and advise Cabinet on the coordination of regulatory effort across
different portfolios (recommendation 2.6)
report on the performance of the VRMS against the intended outcomes and
objectives, and identify opportunities for ongoing improvement for adoption
by Cabinet (recommendation 2.5)
build support for, and understanding of the VRMS, and promote the
benefits of regulatory reform (recommendation 2.7)
support communities of practice to build capabilities and share experience in
relation to all of the stages of the regulatory cycle (as will be discussed in
chapters 3, 4, 5 and 6).
Portfolio ministers are bound by the requirements of the VRMS in their
portfolio responsibilities, which include:
IMPROVING THE REGULATORY MANAGEMENT SYSTEM
33




developing and improving regulations
providing and improving regulatory services
providing VRMS performance information to the Minister for Regulatory
Reform
building capability in assigned areas of policy and regulatory accountability.
In a good regulatory management system, regulation would be easily accessible,
and evidence about how well the system is performing would be available and
used to inform improvements to the system. The Commission considers that a
cost benefit analysis of options for increasing accessibility through a database of
regulatory instruments is warranted (recommendation 2.9).
The recommendations in this chapter, and across the remainder to the report, are
likely to add to some extent to the costs to Government of managing regulation
— for example, where additional reporting is required. These costs may be
largely ‘bureaucratic’ (Environment Defenders Office, sub. DR36, pp. 4-5), but
the Commission’s analysis of the cost-effectiveness of the RIS process shows
that these processes can make real differences to outcomes in the community. In
terms of cost-effectiveness, for every dollar incurred by the key parties involved
in the impact assessment process, gross savings of between $28 and $56 were
identified (VCEC 2011a). The Commission believes that the benefits arising
from better regulation — improving the liveability and competitiveness of
Victoria — are likely to be considerably higher than these costs.
The recommendations in this chapter are necessary, but not sufficient for
moving Victoria to the next level of regulatory reform. Chapters 3-8 outline
complementary changes for improving specific parts of the regulatory system.
Together these system-wide and specific changes provide a regulatory framework
for the next decade.
34
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE