8
Regulation in a federation
Victoria is part of a federation, which shapes key aspects of the Victorian
regulatory management system. It is therefore not possible to look at the
Victorian regulatory system in isolation from the wider Australian regulatory
framework. Actions undertaken by the Commonwealth, and possibly other
jurisdictions, can have a direct impact on regulatory burdens in Victoria. For
example, the Building and Plumbing Industry Commission recognised that:
In reviewing the Victorian regulatory framework it is important to examine it in
the context of the broader national settings. (sub. 25, p. 16)
Similarly, the OECD noted that:
Any reform conducted in a multi-level regulatory governance context is
complex, and can by affected by Commonwealth-State relations, reform
strategies as well as regulatory management at state level. (OECD 2010a, p. 71)
The key challenges for the Victorian regulatory system in the Australian
Federation are to play its part in:


sustaining its leadership contribution to regulation reform in the Australian
Federation, while achieving the best regulatory outcomes for Victoria
contributing to improving the overall performance of regulatory areas where
there is overlapping or mutual responsibility among the Commonwealth,
states and territories.
Given the importance of the relationship between Victoria and the other
jurisdictions, and in particular the Commonwealth, this chapter:

Examines Victoria’s experience in several national approaches to cut
–
overlaps with Commonwealth regulation
–
inconsistencies with other jurisdictions.

Suggests improvements to:
–
the processes for deciding when a national approach is, or is not,
warranted, including less costly alternatives to national approaches and
improving the analysis of national options
–
the incentives for ongoing innovation in policy, regulation and service
delivery in areas where national approaches are being pursued.

Proposes options for better balancing Victorian and national regulatory
interests to improve the net benefit from national processes.
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The Commission intends to develop its analysis of issue of regulatory reform
within the federation further, for inclusion in the final report. As part of this
process the Commission has contracted Jaguar Consulting to illustrate, using a
number of case studies, the potential costs and benefits to Victorian businesses
of Victoria's participation in COAG harmonisation activities. The Commission
also intends to draw on the information from Draft Report 2 — Regulatory
Reform Priorities (forthcoming) as well as submissions in response to this draft
report and the information requests in this Chapter.
8.1
National processes
Over many years there has been a trend towards an increasing use of national
responses, broadly aimed at, for example:



developing national markets in industries like electricity
achieving better national outcomes in selected areas of service delivery by
states and territories
strengthening a Seamless National Economy (the most recent process).
This trend has accelerated with the establishment of the COAG reform agenda
and the National Partnership to Deliver a Seamless National Economy (discussed further
in section 8.2). The impetus for this change has in part been the complaints of
business and not-for-profit organisations that operate in more than one
Australian jurisdiction about the costs of:


inconsistencies in regulation between state and territory jurisdictions
overlapping, duplicative and inconsistent regulation between the
Commonwealth, and states and territories and between states and territories.
8.1.1
The Council of Australian Governments
The Council of Australian Governments (COAG) was established in 1992 and
comprises the Prime Minister, State Premiers, Territory Chief Ministers and the
President of the Australian Local Government Association. COAG is Australia's
peak intergovernmental forum.
The role of COAG is to initiate, develop and monitor the implementation of
policy reforms that are of national significance and require cooperative action by
Australian governments (for example, health, education and training, Indigenous
reform, early childhood development, housing, microeconomic reform, climate
change and energy, water reform and natural disaster arrangements)
(COAG 2010).
A key source of policy recommendations for consideration by COAG are
Ministerial Councils.
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8.1.2
Ministerial Councils
Ministerial Councils are fora that facilitate consultation and cooperation among
the Australian Government and state and territory governments in specific policy
areas. The councils can initiate, develop and monitor policy reform jointly in
these areas, and take joint action in the resolution of issues that arise across
governments. In particular, Ministerial Councils develop policy reforms for
consideration by COAG, and oversee the implementation of policy reforms
agreed by COAG. These councils can also develop reforms which are not
necessarily considered by COAG, and not all COAG reforms go through a
Ministerial Council.
Responsible ministers from each government participate in councils. There may
be more than one minister from each government represented on a council.
However, where voting arrangements apply, each government generally has only
one vote. New Zealand Ministers have full membership of councils when
matters affecting New Zealand are being considered. Normally, Ministerial
Councils would meet once or twice a year, although they may regularly settle
issues by correspondence.
8.1.3
COAG RIS processes
A Regulation Impact Statement (RIS) is required for agreements or decisions of
COAG, Commonwealth-State Ministerial Councils and national standard setting
bodies that, when implemented, would encourage or force businesses or
individuals to pursue their interests in ways they would not otherwise have done.
COAG RISs are undertaken in a two stage process involving a RIS for
consultation and a RIS for the decision makers:


The consultation RIS is prepared by officials developing a policy proposal
for consideration by COAG, a Ministerial Council or by a national
standard-setting body. This RIS is prepared to facilitate consultation with
affected parties prior to the development of final recommendations for
decision-makers.
The RIS for decision-makers is to draw conclusions as to whether regulation
is necessary, and if so, on what the most efficient and effective regulatory
approach might be (taking into account the outcomes of the consultation
process).
The Office of Best Practice Regulation (OBPR), located within the Department
of Finance and Deregulation, is responsible for assessing the adequacy of RISs.
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8.2
Current national regulatory reform
arrangements
COAG has initiated a number of reform agendas since its inception in 1992.
These have included the signing of the National Competition Principles
agreement in 1995 and the launching of the National Reform Agenda in 2006.
Most recently in 2008, COAG signed the National Partnership Agreement to Deliver a
Seamless National Economy. The agreement states that:
The COAG reform agenda is intended to deliver more consistent regulation
across jurisdictions and address unnecessary or poorly designed regulation, to
reduce excessive compliance costs on business, restrictions on competition and
distortions in the allocation of resources in the economy. (COAG 2008a, p. 3)
The reform agenda is oversighted by the Business Regulation and Competition
Working Group (BRCWG) (box 8.1).
Box 8.1
Business Regulation And Competition Working
Group
The objectives of the Business Regulation and Competition Working Group are:




To accelerate and broaden the regulation reduction agenda to reduce the
regulatory burden on business.
To accelerate and deliver the agreed COAG regulatory hot spots agenda.
To further improve processes for regulation-making and review, including
exploring a national approach to processes to ensure no net increase in the
regulatory burden, and common start dates for legislation.
To deliver significant improvements in Australia’s competition, productivity and
international competitiveness.
The working group is chaired by a Commonwealth Minister (the Minister for
Finance and Deregulation) and comprises senior officials from all jurisdictions.
Source: COAG 2008b
An important part of the agreement is that incentive payments are made available
to jurisdictions that implement the reforms specified by the BRCWG. The
National Partnership (NP) Agreement states that:
The NP payment model involves:
(a) ‘facilitation’ payments that recognise the net set-up costs and revenue
forgone by the States and Territories as a result of implementing the reforms set
out in paragraph 14(a) of this Agreement; and
(b) a ‘reward’ component, with payment contingent on independent assessment
that clearly defined key milestones have been achieved.(COAG 2008a, p. 3)
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States and territories were eligible for facilitation payments of $100 million in
2008-09 and reward payments of up to $450 million over 2011-12 and 2012-13
depending upon progress in achieving the 27 deregulation priorities (COAG
Reform Council 2009, p. xix). These priorities are discussed further in the
following section.
Assessment of the progress and performance of the jurisdictions in meeting the
reform targets and eligibility for incentive payments lies with the independent
COAG Reform Council (box 8.2).
Box 8.2
COAG Reform Council
The role of the COAG Reform Council is to report to COAG on:





the performance of the Commonwealth and the states and territories in
achieving the outcomes and performance benchmarks specified in National
Agreements
whether predetermined performance benchmarks have been achieved under
National Partnerships
the performance of the Commonwealth and the Basin States under five bilateral
Water Management Partnerships under the Agreement on Murray-Darling Basin
Reform
the aggregate pace of activity in progressing COAG’s agreed reform agenda
other matters referred by COAG.
Source: (COAG Reform Council 2009, p. 8)
8.2.1
COAG reform priorities
The BRCWG has identified 27 areas of regulatory reform (table 8.1) to be
included in the implementation program along with an additional eight priority
areas for competition reform (table 8.2). Under the NP agreement, payments
only relate to achieving the 27 deregulation priorities (2008a, p. 5), no payments
are contingent on progress in competition policy reforms.
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Table 8.1
National Partnership Agreement: Reform streams
— deregulation priorities
Priority area
1. Occupational health and
safety
2. Environmental
assessment
3. Payroll tax
4. Licensing of tradespeople
5. Health workforce
6. Trade measurement
7. Rail safety
8. Consumer law
9. Product safety
10. Trustee corporations
11. Mortgage broking
12. Margin lending
13. Non-deposit lending
14. Development
assessment
15. Building regulation
16. Chemicals and plastics
17. Business names
18. Personal property
securities
19. Business reporting
20. Food
21. Mine safety
22. Electronic conveyancing
23. Oil and gas
24. Maritime safety
25. Wine labelling
26. Directors’ liability
27. Financial service delivery
Sources: BRCWG 2008
Table 8.2
National Partnership Agreement: Reform streams
— competition reforms
Competition reform area
1. Anti-dumping/
countervailing
2. Book importation
3. Energy
4. National access regime
5. Infrastructure
6. Occupational licensing
7. Transport policy
8. Road reform plan
Sources: COAG Reform Council 2009
The focus of reform is on increasing national consistency in regulations. There is
a range of mechanisms by which this objective can be achieved, including:



202
the transfer of powers from one level of government to another — states
can 'refer' their powers to regulate in a particular area to the Commonwealth
cooperative national standards — where a ministerial body or
standard-setting body develop national standards which are implemented by
each jurisdiction
mutual recognition — where compliance with regulations in one jurisdiction
are accepted in another, even if there are different regulatory standards in
each jurisdiction (Banks 2006, pp. 9-10).
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
Other mechanisms for increasing national consistency include:




in areas where it has constitutional power the Commonwealth can
unilaterally regulate
lead legislation — where legislation is passed in one jurisdiction and a
provision applying that legislation is passed in each other jurisdiction
mirror legislation — where complete similar legislation is passed in each
jurisdiction
memorandum of understanding between regulators — where regulators
agree on how they will work together on a particular issue.
There are advantages and disadvantages to these different mechanisms to achieve
more nationally consistent regulation across jurisdictions and all have been used
in Australia.
On the whole, Australian processes for dealing with regulation making in a
federation — and the COAG process in particular — have received positive
assessments by the OECD. For example, it has noted that:
COAG has been and continues to be instrumental in lowering barriers to reform
created by the multiplicity of jurisdictions, capturing innovations from different
jurisdictions and providing a forum for the Commonwealth and States to
champion reform. (OECD 2010b, p. 148)
With the overall assessment that:
Australia stands out among OECD member countries for innovative and cutting
edge initiatives aimed at facilitating regulatory reform across levels of
government. Established co-ordination arrangements are in place to facilitate
multilevel intergovernmental dialogue and cooperation. (OECD 2010a, p. 71)
While Australia's overarching processes for moving to more nationally consistent
regulation have received some positive endorsements, there is the issue of what
regulations should be subject to such harmonisation. More specifically, from
Victoria's perspective, when should it engage in the process and in what manner?
The following section considers, at a conceptual level, the advantages and
disadvantages of national harmonisation and consistency.
8.3
The advantages and disadvantages of
harmonisation and consistency
Business and not-for-profits have complained about the costs of national
inconsistency, and inefficiencies coming from overlaps between Commonwealth
and (Victorian) State regulation, and inconsistencies across state and territory
regulation.
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There is a presumption by business and not for profit organisations in a number
of cases that moving to a national or more harmonised approach is the best way
to reduce regulatory costs. There are clear benefits from moving to more
national approaches in some circumstances. However, there are also potential
costs and risks, and these may be significant.
This section discusses the advantages and disadvantages of greater regulatory
harmonisation and consistency among Australia's jurisdictions.
8.3.1
The advantages of greater harmonisation and
consistency
There are strong voices arguing in favour of regulatory harmonisation and
consistency across jurisdictions. These calls for greater consistency are from a
wide range of parties seeking greater economic integration. For example, large
businesses operating across several Australian jurisdictions represented by the
Business Council of Australia argue that:
Despite the unified image we present to the world, doing business across
Australia is made unnecessarily confusing, complex and costly by the inability of
governments to make adequate progress in harmonising and rationalising
existing regulation. (BCA 2008, p. 3)
Individuals also recognise that there are advantages from greater harmonisation.
For example, Lawrence Reddaway observed that:
I have worked for 45 years in consulting engineering, the building industry, and
dispute resolution. And this experience has shown me that as much of
Australia's regulation should be nationally based, rather than state based. This is
because industry and commerce and professions work across Australia, and it is
very burdensome to have to adapt administrative and professional practice to
the requirements of each jurisdiction. (sub. 1, p. 1)
The arguments for greater regulatory harmonisation and consistency tend to
focus on:


204
Cost burdens due to regulatory complexity and duplication across
jurisdictions — businesses and individuals who operate in different
jurisdictions must comply with the relevant regulations in each jurisdiction.
This is a particular problem for larger businesses operating in all Australian
jurisdictions that must have specialist knowledge of the regulatory regime in
all nine jurisdictions. But individuals can also be affected, for example,
tradespeople or professionals working across state borders.
Costs incurred by government of administering multiple regulatory schemes
—multiple regimes are likely to lead to duplication of administrative costs in
running the various schemes. In addition, each jurisdiction may be required
STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE
to run its own separate information and education programs to explain the
regulations. This may involve each jurisdiction creating its own educational
material. Banks has argued that:
A centralised or national approach may also generate cost savings in relation to
some elements of the administration of regulatory regimes. For example, if a
regulatory regime requires that products undergo a pre-market assessment and
certification process against national standards before being made available for
sale, … it makes obvious sense from a cost-viewpoint to require only one such
assessment and certification for each product, rather than replicating this activity
in each jurisdiction. (Banks 2006, p. 7)

Market fragmentation and the failure to capture the benefits from economies
of scale — different regulatory regimes may have the effect of creating
smaller markets as businesses and individuals focus their operations in a
single jurisdiction rather than looking to engage in the wider market. The
OECD has noted that:
Different approaches to regulation might in turn create barriers that could
prevent the emergence of economies of scale, undermining the emergence of a
single market. (OECD 2010a, p. 53)
8.3.2
The disadvantages of greater harmonisation and
consistency
While there are clear advantages from harmonisation in appropriate
circumstances, there are also potential costs to greater harmonisation and
consistency. These potential costs include the following.

Increased regulatory burdens — there is risk that the process of
harmonisation and increasing consistency in regulation would effectively lift
the regulatory burden in some jurisdictions. For example, the Department of
Justice, recognising that Victoria is a leader in regulatory reform and burden
reduction, noted:
Thus the implication of harmonisation may be an increase in the regulatory
burden for Victorian businesses, depending on the particular institutional
arrangements. In particular, sub-optimal arrangements might arise when
timelines are tight and policy work is limited, where stakeholders have undue
influence, where extensive policy support is not available, where States and
Territories do not have mechanisms for clear decision making. (sub. 23, p. 10)

Reduced incentives to improve regulatory arrangements — in individual
states and territories there is an incentive to reduce regulatory costs to
businesses to generate a competitive advantage. However, in a harmonised
system if a state or territory wants to reduce regulatory costs, it not only has
to expend the resources to bring others along, it must also share the benefits
and does not get a competitive advantage.
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205


Reduced policy innovation and experimentation — the existence of different
jurisdictions allows for some innovation and experimentation to occur when
searching for the best possible regulatory (or non-regulatory) response to a
problem. It provides the opportunity to ‘pilot’ different options and for the
other jurisdictions to observe the outcome and evidence of the measures
efficacy before necessary adopting it themselves.
Costs of transition to the new arrangements — transition to the new
harmonised arrangements will also impose costs on those who have to
understand and comply with regulations different from those in the past.
Importantly, these transition costs may be incurred without any
corresponding benefit for businesses that operate wholly in one State or do
not have a problem with overlapping regulation. Data on business and
not-for-profit organisations’ perception of Victoria regulation indicate that
71 per cent of businesses and 72 per cent of not for profit organisations
experienced no regulations that overlap or conflict with other levels of
government (Wallis 2011a, p. 39). (It should be noted that the contribution
these firms make to economic activity and employment may be relatively
small because there are tend to be smaller businesses). The Building and
Plumbing Industry Commission noted that:
The transition however creates uncertainty; potentially risks lowest common
denominator determination; and draws upon already scarce Victorian regulatory
resources. (sub. 25, p. 16)

Costs of developing the harmonised arrangements — developing
harmonised regulations can be a time consuming and costly process for
those involved. Negotiation involves all jurisdictions and there may be
entrenched interests, either among those in government or those subject to
the new harmonised regulatory environment. For example, the
harmonisation of Occupational Health and Safety Laws (OHS) began 4
April 2008 when the then Minister for Employment and Workplace
Relations, the Hon Julia Gillard MP, announced a national review into
model Occupational Health and Safety (OHS) Laws (Australian
Government 2008). These Laws are currently being developed by Safe Work
Australia.
8.3.3
Summary
There are clearly potentially significant benefits from greater harmonisation and
consistency of regulation, but this can come at a cost — which is sometimes
significant. The challenge for Victoria is to ensure that it devotes its scarce
resources to engaging with those harmonisation processes which will be result in
the greatest net benefit for the state.
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The need to balance the costs and benefits of harmonisation and greater
consistency appear to be recognised to some extent. For example, the BCA
acknowledged the benefits of competition and innovation between jurisdictions:
Although we need to recognise the benefits of jurisdictional competition, we
also need to take a sensible view about the costs of such a system and whether
governments are delivering policy outcomes that are in the national interest.
(BCA 2008, p. 16)
Similarly the Department of Transport warns that:
For example, a safety regulatory scheme which is working well and where safety
and cost outcomes are good should not be dismantled lightly, particularly where
harmonisation issues comprise a modest part of the problem. (sub. 26, p. 16)
The following sections outline ways in which the current system can be
improved to increase the benefits of harmonisation and consistency (when it is
the best policy option) and minimise the costs.
8.4
The focus of current approaches
The current COAG reform agenda is very broad — covering 27 deregulation
reform priorities and eight competition reforms. The breadth of the agenda —
the number and diversity of priority areas — runs the risk that resources and
political will are spread too thinly and individual issues given less attention than
they may warrant. For example, Banks warned that
While there is a large menu from which to choose – the COAG Reform Agenda
alone entailing some 200 policy initiatives – governments cannot prosecute
reform successfully on too many fronts at once. A key lesson from the past is
that prioritising and sequencing the reform effort are fundamental to its success.
(Banks 2010, p. 15)
There is also the potential for new issues to arise which may further clutter
COAG's reform agenda. For example, Ministerial Councils can suggest policy
reforms and there are currently over 40 Ministerial councils covering a wide
range of issues.
To focus efforts and ensure that completion of the reforms is timely and high
quality, an important first step would be to agree criteria to guide choices on
reducing the number of reform projects being actively pursued and to establish a
timetable or work program for the completion of the tasks.
The Commission understands there have been some attempts to more tightly
focus the list of reform issues so that attention and resources can be directed to
the highest priorities. These attempts have not succeeded to date. Nonetheless,
the Commission suggests it may be timely to revisit this matter, for Victoria to
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207
take the initiative in preparing criteria for prioritising items on the COAG
agenda, and for Victoria to seek the agreement of other jurisdictions.
Information request
What criteria should be used to identify the highest priorities on the current agenda of Council of
Australian Governments (COAG) reforms? What role should Victoria play in the process?
8.5
Improving the return from national approaches
During its consultation process, the Commission was informed by a number of
participants that there was scope to improve national processes. Enhancements
in these processes would improve regulatory arrangements for those in Victoria
and in other jurisdictions.
Improving information on regulatory impacts, especially on businesses, was
regarded by many participants as the key area in which the current national
approach could be improved. Two ways of doing this would be to improve the
COAG RIS process, and to make use of information gathered from jurisdictions
trialling different approaches to regulatory issues.
8.5.1
Improving COAG RIS processes
A RIS has two related purposes:
to improve the information that is available to decision makers to help them
to determine a preferred position

to facilitate public consultation, which will both increase the transparency of
government decision-making and improve the quality of regulation.
To ensure maximum value from impact assessment, the analysis must be
prepared early in the policy development process. However, a common issue
with the preparation of COAG RIS documents is the extent to which are they
are integrated in the policy formation process and regarded as an add on at the
end, justifying a position already taken. To the extent that this occurs, it weakens
the value of the assessment as a consultation document and as a tool to ensure
high quality regulation is made.

The Commission understands that the manner in which discussions and
negotiations are undertaken in the COAG context can exacerbate the problem of
the COAG RIS becoming a justification for an already taken decision.
In a given policy area — perhaps under the auspices of a Ministerial Council —
individual jurisdictions may raise policy proposals for discussion. On a particular
topic there may be several submissions discussed, and a preferred position put
together, perhaps incorporating elements of a number of the original policy
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submissions. In addition, there may be compromises in the position of some
jurisdictions in order to reach agreement.
A COAG RIS based on a negotiated outcome is therefore largely justifying an
agreed policy response, rather than contributing to the policy formation process.
One way to ensure the impact assessment informs decision making is to require
the elements of the assessment — such as clearly specifying the problem, the
various policy options, the costs and benefits of each option and the preferred
approach — to form the basis of the original submissions made by jurisdictions
to the relevant body. In this way, each party to the negotiations would be aware
of the options considered by the others, and the identified costs and benefits of
each.
Draft recommendation 8.1
That to facilitate building the impact assessment process into Council of
Australian Governments (COAG) proposals earlier, Victoria set an
example by ensuring that its submissions to COAG bodies are
consistently presented in a regulatory impact statement framework.
Victoria should also advocate that all other jurisdictions be required to
submit their proposals in the same format.
8.5.2
Taking advantage of innovative approaches and
incentives to improve
One of the advantages of a federation is the potential for jurisdictions to trial and
experiment with different and innovative approaches to deal with policy issues
— there is not necessarily the requirement for a 'one size fits all' approach. For
example, the Business Council of Australia (BCA) notes a number of advantages
stemming from differences between jurisdictions:
… including that it creates a system of checks and balances, provides a
competitive environment for policy innovation to occur and allows governments
to more closely match policy to local preferences. (BCA 2008, p. 16)
Another advantage noted by the BCA is the competitive environment for policy
innovation. Differences between states and territories provide an incentive to
improve regulatory performance to enhance the relevant jurisdictions’
competitiveness. States are clearly aware of the advantages of this form of
cost-competitiveness given the focus they give to, for example, performance in
regulatory processes in reviews conducted by the BCA. In other cases, businesses
and not-for-profit organisations have also raised concerns about states ‘going it
alone’ and undermining national consistency by not following the national
approach.
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209
The scope for such innovation and incentives for regulatory improvement would
be significantly curtailed, however, if regulatory arrangements were harmonised
between jurisdictions. While it may be possible to design a national system with
scope to permit extensive trialling this does not appear to be common.
Trialling of different approaches can provide information on how well a given
policy works in terms of achieving its objectives, what costs it imposes and any
lessons on how it is best implemented and enforced. But to achieve these
benefits, trials need to be well-designed and the lessons they generate need to be
collected and shared.
In some cases the effectiveness of a trial in one state may be undermined by
incompatible Commonwealth regulation. Success may, therefore, depend on
state or territory innovation being partnered by complementary adjustments to
Commonwealth regulations. A supportive environment within the national
scheme may encourage further innovation to the benefit of all jurisdictions.
In addition, information on trials in one state or territory can assist other
jurisdictions, including the Commonwealth, develop their own policy responses
or can feed into the development of a national approach if this is the best
response. It can also help to build stakeholder support for the new measure —
those impacted by the regulation would be able to see how it worked in the other
jurisdiction and be in a more informed position to offer advice on how any
weaknesses or problems should be addressed.
In relation to Victoria's regulations, the Commission has recommended
minimum expectations to be applied when evaluating regulation (chapter 6). This
could also be applied to regulatory trials where Victoria takes a different
approach to other jurisdictions.
The evaluation of trials of innovative regulatory responses will help build the
information base upon which national approaches are developed.
Information request
How can robust incentives to improve be built into areas of nationally agreed regulation? What
incentives are most likely to be practical and effective?
Draft recommendation 8.2
That if Victoria adopts an approach different from a national approach, or
that adopted by most other jurisdictions, it should publicly evaluate, and
report on the costs and benefits, within three years.
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8.6
Achieving better state-based national
regulation
8.6.1
Introduction
The Commission is aware that there is considerable experience in Victorian
agencies, accumulated over many years, in seeking to achieve regulatory
outcomes in Victoria’s interests while meeting the requirements of national
regulation. These regulatory areas include, for example, food, occupational health
and safety, environment, building and education. These experiences contain
important lessons and practical guidance on ways to better deliver Victoria’s
interests in areas where the Commonwealth’s and Victoria’s regulatory interests
overlap.
The Commission is part way through its research program in this area and is not
in a position to set out its views. It will develop them further, partly in the
context of the Draft Report 2 — Priorities for Regulatory Reform (forthcoming),
which addresses regulatory hotspots, and also in further consultation following
the completion of the research by Jaguar Consulting.
That said, the Commission is strongly of the view that subsidiarity is a critical
principle to better regulatory arrangements in areas in which multiple levels of
government share interests and roles. The subsidiarity principle postulates that
governance functions should be assigned to the level of government best-placed
to deliver the functions needed to achieve joint policy goals. It requires that
decisions should be taken by the entity that is as close as practicable to the
people or bodies affected by the decisions.
The subsidiarity principle was a key consideration in the Commission’s recent
inquiry into local government, particularly in clarifying the respective roles of the
Victorian Government and local government. That analysis argued the
importance of distinguishing between the ‘what’ and the ‘how’ of regulation in
assigning accountability to the right level of government.
The higher level of government always has a clear accountability for clarifying
the objectives of its regulation, together with any broad constraints on how the
objective should be achieved. But it falls to the lower level government in the
most part, to decide on the means. Especially when local approaches to the
‘means’ enable local considerations to be addressed. This is particularly true
when there are significant differences between local jurisdictions, such as in
issues that touch on local amenity (for example, such as planning).
The same considerations carry over into options for better regulation between
the Commonwealth and states and territories. The Commission will investigate
this further.
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In addition to this overriding consideration, the discussion of costs and benefits
of harmonisation (section 8.3) suggest some principles that could guide Victoria's
engagement in such processes. The benefits to Victoria of seeking greater
harmonisation and consistency are likely to be greatest when:
the regulation impacts on a large percentage of firms or individuals who
operate across borders or there are no significant adjustment costs to those
firms who derive no benefit from the harmonisation. If large numbers of
firms are affected, even small reductions in regulatory costs could add up to
a significant cost saving for the businesses and individuals involved.
Similarly, cost-savings may be significant if there are likely to be very large
cost savings affecting a smaller number of firms.

regulatory burdens are not increased without a corresponding increase in
benefits

administrative costs of operating multiple regulatory schemes are high

there are likely to be benefits of trialling innovative policy responses that
cannot be accommodated in a national system.
The Commission is inclined to make recommendations in this area, designed to
strengthen the capacity to apply the principle of subsidiarity more effectively in
the work of COAG. It welcomes any views, shared experience or suggestions
participants may wish to make.

Information request
What are the key issues in balancing national and state objectives from participants’
experiences? What changes are needed to produce better outcomes for both levels of government?
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STRENGTHENING FOUNDATIONS FOR THE NEXT DECADE