11
Regulation and taxes
11.1
Introduction
The terms of reference direct the Commission to inquire into and report on
‘unnecessary regulatory burdens imposed on manufacturing activity and
investment beyond those under review by the Council of Australian
Governments or those already identified in past VCEC reviews’. Unnecessary
regulatory burdens — for example, if regulation is poorly designed or difficult to
comply with — can increase business costs and divert resources from more
productive uses, and reduce businesses’ competitiveness.
Regulatory issues were raised by many participants in the inquiry. Australian
Paper noted that among a number of challenges facing the manufacturing sector
in Victoria is the:
Increasing complexity and prescriptive rigidity in Government regulation of
manufacturing industry and of workplaces generally, reducing operational
efficiency and adding substantially to costs. (sub. 8, p. 8)
In a submission to the Victorian Parliament’s Economic Development and
Infrastructure Committee’s (EDIC) report on the manufacturing sector in
Victoria, the Aerosol Association of Australia stated:
… that the Victorian Government providing direct financial assistance to the
manufacturing sector is not as important as providing “a business friendly
environment where the costs of doing business are subject to rigorous scrutiny
and attention is constantly focussed on reducing the regulatory compliance and
administrative costs being incurred by businesses. (EDIC 2010, p. 158)
The Commission considers it is also important to assess the cumulative burden
of regulation on manufacturing businesses and not just the burden imposed by
any individual regulation.
The burden of unnecessary regulation may fall unevenly on manufacturing
businesses. Smaller businesses may find regulatory burdens and compliance to be
particularly difficult to absorb. For example, Knox City Council noted that one
of the actions the Victorian Government could take to improve the performance
of the manufacturing industry was to encourage:
… a reduction of regulatory burdens and of barriers to government
procurement which particularly impacts on SMEs, the key drivers of the new
manufacturing economy. (sub. 17, p. 6)
The EDIC report on the manufacturing sector in Victoria also noted that:
The Committee believes that SMEs are the greatest beneficiaries of improved
regulation as they typically have fewer resources than larger companies to absorb
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compliance costs. Reducing the regulatory burden could unlock valuable
resources in smaller businesses, allowing them to potentially enhance investment
in new opportunities for growth. This is particularly pertinent for SMEs in the
manufacturing sector as a greater emphasis on innovation in business operations
could lead to enhanced productivity levels. With a manufacturing sector
comprised largely of SMEs, a comprehensive and practical regulatory framework
is essential to supporting the sustained competitiveness of Australian
manufacturing. (EDIC 2010, p. 159)
Many participants suggested that business taxes levied by the Victorian
Government were an impediment to the performance of the Victorian
manufacturing sector. For example, the Australian Industry Group (Ai Group)
stated that:
Businesses in Victoria are inhibited by a State tax structure that is inefficient and
does not promote international competitiveness. (sub. DR55, p. 48)
This chapter therefore:
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considers why the regulatory environment is important
discusses the processes by which regulations are made
considers how to identify regulatory barriers affecting the performance of
the manufacturing sector
identifies regulatory and taxation issues affecting the sector and explores a
number of specific issues in more detail.
11.2
Why the regulatory environment is important
The regulatory environment directly affects the performance and success of the
manufacturing sector in Victoria. While some regulation is required to ensure the
market works and to achieve the Government’s policy objectives, unnecessary or
overly burdensome regulation can disadvantage manufacturing.
Regulation that imposes unnecessary burdens on business and the community
can slow economic growth, discourage innovation, adversely affect investment
and lead to fewer jobs, higher prices and reduced consumer choice. Constant
attention to review and good regulatory design are essential to reducing such
burdens.
The regulatory environment is a particularly important area for Victoria to get
right. Victoria’s competitiveness and liveability cannot depend on the considerable
mineral wealth enjoyed by other jurisdictions. Consequently, the State needs to
work harder than other jurisdictions to put in place the conditions for a
competitive economy that underpins growing living standards, employment and
liveability. A first class regulatory framework is a strategic competitive strength for
Victoria leading to improved economic performance and productivity growth. The
Department of Business and Innovation (DBI) notes that:
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
To increase the ability of Victorian manufacturers to compete on a global scale,
regulation needs to be as efficient and targeted as possible. Inefficient regulation
can place unnecessary costs on businesses, which not only stifles growth but
may have a negative effect on a company’s decision to invest in or remain in
Victoria. (sub. 34, p. 19)
As well as adding to production costs, unnecessary regulation and overly
burdensome regulation can impact on the ability of businesses to be innovative
(chapter 8) and can impact on labour markets and the ability of businesses to
access skilled labour (chapter 9).
As noted in the introduction, a number of participants identified unnecessary
regulatory burdens as increasing the costs of doing business and reducing their
ability to compete, especially in export markets. This led to calls from some
participants for assistance to offset the impact of regulatory burdens and other
imposts on Victorian manufacturing businesses. For example, AME Systems
argued that:
Whilst Victorian (and Australian) manufacturers are subjected to costly and
demanding regulatory burdens, particularly in the area of Environmental
Controls and OH & S, imported products come from firms where it is highly
doubtful that such onerous regulatory demands are imposed on the
manufacturing regime. With the introduction of a carbon tax in Australia, it is
also highly likely that imported competitive product will come from countries
where such taxes are not imposed. As a minimum position, AME Systems
suggests that import of products manufactured in these countries should be
made conditional upon a certificate of declaration that they are produced under
environmental, OH & S, and carbon tax regimes not less onerous than our own.
Where such declarations cannot or are not forthcoming, we suggest that a
punitive taxation (equal to at least the incremental cost to comparative goods
produced in Australia) be applied at point of entry of these goods to Australia,
or that entry be denied. (sub. 13, p. 20)
The cumulative burden of regulation on businesses is also important. For
example, Qenos noted the importance of allowing for the ‘the way regulatory
and compliance costs accumulate’ (sub. 25, p. 16) when considering the scope
for government action to ease burdens on manufacturing businesses. The Ai
Group argued that:
… survey data estimates that nationally the compliance cost of business
regulation for the manufacturing industry exceeds $680 million per year.
(sub. DR55, p. 58)
The Commission’s approach is to look for opportunities to reduce the burden of
regulation to the minimum necessary to achieve the regulation’s policy
objectives. The key to ensuring a regulatory environment that is conducive to a
dynamic and competitive manufacturing sector is to ensure that the regulatory
regime is the minimum required and for unnecessary regulation to be removed.
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The Advanced Manufacturing CRC (sub. 2, p. 2) noted that one of the key things
the Victorian Government can do to enhance the competitiveness of the
manufacturing sector is to remove unnecessary regulation.
11.3
Regulation making and review process
The institutional framework within which regulation is made is an important
consideration when examining the impact of regulation on a particular sector.
The Commission recently conducted a public inquiry into Victoria’s regulatory
framework. The Commission’s final report is being considered by the Victorian
Government, but the draft report is available and provides a detailed description
of the framework. The Ai Group endorsed the Commission’s draft report and
suggested that one of the key priorities for regulatory reform for the Victorian
Government includes:
Implementing the reforms associated with improving the administration of
regulation outlined by VCEC in the draft report Strengthening Foundations for the
Next Decade: An Inquiry into Victoria’s regulatory framework. (sub. DR55, p. 59)
In Victoria, the main instruments for analysing the impacts of new primary and
subordinate legislation are business impact assessments (BIAs) and regulatory
impact statements (RISs), respectively. The RIS process is also used to review
regulations that replace sunsetting regulations. Impact statements have two
related purposes:
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to improve the information available to decision-makers to help them
determine a preferred position
to facilitate public consultation, which would increase the transparency of
government decision-making and improve the quality of regulation.
The Australian Office of Best Practice Regulation (OBPR) states that impact
assessment:
… is the process of examining the likely impacts of a proposed regulation and a
range of alternative options which could meet the government’s policy
objectives. (OBPR 2010, p. 7)
Broadly, impact assessment analyses ‘the costs and benefits of the proposed
regulatory instrument and any alternative means of achieving its objectives’
(DPC 2009, p. 14). The impact analysis framework involves:
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208
identifying the nature and extent of the problem to be addressed
specifying the desired objective
explaining the proposed regulation, its likely impact and enforcement regime
assessing the costs and benefits of the proposed measure
assessing the proposed measure against alternative options
detailing any evaluation strategy
VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
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documenting the consultation undertaken while developing the regulation.
In spite of the efforts to ensure regulation is only put in place when there is a
problem to be addressed and the regulation results in net benefits, the stock of
regulation — including that affecting the manufacturing sector — continues to
grow.
One explanation is that attitudes to risk and what should be regulated are
changing over time. Evidence from the United Kingdom (UK) is particularly
strong that changing perceptions of what should be regulated have increased the
stock of regulation. For example, the Better Regulation Commission (BRC) in
the UK has argued that:
Despite rhetoric to the contrary, it appears that our society is often more
concerned to reduce or abolish risk than to support enterprise, adventure and
self-reliance. (BRC 2006, p. 13)
Compounding this trend towards a more risk-averse society is a continued
perception that regulation is the best way to respond. The BRC in the UK noted
that:
It is a much more difficult task to explain convincingly to a sceptical public why
regulation might not be the best answer than to simply promise to regulate. To
do so requires a proper understanding of risk and the options for managing it,
including the costs involved and trade-offs required. (BRC 2006, p. 25)
It has been argued that this combination of increasing risk aversion by the
public, along with a desire for perceived action has contributed to the regulatory
burden in spite of good gate keeping arrangements. Bartle summarises the BRC’s
argument as noting that:
… there is excessive risk averseness in society, business, industry and
government and this leads to overregulation which stifles individual
responsibility, and willingness to take risks and innovate. (Bartle 2008, p. 11)
This changing attitude to risk, to the extent it is reflected in Australia means that
aggregate regulatory burdens will continue to accumulate even if individual
regulatory measures are assessed as being ‘good’ regulation.
There is a strong perception in the manufacturing sector that changing attitudes
to risks are leading to increased regulation. For example, Australian Paper
(subs. 8 and DR40) notes increasing environmental regulation and WorkCover
requirements. It argues that:
… there is an issue with ‘Regulation Creep’, in which requirements are steadily
tightened without regard to the ability of a manufacturing plant to meet the
tighter regulations. (sub. DR40, p. 6)
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11.3.1
The RIS framework and policy principles
The RIS framework for assessing new regulatory proposals is similar to the
principles suggested in chapter 6 to guide when intervention is needed and how
instruments should be designed and applied to avoid wasteful intervention. The
program principles set out in chapter 6 are therefore consistent with generally
agreed principles for good regulatory design.
Victorian Governments have for many years promoted the use of the RIS
framework. Adopting the principles outlined in chapter 6 would encourage a
consistent approach between the development of regulations affecting the
manufacturing (and other) sectors and the development of other policies and
programs affecting the sector.
11.4
Identifying regulatory and state tax issues
affecting manufacturing
The Commission released a draft report Priorities for Regulatory Reform in March
2011, which identified specific areas of Victoria’s regulation that are
unnecessarily burdensome, complex, redundant or duplicative, and identified five
areas of regulation that should be reformed or reduced as a matter of priority
(VCEC 2011b) (section 11.5.1).
However, these priority reform areas were not specific to manufacturing. It is
possible that the most burdensome regulation for a particular sector may differ
from the assessed priorities for the State as a whole. This section examines
evidence from inquiry participants and a survey of business perceptions of
regulation, to identify those areas of regulation that are of particular concern to
the Victorian manufacturing sector.
11.4.1
Participants’ views
Submissions to the inquiry and discussions with participants identified a range of
regulatory issues with the potential to impact on the performance of the
manufacturing sector. This section reports the issues raised, with more detailed
analysis provided in the subsequent section.
Interactions with the Commonwealth
Many participants noted that duplication and a lack of regulatory consistency
among jurisdictions presented problems for manufacturing industries. For
example, AME Systems suggested that:
We also find the duplication of some regulatory measures to be
counterproductive, and costly in managing and responding to duplicated
reporting systems. We would also encourage introduction of Commonwealth
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
uniformity across regulatory measures, particularly in the areas of transport, and
occupational safety and health policy. (sub. 13, p. 20)
Similarly, the South East Melbourne Manufacturers Alliance (SEMMA) noted
that the major issue for unnecessary regulatory burdens was inconsistency across
state and Commonwealth governments. SEMMA stated that:
The sometimes unexplainable variation between the states and federal policies,
regulation and standards in the areas of WorkCover; OH&S laws; standard rail
gauge; procurement; requirement of quality standards in procurement projects;
fire levy – etc. create confusion, frustration, inefficiency and significant cost
imposts for Victorian manufacturers. (sub. 18, p. 8)
Qenos also argued in favour of better coordination between the different levels
of government (including with local governments):
An additional overriding principle must be the seamless co-ordination between
local, state and Federal government in regard to the regulatory regime.
(sub. 25, p. 14)
In addition, the Energy Users Association of Australia (sub. 19, p. 18) argued
that Victoria should push its interests in national energy forums and at the
Council of Australian Governments (COAG).
Summarising these general calls for more harmonisation, the Ai Group noted
that:
Accelerating the Council of Australian Governments (COAG) National
Seamless Economy initiative is especially crucial given the ongoing burden of
regulatory red tape. The current COAG reform process is slow and lacks a
prioritisation strategy. The Australian Industry Group recommends that the
Victorian Government engage through the COAG to develop a prioritisation
strategy to accelerate the reforms under the National Seamless Economy
initiative. (sub. DR55, p. 59)
The Commission has addressed the issue of prioritisation of COAG reforms in
its final report of its inquiry into Victoria’s regulatory framework. The
Commission’s final report is being considered by the Victorian Government, but
the draft report is available.
Another issue is the timing of regulatory change at the national level and states
wanting to move early. In the inquiry into Victoria’s regulatory framework
(VCEC 2011b), Toyota Australia suggested that there was an excessive regulatory
burden imposed when the Victorian Government required that electronic
stability control (ESC) be a compulsory standard feature for new passenger cars
and light commercial vehicles sold from January 2011 onwards. Toyota Australia
noted two issues that this created: the timing only allowed for short lead time to
incorporate the changes; and, that a similar change is to occur Australia-wide
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from November 2011 (Toyota 2011, pp. 2-3). Costs were imposed on Toyota
Australia through Victoria acting unilaterally.
Toyota reiterated these concerns in its submission to this inquiry, and noted that:
If Victoria had delayed ESC introduction by 10 months to align with the Federal
Government timing, substantial costs and inefficiencies would have been
avoided. (sub. DR64, p. 26)
Another area in which Victoria may lead other Australian jurisdictions is in the
implementation of low emission sources of electricity generation, where the
Victorian Government has an objective of achieving 20 per cent of the electricity
supply from ‘green’ technologies. The Commission notes that the manner in
which such policies are pursued, especially if Victoria is significantly ahead of
other jurisdictions, could adversely affect energy-intensive industries such as
manufacturing. To research this point, KPMG modelled the impact of Victoria
taking a leadership position. To achieve this within the constraints of the model,
the purely technical assumption of a higher Victorian effective price of carbon
has been assumed to simulate the higher carbon price embodied in implementing
alternative technologies earlier and more comprehensively than other Australian
jurisdictions.
The modelling of an effective carbon price in Victoria of $30/t CO2 (compared
with a national price of $10/t CO2) resulted in a 1.8 per cent fall in manufacturing
output, compared to the baseline output projection over the period to 2020-21
(KPMG 2011d, p. 38). This represents an output loss of approximately $449
million (KPMG 2011d). KPMG further estimated that employment in the sector
would fall by 1.9 per cent compared to the baseline projection (KPMG 2011d,
p. 38). This equates to a loss of 5000 jobs (KPMG 2011d).
These estimates are based on simplistic assumptions and should be considered as
indicative only. However, they serve to make the general point about the
importance of state coordination on this issue.
Commonwealth regulation and its interaction with state regulation is becoming
increasingly complex. In some cases harmonisation is the appropriate response.
When this is the case the Victorian Government needs to ensure that the COAG
or national processes are as effective as possible and are conducted with an
appropriate understanding of the impact of the proposals on Victorians to avoid
potentially imposing significant cost on businesses and the community for little
(if any) benefit. Issues that can arise when considering harmonised regulatory
responses include:
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212
adopting a national approach when it is not warranted on the available
evidence
VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
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Victoria going it alone early when national arrangements are on the horizon
and the additional, temporary cost of diverging from the national solution is
high — as in the Toyota example noted above.
Improving national processes and ensuring they generate benefits for Victoria
requires good impact assessment.
There is also a need to ensure that the potential impacts of cross-border
regulatory issues — especially those affecting manufacturing — which are not
being addressed through COAG processes are still considered.
In deciding which level of government is appropriate for solving particular
regulatory issues, the Commission considers that subsidiarity is a critical principle
to better regulatory arrangements when multiple levels of government are
involved in regulating. The subsidiarity principle postulates that governance
functions should be assigned to the level of government best placed to achieve
the 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.
Interactions with regulators
Interaction with regulators and the way regulators carry out their work was
identified by participants as an area where regulatory and compliance burdens on
manufacturing could be reduced. The Environment Protection Agency (EPA)
and WorkSafe were the most commonly cited regulators whose activities impact
on the manufacturing sector.
Compliance costs and the need to complete paperwork were issues raised by
several participants. For example, AME Systems stated:
Whilst our own experience at AME Systems is that regulation has not
significantly stifled our business development and growth, we nevertheless
experience the lengthy time and staff cost incurred in preparing statutory
returns, reports and other such like regulatory mechanisms. We are also critical
of the lack of regulatory authorities failing to publish widely new and revised
regulations directly to enterprises such as AME Systems, and relying on industry
bodies such as AiG to perform that function. (sub. 13, p. 20)
The way regulations are enforced and the need to allow for the way that
individual businesses operate was raised by participants. Flexibility in regulatory
requirements was a common issue. For example, in the context of industry
adaptability and licensing arrangements, the Vinyl Council of Australia (VCA)
suggested that:
There have been incentives and encouragement of Victorian manufacturers to
reduce the environmental footprint of operations and many of the
manufacturers in the PVC supply chain have made significant advances.
However, Victorian EPA licensing appears to be moving towards setting
standards at maximum achievable performance levels rather than realistic
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operating limits which would allow for fluctuations in production and processes,
due for example, to unreliable power supply.
Licence limits need to continue to be set in line with global standards and to
recognise good performers. The regime of monitoring and auditing operations
should not come at significant cost to industry as it will directly impact
competitiveness. (sub. 23, p. 6)
Similarly, the Plastics and Chemicals Industry Association (PACIA) argued that:
For industry, it is critical that the government’s approach to compliance and
enforcement is cost-effective for business to implement, reduces regulatory
burden without compromising outcomes, and enables industry to improve its
productivity and continue to successfully contribute to the economy.
(sub. 33, p. 17)
The grouping of separate activities on a single site by the EPA and WorkSafe was
noted as a problem. Australian Paper argued that its Maryvale site includes a
number of plants and operations owned or managed by companies other than
Australian Paper which are located on its site:
At present, both the EPA Victoria and WorkSafe Victoria regulate Australian
Paper’s Maryvale site as a single entity where Australian Paper, despite having
little part in the day to day management of these separate plants and operations
on our mill site has full responsibility for their environmental and OH&S
performance. (sub. 8, p. 24)
Moreover, Australian Paper argued that the current arrangements impose a direct
cost burden on these co-located businesses:
A particularly severe impact on these third party plants and operations is that
these smaller, and generally non-major-hazard operations become linked to and
need to comply with Major Hazard Facility regulations by just being on
Australian Paper owned land rather than being ‘over the fence’ and need to be a
part of Australian Paper’s Major Hazard Facility safety case submission.
This has a major cost and efficiency impact on manufacturing not borne by its
competitors, which are generally located in emerging Asian economies.
(sub. 8, p. 24)
In contrast, the Australian Manufacturing Workers Union, the Australian
Workers Union and the National Union of Workers (sub. DR58, p. 29) argue
that the mill owner and not the individual contractors are responsible for worker
safety on the site.
Australian Paper (sub. 8, p. 25) also raised issues regarding the centralisation of
EPA and WorkSafe decision making and services in Melbourne (when it has
operations in regional Victoria).
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
Specific areas of regulation
As well as commenting on systemic issues, participants also identified specific
regulatory concerns directly affecting their operations.
Planning controls
Planning controls and the planning system have featured in a number of
Commission inquiries (for example, (VCEC 2010; VCEC 2009b; VCEC 2009a)).
One aspect that has not been raised before is the need for buffer zones around
manufacturing plants to ensure the safety of nearby residents and the community
generally. The VCA noted that:
Planning controls balancing manufacturing safety with population growth are
essential. Planning controls for development of land adjacent to major polymer
and chemical manufacturing operations need to be strictly maintained to ensure
appropriate development given the existing operations. In other words,
maintenance of buffer zones around Major Hazard Facilities needs to be
assured. Given the growth of population and light industry in the West of
Melbourne, careful consultation with and consideration by all relevant
authorities of allowable development needs to be undertaken. (sub. 23, p. 6)
In addition, the City of Greater Dandenong suggested that zoning regulations are
not adapting to the changing needs of manufacturing. In particular:
Current industrial planning zones do not fully recognize the knowledge
economy and the emergence of elaborately transformed manufacturers ie goods
that are at the highest end of the manufacturing complexity. Victorian industrial
development typologies still tend to conform to traditional industrial estates and
often do not have the flexibility to accommodate advanced manufacturing.
These new industry forms that blur the distinction between the factory floor and
the office floor have long been recognised in Europe and increasingly in Asia
resulting in industrial development forms such as business parks, mixed use
precincts, science and technology parks and the like. (sub. 15, p. 11)
As noted by the VCA, these issues are likely to become increasingly important as
Melbourne’s population grows and pressure for land becomes more acute. In
general terms, the Commission’s view is that these pressures are best managed by
adopting a strategic view on the allowable uses of land. This includes reservations
that would rule out other uses, where the reservation is justified on strategic
grounds (for example, scarce native vegetation), which could include types of
industrial processes. Planning and approval processes will be considered further
in the Commission’s concurrent inquiry into a state-based reform agenda.
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215
Environmental regulation
Several participants also raised concerns with the impact of environmental
regulation on their operations. AME Systems (sub. 13, p. 21) for example, argued
the costs of environmental regulation in Australia were higher than in other
countries. In addition, the Geelong Manufacturing Council claimed that:
Industry has indicated that reporting of environmental indicators has become
more onerous in recent years with a range of State and Federal measurements.
(sub. 29, p. 10)
In some cases it is not clear the extent to which the concerns with environmental
regulation relate to state or Commonwealth regulation.
The Commission has previously conducted an inquiry into Victoria’s
environmental regulation (VCEC 2009c), however, it is not clear the extent to
which the recommendations made in that report have been implemented. This
issue was discussed in the draft report (part 2) of the Commission’s inquiry into
Victoria’s regulatory framework.
Occupational health and safety regulation
A significant number of participants in both submissions and meetings raised
concerns about occupational health and safety regulation (OH&S). For example,
AME Systems (sub. 13, p. 13) argued that the costs of complying with OH&S
regulation are higher in Victoria (and Australia more generally) compared with
the requirements faced by manufacturing businesses that export to Australia.
Other concerns raised by participants during roundtables and meetings, included
the cost and complexity of inspections and difficulty in getting accurate advice
on what action is needed to comply.
Australian Paper also raised the complexity of being approved as a self insurer
for work place injury. They argued that:
WorkCover workplace injury self-insurance approval for large companies is an
unduly bureaucratic and time consuming process.
Until June 2009, when Australian Paper was sold by PaperlinX to Nippon Paper
Group, Australian Paper self insured for Workplace Injuries.
Because of the sale, Australian Paper has had to re-apply for self insurance,
despite the only change being a change of owner between two large multinational
companies – effectively no change at all in operations or risks.
The re-approval process has now taken more than a year, with Authorities seeking
to progressively ratchet up requirements for no clear reason. (sub. 8, pp. 24-25)
OH&S regulation is currently subject to national reform processes. Given the
information to date, it is difficult to form conclusions on any further scope for
state improvement until those processes are further progressed.
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
Regulatory approval processes for products
The time taken to gain approvals for new products was a concern for several
participants. This was particularly an issue for chemicals and medical products
where approval is required before the products can be sold in the Australian
market. In some cases, the delays occur for products which have already been
approved for sale by major overseas regulators — unless there are some
Australian-specific concerns the same product may face multiple (similar)
approval processes in different countries.
The approvals delays may affect the level of product innovation being driven by
Australian manufacturing businesses. PACIA stated that one of its members:
… has stated that its global headquarters consider that Australia would be an
ideal site to develop innovative manufacturing processes and feed them into the
company’s global pipeline of new products — if it were not for the burden of
Australia’s regulatory approvals scheme. (sub. 33, p. 13)
In many cases approval processes are determined by Commonwealth regulation.
For example, regulatory control of the standard of therapeutic goods (medicines
and medical devices) is provided by the Therapeutic Goods Act 1989 (Cth). This
area of regulation has been reviewed by the Productivity Commission (PC 2008)
and suggestions for reform presented to the Commonwealth.
Victoria is unable to directly change the relevant legislation and regulations but
can advocate change to the Commonwealth where processes are unduly
burdensome or to the disadvantage of Victorian manufacturing industries.
Recommendation 11.1
That the Victorian Government advocate to the Commonwealth that the
recommendations made by the Productivity Commission in its 2008 report
Annual Review of Regulations on Business: Manufacturing and
Distributive Trades relating to therapeutic goods regulation be
implemented expeditiously.
Transport regulation
As a critical input into many manufacturing process, transport and regulation
that impacts on its cost or flexibility, was a major concern for a number of
participants. As noted by the Victorian Freight and Logistics Council (VFLC):
Freight transport for urban, regional and rural manufacturing is a derived
demand, i.e. the use of transport services provides the basis for manufacturing
to operate and generate revenues. Should the services be constrained, then
operating cost penalties will be incurred by the service operators. These will be
passed on, in part or in full, to the manufacturers. (sub. 22, p. 2)
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Heavy vehicle regulation was a particular concern. The VFLC suggested that:
At issue is the extent to which heavy freight vehicles are not allowed to operate
at fully productive levels. This relates to maximising vehicle manufacturer
performance levels, for weight, mass and overall length. Interstate comparisons
indicate that there are inconsistencies in the maximum use of heavy vehicle
capacities in Victoria. (sub. 22, p. 2)
In addition, Australian Paper raised inefficiencies in the regulation of the rail
sector in Victoria — in particular the multitude of regulators and regulatory
systems:
The several different elements of the Victorian rail system are managed by
several different State and Federal Government and private entities with little
joint communication or co-operation between them. This makes it difficult and
time consuming to negotiate the bureaucracy and interlocking sets of regulations
to change and improve rail services and operations. A severe example of this,
the eight separate bodies Australian Paper needed to negotiate with when it
sought to use rail freight between its Maryvale mill and the Enterprise road
Docklands distribution centre (Westgate Ports) is set out in an earlier section of
this submission. (sub. 8, p. 25)
This area of regulation is discussed further in section 11.5.2.
Regulation of the energy sector
Energy is another important input in the manufacturing process as the cost of
power has the potential to affect the performance of the manufacturing sector as
a whole (and especially businesses with a high level of energy usage). The Energy
Users Association of Australia argued that:
It is clear that Victorian manufacturers are facing significant pressures for energy
price increases over the coming years. While Victoria has fully privatised its
energy sector and has the most competitive electricity market in the NEM
[National Energy Market], Victorian manufacturers are facing rising energy costs
from climate change policy, poor economic regulation of network businesses
and the stalled energy reform agenda. It is a combination of these elements that
is preventing Victorian manufacturers and Victorian users in general, from
obtaining the full benefits of a truly national and efficient energy market.
(sub. 19, p. 18)
This area of regulation is discussed further in section 11.5.2.
Compliance with Australian Design Rules and Australian Standards
The recreational vehicle (RV) manufacturer Jayco raised the issue of
discrepancies in the application and enforcement of Australian Design Rules
(ADR) and Australian Standards (AS). Jayco argue that it is:
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
… critically important that all RV products in the Australian market should
comply with Australian Design Rules (ADRs) and Australian Standards.
(sub. 12, p. 5)
Jayco concluded that:
Failure by government authorities to monitor and enforce compliance of
imported products with ADRs and Australian Standards may also lead to
imported RV products having an unfair cost advantage over Australian
manufactured RV products. This would constitute an erosion of a ‘level playing
field’ in the market-place between domestically produced RV products and
imported ones. (sub. 12, p. 5)
The ADRs are mandatory in Australia. According to the Commonwealth
Department of Infrastructure and Transport, the Motor Vehicle Standards Act 1989
(Cth):
… requires all road vehicles, whether they are newly manufactured in Australia
or are imported as new or second hand vehicles, to comply with the relevant
ADRs at the time of manufacture and supply to the Australian market. When a
road vehicle is first used on Australian roads the relevant ADRs at the time of
manufacture and supply to the Australian market generally requires that it
continue to comply with the relevant ADRs as at the time of manufacture. (DIT
2011)
It appears therefore that the conduct referred to (of importing and selling RVs
without compliance with ADRs) may be illegal but Jayco is concerned that the
law is not enforced.
Recommendation 11.2
That the Department of Transport seek clarification, as soon as possible,
from the Commonwealth Department of Infrastructure and Transport as
to the extent to which the requirements of the Motor Vehicle Standards
Act 1989 (Cth) are being enforced, having regard to the issues raised in
this inquiry.
State taxes and levies
Several submissions commented on the impact of Victorian taxes and levies on
their operations. Australian Paper noted that:
In addition to FBT [Fringe Benefits Tax], which is collected by Federal
Government on the State’s behalf, Australian Paper pays just over $8 million in
State taxes, levies, duties and licence fees.
The largest of these, $6.5 million, is payroll tax, which serves as a direct statebased disincentive to employment and local supply of goods and services, each
of which also embodies a component of payroll tax. … This is a major cost
impost not faced by our competitors in emerging Asian economies.
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219
Australian Paper also pays $0.9 million in fire services levy…. Other fees, taxes
and licence fees paid to State and local Government are close to $1 million.
(sub. 8, p. 25)
The fire services levy was highlighted as being particularly problematic and was
mentioned by a number of participants during the inquiry. For example, Qenos
noted that a positive action which could be taken by the Victorian Government
to reduce regulatory burdens was:
The removal of the fire services levy, which unfairly impacts on businesses who,
by definition, need to pay larger insurance premiums, and which differs from
state to state, and regional to metropolitan areas. (sub. DR56, p. 16)
In addition, the Victorian Chamber of Commerce and Industry (VECCI) called
for reforms to state taxes and charges on businesses. In a media release, it stated
that:
VECCI is calling for rationalisation of the State tax system, with one option
being to allow payroll tax, land tax, WorkCover and motor vehicle registration
payments to be made on one single payment form, reducing red tape for
business. (VECCI 2011)
Similarly, the Ai Group argued that:
Businesses in Victoria are inhibited by a State tax structure that is inefficient and
does not promote international competitiveness. The case for State tax reform is
made clearly in Australia’s Future Tax System Review (‘the Henry Tax Review’).
The Australian Industry Group recommends, as a matter of urgency, that VCEC
gives consideration to the State tax reforms outlined in the Henry Tax Review
and that the Victorian Government work with the Australian Government to
implement the State tax reform recommendations in the Henry Tax Review.
These will ensure that Victoria has an efficient and fair tax system that promotes
economic growth and high performing enterprises operating in an
internationally competitive Victoria. (sub. DR55, p. 48)
Participants’ comments related to both the level of taxes and charges (which may
be a deliberate policy decision taken by government) and the administration of
the system, which was potentially imposing unnecessary paperwork and
compliance costs on businesses.
An issue for the State Government is that it has limited options available for
collecting revenue and reducing tax rates would have significant revenue
implications. However, reductions in compliance burdens, even without rate
changes, would benefit businesses while not impacting on revenue flows. Issues
around the tax mix are being considered in the Commission’s concurrent inquiry
into a state-based reform agenda.
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
The introduction of a carbon tax
Although not a state tax, a number of submissions raised the potential impact of
a carbon tax on the manufacturing sector — especially its potential impact on
increasing energy and transport prices. Relatively low energy prices were
regarded as a competitive advantage for Victoria but there was concern that this
may be undermined by the introduction of a carbon tax on the move to lower
emissions energy generation. For example, the Northern Melbourne Regional
Development Australia Committee (NMRDAC) argued that:
For many manufacturing firms, the additional cost per worker as the cost of
carbon is priced into the economy will create further pressure on manufacturing
companies to increase productivity … Carbon pricing is likely to reduce the
sustainability of firms that do not adapt to the new cost structures. (sub. 32, p. 2)
Similarly, Qenos suggested that the regulatory regime could be improved with
respect to:
The introduction of any carbon tax, and especially the associated protection for
trade-exposed industries, and any assistance programs that will run in parallel.
Note that any carbon tax must be accompanied by a review of other state and
Federal emissions programs to remove any duplication and associated burden on
industry. (sub. 25, p. 14)
A major issue for participants was not only the direct cost impact of any carbon
tax but also the impact of uncertainty on the manufacturing sector. Such
uncertainty makes planning and investment decisions more complex and
difficult. In addition, this uncertainty adds to the other pressures on the sector.
NMRDAC noted that:
In summary, the current challenges presented by a high Australian dollar and
carbon tax policy make it imperative that government works in partnership with
the manufacturing sector. (sub. 32, p. 5)
In terms of the possible impact of a carbon tax, the Commonwealth Treasury
has modelled the impacts of a carbon price. This modelling shows the impact of
a carbon price on the national economy results in the manufacturing sector
growing more slowly than the rest of the economy — around half a per cent
annually to 2020 — as Australia’s economy continued the long-term shift
towards services and the relative decline of manufacturing. This long-term
decline was expected to be reinforced by the effects of the sustained high terms
of trade and high exchange rate (Commonwealth Treasury 2011b, p. 100).
The impacts of a carbon price on the manufacturing sector are expected to be
negative overall, although some industries are projected to grow. Treasury noted
that ‘within manufacturing, some areas are more emission intensive in
production and, over time, decline in relative size, while others grow. The
Commonwealth Treasury noted that ‘slower growth in some areas allows
employment and investment to flow into less emission-intensive manufacturing’
REGULATION AND TAXES
221
(Commonwealth Treasury 2011b, p. 92). Treasury further suggested that
manufacturing sectors related to mining and construction would perform more
strongly than others (Commonwealth Treasury 2011b, p. 100).
Participants in the inquiry indicated that the approach to implementing the
carbon price was important, and that governments will need to minimise the
adverse impacts on the manufacturing sector.
11.4.2
Business perceptions survey results
In addition to submissions and discussions with participants, the Commission is
able to draw on the results of a survey of regulation burdens to help identify
those regulations that are particularly problematic for manufacturing firms.
In its inquiry into Victoria’s regulatory framework, the Commission organised a
survey of 902 businesses and 100 not-for-profit organisations. The areas of
regulation that businesses overall rated as unnecessarily burdensome were
administration of state taxes and charges; occupational health and safety, workers
and transport accident and compensation laws (OH&S and WTAC laws);
planning and land-use regulations; building and construction laws; and road and
transport regulations.
The survey included 66 manufacturing businesses, and this small subsample size
reduces the reliability of these results for the purposes of the present inquiry.
Nevertheless, the surveyed manufacturing businesses identified OH&S and
WTAC laws and administration of state taxes and charges as having the largest
unnecessary burden. Building and construction laws were mentioned by a small
number of firms. Few if any businesses nominated other areas of regulation,
such as planning and land use, road and transport regulations, health and food
safety regulation, and environmental protection regulation, as imposing an
unnecessary burden (Wallis 2011).
11.5
Identifying potential areas of reform
Submissions, consultations and the Commission’s survey of business perceptions
of regulation have identified systemic issues and particular areas of regulation of
concern to the manufacturing system. In determining which issues to examine in
further detail the Commission has had regard to:


222
the extent to which the regulation affects businesses generally or impacts
more heavily on the manufacturing sector — many of the regulatory issues
identified in the preceding discussion are not manufacturing-specific and
affect businesses generally
whether the issues were considered as part of the Commission’s inquiry into
Victoria’s regulatory framework and discussed in its draft report Part 2:
Priorities for Regulatory Reform, released in March 2011 (VCEC 2011b).
VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
However, while the Commission has undertaken extensive work to identify
regulatory issues affecting the manufacturing sector, the Commission is not
certain that all regulatory issues have been identified. There is an ongoing issue
of how best to engage business to seek its input on regulatory burdens and the
scope for reform. DBI noted that:
There is a challenge to find new ways to engage with business on regulation,
amongst other things, to ensure that issues can be identified and treated.
(sub. 34, p. 19)
Manufacturing businesses, and their representative associations, are uniquely
placed to identify unnecessarily costly and burdensome regulation. The
Commission encourages businesses to collect information on such burdens and
make it publicly available. Many business participants, for example PACIA
(sub. DR62, p. 13) supported such an approach.
DBI should encourage regular data collection by business associations as well as
conducting its own data collection exercises to keep it informed of regulatory
issues directly impacting on the manufacturing sector. One option for the State
Government is to outpost officers from DBI to business associations to
strengthen and focus data gathering and better understanding business concerns
— this approach has been adopted in Queensland. Better understanding of the
regulatory issues affecting the sector would contribute to better informed policy
making and identify areas where there is scope to cut regulatory burdens.
Recommendation 11.3
That the Department of Business and Innovation, through its engagement
with business networks, gather data on regulatory burdens affecting the
manufacturing sector — focusing on understanding the nature and causes
of any unnecessary regulatory burdens — and encourage business
organisations to survey their members and publish the results.
That the Department of Business and Innovation outpost a departmental
employee with major employer associations to enable:
improved information on regulatory costs borne by business
enhanced information from employer associations on key regulatory issues,
including the performance of regulators
improved tracking of performance in reducing unnecessary regulatory
burdens.
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223
11.5.1
General areas of regulatory reform
The Commission’s draft report Part 2: Priorities for Regulatory Reform in March
2011 identified specific areas of Victoria’s regulation that are unnecessarily
burdensome, complex, redundant or duplicative and identified five areas of
regulation that should be reformed or reduced as a matter of priority
(VCEC 2011b). The Commission’s approach to identifying issues was to develop
an initial list of potential issues with Victorian regulations from a wide range of
information sources. This initial list of over 200 regulations and issues was
screened to identify areas where there was scope for the State Government to
take action to reduce regulatory burdens. The Commission then analysed the
issues and developed a list of priority areas for reform. These were:





environment protection and climate change
planning and land use regulation
vocational education and training regulation (specifically in the area of TAFE)
taxi cab and hire car services regulation
liquor licensing regulation.
The Commission considered that, in addition to these five priority areas, there
are other areas that could potentially be included in the list but which require
more research and analysis. These potential priority areas are:




occupational health and safety and workers’ compensation
administration of state taxes and charges
road safety regulation
fair trading regulation.
While the preceding analysis related to economy-wide regulatory reform and was
not focused on any particular industry sector, a number of these priority and
potentially priority areas relate to issues raised by participants in this inquiry into
the manufacturing sector.
In its draft report Priorities for Regulatory Reform the Commission made 28 draft
recommendations and a number of requests for further information on specific
issues. A number of these are relevant to manufacturing.
These broader issues will be considered further in the Commission’s concurrent
inquiry into a state-based reform agenda.
11.5.2
Manufacturing specific areas of regulatory reform
A number of regulatory concerns raised by participants were not explicitly
considered in the Commission’s draft report Priorities for Regulatory Reform and
appear to impact more directly on the manufacturing sector. In particular:
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES


aspects of transport regulation
energy regulation.
Both transport services and energy are important inputs into many
manufacturing processes, and hence any unnecessary regulatory burdens that
increase the costs of these inputs will impact on the costs of manufacturing. A
number of participants highlighted the importance of reducing production costs
if the Victorian manufacturing sector is to remain competitive. For example,
Australian Paper argued that:
To survive, Victorian manufacturing industry has needed to achieve cost
reductions of a similar order to the price reductions — more than 2% each year
in inflation adjusted terms. Some of this has been achieved by increased scale of
operation, some by automation and some by competitive global sourcing of
inputs, but none of these actions can address the costs of escalating
Government-imposed regulation, fees and charges and rapidly rising costs from
non-import-competing suppliers such as energy, water and other semi-regulated
services. (sub. 8, pp. 3–4)
Heavy vehicle regulation
Australian Paper noted that ‘transport of both inputs and products is the lifeblood
of manufacturing industry’ (sub. 8, p. 14). The VFLC was concerned that
Victorian regulation and regulatory issues between jurisdictions prevented the full
use of heavy vehicles (sub. 22). The VFLC argued for increased use of Higher
Productivity Vehicles (HPVs) on Victorian roads. The VFLC defines HPVs as:
… truck-and-trailer combinations that provide the ability to shift more freight
more efficiently, with the spin-off of greater environmental and safety
performance. (VFLC 2008, p. 4)
The VFLC argued that greater use of HPVs offers triple bottom line benefits for
Victorians — social, environmental and economic (VFLC 2008, pp. 6–9). The
VFLC stated that:
At issue is the extent to which heavy freight vehicles are not allowed to operate
at fully productive levels. This relates to maximising vehicle manufacturer
performance levels, for weight, mass and overall length. Interstate comparisons
indicate that there are inconsistencies in the maximum use of heavy vehicle
capacities in Victoria. (sub. 22, p. 2)
There appear to be two main issues:


different regulations relating to vehicles crossing jurisdictional borders, with
the VFLC arguing that Victoria’s requirements are more stringent than other
jurisdictions
regulation of intra-state road transport in Victoria being more restrictive
than in other jurisdictions and not performance-based.
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225
Inter-jurisdictional road transport
Heavy vehicles operating across jurisdictional borders must currently operate
within the regulatory environment set in each jurisdiction. A review by the
Productivity Commission found that regulatory fragmentation between
jurisdictions had imposed significant burdens on the trucking industry in
Australia and that:
The resulting regulatory burden on the road transport industry is compounded
by inconsistencies, duplication and overlap of rules between the Australian
Government and States and Territories, or between States and Territories
themselves. This impedes the efficiency of trucks that travel across State and
Territory boarders and imposes unnecessary costs on the trucking industry
generally. (PC 2006, p. 305)
To overcome the issues of operating in several jurisdictions, COAG decided in
July 2009 to establish an independent National Heavy Vehicle Regulator
(NHVR) responsible for regulating all vehicles in Australia over 4.5 tonnes.
The new arrangements will become operational in 2013. Integral to establishing
an independent NHVR is the creation of a single heavy vehicle national law for
the regulator to administer. The national law will cover many of the same issues
as existing laws (for example, registration, mass and loading, fatigue management
and compliance and enforcement). Licensing, however, will remain the
responsibility of the relevant jurisdiction (NHVR 2011).
The objective of establishing the NHVR is:
To reduce the compliance burden for business, improve Australia’s international
competitiveness, improve productivity and safety and make it easier for business
to operate across State and Territorial borders. (NHVR 2011)
However, local jurisdictions will still have a role, even for vehicles operating in
multiple jurisdictions. The NHVR stated that:
It is important to note that each jurisdiction will retain its responsibility for
determining access approval. Current access variations implemented through
permit arrangements will continue to apply and jurisdictions will retain capacity
to make these arrangements with the NHVR to meet local needs. (NHVR 2011)
In comments on the consultation regulatory impact statement on a national
framework for regulation, registration and licensing of heavy vehicles, the VFLC
argued that:
A national regulator will do little to address key issues such as higher mass limits
and access for heavy vehicles, as these remain at the discretion of each state and
local government under all proposed options. HML [Higher Mass Limits]
increases and access for Higher Productivity Vehicles are considered key areas
where productivity gains can be made. (VFLC 2009, p. 3)
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
Victorian specific regulations are considered further in the next section.
Intra-state road transport
The majority of road transport legislation is the responsibility of the State
Government. Local governments also have a role in some cases. Two issues that
have arisen in consultation are differing standards on the use of heavy vehicles
and the cost of complying with permit requirements. The VFLC argued that the
‘use of heavy vehicle road trains is heavily constrained by VicRoads standards’
(sub. 22, p. 3).
In addition, Australian Paper noted that some vehicles, although they are under
the maximum permitted weight limits, are not able to use some roads:
Several key bridges and road pavements in Victoria have not yet been updated to
accommodate increased vehicle payloads – some of the current restrictions
however are not logical as the weight per unit tyre/road area for B-Doubles (20’
trailer and a 40’ trailer) and, for the future, Super B-Doubles (2 x 40’ trailers) is
often lower than for approved semi-trailers. (sub. 8, p. 16)
This may be an unintended consequence of existing regulation, where some
vehicles are not permitted to operate even though they are under the weight limit
set for others. The problem appears to result from the standards being set by the
type of truck rather than being performance-based and set according to weight
or other criteria. If this is the case, manufacturing businesses may not be able to
use the vehicles that are best suited to their purpose — thereby incurring
unnecessary costs and lower productivity levels. The Municipal Association of
Victoria (MAV) (sub. DR57) also noted this issue but a comprehensive solution
has not yet been developed.
Recommendation 11.4
That VicRoads, while continuing to publish information on the types of
trucks which meet the standard for use on particular roads, specify the
underlying standards on a performance basis and permit any complying
vehicle use of the specified roads.
Another issue is the number of permits and regulatory requirements that must be
complied with. Many of these are imposed by the State Government but local
government also has a role. For example, Australian Paper argued that:
Local Government has disproportionate powers to regulate hours of access for
heavy vehicles to areas where customers of Victoria’s manufacturing industry
and also some of its smaller manufacturers are frequently located. This is often
brought about because Councils and developers do not make suitable provisions
to separate freight and public vehicles. (sub. 8, p. 16)
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227
Multiple permit applications (often involving different levels of government) can
impose compliance costs and delays on firms seeking transport services.
Compliance and delay cost issues were also raised in the Commission’s draft
report Priorities for Regulatory Reform (VCEC 2011b, pp. 17–19). Although not
related specifically to transport issues, Glenvern Technologies noted that one of
a number of important roles for government to play in creating an environment
which supports manufacturing is to reduce:
… the complexity of contact with government — simple one point of contact
needed to better allow those companies that want to make a start to understand
support resources and programs available to them. (sub. 11, p. 12)
A ‘one-stop-shop’ for transport permits (incorporating state and local
government requirements) could reduce compliance costs and delays faced by
those requiring transport services. The VFLC supported the introduction of a
‘one-stop-shop’ for heavy vehicle permits and noted that:
We anticipate that a “one stop shop” model for heavy vehicle access permits will
be pursued by the National Heavy Vehicle Regulator, which is in the formation
phase.
We also note that VicRoads will try to facilitate permit applications through an
on-line lodgement process.
These initiatives
(sub. DR48, p. 1)
will
hopefully
make
the
process
more
efficient.
The MAV stated that:
The MAV support the VCEC recommendation that a ‘one stop shop’ model be
applied to road permits. The MAV believes the National Heavy Vehicle Register
has great potential to fulfil this role, (sub. DR57, p. 6)
Recommendation 11.5
That VicRoads, in consultation with the Municipal Association of
Victoria, examine and report to the Victorian Government by September
2012 on the feasibility of establishing a ‘one-stop-shop’ for road transport
permits.
Energy regulation
Energy regulation is a very broad area and an examination of the regulatory
framework affecting the sector is beyond the scope of this inquiry. However,
energy is an important input into many manufacturing processes and so any
regulation disproportionately affecting the manufacturing industry will have a
significant impact on the competitiveness of the sector.
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VICTORIAN MANUFACTURING: MEETING THE CHALLENGES
A specific issue raised by Toyota in the VCEC’s recent inquiry into Victoria’s
regulatory framework was regulatory barriers to manufacturing firms taking
advantage of cogeneration opportunities (Toyota 2011, pp. 3–4). Toyota noted
that:
There is a significant gap between the risk that a company such as Toyota is able
to accept and the risk responsibility which network providers seek to place on
owners of this equipment.
The current process doesn’t allow direct negotiations between Toyota and the
network provider. (Toyota 2011, p. 4)
This was a specific example of a number of impediments identified in past
Commission work, which impede adjustment to a low carbon intensity electricity
supply. Australian Paper also suggested that:
There are excessive and costly requirements for industrial electrical power
generators to be permitted to export power to the grid, even if they already have
generation and are grid-connected, as is the Australian Paper Maryvale mill. This
acts as a disincentive to consider increased renewable and low carbon energy
generation since the added capital costs to meet these requirements reduce the
already low returns of such projects. (sub. 8, p. 20)
There is already some cogeneration in Victoria. The Department of Primary
Industries (DPI) reported that in 2010:
In Victoria, there are more than 30 sites with installed and operating
cogeneration facilities. Hospitals are one example where cogeneration offers
additional benefits like improving the security of electricity supply and reducing
energy costs. (DPI 2011)
However, DPI also noted that:
… grid connection can be a difficult process for small distributed generators
because of their impact on the grid infrastructure. Transparent rules that outline
the process for connecting to the grid, and a smarter and more flexible electricity
grid, will help address these challenges. (DPI 2011)
The Commission considers the energy sector to be a major topic with a
potentially significant impact on Victorian industry and Victorians which should
be subject to further analysis. But the analysis required is beyond the scope of
this inquiry. However, the State Government has foreshadowed sending the
Commission the terms of reference for an inquiry into the energy sector.
11.6
Summary
Unnecessary regulatory burdens — for example, if regulation is poorly designed
or difficult to comply with — can increase business costs and divert resources
from more productive uses, and reduce businesses’ competitiveness. Many
participants in the inquiry raised regulatory issues. It is also important to consider
REGULATION AND TAXES
229
the cumulative burden of regulation on manufacturing businesses and not just
the burden imposed by any individual regulation. The burden of unnecessary
regulation may fall unevenly on manufacturing firms. Smaller businesses may
find regulatory and compliance burdens to be particularly difficult to absorb.
The Commission recently conducted a public inquiry into Victoria’s regulatory
framework. The Commission’s final report is being considered by the Victorian
Government, but the draft report is available and provides a detailed description
of the framework.
Participants in the present inquiry also identified specific regulatory concerns
directly affecting their operations:







planning controls and the planning system more generally
environmental regulation
occupational health and safety regulation
transport regulation
regulation of the energy sector
state taxes and levies
the introduction of a carbon tax.
The Commission has focused so far on two of these issues: transport regulation
of heavy vehicles and energy regulation. Some of the other broader areas of
regulatory concern will be addressed in the Commission’s inquiry into a statebased reform agenda.
With respect to transport regulation, there are two main issues:


different regulations relating to vehicles crossing jurisdictional borders, with
the VFLC arguing that Victoria’s requirements are more stringent than other
jurisdictions
regulation of intra-state road transport in Victoria being more restrictive
than in other jurisdictions.
Energy regulation is a very broad area and a complete examination of the
regulatory framework affecting the sector is beyond the scope of this inquiry.
However, energy is an important input into many manufacturing processes and
so any regulation disproportionately affecting the manufacturing industry will
have a significant impact on the competitiveness of the sector. The Commission
is expecting to receive a separate terms of reference for an inquiry into the
energy sector following the completion of this inquiry.
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