CAPACITY BUILDING ON MODERNISING
BUSINESS REGULATION
Sue Holmes
Assistant Commissioner,
Productivity Commission
12 January 2011
Productivity Commission
Some preliminaries
(1)
lots of discussion
(2)
RIA = RIS
(3)
the course is flexible – let me know what you
would like change
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What is regulation?
(1)
very different definitions
(2)
some countries – subordinate instruments
(3) Australia has taken a very broad definition for its
reviews of regulation – anything made with the
intention of changing the behaviour of businesses or
individuals: from statutes to quasi regulation
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MODERNISING BUSINESS REGULATION:
DAY 1
(1)
Benefits of regulation review and reform
(2)
Compare the roles of the Malaysia Productivity
Corporation and the Australian Productivity
Commission
(3)
Elements of regulatory review
(4)
Australian regulatory review
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MODERNISING BUSINESS REGULATION :
DAY 2
(1)
Principles and values of the Productivity
Commission
(2)
Elements of Regulation Impact Analysis
(3)
Exploring Elements of RIA More Fully
• Identifying and describing the problem
• Identifying options and recommendations
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MODERNISING BUSINESS REGULATION :
DAY 3
Exploring Elements of RIA More Fully, ctd
• Impact Analysis
• regulatory burdens on business
• Competition
• Business Cost Calculator
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MODERNISING BUSINESS REGULATION :
DAY 4
(1)
Case Study: Oil and Gas in Australia and
Malaysia
(2)
Instilling Commitment to Regulation Review and
reform – Lessons Learned
(3)
Malaysia’s Regulatory Review System and the
Role of the MPC
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OTHER THINGS WE COULD DISCUSS
(1)
risk analysis and risk managemeny
(2)
regulating in a federation
(3)
improving administration and enforcement
(4)
regulatory budgets and reducing the total
regulatory burden
(5)
decreasing red tape
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benefits of
reform
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Review and reform is ongoing
regulation
reform
review
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1
Benefits of regulation review and
reform: Australian experience
(1)
Australian economic performance declined
during the 1970s
(2)
Numerous microeconomic and trade reforms
since 1983
(3)
Marked improvement in economic performance
has since taken place
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Economic performance up to the 1980s
•
•
The regime was highly regulated, anticompetitive and
redistributive:
• trade barriers to protect manufacturing
• statutory government monopolies
Relied on our exports of commodities to pay for this.
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Australia’s terms of trade
500
450
Terms of trade
400
350
300
250
Agriculture
200
150
100
50
1949-
All goods
1959-
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1969-
1979-
1989-
13
1999-
declining economic performance
Australia’s GDP per person ranking had steadily
declined:
•
•
•
•
1st at the start of the 20th century
5th in the world in 1950
9th by 1973
16th in 1990
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Trade liberalisation came first
•
•
•
•
•
•
Reductions in tariff assistance:
• 25% reduction in 1973
From 1983, gradual abolition of quantitative import controls:
• mainly cars, whitegoods and textile, clothing and footwear
industries
From 1988, a series of phased reductions in tariffs across most
industry sectors
By 1996, virtually all tariffs had fallen to 5 per cent or less.
Effective rate of assistance to manufacturing fell from 35% in the
early 1970s to 5% by 2000.
Increased international competition in Australia’s traded goods
sector led to pressures for reductions in input costs and greater
flexibility. This led to a broad-ranging program of domestic
microeconomic reform.
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Microeconomic and trade reforms
Over the last 20 or so years, focus has been on
removing policy-related distortions and
impediments
•
•
•
•
•
•
•
•
•
Trade liberalisation
Capital markets
Infrastructure
Labour markets
Human services
‘National Competition Policy’ reforms
Macroeconomic policy
Taxation reform
Better regulation making and review
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Capital markets
•
•
•
Australian dollar was floated in March 1983
foreign exchange controls and capital rationing (through
interest rate controls) were removed progressively from the
early 1980s
foreign-owned banks were allowed to compete.
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Infrastructure
•
•
From the late-1980s partial deregulation and restructuring:
• airlines
• coastal shipping
• telecommunications
• waterfront
government business enterprises were progressively:
• commercialised
• corporatised
• privatised.
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Labour markets
•
•
shift from centralised wage fixing to enterprise bargaining,
began in the late-1980s
Workplace Relations Act 1996:
• individual employment contracts
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Health, education and community services
Reforms included:
• competitive tendering and contracting out, performancebased
• funding and user charges were introduced in the late-1980s
and extended in scope during the 1990s
• administrative reforms (for example, financial management
and
• program budgeting) were introduced in the early 1990s.
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‘National Competition Policy’ reforms
In 1995, a coordinated national program for progressing
pro-competitive structural reforms across all states was
established. It delivered broad-ranging reforms to:
• essential service industries (including energy and road
transport)
• government businesses
• anticompetitive regulation  Legislative Review
Program
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Reforms to macroeconomic policy
•
•
inflation targeting was introduced in 1993
from the mid-1980s, fiscal policy targeted higher national
saving (and a lower current account deficit) and, from the
mid-1990s, concentrated on reducing government debt,
primarily financed through asset sales (privatisation).
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Taxation reform
•
•
•
capital gains tax and the dividend imputation system were
introduced in 1985 and 1987
the company tax rate was lowered progressively from the
late-1980s
a broad-based consumption tax (GST) was implemented in
2000, replacing the narrow wholesale-sales-tax system and
a range of inefficient state-based duties. Income-tax rates
were lowered at the same time.
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Better regulation making and review
•
•
•
•
•
•
•
•
•
Establishment of the Business Regulations Review Unit
(BRRU) and RIA processes (1985)
 renamed Office of Regulation Review (ORR) (1989)
 renamed the Office of Best Practice Regulation (2006)
Legislative Review program (1996) (competition policy)
Report of the Small Business Deregulation Taskforce (Bell
Review) (November 1996)
Business Costs Calculator (BCC) (2005)
Legislative Instruments Act 2003 (effective 2005)
Report of the Taskforce on Reducing Regulatory Burdens on
Business (Banks Review) (2006)
Establishment of the COAG Reform Council (2006)
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Economic performance in the last 20
years
OECD, Economic Survey of Australia, 2004
‘The Government’s commitment to reform, its willingness to
commission expert advice and to heed it, to try new
solutions, and to patiently build constituencies that support
further reforms, is … something that other countries could
learn from.’
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Improvements:
Australia’s relative productivity performance
Annual productivity growth (per cent)
4.0
Australia
OECD
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1950-73
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1973-90
1990-04
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Economic performance in the last 20
years
• Australia’s GDP grew by 3.5 per cent a year in the
1990s
• faster than the United States
• a third greater than that achieved by the OECD as
a whole
• performed extremely well during external crises:
• the Asian financial crisis of 1997
• the bursting of the dot.com bubble
• the Global Financial Crisis starting in 2008
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Not just Australia:
Benefits of regulation reform
There is wide-ranging evidence that considered regulatory
reform brings benefits to the economy:
• better choices and lower prices for consumers and
businesses
• increased productivity
• a more flexible economy, capable of adjusting to changes
in demand and circumstances.
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Empirical evidence on the gains from
modernising regulation
•
•
•
•
•
•
•
•
•
A number of studies have found that reforms to product
regulation to increase competition, have the following positive
effects:
Growth: increases GDP per capita
Encourages innovation
Accelerates multi-factor productivity
May stimulate employment
Improves labour productivity
Encourages domestic and foreign direct investments
Increases investments in and the adoption of information and
communication technology (ICT) services
See Nicoletti and Scarpetta, 2003 study of OECD countries:
• prescriptive product market regulations and lack of regulation
reform were likely to explain the relatively poorer productivity
performance of some European countries. Considered the
same would be found for other countries.
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declining economic performance
Australia’s GDP per person ranking started to improve
again:
•
•
•
•
•
•
1st at the start of the 20th century
5th in the world in 1950
9th by 1973
16th in 1990
8th in 2002
6th in 2010
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Broad effects of reform
Australia’s per capita GDP ranking
OECD countries, PPP 1990 US$
0
2
4
Ranked 5th
in 1950
6
Back to 6th
by 1998
8
10
12
14
Dropped to 15th
in 1983
16
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
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What were the benefits of past reforms?
Real price changes
Cross-subsidisation in
favour of households
removed
1990-91 to 2003-04
Electricity
Gas
Business
-27%
Other benefits
Households
4%
Business
-12%
Households
13%
-40
-20
0
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•
Large reductions in
telecommunications
(-20%), ports (-50%) and
milk (-5%) prices
•
Wider choice for
consumers: longer
shopping hours, new
phone providers
40
32
What are the potential benefits of future
reforms?
NRA impacts on GDP
2
Health
0.42%
Competiton
0.43%
1
Regulation
1.31%
• Regulation reforms
targeted at:
– reducing compliance
costs
– Removing duplication
• Current compliance costs
around 4% of GDP
– potential to reduce
these by one-fifth
0
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Regulatory design principles
•
•
•
•
•
•
Provide rewards and incentives for compliance
Nurture compliance capacity
Prefer less intervention to more – minimum necessary to
achieve objectives
Use restorative justice when compliance fails
Use regulatory responsiveness – enforcement pyramid –
when restorative justice fails
Target enforcement efforts to minimise risk
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Benefits of regulatory reform cont.
•
•
•
Increases job creation
• Creates new job opportunities and thus reduces fiscal
demands on social security
Reduces risk of crisis due to external shocks
Maintains and increases regulatory protections
• In areas such as health and safety, the environment and
consumer interests – by introducing more flexible and
efficient regulatory and non-regulatory instruments such
as market approaches
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Sectoral effects of regulatory reforms
•
•
•
Price reduction in real terms
Road transport
• Germany
30
• Mexico25
USA
Airlines
• UK
33
• USA
33
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France20
19
Spain 30
Australia
20
36
Price reductions in real terms
•
•
•
Electricity
• Norway (spot market) 18-26.2
• UK
9-15.3
Financial services
• UK
70.4
• USA
30-62.4
Telecommunications
• Finland 66.5
Japan
41.6
• UK
63.6
Mexico 21.5
• Korea
10-30.7
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Economy-wide effects of regulatory reform
•
GDP, long term effects (%)
• USA
0.9
• Japan
5.6
• Korea
8.6
• Germany
4.9
• Netherlands
3.5
• France 4.8
• Greece 9-11
• Sweden
3.1
• UK
3.5
• Spain
5.6
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MPC and
PC
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2
Roles of the Productivity Commission
and the MPC
• Mission:
• MPC: productivity enhancement for global
competitiveness and innovation to better life.
• PC: undertakes applied economic analysis of policy
issues with a focus on helping governments to make
better policies in the long term interest of the
Australian community with a focus on achieving a
more productive economy which is the key to higher
living standards.
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2
Roles of the Productivity Commission
and the MPC
• Means:
• MPC: value-added information on productivity,
quality, competitiveness and best practices through
research and databases
• PC: independent research and advice on a range of
economic, social and environmental issues affecting
the welfare of Australians.
• As an advisory body, its influence depends on the
power of its arguments and the efficacy of its public
processes.
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Commission’s broad range of work
• Public reports addressing questions sent to us by the
Government, for example:
• executive remuneration
• gambling
• aged care
• Public reports which monitor and compare
performance:
• government service provision
• addressing indigenous disadvantage
• particularly regulatory regimes, eg food safety
• Research
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Malaysia Productivity Corporation
?
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Best practice
regulatory
review
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(2) Three Stages of Regulatory Reform
Regulatory management
Regulatory quality (RIA)
Deregulation and simplification
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OECD regulatory governance principles
•
•
•
Deregulate where markets work better than governments
Regulate where markets cannot work without government
Establish systems to ensure laws are coherent and well
managed
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OECD: Ways to improve government
capacities to regulate well
•
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•
•
•
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•
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a) Building regulatory management system
1. Adopt regulatory reform policy at the highest political level.
2. Dynamic dimension of regulatory policy.
3. Establish explicit standards for regulatory quality and principles of
regulatory decision-making.
4. Build regulatory management capacities.
b) Improving the quality of new regulations
1. Regulatory Impact Analysis.
2. Systematic public consultation procedures with affected interests.
3. Using alternatives to regulation.
4. Improving regulatory co-ordination.
c) Upgrading the quality of existing regulations
1. Reviewing and updating existing regulations.
2. Reducing red tape and government formalities.
3. Ex post evaluation.
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Aspects of good regulatory governance
•
explicit regulatory reform policy
•
explicit standards for regulatory quality
•
consider regulatory and non-regulatory alternatives
•
administrative simplification and reduced compliance costs
•
mechanisms for managing and coordinating regulation
•
greatest net-benefit from government intervention
•
transparent impacts (regulatory impact analysis)
•
avoid capture by specific interest groups
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Aspects of good regulatory governance cont.


adoption and enforcement to the optimum degree
transparent, non-discriminatory and efficiently applied

systematic review and update
• clearly articulate goals and strategies
• public consultation procedures
• domestic and foreign businesses know what regulations apply to
them
• appeals process; no undue delay to business decisions
•
•
•
•

ensure they continue to meet intended objectives
regulation impact analysis
target regulations
use automatic review methods
evaluate results
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Australia’s
regulatory
review
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(4) Structure of Australian Regulation
Review and Management
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New regulation
• Adopted RIA in 1985
• Small Business Deregulation Task Force 1996
• the Legislative Instruments Act 2003
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Review and reform old regulation
• National Legislative Review of regulation if it
restricted competition from 1996
• reviews of regulatory burdens by sector:
• based on business complaint
• benchmarking studies of particular regulatory
regimes with focus on comparing compliance
costs to business
• Report of the Taskforce on Reducing Regulatory
Burdens on Business (Banks Review) 2006
• National Reform Agenda starting in 2006
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Regulatory Management System
• training of public servants to understand good
regulation
• Productivity Commission as reform advocate
• Cabinet miniser responsible for regulation
reform from 2006
• a commitment from the Federal Governemnt to
work in partnerships with the state
governments to harmonise regulations in key
areas
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Core elements of regulatory reform
• Deregulation, clearer wording and reducing
red tape
• Regulatory Impact Analysis
• Consultation
• Using non-regulatory alternatives
• Systematic review of existing regulation
• Improving administration and enforcement
• Build a regulatory management system
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Design issues for the RIA assessor
•
•
•
•
•
•
•
•
•
coverage: what regulation
what triggers needing to do a RIA
who assesses?
who is the gatekeeper?
consequences for non-compliance
training public servants
ensuring the assessor is consistent
when is the RIA made public
just advice to the decision-maker?
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Major national reform streams in Australia
National
Competition
Policy (1995)
NCP largely
achieved
1995
2005
PC review of
NCP (2005)
Productivity Commission
National Reform
Agenda
announced
2006
COAG Reform
Agenda evolving
2007
PC reports on
potential benefits
of NRA
2008
Ongoing PC
reports on
COAG agenda
57
Productivity Commission origins
• The Tariff Board was established in 1927
•  the Industries Assistance Commission in 1973
•  Industries Commission 1990
•  Productivity Commission 1998
• Since 1973, 3 important features:
• • Independence
• • Openness
• • Economy-wide mandate
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Independence
•
established by an Act of Parliament
•
only provides advice
•
no judicial, executive or administrative functions
•
Commissioners appointed by the Governor-General for up
to five years and cannot be removed by the government
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Open and transparent
public hearings
draft reports for public comments
annual report analysing the
structure of assistance to Australian
industry and its effects
• government was obliged to release
publicly all inquiry reports
•
•
•
•
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Economy-wide
•
concerned with improving the efficiency with which the
economy uses its resources
•
take account of the interests of consumers and users of
products and services not just the producer of them.
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Over time
• Independence, openness and economy-wide mandate
continue
• Progressive changes
• coverage extended beyond industry assistance
matters
•  structural reform issues across all sectors of
the economy
•  social and environmental spheres as well as
economic.
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Where the Commission fits it
concerns  review  department 
(Productivity
Commission)
Productivity Commission
Cabinet
 Parliament
(confidential
RIA)
(public
RIA)
63
Our role
The Productivity Commission is the Government’s principal
review and advisory body on microeconomic policy reform
and regulation
Our role is to achieve better informed policy decisions
through independent, published analysis and advice
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Core design features of the Commission
1. Independent
• Underpinned by Act of Parliament
• Operates separately from the Executive
2. Transparent
• Open and public process
• Published reports
3. Economy-wide perspective
•
‘... to achieve higher living standards for all
Australians ...’
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Much of our work impacts on regulation
Recommending and analysing the impact of proposed
reforms
1. Most reviews of particular issues, eg gambling, make
recommendations for changing relevant regulation
2. On a number of occasions we have been asked to
assess how regulation reform will affect the
economy, eg in 1995 the Commission modelled
significant gains in growth and govt revenue from
widespread competition reform.
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Much of our work impacts on regulation, ctd
Analysing the impact of existing regulation
1. Periodic overviews of the state of regulation,
highlighting where improvements are needed:
“Banks Report”
2. Stocktakes of Commonwealth regulation which
impacts on particular sectors, eg manufacturing
3. Benchmarking particular regulatory regimes
across all levels of Australian government, eg food
safety, OH&S
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Five broad categories of work ….
Outputs in the form of ….
Government commissioned
projects
•inquiries
•studies
Government commissioned
performance
reporting,
benchmarking
to
governments/
COAG
Government commissioned
regulation
review
activities for
governments/
COAG
Competitive
neutrality
complaints
activities
Outcomes
• Better informed policy decisions
• Enhanced public awareness
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Supporting
research and
annual
reporting on
assistance
Benchmarking program
• All governments adopted a common framework for
benchmarking, measuring and reporting on
regulatory burdens.
• Reviews so far:
• 2007:
feasibility study
• 2008:
business registrations
quantity and quality of regulation
• 2009:
food safety (current)
occupational health and safety (current)
• 2010:
expect 2 other areas – not yet
announced
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Constraints
• The focus is on the impact on business and not the
wellbeing of all citizens.
• We cannot make recommendations.
• We cannot question the underlying objectives of the
government regulation.
• Risk of ‘review fatigue’.
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Scope of Task
•
Regulation is broadly defined
•
Involves existing regulation
• post analysis of impacts versus ex ante analysis via RIA
•
Is about regulation from all levels of government in Australia:
• local government
• states/territories
• Commonwealth (plus New Zealand for food safety).
•
Either involves regulatory regimes pursuing the same broad
objectives (eg OHS) or a burden that stretches across a number
of regulatory regimes (eg business registrations).
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Important features of this benchmarking
exercise
• ex post impact analysis – testing outcomes of the
regulation making processes
• regulators as well as regulation
• uses ‘smart’ principles for promoting compliance
• compares states and territories
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Commission’s broad range of work
• Public reports addressing questions sent to us by the
Government, for example:
• executive remuneration
• gambling
• aged care
• Public reports which monitor and compare
performance:
• government service provision
• addressing indigenous disadvantage
• particularly regulatory regimes, eg food safety
• Research
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Benchmarking Regulatory Burdens on
Business
• Part of the Council of Australian Governments’s
National Reform Agenda
• to reduce regulatory burdens
• especially unnecessary compliance costs
• reduce regulatory duplication and overlap
• concerned about regulations and regulators
• Includes New Zealand
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The Task
• Comparing governments.
• Devise indicators which are likely to show which
regulations/regulators impose greater burdens on business.
• Analyse whether the higher costs are associated with better
outcomes or if are unjustified.
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The exercise is consultative
• complaints driven
• public submissions
• consultations held with governments, peak
industry groups and companies
• surveys
• synthetic construction of compliance costs
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Broad findings: food safety (final)
• Broadly regulators are doing a good job:
• use enforcement pyramid – responsive regulation
• apply risk management
• mindful of reducing business burdens.
• Increasingly in Australia, regulation focuses on raising
awareness of food safety issues, with training, supervisors
and risk management, rather than prescriptive input
regulations, such as specifying what people should wear
while preparing food.
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Broad findings: food safety regulation (ctd)
• The core food safety regulators differ over:
• taxpayer versus business funding
• appeal mechanisms
• transparency
• the level of coordination of council activities
achieved.
• At local government level there are significant
differences in councils’ fees and charges, inspection
rates, risk ratings, enforcement instruments and
transparency.
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Broad findings: food safety regulation (ctd)
• In the regulation of internationally traded food,
compared to New Zealand, Australia:
• has higher fees
• greater duplication
• does not use electronic processing.
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