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COAG Regulatory Best Practice and Regulation Impact Statements

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1 COAG Regulatory Best Practice and Regulation Impact Statements
Greetings. Introduction self & speakers. Housekeeping – feedback forms.

2 Objectives To improve your understanding of:
the rationale underlying regulatory impact analysis (RIA) COAG’s RIA requirements and OBPR’s role The rationale underlying regulatory impact analysis What the COAG RIA requirements involve and what you have to do. The role of the OBPR in assisting you to meet the RIA requirements.

3 Outline 10 am Part 1 – Regulatory best practice/ COAG requirements
11-11:15am – morning tea 11:15am Part 2 – RIS 12pm – Questions /Finish General timelines for the training. Aim to be finished around 12pm This training session will give you a broad outline of the requirements. We have included in your kits a copy of the COAG Guide which will provide you with more information on the COAG requirements. But this is not a case of ‘one size fits all’ and neither this session or the Guide can provide all the answers for every situation. The most important message I can give you is to come and talk to us and consult with us early in your policy development process. But hopefully this session will improve your understanding and awareness of the requirements.

4 Rationale underlying regulatory impact analysis

5 Culture of risk avoidance
Over-reaction to perceived risks Lack of appreciation of costs imposed Lack of balance between risks and costs … has resulted in … I don’t want to spend too much time on the history of RIS requirements but it is useful to note why there has been a push for the introduction and enhancement of Regulatory Impact Analysis. There are a number of factors that have been the impetus for RIA. There is a growing view that we have developed a culture of risk avoidance. That there is often an over-reaction or knee-jerk reaction to perceived risks and that in the rush or driving need to address these perceived risks there is a lack of appreciation of the costs imposed by the regulations which are introduced and a lack of balance between the real risks and the costs arising from our actions. This has resulted in an increase in regulatory burden

6 Increasing regulatory burden
Unnecessarily complex regulations Excessive costs of compliance Adverse and unintended effects Use of substantial taxpayer resources Business has become increasingly vocal about compliance and other burdens associated with the increase in regulation that Australia has experienced over the last two decades. The COAG RIS requirements were introduced around 1995 to address concerns by business that regulatory regimes were unnecessarily complex, costly, too prescriptive, and that they stifled innovation. These concerns were echoed in a report released last year by the former PM’s taskforce on reducing the regulatory burdens on business – also known as the Banks Report. The Banks Report noted that since 1990, the Australian Parliament passed more pages of legislation than were passed in the first 90 years since Federation. This helps to illustrate the growing volume – and complexity - of regulations. Submissions to the Banks review indicated that up to 25% of senior management time in large companies is taken up with regulatory compliance matters – and the % for smaller businesses is even greater.

7 Productivity agenda Best practice regulation process helps protect and implement the micro-economic reform process This link is sometimes lost with an officer focusing on ‘requirements’ rather than on what the process is delivering The RIA process is a means to an important end rather than a road block The wider effects from poorly conceived or poorly designed regulation include slower economic growth, lower employment, and a decline in Australia’s international competitiveness. There are also the costs to the taxpayer of administering regulation. So the best practice regulation process helps protect and implement the micro-economic reform process and at the COAG level a national seamless economy. RIA should be seen as a means to and end rather than a road block. RIA should not require much more than what you should be doing if you have good policy development processes in place.

8 The need for best practice regulation
Regulation is an essential part of running a well functioning economy, but it must be carefully designed to avoid: unintended and/or distortionary effects overlap and inconsistency excessive compliance costs A question of balance (costs & risks) . This is not about removing all regulation, regulation is an essential part of running a well functioning economy It is about government regulation needing to be well designed and well managed if it is to be effective and avoid many of the problems that have been experienced in recent times. It is a question of balance.

9 Changing regulatory environment
COAG Australian Government States and Territories International – Netherlands, UK, Europe These concerns are not just at the COAG level. The Australian Government has moved to address these concerns through agreeing to most of the recommendations in the Banks report, including by enhancing its RIA processes. States and Territories have introduced their own RIS requirements Internationally- other countries have introduced initiatives aimed at reducing regulatory burden.

10 COAG initiatives on regulatory reform
Principles and guidelines for national standard setting and regulatory actions by MCs & NSSBs (1995) COAG communiqués (2006 and 2007) PM wrote to State Premiers in August 2006 New COAG Best Practice Regulation Guide released (October 2007) There have been a number of COAG initiatives on regulatory reform. The 1995 Principles and Guidelines which I’ve already noted. Several COAG communiques which outline the agreed upon National Reform Agenda, enhanced RIA requirements and the establishment of the Business and Regulation Competition Working Group (BRCWG) The former Prime Minister wrote to State premiers advising on the Government’s response to the Banks Report and areas where co-operation between all levels of Government was required and on related reforms agreed to at the July 2007 COAG meeting.

11 COAG RIA Requirements

12 Enhanced RIA requirements
Increase in the quality of RIA Cost Benefit Analysis where appropriate Compliance costs –encourage use of Business Cost Calculator Increase scope – cumulative burdens Gatekeeping mechanisms Transparency As I’ve already noted COAG has introduced a number of initiatives on regulatory reform. With respect to regulatory impact analysis, in February 2006 COAG agreed to: increase the quality of RIA broaden the scope of RIA, where appropriate, to recognise the effect of regulation on individuals and the cumulative burden on business To establish and maintain gate keeping mechanisms as part of the decision making process to ensure that the regulatory impacts are made fully transparent to decision makers in advance of decisions being made. Some Secretariats have embedded requirements in templates for meetings and agenda’s, for example, flagging if OBPR has been consulted and whether a RIS is required. Some have instigated meetings with the OBPR to discuss agenda’s for upcoming meetings COAG secretariat in PM&C also has a gate keeping role. Transparency - Decision RISs are to be made public as soon as possible.

13 Principles of best practice regulation
Establish a case for action Examine alternatives to regulation Adopt the option with the greatest net benefits Not restrict competition, unless… Provide effective guidance to regulators Review regulation regularly Consult effectively with stakeholders Effective action proportionate to the issue COAG has endorsed a set of principles of good regulatory process. These align with the RIS process. 4 Relates to the Competition Principles agreement that legislation should not restrict competition unless benefits of the restriction to community as a whole outweigh the costs and objectives of the regulation can only be achieved by restricting competition. 5. Provide effective guidance to regulators and regulated parties in order to ensure that the policy intent and expected compliance requirements of the regulations are clear. 6 Review regulation to ensure it remains relevant and effective over time. 7 Consult effectively with stakeholders and I will talk more about consultation later 8 Government action should be effective and proportional to the issue being addressed. Effectiveness should be judged solely in terms of meeting the specified objective. Proportionality involves ensuring that government action does not ‘overreach’ or extend beyond addressing a specific problem or achieving the identified objective.

14 Definition of regulation
Broad range of legally enforceable instruments which impose mandatory requirements upon businesses or individuals Government voluntary codes and advisory instruments for which there is a reasonable expectation of compliance So when we talk about regulation what are we talking about. The definition of regulation for the purposes of RIA is much broader than it is commonly thought. The requirements apply to agreements or decisions to be given effect whether at the Commonwealth or State/Territory level or both, through principal or delegated legislation, administrative directions or other measures which when implemented would encourage or force businesses or individuals to pursue their interests in ways they would not otherwise have done. Includes Quasi regs – wide range of rules or arrangements where govts influence businesses and individuals to comply without explicit regs. Broadly whenever govt takes action that puts pressure on business to act in a particular way. Care needs to be taken with the development of guidelines, guidance material, manuals etc as many of these may be quasi-regulatory – so if in doubt contact us.

15 COAG RIA requirements apply to
The decisions of COAG, MCs and inter-governmental standard setting bodies, however they are constituted. INCLUDES bodies established statutorily or administratively by government to deal with national regulatory problems.

16 Multi-staged decision making
Multi-staged decision making points RIS required at point at which a regulatory decision is made even though regulatory model is still to be determined One or several RISs may be required Multiple decision makers RIS should be provided for each body that makes a decision When COAG is the decision maker, the responsibility of preparing the RIS sits with the Ministerial Council. Decision making processes and the requirement for regulatory impact analysis is not always clear cut. For multi-staged decision making processes, where a decision is being made that a regulatory option is required but it is not yet clear what the details of the regulation will be a high level RIS may be required for this initial decision and a further RIS may be required on the proposed regulation or regulatory model that is developed. However, in some cases where an adequate RIS is prepared, a RIS may not necessarily be required for follow up or subsequent regulation which implements the original decision, unless significant additional regulation is contemplated. The RIS shouldn’t be prepared at the stage at which you are preparing drafting instructions for the regulation as it is likely that key decisions have already been made and it is too late to prepare the RIS. In some instances there may be multiple decision makers. A RIS should be prepared for each of the Ministerial Councils that are to make a decision on the matter. Where matters go from a Ministerial Council to COAG, the RIS should be prepared for the MCs consideration and to inform the recommendation that they will make to COAG.

17 COAG RIA framework Regulatory proposals: Minor / Machinery
Emergency exception Not included: government purchasing policy or industry assistance schemes Need to consult with the OBPR to determine if the regulatory proposal is in minor/machinery category. Need to provide information to OBPR on compliance and other impacts expected for business. OBPR will advise whether the reg proposal is minor/machinery or whether a RIS is required.

18 Regulation Impact Statements
Are a key element of best-practice RIA Structured cost-benefit approach to policy development Assist transparency Both a process and a document

19 COAG RISs are prepared at two stages
consultation decision-making The OBPR must assess the adequacy of the RIS at each of these stages. Adequacy must be assessed by OBPR before RISs can be released for public consultation or provided to the decision maker.

20 Consultation RISs – requirements
Expected to have strong problem, objective and options section, but Impact analysis may not be as robust as the final RIS – as evidence is still being collected Assessed by OBPR before public release NZ-RIAU should be consulted if relevant Where there are gaps in data or information, we encourage you to ask questions to elicit that information/data from stakeholders. A consultation RIS should still indicate what is the proposed option. New Zealand Regulatory Impact Analysis Unit should be consulted Trans-Tasman Mutual Recognition issues.

21 COAG Consultation requirements
What is adequate consultation? Who needs to be consulted? OBPR unable to post-assess consultation processes. There are no hard and fast rules. The COAG requirements note that consultation should occur as widely as possible but at the least, should include those most likely to be affected by regulatory action (for example, consumer and business organisations) You should consult by placing advertisements in all jurisdictions to give notice of the intention to adopt regulatory measures and to advise that the RIS is available on request and invite submissions. Appendix F of the COAG guide contains some consultation guidelines. Whilst there are no time limits with respect to how long a consultation process should be there is an expectation that it will be commensurate with the impacts of the proposal. So for highly significant proposals a longer consultation period would be expected. The Australian Government Best Practice Regulation Handbook contains a section on Best Practice consultation requirements which may be useful. This handbook is available on our website. But please note that whilst you may have great consultation processes, if a consultation RIS has not been prepared or assessed by the OBPR prior to the consultation being undertaken you will be reported as non-compliant as the OBPR cannot post-assess consultation processes.

22 Decision RIS Final RIS has higher ‘bar’
Assessed by OBPR prior to decision being made Assessment focuses on whether: RIS Guidelines have been followed Type and level of analysis commensurate with impacts RIS demonstrates preferred option results in a clear net benefit to the community

23 Guidelines on length of RISs
Quality versus quantity Commensurate with impacts Simple proposal – around pages Complex proposal – pages

24 Compliance reporting Report annually in the Best Practice Regulation Report Send out compliance request letters 6 monthly Send out assessment letters advising of compliance by MC/NSSBs Every 6 months we send out a compliance request letter requesting information on the decisions which have been made by Ministerial Councils and NSSBs and whether RISs were required and prepared. We do some checking of our own, for eg go through meeting communiques, collate the information and provide an assessment letter which indicates how we will be reporting the decisions made in the period. That is whether the COAG requirements were met or not met. We report on compliance in our Best Practice Regulation report which is an annual publication and we report against the decision maker. In those case where there are multiple decision makers we report the issues as joint proposals.

25 Summary of steps in undertaking RIA
Consult early with the OBPR Prepare a consultation RIS OBPR assesses consultation RIS Once adequate, publish the consultation RIS – consult effectively Develop the RIS in light of information obtained Submit the decision RIS to OBPR who will assess it against the COAG requirements RIS provided to the decision maker Proceed with regulatory action consistent with the RIS Publish the final RIS OBPR reports on compliance These are the key steps you need to note in undertaking Regulatory Impact Analysis.

26 Role of the OBPR “One-stop shop” for regulators, providing information, advice and training on: Need for RISs Formulation & adequacy of RISs Compliance with the RIA requirements …..Consult the OBPR early in the policy development process. So where does the OBPR fit into this process? Coach: We are here to assist you in complying with the Government’s RIA requirements. We can provide RIS training, CBA training and BCC training. Umpire: We also assess RISs when they are required. Scorer: And we report on Ministerial Councils and National Standard Setting Bodies’ compliance with the RIA requirements, each year, through our Best Practice Regulation Report. OBPR structure – 3 RIA teams and the CBA unit I hope you now have a better understanding of the main elements of the Government’s RIA requirements. Are there any questions?

27 Any questions on Part 1- COAG RIA?

28 Regulation Impact Statements (RIS)
RIS are required where the regulations is likely to result in significant impact. The extent of analysis will commensurate with the impact. Note it is not about policy. But about providing information to the decision maker.

29 Objectives of preparing a RIS
Consultation RIS – canvas regulatory options and their costs and benefits Decision RIS – provide information to the decision maker Also, provide evidence of the steps taken in good policy development As noted above the RIS process is aimed at helping ensure that regulation meets it objectives and the beneficial outcomes are achieved. In doing this the RIS should show the decision maker which choices should be made including the tradeoffs of making different choices. It also shows that the agency has pursued due process and has considered various ways of addressing the problem.

30 Key elements of a RIS Problem Objective(s) Options Impact analysis Consultation Conclusion and recommended option Implementation and review You need to adequately address each element to draft an adequate RIS These are the seven areas which a RIS must consider. We’ll go through each of these in due course, but for a RIS to be considered adequate and be ‘cleared’ by the OBPR, it must address each of these elements. Most RISs use these elements as headings. While this works well in most instances, it is still important to consider whether the RIS is coherent and logical. That is, including the headings is no guarantee of a RIS making sense.

31 Element 1. Identifying the Problem
What is the problem? Why should Government intervene? to deal with market failure to correct a regulatory failure to address an unacceptable risk Is there existing regulation? If there is, why is further action needed? The first job of a RIS is to identify the problem requiring government intervention. This usually lays the ground work for a good RIS, once the problem is clear, usually the options for addressing it will also follow. Four justifications for government intervention outlined in the slide, the first (market failure) is the most common. Usually such justifications relate to information asymmetries, externalities/public goods, imperfect competition. Second reason (to correct regulatory failure) it is also helpful to consider the underlying need for regulation and the whether there is a reason for the regulation in the first place. Finally, when considering existing regulation it is important to look broadly and consider all Australian Government and state and territory government interventions. It may also be necessary to consider whether the market itself (through such instruments as industry codes or other incentives) will address the problem. It is important to discuss the nature and the magnitude of the problem.

32 Element 2: Objectives of govt action
Be specific, link it to the problem But not be too specific, so as to preclude options Do not confuse ‘ends’ with ‘means’ when setting an objective The most important point to remember is to specify WHAT is your goal or you want to provide, not HOW you want to achieve it or provide it.

33 Element 3: Consider a broad range of options
Include non-regulatory and regulatory options Distinguish feasible options from infeasible options Explain why some options are not feasible Do not confuse infeasible with not preferred Describe feasible options (but don’t analyse them here) The following couple of slides give an outline of the types of options that you may want to consider. The main point is to identify all feasible options. If some options are ruled out summarily (because they aren’t really feasible), that is fine, but the RIS should explain why. Nevertheless, you don’t need to include options that clearly aren’t feasible. The most important point in the options section is to clearly describe what the option will involve, what it will require.

34 Element 3 cont’d: Examples of options
Status Quo or do nothing Non-regulatory options Self regulation Quasi-regulation Explicit government regulation Note there may be sub options within each category The status quo must be an option considered, it is the benchmark against which the other options and measured. Then there are a range of other options that could be included (see slide). It is important to also consider the various forms of regulation if there are multiple ways of addressing the problem. In essence, you need to include these options in order to demonstrate that your proposed approach is optimal. Regulation should be the last resort – not the first one.

35 Element 4: Impact Analysis
For each option Identify who is affected? How are they affected? To what extent are they affected (costs and benefits)? Quantify where possible level of analysis must be commensurate with level of impacts restrictions on competition require a higher level of analysis This section outlines who the various stakeholders or affected parties are and how they are affected. The section should detail all of the costs and benefits of the different options on each of the stakeholder groups. Stakeholder groups are generally business, consumers, government and the community, but within these broad groups you may highlight specific groups for example you may look at the impacts on industry as a whole but also look at the impacts on a particular sector for example the fishing industry. This is the section where you should provide a quantification of compliance costs (unless these are ‘no or low’). You should also quantify other impacts where possible. You should also remember, that the level of analysis should be commensurate with the level of the impacts. Further, we are really applying a ‘reasonable person test’ so if something is really obvious you don’t need to go to too much trouble to prove it. CBA team is here to assist. Can help with consultants – designing collection instruments; methodologies/approaches to CBA- etc. CBA team is a resource at your disposal.

36 Element 4 cont’d: Impact Analysis
Examples of costs and benefits Consumers prices, variety, availability, quality, convenience, safety and risk, access to information Business compliance costs, uncertainty, complexity, market access, input prices, process modification, restrictions on competition Government administration and enforcement costs Community public health and safety, environmental quality/ESD, economic growth, innovation, employment

37 Estimating compliance costs
Use of BCC to estimate compliance costs is encouraged (but not mandatory) IT tool available from the OBPR website Checklist: notification, education, permission, purchase cost, record keeping, enforcement, publication/documentation, procedural and other Include compliance costs in RIS Use of BCC is not mandated for COAG RISs but can be used as a tool to aid in preparation of compliance estimates.

38 Element 4 cont’d: Restrictions on competition
Some examples include: governing the entry or exit of businesses into markets controlling input or output prices restricting the quality, quantity or location of goods and services restricting advertising and promotional activities For such proposals the RIS must demonstrate that restricting competition will: result in a net benefit for the community; and the objective of the intervention can not be achieved in any other way Regulation that restricts competition (see the slide) are usually more significant and have greater affects. As such, the government requires a higher level of analysis for proposals which have this effect. In essence, agencies need to prove that they can not meet the objective (or address the problem) in a manner which will not restrict competition.

39 Element 5: Consultation
Who has been consulted? How was consultation conducted? What are stakeholders views (highlight dissenting views)? How did these views affect the outcome? If stakeholder views were not addressed, explain why. The consultation section is aimed at demonstrating that the agency has followed procedure and has consulted on the proposed regulation. It also provides an opportunity to alert decision makers to different views of stakeholders which may not have come out in the impact analysis. From an agencies point of view it allows you to prove that you have considered the views of different stakeholders and can show how certain views have been taken into account and the proposal changed as a result. Obviously you cannot agree with everyone – but you must show why it is that you do not agree.

40 Element 6: Conclusion / recommended option
Provides a summary of the options and their impacts. Identifies which option is preferred and why others options are not preferred. Reiterates why the benefits of the preferred option outweigh the costs. The section summarises the rest of the RIS. In it you need to reiterate which is the preferred option; why other options are not preferred; and why the benefits of the preferred option will outweigh the costs.

41 Element 7: Implementation and review
How will the preferred option be implemented? Transitional arrangements? Who will administer the regulation? How will it be enforced? How will compliance costs be minimised?) Will it be subject to sunset provisions? Will it be reviewed? (if so, by whom and according to what criteria?) Having decided on the preferred option this section is dedicated to discussing how the preferred option will be put into action. Basically you need to outline the procedure moving forward including how the regulation will be checked to ensure that it is meeting its objectives and that it is not causing any unintended outcomes. If elements of the implementation are still unclear, this should be noted in the RIS along with the procedure for resolving these issues (for example regulations associated with legislation).

42 Analysis is the key “ … the goal of evidence-based policy-making is unquestionably important, and it is encouraging that it has received vocal support at the highest political levels. However, measured against the various ingredients for an effective approach, it seems clear that current practice continues to fall short. Addressing this is now largely up to the public service. Not only is there a need to improve the capacity of the public service to deliver evidence-based policy advice, there is a need for it to improve political understanding of what that entails.” Gary Banks - Evidence-based policy-making: What is it? How do we get it? 4 February 2009

43 Visit our website - Consult the
Like to know more? Visit our website - Consult the COAG guide Australian Government Best Practice Regulation Handbook Contact the OBPR or COAG guidelines Example RISs


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