Improving the Regulatory Climate for Business: Experiences from Australia Rex Deighton-Smith Director, Jaguar Consulting Pty Ltd

Background to reform Substantial economic reform program begun in the 1980s Substantial economic reform program begun in the 1980s Reform driven largely by relative economic decline – slow growth rates, incomes declining relative to other OECD countries Reform driven largely by relative economic decline – slow growth rates, incomes declining relative to other OECD countries Focus on opening the economy internationally, removing product and labour market rigidities Focus on opening the economy internationally, removing product and labour market rigidities

The regulatory dimension Reform initiatives were widespread (tariff reductions, floating the currency, independent central bank), Reform initiatives were widespread (tariff reductions, floating the currency, independent central bank), But regulatory reform was a key element. But regulatory reform was a key element. Most governments established agencies with specific responsibilities: Offices of Regulation Reform Most governments established agencies with specific responsibilities: Offices of Regulation Reform

Different approaches Agreement on the need to free the economy, reform regulation to do it; but Agreement on the need to free the economy, reform regulation to do it; but Substantial differences in approach Substantial differences in approach What are the lessons from the different reform programs tried? What are the lessons from the different reform programs tried?

A selection of programs Small Business Deregulation Taskforce Small Business Deregulation Taskforce Business Licence Simplification Program Business Licence Simplification Program Regulatory Efficiency Legislation Regulatory Efficiency Legislation National Competition Policy Agreements National Competition Policy Agreements

Small Business Deregulation Taskforce Established by Federal Government Established by Federal Government All members from business sector All members from business sector Six month deadline for report Six month deadline for report Received public submissions Received public submissions A specific task: A specific task: to report to the Government on revenue- neutral measures that could be taken to reduce the paper and compliance burden on small business by 50 per cent

Results? Report recommended many further reviews (of tax, food safety, planning laws, etc) Report recommended many further reviews (of tax, food safety, planning laws, etc) Recommendations also included some more specific proposals for reducing administrative burdens Recommendations also included some more specific proposals for reducing administrative burdens Overall, little concrete reform came directly from this exercise Overall, little concrete reform came directly from this exercise

Lessons An effective way of harnessing the business perspective; An effective way of harnessing the business perspective; Some important issues identified; Some important issues identified; But the task was too great for an “ad hoc” committee; But the task was too great for an “ad hoc” committee; No systematic follow-up; but No systematic follow-up; but Some recommendations were ultimately acted on in the medium term Some recommendations were ultimately acted on in the medium term

Business Licence Simplification Target of reducing the number of business licences by 25 per cent; Target of reducing the number of business licences by 25 per cent; Co-ordinated by Office of Regulation Reform; but Co-ordinated by Office of Regulation Reform; but Licences identified for abolition by regulators; Licences identified for abolition by regulators; Numerical target was met; but Numerical target was met; but Limited real impact on business Limited real impact on business

Lessons? Licence reduction an appropriate target, but; Licence reduction an appropriate target, but; Poorly chosen outcome measures; Poorly chosen outcome measures; Lack of political authority; Lack of political authority; Responsibility for program elements poorly distributed; Responsibility for program elements poorly distributed; No links to a broader reform program No links to a broader reform program

Regulatory Efficiency Legislation A law that would make a wide range of regulations more flexible; A law that would make a wide range of regulations more flexible; Business able to propose alternative means of complying with the regulatory objective; Business able to propose alternative means of complying with the regulatory objective; Approval by the responsible regulator; Approval by the responsible regulator;

Regulatory Efficiency Legislation(2) Originally pursued by a committee of civil servants; Originally pursued by a committee of civil servants; Lack of agreement led to referral to a Parliamentary Committee Lack of agreement led to referral to a Parliamentary Committee Report recommended adopting the proposed law; Report recommended adopting the proposed law; Not implemented by government; Not implemented by government; This initiative raised and rejected in Canada as well This initiative raised and rejected in Canada as well

Lessons? The concept was a “shortcut” to achieving reform – and giving business a degree of control over regulation; The concept was a “shortcut” to achieving reform – and giving business a degree of control over regulation; But regulators (including Ministers) feared loss of control; But regulators (including Ministers) feared loss of control; Complexity of the proposal meant lack of support from business – the intended beneficiary Complexity of the proposal meant lack of support from business – the intended beneficiary

Some common elements Programs were short-term in nature; Programs were short-term in nature; Limited links to a broader reform strategy; Limited links to a broader reform strategy; Lacking in a strategic approach – with only general links to a more broadly understood concept of “business environment” Lacking in a strategic approach – with only general links to a more broadly understood concept of “business environment” Lack of institutional support within government Lack of institutional support within government

National Competition Policy A long-term program begun in 1995 A long-term program begun in 1995 Written agreements between all State and Federal Governments Written agreements between all State and Federal Governments An overarching purpose: An overarching purpose: to maximise competition throughout the economy in the public interest, by removing anti-competitive regulation and implementing or extending pro- competitive regulation to maximise competition throughout the economy in the public interest, by removing anti-competitive regulation and implementing or extending pro- competitive regulation

Main elements Identifying all laws containing restrictions on competition (1800 Acts); Identifying all laws containing restrictions on competition (1800 Acts); Reviewing and reforming them: Reviewing and reforming them: legislation should not restrict competition unless:legislation should not restrict competition unless: The benefits of the restriction to the community as a whole outweigh the costs; and The benefits of the restriction to the community as a whole outweigh the costs; and The objectives of the regulation can only be achieved by restricting competition. The objectives of the regulation can only be achieved by restricting competition.

Main elements (2) Extending the reach of the competition law Extending the reach of the competition law Restructuring infrastructure based industries (gas, electricity, telecoms) to promote competition Restructuring infrastructure based industries (gas, electricity, telecoms) to promote competition Competitive neutrality between government and private businesses Competitive neutrality between government and private businesses Other reforms (transport, water) brought within the framework Other reforms (transport, water) brought within the framework

Specific institutions tasked National Competition Council National Competition Council (Progress reporting, assessing requests for access to monopoly infrastructure) Australian Competition and Consumer Commission Australian Competition and Consumer Commission (Enforcing competition law, determining infrastructure access arrangements) Competition Policy Units Competition Policy Units (Co-ordination/reporting at State level)

Results? Program continuing in its ninth year Program continuing in its ninth year Legislative reform substantially complete (c. 80%) Legislative reform substantially complete (c. 80%) Major price reductions in a range of infrastructure-based industries; Major price reductions in a range of infrastructure-based industries; Major increases in investment (e.g. doubling of gas pipelines); Major increases in investment (e.g. doubling of gas pipelines); Overall, a clear improvement in macro-economic performance. Overall, a clear improvement in macro-economic performance.

Lessons? Key contributors to the success of NCP Political support from all major parties, and in major parts of the administration; Political support from all major parties, and in major parts of the administration; Well designed institutional structure Well designed institutional structure Clear objectives, objective (and consistent) tests, regular reporting; Clear objectives, objective (and consistent) tests, regular reporting; Transparency of process/results Transparency of process/results

Lessons (2) A dynamic focus: A dynamic focus: reviews to be repeated 10 yearlyreviews to be repeated 10 yearly New laws subject to the same testsNew laws subject to the same tests Financial incentives for the States to pursue reform Financial incentives for the States to pursue reform

Lessons (3) Key challenges/problems The disciplines created were insufficient to bind the Federal Government adequately The disciplines created were insufficient to bind the Federal Government adequately Lack of communication of the benefits of the reforms Lack of communication of the benefits of the reforms “Reform fatigue” and backlash “Reform fatigue” and backlash

Lessons (4) Perceived imbalances in benefits and costs: Perceived imbalances in benefits and costs: Regional dimensions;Regional dimensions; Compensating the losers.Compensating the losers. Focusing efforts – “materiality”. Focusing efforts – “materiality”.

Conclusions Successful reform is a long-run task & programs must be designed to suit; Successful reform is a long-run task & programs must be designed to suit; Reform is likely to require a combination of approaches; but Reform is likely to require a combination of approaches; but A clear focus on reform objectives must be maintained, with each program being linked explicitly to them. A clear focus on reform objectives must be maintained, with each program being linked explicitly to them.

Conclusions (2) Program design must address: Program design must address: Ensuring necessary authority (including political support);Ensuring necessary authority (including political support); Appropriate institutional design (incl. expertise, authority, impartiality);Appropriate institutional design (incl. expertise, authority, impartiality); Clear objectives and performance criteria;Clear objectives and performance criteria; Regular reporting and general transparency requirements;Regular reporting and general transparency requirements; Need for communication with stakeholders;Need for communication with stakeholders; Need for reform to be seen as a dynamic process, not a “one-off” activityNeed for reform to be seen as a dynamic process, not a “one-off” activity