Presentation to the Inception Meeting of CREW Project, Jaipur India March 2013 The Australian Experience in Assessing Benefits of Competition & Regulatory Policy Reforms Owen Gabbitas Australian Productivity Commission

Productivity Commission2 What is the Productivity Commission? An agency of the Australian Government −Independent research & advisory body Covers economic, social & environmental issues Operations determined by Act of Parliament −Operates in a transparent manner Open & public processes with published outputs −Takes a community-wide perspective ‘to achieve higher living standards for all members of the Australian community’

Productivity Commission3 Some factors affecting reform in Australia Federation of six states & two state-like territories Australian Constitution details the powers of the Australian government −Significant residual powers lie with the States Australian Government responsible for international agreements Australian Government raises majority of revenue −States main service providers Reforms agenda set domestically −Frequently involves issues spanning jurisdictions −Pursuit of returns through international agreements can delay reform process

Productivity Commission4 Why is it important to measure benefits? Helps strengthen the case for future reform Identifies the nature of reforms & who they affect −Useful in determining if: adjustment assistance is required? compensation payments warranted? Important for assessing the impacts & effectiveness of past reforms

Productivity Commission5 Who needs to be convinced & how? Who needs to be convinced? −National, state & municipal governments −Stakeholders Directly affected workers, industries & consumers −The wider public (all Australians) Convinced through research that is: −High quality −Rigorous −Independent −Transparent −Objective −Focused on the national (not sectional) interest

Productivity Commission6 What are some of the methods/ approaches employed? Identify the policy issues −What are the objectives (goals) of the reforms? −How are they to be achieved & what has changed? Identify & quantify the direct impacts −Effect on productivity, prices, work force participation Assessments from cost-benefit analysis, case studies, econometrics, partial equilibrium modelling Identify & quantify the economy-wide impacts −Computable general equilibrium (CGE) modelling −Income distribution modelling −Regional distribution modelling Identify impacts not suited to quantification −Qualitative analysis

Productivity Commission7 Case study: Review of National Competition Policy (2005) Widespread reforms to promote competition −Agreed to by all governments in April 1995 −Built on, and incorporated, earlier related reforms −Particular focus on government trading enterprises The Commission assessed the impacts on infrastructure industries over the 1990s −Followed an Industry Commission review in 1995 −Covered 50% of the reform potential −Focused on electricity, gas, urban water & sewerage, urban transport, ports, rail freight, telecommunications −Focused on the impacts on labour productivity & prices

Productivity Commission8 Approach used for electricity Direct impacts estimated used published data −Impact on labour productivity & prices (business & consumer) by state −Based on actual data Applied these to a state-based CGE model of the Australian economy −Gave the economy-wide, industry, fiscal & state impacts Also assessed the impacts on income distribution −Applied state changes in incomes, prices & social welfare payments from the CGE model to a microsimulation model

Productivity Commission9 Assessments include macroeconomic & sectoral impacts (from the 2005 study) Source: PC 2005, ‘Modelling Impacts of Infrastructure Industry Change over the 1990s’, Supplement to Review of National Competition Policy Reforms, Inquiry Report no. 33, p. 48. Macroeconomic impact Sectoral impact Reform sector

Productivity Commission10 … & the impacts on the distribution of income … Source: PC 2005, ‘Modelling the Regional Impact of National Competition Policy Reforms’, Supplement to Impact of Competition Policy Reforms on Rural and Regional Australia, Inquiry Report no. 8, p. 73.

Productivity Commission11 … & the regional impacts (from a different study) Source: PC 1999, ‘Modelling the Regional Impact of National Competition Policy Reforms’, Supplement to Impact of Competition Policy Reforms on Rural and Regional Australia, Inquiry Report no. 8, p. 10. Regions with intermediate growth in output Regions with the lowest growth in output Regions with the highest growth in output

Productivity Commission12 What are the challenges/impediments faced? Assessment conditional on availability of suitable data & techniques for analysis −Data to ascertain impacts of individual reforms often limited Need to draw on qualitative & quantitative information  not necessarily comparable −Measurement of reform scenarios therefore requires judgement Often difficult to separate the effect of reform from other changes −Including other policy & economic changes Timescale of benefits difficult to ascertain & model  require dynamic modelling framework

Productivity Commission13 What results have been/are seen emerging? Successful past assessments lead to increased expectations −Regional impacts, industry impacts & distributional (income group) impacts Focus on nationally consistent & co-ordinated approach to business reform −Flexible arrangements may yield lower cost opportunities Focus on removing impediments to growth −Testing of different reform options used elsewhere Reform in an increasingly globalised context −Increasing mobility of production & resources Within & across national boundaries

Productivity Commission14 Some lessons from Australia’s reform experience Reform has played a key role in Australia’s economic success over the last two decades Reform has been a gradual, on-going process −Reform in one area highlights need for change in others −Some reforms can be complex  need for review May require co-ordinated & on-going action −Between different Australian jurisdictions −Between national economies (WTO, APEC region) Important to get the incentives right Evidence important for galvanising support −Focusing on wider benefits, not just sectional impacts −Requires an overarching, economy-wide framework

Productivity Commission15 Some relevant Commission work Impacts of COAG Reforms: Business Regulation & VET (2012) Impacts and Benefits of COAG Reforms: Reporting Framework (2011) Potential Benefits of the National Reform Agenda (2007) Review of National Competition Policy Reforms (2005) Impact of Competition Policy Reforms on Rural and Regional Australia (1999) The Growth and Revenue Implications of Hilmer and Related Reforms (1995) All Commission reports freely available from: ww.pc.gov.au