Convention Centre, Canberra
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A 2020 vision
A little over a week ago, many of Australia's best and brightest minds met at the 2020 Summit to think big for the future of our great country.
One of the striking outcomes of this process was the strength of support for regulatory reform that would create a seamless national market.
I welcome this call from business leaders and I am glad to say that through the Council of Australian Governments (COAG) we will be implementing a reform agenda designed precisely to achieve that result.
The regulatory reform journey
Just as the Hawke and Keating Labor Governments assumed the mantle of regulatory reform in creating Australia's open, competitive economy, the new Rudd Labor Government and the State and Territory Labor Governments are taking on a bold new regulatory reform program.
Today I will be taking you through this journey of how and why the Rudd Government along with the States and Territories chose the regulatory reform priorities that were announced at COAG in March.
This will give you an insider's view of our reform program and our priorities.
Then I will explain the benefits that some of those reforms will yield for business and the quest for a seamless national market.
Progress at March COAG was needed to overcome past failure
COAG's regulatory reform program is ultimately about improving our Federation – for although the Australian Federation has been a rock of stability for more than 100 years, improvements can and must be made if we are to harness our full potential as a nation.
As part of the research commissioned by the Business Council of Australia, Access Economics has conservatively estimated that inefficiencies in our federal system are costing Australian taxpayers $9 billion each year, or over $1,100 per household.[1]
We know that complying with inefficient business regulation is costly for Australian businesses. Estimates of these costs are not easy to obtain, but the Productivity Commission cites an estimate of up to four per cent of GDP, which is more than $40 billion per annum.[2]
Many of these inefficiencies arise from inconsistency and overlap in Commonwealth, State and Territory laws and regulations.
Some regulatory areas are covered by nine separate, often inconsistent and sometimes conflicting laws, regulations and administrative systems.
A recent OECD report found that in services, Australia ranks last among 30 OECD countries in the harmonisation of regulations across internal borders[3] - stone motherless last.
Despite the urgent need, often repeated during the course of the last decade, to reduce and harmonise business regulation in Australia, the previous Government inflicted on business what the Business Council of Australia describes as the 'creeping re-regulation' of the economy, which it cites as an example of 'how the benefits of past reform can be quietly eroded over time’.[4]
During its time in office, the previous Government commissioned several reviews of business regulation but took the country backward by increasing regulation and complexity for business.
It started well with the review conducted in 1996 by the late Charlie Bell, then CEO of McDonald’s.
Yet 10 years later, the Taskforce on Reducing Regulatory Burdens on Business, chaired by the Chairman of the Productivity Commission, Gary Banks, identified many of the same problem areas nominated by the Bell Report as reform priorities.
In responding to the Taskforce Report in August 2006, the previous Government again agreed to pursue reforms in each of these areas.
It had agreed with the States and Territories in February 2006 to reform six regulatory 'hotspots'. In July 2006, COAG added another four 'hotspots' to the reform agenda. Nine months later, at the April 2007 COAG meeting, agreement was ostensibly reached on these 10 'hotspots'.
But between July 2006 and the federal election in November last year, progress in implementing the agreed reforms was so slow that Business Council of Australia Chief Executive Katie Lahey was compelled to conclude that: ‘Eighteen months ago COAG released a plan to tackle 10 business regulation hot spots. Clearly they were so hot they burnt a hole in the piece of paper and we haven't seen them since.’ [5]
In several of the 'hotspot' reform areas under the previous Government, the relevant Ministerial Council meeting never occurred and in one case the Ministerial Council met but did not discuss the 'hotspot'.
A tale of woe – chemicals and plastics regulatory reform
To give an example of the lament of regulatory inertia under the previous Government, reform of regulations covering chemicals and plastics industries was identified as a priority by the Bell Report back in 1996.
It was one of the original six 'hotspots' identified by COAG in February 2006 and was reaffirmed as a 'hotspot' by COAG in July 2006. Then in April 2007, COAG agreed afresh to reform chemicals and plastics regulation.
When Labor came to office federally, I asked what had happened to date on this 'hotspot' in response to these various reports and COAG announcements. In particular, I asked how many meetings of the Ministerial Taskforce on chemicals and plastics regulation reform had been held and what had they decided?
The answer was none! No meeting had ever been held over an 11-year period. Not one. This is an example of the previous Government looking busy, making all the right noises, Ministers waving their arms around – all as a substitute for regulatory reform.
The Ministerial Taskforce has now met. I chaired its first meeting on the 8th of April. We have established a senior officials group, which is working with the Productivity Commission on early reforms and a set of further reforms based on the final Productivity Commission Report. The Ministerial Taskforce will meet again on the 7th of May where we will consider these recommendations.
What was agreed at March COAG?
On 26 March, COAG endorsed a plan to ease the regulatory burden on Australian businesses.
It was an historic meeting with COAG agreeing to a reform program that now covers an unprecedented 27 areas of overlapping and inconsistent regulation across Commonwealth, States and Territories.
This includes a landmark intergovernmental agreement to be finalised by May 2008 to harmonise occupational health and safety laws. COAG agreed that this is a top priority and that governments will closely examine the scope for a shortened implementation timetable at its meeting in July 2008.
COAG also agreed to early breakthroughs on a further 12 regulatory reforms. An ambitious new COAG regulation reform agenda covers a further nine areas.
Associated with this commitment is a set of self-imposed hurdles that we must jump at specified times. Each hurdle is set out in an implementation plan for the 27 areas.
The business community will therefore be informed of progress against these plans. They would know the moment we fell at a hurdle. That’s uncomfortable for us but necessary for keeping us accountable.
Restarting productivity growth – the basis of the COAG regulatory reforms
The regulatory reform program agreed by COAG is central to the Government's overall plan to re-start productivity growth and ease capacity constraints on the Australian economy.
Labor has for many years expressed deep concern about faltering productivity growth.
We have recognised that strong productivity growth is essential to Australia sustaining and increasing prosperity in an ageing population.
The Productivity Commission has calculated that labour productivity growth accounts for virtually all the growth in Australia’s income per person since the mid-1960s.[6] But the Intergenerational Report of 2002 and 2007 projects a sharp slowdown in income growth per person during the next two decades. It finds this will come from a combination of an ageing population and productivity growth reverting to its mediocre 30-year average.
To give an example of the power of increasing productivity growth, if Australia’s labour productivity growth rate over the 40-year projection period of the Intergenerational Report were just ½ a percentage point faster than the assumed rate of 1¾ per cent, Australia’s national income would be 20 per cent greater by the end of the period.[7] Such is the power of compounding; in this case, compounding productivity growth.
The Rudd Government's plan to restart productivity growth is built on four pillars – investing in education, infrastructure and innovation and reforming business regulation.
When drawing up the priorities on COAG regulatory reform, the working group that I co-chair with Finance and Deregulation Minister Lindsay Tanner therefore focused on the ways in which regulation can impede productivity growth.
We considered the breadth of regulatory reach across large numbers of businesses and whether the regulations adversely affected industries generating a large amount of GDP.
Then we looked at compliance costs. And importantly we assessed the damage that a regulation does to competition and to incentives for effort, risk-taking, entrepreneurship and innovation.
Finally we added the adverse effects of the regulation on workforce mobility and participation.
These five criteria allowed us to prioritise reforms.
The optimal outcomes for the 27 reform areas
Next the working group made decisions about the optimal reform outcome in each case.
Applying a one-size-fits-all, Canberra-knows-best approach to all business regulation would be damaging to the quest for higher national productivity growth.
In some cases the optimal outcome was indeed a national system. This was clearly the case where the good or service involved was traded nationally or internationally.
For example, COAG has agreed on the model for a national trade measurement system, replacing eight different systems operating around the country. We expect to pass legislation this year.
In financial services, the States have agreed to the Commonwealth being the sole regulator of trustee companies and they have agreed in principle to the Commonwealth assuming responsibility for mortgage lending and advice, margin lending and lending by non-deposit taking institutions.
This transfer of powers is in recognition of the reality that the market for financial services is national. Products are becoming more complex by the week and the States and Territories recognise they are not well placed to regulate them. Many financial services are already regulated nationally and this initiative proposes to transfer other major services to the national regulatory system.
In other cases, our working group found that gains could be made from competitive federalism, but in a more harmonised system.
For example, if all States and Territories had the same thresholds and rates of payroll tax, businesses would no longer get the benefit of competition among the States in seeking to attract and retain footloose industries by keeping their payroll tax imposts in check.
Yet compliance costs for multi-state employers can still be reduced by harmonising the payroll tax base and definitions.
This approach to regulatory reform by the working group – prioritising reforms according to their impact on productivity growth and determining the optimal outcome of the reform process in each case – is both rigorous and will achieve real and enduring results.
More mobility for workers
Workforce mobility is vital to increasing workforce participation and easing skill shortages in the highest-demand locations in the country.
COAG supports the progress on mutual recognition of the licences of tradespeople made so far, with recognition extended to 31 different trade licences.
COAG has also directed that mutual recognition for remaining licences be completed by September 2008, which is in advance of the previously-agreed timetable.
But COAG has given the working group the task of taking these trade licensing reforms further. We want to consider options for a national system meaning that tradespeople would not have to be registered in a new State or Territory before practising their trade.
COAG has asked the working group to report back in July on options for a national system for trade licensing.
Once reformed, this is a clear example of the seamless economy in operation.
Financial product disclosure statement reform
The Rudd Government is determined to act in a timely and comprehensive manner to slash the lengthy, complex and unreadable disclosure documentation in financial services.
The Financial Services Working Group established by Ministers Tanner and Sherry is already at work on cutting back the long-winded 50-plus pages of product disclosure statements down to the essential information that consumers and investors need to know.
The working group will focus on solutions that would shorten financial product disclosure documents in superannuation and would improve Australians’ access to cost-effective financial advice.
Product disclosure statements should be simple, readable, and as concise as possible on a product by product basis, focusing on fees, return and risk level.
The Government is determined to achieve reform that delivers short, comparable financial product disclosure documents and an appropriate regulatory framework that facilitates the provision of financial advice in relation to the important decisions that investors make with regard to their superannuation.
Our destination
As the Rudd Government proceeds through the journey of regulatory reform in cooperation with the States and Territories, we will be removing the impediments preventing Australia from becoming a single, seamless market.
That the task of removing unnecessary and overbearing business regulation has fallen to a Labor Government should not surprise. History is repeating itself. Just as the Hawke and Keating Labor Governments fashioned Australia’s open, competitive economy out of the heavily regulated, fragmented, inward-looking economy it inherited from the preceding Coalition Government, so too is the Rudd Labor Government taking up the challenge of reversing the ‘creeping re-regulation’ of the last decade and creating a seamless economy. We are building a modern economy to meet the challenges of the 21st Century. Australian businesses and the Australian people expect no less.
1. Business Council of Australia (2006) Reshaping Australia’s Federation: A New Contract for Federal–State Relations, Melbourne, pp. v, vii, 7 & 9.
2. Productivity Commission (2007), Potential benefits of the National Reform Agenda, Canberra, p. 351.
3. Organisation for Economic Co-operation and Development (2008) Economic Policy Reform: Going for Growth 2008, Paris, pp. 120-121.
4. Business Council of Australia (2007) Policy that counts: reform standards for the 2007 federal election, Melbourne, p. 5.
5. 'Smarten up, business tells leaders', The Age, 19 December, p. 2.
6. Productivity Commission (2007), Productivity primer, at http://www.pc.gov.au/commission/work/productivity/primer.html
7. Davis, Graeme and Jyoti Rahman (2006), ‘Perspectives on Australia’s productivity prospects’, Treasury Working Paper 2006 – 04, Canberra, September. This is consistent with the findings in the updated Intergenerational report, Canberra, 2007, p. 88.