Structural reform in Australia (and the role of the Productivity Commission)

1. Structural reform in Australia (and the role of the Productivity Commission) Dean/CEO, The Australia and New Zealand School of Government Former Chairman, Productivity Commission, AustraliaAthens 18 April 2013 Gary Banks

2. The Australian Federation 2 Northern Territory Queensland Western Australia South Australia New South Wales Australian Capital Territory Victoria Tasmania

3. Australia’s Federal system of Government • Powers and responsibilities divided between the central and state governments • Westminster-style Parliamentary System • two dominant parties (but minor parties growing) • Governments cooperate, but also compete • The ‘Council of Australian Governments’ is a forum for cooperation on national reforms 3

4. The Australian economy: a snapshot 4 • Population 22.6 million(as at 3 April 2013) • GDP $1336bn • Primary 10.3% • Manufacturing 9% • GDP per Capita ($) $59 629 • GDP growth rate 3.1% • Inflation 2.2% • Unemployment 5.4% • Current A/C deficit: GDP -2.2% • Public Deficit: GDP -3.7%

5. The previous 'protection for all’ regime Centralized prescription of ‘fair’ wages ‘Made-to-measure’ tariff protection Extensive regulatory barriers to competition Government monopolies in infrastructure and human services 5

6. 6 Australia’s relative productivity performancewas poor 6.0 Australia OECD 5.0 4.0 3.0 2.0 1.0 0.0 1960-65 1965-70 1970-73

7. Fall of Australia’s economic ranking 7 Per capita GDP ranking in OECD • Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009

8. Wide-ranging structural and competition reforms Trade liberalisation (from early 1980s) Capital market liberalisation (from early 1980s) Pro-competitive infrastructure reforms (from late 80s) Labour market ‘deregulation’ (from late 80s) Human services administrative reforms (from early 1990s) A coordinated ‘National Competition Policy’ (from 1995) ‘National Reform Agenda’ (from 2007) 8

9. Some features of Australia’s reform implementation strategy We reduced barriers at the border first We liberalised unilaterally Reforms were implemented gradually We acted on a broad front We assisted adjustment in sensitive sectors. 9

10. Import protection and industry assistance are greatly reduced 40 40 10 35 35 30 30 25 25 20 20 15 15 10 10 5 5 0 0 1970-71 1976-77 1982-83 1988-89 1994-95 2000-01 1970-71 1976-77 1982-83 1988-89 1994-95 2000-01 Effective rates of assistance (per cent) Manufacturing Agriculture

11. 11 Increased trade intensity Trade-to-GDP ratio

12. 12 1.2 2.5 1 2 0.8 1.5 per cent 0.6 2.3 1 0.4 1.2 0.5 0.9 0.7 0.2 0 1984-85 to 1988-89 to 1993-94 to 1998-99 to 0 1988-89 1993-94 1998-99 2003-04 1968-69 1976-77 1984-85 1992-93 2000-01 A surge in productivityandinnovation Business R&D share ofmarket value added Average MFP growth

13. Fall andrise of Australia’s economic ranking 13 Per capita GDP ranking in OECD Australia back to 5th in 2010 • Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009

14. “There is nothing more difficult to carry out … than to initiate a new order of things. For the reformer has enemies in all who profit from the old order, and only lukewarm defenders in those who would benefit from the new.” (Niccolò Machiavelli; The Prince, 1513)

15. Political obstacles to reform Costs are often immediate, but benefits can take time Costs from reform are concentrated, benefits are more widely spread Potential winners tend to be poorly informed (compared to losers) Bureaucratic structures are fragmented, with variable capacity and often aligned with sectional interests Multiple jurisdictions complicate progress 15

16. Some Australian institutional innovations within government to support reform (and good policy) • Standing review bodies • The Productivity Commission • Regulatory assessment processes • The Office of Best Practice Regulation • Monitoring of public sector performance • Government Services Review • COAG (National) Reform Council 16

17. What is the Productivity Commission? • An independent government agency to publicly review policies, programs and regulation • and provide research and advice on reforms that are in the long term national interest. • It evolved from a statutory body to advise government on import tariffs (the Tariff Board, 1922). • Re-vamped in 1973, 1990 and 1996 – progressively widening its mandate. • Currently around 200 staff and $US30m annual budget. 17

18. Three core design features • Independence • Government funded, but arm’s length from the Executive • underpinned by Act of Parliament (role, tenure) • Transparency • public processes (submissions, draft reports) • published outputs • Economy-wide perspective • ‘to achieve higher living standards for the Australian Community’ 18

19. How the Productivity Commission ‘fits’ within Government 19 Parliament Cabinet ... Treasurer Public ... ProductivityCommission

20. Steps in the Commission's Inquiry Process 20 Reference from Cabinet • PC calls for submissions • Initial consultations and Issues Paper • First round of hearings or roundtables • Draft Report publicly released • Second round of submissions and hearings/roundtables • Final Report to Government (subsequently publicly released) • Cabinet submission by relevant Minister • Decision and implementation

21. The Commission’s advisory activities range widely Industry assistance and trade policy Regulatory frameworks for infrastructure and utilities Competition and consumer regulation Labour market reform Social and environmental programs/regulation Reducing ‘Red Tape’ on business Productivity trends and drivers 21

22. How has the Commission supported reform in Australia? • Impartial advice in the ‘national interest’ • Findings publicly scrutinized and evidence-based • An opportunity for government to test public reactions • Ammunition for government in ‘selling’ reform • Greater community awareness of the costs of existing policies and benefits from reform • Facilitating pro-reform coalitions 22

23. 23 Some recent inquiry topics • Regional Trade Agreements • R&D Support • Regulatory impediments in key industries • Urban Land Planning and zoning • Water policy and regulation • Airport regulation • Retail sector performance • Carbon ‘pricing’ international comparisons • Education workforce • Aged Care policy framework

24. 24 Other ingredients in Australia’s reform story • Ad hoc policy review processes on specific issues (tax, labour market,….) • Coordination and oversight mechanisms within and across governments • Political leadership • strong ‘technocratic’ support

25. Implications for others? Countries differ, but face similar reform needs and obstacles Structural reform in Australia benefited from institutions that provide independent research and advice Scope to adapt such approaches to other countries’ institutional circumstances? 25

26. Some Australian innovations in policy development and review (continued) • Standing review bodies • The Productivity Commission • Regulatory assessment processes • The Office of Best Practice Regulation • Monitoring of public sector performance • Government Services Review • COAG Reform Council 26

27. The key elements in Regulation Impact Assessment • Explain objective and why government action is needed • Identify all relevant options (including non-regulatory) • Assess their costs and benefits across the economy/community • and choose the option with greatest net benefit • Consult with stakeholders along the way • Have an effective implementation strategy • and periodically review the outcomes 27

28. The Australian Government’s regulatory assessment system • All regulatory proposals are screened for impacts on business/competition • OBPR advises on need for Regulation Impact Statement • and monitors compliance • Failure to comply means regulatory proposals cannot proceed • unless the Prime Minister grants an exemption (and then a post-implementation review is required) • All regulations periodically reviewed • sunset clauses in subordinate regulation • 5 yearly reviews (and ad hoc ‘stock’ reviews) 28

29. Some Australian innovations in policy development and review (continued) • Standing review bodies • The Productivity Commission • Regulatory assessment processes • The Office of Best Practice Regulation • Monitoring of public sector performance • Government Services Review • COAG Reform Council 29

30. How the Review of Government Services is structured 30 Annual reporting on efficiency and effectiveness of government services Steering Committeeof senior officials from central agencies – head by Productivity Commission Chairman Secretariat: Productivity Commission 12 Working Groupsof officials from line agencies Specialist input

31. Services covered in annual reporting 31 School education VET Police Court administration Prisons Emergency management Public hospitals Primary and community health Aged care Disability services Children’s services Housing

32. Performance indicators for public hospitals 32 Equity of access by special needs groups Equity Access Emergency departmentwaiting times Access Waiting times for elective surgery Separation rates for selected procedures Appropriateness Objectives Unplanned re-admission rates Effectiveness Pre-anaesthetic consultation rates Safety Patient satisfaction Surgical site infection rates PERFORMANCE Quality Responsiveness Patient satisfaction surveys Capability Accreditation Sentinelevents Continuity Continuity of care Sustainability Workforce sustainability Recurrent cost per casemix-adjusted separation Key to indicators Efficiency Total cost per casemix-adjusted separation Provided on a comparable basis for this Report subject to caveats in each chart or table Text Relative stay index Text Information not complete or not directly comparable Recurrent cost per non-admitted occasionof service Outcomes Outputs Text Yet to be developed or not collected for this Report

33. Some Australian innovations in policy development and review (continued) 33 • Standing review bodies • The Productivity Commission • Regulatory assessment processes • The Office of Best Practice Regulation • Monitoring of public sector performance • Government Services Review • COAG Reform Council

34. COAG Reform Council • A ‘national’ body • appointees from different jurisdictions • Monitors and reports on implementation of agreed national reforms • discipline through transparency • Advises whether state performance meets requirements for Federal funding in specific areas (eg. hospitals, schools...) 34

35. Structural reform in Australia (and the role of the Productivity Commission) Dean/CEO, The Australia and New Zealand School of Government Former Chairman, Productivity Commission, AustraliaAthens 18 April 2013 Gary Banks