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

Gary BanksDean/CEO, The Australia and New Zealand School of GovernmentFormer Chairman, Productivity Commission, Australia

Athens18 April 2013

Western Australia

NorthernTerritory

Queensland

SouthAustralia

New South Wales

Victoria

Tasmania

Australian Capital Territory

The Australian Federation

2

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

The Australian economy: a snapshot

• 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%

4

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

Australia’s relative productivity performancewas poor

0.0

1.0

2.0

3.0

4.0

5.0

6.0

1960-65 1965-70 1970-73

Australia OECD

6

Fall of Australia’s economic ranking

Per capita GDP ranking in OECD1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Australia ranked 14th

in 1983

Australia ranked 4th

in 1950

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009

7

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

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

Import protection and industry assistance are greatly reduced

0

5

10

15

20

25

30

35

40

1970-71 1976-77 1982-83 1988-89 1994-95 2000-01

Effective rates of assistance (per cent)

0

5

10

15

20

25

30

35

40

1970-71 1976-77 1982-83 1988-89 1994-95 2000-01

Manufacturing Agriculture

10

Increased trade intensity

Trade-to-GDP ratio

11

A surge in productivity and innovation

Average MFP growth Business R&D share ofmarket value added

0

0.2

0.4

0.6

0.8

1

1.2

1968-69 1976-77 1984-85 1992-93 2000-01

1.2

2.3

0.90.7

0

0.5

1

1.5

2

2.5

1984-85 to1988-89

1988-89 to1993-94

1993-94 to1998-99

1998-99 to2003-04

pe

r c

en

t12

Fall and rise of Australia’s economic ranking

Per capita GDP ranking in OECD

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Australia ranked 4th

in 1950

Australia ranked 14th

in 1983

Australia back to 5th

in 2008

13

Australia back to 5th in 2010

“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)

14

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

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

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

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

How the Productivity Commission ‘fits’ within Government

ParliamentParliament

CabinetCabinet

TreasurerTreasurer

Productivity CommissionProductivity Commission

Public

...

...

19

Steps in the Commission's Inquiry Process

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

20

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

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

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

23

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

24

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

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

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

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

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

How the Review of Government Services is structured

Annual reporting on efficiency and effectiveness of government services

Steering Committeeof senior officials from central

agencies – head by Productivity Commission Chairman

12 Working Groupsof officials from line agencies

Specialist input

Secretariat:

Productivity Commission

30

Services covered in annual reporting

• School education• VET• Police• Court administration• Prisons• Emergency management

• Public hospitals• Primary and community

health• Aged care• Disability services• Children’s services• Housing

31

Performance indicators for public hospitals

Text

Text

Text

Key to indicators

Information not complete or not directly comparable

Yet to be developed or not collected for this Report

Provided on a comparable basis for this Report subject to caveats in each chart or table

PERFORMANCE

ObjectivesEffectiveness

Outputs Outcomes

Quality

Efficiency

Appropriateness

Sustainability

Capability

Access

Safety

Responsiveness

Continuity

AccessEquity

Sentinelevents

Patient satisfaction Patient satisfaction surveys

Workforce sustainability

Pre-anaesthetic consultation rates

Unplanned re-admission rates

Surgical site infection rates

Separation rates for selected procedures

Accreditation

Waiting times for elective surgery

Equity of access by special needs groups

Emergency departmentwaiting times

Recurrent cost per casemix-adjusted separation

Relative stay indexRecurrent cost per

non-admitted occasionof service

Total cost per casemix-adjusted separation

Continuity of care

32

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

33

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

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

Gary BanksDean/CEO, The Australia and New Zealand School of GovernmentFormer Chairman, Productivity Commission, Australia

Athens18 April 2013