NSW Productivity Commissioner Peter Achterstraat AM on why the regulatory framework needs updating

Monday, 01 March 2021


    Retaining some of the regulatory changes adopted during the pandemic will support business, improve productivity and grow the economy, writes NSW Productivity Commissioner Peter Achterstraat AM.

    At the onset of COVID-19, Commonwealth and state governments quickly responded with temporary regulatory changes to protect citizens while allowing businesses to provide critical products and services. In NSW, some of these changes affected the regulation of licensed venues, retail trading days, food operations, home businesses and administration processes. A central theme was greater flexibility for businesses and consumers.

    Now that the economy has rallied, there have been calls to wind back many of these temporary changes. The NSW Productivity Commission is seeking directors’ views on this. The commission believes we should look at these changes as experiments, assess the results and keep the ones that work. This will allow businesses to adapt to changes in consumer preferences, recover faster and improve productivity.

    Buoying the economy through regulation

    Productivity growth and good regulation are not mutually exclusive. Regulation needs to support — not hinder — productivity because it is the most powerful tool we have for improving our economic wellbeing. Our productivity grows as we learn to produce more (and better) goods and increase our services using the same amount of effort and other resources. Productivity growth was strong in the 1980s and ’90s, but has slowed since the turn of the millennium.

    The way we address this challenge will shape our economy and the living standards of households for decades to come. The benefit of boosting productivity is significant: in NSW we could be $33,000 better off per person per year in 30 to 40 years if growth rises from its current rate of 0.7 to 1.5 per cent.

    In August 2020, I released a Productivity Commission Green Paper in which I recommend a broad agenda to lift our productivity rate. I put forward 56 draft recommendations that could assist the NSW government’s response to our economic challenges.

    One of my key areas of focus is regulation. As the temporary changes during COVID-19 have shown, the regulatory environment frames how businesses can adapt to change. Overly complex and prescriptive regulation stifles innovation and slows productivity. We want smart, flexible regulation that supports innovation, competition and economic growth. In addition to reviewing the COVID-19 changes, I have proposed a range of regulatory reforms to improve the operation of markets, lower costs for business and grow the economy. The reforms relate to four themes:

    1. Updating outdated requirements
    2. Making regulation technology-relevant
    3. Facilitating market competition
    4. Increasing occupational mobility.

    Updating outdated requirements

    In the early stages of the COVID-19 pandemic, the NSW government changed regulations to allow legal and administrative requirements to be met digitally. For example, audiovisual links could be used in place of in-person witnessing of signatures, and community associations and organisations could meet and vote electronically instead of in person. As well as promoting social distancing, these adjustments cut the time and costs involved in compliance, administrative and legal activities. The changes are temporary, but I recommend retaining them and exploring opportunities to update other outdated requirements.

    Recent research by NSW Treasury highlights how data analytics can assist with this task. Analysis of the data collection platform RegData identified 81 sections in NSW regulations that require written notices to be published in print newspapers. Posting these notices on the internet instead could save costs and reach a wider audience at a time when newspaper circulation is declining.

    Making regulation technology-relevant

    Regulation needs to be updated to keep pace with technology and promote business innovation. Consider the effects of greater regulatory flexibility on personal mobility devices (PMDs), such as electric scooters and motorised bicycles. Travelling at typical bicycle speeds, PMDs are available on demand and are cheaper and less polluting than cars. They have the potential to make short trips easier while reducing congestion and infrastructure costs.

    Regulation of PMDs varies from state to state. NSW road rules currently forbid the use of certain PMDs (such as e-scooters) on public roads, cycling paths and footpaths, while other jurisdictions allow them. The Australian Road Rules have not kept up with the growth of PMDs, either. A national Ministerial Council is considering options to promote the safe and legal use of PMDs.

    In the Green Paper, I call for NSW to adopt a regulatory framework that would allow citizens to take advantage of PMDs while addressing important safety concerns. Ideally, it would sit alongside infrastructure improvements, such as more cycle/PMD lanes.

    Creating more competitive markets

    Competition in markets drives innovation and therefore productivity. There are numerous areas where regulation can be reviewed in order to offer consumers better services at lower prices.

    For instance, all states and territories have laws that limit pharmacy ownership to pharmacists, with few exceptions. These laws also stop other retailers from providing co-located pharmacies. This restricts competition, discourages investment and reduces incentives to innovate and improve efficiency. It ultimately hurts consumers who may not be able to easily buy the medicines they need at the best prices.

    These rules are an anomaly in Australia’s healthcare sector. General practitioner clinics have no such rules and 2015’s Competition Policy Review (Harper Review) found no evidence that it compromised “high professional standards of care and accountability”. The rules are also more restrictive than those regulating pharmacies in comparable countries, such as New Zealand and the United Kingdom.

    For consumers, the benefits of a more flexible approach to ownership and location can be considerable. In 2003, the UK Office of Fair Trading found that allowing supermarkets to sell over-the-counter medicines contributed to price savings of up to 30 per cent.

    In the Green Paper, I recommend replacing current restrictions with licence requirements targeted at pharmacist control of quality systems. I trust this would maintain professional standards in pharmacies while unlocking the benefits of greater competition.

    Increasing occupational mobility

    Some occupations require a licence or registration; for example, you need a licence to work as an electrician in NSW. Each state and territory government has its own occupational licensing scheme. This can restrict the free flow of labour and services across borders since requalifying in a new jurisdiction can take months or even years.

    A national mutual recognition scheme has been in place since 1992, but it is not functioning as intended. The processes underpinning the scheme are cumbersome and it remains complex and costly to operate in multiple jurisdictions. I recommend automatic mutual recognition as an alternative. This approach would mean that a person could automatically perform the activities that they are licensed to undertake in all jurisdictions without paying additional registration fees or providing detailed information.

    NSW has legislation in place that will allow it to move quickly — together with all other jurisdictions, as now seems possible through a plan agreed to by the nation’s treasurers — to implement automatic mutual recognition. If this is not possible, it is my view that NSW should unilaterally recognise qualifications for certain occupations, particularly those with longstanding skill shortages, such as air-conditioning maintenance, bricklaying and plumbing. Occupational mobility is integral to states and territories getting access to the skilled labour they need to assist with economic recovery following the catastrophic 2019–20 bushfire season and COVID-19 recession.

    Peter Achterstraat is an AICD NSW Division councillor. Access the Continuing the Productivity Conversation Green Paper at productivity.nsw.gov.au

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