Presentation tothe Inception Meeting of CREW Project, Jaipur India

13-14 March 2013

The Australian Experiencein Assessing Benefits of Competition

& Regulatory Policy Reforms

Owen GabbitasAustralian Productivity Commission

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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’

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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

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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

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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

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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

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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

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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

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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

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… & 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.

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… & 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

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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

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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

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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

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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