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Capacity Building On Regulatory Review System Design Module ‘ Designing a RIA system that works effectively’ 21-25 March 2011. Rod Bogaards Productivity Commission Australian Government. Some disclaimers!.

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Rod Bogaards Productivity Commission Australian Government


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    1. Capacity Building On Regulatory ReviewSystem Design Module‘Designing a RIA system that works effectively’21-25 March 2011 Rod Bogaards Productivity Commission Australian Government

    2. Some disclaimers! • These are my own personal views although reference is made to Productivity Commission work • While the Australian RIA system is highly regarded by international standards, I will focus on some of its pitfalls – no RIA system is perfect! • How can we improve or enhance RIA institutional and analytical regulatory settings - that are already reasonably robust - to generate better and more consistent regulatory outcomes?

    3. ‘Every political party believes in the idea of better regulation. And yet every political party, once in government, fails to achieve better regulation.’ Boyfield (2007)

    4. Foundations of an effective RIA system • Adequacy criteria • Gate-keeper • Transparency and accountability

    5. Objectives of Regulatory Impact Analysis • RIA aims to informs political decision makers on whether to regulate and how to regulate • It aims to communicate information about the expected effects of regulatory proposals that can be used by decision makers

    6. Good regulation addresses market failures … • While allowing for: • greater consumer choice, convenience and lower prices • enhanced flexibility and competitiveness • increased productivity • greater transparency, accountability and public confidence in governance

    7. ‘Good regulation’ checklist • Minimum necessary to achieve objectives • Not unduly prescriptive • Accessible, transparent and accountable • Integrated and consistent with other regulations

    8. ‘Good regulation’ checklist • Communicated effectively • Mindful of the compliance burden imposed and • Enforceable

    9. What is Regulatory Impact Analysis? • RIA processes follow a formalised sequence of steps to establish whether particular regulatory proposals would be in the community’s interest - by delivering a net benefit to the community • RIA processes do this by taking a community-wide perspective of their effects, to ensure that the benefits to society of a regulation (broadly conceived) are greater than the costs (also broadly conceived)

    10. 7 Steps in a Regulation Impact Statement • Identifies the problem the regulation seeks to address • Outlines the objectives of government action • Identifies a range of feasible options for addressing the problem • Assesses the costs and benefits of the feasible options • Documents community consultation • Proposes a recommended option • Outlines implementation and review mechanisms

    11. Practical operation principles • All seven elements of RIS adequately addressed • Benefits should outweigh costs and (usually) net benefits maximised • Analysis commensurate with size of likely impacts • Objective, balanced public statement, not advocate’s document

    12. The adoption of RIA processes is now widespread • RIA have proved popular with governments trying to improve the quality of regulation: • in 1980, only 2 or 3 countries were using RIA • in 2000, 14 of 28 OECD countries had adopted RIA programs • in 2010, all 31 OECD countries and many non-OECD countries had mandated the use of RIA

    13. Trend in RIA adoption across OECD countries (1974-2010)

    14. Australia was an early adopter of RIA • In 1985, Australia was one of only eight OECD countries with formal requirements for regulatory impact analysis • In 1995, RIA was extended to cover the development of all national standards • In 2009, all Australian states and territories had their own individual RIA processes to cover state government regulations

    15. What should a good RIA process deliver? • A well designed and implemented RIA process can improve the quality of new regulations: • by demonstrating that a non-regulatory option is a better solution to the problem (or that the status quo is preferable) • by identifying the most effective and efficient design elements to build into the new regulation, thereby increasing the benefits and/or reducing the costs

    16. What should a good RIA process deliver? • A well designed and implemented RIA process can improve the quality of new regulations: • by building stakeholder support for proposals • by reducing the risk of over-regulation • by influencing over time the ‘regulatory culture’ within government agencies

    17. Is RIA quality very good? OECD view • The OECD (2009) has identified a number of issues with the performance of RIA: • not well integrated in the decision-making process • not applied to the most significant regulatory proposals • fails to fully assess the costs and benefits of proposals • no serious consideration of feasible alternatives

    18. The reviews revealed major weaknesses across most countries Relative lack of integration of RIA in the policy process, assessments are done too late, consultation is often not robust and oversight needs more teeth – methodological challenges Late timing of impact assessments is a widespread issue Setting up an oversight function in a single central unit has been difficult for many countries In order to force change a few countries are making RIA a legal requirement – with sanctions for non compliance Findings of the OECD EU 15 Country Reviews

    19. What is the quality of RIA? Has it improved regulatory outcomes? US experience • A US study said most agencies failed to quantify costs and benefits, discuss alternatives, use consistent analytical assumptions, report their results clearly or make them accessible (Hahn 2000) • A more recent US study said ‘… although there is some evidence economic analysis can improve the benefit-cost ratio of regulations, there is insufficient evidence that economic analysis of regulatory decisions has actually had any substantial impact’ (Hahn and Tetlock 2007)

    20. What is the quality of RIA? Has it improved regulatory outcomes? UK experience • A study of the UK RIA process also found the standard of RIA to be poor, a ‘bureaucratic sham’, treated ‘as a bolt-on extra designed to justify a regulation’ rather than being used to shape and inform policy formulation (Boyfield 2007) • A study of UK Government RIAs by the British Chamber of Commerce concluded, ‘… we question whether RIAs have changed the political reality that ministers introduce regulations because they want them as distinct from being able to justify them’ (Ambler et al 2007)

    21. What is the quality of RIA? Has it improved regulatory outcomes? EU experience • A study of RIA processes and practices in the European Union and all Member States found: ‘In almost all cases we have examined, there is a large gap between requirements set out in official documents and actual Impact Assessment in practice … typically assessments are narrow, partial and done at a late stage. In many countries, a large share of proposals is not formally assessed or is assessed with a ‘tick box mentality’’ (Jacob et al 2008)

    22. How effective has RIA been in improving regulation? Australian experience • In Australia the results of RIA requirements have also been somewhat mixed • 21 years after the RIA process was established, the 2006 Taskforce on Reducing Regulatory Burdens on Business pointed out the dramatic growth in the volume of regulation • Quality of regulation was also at issue as complaints about growing regulatory burdens led to the Regulation Taskforce inquiry

    23. Findings of the 2006 Regulation Taskforce • Too much regulation imposing an unnecessary cost on business due to: • unclear or questionable objectives • failure to target the regulation – too blunt or disproportionate to the size of the problem • undue prescription • excessive reporting or paperwork requirements • overlap, duplication or inconsistency with other regulation, either within or between jurisdictions • poorly expressed and confusing terms • unwarranted differentiation from international standards

    24. How did this happen? • Rising phenomenon of risk aversion in society • Over reliance by governments on the development of regulatory solutions – ‘regulate first, ask questions later’ culture • The requirements for good regulatory process had not been effectively discharged • Taskforce said all of the above

    25. Beginning of a new phase of regulatory reform • Unless the underlying reasons for regulatory failures are addressed the regulatory problems will simply re-emerge • The Regulation Taskforce recommended six principles of good regulatory process which were endorsed by the Australian Government

    26. 6 Principles of good regulatory process • Governments should not act to address problems through regulation unless a case for action has been clearly established • A range of feasible policy options – including self-regulatory and co-regulatory approaches – need to be assessed within a cost-benefit framework

    27. 6 Principles of good regulatory process • Only the option that generates the greatest net benefit for the community (taking into account economic, social, environmental and equity impacts) should be adopted • Effective guidance should be provided to regulators and regulated parties to ensure that the policy intent of the regulation is clear, as well as what is needed to be compliant

    28. 6 Principles of good regulatory process • Mechanisms such as sunset clauses or periodic reviews need to be built in to legislation to ensure that regulation remains relevant and effective over time • There needs to be effective consultation with regulated parties at the key stages of regulation making and administration

    29. Changes to the RIA process in response to Regulation Taskforce recommendations • ‘Preliminary assessments’ for all regulatory proposals to determine the level of regulatory impact analysis required • A formal assessment of business compliance costs, using the Business Cost Calculator (or an approved equivalent), and greater use of cost-benefit analysis generally

    30. Changes to the RIA process in response to Regulation Taskforce recommendations • A clear statement in the RIS adequacy criteria that the RIS should demonstrate that: • the benefits of the proposal to the community outweigh the costs • the preferred option has the greatest net benefit for the community, taking into account all the impacts • A whole-of-government consultation policy

    31. Changes to the RIA process in response to Regulation Taskforce recommendations • Improved gate-keeping arrangements that prevent a regulatory proposal from proceeding to Cabinet (or other decision maker) unless an adequate RIS has been prepared • Post-implementation reviews are required within two years of implementation when a proposal proceeds to a decision maker without an adequate RIS

    32. Changes to the RIA process in response to Regulation Taskforce recommendations • The existing Office of Regulation Review was renamed the Office of Best Practice Regulation (OBPR) – to reflect a new focus to assist agencies to develop regulatory best practice • A specialised cost-benefit analysis unit was created in the OBPR to provide advice and support to agencies preparing RIS

    33. Regulation Taskforce had high expectations that it would create a better RIA system “In the Taskforce’s view, the single most important way of strengthening compliance with the principles of good process would be for government to adhere to a rule that regulatory proposals that fail to meet the RIS requirements will not be permitted to proceed to consideration by Cabinet or other relevant decision maker, except in specially defined circumstances. Together with stronger analytical requirements, this would ensure the processes were taken more seriously and at an earlier stage”

    34. RIA compliance rate following Regulation Taskforce reforms • Compliance with Australian Government best practice regulation requirements is measured by compliance with the requirement to prepare adequate RIS (and BCC reports) • To be assessed as adequate, a RIS must contain a degree of detail and depth of analysis that is commensurate with the size of the potential impacts of the proposal • The OBPR used the criteria in the BPR Handbook (2007) to assess whether each element of a RIS is adequate

    35. RIA compliance rate following Regulation Taskforce reforms

    36. What does a high RIS compliance rate mean? • Does it mean the gate-keeper is doing a good job? • A low compliance rate from a failure to conduct RISs indicates the RIS process is being evaded • But a high compliance rate does not necessarily tell us much about the quality of the RIS supporting a regulatory proposal

    37. Role of the Australian gate-keeper • Independent (but within the Department of Finance & Deregulation) • Advises on whether a RIS is required • Examine/advise on adequacy of RISs • Provide training and advice on RIS process • Reports annually on RIS compliance

    38. Are gate-keeper’s prone to Type I errors?

    39. Reasons why gate-keepers could be prone to Type I errors • Political pressure - from government departments or Minister’s offices to pass a RIS can be intense • And as the penalties for non-compliance were raised in 2007 – since the gate-keeper could effectively veto regulatory proposals, preventing them from going to decision makers - the pressure to pass RISs may have increased even more

    40. Reasons why gate-keepers could be prone to Type I errors • Insufficient transparency – publication of RIA (and the OBPR’s adequacy assessment) potentially occurred up to 18 months after a decision to proceed with a regulatory proposal had been made by government • this may have provided the gate-keeper with poor incentives to perform its role and enforce the RIA process properly

    41. How does Australia’s 2007 RIA model rate with respect to the key drivers? • Strong adequacy criteria • Strong gate-keeper • Weak transparency and accountability

    42. But did the 2007 changes lead to better RIA system? • The existence of robust adequacy criteria and gate-keeper are necessary criteria for an effective RIA system – but they are not sufficient criteria • The ultimate effectiveness of any RIA system depends on the level of transparency and accountability in the system

    43. A case study of a proposed regulation • Let’s examine a regulatory proposal and see how the RIS for the proposal engages with the policy development process

    44. Productivity Commission’s 2009 Annual Review of Regulatory Burdens on Business • The Productivity Commission proposed a strengthening of the best practice regulation requirements and made a number of key recommendations • Industry submissions commented on the ongoing failure of government to properly assess the risks, costs, and benefits of regulation and called for further scrutiny of the process by which regulation is developed

    45. Productivity Commission’s 2009 Annual Review of Regulatory Burdens on Business • The concerns raised suggested there remains scope for the Australian Government to do more to improve regulatory outcomes, through: • more systematic and rigorous application of the existing best practice regulatory process • refinements and enhancements to aspects of the design and implementation of this process • increasing the transparency and accountability of the current regulatory process

    46. Productivity Commission’s 2009 Annual Review of Regulatory Burdens on Business • The Commission recommended the Australian Government should develop a central online register of regulatory impact analysis that would include: • RISs (and importantly, the OBPR’s adequacy assessments) published at the time government decisions are made public • post-implementation reviews (and the OBPR’s adequacy assessments) published at the time these reviews are made public

    47. Productivity Commission’s 2009 Annual Review of Regulatory Burdens on Business • The Commission also recommended the Australian Government: • incorporate a ‘consultation’ RIS in its regulation making process • establish an independent public review of the current best practice regulation requirements

    48. OECD’s 2010 Review of Regulatory Reform in Australia • The OECD said Australia rates highly among OECD countries on the design and performance of its RIS process • But said there are some potential improvements that could strengthen the Australian Government RIS process

    49. Requirements for RIA processes used by central governments2005 and 2008 (RIA 1) Note: This figure summarises information about the existence of key elements of RIA processes in OECD member countries. It does not offer information on the quality of specific RIAs. Source: Question 10 / OECD Regulatory Management Systems’ Indicators Survey 2005 and 2008. www.oecd.org/regreform/indicators

    50. Extent of RIA processes2005 and 2008 (RIA 2) Note: This graph summarises information about the extent of RIA processes in OECD member countries. It does not gauge whether these processes have been effective. Source: Question 10 / OECD Regulatory Management Systems’ Indicators Survey 2005 and 2008. www.oecd.org/regreform/indicators