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*. Australian Government

Productivity Commission

Annual Report 2004-05 Productivity Commission

A nn u a l Report Serie

Australian Government

Productivity Commission

Annual Report 2004-05 Productivity Commission

A n n u a l Report Senes

September 2005

© Commonwealth of Australia 2005

ISSN 1035-5243 ISBN 1 74037 186 0

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An appropriate citation for this paper is:

Productivity Commission 2005, Annual Report 2004-05, Annual Report Series, Productivity Commission, Canberra

JEL code: D

The Productivity Commission

The Productivity Commission, an independent agency, is the Australian Government’s principal review and advisory body on microeconomic policy and regulation. It conducts public inquiries and research into a broad range of economic and social issues affecting the welfare of Australians.

The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole.

Information on the Productivity Commission, its publications and its current work program can be found on the World Wide Web at www.pc.gov.au or by contacting Media and Publications on (03) 9653 2244.

*

tj. Australian Government

SsP* Productivity Commission

3 September 2005

The Treasurer Parliament House CANBERRA ACT 2600

Dear Treasurer

We submit to you the Productivity Commission’s annual report for 2004-05, The report is prepared in accordance with section 10 of the Productivity Commission Act 1998. The Commission’s Act requires that a copy of this report be tabled within 15 sitting days of each House of Parliament after the day of receipt of the report.

Gary Banks Chairman

Commissioner

Judith Sloan Commissioner

Philip Weickhardt Commissioner Commissioner

Tony Hinton Commissioner

Michael Woods Commissioner

Chairman and Commissioners

Neil Byron, Helen Owens and Robert Fitzgerald

Gary Banks (Chairman) and Judith Sloan

Philip Weickhardt, Tony Hinton and Mike Woods

Acknowledgments

The Commission wishes to thank its staff for their continued efforts, commitment and support during the past year.

Contents

Abbreviations x

CHAPTERS

1 Productive reform in a federal system 1

What is a federation? 1

Competitive federalism in action in Australia 8

Cooperative federalism in action in Australia 15

Looking to the future 20

2 Commission activities and perform ance 29

Overview 30

Year in review 32

Transparent and consultative processes 39

Feedback on the Commission’s work 45

Policy and wider impacts 47

Associated reporting 53

APPENDICES

A M anagem ent and accountability 57

B Program performance 93

C Government commissioned projects 151

D Competitive neutrality com plaints 171

E Supporting research and related activities 175

F Publications 195

G Financial statements 199

Compliance index 92

CONTENTS VII

Attachments

A1 Commissioner and staffing statistics 80

A2 Commonwealth Disability Strategy: outcomes against mandatory performance indicators 83

A3 Consultancies 86

A4 Freedom o f Information Statement 89

A5 Compliance index 92

References 235

Index 243

BOXES

1.1 Australia’s federation is in good company 1

1.2 The division o f powers between the Australian and State governments 6

1.3 Perspectives on Australia’s federal system 7

1.4 What are ‘vertical’ and ‘horizontal’ competition? 8

1.5 The Murray-Darling Basin Natural Resource Management Strategy 17

1.6 An overview o f the NCP reforms 19

1.7 Summary of the forward agenda proposed by the Productivity Commission as part o f its review of NCP 25

2.1 Commission publications in 2004-05 31

2.2 Compliance with RIS guidelines in 2004-05 36

2.3 Support for the Commission: some recent examples 46

B.l Performance indicators for Commission outputs 97

B.2 The longer term influence of Commission reports 99

B.3 Charter of the Office of Regulation Review 132

B.4 ACCI views on strengthening regulation assessment processes in Australia 138

B.5 Supporting research and annual reporting publications, 2004-05 144

B.6 Current supporting research projects 145

FIGURES

1.1 Projected impacts of ageing on health expenditure and fiscal pressure 22

2.1 References received 32

2.2 Website hits 45

VIII CONTENTS

2.3 Mentions of the Commission in Australian parliaments 50

A. l Productivity Commission structure and senior staff, 30 June 2005 58

B. l Productivity Commission outcome/output framework 2004-05 94

B.2 Increased scope of reporting on government services 124

TABLES

A. 1 Financial and staffing resources summary 60

A. 2 Performance bonuses payable for 2004-05 68

A l.l Chairman and Commissioners, 30 June 2005 80

A 1.2 Part-time Associate Commissioners completing appointments during 2004-05 80

A1.3 Staff by location and gender, 30 June 2005 81

A1.4 Staff by employment status and gender, 30 June 2005 81

A1.5 Staff by level and reason for separation, 2004-05 82

B. l Use of Commission outputs in recent parliamentary committee reports 102

B.2 Parliamentary Library use of Commission outputs in 2004-05 104

B.3 Program o f public inquiries and other government-commissioned projects 109

B.4 Public inquiry and other commissioned project activity, 2000-01 to 2004-05 110

B.5 Cost o f public inquiries and other commissioned projects completed in 2004-05 111

B.6 Direct administrative expenditure on public inquiries and other government-commissioned projects, 2000-01 to 2004-05 111

B.7 Impact o f Commission inquiry reports on policy making 117

B.8 Indicators reported on a comparable basis, 2005 Report 125

B.9 Australian Government regulatory and RIS activities, 1999-2000 to 2004-05 133

B. 10 Formal competitive neutrality complaints, 1998-99 to 2004-05 140

C. l Stage of completion of commissioned projects and government responses to Commission reports 152

E. 1 Speeches and presentations by the Chairman, Commissioners and staff, 2004-05 185

E.2 Visits from international organisations and foreign delegations 2004-05 192

CONTENTS IX

Abbreviations

ABARE Australian Bureau of Agriculture and Resource Economics

ABS Australian Bureau o f Statistics

ACCC Australian Competition and Consumer Commission

AGCNCO Australian Government Competitive Neutrality Complaints Office

ANU Australian National University

ANZ Australia and New Zealand

APEC Asia Pacific Economic Cooperation (forum)

APS Australian Public Service

CER Australia-New Zealand Closer Economic Relations Trade Agreement

COAG Council of Australian Governments

CSIRO Commonwealth Scientific and Industrial Research Organisation

GDP Gross domestic product

ESD Ecologically Sustainable Development

GTEs Government trading enterprises

IC Industry Commission

IMF International Monetary Fund

NCC National Competition Council

NCP

OECD

National competition policy

Organisation for Economic Co-operation and Development

OHS Occupational health and safety

ORR Office of Regulation Review

PC Productivity Commission

RIS Regulation Impact Statement

SES Senior Executive Service

TCF Textile, clothing, footwear and leather (industries)

WTO World Trade Organisation

x ABBREVIATIONS

1 Productive reform in a federal system

Increasingly, the Commission is finding through its inquiries and other work that the capacity to build a more productive and sustainable Australia is linked to how well our federal system of government operates. A variety of ideas about better ways of running the federation have been advanced

as part of the policy debate in this area over the last year or so. By and large, the competitive dimension of federalism, which provides in-built incentives for governments to perform better across a variety of areas, is operating well. However, the importance of the cooperative dimension of our federation is set to assume greater significance because of the growing interjurisdictional content of the reform task facing Australia.

What is a federation?

Federations are a common form of governance. About 25 of the world’s 193 countries have federal systems of governance, accounting for up to 40 per cent of the world’s population and about 50 per cent of global GDP (box 1.1).

Box 1.1 Australia’s federation is in good company

Australia has the distinction of being one of the oldest continuing federations after the United States (1789), Switzerland (1848) and Canada (1867). Other federations include Argentina, Austria, Belgium, Bosnia and Herzegovina, Brazil, Comoros, Ethiopia, Germany, India, Malaysia, Mexico, Micronesia, Nigeria, Pakistan, Russia, St. Kitts and Nevis, Serbia and Montenegro, South Africa, Spain, United Arab Emirates and Venezuela. A number of unitary states — for example, the UK and Italy — have

incorporated some federal design features into their governance structures. Beyond these countries, the European Union is a special case involving a mix of federal and unitary hybrid institutions — effectively a ‘quasi-federal’ association of countries.

Source: Griffiths and Nerenberg (2002).

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

1

Federal systems o f governance have three defining features, namely:

• the existence o f at least two sovereign levels o f government — a national or central government and sub-national or state governments;

• provision for independent or autonomous actions by each level of government; and

• an allocation or assignment of powers and functions to each level of

government.

Essentially, federalism is a system of governance which provides for action by a national or central government for certain common functions together with independent actions by sub-national units o f government, with each level of government accountable to its own electorate. In this way, a citizen of a federation

is a member of two sovereign polities simultaneously.

Federal systems have advantages and disadvantages

Federal arrangements offer their citizens some important potential advantages compared with unitary states. These include:

• dispersing power across multiple jurisdictions, to encourage more responsive government;

• allowing for diversity in the provision of sub-national goods and services in response to voter preferences, while facilitating the provision of common — national type — goods and services by a central government;

• enhancing the competitive pressure on governments to respond to the preferences of citizens in their jurisdictions; and

• creating opportunities for inteijurisdictional learning from different policy approaches.

However, these advantages need not translate into net benefits to the community, because federal systems also have a number of potential disadvantages, including:

• higher transaction costs from diversity and fragmentation in rales and regulations;

• scope for ‘destructive’ inteijurisdictional competition; and

• inefficiencies that arise when functions are not well allocated or where governance arrangements relating to them are poorly designed.

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Who should do what?

The scope to capture the potential benefits of a federal system while minimising the potential costs is heavily dependent on the assignment of functions between governments (including the possibility o f realignments over time) and the effectiveness with which governance arrangements (relating to intergovernmental

coordination and cooperation) are able to adapt to changing conditions.

The subsidiarity principle

The subsidiarity principle provides some guidance as to the appropriate level of government for a particular function. Under this principle, responsibility for a particular function should, where practicable, reside with the lowest level of government (see, for example, CEPR 1993; Kasper 1995, 1996). This rests on four main considerations:

. sub-national governments are likely to have greater knowledge about the needs of the citizens and businesses affected by their policies;

• decentralisation of responsibility and decision making makes it easier to constrain the ability of elected representatives to pursue their own agendas to the disadvantage o f citizens they represent;

• intra-national mobility o f individuals and businesses exposes sub-national governments to a reasonable degree o f intergovernmental competition; and

• initial emphasis on the lowest level o f government encourages careful consideration or testing o f the case for allocating a function to a higher or national government and thereby guards against excessive centralisation.

A key issue in applying the subsidiarity principle is to establish the meaning of ‘where practicable’. Although the public finance literature provides some guidance, there is considerable scope for differences of view in relation to the appropriate assignment of many expenditure, tax and regulatory functions.

That said, there is broad support for assigning responsibility for a function to the highest level o f government — the national government — where:

• there are significant interjurisdictional spillovers associated with the provision of a good or service at the sub-national level (for example, interstate transport systems);

• there are readily identifiable areas of shared or common interest or sizeable economies of scale and scope arising from central provision or organisation (for example, defence, international or external affairs and social welfare support);

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

3

• a diversity in rules or regulations is likely to give rise to high transaction costs with insufficient offsetting benefits (for example, regulation of companies, transport, the financial sector and trading provisions covering weights and measures); and

• there is scope for mobility of capital and people across jurisdictions to undermine the fiscal strength of the sub-national level of government (for example, as arises with the income, capital gains and corporate tax bases; or with welfare entitlements).

Fiscal considerations

A further consideration in the assignment of functions is the principle of fiscal equivalence. Strictly applied, this principle requires that each level of government should finance its assigned functions with funds that it raises itself (Kasper 1995). Related to this, Brennan and Buchanan (1983) have argued for decentralised powers

in relation to taxes and expenditure. Specifically, where the subsidiarity principle supports the allocation of a function to a lower level of government, they argue that both the necessary expenditure and taxing powers should also be delegated to that level of government. Such an assignment promotes accountability by placing a constraint on the extent to which the political agenda can deviate from the

preferences of citizens.

Even so, a wide range of considerations impinge on the desirable allocation of expenditure and taxing functions between governments and the implied extent and nature o f any intergovernmental transfers to address any resulting vertical fiscal imbalance. Vertical fiscal imbalance refers to situations where the revenue raising powers of one level o f government are insufficient to meet their expenditure responsibilities and, for the other level, excessive, thus requiring a system of inter­ governmental transfers or grants to correct the imbalance.

The existence of vertical fiscal imbalance does not, of itself, necessarily reflect a problem in the design o f the fiscal arrangements for a federation. However, specific aspects of the intergovernmental transfer arrangements used to address vertical fiscal imbalance in various federations, including Australia’s, have given rise to a

variety of concerns (see below).

No single best model

There is no single ‘best’ model for assigning functions between governments (see, for example, OECD 1997 and Joumard and Kongsrud 2003). Moreover, changing circumstances may make it desirable to realign functions over time. Furthermore,

4 ANNUAL REPORT 20044)5

however carefully functions are allocated, substantial interaction and cooperation among governments are likely to be necessary to ensure the effective funding and delivery o f services. There is, o f course, considerable scope for variations in the design and operation o f governance arrangements for this purpose.

Reflecting all this, there is considerable diversity in the observed assignment and governance arrangements o f federations. They display varying degrees of exclusivity or overlap in the assignment o f functions, as well as of decentralisation or integration o f coordination tasks. Further, these structures are not fixed by initial

constitutional frameworks — they evolve over time in response to various factors, including the dynamics of the political process and judicial reviews. Consequently, the assignment o f functions between different levels of government needs to be reviewed from time to time to determine whether realignments are warranted in

response to changing economic and social conditions.

Australia’s federation is distinctive

Australia’s federation comprises three tiers o f government — the Australian Government, with designated and delegated powers; six State governments, with residual powers, and two Territory governments, with State-type powers; and local government authorities with delegated powers and responsibilities. The following

discussion focuses on the first two tiers of government.

The roles and responsibilities of the Australian Government and the six State governments are defined by the Australian Constitution and the Constitutions of each of the States (box 1.2).

Australia’s federal model has a number of distinctive features.

• A relatively high degree of shared functions between governments giving rise to a diverse set of intergovernmental arrangements to handle the associated coordination challenges (see, for example, Galligan 1995; Painter 1998).

. A strong centralising trend over time (aided, in part, by High Court decisions which have interpreted the powers of the Australian Government in a broad manner) has seen the emergence of a relatively high degree of centralisation (see, for example, Keating and Wanna 2000).

• A relatively high degree of vertical fiscal imbalance and of transfers directed at fiscal equalisation (see, for example, National Commission of Audit 1996).

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

5

Box 1.2 The division of powers between the Australian and State governments

The division of powers under the Australian Constitution provides the Australian Government with:

• a small number of exclusive powers — mainly in respect of customs and excise duties, the coining of money and holding of referendums for constitutional change; and

• a large number of areas under Section 51 where it can exercise powers concurrently with the States. However, to the extent that State laws are inconsistent with those of the Australian Government in these areas, the laws of the latter prevail (Section 109).

State governments have retained responsibility for all other matters.

While the list of legislative powers for the Australian Government does not mention a number of specific functions (such as education, the environment and roads), this does not preclude action by the Australian Government in these areas. For example, while the Australian Government has no specific power in relation to the environment, it can legislate in this area under its external affairs power in support of any international agreement covering the environment.

Further, the Australian Government can influence State policies and programs by granting financial assistance on terms and conditions that it specifies (Section 96).

• Innovative initiatives in cooperative federalism — notably in areas of competition policy and the environment. Beyond these, there have been some new forms of collaborative leadership/sponsorship institutions (such as the Special Premiers’ Conferences and the Council of Australian Governments) to adapt public policies to emerging domestic and international challenges (see, for example, Galligan 1995; Gyngell and Wesley 2000; and Wanna and Withers 2000).

The performance of Australia’s federal system has come under increased scmtiny in recent years, as the need to lift the performance of the economy has raised policy issues extending beyond the responsibility of individual jurisdictions. Reflecting this, a variety of ideas to make the federation work better have been put forward

(box 1.3).

6 ANNUAL REPORT 2004-05

Box 1.3 Perspectives on Australia’s federal system • Looking across the federal system, we find areas where our Federation works well, areas where the case for rationalisation is strong, and areas where a more incremental approach is the best way to proceed. (John Howard, Reflections on

Australian Federalism, 11 April 2005, p. 5)

• We must address the increasingly untenable co-existence of multiple State industrial systems in conjunction with the federal system. ... If a national system of corporate and taxation regulation is desirable and achievable, then there is no reason why a unitary or national system is not just as appropriate to govern how these corporations employ their staff. (Kevin Andrews, Where do we want

workplace relations to be in five years time?, 25 February 2005, pp. 17-18)

• We should be thinking about untangling this mess, creating simpler lines of responsibility in our federal system. ... And that means a serious debate about the tertiary education sector, the possibility of the states transferring their legislative responsibilities for universities holus-bolus to the Commonwealth, or about a

hospital system or disability services being better managed by just a single level of government without all the perverse incentives for cost-shifting and finger-pointing that exist today. (Bob Carr, Productivity Growth and Micro-Economic Reform,

27 February 2004, p. 6)

• Going forward, it will be important for the Australian Government and the States to clarify roles and responsibilities in order to improve productivity in the provision of services to the public while sustaining government finances. Clarification of roles will require consideration of national strategic priorities and judgements as to the tier of government that is likely to discharge those priorities most effectively. (Costello and Minchin, Budget Strategy and Outlook 2005-06, Budget Paper No. 1, p. 4-18)

• The State level of government is generally best placed to respond to meeting particular needs, being closer to local communities, with the Commonwealth having a role in national aspects. The issue is therefore not whether the Commonwealth and States should both remain involved in the core social programs in health and education, but how. ... New arrangements are needed to lock in true collaboration among Australian governments. (Allen Consulting Group, Governments Working

Together: A better future for all Australians, May 2004, p. xiii and p. xvii)

• Australia’s federation needs new life breathed into it to the benefit of the community and business. In just about every major policy area our current approach to intergovernmental relations presents barriers and obstacles to getting sensible outcomes. ... The time has come to take a more holistic approach to our system of intergovernmental relations so that our federation works for us rather than against

us. (Australian Industry Group, Media Release, 1 June 2005)

. Getting better results out of areas where Federal-State activities intersect is vital. Inconsistencies, duplication and additional costs associated with poorly coordinated or conflicting State-Federal (and local) Government policies and regulations affect virtually every area of reform highlighted by the BCA and others. (The Speed Limit

2005-2025, Access Economics for the Business Council of Australia, May 2005, p. 26)

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

7

In response to this debate and in recognition of the importance o f the associated issues, the Productivity Commission’s Annual Conference for 2005 is devoted to examining the challenges of securing Productive Reform in a Federal System. While it is clear that federalism is embedded in our Constitution, a fundamental issue relates to how we can secure the best possible outcomes from our federal system. In the Commission’s view, a useful way of thinking about this challenge is in terms of exploiting opportunities for both ‘competitive’ and ‘cooperative’ federalism, while minimising the risks o f destructive competition and coordination

failure.

Competitive federalism in action in Australia

Democracies are distinguished by electoral competition — a government must submit itself to the will of the people in competition with other political parties. By dispersing power across governments, federalism adds another dimension to electoral competition, providing more opportunities for this discipline to be exercised by citizens over time.

Federal systems offer two additional forms of competitive discipline on governments — vertical and horizontal competition (box 1.4).

Box 1.4 What are ‘vertical’ and ‘horizontal’ competition?

The citizens of a State within a federation of the Australian kind get to vote for two sovereign governments, both of which operate over the same area. Any Australian can, accordingly, stay put in one State, yet seek responses from two governments, the State and the Australian, both with sovereign powers of taxing, spending and regulation over him or her.

Vertical competition arises where either the national or state governments enter a specific area in direct competition with the other level of government. While not without costs, it can give rise to improved service delivery, or provide a basis for testing new approaches to service delivery.

Horizontal competition refers to the discipline imposed on governments by the possibility of citizens (and businesses) exercising their right to relocate from one State or country to another (Voting with their feet’) in response to fiscal and regulatory differences.

The option of migration opens up the possibility of horizontal competition between the States of Australia, or between Australian States and other countries, whether or not those States or countries are formed into a federation. However, federal systems make this form of competition stronger, since it is normally much easier to move within a country than between countries.

8 ANNUAL REPORT 2004Ό5

Vertical competition

Vertical competition is unique to federations. The simultaneous involvement of more than one government in a single area is often undervalued, being primarily seen in terms of wasteful overlap and duplication. However, some overlap may be beneficial if it expands choices or promotes improvements to service delivery over time such that the benefits outweigh the associated costs. Mechanistic responses to

apparent overlap and duplication run the risk of forfeiting the potential benefits that vertical competition can bring.

Two distinct forms of vertical competition are considered here:

• national regulatory regimes operating in parallel with existing State schemes; and

• direct competition through the actions of either a national government or State government in a specific area.

An opt-out alternative

The first form of vertical competition involves the creation by the national government o f an opt-out alternative to State-based regulatory regimes, where the case for a single national regime is yet to be demonstrated or the operation of such a regime is not feasible.

A useful illustration of some of the issues which arise with the development of an opt-out alternative is provided in the Commission’s inquiry report on National Workers’ Compensation and Occupational Health and Safety Frameworks (PC 2004a). The Commission’s proposals were targeted at reducing the compliance burdens, costs and inefficiencies created for multistate employers and their

employees from the differing regulatory requirements imposed by State and Territory governments for occupational health and safety and workers’ compensation.

To coordinate strategies across jurisdictions and thereby improve the regulatory framework for workers’ compensation, the Commission recommended the formation of a new national body to facilitate improved consultative mechanisms to address common issues and to promote greater national consistency in scheme

elements. In parallel with this, and to address directly the compliance burdens and costs of multistate employers, the Commission recommended that the Australian Government progressively expand a scheme offering alternative national coverage for all employers which would operate alongside the existing State and Territory

schemes.

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

9

Beyond this, the Commission recommended that all jurisdictions collectively pursue improvements to workers’ compensation schemes by establishing a formal review mechanism similar to that already in place for occupational health and safety. This should lead to an increasing level of national consistency (and perhaps for some scheme elements, national uniformity) over time. While supporting a number of the Commission’s recommendations, the Australian Government indicated that it did not support key elements of the national framework model. This included the opt- out alternative, apart from some limited access for some firms to self-insurance under the Comcare scheme (Costello and Andrews 2004).

Direct competition

A topical example o f vertical competition arising from the actions of the Australian Government is the Australian Technical Colleges initiative. This involves the creation o f 24 colleges in regions across Australia to provide academic and

vocational education for up to 7200 students each year (Nelson and Hardgrave 2005). The aim is to strengthen Australia’s vocational education and training system by adopting a new approach to attracting and training young people in specific trades.

Commencing in 2006, the colleges will be located in regions suffering skills shortages and high rates of youth unemployment, and which are supported by a significant industry base. Their principals will be appointed by a College Governing Council and have considerable autonomy, including being able to engage teachers on a performance pay basis. It is also envisaged that local industry and community representatives will have a role in the governance of the colleges.

State governments have also entered some areas in direct competition with Australian Government programs, often with the aim o f addressing perceived gaps in services or to broaden access to programs. For example, notwithstanding federal action to assist older people in making the transition from hospital to home or other long-term care settings, some State governments have introduced their own transitional care arrangements to expand the service options available to the elderly. These State initiatives have also sought to reduce the extent to which some hospital beds are tied up for extended periods providing ‘aged care’ services.

Victoria, for example, funds a number of initiatives, including a targeted Interim Care Program which provides temporary support for older people in hospital who are waiting for placement in a residential care facility. An integral part of this program is the provision of funding for hospital managers to lease beds from residential aged care providers. In some cases, hospitals have taken advantage of

spare bed capacity in aged care facilities that were due to close as a result of the bed

10 ANNUAL REPORT 20044)5

licences being transferred to other areas (DHS 2001). Elsewhere, it has meant negotiating sub-contract agreements with residential care facilities to provide off­ site interim care services for elderly hospital patients until a permanent place becomes available (Southern Health 2004).

Horizontal competition

A key beneficial element of horizontal competition between States relates to getting the so-called ‘economic fundamentals’ right. Beyond this, scope exists to extend horizontally-based competitive disciplines through the use o f yardstick competition. Intergovernmental fiscal transfers can dilute the ‘incentives’ created by horizontal

competition for State governments to improve their performance. Sometimes, it is desirable for governments to take collective action to preclude or limit destructive forms of horizontal competition.

Getting the ‘economic fundamentals’ right

There are various areas in which State government decisions affect the attractiveness of their State as a place for doing business as well as the living standards of their residents.

• States are responsible for much of Australia’s public infrastructure. Often they are directly involved in the provision of essential services — energy, transport, water — or have responsibility for regulating private suppliers.

. States have responsibility for many areas of regulation, including business, social and environmental.

• States raise a significant proportion of their revenue requirements through taxes and charges which affect the competitiveness of businesses and the disposable incomes of households.

• States are primarily responsible for the delivery o f a wide range of services including health and aged care, family and community services, primary and secondary education and vocational training.

• States also provide a variety of general government services to firms and individuals in their jurisdictions.

Collectively, these areas can be seen as constituting the ‘economic fundamentals’ of a State. Within each area, there is scope for horizontal competition to encourage good outcomes. For example, if some States charge excessive prices for essential services, or allow the reliability o f their electricity and transport networks to

deteriorate, or levy excessive payroll taxes or allow access to important health and

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

11

community services to worsen, then better performing jurisdictions are likely to find some firms and households migrating their way. This in turn provides an incentive for governments to improve their performance — to attain a better balance between the burden of taxation and the benefits of public spending; and similarly for regulation. Hence, competition between States on the ‘economic fundamentals’ is an important benefit of a federal system.

Another dimension of such competition arises from the demonstration and learning effects associated with policy innovations by governments. Across Australia’s States and Territories, there are various examples of such innovations and associated demonstration effects.

• During the early to mid-1980s, South Australia, Tasmania and Victoria were pioneers in establishing mechanisms for the review of business regulations — setting up one-stop review mechanisms ahead of the Australian Government and other States.

• The development of broadly-based commercialisation and corporatisation initiatives to improve the performance of government business enterprises was facilitated by important initial reform efforts in New South Wales and Victoria during the late 1980s and early 1990s.

• T he Northern Territory was a first mover in a number of areas of education and training, including the introduction o f flexible delivery strategies to improve access to education and training from the late 1980s, introducing competency- based training into apprenticeships and traineeships and the use o f skills-based rather than time-based recognition of on the job training.

• Casemix funding of public hospitals has now been widely adopted following the lead provided by Victoria in 1993.

• In the industrial relations area, some major reforms occurred in State jurisdictions well ahead of reforms introduced at the national level. In Queensland, formal provision for individual agreements was introduced in 1987, while the first comprehensive reform of industrial relations processes and

practices occurred in New South Wales as a result of the introduction of the Industrial Relations Act 1991 (Wooden 2000).

Yardstick competition

Assessing the performance of governments in delivering services for which there is (or can be) no competitive market, and where criteria such as access and equity loom large, is no simple matter. Individually, governments can set objectives and collect and compare information on their individual performance over time, but how

do they know what is potentially achievable or best practice?

12 ANNUAL REPORT 20044)5

Federations provide their governments and citizens with an important opportunity for addressing these questions by comparing performance and learning from what other jurisdictions are doing and how they are doing it. Such intranational performance comparisons are facilitated by commonalities in institutional and

governance arrangements, as well as in community expectations, the lack of which often bedevils international comparisons. Further, the basis for these comparisons is strengthened by them having emerged from decentralised sovereign political processes.

The Review of Government Service Provision, initiated by Australian governments in July 1993, created a framework for comparing the performance of government service providers. While Australian Government as well as State service providers are included in the review, State-based providers dominate and hence it is appropriately viewed as a manifestation o f horizontal competition.

The Review embraces a diverse range o f services, including education, health, justice, emergency management, public housing and community services spanning child care to aged care. Together, these services involved expenditure of almost $85 billion, or around 60 per cent o f government recurrent expenditure in 2003-04.

This is equivalent to about 10.4 per cent of Australia’s GDP (SCRGSP 2005).

These services are vital to the community’s wellbeing. Improving them can result in major social and economic benefits. Performance information can assist governments to improve their service delivery through yardstick competition — by facilitating comparisons with programs with similar objectives within the same jurisdiction, across jurisdictions, or between modes of service delivery.

The performance data contained in the annual review:

. allow agencies to identify peer agencies that are delivering better or more cost effective services from which they can learn;

• generate additional incentives for agencies to address substandard performance; and

• allow governments to verify good performance and indicate whether agencies are getting it right.

As a result, performance comparisons can be a catalyst for improving the effectiveness and efficiency of government activities that are not normally subject to direct competitive pressures.

A performance monitoring framework was established for government trading enterprises in July 1991 which, like the government services framework referred to above, has involved regular reporting o f performance indicators for these

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

13

enterprises to promote yardstick competition (see, for example, SCNPMGTE 1994; PC 2005c).

The fiscal federalism dimension to competition

As noted earlier, the vertical fiscal imbalance created by the assignment of expenditure and taxation powers between governments within Australia requires an extensive system of intergovernmental transfers to redress the imbalance. The design and operation of these arrangements (which also embody a significant degree o f horizontal fiscal equalisation between the States) has given rise to a number of concerns. These concerns include, for example, the potential for distortions to the process of horizontal competition arising from the dilution of incentives for

expenditure and tax reform, and the scope for gaming under the equalisation process used by the Commonwealth Grants Commission to determine grants to the States.

The sources of the efficiency-related distortions (including their extent and implications), together with the perceived inequities of the equalisation system and its complexity, have been subject to longstanding debate (see, for example, Commonwealth Grants Commission 2004; Gamaut and Fitzgerald 2002; IC 1993; National Commission of Audit 1996; New South Wales Tax Task Force 1988; New

South Wales Treasury 2005; Nicholas 2002; Peloquin 2003; Petchey 2001; Victorian Government 2005). Reflecting differences of view about the policy significance of these concerns, reforms to the equalisation process to date have largely been confined to trying to lessen its complexity and improve its

transparency.

Competition can also be destructive

Horizontal competition can give rise to favourable outcomes by providing incentives for the development of an appropriate level and mix o f State government expenditures and taxes, as well as efficiency in the provision o f services. However, there is also scope for some perverse outcomes through what is commonly referred to as destructive competition. Two prime examples are interstate bidding wars to attract major projects, and some forms of tax competition.

State governments ‘bid’ for major projects because of the perceived gain to them in terms of increased income and employment. However, this form o f rivalry between States for development at best shuffles jobs between regions, and at worst reduces overall economic activity in Australia (Banks 2002; IC 1996; PC 2005a). In general, firms’ locational choices in relation to new investments are best guided by the underlying economic strengths of a State rather than selective inducements. A selective (or firm specific) reduction in, say, payroll taxes or utility charges, is

14 ANNUAL REPORT 20044)5

likely to be inferior to a general but smaller reduction in tax rates or charges allied to ‘efficient government’. Consequently, bidding for major projects is likely to have little or no positive effect on the welfare of residents of the initiating States, and even less for Australians generally.

Even so, States find it difficult to avoid such competitive bidding because of the perceived costs o f withdrawal, both economic and political. Avoiding or substantially lessening this problem requires collective action.

All State and Territory governments except Queensland recently signed an agreement to restrict the use of selective assistance to attract investment. This has been a significant initiative. That said, as the Commission observed in its Review o f National Competition Policy Reforms, there are some deficiencies in the current

agreement that could usefully be addressed (PC 2005a). In particular, there are no formal mechanisms for policing the agreement and no sanctions for non­ compliance. Also, Queensland and the Australian Government are not signatories.

Generally, when a tax base is highly mobile between States, differences in tax base definitions and rates create incentives for the tax base (that is, businesses or workers) to relocate. In these circumstances, destructive tax competition between States can occur, especially if competition is by way of special exemptions and

concessions. Tax competition between States is unlikely to yield sustainable benefits in such cases and can result in a deterioration in the overall performance of the tax systems of the States concerned.

Australia’s experience with death duties is often cited as an example of this phenomenon. Effectively, the migration o f more affluent elderly people to Queensland, following the abolition of death duties by that State, induced other States to do the same. Consequently, all States lost access to a source of revenue,

with knock-on effects of higher rates o f other taxes and charges or a reduced capacity to provide government services (see, for example, New South Wales Tax Task Force 1988). Whether this was constructive or destructive tax competition is arguable — some economists assert that death duties should be included in an efficient mix o f tax bases. But death duties certainly proved politically unpopular, and the Australian Government did not fill the gap.

Cooperative federalism in action in Australia

Far from operating as independent sovereignties, governments in many federations, including Australia, have developed an extensive and varied array of inter­ governmental cooperative arrangements. They include mutual recognition regimes, harmonisation of regulation, the adoption of national standards, reassigning roles

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

15

and responsibilities between governments, developing better governance arrangements to promote effective coordination in areas of shared responsibility, and the use of integrated interjurisdictional frameworks to develop and oversee the implementation of various reform measures.

These arrangements recognise important interdependencies and shared objectives between governments (as servants of the people). Such arrangements have long been recognised as essential to secure good policy outcomes. Indeed, from the early 1990s, new cooperative arrangements, linked to the work of the Special Premiers’

Conferences and the Council o f Australian Governments (COAG) have facilitated a fundamental reshaping of economic policy making in several key areas (PC 2005a).

It is useful to look at these arrangements from the perspective o f what motivates governments to cooperate. Three broad motivations can be identified: to deal with interjurisdictional spillovers or externalities; to lessen domestic impediments which increase costs and restrict the internal movement of goods and people (that is, to promote the development of national markets); and to secure effective policy outcomes in areas that are perceived to have national significance.

Interjurisdictional spillovers

Where significant inteijurisdictional spillovers occur, an individual State may overproduce or underproduce a good or service because, from its narrow perspective alone, it may overlook costs or benefits which affect other jurisdictions.1

Many natural resource and environmental systems are characterised by cross-border spillovers or externalities. Reflecting this, a wide range of intergovernmental strategies and programs have been developed over the years to secure better outcomes than would otherwise occur.2 One such example is the Murray-Darling Basin Natural Resource Management Strategy, the background to which is briefly outlined in box 1.5.

1 Negative fiscal spillovers — especially the ‘exportation’ of tax burdens — motivated the 1901 Constitutional assignment of customs duties and excises.

2 Examples include: the National Strategy for the Conservation o f Australia’s Biological Diversity; the National Greenhouse Response Strategy; the National Water Quality Management Strategy; the National Action Plan for Salinity and Water Quality; the Murray-Darling Basin Natural Resources Management Strategy; the National Forest Policy Statement; the National Strategy for Conservation of Australian Species and Ecological Communities Threatened with Extinction; the National Weeds Strategy; the National Strategy for Ecologically Sustainable Development; the National Framework for the Management and Monitoring of Australia’s Native Vegetation; and the National Framework for Energy Efficiency.

16 ANNUAL REPORT 2004-05

As outlined earlier, there is also scope within federations for jurisdictions to engage in activities which give rise to destructive competition and associated negative cross-border spillover effects. Examples include competitive bidding by jurisdictions for major projects and some forms of tax competition which result in

the erosion or loss of otherwise effective tax bases. Collective action by jurisdictions in the form of, say, intergovernmental agreements can limit wasteful rivalry in these areas.

Box 1.5 The Murray-Darling Basin Natural Resource Management Strategy (MDBNRMS)

The MDBNRMS provides an intergovernmental framework for integrated catchment management within the Murray-Darling Basin. The strategy is one of the largest management initiatives of its type in the world, covering an area of over one million square kilometres.

The strategy and related agreement brings together the Australian, New South Wales, Victorian, South Australian and Queensland governments, in equal partnership, to address issues of common concern within the catchment. The Australian Capital

Territory Government has observer status.

The MDBNRMS aims to address some of the key environmental and resource allocation problems facing the Murray-Darling Basin. According to the Murray-Darling Basin Ministerial Council (1990) these include: rising saline water tables; dryland salinity; loss of riparian and riverine biodiversity; reduction in water quality; and excessive water diversion and over-allocation of water licences within the basin.

Source: Derived from PC (1999, p. 214).

Promoting national markets

A significant part of the microeconomic reform agenda of Australian governments since the late 1980s has been directed at removing cross-border regulatory impediments to the efficient operation of the economy. Much o f this agenda has been fashioned in response to pressures to improve the international

competitiveness of the economy, including by removing domestically-based cost- increasing impediments and restrictions on productivity improvement exposed by the removal o f protection against import competition.

As the process o f reform gathered pace, it became clear that aspects of Australia’s competition policy framework were impeding performance across the economy and constraining the scope to create national markets for infrastructure and other services. Hence, in April 1995, the Australian and State and Territory governments

committed to the implementation of a wide-ranging National Competition Policy

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

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(NCP) that included general as well as sector-specific reforms (box 1.6). The associated policy framework drew heavily on a blueprint established by an earlier independent inquiry, generally referred to as the Hilmer Inquiry (Hilmer et al. 1993).

NCP has been a landmark achievement in nationally coordinated economic reform (PC 2005a). At the June 2005 meeting of COAG, Heads of Government stated:

A collaborative national approach was the cornerstone of successful implementation of the NCP reform agenda. It drew together the reform priorities of the Commonwealth, States and Territories to improve Australia’s overall competitiveness and raise living standards ... (COAG 2005, p. 4)

Securing effective policy outcomes in areas of national significance

As noted earlier, a distinctive feature of Australia’s federation is that many functions are shared, rather than being exclusive to one level of government. This has made it essential for governments to collaborate and cooperate in a wide range of areas to secure effective policy outcomes.

In practice, the funding and delivery of a number of significant services (including transport, housing, health, aged care, disability services, education and child care) are organised through various intergovernmental arrangements. Other areas with service interfaces between governments include environmental management, workers’ compensation, occupational health and safety, industrial relations and

indigenous affairs.

The design of intergovernmental arrangements for each of these areas has important implications for the cost-effective provision of services. Inefficiencies arise where there is unhelpful duplication of effort, opportunities for perverse forms of cost or risk shifting, and ineffective management of different parts of the overall service package. Such inefficiencies are not necessarily the result of shared functions as such. Rather, they usually arise because of ambiguity about the responsibilities of different levels o f government and other weaknesses in related governance arrangements.

For some, the solution to the perceived problems involves renegotiating the assignment of functions and responsibilities between governments, to cede responsibility to one level of government and thereby secure clearer lines of accountability and responsibility. The National Commission of Audit (1996), for example, took this view in several areas and made recommendations for realignments of responsibilities between the national and State governments.

18 ANNUAL REPORT 2004-05

Box 1.6 An overview of the NCR reforms

General reforms

• Extension of the anti-competitive conduct provisions in the Trade Practices Act to unincorporated enterprises and government businesses.

• Reforms to public monopolies and other government businesses:

- structural reforms — including separating regulatory from commercial functions; and reviewing the merits of separating natural monopoly from potentially contestable service elements; and/or separating contestable elements into smaller independent businesses; and

- competitive neutrality requirements involving the adoption of corporatised governance structures for significant government enterprises; the imposition of similar commercial and regulatory obligations to those faced by competing private businesses; and the establishment of independent mechanisms for handling complaints that these requirements have been breached.

• The creation of independent authorities to set, administer or oversee prices for monopoly service providers.

• The introduction of a national regime to provide third-party access on reasonable terms and conditions to essential infrastructure services with natural monopoly characteristics.

• The introduction of a Legislation Review Program to assess whether regulatory restrictions on competition are in the public interest and, if not, what changes are required. The legislation covered by the program spans a wide range of areas, including: the professions and occupations; statutory marketing of agricultural products; fishing and forestry; retail trading; transport; communications; insurance and superannuation; child care; gambling; and planning and development services.

Sector-specific reforms

• Electricity. Various structural, governance, regulatory and pricing reforms to introduce greater competition into electricity generation and retailing and to establish a National Electricity Market in the eastern states.

• Gas: A similar suite of reforms to facilitate more competitive supply arrangements and to promote greater competition at the retail level.

• Road transport: Implementation of heavy vehicle charges and a uniform approach to regulating heavy vehicles to improve the efficiency of the road freight sector, enhance road safety and reduce the transaction costs of regulation.

• Water. Various reforms to achieve a more efficient and sustainable water sector including institutional, pricing and investment measures, and the implementation of arrangements that allow for the permanent trading of water allocations.

Source: PC (2005a, p. xv).

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Such realignments also raise funding issues, given the marked differences in the revenue raising and expenditure positions of the national government compared with the States. For example, the Australian Government currently redirects revenue to the States which accounts for about half of their expenditures. The redirection of this revenue and the process o f horizontal fiscal equalisation and specific purpose payments add another layer of interaction between Australia’s governments. The

associated processes also influence the behaviour of the participants.

An alternative solution lies in governments cooperating to develop better governance arrangements since, for many areas of shared responsibility, it is neither practical or appropriate to cede responsibility entirely to one level of government. This approach recognises that shared responsibility was a deliberate design feature

o f Australia’s Constitution rather than a design flaw (see, for example, Galligan 1995 and Walsh 1991). However, this inevitably gives rise to tensions about the appropriate form o f these arrangements, including mechanisms for establishing clear policy strategies and setting priorities and the associated allocation of resources, assigning responsibility for policy implementation, resolving funding

issues, and ensuring that effective performance monitoring arrangements are in place.

Looking to the future

The competitive and cooperative dimensions of our federal system will each continue to have a role to play in helping Australia successfully tackle some significant challenges that face it and, in the process, enable the nation to continue to improve its living standards.

The challenges ahead

Australia faces significant challenges in the years ahead associated with increasing globalisation, environmental sustainability and population ageing. While there is scope for competition between governments to help promote policy improvements and innovations in responding to these challenges, collective and cooperative action, especially on broad policy frameworks, will be particularly important because of the extensive cross-jurisdictional elements associated with each challenge.

Globalisation is increasing

Globalisation of trade and investment and with it the integration of the world’s economies is increasing, with China and India emerging as major new players.

20 ANNUAL RETORT 20044)5

While this provides important new opportunities for Australia, it also heightens competitive pressures. Our future living standards will be shaped by how well we respond. Countries that are unable to respond efficiently, flexibly and innovatively

to changing patterns o f demand, technological change, increasing mobility of capital and labour and shifts in underlying comparative advantage, risk seeing their standards of living fall, at least in relative terms.

An obvious area for policy focus, in this context, is further reducing barriers to the movement of goods and people within Australia that are attributable to unwarranted variations in institutional or regulatory frameworks. While considerable progress has been made in lessening impediments to the development of national markets in

several areas, it is also apparent that the reform task is far from complete. For example, considerable scope remains to integrate better much of our economic infrastructure, notably in the areas of energy, water and freight transport

(PC 2005a). Invariably, such reform requires collective action by governments.

Environmental sustainability

Environmental sustainability underpinned by effective natural resource management is integral to the living standards and quality of life of current and future generations.

As noted earlier, many of the policy issues associated with the effective management of natural resource and environmental systems involve cross-border considerations. Problems such as land degradation continue to be a drain on

Australia’s productive capacity, with a substantial commitment of resources and coordinated action between governments needed to enhance management and, where appropriate, rectify past mismanagement. Community demands to preserve biodiversity and enhance environmental amenity are becoming stronger. And, as in

other countries, responding to greenhouse gas-related issues in the decades ahead could see significant adjustment challenges for domestic industries, particularly in regard to adaptation and technological innovation.

Population ageing

Arguably one o f the biggest challenges facing Australia in the coming decades is the ageing of the population — as a consequence of falling fertility and, more importantly, o f increasing life expectancy. The ageing phenomenon is not unique to Australia and brings important benefits. However, it will substantially increase

demands for services such as health and aged care while significantly reducing the potential labour supply relative to the population. Projections by the Commission suggest that, in the absence o f policy responses, this will in turn cut per capita

PRODUCTIVE REFORM IN A FEDERAL SYSTEM

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income growth by as much as a half by the mid-2020s compared to its 2003-04 growth rate (PC 2005b).

The most significant sources of potential stress on government budgets are health and aged care, with the former contributing most to the expected increase in government outlays. Health care costs are projected to rise by about 4.5 percentage points of GDP by 2044-45, with ageing accounting for nearly one-half of the

increase, or some $40 billion of extra spending (figure 1.1).

Overall, the fiscal gap associated with spending and revenue trends, in the absence o f policy responses, is projected to be around 6.5 per cent of GDP by 2044-45, with ageing accounting for almost 90 per cent of the gap. On past trends, much of the fiscal burden could be expected to be borne by the Australian Government, but there are significant potential burdens faced by State and Territory governments.

A range o f policy measures will be required to reduce the fiscal pressures of ageing or to finance the fiscal gap. Measures to raise productivity and labour force participation would lift income growth and the community’s capacity to pay for the costs of ageing. Beyond this, more cost-effective delivery of government services, especially health care, would alleviate a major source o f fiscal pressure at its source. While some policy measures can be effectively pursued on a jurisdictional basis, many will require collective and coordinated action across jurisdictions. For example, many potential reforms in the health and aged care areas require a multi- jurisdictional approach.

Figure 1.1 Projected impacts of ageing on health expenditure and fiscal pressure Share of GDP, per cent

Health expenditure as a proportion o f GDP Fiscal deficit as a proportion of GDP

With ageing

W ithout ageing

2003-04 2011-12 2019-20 2027-28 2035-36 2043-44 2003-04 2011-12 2019-20 2027-28 2035-36 2043-44

Data source: PC (2005b).

22 ANNUAL REPORT 2004-05

To meet these challenges and to improve standards of living generally, Australia will need to position itself to maintain or improve its productivity performance of the past decade.

Australia’s economic performance since the early 1990s stands out, not only by historical standards, but also among OECD countries. Even so, our economy is still characterised by inefficiencies and performance gaps which indicate that we have some way to go to realise our productivity potential. In terms of GDP per hour

worked, we achieved 81 per cent o f the US level in 2004 — only slightly above where we were in 1950. Productivity growth is a fundamental determinant of future living standards. If Australia could achieve the same productivity levels as the US

— still below the world’s highest levels — gross average household income could be 20 per cent, or some $22 000 a year higher.

Whether or not matching US levels of productivity is realistic, the benefits for Australia of realising our productivity potential would be substantial and accumulate over time. Indeed, if Australia could sustain even half the improvement in the rate o f productivity growth achieved during the 1990s, real cumulative GDP

from 2003-04 to 2044-45 would be some $2000 billion higher than if average productivity growth rates slipped back to the levels o f the preceding two decades, resulting in GDP per capita in 2044-45 being around 6 per cent higher than

otherwise (PC 2005a).

The Commission’s research (PC 2005a,b), as well as other recent studies (Access Economics 2005a; Bracks 2005), suggest that there is considerable scope to achieve a more productive and sustainable Australia by building, in particular, on recent inteijurisdictional reform initiatives in areas like NCP and embracing further reform

in areas such as social infrastructure, natural resource management, labour markets, taxation and wider regulatory processes. Such a broad reform agenda involves all levels of government. While it provides opportunities for independent initiatives by individual governments, capturing the potential benefits in many areas will require

further nationally coordinated reform.

In relation to opportunities for further nationally coordinated reform linked to the CO AG Review o f NCP, the Heads of Government at the June 2005 COAG meeting agreed:

While the benefits of NCP reforms are significant, gains from a broader economic reform agenda have the capacity to deliver much more to the community. Collaborative action on issues of national importance is again required, as a fragmented reform agenda will not achieve the momentum and commitment required for sustainable

reform. ... The case for continuing reforms on a collaborative basis is clear. (COAG 2005, pp. 4, 5)

Responding to these challenges

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COAG agreed to proceed with the NCP Review, drawing on the Commission’s report on the Review o f National Competition Policy Reforms (PC 2005a) as part of the process. The Senior Officials undertaking the Review are to report to COAG by the end of 2005.

The agenda is wide ranging

A summary of the forward agenda for national reform recently proposed by the Commission is presented in box 1.7.

The proposed agenda is broad and challenging. It extends beyond purely economic issues, involving well-established pro-competitive prescriptions, to areas with important social and environmental dimensions.

That said, significant parts of the forward agenda are largely continuations of, or extensions to, NCP. As such, they can be accommodated within existing institutional frameworks, drawing on established reform principles and processes, in several key areas, much of what is required to deliver better outcomes has been set up already. Consequently, implementing the additional reforms proposed for, say, energy and water should not involve major new work for COAG.

In contrast, more detailed work supported by independent public reviews will be required in several areas as a pre-requisite to effective reform initiatives. This approach recognises that, in the past, progress with more complex reforms, requiring joint government agreement, has typically been facilitated by public reviews. This aids the process of reform by allowing for the clarification of the nature and extent o f the problems, an assessment of the most beneficial reform measures and the development of an effective implementation strategy and timetable. Consistent with this, the Commission has proposed that there be

independent public reviews for four areas within the forward agenda — health care, freight transport, natural resource management and consumer protection policies.

For health care — the area judged to offer the largest potential benefits from nationally coordinated reform — the Commission has proposed a review covering all dimensions of the health care system. Such a review would have a particular emphasis on the development of options to clarify government roles and responsibilities and associated funding arrangements, and to ensure effective coordination across individual service areas, including with aged care services.

24 ANNUAL REPORT 20044)5

Box 1.7 Summary of the forward agenda proposed by the Productivity Commission as part of its review of NCR

• In a number of key reform areas, national coordination will be critical to good outcomes. These areas — many of which have been encompassed by NCP — should be brought together in a new reform program with common governance and monitoring arrangements. Priorities for the program include:

- strengthening the operation of the national electricity market;

- enhancing water allocation and trading regimes and to better address scarcity and negative environmental impacts;

- delivering a more efficient and integrated freight transport system;

- addressing uncertainty and policy fragmentation in relation to greenhouse gas abatement policies;

- improving the effectiveness and efficiency of consumer protection policies; and

- introducing a more targeted legislation review mechanism, while strengthening arrangements to screen any new legislative restrictions on competition.

• An ‘overarching’ policy review of the entire health system should be the first step in developing a nationally coordinated reform program to address problems that are inflating costs, reducing service quality and limiting access to services.

• National action is also needed to re-energise reform in the vocational education and training area.

• Identifying areas of natural resource management (beyond water and greenhouse gases) where the pay-offs from new nationally coordinated reform could be high and what is required to reap the gains, should be the subject of a future review.

Source: PC (2005a).

At its June 2005 meeting, COAG recognised that many Australians (including the elderly and disabled) experience difficulties at the interfaces of different parts of the health system. It was also agreed that the system could be improved by clarifying the roles and responsibilities of governments, and by reducing duplication and gaps

in services. Senior Officials have been tasked with developing an action plan to improve the health system and are to report back to COAG in December 2005 (COAG 2005, pp. 2-3). This ‘review’, which is sponsored by COAG, lacks public involvement and has comparatively limited terms of reference. Nevertheless, in

drawing on recent examinations of the health sector in some jurisdictions, the work of the Health Reform Task Force and the findings from the Commission’s current examination of health workforce issues for COAG, the review offers an opportunity to identify useful national reforms.

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Decisions in relation to the other proposed reviews and the wider reform agenda advanced by the Commission are expected following completion, later this year, of the COAG review o f NCP.

Future reform initiatives will need to range more widely than the forward agenda flagged in box 1.7, which focuses on areas where there would be a high pay-off from nationally coordinated approaches. Other important areas for policy attention include labour market arrangements, taxation and the efficient development of our

cities and regions.

Notwithstanding considerable reform to labour market arrangements over the last two decades, some significant restrictions on competition and flexibility remain. Further, differences in State and Territory provisions, and their interface with federal arrangements, can create significant complications for, and impose substantial costs on, multistate employers.

The Australian Government is moving to establish a national system to govern workplace relations, based on the corporations power in the Constitution. Depending on the estimates used, this would bring some 85 to 90 per cent of employees into a single market system (Andrews 2005). Another mechanism for advancing workplace relations reform nationally could entail the development of a national alternative operating in parallel to the existing State systems, enabling

employers to opt out if they chose. In advancing this approach, as part of its Review o f National Competition Policy Reforms, the Commission acknowledged that balancing the costs o f divergent approaches to labour market reform against the potential benefits o f inteijurisdictional competition was not easy, and that the

efficacy o f such an arrangement would depend on the detail (PC 2005a).

Most of the issues in the taxation and urban planning/regional development areas are primarily for individual jurisdictions to resolve. For example, a key reform issue in the taxation area — the interface between the taxation regime and social security support and its implications for labour force participation rates — lies largely within the province o f the Australian Government.

Both competition and cooperation are needed

Looking ahead, the competitive dimension of Australia’s federal system will continue to provide in-built incentives for each government to undertake reforms to improve public sector efficiency and to enhance the regulatory and institutional frameworks within which citizens and businesses operate. Beyond this, Australia’s experience with NCP demonstrates that effective cooperation among jurisdictions in

26 ANNUAL REPORT 2004-05

achieving reform can yield further significant dividends to the community (PC 2005a).

Securing these dividends will require strong leadership from COAG and other national leadership bodies. The experience of NCP also demonstrates the importance of governments establishing robust institutional arrangements to support

future reform initiatives. Such arrangements need to:

• spell out objectives and principles to underpin reform programs;

• facilitate the analysis required to develop well-founded specific reform options and to provide for public input to that process;

• provide for independent monitoring of progress in implementing changes according to agreed timetables; and

• embody mechanisms to lock in the gains of past reforms and prevent backsliding.

Given the scope for lifting the performance o f the economy and the need to respond pro-actively to looming challenges, the potential pay-offs from ‘getting it right’ are likely to be large.

27 PRODUCTIVE REFORM IN A FEDERAL SYSTEM

2 Commission activities and performance

Some highlights from 2004-05

• completion of a major inquiry to provide input to COAG’s consideration of a future program of reforms following on from NCR

• acceptance by governments of the Commission’s findings and recommendations in reports on building regulation reform; smash repair and insurance; integration of the Australian and New Zealand competition and consumer protection regimes; and the Australian pig meat industry

• completion of the Commission’s report for COAG on the economic implications of an ageing Australia and its contribution to community understanding of the ageing challenge

• additional budgetary funding to enable the Commission to effectively support the Government’s microeconomic and regulatory reform agenda over the coming years

Areas of focus for the coming year

• completion of current inquiries and government-commissioned research spanning such diverse policy issues as energy efficiency, medical technology, Australia’s health workforce, consumer product safety, historic heritage places and the economic impacts of population growth and migration

• with guidance from the Steering Committee for the Review of Government Service Provision and in consultation with community groups, enhance the usefulness of reporting on government services and on overcoming indigenous disadvantage

• improve regulatory processes and outcomes by raising the required standards for analysis, community consultation and attention to compliance costs

. give particular emphasis in the Commission’s supporting research program to the sustainability of productivity growth, broadly conceived to encompass fiscal, economic, social and environmental aspects

• plan for and develop the Commission’s ability to meet future work demands

COMMISSION ACTIVITIES AND PERFORMANCE

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Overview

The Productivity Commission is the Australian Government’s principal review and advisory body on microeconomic policy and regulation. Consistent with the objective of raising national productivity and living standards, its remit covers all sectors o f the economy. The Commission’s work extends to the private and public sectors, including areas of State, Territory and local government, as well as federal responsibility. Details o f its role, functions and policy guidelines were outlined in

the Productivity Commission’s first annual report (PC 1998).

The Commission is expected to contribute to well-informed policy making and public understanding on matters related to Australia’s productivity and living standards. Its work is based on independent and transparent analysis that takes a community-wide perspective rather than just considering the interests of particular

industries or groups. It often deals with contentious and complex issues where the potential long-term pay-off for the nation from better informed policy making is high.

The Government’s outcome objective for the Productivity Commission is:

Well-informed policy decision making and public understanding on matters relating to Australia’s productivity and living standards, based on independent and transparent analysis from a community-wide perspective.

The Commission’s one outcome consists of five outputs:

• government commissioned projects;

• performance reporting and other services to government bodies;

• regulation review activities;

• competitive neutrality complaints activities; and

• supporting research and activities and annual reporting.

The breadth and volume of the Commission’s work are indicated by the reports it published in 2004-05 (box 2.1). A variety of social and environmental issues, each with significant economic dimensions, is evident in completed or ongoing projects on ageing, indigenous disadvantage, medical technology, water issues and the private cost effectiveness of improving energy efficiency. Another notable feature is

the number of specific projects (NCP reform, ageing, health workforce and building regulation) and standing research responsibilities (government services performance, indicators of indigenous disadvantage and the performance of government trading enterprises) undertaken at the request of, or with the support of, all Australian jurisdictions. In addition, there was New Zealand Government support for the study

on the trans-Tasman integration of competition and consumer protection regimes.

30 ANNUAL REPORT 2004-05

Box 2,1 Commission publications in 2004-05

Public inquiries (draft reports)

Review of Part X of the Trade Practices Act Smash repair and insurance Australian pigmeat industry

Review of NCP reforms Energy efficiency

Public inquiries (final reports)

Review of Part X of the Trade Practices Act Review of NCP reforms Australian pigmeat industry Smash repair and insurance

Government-commissioned research reports (draft reports)

Reform of building regulation Economic implications of an ageing

ANZ competition & consumer protection regimes

Australia Impacts of medical technology in Australia

Health workforce (issues paper for COAG)

Government-commissioned research reports (final reports)

ANZ competition & consumer protection Economic implications of an ageing regimes Australia

Reform of building regulation

Supplements to government-commissioned reports

Modelling impacts of infrastructure industry Modelling impacts of infrastructure industry change over the 1990s (draft) change over the 1990s (final)

Economic implications of an ageing Australia — data Economic implications of an ageing Australia — technical papers

Performance reporting

Financial performance of government trading enterprises 1998-99 to 2002-03

Report on government services 2005: indigenous compendium

Competitive neutrality reports

EDI post

Report on government services 2005: education, health, justice, emergency, management, community services and housing

Annual report suite of publications

Annual report 2003-04 Trade & assistance review 2003-04

Regulation and its review 2003-04

Commission research papers

ICT use and productivity: a synthesis from studies of Australian firms Trends in Australian agriculture

Assistance to tourism: exploratory estimates

( c o n tin u e d n e x t p a g e )

COMMISSION ACTIVITIES AND PERFORMANCE

31

Box 2.1 (continued)

Staff working papers

Responsiveness of demand for irrigation water: a focus on the southern Murray- Darling Basin

Modelling water trade in the southern Murray-Darling Basin

2004 Richard Snape Lecture

An integrated tariff analysis system: software and database

The growth of labour hire employment in Australia

Spreading prosperity and resisting economic divergence: the significance of Richard Snape’s academic legacy (Anne O. Krueger)______________________________

Year in review

The Productivity Commission’s goal of contributing to public policy making and community understanding of key issues influencing Australia’s productivity and living standards is pursued through five major outputs. The principal developments in these activities during 2004-05 were as follows.

Public inquiries and other commissioned studies

Figure 2.1 References received number

The Commission had six public inquiries and six government-commissioned research studies underway at some time during 2004-05. In addition to completing five references from the previous year, it received seven new projects, continuing the broad span of policy issues and the mix between inquiries and research studies evident in recent years (figure 2.1).

The Commission completed a major review o f the impacts of national -------------------------------------------------

competition policy, which also set out a proposed agenda and priorities for future reform. The Commission’s proposals provide some continuity with, and draw on, the experiences and lessons from competition policy. The report is informing COAG’s own review and consideration of possible future reforms.

2000-01 2001-02 2002-03 2003-04 2004-05

The Commission also completed an inquiry on Part X of the Trade Practices Act which exempts ocean carriers from key parts of Australia’s restrictive trade practices legislation.

32 ANNUAL REPORT 2004-05

Two inquiries were both commenced and completed by the Commission in 2004-05.

• The Government referred for investigation the disputation between the smash repair and insurance industries over their financial and commercial relationships. Long-running tensions between these industries had worsened in recent years as insurer power became more concentrated and insurers became more focused on

cost control so as to improve shareholder returns and contain premium levels to attract and retain customers.

• Against the background of the Government’s concerns about the economic situation facing the Australian pigmeat industry and industry lobbying for a Commission inquiry, the Commission was asked to review the competitiveness, profitability and future prospects o f the pigmeat industry, as well as the need for

any additional government and industry measures to enhance industry competitiveness.

The Commission commenced two other public inquiries in the year:

• In August 2004 the Commission was asked to report on the economic and environmental potential offered by energy efficiency improvements which are cost effective for individual producers and consumers. The inquiry had been foreshadowed in the Government’s white paper on energy policy, Securing Australia’s Energy Future, released in June 2004.

• In March 2005 the Government asked the Commission to review the policy framework and incentives for the conservation of Australia’s historic heritage places, as well as the economic, social and environmental benefits and costs of conserving such heritage.

During 2004-05 the Commission finalised three research studies requested by the Government:

. an examination of the implications of Australia’s ageing population structure over the next 40 years for productivity, the labour force and fiscal outcomes across the three tiers of government — a study complementary to, but updating and building on, the Australian Treasury’s 2002 Intergenerational Report,

. an assessment of the contribution that national reform of building regulation, under the auspices of the Australian Building Codes Board, has made to the productivity of the building and construction industry and to economic efficiency, as well as the scope for further reforms; and

• an assessment of the potential to improve the trans-Tasman business environment through greater coordination, cooperation and integration of the general competition and consumer protection policy regimes in Australia and New Zealand.

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Three government-commissioned research studies were commenced in 2004-05:

• the Government asked the Commission to undertake a research study on the impact of advances in medical technology in Australia on healthcare expenditure and the associated costs and benefits for the community against the background of intensified pressures on healthcare expenditure arising from an ageing population structure and questions about the benefits and costs of new technologies and processes for evaluating them;

• a COAG endorsed study of the institutional, regulatory and financial arrangements across the health and education sectors affecting the supply of health workforce professionals, the structure and distribution of the health workforce, and factors affecting the demand for services; and

• an examination o f the benefits and costs o f Australia’s existing general consumer product safety system, as well as reform options and their impact.

Further information on public inquiries and the commissioned research studies undertaken by the Commission during 2004-05 and, where available, government responses to reports, is provided in appendices B and C.

Performance reporting and other services to government bodies

The Commission’s role as secretariat to the Steering Committee for the Review of Government Service Provision is in its twelfth year. The Report on Government Services 2005 provides comparative information on the performance o f 14 services central to the wellbeing of Australians — spanning education, health, justice, community services, emergency management and housing. These services collectively accounted for approximately $85 billion o f government expenditure in 2003-04 and about 10.4 per cent of gross domestic product. The collaborative efforts of more than 80 Federal, State and Territory government agencies contributed to the 2005 Report.

The Review’s philosophy is one of continuous improvement and a number of measures were introduced to improve the quality and scope o f the 2005 Report. In particular, these included new indicators for children’s services, services for people with a disability and corrective services. There was also improved reporting on aspects of education and public hospital services for indigenous Australians. In association with the 2005 Report, an Indigenous Compendium was released by the Steering Committee in April 2005.

In April 2002 COAG asked the Steering Committee to produce a regular report on key indicators of indigenous disadvantage as part of the COAG reconciliation commitment. The first report was released in November 2003. A key function of this reporting is to document outcomes for indigenous Australians within a

34 ANNUAL REPORT 2004-05

framework that allows governments to assess whether their policy interventions and programs are having the intended impacts and to guide further policy development. Following the release o f this report, consultations were held with indigenous people

and organisations across the country to ensure the ongoing usefulness of the reporting. O f particular importance was the feedback and input received on the complex issues of culture and governance. The second report, Overcoming Indigenous Disadvantage: Key Indicators 2005, under preparation during 2004-05,

was released in July 2005.

The Commission’s standing responsibilities under its performance reporting activity also include a program of research on the performance of Australia’s economic infrastructure industries and the impact of related microeconomic reforms. Financial performance monitoring of government trading enterprises (GTEs) forms part of this research stream and was the major activity during 2004-05. The 2004 report was released in July 2004. The final report in a three-year work program of monitoring GTEs, assessing their external governance arrangements and identifying deficiencies, was released in July 2005. The Commission is seeking input from the Heads of Treasuries on its financial monitoring and associated research on GTEs for the next few years.

Further information on performance reporting activities in the year is provided in appendix B.

Regulation review activities

The Office of Regulation Review (ORR), a separate unit within the Productivity Commission, continued its role in helping to achieve better regulatory processes and outcomes. The ORR advises more than 60 departments, regulatory agencies, statutory authorities and national standard-setting bodies, and about 40 Ministerial Councils on processes for the development of regulatory proposals and for the

review of existing regulation.

Since March 1997 the Australian Government has made it mandatory for departments, agencies, statutory authorities and boards to prepare a Regulation Impact Statement (RIS) for all regulation that affects business or restricts competition. Limited exceptions apply and these are outlined in A Guide to Regulation (1998).

The purpose o f the RIS process is to ensure that proposed regulation will be efficient and effective — allowing for all costs as well as benefits — and to discard options that fail these tests. A RIS requires agencies to follow a consistent, systematic and transparent process for assessing appropriate policy approaches to problems. It aims to ensure consideration of the social and environmental as well as

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economic impacts o f any proposed regulation. This includes an examination of alternative approaches and an assessment of likely impacts on different groups and the community as a whole. A RIS can thus assist government by making sure that all relevant information is presented to the decision maker. In addition, after the decision is made and the RIS is tabled in Parliament or published elsewhere, it provides a transparent account of the factors behind that decision.

The ORR seeks to promote the objective of efficient and effective regulation by providing advice on, and monitoring compliance with, the Australian Government’s RIS guidelines (box 2.2). It also examines and provides advice on RISs for Ministerial Councils and national standard-setting bodies. The ORR provided

formal RIS training on regulatory best practice to 415 government officials in 2004-05.

Box 2.2 Compliance with RIS guidelines in 2004-05

The Productivity Commission is required to report annually on compliance with the Government’s Regulation Impact Statement (RIS) requirements. Its report for 2004-05 reveals that:

• The Australian Government made about 2550 regulations. The ORR provided advice on 851 regulatory proposals, of which 167 proposals require preparation of a RIS. About 3 per cent of all new regulations made in 2004-05 required preparation of a RIS.

• Overall, the compliance of departments and agencies in 2004-05 with the RIS requirements at the decision-making stage of regulatory policy development was lower than in previous years:

- adequate RISs were prepared for 80 per cent of 85 regulatory proposals (compared to 92 per cent in 2003-04 and 81 per cent in 2002-03).

• Nineteen departments and agencies were required to prepare RISs. Of these, nine were fully compliant (compared to 18 of 24 in 2003-04).

• Compliance by Ministerial Councils and national standard-setting bodies with COAG’s RIS requirements at the decision-making stage was 84 per cent, also lower than in previous years.

COAG strengthened its RIS requirements in June 2004 — including a new requirement for the ORR to work closely with its New Zealand counterpart in assessing draft consultation RISs involving New Zealand issues. In 2004-05 five draft consultation

RISs were forwarded to New Zealand for comment.

Further compliance details, including performances for individual departments and agencies as well as for Ministerial Councils (which involve Ministers from the Australian Government, States and Territories, and in many Councils, the New Zealand Government) and national standard-setting bodies, are provided in Regulation and its Review 2004-05 (PC 2005d).

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Competitive neutrality complaints activities

The Productivity Commission administers the Australian Government’s competitive neutrality complaints mechanism. Competitive neutrality requires that government businesses not have advantages (or disadvantages) over their private sector rivals simply by virtue o f their public ownership.

The Australian Government Competitive Neutrality Complaints Office operates as a separate unit within the Commission. Its function is to receive and investigate complaints and provide advice to the Treasurer on the application of competitive

neutrality arrangements. The Office received four written complaints in 2004-05, with a complaint from 2003-04 — against the transactional mail services provided through Australia Post’s EDI division — proceeding to formal investigation and report. Three o f the new complaints did not proceed beyond preliminary investigation and one complaint remains subject to ongoing investigation.

The Office also provides informal advice on, and assists agencies in, implementing the competitive neutrality requirements. It provided advice around five times a week, on average, to government agencies or in response to private sector queries during 2004-05.

Details of the complaints and the action on them, and the advisory and research activities of the Australian Government Competitive Neutrality Complaints Office, are reported in appendices B and D.

Supporting research activities and annual reporting

The Commission has a statutory mandate to undertake research to complement its other activities. It must also report annually on these matters, including the effects of assistance and regulation, and has a wider information role in promoting public understanding of the trade-offs involved in different policy approaches and how productivity and the living standards o f Australians can be enhanced.

The development of themes and projects for the Commission’s program of supporting research is guided by government statements on policy priorities, including potential commissioned work; parliamentary debate and committee work; and wide ranging consultations with Australian Government departments and

agencies, peak employer and union bodies, community and environmental groups, and academics.

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The broad research objective that guided the 2004-05 program of supporting research was to identify:

• the economic, social and environmental impacts of government policy and policy changes, including adjustment and regional dimensions;

• the implications for public policy of economic, social and environmental trends, including globalisation and demographic change; and

. impediments to improvements in the living standards of Australians;

with particular emphasis on issues concerning the ageing of the population and environmental sustainability.

The Commission published work on productivity, assistance, labour market and industry issues in 2004-05 (box 2.1). Much of the published output, however, concerned the development and use of economic modelling and frameworks to improve policy analysis. This included modelling that supported the Commission’s inquiry on NCP reforms and, in particular, the impacts of infrastructure industry change over the 1990s; a suite of software and databases that will help trade policy

analysts assess tariff reduction proposals being advanced in the current WTO Doha Development Round of trade negotiations; and analysis of the effects of expanding water trade and managing the environmental externalities associated with the supply

and use of irrigation water. Quantitative tools and new modelling techniques to help improve microeconomic policy analysis and decision making were the subject of a Commission conference held in November 2004.

Further information on the Commission’s supporting research activities and publications in 2004-05 is provided in appendix E. This also details the 80 presentations given by the Chairman, Commissioners and staff during the year to parliamentary committees, industry and community groups, and conferences. These presentations covered the gamut of the Commission’s inquiry, research, performance reporting and regulatory review work (table E.l). The Commission briefed 28 international delegations and visitors during 2004-05, with a particular

focus on Commission activities and related policy issues (table E.2).

38 ANNUAL RETORT 2004-05

Transparent and consultative processes

A distinctive feature of the Commission is its open, consultative processes and the scope they provide for people to participate in and scrutinise its work. These processes are integral to its operation. They ensure that the Commission’s research and policy advice are tested publicly and are therefore more robust. They also provide a public demonstration of the Commission’s independence from the various

arms of government and the interest groups with which it comes in contact.

Open inquiry procedures

The Commission’s public hearing process, public access to the submissions made to its inquiries and the publication of draft and final inquiry reports are among the better known aspects of its operations. An indication of the extent of consultation undertaken by Commission is that during the course o f its public inquiry activities

in 2004-05 it met with nearly 170 people, organisations or groups; held 26 days of public hearings; and received more than 620 submissions from participants.

The Commission has adapted its inquiry consultative processes to suit the variety of research studies commissioned by the Government. These studies typically require less public interaction than inquiries, but the Commission provides opportunities to obtain feedback on its analytic framework and preliminary findings and, where

applicable, draft recommendations. For example, in the course of the six studies underway in 2004-05 the Commission received 294 submissions, a quarter of which were in connection with its ageing study. It held roundtable discussions with groups in Auckland, Wellington, Sydney, Canberra and Melbourne after the release of its

draft report on the ANZ competition and consumer protection regimes. The Commission also hosted two workshops, attended by officials from the Australian, State and Territory governments, to discuss approaches to estimating the economic and budgetary impacts of population ageing and Commission work-in-progress.

And in the course of the three commissioned research studies completed in 2004-05, the Commission met with a total of nearly 160 people, organisations or groups.

A further demonstration of the Commission’s commitment to transparency is that, in conjunction with the release o f its final report on the economic impact of ageing in Australia, it made available to researchers and the public at large its modelling, data and projections. The series of supporting technical papers can be assessed

through the Commission’s website and on CD.

Public access to the submissions made to the Commission is a hallmark of transparent processes. Participants’ submissions, other than sections of confidential information, are placed on the Commission’s website, and made available through libraries and for purchase through a photocopying service. However, a notable

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feature this year was that about 70 per cent of submissions to the Commission’s smash repair and insurance inquiry were accepted on a confidential basis. This was because they contained information about the dealings of individual repairers with insurance companies and concerns from some repairers that publication, even of their names, could disadvantage them in future dealings with insurers. In the main, the material in these confidential submissions was illustrative of the issues

canvassed in the public submissions of the repairer representative organisations.

Enhancing its own research capabilities

The Commission continues to involve outside policy advisers and researchers in its work. Roundtables and workshops provide valuable opportunities to utilise wider sources of expertise in its inquiry and research work. From time to time the Commission also utilises specialist external expertise. Examples from the past year include:

• As part of its NCP inquiry, the Commission held a roundtable in Wagga Wagga focusing on NCP impacts on rural and regional communities. It was attended by representatives from a broad cross-section of agricultural interests, manufacturing firms, infrastructure service providers, welfare associations, local government, health care and education providers. A second roundtable, in

Canberra, covered the future reform agenda and related priorities and was attended by a group encompassing academic, consulting, social welfare and public policy interests. A further two workshops were convened to provide feedback on the Commission’s preliminary modelling results.

• In December 2004 the Commission convened a meeting with ANU and ABS experts on the demographic projection scenarios underpinning its analysis of ageing impacts.

• In March 2005 the Commission held a workshop, attended by a number of GTE board members and CEOs, academics, and Australian and State government officials, to obtain feedback on the Commission’s analysis and findings on GTE external governance issues. It also subsequently obtained comments from several

State Treasuries.

The Commission also involves outside policy advisers and researchers in its work through hosting or co-sponsoring conferences or roundtables on topics o f policy interest. Two such conferences were held in 2004-05.

• In November 2004 the Commission organised a conference of academics and policy analysts to explore how the application o f new, data-related modelling approaches could improve policy analysis. The conference papers are being published.

40 ANNUAL REPORT 20044)5

• In conjunction with the ABS, the Commission sponsored the Productivity Perspectives 2004 conference in December 2004. International and local speakers, as well as Commission staff, provided an overview of productivity trends and measurement and associated analytical and policy issues to invited participants from government agencies, academia, industry bodies and

consultants.

The Commission is organising its major conference for 2005-06 on a federalism theme. A roundtable to be held in October 2005 on productive reform in a federal system will focus on key issues associated with federal systems and their operation

in principle and practice, including case studies exploring opportunities for improving arrangements in the key areas of health, the labour market and freight transport.

The Commission continued its ‘Visiting Researchers’ program which is designed to strengthen the Commission’s expertise and its research capacity and linkages. Emeritus Professor Peter Lloyd (recently retired from Melbourne University) and Dr Geoff Edwards (formerly Associate Professor at La Trobe University) continued their participation in the program in 2004-05. In addition, Professor Knox Lovell from the University of Georgia in the United States, who has a particular interest in measuring productivity growth in the non-market sector, revisited the Commission during the year.

The Commission also arranged secondments from the New Zealand Ministry of Economic Development and the Independent Pricing and Regulatory Tribunal of New South Wales to assist it with the government-commissioned study on the trans- Tasman integration of competition and consumer protection regimes.

Research program consultations

The Commission’s practice of extending consultative processes beyond its public inquiry work continued during the year. During February 2005 the Commission held a series of external consultations with Australian Government agencies, peak employer bodies, unions, community and environmental groups to obtain views on

future directions for the Commission’s supporting research program and on specific research topics. The views of State and Territory governments are gathered in a separate program of regular consultation visits and other exchanges. Discussions were also held with academics and other interested parties. In addition, the

Commission monitors government statements on policy priorities and parliamentary debate and committee work.

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Together with contributions from Commissioners and staff, these consultations continued to prove helpful in setting broad directions for the Commission’s supporting research. However, the Commission adds to and modifies its research priorities when significant new issues arise and in the light of projects formally requested by government.

Over the next two years the Commission’s supporting research program will give greater emphasis to the sustainability of Australia’s productivity growth, where sustainability is broadly conceived to include fiscal, economic, social and environmental aspects. Details on individual projects are updated on the Commission’s website during the year.

Research collaboration

The Commission participates in collaborative research projects with academic institutions. Partners in such research projects in 2004-05 were:

• the National Centre for Social and Economic Modelling (NATSEM, University of Canberra) to develop two models to strengthen the analytical framework for policy review and development:

- a broadly-based health sector model to enable policy makers to assess the distributional consequences of a wide variety of health policy changes (other partner organisations are the NSW Health Department, the Health Insurance Commission, the ABS and the Australian Institute of Health and Welfare); and

- a dynamic population microsimulation model with the capacity to assess the future distributional and revenue consequences of changes in tax and outlay programs and thereby aid policy development in the context of Australia’s population ageing challenge (other partner organisations include the Australian Government Departments of the Prime Minister and Cabinet, Treasury, Employment and Workplace Relations, Health and Ageing,

Education, Science and Training and Family and Community Services);

• the Melbourne Institute of Applied Economic and Social Research (Melbourne University) on the determinants and effects o f enterprise entry and exit on growth and productivity in Australian industry using innovative enterprise data sets (other partner organisations are the ABS, IBISWorld, the Victorian

Department of Treasury and Finance, and Austrade); and

• the Centre of Policy Studies (Monash University) to enable an overhaul of the widely used MONASH model of the Australian economy and the creation of MONASH-USA which, among other benefits, will facilitate comparative studies of technology and labour market performance.

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The Commission is a member of the Global Trade Analysis Project Consortium based at Purdue University in the United States. This membership gives the Commission early access to database updates that are needed in its research, as well as priority access to model training and input to the future direction of model and

database development.

Research networks and linkages

The Commission has linkages, domestically and internationally, to research and other organisations through the involvement o f Commissioners and staff in research alliances and participation in working groups and forums. For example:

• The Commission is part of a research consortium, comprising the US National Bureau of Economic Research and several Asian research institutes, which arranges the annual East Asian Seminar on Economics. The 16th East Asian Seminar on Economics, held in Manila in June 2005, focused on fiscal policy. Commission research on productivity and the trade and investment effects of preferential trading arrangements featured in previous seminars.

• The Commission’s Chairman, Gary Banks, is a member of the Advisory Board of the Melbourne Institute of Applied Economic and Social Research and serves on the Board of Advisory Fellows for the Regulatory Institutions Network (RegNet) at the Australian National University. Commissioners are members of various advisory boards and committees including at CSIRO, universities, non­ profit organisations and a Cooperative Research Centre.

• The Secretariat for the Review o f Government Service Provision is a member or observer of around 10 national and intergovernmental advisory groups developing priorities and strategies for improved reporting, as well as providing expert advice to data collectors and users on concepts, definitions and classifications.

• Staff members are also involved in such networking activities. Dr Jonathan Pincus, Principal Adviser Research, is a Fellow of the Academy of the Social Sciences in Australia and a member o f its Workshop Committee. Other members of staff are on the editorial board of the Australian Journal o f Agricultural and Resource Economics·, on bodies such as the Australian Accounting Standards

Board Consultative Group, the Bureau of the Statistical Working Party to the OECD’s Committee on Industry and the Business Environment, the International Advisory Committee for the International Productivity Monitor and the executive committee o f the Comparative Analysis of Enterprise Data (CAED) international

network; and Assistant Commissioner Deborah Peterson is President of the Australian Agricultural and Resource Economics Society in 2005.

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• The Office of Regulation Review participated in the annual meeting of regulation review units from the States, Territories and New Zealand in Perth in October 2004. In conjunction with the States and Territories, the ORR has developed a web-forum, a common website for the regulatory review units to share information. The ORR also liaised on a variety of regulatory issues with the OECD, New Zealand, the United Kingdom Cabinet Office, and government

officials from Belgium and Korea.

Informing and communicating via the internet

Internet technology has facilitated speedier and easier notification o f developments in Commission inquiries and community access to the research outputs that inform community debate on microeconomic policy and regulation. The Commission places submissions to inquiries on its website as soon as possible after receipt, thereby increasing opportunities for earlier and less costly public scrutiny of the views and analysis being put to it. Transcripts of public hearings, draft reports and position papers, inquiry circulars and final inquiry reports (when released by the

Government) are all posted on the website for ease of access and scrutiny.

The Commission’s website also provides ready access to its other outputs — research publications, Commission submissions to other review bodies, key speeches by the Chairman, competitive neutrality complaints reports, benchmarking

studies, and reports arising from its secretariat work for the Review o f Government Service Provision. The website facilitates on-line registration of people’s interest in participating in individual inquiries and studies and to receive updates on more general developments. This email alert service currently notifies more than 700 recipients of significant weekly events including report releases, the start and completion of inquiries and the Chairman’s speeches. This service is additional to the email alerts sent to federal parliamentarians, the media, departmental heads and contacts in the States and Territories.

In the 12 months to 30 June 2005 there were more than 163 000 external requests for the index pages of inquiries and government-commissioned research studies current in 2004-05. The references of most interest were the study on the economic implications o f Australia’s ageing population (42 000 requests) and the inquiries on national competition policy reforms (19 500 requests) and the private cost effectiveness of improving energy efficiency (12 800 requests).

Even after an inquiry or project is completed, community interest can remain high. For example, during the year, web pages for the Commission’s 1999 inquiry on Australia’s gambling industries were requested more than 21 000 times and, for its 2004 report on first home ownership, more than 17 000 times. The 2004 and 2005

44 ANNUAL REPORT 20044)5

Reports on Government Services were also among the most frequently requested publications from the website during the year.

The Commission’s website received a total of 8.4 million file requests from external users in 2004-05, nearly a 30 per cent increase on activity in the previous

financial year (figure 2.2).

Figure 2.2 Website hits Million

Feedback on the Commission’s work

The Commission actively monitors reaction to, and seeks feedback on, its work in order to improve its performance and contribution to policy making. The results of past surveys were reported in previous annual reports and cover external perceptions about the quality of the Commission’s inquiry processes and reports, its reporting on the financial performance of government trading enterprises and the

quality and usefulness of its supporting research program. Last year the Commission reported the positive feedback from a survey of users and contributors to the Report on Government Services (PC 2004b).

In 2004-05 the ORR commenced an ongoing survey to obtain feedback from officials preparing RISs on how departments and agencies view the ORR’s work performance and the quality of its service in providing advice on the Government’s regulatory best practice requirements. O f the 27 respondents to date, one-half rated the quality of the ORR’s written and oral advice as ‘excellent’, a fifth rated it as

‘good’ and the remainder as ‘satisfactory’. Ten respondents offered specific suggestions on how the ORR could improve the quality of its advice (see pp. 134-5 for details).

In addition to its rolling program of surveys, the Commission monitors less formal sources of feedback on the public record. O f course, views on the value of the Commission’s processes and the quality of its outputs can reflect agreement with, or opposition to, specific pieces of Commission analysis or advice. Nevertheless, the

examples in box 2.3 help illustrate the breadth o f support for the Commission’s policy-advising contribution.

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Box 2.3 Support for the Commission: some recent examples

In tabling the Australian Government’s response to a House of Representatives Committee report, the Minister for Local Government, Territories and Roads announced on 25 June 2005 that the Productivity Commission is to be asked to report on local councils' revenue streams and to identify areas where councils are impeded from accessing the resources they need to service their communities.

Various recent Senate Committee reports have recommended that the Productivity Commission be asked to evaluate:

• options for structural reform in Australian telecommunications, including the structural separation of Telstra; and

• the real costs to the community of institutional and other out-of-home care for ‘vulnerable’ children;

and that the reforms the Commission recommended in its 2000 Broadcasting report be reconsidered in a new review of broadcasting policy.

In August 2005 the Victorian Premier proposed that as part of a national COAG reform initiative, a body such as the Productivity Commission, directly commissioned by COAG, advise on the scale of potential benefits in areas that any government asks be included on the national reform agenda. The Commission could also advise periodically on the policy areas where reform could make the largest prospective contribution to productivity, participation and living standards.

In May 2005 the Prime Minister's Exports and Infrastructure Taskforce reported that it saw merit in the Commission being asked to carry out an infrastructure audit along the lines carried out in New Zealand and for such an audit to be repeated every five years. The Australian Chamber of Commerce and Industry’s submission to the Taskforce recommended that the Productivity Commission conduct a broader infrastructure inquiry. And in August 2005, the Business Council of Australia recommended that the Commission was the most appropriate body to conduct a public biennial ‘performance and policy' audit of national infrastructure, stating that the Commission would bring ‘the appropriate approach, expertise and required standing in the community’.

Other examples of recommendations for Productivity Commission reviews made by various bodies, industry groups and others include:

• taxi reform;

• regular reporting on business compliance costs and the identification of priority areas for reform;

• the effects of horizontal fiscal equalisation on investment, productivity and efficiency in the States;

• the impacts of global warming on the Australian economy; and

• Australia’s antidumping system.

Details are provided in appendix B.

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The Commission systematically offers recipients of its reports and users of its website the opportunity to provide feedback. The Commission’s website has provision for sending comments via email and an on-line survey form. The Commission also provides an opportunity for people attending its public hearings to

express their views on the organisation and conduct of hearings. Feedback through these mechanisms remains small; less than 20 respondents in total in 2004-05. Positive feedback was received on the Commission’s ageing study and on the conduct of various hearings, whereas other feedback raised concern about a hearing venue and the time available to present submissions. Feedback is forwarded to

authors, inquiry teams and management for consideration and action, where required.

Policy and wider impacts

All of the Commission’s activities in its five output groups are directed at meeting the policy needs of government or otherwise fulfilling statutory requirements. As agreed with the Treasurer, the outcome objective against which the Commission’s overall performance is to be assessed is:

well-informed policy decision making and public understanding on matters relating to Australia’s productivity and living standards, based on independent and transparent analysis from a community-wide perspective.

Proper assessment of the Commission’s performance is made difficult because it is but one input among many to an eventual outcome. Even when its advice or findings are not supported by government, the Commission’s independence and view of the long-term public interest can play a significant role in helping governments, parliaments and the community understand the trade-offs in different policy choices. Furthermore, as the Commission’s public inquiry and research reports contribute to public debate and policy development across a range of complex and often contentious issues, its contribution and influence should be assessed over the medium to long term. (These and other considerations in assessing the Commission’s overall performance and across its output groups are discussed in

appendix B.)

Confirmation of the Commission’s overall performance in meeting its outcome objective is found in the Government’s decision in February 2005 to provide the Commission with additional funding of $19 million over five years. This will allow the Commission to meet increased demand for its services in supporting the

Government’s microeconomic reform agenda.

Notwithstanding the difficulties inherent in measures of performance assessment, the influence of the Commission’s work is reflected in a range of indicators

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available for 2004-05, including government policy decisions that reflect its analysis and recommendations, and the use of Commission work in policy debate by Federal and State parliamentarians, government agencies, other review bodies, business and community groups and the media.

Influence on government policy making

Government decisions on the Commission’s inquiry reports and responses to government-commissioned research studies reflect their usefulness to the Government, Parliament and the broader community. In responding to recent reports, the Australian Government:

• accepted the majority of the Commission’s recommendations in its review of the Disability Discrimination Act, including many of its more significant recommendations;

• agreed with the Commission’s key recommendations in its smash repair and insurance inquiry on the development and nature of a voluntary code o f conduct for the industries;

• noted that the Commission’s analysis of the economic implications of an ageing Australia provided, for the first time, an independent and comprehensive analysis of the impacts that could guide planning and policy development, and drew on the Commission’s projections in its 2005-06 Budget;

• through a new Inter-Governmental Agreement relating to the Australian Building Codes Board and the Building Code of Australia, implemented the Commission’s principal findings on building regulation reform;

• together with the New Zealand Government, broadly endorsed the work program the Commission had recommended to more closely integrate the competition and consumer protection regimes of the two countries; and

• noted the Commission’s analysis of the competitive situation and outlook for the Australian pigmeat industry, in effect endorsing the bulk of the Commission’s findings and, importantly, did not commit to additional industry-specific assistance measures.

In November 2004 the New Zealand Prime Minister referred to the study (then in progress) on the trans-Tasman integration of competition and consumer protection regimes and commented on the Commission’s contribution as follows:

This study is one of several the Commission has undertaken recently on issues affecting trans-Tasman business, the others being on the Trans-Tasman Mutual Recognition Arrangement and on rules of origin. They provide a helpful and independent analysis to our governments on options for developing the economic relationship. (Clark 2004)

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However, governments do not always accept the Commission’s advice. In December 2004 Australian and New Zealand trade and economic ministers announced their rejection of the Commission’s recommendation that the basic form of CER Rules of Origin remain unchanged and that a change of tariff classification

system model not be used for origin determination under CER. Subject to final agreement on ‘sensitive sectors’, a change of tariff classification system would be adopted.

Summaries of recent government responses to Commission reports are in appendix C.

A review o f the Commission’s inquiry outputs since its inception in 1998 shows that governments typically adopt a substantial majority of recommendations and generally endorse its findings (details are provided in appendix B and table B.7). Further, the nature and extent o f references to Commission inquiry reports suggests that those reports materially contribute to policy debates in Federal, State and Territory Parliaments, as well as more generally within the media and general

community.

Furthermore, the impact of the Commission’s work on policy debates and outcomes can extend over several years. Examples from the past year include the Commission’s 1999 report on gambling, its 2000 report on broadcasting and the

recommendation in its 2000 report on Australia’s general tariff arrangements to abolish the 3 per cent revenue duty on business inputs imported under the Tariff Concession System (box B.2).

Contribution to parliamentary debate

Commission inquiry and research reports, from this and previous years, were used frequently by parliamentarians in debates and questions. During the 2004-05 sittings of the Federal Parliament.

. 35 Members and 32 Senators referred to 32 different Commission reports or inquiries, or to the Commission’s role in policy processes;

• in around three-quarters of the 131 mentions in debates and questions, federal parliamentarians cited the Commission as an authoritative source. Only 3 per cent of mentions were critical of the particular finding, report or Commission attribute referred to; and

• Commission inquiries and reports which featured most prominently in mentions were those on ageing and its 2003 TCF report, analysis of preferential trading arrangements and productivity issues, as well as reference to the potential role for the Commission in evaluating the Australia-United States Free Trade

Agreement.

COMMISSION ACTIVITIES AND PERFORMANCE

49

Commission inquiry and research reports, from this and previous years, were also used extensively in debate and questions by State and Territory parliamentarians. During the 2004-05 sittings of the eight State and Territory parliaments:

• 126 members referred to 25 different Commission publications, the Report on Government Services, Chairman’s speeches or to the Commission’s role in policy processes;

• in around three-quarters of the 220 mentions in debates and questions, State and Territory parliamentarians cited the Commission as an authoritative source, with only 3 per cent o f mentions being critical; and

• nearly 40 per cent of mentions were to the Report on Government Services, with the Commission’s gambling, native vegetation and ageing reports also featuring prominently.

Recent trends in mentions of the Commission in Federal, State and Territory parliamentary proceedings are shown in figure 2.3.

In addition, there were more than 150 mentions of the Commission and its work in the Hansard proceedings of federal parliamentary committees in 2004-05. The Commission was mentioned in the proceedings o f 14 different committees, the majority of mentions being in proceedings o f Senate Economics Committee (but excluding its Estimates work). The most common mentions were to the Commission’s NCP inquiry and report, its 2003 TCF report and the report on indigenous disadvantage, and to the Commission’s role and capabilities in policy advice.

Figure 2.3 Mentions of the Commission in Australian parliaments 2000-01 to 2004-05

No. o f parliamentarians mentioning the Commission

250

200

150

100

50

0

2000-01 2001-02 2002-03 2003-04 2004-05

Total no. o f mentions

500

2000-01 2001-02 2002-03 2003-04 2004-05

f l a i l ·

■ F ederal parliam ent E3 S ta te & Territory parliam ents

50 ANNUAL REPORT 2004-05

Fifteen recent parliamentary committee reports referred to 24 different Commission inquiries or research reports, as well as to a speech by the Commission’s Chairman (table B.l).

Examples of the use o f a range o f Commission reports by the Parliamentary Library in 2004-05 are reported in appendix B.

Other indicators of policy impact

Recognition o f the contribution o f the Commission’s work to policy formulation and debate is also demonstrated by the following examples:

• the support o f Australian jurisdictions through CO AG in having the Commission undertake a study on Australia’s health workforce;

• use in current policy debates o f the Commission’s inquiry and research reports — for example, on NCP, ageing, the national access regime, the gas access regime, price regulation o f airport services, native vegetation and the Great Barrier R eef — variously by the Victorian Government, the Victorian

Competition and Efficiency Commission, the Prime Minister’s Exports and Infrastructure Taskforce and peak industry bodies;

• the expanding scope of reporting on government service provision and use made of information in the annual Report on Government Services by central and line agencies within government, and in parliamentary and wider community debate on the funding and performance of such services as hospitals and schools;

. the use being made of, and positive feedback on, the report on Overcoming Indigenous Disadvantage',

• reference to the Commission’s monitoring of the financial performance of GTE’s by the Minister for Finance and Administration and the National Competition Council and in wider policy debates on the appropriate relationship between governments with their trading enterprises;

• the extensive use of Commission research on regulatory review processes and assessments of compliance with the Government’s RIS requirements in current policy debates on improving regulatory outcomes and reducing business compliance costs; and

• the use of the Commission’s supporting research outputs on productivity, labour market, industry studies, conference proceedings and annual reporting by governments, members of parliament, the OECD, peak business groups and in the wider community.

COMMISSION ACTIVITIES AND PERFORMANCE

51

One continuing indicator of interest in the Commission’s inquiry and other work is the many invitations it accepted in 2004-05 to give briefings and present papers to parliamentary, business and community groups and to conferences (table E.l). As part of a rolling program of briefings for State and Territory governments on the

Commission’s work, presentations and visits were made to New South Wales, Queensland and Tasmania in 2004-05 and visits to others are planned for 2005-06. The Commission also responded to requests from visiting officials and delegations from China, Japan, Korea, Thailand, Vietnam, Malaysia, the APEC Secretariat, New Zealand, Brazil, Chile, certain Gulf countries, France, the United Kingdom,

Denmark, Poland, the IMF and the International Energy Agency for briefings on the Commission’s work, its role in policy advisory processes and discussion on policy issues (table E.2).

A further indicator o f public interest in the Commission’s work, and its potential influence, is the extent of media coverage. During 2004-05, 68 editorials in nine major metropolitan newspapers drew on the findings or recommendations in 19 different Commission reports, or referred to the Commission’s role in assisting

public policy making. The Commission’s NCP inquiry, Discussion Draft and final report together accounted for over one-third o f all mentions and the draft and final reports for its ageing study together accounted for a further 20 per cent of mentions. However, editorialists also drew on the analysis in a wide range of other inquiry and

research reports (including the 2005 Report on Government Services; and reports on overcoming indigenous disadvantage, first home ownership, national frameworks for workers’ compensation, broadcasting, the ANZ competition and consumer protection regime, energy efficiency, preferential trading arrangements and productivity), speeches by the Commission’s chairman, or referred to the Commission’s role or potential role in contributing to policy development. The Commission rated an average o f 200 mentions a month in electronic media and an average o f 129 mentions a month in print media in 2004-05. The Commission’s ageing study, its NCP inquiry and the 2005 Report on Government Services received the most coverage.

Indicators of the influence of Commission activities during the year — its inquiry, performance reporting, regulation review, competitive neutrality work and supporting research — are discussed more fully in appendix B.

52 ANNUAL REPORT 2004-05

Associated reporting

Management and accountability information for 2004-05 is reported in appendix A. The audited financial statements for the Commission are contained in appendix G.

In association with this annual report, the Commission is preparing two companion publications:

• Regulation and its Review 2004-05, which assesses compliance by departments and agencies with the Australian Government’s requirements for the making and review of regulation, reports on the activities of the Office of Regulation Review and provides information on developments in regulatory policy in Australia and

internationally; and

• Trade and Assistance Review 2004-05, which reports on trade policy and assistance developments and contains the Commission’s latest estimates of assistance to Australian industry.

53 COMMISSION ACTIVITIES AND PERFORMANCE

Appendices

A Management and accountability

This appendix provides information on the management and accountability of the Commission, as well as additional information in accordance with parliamentary requirements for departmental annual reports.

Overview

Role and structure

The Commission — established under the Productivity Commission Act 1998 — is the Australian Government’s principal review and advisory body on microeconomic policy and regulation. Information about the Commission’s role is detailed in its first annual report (PC 1998, pp. 25-36).

The Commission comprises its Chairman and between four and 11 other Commissioners, appointed by the Governor-General for periods of up to five years. Associate Commissioners can be appointed by the Treasurer for terms of up to five years or for the duration o f specific inquiries. The work of the Commission is

assisted by employees who are employed under the Public Service Act 1999.

The Commission’s structure and senior staff at 30 June 2005 are shown in figure A .l.

Commissioners

At 30 June 2005 there were eight Commissioners, including the Chairman. Four Commissioners were part-time appointments (table A 1.1 of attachment Al).

No Commissioner appointments concluded during the year, nor were there any new appointments. On 16 April 2005 the terms of appointment of Commissioner Helen Owens were changed from full time to part time. Commissioner Owens was granted extended leave from 27 May 2005.

Biographical information on Commissioners is on the Commission’s website.

MANAGEMENT AND ACCOUNTABILITY 57

Figure A.1 Productivity Commission structure and senior staff, 30 June 2005

Commissioners

Neil Byron

Robert Fitzgerald

Tony Hinton

Helen Owens+

Judith Sloan+

Philip Weickhardt+

Mike Woods+

CHAIRMAN

Gary Banks

H ead c

Garth Pith

f Office

ethly (a/g)

R e s e a rc h Coordination

Unit

Principal Adviser, Research Jonathan Pincus

C orporate S ervices

Branch

Assistant Commissioner Harry Tys

M edia and Publications

Director Clair Angel

M ELBOURNE O FFICE

First Assistant Commissioner Michael Kirby

Assistant Commissioners

Inquiry A

Lisa Gropp

Inquiry B

Paul Belin

Inquiry C

John Salerian

E conom ic & Labour Market

R e s e a rc h

Patrick Jomini

S ocial Infrastructure

Robyn Sheen

E conom ic Infrastructure

Chris Sayers

Environm ental & R eso u rce

Econom ics

Deborah Peterson

CANBERRA O FFICE

First Assistant Commissioner Garth Pitkethly

Assistant Commissioners

Inquiry A

Ian Gibbs

Inquiry B

Herb Plunkett

Inquiry C

Ralph Lattimore

G eneral R e s e a rc h Dean Parham

M icroeconom ic Reform

A s s e s s m e n t

Ian Monday

T ra d e & E conom ic S tudies Paul Gretton (a/g)

O ffice of R egulation

Review

Stephen Rimmer

AGCNCO* (H ead)

Stuart Wilson (a/g)

+ Part-time Commissioners * Australian Government Competitive Neutrality Complaints Office a/g acting

58 ANNUAL REPORT 2004-05

Associate Commissioners

At 30 June 2005 no Associate Commissioner appointments were current.

During the year one Associate Commissioner — Mr Curt Rendall — was appointed on a part-time basis for the duration o f the inquiry on smash repair and insurance. That inquiry both commenced and was completed during 2004-05. Mr Rendall, a principal of Rendall Kelly, Chartered Accountants, was a member of the Dawson

Committee on the review of the competition provisions of the Trade Practices Act 1974. Other appointments held were Chair of the Government’s Small Business Consultative Committee, deputy chair of the New Tax System Advisory Board, deputy chair of the Small Business Development Corporation of New South Wales

and he is currently a non-government member o f the Board of Taxation.

The appointment o f Mr Gary Potts — appointed in 2003-04 on a part-time basis for the duration o f the review of Part X of the Trade Practices Act — also concluded during the year.

Associate Commissioners who completed their appointments during 2004-05 are listed in table A1.2 o f attachment A1.

Staff

At 30 June 2005 staff numbered 181, virtually unchanged from 180 a year ago.

Staff turnover — excluding departures from end-of-contract and voluntary redundancy packages — fell marginally from 13 per cent in 2003-04 to 11 per cent in 2004-05. Turnover in the Melbourne office (14 per cent) was higher than in the

Canberra office (8 per cent).

The Commission recruited 39 staff during the year, including six through its graduate recruitment program.

Statistical information on staffing is provided in tables A1.3 to A1.5 of attachment Al.

Following a 33 year career in the Australian Public Service, Mr Robert Kerr retired in October 2004 as Head o f Office after nine years in the role. He joined the Commission in July 1993 as First Assistant Commissioner in the Canberra office. Previously he had served in the Australian Treasury, both in Australia and overseas.

MANAGEMENT AND ACCOUNTABILITY 59

Outcome, outputs and resources

The financial and staffing resources devoted to achievement of the Government’s desired outcome for the Commission — outlined on page 93 — through the provision of five mandated outputs, are summarised in table A .l. Further information on these matters is provided in appendix B.

Table A.1 Financial and staffing resources summary

Budget 2004-05

Actual 2004-05 a

Budget 2005-06 b

Price of Outputs $’000 $’000 $’000

Output 1.1 - Government commissioned projects 10 900 12 991 14 000

Output 1.2 - Performance reporting and other services to government bodies 3 900 4 275 3 900

Output 1.3 - Regulation review activities 2 500 2 698 2 800

Output 1.4 - Competitive neutrality complaints activities 300 105 300

Output 1.5 - Supporting research and activities and statutory annual reporting 7 273 6 275 7 332

Total Price of O utputs 24 873 26 344 28 332

Revenue from Government 24 588 28 293 28 247

Revenue from other sources 285 352 85

Total Resources 24 873 28 645 28 332

2004-05 2004-05 2005-06

Commissioner/staff years (number) 172 192 200

a Actual expenditure across output groups responds to demands during the year, particularly work commissioned under terms of reference by the Government. ** As estimated in January 2005 for the Portfolio Budget Statements.

Governance

The Commission’s governance arrangements are designed to achieve efficient, effective and ethical use of resources in the delivery of the Commission’s mandated outputs. The arrangements are also designed to ensure compliance with legislative and other external requirements in regard to administrative and financial management practices.

In keeping with good governance principles, the Commission’s governance arrangements encompass:

• establishing clear responsibilities for decision making and the undertaking of mandated activities;

60 ANNUAL REPORT 2004-05

• ensuring accountability through the monitoring of progress, and compliance with legislative and other requirements, of mandated activities; and

• underpinning these arrangements through the promotion of a risk management and ethical behaviour culture.

Key responsibilities

The Commission’s Chairman is responsible for the overall management and governance of the Commission.

He is assisted in these tasks by the Management Committee which decides on matters of strategic direction, organisational development, policies and practices, monitoring o f performance, and resource allocation. Management Committee membership comprises the Chairman (as chair), the Head of Office, the Melbourne

and Canberra First Assistant Commissioners and the Assistant Commissioner, Corporate Services. It meets monthly or more frequently as necessary.

The Research Committee is responsible for approving research proposals and ensuring that these are consistent with the Commission’s objectives and current research themes. More generally, it also promotes the effectiveness and efficiency of the Commission’s research program. It meets monthly and comprises the

Principal Adviser Research (chair), the Commission’s Chairman, the Head of Office, the Melbourne and Canberra First Assistant Commissioners, two research Assistant Commissioners and the Media and Publications Director.

Commissioners have a role in strategic coordination and are responsible for the conduct of the individual inquiries, studies or other activities to which they are assigned by the Chairman. Responsibility extends to the quality, timeliness and

resource use aspects of the assigned project or activity.

Accountability

Management Committee monitors the general direction, development, operational ‘health’ and resourcing of the Commission. This process is aided through the provision of regular reports covering staffing, expenditure, staff development and other operational matters.

Monthly meetings of Commissioners — also attended by some senior staff — are used to discuss and monitor progress with the Commission’s five mandated outputs. Specifically:

• presiding Commissioners on government-commissioned projects report monthly on significant issues and progress against key milestones;

MANAGEMENT AND ACCOUNTABILITY 61

. the Research Committee reports on a quarterly basis on the status and future directions of the research program;

• the activities o f the Steering Committee for the Review o f Government Service Provision, chaired by the Chairman of the Commission, are reported on a quarterly basis;

• the Chairman also oversees the work of the Office of Regulation Review, which provides quarterly reports on its activities;

• one Commissioner is designated with responsibility for competitive neutrality issues, and also reports to the Commission on a quarterly basis; and

• the Head of Office provides Commissioners with a monthly update on key management issues.

The Audit Committee is a further source of accountability through its periodic review of particular aspects of the Commission’s operations. Its membership comprises a chairperson (currently a Commissioner) and two senior members of staff. The Commission’s external auditors generally attend meetings, as does a representative of the Australian National Audit Office on an ‘as required’ basis. The Audit Committee meets at least three times a year.

Risk management and fraud control

The Commission has adopted the Joint Standard AS/NZS 4360:1999 as its approach to risk management. Risk assessments are undertaken within a formal risk management model specified in the Commission’s risk management plan. The plan is reviewed annually by senior management and the Audit Committee.

A number of specific risk assessments undertaken during the year related to the Commission’s website, a new lease for the Melbourne office accommodation and the replacement of the human resource management information system. Risk assessments associated with the renewal of the Comcover insurance policy were also conducted.

Fraud control is an important component of risk management. Fraud risk assessments and control arrangements are set out in the Commission’s fraud control plan which complies with the Australian Government Fraud Control Guidelines. No

instances of fraud were reported during 2004-05.

Information about the Commission’s risk management procedures is available to all employees. It is brought to the attention of new employees on commencement, and awareness raising for existing employees is undertaken periodically.

62 ANNUAL REPORT 2004-05

Ethical standards

The Commission has adopted a range of measures to promote ethical standards.

. It has embraced the Australian Public Service (APS) Values and Code of Conduct. The Commission’s various employment agreements contain a commitment from employees to at all times conduct themselves in a manner consistent with the Values and Code.

• All employees have been provided with a copy of the Values and Code, while new employees receive a copy as part of their induction.

• Senior managers in particular are encouraged to set an example through the ethical and prudent use of Commonwealth resources. The revised APS Values and Code o f Conduct in Practice publication was provided to all senior employees and made available electronically to all employees.

The Commission has developed a number of specific policies relating to ethical standards which have regard to its own operational context. These deal with matters such as email and internet use, harassment and bullying, discrimination, fraud, disclosure of information, and managing conflicts of interest. The policies are

readily available to all employees.

The importance of the Values and Code, as well as related policies, is regularly promoted as a guide to expected behaviour. This occurs during the Chairman’s ‘all staff meetings, as part of staff development sessions, and in conjunction with

policy updates. Specific training on workplace behaviour was offered to employees during the year — approximately 70 per cent of employees attended.

External and internal scrutiny

The Commission’s transparent and consultative processes, which provide for community participation and scrutiny of its work, are a key means of promoting external scrutiny. These processes are outlined in some detail in the corporate chapters of the Commission’s annual reports.

External scrutiny is also promoted through the Commission’s extensive reporting, in various publications, of different aspects o f its work. This annual report is an example and, in particular, appendix B provides an account of the Commission’s performance in its five output groups.

Both the Commission and the Australian Government Competitive Neutrality Complaints Office (which has separate functions although located within the Commission) have service charters. The charters set out the service standards that

MANAGEMENT AND ACCOUNTABILITY 63

those who deal with the Commission can expect, and outline points o f contact should standards not be up to expectation. Performance against the charters is monitored on an exceptions basis — that is, by complaints to designated senior managers. No complaints were received during 2004-05 in respect of either charter.

A broad assessment of the Commission’s operational efficiency was completed during the year by the Department of Finance and Administration. The assessment was part o f a review o f the Commission’s future funding arrangements. The review concluded that the management and governance o f the Commission is sound, and

found little scope for further internal efficiency improvements. Following the review, additional funding of $19 million over five years was approved in the 2004-05 Additional Estimates.

External reports relating to the operations of the Commission were issued by the Auditor-General and the Australian Senate’s Economics Legislation Committee.

The Auditor-General issued an unqualified independent audit report on the Commission’s 2003-04 financial statements.

The Senate Economics Legislation Committee’s March 2005 report on annual reports noted that the Commission’s 2003-04 Annual Report did not include a Chairman’s foreword summary, and that the report was not tabled by the 31 October timeline. The Committee’s March 2004 report also noted the late tabling of the Commission’s 2002-03 Annual Report, a fact not reported by the Commission in its 2003-04 Annual Report as it was unaware o f the comment at that time.

As a statutory agency, the Commission’s legal obligations in regard to annual reporting derive from its own legislation (section 10 of the Productivity Commission Act 1998). Nevertheless, it will continue its endeavours to comply as fully as possible with the Parliament’s broader requirements for annual reporting, in particular, the

Commission has scheduled completion of this annual report so as to allow tabling by 31 October 2005.

References to particular reports o f the Commission made by parliamentary committees during the year are detailed in appendix B.

Internal scrutiny occurs through an ongoing review program of policies, procedures and activities for effectiveness, efficiency and public accountability. Particular matters addressed during the year included:

Website'. The Commission’s website continues to grow in importance as a source of information about the current work of the Commission, its publications and other activities. Total requests to the web server for pages on the site numbered nearly 8.4 million this financial year, an increase o f just under 30 per cent over 2003-04.

64 ANNUAL REPORT 2004-05

A risk management plan for the site was finalised, and the site’s appearance was updated in conjunction with implementing the Australian Government’s directive concerning the use of agency-specific logos.

The site was certified by Accessible Information Solutions (consulting arm of Vision Australia Foundation) as conforming with the W3C Web Content Accessibility Guidelines 1.0 at level ‘A ’ in April 2005.

Human resources management information system (HRMIS): following a tender process, the Aurion Corporation was selected to implement its HRMIS. The payroll module of the new system became operational from 1 July 2005, and further modules and features will be implemented progressively during 2005-06. The new

system offers operational efficiencies including direct interface with the Commission’s financial management information system and enhanced services to Commission employees.

Financial management information system: the upgrading of the Commission’s financial management information system to the latest version of the software was completed early in 2004-05. An improved payment processing system was also implemented. A new module to improve internal budgeting and reporting is

currently being implemented.

Information technology, information technology efforts focused on several areas including:

• the further development of a secure and ethical operating environment, with the launch of three new policies covering usage of the internet, email and the general IT systems. The policies were implemented with the deployment of supporting multi-tiered virus scanning, and email and web content filtering systems;

• improvements in telecommunication services and costs as a result o f market testing fixed line voice and internet service provision. The mobile phone policy was reviewed and changes implemented to promote improved efficiency and accountability; and

• maintaining an efficient and reliable IT operating environment through a series of system enhancements.

In May 2005 the Commission engaged an external consultant to review the cost and effectiveness of its IT and website services. The consultant’s report was received in July 2005 and consideration of its recommendations and their implementation will

proceed during the second half of 2005.

The Audit Committee also plays an important internal scrutiny role. The Committee’s efforts during the year related mainly to:

MANAGEMENT AND ACCOUNTABILITY 65

• consideration of the annual financial statements, and associated issues;

• reviews of risk assessments relating to the Commission’s risk management and fraud control plans;

• oversight of planning for the introduction o f the International Financial Reporting Standards;

• reviews of relevant ANAO reports; and

• progressing the development of a formal business continuity plan.

Management of human resources

The Commission’s human resources management operates within the context of relevant legislation, government policy and Commission-developed policy. Day-to­ day management is devolved to senior managers within a broad framework agreed by Management Committee. The Committee routinely monitors the performance of people management functions through a range of feedback mechanisms, including through standing reports to its monthly meetings.

Workforce planning

Management Committee plays the key role for ensuring alignment between the Commission’s resources and its future capability requirements.

One issue is the Commission’s employee age profile. Relative to the APS, the Commission has a somewhat older workforce with a higher proportion of mature- aged workers (those over age 50).

This reflects the Commission’s success in retaining its older employees, but it also represents a risk for the future which needs to be managed. Steps being taken in this regard include flexible working arrangements, a willingness to consider superannuation issues for some key CSS employees approaching age 55, succession planning for key positions and maintaining a graduate recruitment program.

An important input to workforce planning is the information obtained from departing employees through exit questionnaires and, in many cases, personal interviews. Such information is considered regularly by Management Committee and applied to a variety of initiatives including employee retention strategies.

66 ANNUAL REPORT 2004D5

Remuneration and employment conditions

All Commissioners, aside from the Chairman, are part of the Principal Executive Office structure established by the Government. The Chairman, as the ‘employing body’, is responsible for determining Commissioners’ remuneration within guidelines and parameters set and reviewed by the Remuneration Tribunal. The Chairman’s

remuneration continues to be set directly by the Tribunal.

The Commission’s 19 Senior Executive Service (SES) employees are all employed under Australian Workplace Agreements (AWAs). SES remuneration is set in the context of public and private sector benchmarks, including those contained in the APS SES Remuneration Survey conducted for the Department of Employment and

Workplace Relations. Third-round agreements, negotiated in early 2004, restructured SES remuneration to a ‘total remuneration’ basis and continue to operate effectively.

Information on Commissioners and SES employees who received total remuneration of $100 000 or more is set out in Note 14 to the Financial Statements (appendix G).

Eight non-SES employees with ‘non-standard’ duties have negotiated AWAs. These agreements rely for the most part on the Commission’s certified agreement, except where specifically overridden.

About 170 employees are covered by the Commission’s certified agreement. The current agreement, under section 170LK of the Workplace Relations Act 1996, has a nominal expiry date of 15 January 2007.

A key feature of the agreement, the gradual elimination of automatic annual ‘across- the-board’ pay increases, was achieved at 30 June 2005. Total reliance is now placed on performance outcomes as the means of achieving remuneration increases. In addition, performance bonuses now form a smaller component of total

remuneration and are only available to those senior staff achieving the highest rating.

Family friendly issues in the agreement include provision for up to five days leave in association with the birth or adoption on an employee’s child, and modifications to the studies assistance package.

APS salary ranges — corresponding to the Commission’s broadbanded classifications — are shown in the certified agreement which is available on the Commission’s website.

MANAGEMENT AND ACCOUNTABILITY 67

Performance management and pay

All employees participate in the Commission’s performance management scheme. The scheme seeks to:

• clarify the understanding by individual employees o f their work tasks, their responsibilities and the performance standards expected (through performance agreements);

• provide feedback on performance and improve communication between supervisors and their staff (through performance appraisals);

• provide a basis for determining annual salary advancement and performance bonuses (where applicable);

• identify learning and development needs; and

• assist in identifying and managing underperformance.

Ahead o f each appraisal round — which occurs at six monthly intervals — senior staff attend ‘context setting’ meetings to promote a consistent approach to the appraisal process and outcomes. In addition, training is conducted for new staff and managers to ensure employee readiness for the appraisal round.

Appraisals outcomes influence salary advancement and, for Staff Level 3, Staff Level 4 and SES employees, performance bonuses. Under the certified agreement, bonuses of up to 6 per cent of salary were paid to those Staff Level 3 and Staff Level 4 employees who achieved the highest performance rating. For SES

employees, somewhat higher bonuses are able to be achieved, in keeping with the policy o f having a higher proportion of SES employees’ remuneration ‘at risk’. For Principal Executive Offices, bonuses o f up to 15 per cent of total remuneration are available within the Remuneration Tribunal framework.

Performance bonuses payable for 2004-05 are summarised in table A.2.

Table A.2 Performance bonuses payable for 2004-05

Classification level

Employees receiving bonus

Total

bonuses paid

Average bonus paid

no. $ $

Staff Level 3 14 16 846 1 203

Staff Level 4 15 33 672 2 245

SES 18a 155 398 8 633

Principal Executive Offices 7 92 179 13 168

Total 54 298 095 5 520

a Includes one employee acting in the SES for more than 3 months.

68 ANNUAL REPORT 200ΨΌ5

Consultative arrangements

The key employee consultative mechanism is the Productivity Commission Consultative Committee (PCCC). The PCCC comprises five elected employee representatives and four management representatives, with union representation possible at the invitation of the Committee’s employee representatives.

The PCCC convened on four occasions during the financial year. Whilst the main item for consideration was the implementation of the certified agreement which came into effect in January 2004, matters relating to the following were also discussed:

• Equity and Diversity plan;

• internet and email policies;

• the revised performance management system;

• salary sacrifice providers;

• workplace behaviour training;

• training program for individual staff levels; and

• establishment o f a commuter club in the Melbourne office to enable staff to access discounted public transport fares.

In addition, direct consultation between management and employees occurs on a regular basis, including through a range of topic-specific committees, team and branch meetings, and the Chairman’s ‘all staff meetings.

In April 2005 the Commission undertook another biennial staff opinion survey. The survey sought staff views on a range of organisational and management issues, designed to help identify areas where current practices could be improved and ways

to provide a better working environment for staff. Questions were framed with a view to allowing comparisons with previous staff surveys (the most recent being in March 2003) and, in some areas, the service-wide survey conducted by the Australian Public Service Commission.

The response rate of 93 per cent remains high for a voluntary survey and provides a good basis for gauging staff views. A detailed examination of survey responses, and consideration o f possible courses of action, is underway. However, as a broad indicator of staff satisfaction, 84 per cent of responses rated the Commission as a

‘good’ or ‘very good’ place to work — similar to the responses in the 2001 and 2003 surveys, and an improvement on the 70 per cent of responses in the 1999 survey.

MANAGEMENT AND ACCOUNTABILITY 69

Learning and development

The Commission encourages employees to undertake learning and development in an appropriate mix o f four core competencies:

• management and leadership;

• conceptual and analytical skills;

• time and work management; and

• oral and written communication.

The need for learning and development can be employee identified (through individual development plans settled with supervisors as part of performance appraisals), be supervisor encouraged or directed, or as part of organisation-wide programs (such as those relating to time management or giving and receiving effective feedback).

Recorded expenditure on learning and development in 2004-05 was 2 per cent of the annual salary budget, up from 1.5 per cent during the previous year. This expenditure related to:

• 191 employees who undertook a total of 612 days of specific training and development;

• 34 Staff Level 3 and 21 Staff Level 1 employees who attended two-day general development programs;

• 10 employees who received studies assistance in the form o f paid leave, and assistance with fees, in the pursuit of tertiary qualifications;

• one employee who was granted a Post Graduate Study Award to undertake full­ time tertiary study for a semester; and

• one employee who, during the year, completed the final year o f the Executive Masters of Public Administration delivered by the Australia New Zealand School of Government.

Workshops on giving and receiving effective feedback were conducted in both offices to enhance employees skills in their participation in the Performance Management Scheme. A total o f 79 employees participated in the workshops.

The above activities are in addition to one-on-one coaching to address particular development needs, and extensive on-the-job training within the Commission.

70 ANNUAL REPORT 2004-05

Occupational health & safety (OHS)

The Commission’s commitment to health and safety is outlined in its current OHS Agreement between management, employees and the Community and Public Sector Union.

The OHS Committee — which operates under the OHS Agreement — oversees the Commission’s health and safety program. Committee membership includes health and safety representatives and their deputies from both offices. The Committee met three times during 2004-05.

New OHS activities during the year included:

• receptionist emergency procedures training for response to fire, bomb or personal threat;

• in-house OHS awareness workshops for managers and other employees in the Canberra office by a Comcare trainer; and

• employee seminars covering a range of health and safety issues, including on: bicycle safety awareness; St John Ambulance CPR techniques; and taking care of mental as well as physical health through sessions on the practice of meditation and mind-body connection.

Ongoing OHS activities during the year included:

• Commission funded flu vaccinations (with a take-up of around 45 per cent of employees);

• ergonomic work station assessments (62 were completed including 30 as part of the induction program. They are provided for all new employees as well as existing employees who require advice, particularly after a workplace relocation. This pro-active service has proven beneficial in the early identification of potential workplace injuries);

• desk calendars for all employees promoting emergency evacuation and threat procedures;

• lunch time yoga classes (employees pay class fees while the Commission provides the administrative support and a venue);

• workplace massage for employees on a fee-for-service basis (paid for by participating employees);

• regular workplace hazard inspections that also include monthly reports of air cooling tower tests;

MANAGEMENT AND ACCOUNTABILITY 71

• the opportunity for employees to complete ‘working hours questionnaires’ at the conclusion of projects, designed to elicit information about excessive working hours, their possible causes, and the impact on employees and their families; and

• screen based equipment eyesight testing (available to all employees who use a computer for more than two hours a day).

Employees in OHS appointments such as fire wardens, first aid officers and health and safety representatives continue to receive training. Rehabilitation case managers participated in various forums and attended Comcare’s ‘Towards Australia’s Safest Workplaces’ national conference.

A function, to recognise the contribution of employee volunteers to OHS related activities, was held in each office. The function included presentations by the Chairman for roles such as fire wardens, first aid officers, health and safety representatives, OHS Committee and harassment contact officers. It is proposed to

make this an annual event.

No formal OHS investigations were conducted during the year and no Provisional Improvement Notices were served.

An indicator of the effectiveness of the Commission’s OHS programs is Comcare’s workers’ compensation premium rate. The Commission’s rate for 2004-05 continued at around one-third of the rate for the whole-of-Australian Government pool.

Employee Assistance Program

The Commission offers its employees independent, confidential and professional counselling, consultation and training assistance for work-related or personal issues. The service is provided by the OSA Group whose contract was recently renewed for

three years following a tender process. Twenty-four employees or their families utilised the service in 2004-05, about a 50 per cent increase over the preceding year.

Workplace diversity

The Commission continues to foster a culture that is supportive of employees achieving their potential and which values employee diversity. This is facilitated through the commitment — in the Commission’s certified agreement, equity and diversity plan and related policies — to promote workplace diversity.

The Commission reviewed its equity and diversity plan and released its updated plan to employees in February 2005. The harassment policy was also revised and

72 ANNUAL REPORT 2004-05

released in October 2004 as an ‘interim’ workplace behaviour policy. The Commission is awaiting the Australian Public Service Commission’s new guidelines on bullying and harassment and will finalise its policy once these have been released.

Refresher training for harassment contact officers was provided by an external trainer, in conjunction with a revision of the contact officer checklist and induction proforma. A site has been developed on the Commission’s intranet with relevant information for harassment contact officers.

Workplace behaviour training was conducted in the Melbourne and Canberra offices with separate sessions provided for managers and employees. A total o f 70 employees participated in the sessions.

The Commission participates in, and contributes to, various workplace diversity networks.

Commonwealth Disability Strategy

During 2000-01 the Government refined its Commonwealth Disability Strategy which is designed to assist Commonwealth agencies meet their obligations under the Disability Discrimination Act 1992. In brief, these obligations require agencies to include consideration of the needs of people with disabilities across the full range

of their activities.

The Strategy requires agencies to report, through their annual reports, against a prescribed set of performance indicators. This is to allow the Department of Family and Community Services to undertake annual, APS-wide assessments for the Government on progress by agencies in implementing the Strategy.

The prescribed performance indicators most relevant to the Commission are those relating to the roles of ‘policy adviser’ and ‘employer’. The table at attachment A2 lists the indicators, performance measures and outcomes.

Financial statements

During the year the Department of Finance and Administration and the Commission concluded a joint input-based costing review of the Commission’s funding arrangements.

The review identified increased workload as the key cost driver underlying the Commission’s structural operating deficit, principally as a result of increased

MANAGEMENT AND ACCOUNTABILITY 73

government demand for the Commission’s services. The review noted that this trend will continue to grow as the Commission continues to support the Government’s future microeconomic reform agenda.

Following the review the Government approved, in the 2004-05 Additional Estimates, an increase in the Commission’s funding of $19 million over five years.

The audited financial statements for 2004-05 are shown in appendix G.

A surplus of $2 301 000 was achieved for 2004-05. Revenue increased by 16 per cent over the previous year due to the additional funding provided by the Government following the outcome of the input-based costing review, whereas expenses increased by 3 per cent. The Commission is budgeting for a break-even result in 2005-06 within the constraints o f additional funding o f $19 million provided over the five years to 2008-09.

Other information

Accommodation

The Commission has taken out new leases on its existing accommodation in Canberra (Belconnen) and Melbourne (Collins Place). The terms of the new leases are five and six years respectively.

Consultancies

The Commission continued to utilise the services of a range of consultants during the year where it was cost effective to do so. Many of the consultancies are for the purpose of refereeing particular pieces of work and are generally of relatively low cost.

During 2004-05, 22 new consultancy contracts were entered into involving total actual expenditure o f $135 502. In addition, one ongoing consultancy contract was active during the 2004-05 year, involving total actual expenditure of $8525.

Further information on consultancies, as required by government reporting requirements, is provided in attachment A3.

74 ANNUAL REPORT 2004-05

Special payments

The Commission made a number of special payments during 2004-05. Such payments were made to organisations and activities judged by management as making a worthwhile contribution to the Commission’s outputs. The main payments

were as follows:

Consortium memberships'. $24 640 for membership of the Global Trade Analysis Project Consortium based at Purdue University in the United States. The Commission’s contribution supports the development and updating of a publicly available database and model framework for multicountry trade policy analysis. It gives the Commission early access to database updates that are needed in its research, priority access to model training, and input to the future direction of model and database development.

Research partnerships'. $22 000 to the University of Canberra (NATSEM) for a partnership project on the distributional impact of health outlays; $66 000 to Monash University for economic modelling for Australia and the USA; $33 000 to the University o f Melbourne (MIAESR) for a partnership project on the evolution

of Australian enterprises, 1990 to 2007; and $16 500 to the University of Canberra (NATSEM) for a project on assessing the social and financial implications o f an ageing population.

Conference sponsorships'. $13 550 to the University of Melbourne for part sponsorship o f the 2005 ‘Sustaining Prosperity Conference’; $16 500 to the Economics Society of Australia for the 33rd (2004) and 34th (2005) Conferences of Economists; $2200 to the University of Western Australia for the 2005 PhD Conference; and $2200 to the Australian National University for the 2004 PhD Conference in Business and Economics.

Awards'. $1200 to the top 2004 student, Economics Honours, at Monash University (R H Snape - Productivity Commission Prize) and $1000 to the top 2004 student, Master of Economics, at the Australian National University (Robert Jones — Productivity Commission Prize).

Purchasing

The Commission applies the Australian Government’s Procurement Guidelines which we revised during the year to reflect a change in procurement policy with regard to procurement, including prescription for procurement processes which had not existed prior to January 2005.

MANAGEMENT AND ACCOUNTABILITY 75

The Commission’s purchases of goods and services were consistent with the value- for-money objectives of the procurement guidelines, and were predominantly from small to medium-sized Australian and New Zealand suppliers.

Ecologically sustainable development (ESD)

Under the Environment Protection and Biodiversity Conservation Act 1999, agencies are required — through their annual reports — to report on ESD and environmental matters. This requirement is part of the Government’s program to improve progress in implementing ESD.

The Commission operates under statutory guidelines, one o f which is to have regard to the need ‘to ensure that industry develops in a way that is ecologically sustainable’ (section 8(1 )(i) of the Productivity Commission Act 1998). This legislation also prescribes that at least one member of the Commission ‘must have extensive skills and experience in matters relating to the principles of ecologically sustainable development and environmental conservation’ (section 26(3)).

There are five aspects against which agencies are required to report.

The first relates to how an agency’s actions during the reporting period accorded with the principles of ESD.

Reflecting its statutory guidelines, ESD principles are integral to the Commission’s analytical frameworks, their weighting depending on the particular inquiry or research topic. Examples of Commission projects where different aspects of ESD have arisen have been provided in recent annual reports. The inquiry on the private cost effectiveness o f improving energy efficiency and the current inquiry on the conservation of Australia’s historic heritage places, are further examples of policy advice which integrates complex economic, social and environmental considerations.

The second reporting requirement asks how the Government’s outcome for the Commission contributes to ESD. As stated elsewhere in this report, the outcome nominated for the Commission is:

Well-informed policy decision making and public understanding on matters relating to Australia’s productivity and living standards, based on independent and transparent analysis from a community-wide perspective.

In pursuing this outcome, the Commission is required to take into account impacts on the community as a whole — these may be economic, environmental and/or social. The transparency of its processes provides the opportunity for anyone with an interest in an inquiry to make their views known and to have these considered.

76 ANNUAL REPORT 2004-05

Consequently, a broad range of views and circumstances are taken into account, in keeping with the BSD principle that ‘decision-making processes should effectively integrate both long-term and short-term economic, environmental, social and equity

considerations’.

The Commission recently reviewed both its Access and Equity Plan and Disability Action Plan and has undertaken a range of initiatives to maximise accessibility to its activities. This includes upgrades of the Commission’s website which is certified as conforming with the W3C Web Content Accessibility Guidelines 1.0 at level ‘A ’. The Commission uses a hearing loop and a range of other accessibility

infrastructure as outlined in the Commonwealth Disability Strategy report included in attachment A2. The entrance to the Commission’s Melbourne office is being re­ built to facilitate access for people with disabilities.

The third to fifth reporting requirements relate to the impact of the Commission’s internal operations on the environment. The Commission is a relatively small, largely office-based, organisation in rented accommodation, and the actions able to

be taken are somewhat limited. However, the Commission has policies (which are periodically reviewed) in respect of such matters as the promotion of OHS and workplace diversity, minimising energy consumption and the efficient management of waste.

In order to manage its impacts on the environment in a systematic and ongoing way, the Commission maintains an Environmental Management System. The Environmental Management System contains the Commission’s environmental

policy, an environmental management program to address identified impacts, and provision for monitoring and reporting on performance.

During 2004-05 the Commission recorded energy usage of 11 780 MJ/person/ annum against the Government’s target of 10 000 MJ/person/annum. Efforts are continuing to reduce energy usage. For example, after an independent energy audit, lease negotiations for the Commission’s Melbourne office included provision for

energy-efficient tri-phosphor lamps, fixed dimming and after-hours lighting reset capabilities. These changes are being implemented progressively with early indications that energy usage has decreased by 18 per cent. Similar works are being conducted in the Commission’s Canberra office.

Freedom of Information

No requests were received in 2004-05 for access to information under the Freedom o f Information Act 1982. A statement encompassing formal reporting requirements is provided in attachment A4.

MANAGEMENT AND ACCOUNTABILITY 77

Advertising and market research

The Commission publicises its government-commissioned inquiries and studies so that any individual, firm or organisation with an interest has an opportunity to present their views. Publicity takes the form of newspaper advertisements, regular distribution of pc update, press releases, an email alert service, notification on the Commission’s website and direct mailing o f Commission circulars.

A total of $230 063 was paid for advertising (including recruitment advertising) in 2004-05 to HMA Blaze Pty Ltd.

Publications and submissions

Appendix F lists all the Commission’s publications in 2004-05.

Annual reporting requirements and aids to access

Information contained in this annual report is provided in accordance with section 74 of the Occupational Health and Safety (Commonwealth Employment) Act 1991, section 49 of the Financial Management and Accountability Act 1997 and section 8 o f the Freedom o f Information Act 1982.

The entire report is provided in accordance with section 10 of the Productivity Commission Act 1998.

The annual report has also been prepared in accordance with parliamentary requirements for departmental annual reports issued by the Department o f the Prime Minister and Cabinet. A compliance index is provided in attachment A5.

The contact officer for inquiries or comments concerning this report is:

Assistant Commissioner Corporate Services Branch Productivity Commission Locked Bag 2 Collins Street East Post Office MELBOURNE VIC 8003 Telephone: (03) 9653 2251 Facsimile: (03) 9653 2304

78 ANNUAL REPORT 2004-05

The Commission’s internet home page is at http://www.pc.gov.au.

This annual report can be found at the above internet address.

Inquiries about any Commission publication can be made to:

Director Media and Publications Section Productivity Commission PO Box 80 BELCONNEN ACT 2616 Telephone: (02) 6240 3239 Facsimile: (02) 6240 3300

MANAGEMENT AND ACCOUNTABILITY 79

Commissioner and staffing statistics

TableA1.1 Chairman and Commissioners, 30 June 2005

Current period of appointment

A tta c h m e n t A1

From To

Mr G R Banks (Chairman) 20 May 2003 19 May 2008

Dr R N Byron (M) 17 Apr 2002 16 April 2007

Mr R Fitzgerald (C) 27 Jan 2004 26 Jan 2009

Mr A M Hinton (M) 27 Mar 2002 26 Mar 2007

Mrs H J Owens (M) (p/t) 17 Apr 2001 16 Apr 2006

Prof J Sloan (M) (p/t) 17 Apr 2001 16 Apr 2006

Mr P Weickhardt (M) (p/t) 4 Dec 2003 3 Dec 2008

Mr M C Woods (C) (p/t) 17 Apr 2001 16 Apr 2006

(C) denotes Canberra based, (M) denotes Melbourne based and (p/t) denotes part time.

Table A1.2 Part-time Associate Commissioners completing appointments during 2004-05

Period of appointmenta

Inquiry From To

Mr G R Potts Review of Part X of the Trade Practices Act 30 June 2004 31 March 2005

Mr A C Rendall Smash Repair and Insurance 30 August 2004 30 March 2005

a Engagement ceases at the conclusion of the inquiry or the period of appointment, whichever is the earlier.

80 ANNUAL REPORT 2004-05

Table A1.3 Staff3 by location and gender, 30 June 2005

Melbourne Canberra Total

Level Female Male Total Female Male Total Female Male Total

SES Band 3 0 0 0 0 1b 1 0 1 1

SES Band 2 0 2 2 0 0 0 0 2 2

SES Band 1 3 5 8 0 7 7 3 12 15

Staff Level 4 6 19 25 7 17 24 13 36 49

Staff Level 3 9 12 21 7 17 24 16 29 45

Staff Level 2 13 11 24 5 8 13 18 19 37

Staff Level 1 16 5 21 10 1 11 26 6 32

Total 47 54 101 29 51 80 76 105 181

Corresponding totals at 30 June 2004 47 56 103 27 50 77 74 106 180

a Excludes 18 inoperative staff at 30 June 2005 and 12 at 30 June 2004. b Acting.

Table A1.4 Staff3 by employment status and gender, 30 June 2005

Female Male Total

Level F/t P/t Total F/t P/t Total F/t P/t Total

SES Band 3 0 0 0 1b 0 1 1 0 1

SES Band 2 0 0 0 2C 0 2 2 0 2

SES Band 1 3 0 3 12 0 12 15 0 15

Staff Level 4 9 4 13 35c 1c 36 44 5 49

Staff Level 3 13 3 16 28 1 29 41 4 45

Staff Level 2 15c 3 18 19 0 19 34 3 37

Staff Level 1 20 6d 26 6 0 6 26 6 32

Total 60 16 76 103 2 105 163 18 181

Corresponding totals at 30 June 2004 60 14 74 100 6 106 160 20 180

a Excludes 18 inoperative staff at 30 June 2005 and 12 at 30 June 2004. b Acting. c Includes 1 non-ongoing employee. d Includes 2 non-ongoing employees.

F/t denotes full-time and P/t denotes part-time.

MANAGEMENT AND ACCOUNTABILITY 81

Table A 1.5 Staff by level and reason for separation, 2004-05

Invalidity

Level Promotion Transfer Resignation Retirement VRPa Other Total

SES 0 0 1 0 0 0 1

Staff Level 4 1 0 4 0 0 4 9

Staff Level 3 1 2 5 0 0 0 8

Staff Level 2 2 0 5 0 0 0 7

Staff Level 1 0 0 1 0 0 6 7

Total 4 2 16 0 0 10 32

Corresponding totals at 30 June 2004 0 7 19 1 2 5 34

a Voluntary Redundancy Package.

82 ANNUAL REPORT 2004-05

A tta c h m e n t A 2

Commonwealth Disability Strategy (CDS): outcomes against mandatory performance indicators

Performance requirements of the ‘policy adviser’ role

Performance indicator Performance measure Outcome

Policy proposals assess impact on the lives of people with disabilities prior to decision.

• Commission policies have checklists that cover the consideration of access and equity (including disability) matters. The extent to which such considerations develop varies from

inquiry to inquiry.

Project evaluation templates have a section included for comments on disability issues as defined in our Disability Action Plan. These

comments are monitored to assess if procedures need to be further reviewed. These comments will be incorporated into the review of the Disability Action Plan.

• The Commission continues to promote the awareness of issues related to people with disabilities to all new employees through its induction program and briefings to other employees as appropriate.

• When the Commission’s web unit incorporated the Australian Government logo into the website, the site was totally recoded to meet the current standard for maximum accessibility for our users. All users are taken into account when incorporating features that enhance accessibility with particular emphasis on impairments which include vision, hearing, movement and cognition.

Ensuring the website is accessible to the highest standard is an ongoing process as more is discovered about user requirements and web technology changes. Details of this process were provided to all employees in Staff News.

Percentage of policy proposals that document that the impact of the proposal was considered prior to the decision making stage.

The Commission’s Disability Action Plan is due for review and this will be undertaken once the Office of Disability completes their evaluation of the Commonwealth Disability Strategy.

MANAGEMENT AND ACCOUNTABILITY 83

Performance indicator Performance measure Outcome

People with disabilities are included in consultations about new policy proposals.

Percentage of policy proposals that are developed in consultation with people with

disabilities.

Commission inquiries are open to the public. Where appropriate, consultation is facilitated by:

• advertisements in the national press inviting submissions;

• development of interested parties lists;

• TTY machine available and promoted;

• website conforms to mandatory disability access requirements;

• portable hearing loop available for public hearings;

• ongoing improvements to building access through discussions with building management (including the provision of expert advice from a disability management consultant) to incorporate accessibility requirements in the upgrade to entrances;

• copies of reports and circulars available in Braille, large print and audio on request; and

• checklist on accessibility at venues.

Public announcements of policy initiatives are available in accessible formats for people with disabilities in a timely manner.

Percentage of new, revised 100 per cent available on website. The or proposed policy/program announcements available

in a range of accessible formats.

Commission worked with Accessible Information Solutions to ensure the web site conforms with the W3C Web Content Accessibility Guidelines 1.0 at level “A” ofWCAG 1.0 (as at April 2005). A page is devoted to ‘Accessibility’ on the website.

Time taken in providing Depending on format requested up to announcements in two weeks,

accessible formats.

84 ANNUAL REPORT 2004-05

Performance requirements of the ‘employer’ role

Perform ance in d ic a to r P e rfo rm a n ce m e a s u re O u tco m e

Recruitment information for Percentage of recruitment All vacancies are advertised in the potential job applicants is information requested and gazette and on our website. Most available in accessible provided in: vacancies are advertised in the press,

formats on request.

• accessible electronic 100 per cent available, formats; and

Agency recruiters and managers apply the principle of ‘reasonable adjustment’.

• accessible formats other None requested, than electronic.

Average time taken to provide accessible information in:

• formats other than electronic. Dependent on request, none received to date. Information has been sourced

on the procedures for requesting alternative formats such as Braille and audio and is available should a request be received.

Percentage of recruiters and managers provided with information on ‘reasonable adjustment’.

Where relevant, selection panels are provided with this information.

Managers receive information as required. Folders containing the list of candidates includes a reference to access and equity considerations, including ‘reasonable adjustment’.

A register has also been developed to record all requests for information in formats such as Braille and audiocassette. No requests were received during 2004-05.

Training and development Percentage of training and Training nomination forms include a programs consider the development programs section requesting information on the needs of employees with that consider the needs of additional needs of employees. It is disabilities. employees with disabilities, monitored by the training administrator.

No assistance was requested during 2004-05.

Training and development Percentage of training and Induction programs include information programs include development programs on these issues including our Access information on disability that include information on and Equity and Disability Action Plan, issues as they relate to the disability issues as they content of the program. relate to the program.

Complaints/grievance mechanism, including access to external mechanisms, in place to address issues and

concerns raised by employees.

Established ‘Review of Action’ procedures are

complaints/grievance available to all employees. No mechanisms, including procedures were conducted in 2004-05. access to external mechanisms, in operation.

MANAGEMENT AND ACCOUNTABILITY 85

Attachment A3

Consultancies

The following information is provided in accordance with government reporting requirements.

Selection

The Commission selects and engages consultants under the following circumstances:

• insufficient in-house resources;

• a need for independent expert advice, information or evaluation to assist in its research; and

• a need for specialised professional services including legal advice and benchmarking of its activities.

Procedures

The Commission’s selection procedures follow the value-for-money objectives of the Australian Government’s procurement guidelines. By a regulation under its Act, the Commission is also required to use open competitive tendering where the estimated value o f a consultancy exceeds $20 000.

Purposes

The main purposes for which consultants were engaged in 2004-05 were to provide expert technical advice for a range of projects, referee particular pieces of work, undertake modelling work and provide legal advice.

Consultancies over $10 000

The following table lists those consultancies let in 2004-05 valued at $10 000 or more, including the method of selection, the reason for the consultancy and a summary of the overall costs involved. The total figure refers to total value of the contracts let, irrespective of the period of the contract, noting that some contracts are for periods in excess of one year.

86 ANNUAL REPORT 2004-05

Consultancy contracts let in 2004-05 valued at $10 000 or more

C o n tra c t M e th o d o f R e a s o n fo r

C onsultant N a tu re o f c o n s u lta n c y a m o u n t1 s e le c tio n 2 c o n tr a c t3

Governm ent-comm issioned projects

Austhink To provide advice on the structure and general cogency of the Commission’s report on energy efficiency

19 800 3 A

Bainbridge Consultants P/L To provide expert technical assistance with development of a framework for

undertaking case studies for the inquiry into medical technology; to assist with development of criteria for selection of the case studies; to undertake the case studies; and to provide general technical advice to the inquiry

17 600 2 A

G o v e rn m e n t-c o m m is s io n e d p ro je cts — to ta l 3 7 4 0 0

Performance reporting

Health Policy Analysis P/L Analyse patient satisfaction surveys from each state and territory and

identify data items for inclusion in the Report on Government Services

10 000 3 A

P e rfo rm a n ce re p o rtin g — to ta l 10 0 0 0

Supporting research and activities and annual reporting

Meyrick Consulting Group P/L

To measure the effects of economic welfare of productivity growth and changes in the terms of trade for Australia

20 000 3 A

Dr Trevor Breusch

To provide econometric modelling advice and to referee project documentation

11 000 3 A

Centre of Policy Studies, Monash University

To develop the Commission’s capacity to model the economic impacts of changes in water policies and other factors such as drought

16 700 4 B

Centre of Policy Studies, Monash University

Referee modelling work undertaken for the ‘Review of National Competition Policy Arrangements’

15 000 4 B

S u p p o rtin g re s e a rc h a n d a c tiv itie s a n d a n n u a l re p o rtin g 6 2 7 00

— total

MANAGEMENT AND ACCOUNTABILITY 87

C o n s u lta n t N a tu re o f c o n s u lta n c y

C o n tra c t

a m o u n t* 1

M e th o d o f R e a s o n fo r

s e le c tio n 2 c o n tr a c t3 4

Corporate m anagem ent and services

Value Sourcing Review of IT and Web services 19 500 3 C

Australian Legal advice on new lease for 11 960 3 A

Government Melbourne office accommodation Solicitor

C o rp o ra te m a n a g e m e n t a n d s e rv ic e s — to ta l 31 4 6 0

Total consultancies 141 560

1 All figures are GST inclusive.

2 Method of selection 1. Public tender 2. Sought tenders from a number of selected providers 3. Directly approached one provider as known expert in field 4. Sole supplier 3 Reason for contract

A. Lack of in-house resources and/or specialist skills B. Need for an independent evaluation C. Benchmarking

88 ANNUAL REPORT 2004-05

Attachment A4

Freedom of Information Statement

The following information is provided in accordance with section 8(1) of the Freedom o f Information Act 1982.

Organisation, role and functions

The role, functions and organisational structure of the Commission are detailed elsewhere in this report.

Arrangements for outside participation

The Commission is required under its Act to conduct public inquiries on matters referred to it by the Government and the Commission’s inquiry procedures actively seek to encourage participation by all interested parties. In respect of its non-inquiry work, the Commission’s procedures aim to promote transparency to the greatest

extent possible.

The Commission may require people to send it information and summons persons to give evidence. People who assist the Commission by providing information, giving evidence at hearings or in any other way assist the Commission in the

performance of its functions have protection under the Productivity Commission Act from intimidation and civil actions. Details of inquiry participation and consultation are given in each inquiry and commissioned research report.

Each year the Commission typically invites a range of government departments and agencies, peak employer bodies, unions, community and environmental groups and academics to consultations on the Commission’s supporting research program. The consultations were held as usual in 2004-05.

The Commission acts as the Secretariat for the Steering Committee for the Review of Government Service Provision. The Committee comprises senior representatives from the Australian, State, Territory and local governments.

The procedures of the Australian Government Competitive Neutrality Complaints Office allow any individual, organisation or government body to consider and, if necessary, lodge a complaint in relation to the application of competitive neutrality. In addition, representatives from various competitive neutrality branches and

complaint offices from the Australian, State and Territory governments meet

MANAGEMENT AND ACCOUNTABILITY 89

regularly - usually annually - to discuss issues relevant to the interpretation and implementation of competitive neutrality policy.

Categories of documents

Principal categories include:

• commissioned projects records including information circulars, issues papers, inquiry guidelines, draft reports, submissions, participant correspondence and public hearing transcripts;

• documents relating to infrastructure research and performance monitoring across the Australian Government, States and Territories;

• documents relating to national and international benchmarking;

• competitive neutrality complaint queries and details of investigations;

• documents relating to research on industry and productivity issues;

• Regulation Impact Statements and correspondence;

• Australian Government legislation review correspondence;

• regulatory best practice correspondence;

• administrative, policy, procedural and contractual documents, relating to information technology, human and financial resource management;

• legal advice and other legal documents;

• Freedom o f Information documents;

• media releases;

• mailing lists;

• speeches;

• consultancy documents;

• service charters;

• parliamentary questions and answers; and

• submissions to inquiries undertaken by other organisations.

Facilities for access

Information circulars, issue papers, information on the inquiry process and draft reports are sent to interested parties and inquiry participants. They are also available from the Commission’s website or free of charge from the Commission. Final

90 ANNUAL REPORT 2004-05

reports are distributed, free of charge, to inquiry participants and are also available from the Commission’s website.

Documents available from the Commission’s website and for purchase from Pirion/J.S. McMillan include:

• the Commission’s annual report series;

• final inquiry reports, research reports and research papers; and

• reports by the Steering Committee for the Review of Government Service Provision.

Reports on competitive neutrality matters, submissions made by the Commission to other review bodies and Staff Working Papers are available from the Commission’s website, or free of charge from the Commission.

Copies of submissions made to inquiries, excluding confidential material, and transcripts are available from the Commission’s website or can be purchased through Photobition Digital Imaging, GPO Box 427, Canberra, ACT 2601.

Copies of submissions and transcripts of public hearings may be inspected in the Commission’s libraries in Melbourne and Canberra between 9.00am and 5.00pm, Monday to Friday. These documents can also be accessed through all State libraries and the Commission’s website.

Information and written requests for access to Commission documents under the Freedom o f Information Act 1982 can be made to:

FOI Coordinator Productivity Commission Locked Bag 2 Collins Street East Post Office MELBOURNE VIC 8003 Telephone (03)9653 2107

Facsimile (03) 9653 2199

MANAGEMENT AND ACCOUNTABILITY 91

Attachment A5

Compliance index

p a g e

Letter of transmittal III

Table of contents VII

Index 243

Abbreviations X

Contact officer 78

Internet addresses 79

Review Review by the Chairman and Commissioners 29-52

Role and functions of the Commission 57

Organisational structure 58

Outcome and output structure 94

Report on performance Performance in relation to outputs and contribution to outcomes 47-52 & 93-149 Performance against service charter customer service standards 63-4

Financial performance 73— 4

Summary resources table by outcomes 60

Management accountability Corporate governance practices 60

Senior management committees and their roles 61

Risk management and fraud control measures 62

Ethical standards 63

Determination of remuneration for SES employees 67

External scrutiny 63

Management of human resources 66

Employee developments 66

Staff turnover and retention 59

Learning and development 70

Certified Agreement and Australian Workplace Agreements 67

Statistics on staffing 80-2

Performance pay 68

Purchasing 75-6

Asset management appendix G

Consultants 74,87-8

Performance in implementing the Commonwealth Disability Strategy 73, 83-5 Financial statements appendix G

Other information Occupational health and safety 71-2

Freedom of Information statement 89-91

Advertising and market research 78

Ecologically sustainable development and environmental performance 76-7 Special payments 75

92 ANNUAL REPORT 2004-05

B Program performance

The Productivity Commission’s designated role is to contribute to well- informed policy decision making and public understanding on matters

relating to Australia’s productivity and living standards. It performs this role by undertaking independent and transparent analysis from a

community-wide perspective.

The Commission’s five outputs comprise public inquiries and other government-commissioned projects, performance reporting and other services to government bodies, regulation review and competitive neutrality complaints activities, as well as supporting research and statutory annual reporting. This appendix sets out some broad considerations in assessing the Commission’s performance and reports various indicators of overall performance, as well as the Commission’s

outputs and related performance in 2004-05.

Assessment of the Commission’s performance

The Commission’s inquiry, research, advisory and associated activities derive from its statutory functions. Having regard to the Government’s accrual budget outcome and output framework, and with the agreement of the Treasurer, these activities have been classified into five outputs:

• government-commissioned projects;

• performance reporting and other services to government bodies;

• regulation review activities;

• competitive neutrality complaints activities; and

• supporting research and activities and statutory annual reporting (figure B.l).

The Government’s single outcome objective for the Commission against which the Commission’s overall performance is to be assessed is:

Well-informed policy decision making and public understanding on matters relating to Australia’s productivity and living standards, based on independent and transparent analysis from a community-wide perspective.

PROGRAM PERFORMANCE

93

Figure B.1 Productivity Commission outcome/output framework 2004-05

Output 2

Performance reporting and other services to government bodies

Output 1

Government- commissioned projects

Output 5

Supporting research and activities and annual reporting

The following outputs (total cost in 2004-05: $26.3 million) contribute to the outcome objective

The Government’s outcome objective for the Treasury portfolio is:

Strong sustainable econom ic grow th and the im proved w ellbeing o f A ustralians

Output 3

Regulation review activities

Output 4

Competitive neutrality complaints activities

The Government’s outcome objective for the Productivity Commission is:

W ell-inform ed policy decision m aking and public understanding on m atters relating to A u stralia’s p roductivity and living standards, based on ind epen den t and transparent analysis from a com m u nity-w id e perspective

major inquiries with public hearings

inquiries without formal hearings

public inquiries on safeguard action against imports

research studies commissioned by government

government service provision for COAG

report to COAG on overcoming indigenous disadvantage

performance monitoring of GTEs

international and national benchmarking of economic infrastructure

assess regulation impact statements

compliance monitoring and reporting

training and guidance for officials

advise on quality control for regulation

monitor national and international developments

• investigate and report on competitive neutrality complaints

• advise on competitive neutrality implementation

• research on competitive neutrality issues

research reports

annual report suite of publications

conferences and workshops

submissions to other review bodies

speeches, presentations and conference papers

The Commission’s outcome objective is embedded within the Government’s broader outcome objective for the Treasury portfolio as a whole of:

Strong sustainable economic growth and the improved wellbeing of Australians.

Commission activities

All of the Commission’s activities in its five output groups are directed at meeting the policy needs of the Government, or otherwise fulfilling statutory requirements. These activities are:

. undertaking individual projects specifically commissioned by the Government (Output 1);

. meeting standing research, investigatory and advisory functions nominated by the Government (Outputs 2, 3 and 4); and

• research undertaken in response to emerging needs for policy-relevant information and enhanced analytical frameworks, and for building the Commission’s capacity to respond to the Government’s policy priorities (Output 5).

Government-commissioned projects have individual terms of reference. Public inquiries involve extensive public consultation — such as visits, submissions, workshops and public hearings — on the analysis of information and the development of policy options, and in seeking responses to proposed recommendations. Depending on the length of the reporting period, the Commission typically issues either a full draft report or a ‘position paper’ as part of this

consultation process before finalising its report to government. Inquiry reports are tabled in Parliament. Commissioned research studies are generally concerned with assembling policy-relevant information or analysis of policy options for tasks that are narrower in scope, and required in shorter timeframes, than inquiries. They typically require less public interaction than inquiries. The Commission adapts its

inquiry processes in conducting these studies, although it aims to expose its preliminary findings in workshops or roundtable discussions. Commissioned research studies are released at a time agreed with the Government.

The Government has established a number of standing research, investigatory and advisory activities for the Commission. These comprise:

• secretariat and research services for the Steering Committee for the Review of Government Service Provision. The Steering Committee is responsible for the publication of national performance indicators for service provision and (more recently) indigenous disadvantage, and related research reports;

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• performance monitoring and related research reports on government trading enterprises that fulfil the commitment for the Commission to continue the work of the former COAG Steering Committee on National Performance Monitoring of Government Trading Enterprises;

• national and international benchmarking of key economic infrastructure industries, a standing research direction from the Government. Although the Commission has some discretion in the choice o f industry and timing, reporting is guided by an assessment of the Government’s policy needs;

• advisory and research activities related to regulation review, together with annual reporting on compliance with the Government’s regulation impact statement requirements (published as Regulation and its Review), as set out in the 1997 Charter o f the Office of Regulation Review (box B.3);

• reports and related activities necessary to meet the Commission’s statutory obligation to investigate complaints about the implementation of the Australian Government’s competitive neutrality arrangements; and

• statutory annual reporting on assistance and regulation affecting industry (published as the Trade & Assistance Review) and on industry and productivity performance generally (encompassed in the Commission’s Annual Report).

Government-commissioned projects and the Commission’s standing functions take absolute priority in the deployment o f its staffing and financial resources.

The Commission has a statutory mandate to conduct its own program of research to support its annual reporting and other responsibilities, and to promote community awareness and understanding of productivity and regulatory issues. This program of

supporting research is guided by government statements on policy priorities and parliamentary debate and committee work, and by drawing on an extensive consultation process with Australian Government departments and agencies, peak employer and union bodies, and community and environmental groups. The views of State and Territory governments and academics are also sought.

There is a hierarchy o f publications and other activities within the Commission’s program of supporting research.

• The suite of three annual reporting publications, as well as Commission Research Papers and submissions to other inquiries or reviews established by government or parliament, present the Commission’s views on policy issues.

• Published research by Commission staff aims to provide the information and analysis needed to inform policy discussion within government, parliaments and the broader community. Such research can provide key ‘building blocks’ for policy development.

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. Publication of the proceedings of conferences and workshops sponsored by the Commission, and of consultants’ reports to the Commission, is also intended to promote and inform discussion on important policy issues. As with staff publications, the views expressed need not reflect the views of the Commission.

Interpreting performance indicators for the Commission

The Commission has sought to demonstrate its effectiveness through a number of performance indicators which are linked to specific outputs and have been agreed with the Treasurer (box B.l). Subsequent sections of this appendix report against these indicators for each of its five outputs. Feedback surveys undertaken in the year, use of Commission outputs in the parliamentary process and some general indicators of effectiveness are also reported below.

A number of factors need to be taken into account when interpreting indicators of the Commission’s performance.

Firstly, the effectiveness with which the Commission’s outputs contribute to the achievement o f its designated outcome can be difficult to assess and is often subjective. The Commission is but one source of policy advice. Furthermore,

Box B.1 Performance indicators for Commission outputs

Output

Government-commissioned projects

Performance reporting and other services to government bodies

Regulation review activities

Competitive neutrality complaints activities

Supporting research and activities and statutory annual reporting

Indicators

Projects of a high standard, useful to government, undertaken in accordance with required processes and on time

Reports of a high standard, useful to government and completed on time

Regulation Impact Statement assessments and associated activities of a high standard, advice useful to government and on time

Competitive neutrality complaints successfully resolved within 90 days, associated activities of a high standard and useful to government

Reports, projects and associated activities of a high standard, useful to government, raising community awareness and on time

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feedback on the Commission’s performance often can be of an informal kind, which is hard to document and collate systematically. Where views are documented, they can reflect the interests of those affected by the Commission’s analysis or advice.

Secondly, the Commission’s work program often covers contentious and complex structural policy issues, where the Commission’s impact should properly be assessed over the medium to long term. A number of recent examples relating to reports from previous years — such as the Commission’s July 2000

recommendation to remove the 3 per cent duty on business inputs under the Tariff Concession System, and its inquiry reports on gambling and broadcasting — demonstrate the ‘shelf life’ of Commission reports in policy formulation and debate (box B.2).

Thirdly, the Commission has to give priority to certain outputs and allocate its resources accordingly. The quantum and scope o f the Commission’s work are, to a significant extent, determined externally. This includes the number and timing of government-commissioned projects, regulation impact statement assessments and competitive neutrality complaints. Similarly, its secretariat and research work for the Review of Government Service Provision is guided by a Steering Committee. As a consequence, the number or timeliness of outputs from the Commission’s supporting research program, for example, need to be interpreted in the light of the demands o f its public inquiry workload and other standing commitments.

Fourthly, the Commission has no control over the release o f its final inquiry reports, although the Productivity Commission Act requires that the Minister table inquiry reports in Parliament within 25 sitting days of receipt. The time taken for decisions on such reports or the nature of the decisions themselves are matters for the Government. However, the release of detailed responses to Commission findings and recommendations, as standard administrative practice, enhances the transparency of government decision making on Commission reports and permits better assessment of their contribution to public policy making. Extended delays in the tabling of inquiry reports and decisions on them can compound the difficulties of assessing the Commission’s contribution to outcomes.

• The Commission’s inquiry reports on NCP reforms, smash repair and insurance, and the Australian pigmeat industry, were all released within the statutory period. There was no Australian Government response to the Commission’s NCP inquiry report as it is intended to inform COAG’s review of NCP and the response will be the outcome of that review. Decisions on the smash repair and pigmeat reports were released at the time they were tabled.

• The Commission completed its inquiry report on Part X o f the Trade Practices Act in February 2005. The report was due to be tabled in June 2005 but awaits release.

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. The Government released the Commission’s June 2004 report on the gas access regime in August 2004, but a response by the Ministerial Council on Energy is still awaited.

. The Government has not formally responded to the Commission’s March 2000 inquiry report on broadcasting, although it continues to be a reference point in policy debate on reform of broadcasting regulation in Australia.

Box B.2 The longer term influence of Commission reports

Some recent examples indicate the ways in which Commission inquiry reports from past years continue to be influential.

• The Commission's 1999 report, Australia’s Gambling Industries, together with the update released by the Commission in November 2002, continue to be a prime reference source in parliamentary and community debate on gambling issues. For example, analysis in the Commission’s report is still often referred to in the proceedings of State parliaments (particularly in South Australia, but elsewhere as well); is drawn on in other policy work, for example, gambling issues for the Aboriginal community (Brady 2004); reference to it this year in UK, Singapore and

New Zealand policy debates; and the report remains one of the most popular available on the Commission's website.

• The Commission’s 2000 inquiry report on Broadcasting continues to be influential in current policy debate on broadcasting regulation in Australia. For example, the ACCC drew on the report in its submission to the Commission’s NCP inquiry. The Senate Environment, Communications, Information Technology and the Arts

Committee drew on the report in its consideration of anti-siphoning legislation; and it recommended that the Government institute a review — of both regulatory policy for communications and the operations of the new Australian Communications and Media Authority — that would reconsider the Commission’s recommendations on broadcasting. The Parliamentary Library's 2004 Bills Digest on the legislation creating the Australian Communications and Media Authority noted that the idea of

merging the Australian Broadcasting Authority and the Australian Communications Authority had been under active consideration since 2002, although the idea was contemplated in the Commission’s broadcasting report.

• In its 2000 inquiry report, Review of Australia’s General Tariff Arrangements, the Commission recommended, among other tariff policy changes, that the 3 per cent duty on business inputs under the Tariff Concession System be removed. The Government decision at the time was to retain the duty. In subsequent reports on

post-2005 assistance arrangements for the Australian automotive industry (2002) and the TCF industries (2003), the Commission also found that this revenue duty was disadvantaging Australian manufacturers generally, and imposing unnecessary costs on their customers. In its 2005-06 Budget, the Government announced

removal of the 3 per cent tariff, effective 11 May 2005.

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While research studies specifically commissioned by the Government do not have to be tabled in Parliament, these reports are generally released very soon after completion. Where available, government use of and responses to commissioned research studies are reported in appendix C.

This appendix reviews some broad-based indicators of Commission performance before reporting on each of its five outputs against the indicators agreed under the Government’s accrual budget outcome and output framework.

Feedback surveys

The Commission has a rolling program of surveys and other initiatives to gather external feedback on a range of its activities. These surveys complement the feedback received through comments and submissions on draft reports, position papers, workshop papers and views expressed during public hearings and consultations on its research program.

The results o f past surveys were reported in previous annual reports of the Commission and cover external perceptions about the quality of the Commission’s inquiry processes and reports, its reporting on the financial performance of government trading enterprises and the quality and usefulness of its supporting research program. Last year the Commission reported the positive feedback from a

survey o f users and contributors to the Report on Government Services (PC 2004b, p. 93).

In 2004-05 the ORR commenced an ongoing survey to obtain feedback from officials preparing RISs on how departments and agencies view the ORR’s work performance and the quality of its service in providing advice on the Government’s regulatory best practice requirements. O f the 27 respondents to date, one-half rated the quality of the ORR’s written and oral advice as ‘excellent’, a fifth rated it as

‘good’ and the remainder as ‘satisfactory’. Ten respondents offered specific suggestions on how the ORR could improve the quality of its advice (see pp. 134-5 for details).

The Commission is currently seeking feedback from the heads of State and Territory Treasuries on its financial monitoring work on government trading enterprises and their suggestions for any improvement and for related research. Following release of the report Overcoming Indigenous Disadvantage: Key Indicators 2005 in July 2005, the Commission is involved in extensive national

consultation with indigenous and other groups to obtain feedback on the report and possible enhancements to its framework.

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As noted in chapter 2, feedback opportunities provided through email, on-line survey forms and survey forms issued to participants in the Commission’s public hearings remained little used in 2004-05. Comments received are passed to management and authors for consideration.

Commission outputs and the work of the Federal Parliament

The inquiries and reports which figured most prominently in parliamentary debate during 2004-05 were the Commission’s report on the economic implications of an ageing Australia, its NCP Discussion Draft and its 2003 review of post-2005 TCP assistance arrangements. Potential roles for the Commission in assessing the

impacts of preferential trading arrangements and its productivity research also figured prominently in parliamentary proceedings of the Federal Parliament.

As noted in chapter 2, 35 Members of the House of Representatives and 32 Senators collectively referred to 32 different Commission inquiries or reports, or to the Commission’s role in policy processes, during the 2004-05 parliamentary proceedings. The total number of mentions of the Commission was some 35 per cent fewer than in the previous year, but that in large part could be explained by the prorogation of Parliament for the federal election.

The Commission’s Chairman and the Head of the Secretariat for the Review of Government Service Provision accepted an invitation to appear before the Senate Select Committee on the Administration of Indigenous Affairs in February 2005.

Commission outputs are also used in parliamentary work in a variety of other ways.

• Eleven different parliamentary committees drew on a range of Commission inquiry and research outputs in their own reports. The 24 parliamentary committee reports listed in table B.l referred to 20 specific Commission inquiries or research outputs.

• People appearing at the hearings of parliamentary committees in 2004-05 referred to Commission outputs in more than 25 different topic areas, including its 2003 review of TCF assistance, the report on overcoming indigenous disadvantage, reports on government services, the NCP inquiry and report, and to the Commission’s role and capabilities in providing policy advice.

• The Parliamentary Library’s Vital Issues Seminars aim to allow Senators and Members to hear, first hand, expert opinion on a range of currently relevant topics. Dr Ralph Lattimore and Mr Stuart Wilson of the Commission’s staff presented a seminar in May 2005 on the Commission Research Report Economic

Implications o f an Ageing Australia.

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Table B.1 Use of Commission outputs in recent parliamentary committee reports

Parliamentary Committee and report Commission output used

Senate Legal and Constitutional Legislation Committee, D is a b ility D is c rim in a tio n A m e n d m e n t (E d u c a tio n S ta n d a rd s ) B ill 20 0 4, December 2004

Senate Select Committee on the Administration of Indigenous Affairs, A fte r A T S IC - L ife in th e m a in s tre a m ? , March 2005

Senate Community Affairs References Committee, P ro te c tin g v u ln e ra b le c h ild re n : A n a tio n a l c h a lle n g e , s e c o n d re p o rt o n th e in q u iry in to c h ild re n in in s titu tio n a l o r o u t-o f-h o m e ca re , March 2005

Senate Environment, Communications, Information Technology and the Arts Legislation Committee, In q u iry in to th e p ro v is io n s o f th e B ro a d c a s tin g S e rv ic e s A m e n d m e n t (A n ti-S ip h o n in g ) B ill 20 0 4, March 2005

Senate Environment, Communications, Information Technology and the Arts References Committee, A lo s t o p p o rtu n ity ? : In q u iry in to th e p ro v is io n s o f th e A u s tra lia n C o m m u n ic a tio n s a n d M e d ia A u th o rity B ill 2 0 0 4 a n d re la te d b ills a n d m a tte rs , March 2005

House of Representatives Standing Committee on Employment, Workplace Relations and Workforce Participation, W o rk in g fo r A u s tra lia 's fu tu re : In c re a s in g p a rtic ip a tio n in th e w o rk fo rc e , March 2005

House of Representatives Standing Committee on Health and Ageing, F u tu re a g e in g , R e p o rt on a d ra ft re p o rt o f th e 4C/h P a rlia m e n t: In q u iry in to lo n g -te rm s tra te g ie s to a d d re s s th e a g e in g o f th e A u s tra lia n p o p u la tio n o v e r th e n e x t 4 0 y e a rs , March 2005

Inquiry Report, R e v ie w o f th e D is a b ility D is c rim in a tio n A c t 19 9 2, April 2004

Steering Committee for the Review of Government Service Provision, O v e rc o m in g In d ig e n o u s D is a d v a n ta g e : K e y in d ic a to rs 2 0 0 3 , November 2003 and Chairman’s speech to the P u rs u in g O p p o rtu n ity a n d P ro s p e rity C o n fe re n c e , November 2003

Steering Committee for the Review of Government Service Provision: R e p o rt o n G o v e rn m e n t S e rv ic e s 2 0 0 5 , January 2005

Inquiry Report, B ro a d c a s tin g , March 2000

Inquiry Report, B ro a d c a s tin g , March 2000

Productivity Commission research work on productivity; Staff Research Paper, S k ill a n d A u s tr a lia ’s P ro d u c tiv ity S u rg e , October 2002; Steering Committee for the Review of Government Services Provision, O v e rc o m in g In d ig e n o u s D is a d v a n ta g e : K e y In d ic a to rs 2 0 0 3 , November 2003; Inquiry Report

In d e p e n d e n t R e v ie w o f th e J o b N e tw o rk , September 2002; and Draft Research Report E c o n o m ic s Im p lic a tio n s o f a n A g e in g A u s tra lia , November 2004

PC/Melbourne Institute Conference Proceedings, P o lic y Im p lic a tio n s o f th e A g e in g o f A u s tr a lia ’s P o p u la tio n , March 1999, Inquiry Report, N u rs in g H o m e S u b s id ie s , January 1999; and Research Report, G e n e ra l P ra c tic e A d m in is tra tiv e a n d C o m p lia n c e C o sts, March 2003

Senate Environment, Communications, Information Technology and the Arts References Committee, L u rc h in g fo rw a rd , lo o k in g b a c k : B u d g e ta ry a n d e n v iro n m e n ta l im p lic a tio n s o f th e G o v e rn m e n t’s E n e rg y W h ite P a p e r, May 2005

Senate Legal and Constitutional References Committee, T he re a l B ig B ro th e r: In q u iry in to th e P riv a c y A c t 1988, June 2005

Senate Regulations and Ordinances Committee, 4 0 th P a rlia m e n t R e p o rt, 1 1 2 th R e p o rt, June 2005

Commission’s inquiry and Draft Report on the private cost effectiveness of improving energy efficiency, April 2005

Inquiry Report, R e v ie w o f th e D is a b ility D is c rim in a tio n A c t 1992, April 2004

Inquiry Report, C o s t R e c o v e ry b y G o v e rn m e n t A g e n c ie s , August 2001

Parliamentary Joint Committee on Corporations and Financial Inquiry Report, F irs t H o m e O w n e rs h ip , March 2004 Services, P ro p e rty In v e s tm e n t A d v ic e — S a fe a s H o u s e s ? , June 2005

House of Representatives Standing Committee on Employment, Workplace Relations and Workforce Participation, M a k in g it w o rk : In q u iry in to in d e p e n d e n t c o n tra c tin g a n d la b o u r h ire a rra n g e m e n ts , August 2005

Staff Working Paper, T he G ro w th o f L a b o u r H ire E m p lo y m e n t in A u s tra lia , February 2005; Staff Research Paper, S e lf-e m p lo y e d c o n tra c to rs in A u s tra lia : In c id e n c e a n d C h a ra c te ris tic s , September 2001; and Inquiry Report, N a tio n a l W o rk e rs ’ C o m p e n s a tio n a n d O c c u p a tio n a l H e a lth a n d S a fe ty F ra m e w o rk s ,

March 2004

Senate Environment, Communications, Information Technology and Inquiry Reports: T e le c o m m u n ic a tio n s C o m p e titio n R e g u la tio n , September 2001 the Arts References Committee, T he p e rfo rm a n c e o f th e A u s tra lia n and R e v ie w o f N a tio n a l C o m p e titio n P o lic y R e fo rm s , February 2005 te le c o m m u n ic a tio n s re g u la to ry re g im e , August 2005

House of Representatives Standing Committee on Environment Inquiry Report, F irs t H o m e O w n e rs h ip , March 2004 and Heritage, S u s ta in a b le C itie s, August 2005

Senate Economics Legislation Committee, P ro v is io n s o f th e T ra d e Inquiry Report, R e v ie w o f th e G a s A c c e s s R e g im e , June 2004 P ra c tic e s A m e n d m e n t (N a tio n a l A c c e s s R e g im e ) B ill 2 0 0 5 ,

September 2005

• Research material provided to parliamentarians during 2004-05 by the Parliamentary Library — such as Bills Digests, Research Briefs and Research Notes -— referred to 15 different Commission outputs (table B.2). These included 11 inquiry and other commissioned research reports, three supporting research reports and a speech by the Chairman on regulation.

Table B.2 Parliamentary Library use of Commission outputs in 2004-05

P a rlia m e n ta ry L ib ra ry o u tp u t C o m m is s io n o u tp u t u s e d

Inquiry Report, R e v ie w o f T C F A s s is ta n c e , C u s to m s T a riff A m e n d m e n t (T e xtile , C lo th in g a n d F o o tw e a r P o s t-2 0 0 5 A rra n g e m e n ts ) B ill 20 0 4, Bills Digest, No. 1,8 July 2004 ’

In d ire c t T ax L e g is la tio n A m e n d m e n t (S m a ll B u s in e s s M e a s u re s ) B ill 20 0 4, Bills Digest, No. 15, 2 August 2004

T ra d e P ra c tic e s L e g is la tio n A m e n d m e n t B ill 20 0 4, Bills Digest, No. 23, 9 August 2004

T extile, C lo th in g a n d F o o tw e a r S tra te g ic In v e s tm e n t P ro g ra m A m e n d m e n t (P o s t-2 0 0 5 S c h e m e ) B ill 2 0 0 4, Bills Digest, No. 48, 26 November 2004

D is a b ility D is c rim in a tio n A m e n d m e n t (E d u c a tio n S ta n d a rd s ) B ill 2 0 0 4 , Bills Digest, No. 49, 29 November 2004

W o rk p la c e d e a th a n d s e rio u s in ju ry : a s n a p s h o t o f le g is la tiv e d e v e lo p m e n ts in A u s tra lia a n d overseas, Research Brief No. 7, 29 November 2004

A u s tra lia n C o m m u n ic a tio n s a n d M e d ia A u th o rity B ill 2 0 0 4 , Bills Digest No. 78, 9 December 2004

C u s to m s A m e n d m e n t (T h a ila n d -A u s tra lia F re e T ra d e A g re e m e n t Im p le m e n ta tio n ) B ill 2 0 0 4 & C u s to m s T a riff A m e n d m e n t (T h a ila n d -A u s tra lia F re e T ra d e A g re e m e n t Im p le m e n ta tio n ) B ill 2 0 0 4, Bills Digest, Nos. 89-90, 21 January 2005

A u s L in k (N a tio n a l L a n d T ra n s p o rt) B ill 2004, Bills Digest, No. 92, 3 February 2005

G e n e ra l In s u ra n c e S u p e rv is o ry L e v y Im p o s itio n A m e n d m e n t B ill 2 0 0 4 , Bills Digest, No. 101, 7 February 2005

July 2003

Annual Report Series, R e g u la tio n a n d its R e v ie w 2 0 0 2 -0 3 : November 2003, Chairman’s speech, ‘Reducing the business costs of regulation’, 20 March 2003

Inquiry Report, R e v ie w o f S e c tio n 2 D o f the T ra d e P ra c tic e s A c t 19 7 4: L o c a l G o v e rn m e n t E x e m p tio n s , August 2002

Inquiry Report, R e v ie w o f T C F A s s is ta n c e , July 2003

Inquiry Report, R e v ie w o f th e D is a b ility D is c rim in a tio n A c t 1992, July 2004

Inquiry Report, N a tio n a l W o rk e rs ’ C o m p e n s a tio n a n d O c c u p a tio n a l H e a lth a n d S a fe ty F ra m e w o rk s , March 2004

Inquiry Report, B ro a d c a s tin g , March 2000

Commission Research Report, R u le s o f O rig in u n d e r th e A u s tra lia -N e w Z e a la n d C lo s e r E c o n o m ic R e la tio n s T ra d e A g re e m e n t, Canberra, June 2004. The

Digest also noted that ‘Although there is a large amount of expertise in the Commission regarding trade issues, no reference to the Commission regarding TAFTA was made by the Government’.

Inquiry Discussion Draft, Review of National Competition Policy Reforms, October 2004

Inquiry Report, C o s t R e c o v e ry b y G o v e rn m e n t A g e n c ie s , August 2001

(Continued on next page)

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Table B.2 (continued)

Parliamentary Library output Commission output used

Life Insurance S u p e rv is o ry L e v y Im p o s itio n A m e n d m e n t B ill 2 0 04, Bills Digest, No. 102,

7 February 2005

R e tirem e n t S a v in g A c c o u n t P ro vid e rs S u p e rviso ry L e v y Im p o s itio n A m e n d m e n t B ill 2004, Bills Digest, No. 103, 7 February 2005

A u s tra lia ’s a g e in g w o rkfo rce , Research Note,

No. 35, 7 March 2005

A n ti-d u m p in g ru le s a n d th e A u stra lia -C h in a F re e Trade A g re e m e n t, Research Note, No. 38, 14 March 2005

G lobal a g e in g: e c o n o m ic im p lic a tio n s fo r A ustralia, Research Note, No. 46, 10 May 2005

R e g io n a l te le c o m m u n ic a tio n s : an o ve rvie w , Research Note, No. 52, 14 June 2005

Trade P ra ctice s A m e n d m e n t (N a tio n a l A c c e s s R egim e) B ill 20 0 5, Bills Digest, No. 186, 21 June 2005

Inquiry Report, C o s t R e c o v e ry b y G o v e rn m e n t A g e n c ie s , August 2001

Inquiry Report, C o s t R e c o v e ry b y G o v e rn m e n t A g e n c ie s , August 2001

Draft Research Report, Economic Implications for an Ageing Australia, November 2004

Annual Report Series, T ra d e & A s s is ta n c e R e v ie w 2 0 0 3 -0 4 , December 2004

Draft Research Report, Economic Implications for an Ageing Australia, November 2004

International Benchmarking Report, In te rn a tio n a l B e n c h m a rk in g o f R e m o te , R u ra l a n d U rb an T e le c o m m u n ic a tio n s S e rvice s, July 2001;

Inquiry Report, Im p a c t o f C o m p e titio n P o lic y R e fo rm s on R u ra l a n d R e g io n a l A u s tra lia , September 1999

Inquiry Report: R e v ie w o f th e N a tio n a l A c c e s s R egim e', September 2001

Other broad-based performance indicators

In addition to the performance indicators for 2004-05 referred to in chapter 2 and those detailed elsewhere in this appendix, recognition of the ability of the Commission to contribute to policy making and public understanding through

independent and transparent analysis was demonstrated by the following developments. These mostly involve suggestions for specific references or reporting tasks, but also encompass general assessments of the Commission’s performance.

• In November 2004 the New Zealand Prime Minister commented that the series of recent Commission studies on trans-Tasman policy issues had provided governments with ‘helpful and independent analysis’ on options for developing the economic relationship between Australian and New Zealand (Clark 2004).

• The Australian Government Minister for Local Government, Territories and Roads has announced that the Commission is to report on the revenue streams of

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local councils and identify areas where they are impeded from accessing the resources they need to service their communities (Lloyd and Bell 2005).

• The Senate Environment, Communications, Information Technology and the Arts References Committee (2005a, b), in two separate reports, recommended that the Commission be asked to undertake an evaluation of the structural separation of Telstra.

• The Senate Community Affairs References Committee (2005) recommended that the Commission be asked to evaluate the real costs to the Australian community of institutional and other out-of-home care for ‘vulnerable’ children.

• The Victorian Premier has proposed that as part of a national COAG reform initiative, a body such as the Productivity Commission, directly commissioned by COAG, advise on the scale of potential benefits in areas that any government asks be included on the national reform agenda. The Commission could also advise periodically on the policy areas where reform could make the largest prospective contribution to productivity, participation and living standards

(Bracks 2005).

• In its 2004 assessment of progress in implementing NCP, the National Competition Council noted the ‘intractable’ nature of taxi reform in some Australian jurisdictions and considered ‘that it may be necessary for an independent agency, like the Productivity Commission, to examine the models adopted across Australia to determine how best to advance the public interest’ (NCC 2004a, p. 9.15).

• Amongst its proposals to reduce and manage the compliance cost burden on business, the Australian Industry Group advocated that the Commission be asked to report regularly on business compliance costs and identify areas most in need o f reform (Ai Group 2004).

• In its submission to the Government’s Exports and Infrastructure Taskforce, the Australian Chamber o f Commerce and Industry recommended that there should be a broader infrastructure inquiry conducted ‘preferably’ by the Productivity Commission (ACCI 2005b).

• The Exports and Infrastructure Taskforce (2005) reported that it saw merit in the Commission being asked to carry out an infrastructure audit along the lines carried out in New Zealand and for such an audit to be repeated every five years. (COAG subsequently decided that the jurisdictions themselves would undertake this task.)

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• In August 2005 the Business Council of Australia recommended that the Commission was the most appropriate body to conduct a public biennial ‘performance and policy’ audit of national infrastructure because it would bring ‘the appropriate approach, expertise and required standing in the community’ (BCA 2005b).

• In its report to the Victorian Government on Australia’s economic infrastructure, the Allen Consulting Group (2005) recommended the Productivity Commission as ‘the most appropriate body’ to review the effects of the horizontal fiscal equalisation process on investment, productivity and efficiency in the Australian

States and to suggest alternative means of achieving policy objectives.

• The Leader of the Australian Greens called on the Government to have the Productivity Commission assess the impact of global warming on Australia’s future economy (Brown 2004).

• A number o f economic analysts and newspaper editorials during 2004-05 called for the Commission to report on telecommunications regulation and Australia’s antidumping system.

• In testimony before the Senate Environment, Communications, Information Technology and the Arts References Committee, the Media Entertainment and Arts Alliance advocated an independent review of the policy framework for broadcasting in Australia. (The Alliance is the union and professional

organisation covering the media, entertainment, sports and arts industries.) In discussing the nature of an ‘independent’ review, the Alliance noted:

The Productivity Commission is a model; it is independent of the department and, if given appropriate terms of reference by government, it has shown itself in a number of inquiries it has conducted to be independent. It has mn incredibly comprehensive reviews that have allowed for sufficient input by the general public as well as

stakeholders across a range of inquiries that it has conducted. (Gailey 2005)

• At the 2004 OECD Global Forum on Trade conference in Bangkok, participants discussed trade-related structural adjustment issues and were in general agreement that:

The institutions in a country should have the capacity and resources needed in order to identify challenges and respond to them effectively. The Productivity Commission in Australia, for example, was cited as such an institution. (OECD 2004a)

In addition to the media coverage reported elsewhere in this appendix, the Commission and its reports are widely cited elsewhere. The Commission found evidence of at least 245 citations of the Commission and its reports in 2004-05. More than 20 per cent of mentions were to inquiries and commissioned studies

current in 2004-05. The Commission’s work was cited in more than 90 different

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journals and publications, most frequently in Online Opinion, the Australian Economic Review, the Australian Business Law Review, New Matilda and Business Review Weekly. Commission work which received the most citations were its reports on ageing, NCP reform and first home ownership, and its 2001 Research

Report, International Pharmaceutical Price Differences.

Output 1: Government-commissioned projects

These projects are major tasks commissioned or formally requested by the Australian Government. They encompass the conduct o f public inquiries, case studies, program evaluations, taskforces and commissioned research projects. Inquiries typically involve extensive public consultation. The Commission can also be asked to assist policy development processes by undertaking technical modelling

exercises of policy initiatives under consideration by the Government.

In response to these requests, the Commission is committed to undertaking projects in accordance with required processes and to produce reports which are of a high standard, useful to government and delivered on time. Performance against these indicators is reported below.

The resources used in producing this output in 2004-05 were:

• 69.5 staff years; and

• $13.0 million on an accrual basis.

All government-commissioned inquiries in 2004-05 were conducted by the Commission in accordance with statutory processes which set requirements for public hearings, submissions and the use of economic models.

Activities in 2004-05

The Commission had six public inquiries and six government-commissioned research studies underway at some time during the year, and has since commenced a study on the economic impacts of population growth and migration. The program of government-commissioned projects is summarised in table B.3, although the complexity of policy issues addressed and the consultation demands are difficult to capture.

During 2004-05 the Commission:

• completed two public inquiries begun in 2003-04 — the impacts of national competition policy and priorities for future reform; and Part X of the Trade

108 ANNUAL REPORT 2004-05

Practices Act which exempts ocean carriers from key parts of Australia’s restrictive trade practices legislation;

. commenced and completed two public inquiries — the financial and commercial relationships between the smash repair and insurance industries; and the Australian pigmeat industry; and

• commenced two public inquiries which report in 2005-06: the private cost effectiveness of improving energy efficiency (August 2005); and the policy framework and incentives for the conservation o f Australia’s historic heritage places (April 2006).

In a continuation of recent trends, research studies commissioned by the Government remained a significant component of the Commission’s workload (figure 2.1). During 2004-05 the Commission:

• finalised three government-commissioned research studies begun the previous year — the economic implications of an ageing Australia; reform of building regulation; and the potential to further integrate the competition and consumer protection regimes of Australia and New Zealand; and

Table B.3 Program of public inquiries and other government- commissioned projects3

2003-04 2004-05 2005-06

Month J F M A M J J A S 0 N D j M A M J J A S o N D

Public inquiries:

Review of national competition policy reforms |

Review of Part X of the Trade Practices Act § ■ i

Australian pigmeat industry 1 1

Smash repair and insurance

Private cost effectiveness of improving energy efficiency 1 i ί

■

1

Conservation of historic heritage places

Commissioned research studies:

Reform of building regulation ’y.

Economic implications of an ageing Australia p

ANZ competition and consumer protection regimes

Impacts of advances in medical technology in Australia L ::

Australia’s health workforce

Australian consumer product safety system

Economic impacts of migration and population growth 1

3 Shaded area indicates the approximate duration of the project in the period covered by the table.

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• commenced three studies which report in 2005-06 — the impacts of advances in medical technology in Australia (August 2005); a COAG endorsed study of Australia’s health workforce (December 2005); and the benefits and costs of, and reform options for, Australia’s general consumer product safety system for consideration by the Ministerial Council on Consumer Affairs (January 2006).

Trends in public inquiry activity and participation over the past five years are shown in table B.4. Information on individual projects is provided in appendix C.

The Commission endeavours to conduct projects in an economical manner, while ensuring rigorous analysis and maximising the opportunity for participation. Total estimated costs (covering salaries, direct administrative expenses and an allocation for corporate overheads) for the seven government-commissioned inquiries and

research studies completed in 2004-05 are shown in table B.5.

Table B.4 Public inquiry and other commissioned project activity, 2000-01 to 2004-05

Indicators 2000-01 2001-02 2002-03 2003-04 2004-05

Public inquiries

Inquiry references received 4 6 5 3 4

Issues papers released 5 6 4 3 3C

Public hearings (sitting days)3 38 24 31 66 26

Organisations/people visited 217 318 191 186 167

Submissions received 460 847d 540 1 221 623e

Draft reports13 5 8 1 5 5

Inquiry reports completed 2 9 3 6 4

Inquiries on hand (at 30 June) 6 3 5 2 2

Research studies

References received 1 3 6 4 3

Research reports completed - 2 7 2 3

Studies on hand (at 30 June) 1 2 1 3 3

Total references

Total references received 5 9 11 7 7

Total references completed 2 11 10 8 7

Total references on hand (at 30 June) 7 5 6 5 5

a Excludes forums and roundtable discussions. ^ Includes all types of draft reports. c Includes two inquiries that issued 'Issues and questions’ with their 1st inquiry circular. d Includes more than 200 multiple copies of two submissions from different participants in the inquiry on radiocommunications. e Includes 130 submissions accepted on a commercial-in-confidence basis in the smash repair and insurance inquiry.

110 ANNUAL REPORT 2004-05

The major administrative (non-salary) costs associated with public inquiries and other government-commissioned projects relate to the Commission’s extensive consultative processes and the wide dissemination of its draft and final reports. Comparisons of these costs for the period 2000-01 to 2004-05 are in table B.6.

Variations in the administrative cost of inquiries and other commissioned projects arise from the extent and nature of public consultation, the number of participants, the complexity and breadth of issues, the need for on-site consultations with

participants and the State and Territories, the costs of any consultancies (including those arising from the statutory requirements relating to the use of economic models), printing costs and the duration of the inquiry or project.

Table B.5 Cost of public inquiries and other commissioned projects completed in 2004-053

G o v e rn m e n t-c o m m is s io n e d p ro je c t T o ta l c o s t

$’000

Reform of building regulation 1 029

ANZ competition and consumer protection regimes 790

Review of national competition policy reforms 3 569

Review of Part X of the Trade Practices Act 701

Smash repair and insurance 500

Australian pigmeat industry 819

Economic implications of an ageing Australia 1 830

a Includes estimated overheads.

Table B.6 Direct administrative expenditure on public inquiries and other government-commissioned projects3, 2000-01 to 2004-05

E xp e n d itu re ite m 2000-01 2 0 0 1 -0 2 2 0 0 2 -0 3 2 0 0 3 -0 4 2 0 0 4 -0 5

$ $ $ $ $

T ravel 193 972 215 062 381 491 415 835 342 728

Printing 59 972 171 399 91 813 181 435 125 259

Consultants 2 882 106 621 348 974 62 416 31 520

Other13 265 923 164 354 245 230 289 234 193 929

Total 522 749 657 436 1 067 508 948 920 693 436

3 Expenditure other than salaries and corporate overheads. b Includes other costs, such as advertising, venue hire, transcription services and data acquisition.

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Consultative processes

The practice of consulting widely with government departments and agencies, professional and industry organisations, academics and the broader community during inquiries and government-commissioned research projects continued in 2004-05. In the course o f its inquiry work, the Commission held 26 public hearings,

visited nearly 170 people and organisations and received more than 620 submissions during the year. Public hearings were held in Sydney, Melbourne, Brisbane, Perth, Canberra and Adelaide; a scheduled hearing in Toowoomba, Queensland, on the NCP Discussion Draft was cancelled due to a lack of participants wanting to make a submission. Trends in these inquiry activities — which are heavily influenced by the nature of the policy issues referred to the Commission — are shown in table B.4. The Commission adapts its consultative processes to suit the variety of research studies commissioned by the Government. Consultative processes used this year in the course o f these research studies are outlined in chapter 2.

The Commission’s practice of extending its consultative processes beyond visits, public hearings, seeking submissions and providing draft reports, continued during the year. During 2004-05 the Commission:

• held roundtable discussions in Sydney, Melbourne and Canberra (and Perth via video) on its draft research report on building regulation reform in August 2004;

• held roundtable discussions in New Zealand (Auckland and Wellington) and in Sydney, Canberra and Melbourne on its draft research report on the ANZ competition and consumer protection regimes;

• held a roundtable in Wagga Wagga in July 2004 focusing on NCP impacts on rural and regional communities that was attended by representatives from a broad cross-section of regional interests and held a second roundtable, in Canberra, on the future reform agenda and priorities that was attended by a group encompassing academic, consulting, social welfare and public policy interests;

• convened two workshops to provide feedback on the Commission’s preliminary modelling results in its NCP inquiry; and

• hosted two workshops for officials from the Australian, State and Territory governments to discuss approaches to estimating the economic and budgetary costs of population ageing and Commission work-in-progress, as well as convening a meeting with ANU and ABS experts in December 2004 on the demographic projection scenarios underpinning its analysis of ageing impacts.

112 ANNUAL REPORT 2004-05

Internet technology has greatly increased the accessibility of the Commission’s reports and facilitated speedier and easier notification of developments in inquiries and studies. On-line registration facilitates people notifying their interest in specific

inquiries and studies and being kept informed of developments. In particular, participants’ submissions to inquiries and studies and transcripts o f hearings (other than confidential information) are placed on the Commission’s website. Internet

access has increased the opportunities for earlier and less costly public scrutiny of the views and analysis being put to the Commission. There were more than 20 000 external requests for the index pages to submissions and hearing transcripts for

inquiries and commissioned studies current in the year to 30 June 2005.

Quality indicators

Quality assurance processes are built into the way the Commission conducts its public inquiries and other government-commissioned projects. The Commission receives extensive feedback on the accuracy and clarity of its analysis in its inquiry work and the relevance of its coverage of issues. Much of this feedback is on the public record through submissions on draft reports and transcripts of public

hearings. The roundtables and workshops, noted above, also contributed to the Commission’s quality assurance processes.

The Government’s formal responses to the work it has commissioned potentially provide another indicator of the quality of that work. These responses are also an indicator of usefulness and are reported under that heading below. Government responses to Commission reports are provided in appendix C.

Timeliness

The four inquiries and three commissioned studies finalised in 2004-05 were completed within or on schedule.

At the request of the Commission and with the agreement of the Treasurer, the reporting dates for four inquiries were extended by up to two months from those initially specified in terms of reference. The extensions for the NCP and Part X inquiries were to account for the delay in issuing draft reports caused by the timing

of the Federal election. The reporting date for the smash repair and insurance inquiry was extended by two months as a result of illness, but the report was finalised earlier than this. The reporting date for the pigmeat inquiry was extended to allow inquiry participants adequate time to prepare further submissions in

response to the Commission’s draft report and to participate in public hearings. All these amended reporting dates were met or bettered.

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Indicators of usefulness

The usefulness of government-commissioned projects undertaken by the Commission in contributing to policy making and public understanding is demonstrated by a range of indicators.

• The Commission’s impact on policy making is revealed most directly through government responses to, and decisions on, its reports. The Government has recently:

accepted the majority of the Commission’s recommendations in its review of the Disability Discrimination Act, including many of the more significant recommendations;

- agreed with the Commission’s key recommendations in its smash repair and insurance inquiry on the development and nature o f a voluntary code of conduct for the industries;

- noted that the Commission’s analysis of the economic implications of an ageing Australia provided, for the first time, an independent and

comprehensive analysis of the impacts that could guide planning and policy development, and drew on the Commission’s projections in its 2005-06 Budget;

- through a new Inter-Governmental Agreement relating to the Australian Building Codes Board and the Building Code of Australia, implemented the Commission’s principal findings on building regulation reform;

- together with the New Zealand Government, broadly endorsed the work program the Commission had recommended to more closely integrate the competition and consumer protection regimes of the two countries; and

- noted the Commission’s analysis o f the competitive situation and outlook for the Australian pigmeat industry, in effect endorsing the bulk of the Commission’s findings and, importantly, did not commit to additional industry-specific assistance measures.

• Governments do not always accept the Commission’s advice or may reject it initially. For example:

- when announcing its decision in December 2000 on the Commission’s inquiry report, Review o f Australia’s General Tariff Arrangements, the Government rejected the Commission’s recommendation to remove the 3 per cent duty on business inputs imported under the Tariff Concession System. In its 2005-06 Budget, however, the Government announced removal of the duty, effective from 11 May 2005; and

- in December 2004 Australian and New Zealand trade and economic ministers announced their rejection of the Commission’s recommendation that the

114 ANNUAL REPORT 20044)5

basic form of CER Rules of Origin remain unchanged and that a change of tariff classification system model not be used for origin determination under CER (DFAT 2004). Subject to final agreement on ‘sensitive sectors’, a change of tariff classification system would be adopted.

. Nevertheless, responses to and decisions on commissioned reports confirm the continuing usefulness of the Commission’s work to the Government, Parliament and the broader community. An assessment of the Commission’s inquiry outputs since its inception in 1998 shows that governments typically adopt a substantial majority of Commission recommendations and generally endorse its findings (table B.7, updated since last year’s annual report). Further, the nature and extent of references to Commission inquiry reports suggests that those reports have materially contributed to policy debate in Federal, State and Territory parliaments, as well as more generally within the media and the wider

community.

• Reference during parliamentary proceedings to Commission inquiry reports and government-commissioned research studies completed in this and previous years is an indicator of their continuing usefulness to parliamentarians. For example:

- Inquiries or commissioned research studies current in the year were referred to on 37 separate occasions by Members and Senators in the Federal Parliament in 2004-05. The Commission’s ageing study and its NCP inquiry accounted for most of these mentions. Reports from previous years were also

referred to on 37 occasions (principally the reviews of TCF assistance, the Disability Discrimination Act and the national access regime).

- State and Territory members of parliament referred to Commission inquiries and commissioned research studies on 98 occasions. The Commission’s 1999 report on gambling accounted for one-third of all mentions, with the Commission’s ageing study and NCP inquiry also featuring prominently.

• Evidence of the usefulness of the Commission’s recent reports on NCP and ageing is found in their use by the Victorian Government in its own work on the need for a new national reform initiative (Bracks 2005).

• The Victorian Competition and Efficiency Commission (2005) draft inquiry report on regulatory barriers to regional economic development drew substantially on the Productivity Commission’s 2004 inquiry report on native vegetation and biodiversity in its own analysis of native vegetation regulation.

Four other inquiry and commissioned research studies were also cited.

• The Prime Minister’s Exports and Infrastructure Taskforce (2005) drew on the Commission’s recent NCP inquiry report, further noting areas where its views were consistent with those in recent Commission’s reports on the national access regime (2001) and the Great Barrier Reef (2003).

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• The Commission’s inquiry reports on NCP, the national access regime, the gas access regime and the price regulation of airport services were variously used in industry submissions to the Exports and Infrastructure Taskforce, including by the ACCI; the Australian Council for Infrastructure Development; the Australian Pipeline Industry Association; the Business Council of Australia; the Centre for International Economics and Pacific Road Corporate Finance; the Minerals Council of Australia; Pacific National; and Prime Infrastructure, the lessee of the Dalrymple Bay Coal Terminal that featured strongly in the lead up to the

commissioning of the Taskforce.

• A measure of the usefulness of the Commission’s inquiry and other government- commissioned reports in contributing to public understanding of policy issues is the 34 invitations the Commission accepted in 2004-05 to present papers on inquiries and commissioned studies to business, community and other groups, in particular on the NCP inquiry and the studies on ageing and building regulation reform (table E.l).

• Other measures of the Commission’s usefulness in contributing to public understanding are the use of its website and media coverage o f its reports.

- In the 12 months to June 2005 there were more than 163 000 external requests for the index pages o f inquiries and government-commissioned research studies current in 2004-05. The references o f most interest were the ageing study (42 000 requests) and the inquiries on national competition policy reforms (19 500 requests) and the private cost effectiveness of

improving energy efficiency (12 800 requests). Even after an inquiry or project is completed, community interest can remain high. For example, during the year, web pages for the Commission’s 1999 inquiry on Australia’s gambling industries were requested more than 21 000 times and for its 2004 report on first home ownership, more than 17 000 times.

- Inquiry and commissioned research reports receive extensive media coverage — in 2004-05 there were 46 editorials in major newspapers on Commission inquiries and commissioned research studies. These included 24 editorials on the Commission’s NCP inquiry and report and 15 on its ageing study. Other

Commission inquiry and commissioned research reports mentioned in editorials during the year were those on the ANZ competition and consumer protection regimes and energy efficiency, and past reports on first home ownership, the national access regime, national frameworks for workers’ compensation, university resourcing and broadcasting.

- The Commission’s NCP inquiry and its ageing study were also the most widely reported during 2004-05, receiving a total of more than 1900 mentions in print and electronic media.

116 ANNUAL REPORT 20044)5

Table B.7 Impact of Commission inquiry reports on policy making3

Inquiry report Government response to Commission findings and/or recommendations

1 Australian Black Coal Industry (July 1998)

2 International Air Services (September 1998)

3 Pig and Pigmeat Industries: Safeguard Action Against Imports (November 1999)

4 Nursing Home Subsidies (January 1999)

5 Implementation of Ecologically Sustainable Development by Commonwealth Departments and Agencies (May 1999)

6 Progress in Rail Reform (August 1999)

7 International Telecommunications Market Regulation (August 1999)

8 Impact of Competition Policy Reforms on Rural and Regional Australia (September 1999)

9 International Liner Cargo Shipping (September 1999)

The Australian Government supported all of the Commission's recommendations and intended to work with the New South Wales and Queensland Governments to ensure their implementation.

The Government agreed to implement substantial liberalisation of the regulatory framework, though not to offer unrestricted access to Australia’s major airports nor to remove cabotage restrictions.

The Government concurred with the Commission’s findings on safeguard action; eschewing tariff and quota restrictions and opting for adjustment assistance for the industry.

The Government accepted a range of Commission recommendations but rejected others. The report continues to be a key reference in Parliament, State and community debate on aged care.

The formal government response to the report and a postscript on implementation indicate substantial support for the Commission’s proposals for integrating BSD principles in decision making and agency reporting and for improvements in data collection.

The Australian Government broadly endorsed a number of the Commission’s recommendations relating to areas of its responsibility. In other areas, it deferred consideration of Commission recommendations, contingent on progress with reform within existing institutional arrangements.

The Government endorsed nearly all of the Commission’s principal findings.

The Government cited the evidence of the benefits of national competition policy to rural and regional Australia and endorsed the thrust of the Commission’s recommendations. The Commission’s findings on the impacts of competition reforms and the wider economic and social drivers of change were used in parliamentary debates, in national competition policy processes and wider community debate on

competition policy.

The Government accepted all of the Commission’s key recommendations.

(c o n tin u e d n e x t p a g e )

Table B.7 (continued)

Inquiry report Government response to Commission findings and/or recommendations

10 Australia’s Gambling Industries (November 1999)

11 Broadcasting (March 2000)

12 Review of Australia’s General Tariff Arrangements (July 2000)

13 Review of Legislation Regulating the Architectural Profession (August 2000)

14 Review of the Prices Surveillance Act (August 2001)

15 Cost Recovery by Government Agencies (August 2001)

16 Telecommunications Competition Regulation (September 2001)

The report was welcomed by the Prime Minister as the first comprehensive investigation of the social and economic impacts of gambling in Australia; it is being used extensively in policy debates in the States and Territories, with a number of its proposals being adopted; and it is the prime reference source on problem gambling for community groups and the media. Five years on, it continues to be the most accessed inquiry report on the Commission’s website.

The Government has not formally responded to the report. Nevertheless, the portfolio minister cited the report when announcing that the Government was considering an overhaul of media ownership laws; the report is still referred to in parliamentary and wider community debate on foreign ownership, the cross­ media rules, the regulation of digital TV and datacasting and indigenous broadcasting; and the media continue to cite it regularly.

In December 2000 the Government rejected the Commission’s recommendations to remove the 3 per cent duty on business inputs under the Tariff Concession System and the 5 per cent general tariff rate, but agreed to overhaul the by-law system. In its 2 0 0 5 -0 6 B u d g e t, th e G o v e rn m e n t a n n o u n c e d re m o v a l o f th e 3 p e r c e n t ta r iff a p p ly in g to b u s in e s s in p u ts im p o rte d u n d e r a ta r iff c o n c e s s io n o rd e r, e ffe c tiv e fro m 11

M a y 20 0 5.

Responsibility for regulating architects lies with the States and Territories. The Working Group developing a national response to the report rejected the Commission’s preferred option to repeal Architects Acts and remove statutory certification. However, it supported a range of Commission proposals to remove anti­ competitive elements in legislation regulating the architectural profession.

While agreeing to repeal the Prices Surveillance Act, the Government decided to retain more extensive price controls and processes in the Trade Practices Act than recommended by the Commission.

The Government’s interim response indicated substantial agreement with the Commission’s recommendations. Recommendations on the design of cost recovery arrangements and improvements to agency efficiency would be examined in detail with affected agencies and addressed in preparing the Government’s final response.

The Government moved to speed up dispute resolution processes consistent with the Commission’s draft report proposals. In its legislative response to the final report, the Government endorsed the thrust of the Commission’s recommendations by retaining the telecommunications-specific parts of the competition regime, providing greater upfront certainty for investors and implementing a number of other recommendations. It did not maintain the recommended merit appeal processes.

17 Review of the National Access Regime (September 2001)

18 Review of Certain Superannuation Legislation (December 2001)

19 Price Regulation of Airport Services (January 2002)

20 Citrus Growing and Processing (April 2002)

21 Independent Review of the Job Network (June 2002)

22 Radiocommunications (July 2002)

23 Review of Section 2D of the Trade Practices Act 1974: Local Government Exemptions (August 2002)

24 Economic Regulation of Harbour Towage and Related Services (August 2002)

The Government endorsed the majority of the Commission's recommendations on the national access regime, in particular the provision of clearer directions to regulators and greater certainty for investors.

The Government agreed that legislative changes were needed to reduce compliance costs, would implement a number of Commission recommendations and further examine others, but did not accept proposed reforms to institutional arrangements for handling complaints. In a subsequent response to a report by the Superannuation Working Group, the Government effectively supported the Commission's recommendations to license superannuation trustees and for trustees to submit a risk management statement.

The Government supported all of the major elements of the Commission’s preferred approach for a light-handed regulatory regime, involving a ‘probationary’ period of price monitoring.

The Government stated that the Commission’s report had enabled the concerns of the Australian citrus industry about its competitive situation and outlook to be carefully examined. It subsequently endorsed all of the Commission’s recommendations covering trade negotiations, market access arrangements, export control arrangements and review, and industry compliance costs.

The Government stated the report was a significant and authoritative examination of the Job Network and agreed with a number of Commission recommendations. It had already changed the design of some Job Network features on the basis of the Commission’s draft report. However, the Government did not support some key Commission recommendations at present, but would give consideration to them as employment services policy evolves.

The Government accepted most of the Commission’s recommendations but would further consider whether spectrum licences should be issued in perpetuity and some other matters. Six recommendations were rejected, the most significant of which dealt with changes to competition rules and ministerial

discretion on limits to spectrum acquisition in auctions.

The Government accepted the Commission’s recommendation that section 2D be repealed and replaced with a section stating explicitly that Part IV of the Trade Practices Act only applies to the business activities of local government.

The Government accepted all the Commission’s recommendations, with minor modifications relating to the implementation of price monitoring.

(c o n tin u e d n e x t p a g e )

T a b l e B.7 (continued)

Inquiry report Government response to Commission findings and/or recommendations

25 Review of Automotive Assistance (September 2002)

26 Review of TCP Assistance (July 2003)

27 National Workers’ Compensation and Occupational Health and Safety Frameworks (March 2004)

28 First Home Ownership (March 2004)

29 Impacts of Native Vegetation and Biodiversity Regulations (April 2004)

3 0 R e v ie w o f th e D is a b ility

D is c rim in a tio n A c t 199 2 (A p ril 2 0 0 4 )

31 R e v ie w o f th e G a s A c c e s s

R e g im e (J u n e 2 0 0 4 )

3 2 R e v ie w o f P a rt X o f th e T ra d e

P ra c tic e s A c t 1974: In te rn a tio n a l L in e r C a rg o S h ip p in g (F e b ru a ry 2 0 0 5 )

The Government endorsed the Commission’s findings on post-2005 tariff reductions and transitional adjustment assistance for the industry (though with an additional $1.4 billion, over 10 years, than preferred by the Commission), agreed with many of the Commission's findings on other assistance and industry matters, and announced a further inquiry by the Commission in 2008.

The Government accepted the Commission’s preferred tariff option and quantum of transitional assistance, though with some variations in the components of that support package.

The Government did not support key elements of the Commission’s proposed national framework model and deferred consideration of recommendations relating to design elements for workers’ compensation schemes and OHS pending advice from a new tripartite body, the Australian Safety and Compensation Council.

The Government supported recommendations relating to areas of State responsibility but not those relating to reviews of the personal income taxation regime and the housing needs of low income households nor changes to the First Home Owner Scheme.

The Government announced that it supported the Commission’s recommendations and would pursue implementation by the States and Territories through the COAG process.

T he G o v e rn m e n t a c c e p te d a m a jo rity o f th e C o m m is s io n ’s 3 2 re c o m m e n d a tio n s in fu ll, in p rin c ip le o r

in p a rt. M a n y o f th e C o m m is s io n ’s m o s t s ig n ific a n t re c o m m e n d a tio n s w e re a d o p te d in c lu d in g

le g is la tiv e c h a n g e to c la rify th e re a s o n a b le a d ju s tm e n t d u ty im p lie d in th e A c t b u t, im p o rta n tly , a ls o to

s tre n g th e n a n d /o r e x te n d e x is tin g s a fe g u a rd m e c h a n is m s .

A w a its a re s p o n s e b y th e M in is te ria l C o u n c il on E n e rg y .

R e p o rt n o t y e t ta b le d .

ERFORMA

3 3 R e v ie w o f N a tio n a l C o m p e titio n

P o lic y R e fo rm s (F e b ru a ry 2 0 0 5 ) T he G o v e rn m e n t s ta te d th a t th e re s p o n s e to th e C o m m is s io n ’s re c o m m e n d a tio n s w ill b e th e o u tc o m e o f th e C O A G re v ie w o f n a tio n a l c o m p e titio n p o lic y .

34 S m a s h R e p a ir a n d In s u ra n c e

(M a rc h 2 0 0 5 )

T he G o v e rn m e n t a g re e d w ith th e C o m m is s io n ’s k e y r e c o m m e n d a tio n s on th e d e v e lo p m e n t a n d n a tu re o f a v o lu n ta ry c o d e o f c o n d u c t fo r th e s m a s h r e p a ir a n d in s u ra n c e in d u s trie s .

3 5 A u s tra lia n P ig m e a t In d u s try

(M a rc h 2 0 0 5 )

The G o v e rn m e n t in e ffe c t e n d o rs e d th e b u lk o f th e C o m m is s io n ’s fin d in g s a n d , im p o rta n tly , d id n o t

c o m m it to a d d itio n a l in d u s try -s p e c ific a s s is ta n c e m e a s u re s .

a Additions or significant changes to the table published in the 2003-04 Annual Report are indicated in italics.

Output 2: Performance reporting and other services to government bodies

At the request of the Government, the Commission undertakes three major activities in this output group. It:

• provides secretariat, research and report preparation services to the Steering Committee for the Review o f Government Service Provision in respect of reporting on the equity of access, and the efficiency and effectiveness of government services; and reporting on key indicators of indigenous disadvantage;

• continues performance monitoring and related research on government trading enterprises (GTEs), work the Commission previously undertook for the former COAG Steering Committee on National Performance Monitoring o f Government Trading Enterprises; and

• undertakes national and international benchmarking o f the performance of key Australian industries — primarily economic infrastructure and government services — to help identify and provide information on significant gaps in performance.

The Commission has also been called upon to provide secretariat and research services to other government bodies, such as the Pleads o f Treasuries of the Australian Government, States and Territories.

The Commission is committed to producing reports of a high standard which are useful to government and the wider community, and completed on time.

The resources used in producing this output in 2004-05 were:

• 26.8 staff years; and

• $4.2 million on an accrual basis.

Activities in 2004-05

The publications arising from the Commission’s performance reporting activities this year were:

• Financial Performance o f Government Trading Enterprises, 1998-99 to 2002-03 (July 2004)

• Report on Government Services 2005, 2 volumes (and on CD with supporting tables), January 2005; and

• Report on Government Services 2005: Indigenous Compendium, May 2005.

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Review of Government Service Provision

The Review of Government Service Provision was established by the Prime Minister, Premiers and Chief Ministers in July 1993. The Review’s terms of reference specify that it collect and publish data that will enable ongoing comparisons of the efficiency and effectiveness of government services, and analyse

reforms in government services.

As part of its Reconciliation Agenda, in 2000 COAG requested that the Review:

produce a regular report against key indicators of indigenous disadvantage. This report will help to measure the impact of changes to policy settings and service delivery and provide a concrete way to measure the effect of the Council’s commitment to

reconciliation through a jointly agreed set of indicators.

Report on Government Services

The tenth Report on Government Services was released in January 2005. Reporting is an iterative process, and the Review endeavours each year to build on developments of previous years. Since the Review published its first Report in 1995, there has been a general improvement in the data collected.

The Review is continuing to refine performance measures and to improve the quality of descriptive data and contextual information published in the report.

• The Steering Committee agreed to include text boxes on the rationale and interpretation of performance indicators presented in the 2005 Report. The indicator interpretation boxes provide a succinct commentary on the rationale for the inclusion of each performance indicator and an explanation of how the

indicator is defined, how it should be interpreted, and an overview of conceptual caveats. (Text boxes to introduce indicators were first used in the court administration chapter in the 2004 Report.)

• A workshop to examine indicators of quality for Australian public hospitals was held in July 2004. It was organised jointly by the Health Working Group for the Review of Government Service Provision and the Australian Council for Safety and Quality in Health Care and facilitated by the Commission. The workshop

was supported by the Australian Health Ministers’ Advisory Council and the National Health Performance Committee. Workshop participants examined a number of options for improving the measurement of hospital quality and identified a number of indicators for further development. A consultant was

engaged in early 2005 to undertake work on these indicators.

The scope of reporting has expanded considerably in recent years (figure B.2). In particular, improvements were made to the scope of the 2005 Report through:

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Figure B.2 Increased scope of reporting on government services numbers

C h a rts R e p o rt ta b le s A tta c h m e n t ta b le s

400 -

2000 2005 2005

• the inclusion o f new performance indicators in the chapters on police, court administration, public hospitals, aged care services, services for people with a disability and emergency management; and

• broadening the chapter on general practice to incorporate primary and community health services more generally. Indicators reported for the first time included ‘health assessments for older people’, ‘vaccine preventable hospitalisations’ and ‘hospitalisations for selected chronic conditions’.

Particular enhancements to the 2005 Report included:

• improvements to the scope of reporting in the ‘Education preface’ through the inclusion of additional educational attainment data;

• perinatal, neonatal and fetal death rates by indigenous status were reported for the first time in the public hospitals chapter;

• the children’s services chapter used data from the ABS 2002 Survey of Child Care to report information on ‘demand for (additional) childcare’; and

• the protection and support chapter reported on the Supported Accommodation Assistance Program effectiveness indicator ‘client satisfaction’ on a comparable basis for the first time.

Table B.8 provides an overview of indicators reported on a directly comparable basis across jurisdictions in each service area for the 2005 Report.

The Review will continue efforts to improve the reporting of data on service provision to indigenous Australians in the Report on Government Services in concert with production of the new report on indicators o f indigenous disadvantage. The Indigenous Compendium to the 2005 Report, which was released in May 2005, provides information that will complement the material in the new report.

Improvements to the indigenous data within the 2005 Indigenous Compendium were made in education, health and community services chapters.

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Table B.8 Indicators reported on a comparable basis, 2005 Report

Change since

Indicators with last year in

data reported indicators

on a reported on a

Indicators with comparable Proportion comparable

Service area/indicator framework data reported basis comparable basis

no. no. % no.

Education

School education 10 8 80 -

VET 19 14 74 -

Justice

Police services 29 15 50 -

Court administration 8 3 50 -

Corrective services 12 10 83 1

Emergency management 16 2 13 -

Health Public hospitals3 11 5 45 -2

Maternity services 10 3 30 -

Primary and community health 20 20 100 -

Breast cancer 11 7 64 -

Mental health 8 4 50 -

Community services Aged care services 13 11 85 -

Services for people with a disability 13 8 62 2

Children’s services 14 4 29 2

Child protection and out-of-home care 14 4 29 -

SAAP 11 5 45 1

Housing Public housing 12 12 100 -

Community housing 10 - - -

State owned and managed Indigenous housing 9 9 100 -

Commonwealth Rent Assistance 11 11 100 -

SAAP = Supported Accommodation Assistance Program. a Three indicators (‘public hospital separation rates’, ‘separation rates by target group', and ‘labour cost per casemix-adjusted separation’) have been removed from the performance framework because they had limited usefulness as indicators of the performance of hospitals. The data were moved to the descriptive section of the chapter. - Nil or rounded to zero.

Overcoming Indigenous Disadvantage: Key Indicators

COAG commissioned the Review to produce this report on a regular basis to allow the monitoring of outcomes and measurement of governments’ performance in addressing indigenous disadvantage. The 2003 Overcoming Indigenous Disadvantage report, with support from the Australian, State and Territory

governments, set out, for the first time, a strategic framework for action in areas of indigenous disadvantage.

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Since the release o f the 2003 report, the Chairman o f the Steering Committee and other members o f the Review have conducted a program o f ongoing consultations that will be a feature o f every reporting cycle to ensure that the report improves and remains meaningful to all government and indigenous stakeholders. The second Overcoming Indigenous Disadvantage report was prepared during 2004-05 and released on 12 July 2005.

The estimated cost to the Commission of assisting governments in the production of the Report on Government Services, the Overcoming Indigenous Disadvantage report and related Review activities in 2004-05 was around $2.9 million (compared to $2.6 million in 2003-04).

Performance monitoring of government trading enterprises (GTEs)

The Commission released its study on the financial performance of GTEs for the period 1998-99 to 2002-03 in July 2004. The subsequent report on a range of financial indicators for 83 enterprises covering the period 1999-2000 to 2003-04 was substantially complete in 2004-05 and published in July 2005. The findings of a three-year research program into GTE governance were also included in this report. The findings elaborate on issues raised in the Commission’s recent NCP inquiry report.

International benchmarking

The Commission did not publish any benchmarking research in 2004-05.

Quality indicators

The Commission has a range o f quality assurance processes in place for its performance reporting activities. These processes help to ensure that it is using the best information available and most appropriate methodologies — thereby increasing confidence in the quality of the performance reporting.

The Commission’s work for the Review o f Government Service Provision is guided by a Steering Committee. This Steering Committee consists of senior executives from each jurisdiction, chaired by the Chairman o f the Productivity Commission,

and serviced by a secretariat drawn from the staff o f the Commission. The Committee, in turn, is supported by 13 national working groups comprising representatives from 80 government agencies — totalling around 200 people who provide specialist knowledge on each service area — and draws on the expertise of

other bodies such as the ABS and the Australian Institute o f Health and Welfare, and committees established under Ministerial Councils.

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The Review consulted extensively during the course of producing the first Overcoming Indigenous Disadvantage report and engaged in ongoing consultation with indigenous organisations and communities, and governments, before and during preparation of the 2005 Overcoming Indigenous Disadvantage report. The Review also engaged an expert indigenous consultant to review drafts of the 2005

report before publication.

The Commission’s quality assurance processes for its reporting on the financial performance of GTEs includes giving State and Territory Treasuries the opportunity to review drafts before publication. The Commission produced a Discussion Draft

in order to test its findings on external governance at a workshop attended by some GTE board members and CEOs, academics and Australian and State government officials. The comments received at the workshop, which was held in March 2005, and subsequently in submissions, broadly supported the Commission’s analysis and findings.

Timeliness

The 2005 Report on Government Services and its Indigenous Compendium, and the 2003-04 GTE financial performance monitoring report were completed on time. Publication of the 2005 Overcoming Indigenous Disadvantage report was postponed by six weeks, to July 2005, to allow the inclusion of key data after delays in their release by a data provider.

Indicators of usefulness

The usefulness of the Commission’s performance reporting activities in contributing to policy making and public understanding is demonstrated by a range of indicators.

Review of Government Service Provision

The Report on Government Services is intended to provide information on the effectiveness and efficiency of government services and it is used extensively in this regard.

• The generally positive feedback on the usefulness, credibility, relevance and timeliness of the Report from the May 2004 survey of users and contributors were reported in the Commission’s 2003-04 Annual Report.

• Feedback from Steering Committee members — senior representatives from Australian governments — and from departmental secretaries and chief

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executives indicates that the reports on government services continue to be important inputs to budgetary negotiations, benchmarking and policy reviews.

• A variety of performance information sourced to the 2005 (and earlier) government services reports was used in parliamentary proceedings by government and opposition members in parliaments during 2004-05.

- In the Federal Parliament, data from the reports were used in relation to hospitals, education benchmarking, aged care and indigenous affairs.

- In other parliaments, data from the reports were mentioned 86 times and were used in relation to elective surgery waiting times, education funding, recidivism, spending per person on criminal investigations, indigenous housing, children’s services, emergency management services, police staffing numbers, the cost effectiveness of public hospitals, efficiency and effectiveness of health services, completion rates for reparation orders, vocational education and training, corrective services, court administration clearance rates, disability services, crime rates, and satisfaction with ambulance services.

• A number of journal articles and government publications across a wide range of disciplines used the Report on Government Services as a source. For example, the report was cited in articles in such journals as the Medical Journal o f Australia·, the Australian Institute of Health and Welfare Bulletin; Just Policy; Education; the International Review o f Administrative Sciences; and the Australian and New Zealand Journal o f Criminology.

Other indicators of usefulness from 2004-05 were:

• extensive media coverage of the 2005 Report on Government Services. There were more than 220 press articles drawing on the report and more than 180 mentions o f it in electronic media in the period to 30 June 2005. More than 1590 bound copies and a further 106 CDs of the report were distributed by the

Commission; and

• 11 760 external requests for the index page of the 2005 Report on Government Services on the Commission’s website in 2004-05. The 2004 Report on Government Services continued to be accessed from the website by external parties — with over 12 100 requests throughout 2004-05. There were more than 40 400 external requests for the index pages of Review publications (excluding the Overcoming Indigenous Disadvantage report) in 2004-05.

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Overcoming indigenous Disadvantage: Key Indicators

The purpose of the Overcoming Indigenous Disadvantage report is to provide governments with information on key indicators of disadvantage. The 2003 report, released in November 2003, continued to be used throughout 2004-05. Evidence of its ongoing usefulness is demonstrated by the following feedback:

. The Australian, State and Territory governments are incorporating the indicator framework into their own policies, programs and monitoring in various ways. (The 2005 report included an appendix summarising how each jurisdiction was using the framework.) The report is also stimulating improvements in data

collection, consistency and quality. Some States and Territories are using the indicator framework to prepare jurisdictional reports on indigenous outcomes for regular publication and jurisdictions are working with their agencies to improve data collection and quality.

• In February 2005 the Chairman of the Steering Committee and the Head of Review Secretariat responded to an invitation and provided testimony to the Senate Select Committee on the Administration o f Indigenous Affairs on services to, and outcomes for, indigenous people based on data and analysis in the 2003 Overcoming Indigenous Disadvantage report and the 2005 Report on

Government Services.

• In testimony before the Senate Select Committee on the Administration of Indigenous Affairs, the Aboriginal and Torres Strait Islander Social Justice Commissioner, Human Rights and Equal Opportunity Commission, stated in relation to programs targeting indigenous disadvantage that ‘the reports o f the Productivity Commission are critically important to establish benchmarks for us to be able to measure the impacts’ (Calma 2005, p. 6).

• There were four mentions of the Overcoming Indigenous Disadvantage report in the Federal Parliament in 2004-05.

• The Convenor of the Review’s Indigenous Disadvantage Working Group and the Head of the Review Secretariat presented a paper on the report at the Indigenous Service Delivery Outcomes Conference in March 2005.

• In addition, the 2003 Indigenous Disadvantage Report was:

- cited in articles in such journals as Australia and New Zealand Health Policy and the Medical Journal o f Australia', and

- accessed from the Commission’s website, with more than 6900 external requests in the period to June 2005.

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Following release of the 2005 Overcoming Indigenous Disadvantage report:

• The Minister for Immigration, Multicultural and Indigenous Affairs welcomed the report in the following terms:

this report provides a general snapshot of where we are and how far we have to go. The data in the report identify both problem areas and where we are seeing improvements being made ... All up, the report presents a challenging message for all of us - governments, indigenous communities and leaders, and all Australians. (Vanstone 2005)

• The ACT Chief Minister (Stanhope 2005) and the Australian Medical Association (AMA 2005) both issued media releases referring to findings in the report.

• Media coverage was extensive with 25 printed newspaper articles, and 44 electronic media articles (radio, television or internet) in the immediate period following its release. A total of 2236 bound copies o f the report and 2796 overviews were distributed by the Commission. Copies of the report and its overview were distributed by request to indigenous organisations.

Performance monitoring of government trading enterprises

Evidence of the usefulness of the Commission’s reporting on government trading enterprises is available from a number of sources.

• The Minister for Finance and Administration drew on specific findings in the Commission’s most recent GTE report — on the rates of return made by Federal and State GTEs and their dividend payout ratios — in his National Press Club Address (Minchin 2005).

• The National Competition Council drew on the Commission’s profitability data for government forestry businesses in its 2004 Assessment Report (NCC 2004a).

• Responses to the Commission’s External Governance Workshop held in March 2005, as at an earlier workshop held in September 2003, indicated that participants found it a valuable exercise.

• The reports on the financial performance of GTEs attracted media attention through the year and in 2004-05 there were nearly 6500 external requests for the website pages of the 2004 and earlier reports.

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Output 3: Regulation review activities

Regulation review matters are dealt with principally by the Office o f Regulation Review (ORR), which is a separate unit within the Productivity Commission. The activities of the ORR in the past year are covered in detail in the Commission’s publication, Regulation and its Review 2004-05.

The objective of the Commission’s regulation review activities is to promote regulation-making processes that, from an economy-wide perspective, improve the effectiveness and efficiency of regulatory proposals. The ORR provides advice to the Australian Government and assists approximately 100 Australian Government departments and agencies, Ministerial Councils and national standard-setting bodies develop regulatory proposals including, where appropriate, the preparation of Regulation Impact Statements (RISs). The ORR aims to assess RISs and undertake associated activities to a high standard and provide objective and insightful advice that is timely and useful to government.

The resources used in producing this output in 2004-05 were:

• 17.5 staff years; and

• $2.7 million on an accrual basis.

Activities in 2004-05

The activities that the ORR is required by the Government to undertake are set down in its charter (box B.3).

In 2004-05 the Australian Government introduced 172 Bills and 2380 disallowable instruments into Parliament.

In the same period, the ORR received 851 new RIS queries (compared with 845 queries in 2003-04). Of these, the ORR advised that RISs were required in 167 cases. Of those proposals reported to have been made or tabled in 2004-05, the ORR identified 85 as triggering the Government’s RIS requirements at the

decision-making stage. It provided comments on the 71 RISs subsequently prepared.

As shown in table B.9, the number of RIS queries received has been relatively stable in the last three years, but there was a decline in the number of proposals finalised in 2004-05 that required a RIS. This suggests that the 9 October 2004 Federal election resulted in fewer significant regulations being made. Furthermore a large proportion of the Australian Government’s recent regulatory activity has been

focused on making minor amendments to existing arrangements, rather than in

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introducing new, or making significant amendments to, existing regulation. Such minor and machinery regulation does not require preparation of a RIS, but nevertheless requires the ORR to carefully consider each proposal and provide advice on whether a RIS is required.

In 2004-05 the ORR also provided formal training on RISs and regulatory best practice to a total of 415 officials from a wide range o f departments and agencies. This compares with 437 officials trained in 2003-04. RIS training was provided to 209 Australian Government, 14 State Government and 80 New Zealand

Government officials, and to 112 officials assisting Ministerial Councils and national standard-setting bodies.

In addition, in advising Ministerial Councils and national standard-setting bodies on regulatory best practice, the ORR provided advice on 21 RISs which were considered by these decision-making bodies in the twelve months ending 31 March 2005 (compared to 36 RISs in the 12 months ending 31 March 2004). The ORR reported on regulation making by Ministerial Councils and national standard-setting bodies to the National Competition Council and to the Committee on Regulatory

Reform, a Senior Officials group reporting to COAG.

Box B.3 Charter of the Office of Regulation Review

In 1997, the Government directed the ORR to issue a charter outlining its role and functions. The ORR’s seven principal activities are to:

• advise on quality control mechanisms for regulation making and review;

• examine and advise on regulation impact statements (RISs) prepared by Australian Government departments and agencies;

• provide training and guidance to officials;

• report annually on compliance with the Australian Government’s RIS requirements;

• advise Ministerial Councils and national standard-setting bodies on regulation making;

• lodge submissions and publish reports on regulatory issues; and

• monitor regulatory reform developments in the States and Territories, and in other countries.

Whilst these are ranked in order of the Government's priorities, the ORR must concentrate its resources where they will have most effect. The ORR, together with the Department of the Treasury, advises the Parliamentary Secretary to the Treasurer who is the Minister responsible for regulatory best practice.

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In monitoring and contributing to regulatory reform developments more broadly throughout Australia and internationally during 2004-05, the Head o f the ORR:

. visited the OECD and UK Cabinet Office to deliver three presentations and discuss a range of regulatory review and reform mechanisms and processes;

. delivered a presentation to the APS Commission/Economic Society of Australia Symposium on Cost-Benefit Analysis;

. attended and delivered presentations to the annual meeting of State, Territory and New Zealand regulation review units in Perth, in October 2004; and

. provided input into the Australian Public Service Commission ‘Foundation Project’ booklet and internet resource.

The ORR also:

• hosted an officer from the Regulatory Impact Analysis Unit, Ministry of Economic Development, of the New Zealand Government for four weeks;

• commented on Treasury guidelines for preparing explanatory material for tax legislation;

• provided advice on regulatory impact analysis training, regulatory performance indicators and the role of the ORR to officials from the Flemish Regional Government in Belgium, the Republic of Korea, Bradford University and Illinois University;

Table B.9 Australian Government regulatory and RIS activities, 1999-2000 to 2004-05

1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

R e g u la tio n s in tro d u c e d

no. no. no. no. no. no.

Bills 159 169 207 174 150 172

Disallowable instruments 1832 1438 1711 1615 1538 2380

Total in tro d u c e d 1991 1607 1918 1789 1688 2552

RIS w orkload

Total number of new RIS queries received by the ORR 826 740 709 861 845 851

- of which, the ORR advised a RIS was required 266 171 175 132 174 167

P ro p o s a ls fin a lis e d in 2004-053

RISs required 207 157 145 139 114 85

RISs prepared 180 133 130 120 109 71

a Proposals at the decision-making stage which were tabled or made in the reporting period — for some of these proposals the ORR was contacted in an earlier reporting period.

Source: ORR estimates.

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• in conjunction with State and Territory regulation review units, developed a web-forum, for sharing information relating to regulatory review;

• had ongoing discussions with a wide range of business, community and other groups regarding regulation making and the RIS process; and

• liaised on a variety of regulatory issues with the OECD, New Zealand, United Kingdom Cabinet Office and government officials from a range of countries, including Korea and Belgium.

The ORR provides information on its regulatory review activities through Regulation and its Review, part of the Productivity Commission’s Annual Report suite o f publications. Regulation and its Review fulfils the Productivity Commission’s and the ORR’s obligation to report annually on compliance with the

Government’s regulation review and reform requirements. The report for 2003-04, which was released in November 2004, continued the initiative of reporting in greater detail on compliance by Australian Government departments and agencies. It also canvassed regulatory issues more broadly, emphasising the value of effective and meaningful consultation in achieving high quality regulatory outcomes.

The ORR also provides information to government agencies and the public through a webpage linked to the Productivity Commission’s website.

Quality indicators

The scope of the ORR’s work covers the whole of government. However, the confidentiality o f RISs considered by Cabinet limits the extent to which specific matters can be reported publicly.

Evidence of the quality o f the ORR’s work is provided by feedback from other government and community bodies, including those that prepare RISs and those that use them.

In 2004-05 the ORR commenced an ongoing survey of officials preparing RISs to obtain feedback on how departments and agencies view the ORR’s work performance and the quality of its service in providing advice on the Government’s regulatory best practice requirements. The ORR dispatched 59 evaluation forms and received 27 responses — a response rate o f 45 per cent. Fourteen respondents (52 per cent) rated the quality of the ORR’s written and oral advice as ‘excellent’ while seven (26 per cent) rated it as ‘good’. Six respondents (22 per cent) considered the ORR’s service as ‘satisfactory’. Ten respondents offered specific suggestions on how the ORR could improve the quality of its advice, including:

• being more flexible about the RIS requirements;

• having a better appreciation of ‘political realities underlying regulatory action’;

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. not seeking technical and financial information that is not readily available; and

. not providing comments on second or third iterations of a draft RIS, which could have been provided on the first draft.

As in previous years, the ORR surveyed the 209 Australian Government officials who received training in regulatory best practice in 2004-05 and 154 responses were received — a response rate of 74 per cent. The responses indicate that the ORR training was well received, with 94 per cent rating the training as either ‘excellent’ or ‘good’.

Timeliness

The extent to which the ORR’s advice is delivered to regulators and decision makers in a timely manner is also a key indicator of performance. A number of factors can affect the ORR’s timeliness including: the length and quality of the RIS

document received; the complexity of the issue/policy proposals canvassed; the familiarity of ORR staff with the issues covered, including whether the ORR has had prior contact with the department/agency; ORR workloads; and staff availability.

As a general rule, officials preparing a RIS are asked to allow the ORR two weeks to provide advice on their adequacy. However, where further redrafting is necessary, additional time may be needed to ensure an adequate standard is achieved. In practice, in 2004-05 the ORR provided formal feedback (comments on

the first draft of the RIS) to departments and agencies, on average, 5.3 working days after RISs were received. Moreover, the ORR provided comments on 92 per cent of all (first draft) RISs received within two weeks.

During 2004-05 there were several instances where departments and agencies requested advice on their RISs within a few days and sometimes a few hours, often without prior notice or warning. In some cases, the ORR was not able to meet these urgent requests, as such short timeframes make it difficult to give proper

consideration to all the relevant regulatory options and impacts. Such requests may indicate poor planning and development processes for regulation making within some departments and agencies.

Under the COAG Principles and Guidelines, the ORR is required to provide advice on RISs for Ministerial Councils and national standard-setting bodies in a timely manner. When asked for advice in two weeks or less, the ORR provided advice within the specified timeframe on all occasions in 2004-05.

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The ORR has also delivered all other outputs in a timely manner. For example, it prepared a report to the National Competition Council (NCC) on compliance with the COAG Principles and Guidelines fo r National Standard Setting and Regulatory Action by Ministerial Councils and Standard-Setting Bodies. This report, which

covered compliance for the 12 months to the end of March 2005, was completed and delivered on time.

Indicators of usefulness

The usefulness o f the ORR’s regulation review activities in contributing to government policy-making and promoting community understanding o f regulatory review and reform issues can be informed by a range of indicators.

• The ORR has sought to improve the quality of regulation making by gradually increasing the standard of analysis required in RISs. However, a significant source of non-compliance continues to be a failure by departments and agencies to prepare RISs when required.

- While RISs were required for 85 regulatory proposals in 2004-05, only 71 were prepared. Of these, 68 were assessed as adequate at the decision-making stage (80 per cent compliance). This compares to a RIS compliance rate of 92 per cent in 2003-04.

- Compliance for the 66 proposals that required a RIS at the tabling stage was 89 per cent (down from 95 per cent in 2003-04).

- For significant regulatory issues, the RIS compliance rate in 2004-05 was 67 per cent (down from 94 per cent in 2003-04).

• O f the 71 proposals for which a RIS was prepared, in 10 cases the preferred option was modified during the policy development process between the first draft o f the RIS sighted by the ORR and the final RIS considered by the decision maker. This supports the contention that consultation and transparency, both key

elements of the Government’s RIS process, are important factors in achieving better regulatory outcomes. It also illustrates the potential for the RIS process to add value to deliberations about regulatory problems and possible solutions.

• RISs tabled in the Parliament with explanatory memoranda and explanatory statements provide greater transparency regarding the rationale behind the Government’s regulatory decisions, resulting in the Parliament being better informed. In addition, parliamentarians have drawn on published RISs in debate, and people appearing before parliamentary committees have drawn on the content of RISs.

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- In 2004-05 the need for, and content of, RISs were raised in parliamentary discussions on 10 occasions. Most discussion focused on the analysis contained in the ‘impact’ and ‘consultation’ sections of RISs.

• State and Territory government officials contacted the ORR on six occasions during 2004-05 to confirm that proposals complied with COAG RIS requirements, before proceeding with legislation in their State or Territory.

Indicators of the usefulness of the ORR’s regulation review activities and in promoting understanding of regulatory best practice are also found in assessments of its performance and use of its reports.

• In its 2004 NCP Assessment of the regulatory gatekeeping mechanisms of governments, the National Competition Council commented that:

the Australian Government’s gatekeeping arrangements comply with NCP obligations for effective gatekeeping. In particular, the ORR makes a significant contribution to improving regulatory quality and transparency by monitoring the compliance of departments with the government’s regulatory requirements. (NCC 2004a, p. 4.6)

The NCC was critical of the lack of a clear independent mechanism for advising the NSW Government on the likely impact of proposed regulations before introduction to Parliament. While the NSW Cabinet Office advises agencies on regulatory best practice, the NCC had reservations about its separation from the policy development process and the transparency of review mechanisms noting:

This is in contrast to the federal ORR which is located within the Productivity Commission — an independent statutory authority. Consideration should therefore be given to relocating the regulatory review function outside of the Cabinet Office. (NCC 2004a, pp. 4.7-4.8)

• In its analysis of business regulation reform proposals, the Business Council of Australia’s Action Plan extensively cited the 2003 Staff Working Paper, Mechanisms fo r Improving the Quality o f Regulations: Australia in an International Context, as well as drawing on data and analysis in Regulation and

its Review (various issues), Commission inquiry reports and speeches by the Commission’s Chairman on regulatory issues (BCA 2005a). (The Chairman responded to the BCA proposals in his speech at the ANU, ‘ Regulation-making in Australia: Is it broke? How do we fix it?’, on 7 July 2005.)

• While not specifically mentioning ORR outputs, upon releasing the report Compliance Costs Time and Money in November 2004, the Australian Industry Group proposed that the regulation compliance burden be managed and reduced by: ‘Strengthening accountability under Regulation Impact Statements by making government departments more accountable through periodic reviews to

assess how well departments anticipated the impact of any new regulation on business compliance’ (Ai Group 2004).

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• In its 2005 pre-budget submission the Australian Chamber o f Commerce and Industry drew on reporting in Regulation and its Review, proposed measures to address poor RIS compliance and policy design, and argued that the operation of ORR’s equivalents in the States could be improved by giving them the same

formal independence from government as accorded the ORR (box B. 4).

• Approximately 1500 printed copies of Regulation and its Review 2003-04 were distributed in 2004-05, including to each Member of the House of

Representatives and the Senate.

Box B.4 ACCI views on strengthening regulation assessment processes in Australia

In its 2005 pre-budget submission to the Australian Government, the Australian Chamber of Commerce and Industry stated:

ACCI proposes a number of recommendations to address the issue of poor RIS compliance and policy design. Firstly, greater education, skill development, resources and priority within agencies is needed. Secondly, the ORR, in conjunction with agency heads, needs to address the mentality within certain departments and agencies that RISs can be used as a means to justify regulation, as opposed to the original intention of validating the need for regulation. And thirdly, State counterparts of the ORR must be made more independent. The Commonwealth ORR, through its operation as an independent body, has formal independence from other Commonwealth departments and agencies. State ORR equivalents are currently co-located within policy departments such as the Premier’s

Department, State Development or Treasury. The Chamber considers that in order for these bodies to operate impartially and effectively, there must be clear lines of separation. (ACCI 2005a, p. 37)

The Chamber also stated that it supported recommendations in the 2003 Senate Employment, Workplace Relations and Education Committee’s Small Business Employment Report, two of which related to the Commission and the RIS process:

• that the Productivity Commission be asked to report to COAG on the most appropriate body to monitor and manage a continuing program of cross- jurisdictional regulatory review and coordinate the rolling programs of regulatory review to be undertaken by all tiers of government; and

• that the RIS guidelines be amended so that agencies have to provide quantitative estimates of compliance costs, based on detailed proposals for implementation and administration, and that regular reviews be commissioned of the accuracy of compliance estimates in RISs for regulations with a major impact on business.

The ACCI noted that these Senate Committee recommendations had been ‘effectively’ rejected by the Government.

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• In 2004-05 there were just over 15 000 requests for the ORR website home page and 2450 requests for Regulation and its Review 2003-04. There were 3550 requests for A Guide to Regulation and 2400 requests for the CO AG Principles and Guidelines. The RIS training package (1300 requests) and example RISs

(2050 requests) were also accessed frequently.

Output 4: Competitive neutrality complaints activities

The Australian Government Competitive Neutrality Complaints Office (AGCNCO) is an autonomous office located within the Commission. As specified in the Productivity Commission Act and the Commonwealth Competitive Neutrality Policy Statement of June 1996, the role of the AGCNCO is to:

• receive and investigate complaints on the application of competitive neutrality to Commonwealth government businesses, and make recommendations to the Government on appropriate action; and

• provide advice and assistance to agencies implementing competitive neutrality, including undertaking research on implementation issues.

The AGCNCO aims to finalise most investigations and report to the Parliamentary Secretary to the Treasurer within 90 days of accepting a complaint, and to undertake reporting and associated activities that are o f a high standard and useful to government.

The resources used in producing this output in 2004-05 were:

• 0.5 staff years; and

• $0.1 million on an accrual basis.

Activities in 2004-05

Complaints activity

The AGCNCO received four formal complaints during 2004-05 (table B. 10). One complaint was carried forward from 2003-04 and, at the end of the financial year, one complaint was outstanding. Details of complaints which were investigated and preliminary investigations which did not proceed to report are contained in

appendix D.

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Table B.10 Formal competitive neutrality complaints, 1998-99 to 2004-05

A c tiv ity 1 9 9 8 -9 9 199 9-0 0 200 0-0 1 2 0 0 1 -0 2 2 0 0 2 -0 3 2 0 0 3 -0 4 2 0 0 4 -0 5

W ritten com plaints received 6 7 5 2 1 9 4

Action:

New com plaints form ally investigated 2a 4 5b 1 _ 1 0

Com plaints investigated but suspended — 1 — — — 0

Com plaints investigated and resolved through negotiation

1 1 1 0

Com plaints not investigated

4 2 — — 1 6 3

Reports completed 1 4 - 5b - 1 1

Com plaints on hand (30 June) - - 5b - - 1 1

a Two complaints related to the same matter: counter-terrorist first-response services provided by the Australian Protective Service. b Two complaints related to the same matter — the operation of airports on Australian Government owned land (Sydney Basin airports and Essendon Airport Limited) — and were dealt with in one report.

Research

No formal research activities were conducted in 2004-05.

Advice on the application and implementation of competitive neutrality

An important part of the AGCNCO’s role is to provide formal and informal advice on competitive neutrality matters and to assist agencies in implementing competitive neutrality requirements. During 2004-05 the Office provided advice around five times a week, on average, to agencies or in response to private sector queries over the telephone or in ad hoc meetings.

The Office provides advice on all aspects of the implementation of competitive neutrality. However, in response to requests over the past year, the Office has provided a significant amount of advice to agencies implementing competitive neutrality as part o f market testing exercises for information and communications technology services.

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Quality indicators

Competitive neutrality complaint investigations and reporting engage the complainant, the government business in question, the competitive neutrality policy arms of the Australian Government and, as required, the government department within whose policy purview the business resides. The generally favourable feedback from all these parties on the integrity o f the process and the usefulness of its outcomes — given that the AGCNCO’s reports assess competing interests — is the strongest evidence as to the quality of the AGCNCO’s work.

Where parties who received advice and assistance from the AGCNCO on competitive neutrality policy or its implementation have commented on the operation of the Office, their comments have been favourable.

Owing to their experience in dealing with competitive neutrality issues, the views of the staff o f the AGCNCO on more complex matters are often sought by the Treasury and the Department of Finance and Administration — the departments responsible for competitive neutrality policy.

Timeliness

The AGCNCO aims to report on complaint investigations within 90 days of accepting a formal complaint for investigation.

As noted in previous reports, formal investigations can involve provision of significant amounts of data to the Office by both the complainant and the government business subject to complaint. In these situations the Office does not consider it is conducive to good outcomes to enforce a 90 day time limit on complaints. The EDI Post investigation and report fell into this category.

Indicators of usefulness

The AGCNCO circulates its reports and research to State and Territory government agencies responsible for competitive neutrality policy and complaint investigations to facilitate the exchange of information and share procedural experiences. Feedback from those agencies indicates that the AGCNCO makes a valuable

contribution to the effective implementation o f competitive neutrality policy.

The AGCNCO released its investigation of the Australian Valuation Office in May 2004. In line with the recommendation of the report, the AVO is negotiating to purchase professional indemnity insurance on a commercial basis. In addition, in its competitive neutrality investigation of the State Valuation Office released in

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October 2004, the NSW Independent Pricing and Regulatory Tribunal quoted findings from the Office’s analysis of professional indemnity insurance and suggested this is also an issue for the State Valuation Office (IPART 2004).

In response to its advice on implementing competitive neutrality as part of market testing exercises for outsourcing information and communications technology services, the AGCNCO understands that agencies adjusted the estimation of their in-house cost bases in line with suggestions made in the Office’s advice.

The AGCNCO also received a range of informal comments suggesting that its outputs are contributing to better public understanding. For example, favourable comments continue to be received from government and private sector agencies on the usefulness of two AGCNCO publications — on cost allocation and pricing, and rate of return issues — in assisting their implementation of competitive neutrality policy. Although released in 1998, these research papers continue to be in demand and use. For example, IPART (2004) referred to the cost allocation paper in its competitive neutrality investigation of the State Valuation Office. During 2004-05 there were more than 8200 external requests to the website for AGCNCO investigation reports and around 800 to 900 external requests for each of the AGCNCO research publications.

Output 5: Supporting research and activities and statutory annual reporting

While much of the Productivity Commission’s research activity is externally determined, it has some discretion in meeting its legislative charter to undertake a supporting program of research and to report annually about matters relating to industry development and productivity, including assistance and regulation. Soon after the Commission formally commenced operations, the Treasurer outlined its supporting research function in the following terms:

The Commission has a self-initiated research program which will complement its other activities. Research themes would be responsive to the views of Governments and business and welfare groups. A major focus for this research will be to analyse the factors underlying productivity growth and social policy issues. (Costello 1998)

The Commission aims to produce research and associated reports which are of a high standard, timely and useful to government and which raise community awareness of microeconomic policy issues.

The resources used in producing this output in 2004-05 were:

• 36.7 staff years; and

• $6.3 million on an accrual basis.

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Activities in 2004-05

The output of the Commission’s annual report and supporting research program this year included:

• research to meet the Commission’s annual reporting obligations, comprising:

- its annual report for 2003-04, delivered in early December 2004 but not tabled in Parliament until February 2005, which discussed the size and nature of the challenges facing Australia as its population ages, and the appropriate policy responses, especially in reducing impediments to labour supply and

improving the efficiency, effectiveness and equity in Australia’s health and aged care systems; and

- two companion publications on regulatory developments in 2004-05 and on trade and assistance issues, released in November and December, respectively;

• draft and final supplements to the Commission’s inquiry on NCP reforms, on modelling the impacts of infrastructure change over the 1990s;

• three Commission Research Papers;

• a Commission conference in November 2004 on quantitative tools and new modelling techniques that can help improve microeconomic reform policy analysis and decision making (the papers are to be published);

• the second Richard Snape Lecture, delivered by Anne O. Krueger, First Deputy Managing Director o f the IMF, on 8 November 2004 and subsequently published;

• four Staff Working Papers; and

• other projects associated with inquiry and research support, technical research memoranda, assistance to other government departments, conference papers and journal articles.

The presentation by Anne Krueger was the second in a series of lectures in memory of Professor Richard Snape, the inaugural lecture having been given by Professor Max Corden. Professor Snape, the former Deputy Chairman of the Commission and Professor of Economics at Monash University, died in October 2002. The series has

been conceived to elicit contributions on important public policy issues from internationally recognised figures, in a form that is accessible to a wider audience.

Research proposals in 2004-05 were considered against the broad research objective outlined in chapter 2 and a set of guidelines emphasising:

• the absolute priority given to work commissioned by the Government and standing research responsibilities;

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• research that supports the Commission’s inquiry program, especially the development of expertise, information and analytical frameworks supporting a number of applications in the Commission’s work;

• making a contribution to the stock of policy-relevant knowledge or making it more accessible and useful to policy-makers and the broader community; and

• research that is relevant to public policy issues, preferably with broad application and significance.

The research publications produced in the supporting research program in 2004-05 are listed in box B.5. O f particular note were projects that developed economic and modelling frameworks to improve the information base for the policy analysis of the impacts of NCP infrastructure reforms in the 1990s, of water issues and of tariff reduction proposals in WTO trade negotiations. Research projects underway at the end of the year are shown in box B.6.

Box B.5 Supporting research and annual reporting publications, 2004-05

Annual report suite of publications

Annual report 2003-04 Regulation and its review 2003-04

Trade & assistance review 2003-04

Supplements to government-commissioned research reports

Modelling impacts of infrastructure industry change over the 1990s (draft)

Commission research papers

ICT use and productivity: a synthesis from studies of Australian firms

Trends in Australian agriculture

Staff working papers

Responsiveness of demand for irrigation water: a focus on the southern Murray- Darling Basin

Modelling water trade in the southern Murray-Darling Basin

2004 Richard Snape Lecture

Modelling impacts of infrastructure industry change over the 1990s (final)

Assistance to tourism: exploratory estimates

An integrated tariff analysis system: software and database

The growth of labour hire employment in Australia

Spreading prosperity and resisting economic divergence: the significance of Richard Snape’s academic legacy (Anne O. Krueger)

144 ANNUAL REPORT 20044)5

Box B.6 Current supporting research projects

Technological and organisational complementarities in firm-level innovation

ICT and productivity: a sensitivity analysis

Are stranded irrigation assets a problem?

Incorporating externalities into the pricing of irrigation water

The preference for imports - Armington elasticities and terms of trade effects in GE models

Estimating Armington trade elasticities for the Monash and USAGE models

Using the Labour Input Loss Index to inform policy choices

The evolution of Australian enterprises 1990 to 2007 (ARC Linkage Grant) *

R&D: changing patterns and implications for growth

W ater use in Australian agriculture and farm performance

Modelling urban water demand and trade

The state of non-traditional employment in Australia

Implications of the Armington assumption for trade models

An alternative to the Armington assumption for models of world trade

Economic modelling for Australia and the USA (ARC Linkage Grant) *

Assessing the social and fiscal policy implications of an ageing population (ARC Linkage Grant) *

The distributional impact of health outlays: developing the research and modelling infrastructure for policy makers (SPIRT Project) *

Collaborative projects. Information on individual research projects is available from the Commission’s website, www.pc.gov.au.

The Commission sees value in the public good aspect of its research and promotes dissemination of its work through publications, internet access and presentations. Details of Commission Research Papers and the 80 presentations given by the Chairman, Commissioners and staff in the year are provided in appendix E.

An example from 2004-05 of the technical contribution made to other government departments is the participation of Commission staff in panels established by the Department of Foreign Affairs and Trade to assess tender applications for economic analysis of the impacts o f prospective trade agreements with China, Malaysia and Japan. Appropriately, the assistance did not extend to the review of analytical assumptions or modelling results — activities which could be misconstrued as Commission endorsement of the modelling or policy direction.

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Quality indicators

The quality of the Commission’s supporting research projects is monitored through a series o f internal and external checks.

Research projects can involve consulting with key interested parties on the issues they view as important and obtaining access to information. For example, in preparing its exploratory estimates of assistance to tourism, the Commission consulted with officials from a dozen or more government agencies across jurisdictions and benefited from the technical assistance o f staff from the ABS.

Research is monitored internally as it progresses and staff seminars expose research to peer review as it develops. Some research-in-progress is also tested through external checks, such as seminars and conferences. Generally, drafts of research reports are refereed externally. Referees are chosen both for their expertise on a topic and to reflect a range of views. For example, ABARE staff provided comments on a draft of the agricultural trends paper, and experts from the Melbourne Institute o f Applied Economic and Social Research and from ACIRRT at the University of Sydney commented on an early draft of the Staff Working Paper on labour hire. Responding to referees’ comments enhanced the quality of

final research outputs.

A further example of the Commission’s quality assurance processes and the quality of published output is provided by the Staff Working Paper, Modelling Water Trade in the Southern Murray-Darling Basin, which involved:

. participation in a consortium to develop modelling capacity to understand better the economic impacts of changes in water use at a regional level (other consortium members were the Centre of Policy Studies, the Victorian Primary Industries and Treasury and Finance departments and CSIRO Land and Water);

• two workshops with consortium members, ABARE and the Department o f the Prime Minister and Cabinet to discuss model specifications and preliminary results;

• a seminar at the Victorian Department for Sustainability and Environment;

• presentation of papers at a Regional Modelling Workshop hosted by the Centre of Policy Studies and the Victorian Department Treasury and Finance; the 2004 Australian Conference of Economists; and the 2005 Australian Agricultural and Resource Economics Society Conference; and

• the acceptance and publication o f the paper in The Economic Record in August 2005.

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Further evidence of the quality and standing of the Commission’s supporting research program this year was the acceptance by Assistant Commissioner Dean Parham in June 2005 of an invitation to join the executive committee of the Comparative Analysis of Enterprise Data (CAED) international network which

focuses on the use of firm level data in economic research.

Timeliness

Of the publications listed in box B.5, around half were completed to the schedule set by the Commission. These included the annual report suite of publications and the modelling supplements to the NCP inquiry. Some research projects underway in 2003-04 were subsumed in the NCP modelling exercise.

The remaining supporting research reports did not meet their originally projected completion times. Servicing government-commissioned projects takes priority and the Commission allocates its resources accordingly. This means that a lower priority supporting research project can take longer than anticipated, even though it is

delivered within the original budget. Generally, research projects which are intermittently resourced are not strongly time sensitive. Redefinition of project scope and delays in obtaining data and referee comments were other common reasons for extended completion times for research projects in the past year. In

some cases, initial estimates o f the time needed to undertake the required research proved too ambitious. The more experimental or exploratory the project, the more difficult it is to schedule.

Indicators of usefulness

Evidence of the usefulness of the Commission’s supporting research and annual reporting activities in contributing to policy making and to public awareness of microeconomic reform and regulatory policy issues is available from a range of

indicators. These cover the use o f this research by government, community and business groups and international agencies, and invitations to discuss and disseminate its research findings in community and business forums.

• The continuing usefulness of the Commission’s stream o f research on Australia’s productivity performance is demonstrated by the widely based references to it. The Australian Government’s 2005-06 Budget Papers referred to recent analysis of the role o f reform in Australia’s productivity revival (Parham

2004); the Victorian Premier drew on this and other Commission productivity analysis in his push for a third wave of national reform (Bracks 2005); and in a report for the Business Council of Australia, Access Economics (2005b) drew on

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this body of research noting that one of the outputs, in particular, provided ‘an excellent discussion’ of the links between reform and productivity growth. The OECD’s latest economic survey of Australia referred to a dozen different outputs from the Commission’s productivity research program (OECD 2004b). There were 10 mentions of the Commission’s productivity analysis in the Federal Parliament in 2004-05.

• The 2005 Staff Working Paper, The Growth o f Labour Hire Employment in Australia, was tabled by Unions NSW and employer bodies in proceedings before the NSW Industrial Relations Commission. The staff paper (Laplagne et al. 2005) was also used in submissions to the House of Representatives

Committee inquiry on independent contracting and labour hire arrangements. That Committee’s report made extensive references to the paper, noting that it ‘provided valuable background’, and the Committee also used previous staff research on self-employed contractors (Waite and Will 2001). The Department of Employment and Workplace Relations (DEWR 2005) drew on both these staff papers in its discussion paper on independent contracting and a recent Victorian parliamentary committee report also used them extensively (EDC 2005).

• Papers from conferences organised or co-sponsored by the Commission under its supporting research program and published by it — on Changing Labour Markets: Prospects fo r Productivity Growth (1997), Microeconomic Reform and Productivity Growth (1998), Policy Implications o f the Ageing o f Australia’s Population (1999), the Health Policy Roundtable (2002) and on Managed

Competition in Health Care (2002) — continue to inform current policy debate as evidenced by use in such recent policy documents prepared for the National Competition Council (NCC 2004b), the Victorian Government (Allen Consulting Group 2004), the Business Council o f Australia (Access Economics 2005b), as well as the OECD (2004b).

• The Chairman’s speeches often receive media coverage and are used by others in policy analysis and debate including in parliament and, for example, by the Premier of Victoria (Bracks 2005) and peak business groups (such as in BCA 2005a).

• In addressing misconceptions about the link between exports and Australia’s current account deficit, the Prime Minister’s Exports and Infrastructure Taskforce (2005) cited the discussion of this issue in the Industry Commission’s annual report for 1994-95. (The Industry Commission was a predecessor of the Productivity Commission.)

• Trade & Assistance Review, part o f the Commission’s suite of annual reporting, is used widely in discussion of industry assistance and trends is extensively cited (for example, in OECD 2004b) and the Commission’s analysis of some

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globalisation issues in its 1999-2000 annual report was used by the Business Council o f Australia in its position paper on offshoring and global outsourcing (BCA 2004). That BCA publication also used Commission research on skill and productivity (2002) and on trends in Australian manufacturing (2003).

• The Commission’s trade-related work, especially on measuring barriers to services trade, continues to be used in the work of the Trade Directorate of the OECD. Other supporting research outputs referenced elsewhere in internal OECD papers during 2004-05 included the Commission’s submissions to the Review of the Trade Practices Act (2002) and to the Hogan Review of Aged Care (2003) and a 1997 Industry Commission Staff Information Paper on land

degradation.

• Examples of the use o f supporting research outputs in the work of federal parliamentary committees and the Parliamentary Library are provided in tables B. 1 and B.2, respectively.

More generally, important means by which supporting research activities contribute to public debate are through media coverage, the dissemination of reports to key interest groups and ready access to reports on the Commission’s website. The

Commission Research Paper Trends in Australian Agriculture, for example, received more than 70 mentions in press and electronic media in the weeks following its release, with much coverage in regional media. To 30 June 2005 for the reports listed in box B.4, there were more than 15 000 external requests for the

index pages on the Commission’s website. There was a total of more than 31 300 external requests for speeches given by the Commission’s Chairman.

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C Government commissioned projects

The nature and breadth of the public inquiries and other work which the Commission is requested by governments to undertake, and the acceptance rate of the Commission’s findings and recommendations, provide some broad indicators of the quality and impact of the Commission’s work.

This appendix updates information provided in the previous annual reports of the Commission on public inquiries and other projects specifically commissioned by the Government. It includes terms of reference for new inquiries and projects and the principal findings and recommendations from reports which have been released, together with government

responses to those reports.

The Productivity Commission is required to report annually on the matters referred to it. This appendix provides details of projects which the Government commissioned during the year and government responses to reports completed in 2004-05 and previous years. It also reports on commissioned projects received since

30 June 2005.

This appendix is structured as follows:

• terms of reference for new government-commissioned inquiries and studies;

• reports released and, where available, government responses to them; and

• government responses to reports from previous years.

Table C.l summarises activity since the Commission’s 2003-04 annual report and indicates where relevant information can be found.

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Table C.1 Stage of completion of commissioned projects and government responses to Commission reports

D a te F o r te rm s o f

re c e iv e d Title re fe re n c e see

Inquiries

5-2-03 Review of the D isa b ility D iscrim ina tion A c t 1992 AR 02-03

23-4-04 Review of National Competition Policy Reforms AR 03-04

31-8-04 Smash Repair and Insurance AR 03-04

31-8-04 Australian Pigmeat Industry AR 03-04

31-8-04 Private Cost Effectiveness of Improving Energy Efficiency AR 03-04

6-4-05 Conservation of Australia’s Historic Heritage Places page 156

Other commissioned projects

28-8-03 Rules of Origin under the Australia-New Zealand Closer Economic Relations Trade Agreement AR 02-03

17-2-04 Reform of Building Regulation AR 03-04

24-6-04 Economic Implications of an Ageing Australia AR 03-04

29-6-04 Australian and New Zealand Competition and Consumer Protection Regimes AR 03-04

31-8-04 Impacts of Advances in Medical Technology in Australia AR 03-04

15-3-05 Australia's Health Workforce page 153

16-3-05 Review of the Australian Consumer Product Safety System page 155

25-7-05 Economic Impacts of Migration and Population Growth page 156

S tage o f co m p le tio n

Report No. 30 signed 30-4-04

Report No. 33 signed 28-2-05

Report No. 34 signed 17-3-05

Report No. 35 signed 18-3-05

Report No. 36 signed 31-8-05

in progress

Report completed 28-5-04

Report completed 17-11-04

Report completed 24-3-05

Report completed 16-12-04

Report completed 31-8-05

in progress

in progress

in progress

M a jo r fin d in g s / G o v e rn m e n t

re c o m m e n d a tio n s re s p o n s e

AR 03-04 page 169

page 161 page 162

page 165 page 167

page 164 page 165

report not released

na na

AR 03-04 page 169

page 157 page 159

page 162 page 164

page 159 page 161

page 167

na na

na na

na na

na not applicable. Note: References are to previous annual reports (AR), inquiry and other commissioned studies of the Productivity Commission.

Terms of reference for new projects

This section outlines the terms of reference for commissioned projects received since the Commission’s annual report for 2003-04 which are in progress or for which the report has not yet been released. Full terms of reference are available on the Commission’s website and in relevant reports.

Australia’s health workforce

On 15 March 2005 the Treasurer, in response to a request by CO AG, asked the Commission to undertake a research study to examine issues impacting on the health workforce including the supply of, and demand for, health workforce professionals, and propose solutions to ensure the continued delivery of quality health care over the next 10 years. The study is to be undertaken in the context of the need for efficient and effective delivery o f health services in an environment of demographic change, technological advances and rising health costs. The Commission was asked to produce an issues paper by 31 May 2005, provide a draft report, and produce a final report by 28 February 2006. COAG subsequently asked for an earlier completion and the Commission’s report is to be finalised by 23 December 2005.

In reporting on Australia’s health workforce, the Commission is to:

• Consider the institutional, regulatory and other factors across both the health and education sectors affecting the supply of health workforce professionals, such as their entry, mobility and retention, including:

- the effectiveness o f relevant government programs and linkages between health service planning and health workforce planning;

- the extent to which there is cohesion and there are common goals across organisations and sectors in relation to health workforce education and training, and appropriate accountability frameworks;

- the supply, attractiveness and effectiveness of workforce preparation through VET, undergraduate and postgraduate education and curriculum, including clinical training, and the impact of this preparation on workforce supply;

- workforce participation, including access to the professions, net returns to individuals, professional mobility, occupational re-entry, and skills portability and recognition;

- workforce satisfaction, including occupational attractiveness, workplace pressure, practices and hours of work; and

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- the productivity of the health workforce and the scope for productivity enhancements.

• Consider the structure and distribution of the health workforce and its consequential efficiency and effectiveness, including:

- workforce structure, skills mix and responsibilities, including evolving health workforce roles and redesign, and the flexibility, capacity, efficiency and effectiveness o f the health workforce to address current and emerging health needs, including indigenous health;

- analysis of data on current expenditure and supply of clinical and non-clinical health workers, including the development of benchmarks against which to measure future workforce trends and expenditure; and

- the distribution of the health workforce, including the specific health workforce needs of mral, remote and outer metropolitan areas and across the public and private sectors.

• Consider the factors affecting demand for services provided by health workforce professionals, including:

- distribution of the population and demographic trends, including that of indigenous Australians;

- likely future pattern o f demand for services, including the impact of technology on diagnostic and health services; and

- relationship between local and international supply o f the health workforce.

• Provide advice on the identification of, and planning for, Australian healthcare priorities and services in the short, medium and long-term, including:

- practical, fmancially-responsible sectoral (health, and education and training) and regulatory measures to improve recruitment, retention and skills-mix within the next ten years; and

- ongoing data needs to provide for future workforce planning, including measures to improve the transparency and reliability o f data on health workforce expenditure and participation, and its composite parts.

In doing so, the paper should take into account existing Australian research and overseas developments that have demonstrated success in providing a flexible response to emerging trends.

• Provide advice on the issue of general practitioners in or near hospitals on weekends and after hours, including the relationship of services provided by general practitioners and acute care.

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Review of the Australian consumer product safety system

On 16 March 2005 the Parliamentary Secretary to the Treasurer requested the Commission to undertake a research study on the impacts of options for reforming Australia’s general consumer product safety system. The system consists of the product safety provisions contained in the Trade Practices Act and equivalent provisions in State and Territory Fair Trading Acts, along with the administration and enforcement of these provisions and other non-regulatory activities conducted by governments to achieve consumer product safety objectives.

The primary purpose of the study is to inform the Review of the Australian Consumer Product Safety System currently being undertaken by the Ministerial Council on Consumer Affairs. The reform options to be examined in the study include those set out in the public discussion paper released by the Council on 27 August 2004. The options include:

• a general legal obligation for businesses to only market safe consumer products;

• a revised definition of unsafe goods;

• revisions to the regulatory coverage o f services and second-hand goods;

• the provision o f improved product safety information to businesses and consumers;

• new requirements for businesses to monitor and report on the safety of their products;

• the establishment of product hazard early warning information systems;

• the linking of product safety information systems;

• increased government and industry funding of product safety research;

• a requirement for businesses to recall unsafe products;

• a government power to audit product recalls;

• measures to harmonise product safety legislation, administration and enforcement; and

• measures to enhance the making of product safety regulation decisions by the Australian Government.

In undertaking the study the Commission is to:

• assess the extent to which Australia’s consumer product safety system is able to achieve its objectives, as outlined in the public discussion paper. This includes assessing the system’s ability to address market failures which affect the safety of consumer products in Australia.

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• examine the direct and indirect economic and social costs and benefits of each reform option, in addition to the costs and benefits of retaining the current consumer product safety system. This work is to include: examining the distribution of costs and benefits amongst businesses, consumers and governments; assessing the impacts on small businesses and families; and evaluating the net community impact of each option. The examination of costs and benefits is to include the impact on competition and international trade of each option, as well as their impact on economic integration between Australia and New Zealand.

The Commission was requested to report within ten months of commencing the study and to provide a draft report by July 2005.

Conservation of Australia’s historic heritage places

On 6 April 2005 the Treasurer referred the policy framework and incentives for the conservation of Australia’s historic built heritage places to the Commission for inquiry and report within 12 months. The Commission is to examine:

• the main pressures on the conservation of historic heritage places;

• the economic, social and environmental benefits and costs of the conservation of historic heritage places in Australia;

• the current relative roles and contributions to the conservation of historic heritage places of the Commonwealth and the State and Territory governments, heritage owners (private, corporate and government), community groups and any other relevant stakeholders;

• the positive and/or negative impacts of regulatory, taxation and instihitional arrangements on the conservation of historic heritage places, and other impediments and incentives that affect outcomes;

• emerging technological, economic, demographic, environmental and social trends that offer potential new approaches to the conservation of historic heritage places; and

• possible policy and program approaches for managing the conservation of Australia’s historic heritage places and competing objectives and interests.

Economic impacts of migration and population growth

On 25 July 2005 the Treasurer requested the Commission to undertake a research study on the impact of population growth, including migration, on Australia’s productivity growth and to report within nine months.

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The Commission is to:

• report on the nature o f international migration flows over the last decade and the extent to which Australia has participated in them and, in particular, flows of skilled migrants;

• examine the impacts on skill levels in the Australian population generally, as well as within different industries and occupations, of skilled and unskilled migration;

• assess the relationship between migration, its different permanent and temporary categories, population growth, population and workforce diversity and productivity in Australia and its states and territories and regions (where possible) and assess likely future developments, quantifying impacts where possible and drawing on the experience of other OECD countries;

• identify the mechanisms through which the impacts of migration and population growth on productivity are transmitted;

• report on any legislative or other impediments which prevent Australia realising the potential productivity gains from migration and from effective use of Australia’s population and workforce diversity; and

• consider the impact of migration and population growth on labour force participation and economic growth more broadly.

Commission reports released by the Government

This section summarises the main findings and recommendations of inquiry and research reports which have been released by the Government in the period to 30 September 2005. It includes terms of reference for those projects commenced and completed in that period and, where available, government responses.

Reform of building regulation

Research Report completed 17 November 2004, released 1 December 2004.

The Commission’s key findings and recommendations were:

• The building sector is subject to a diverse range of regulations by all levels of government. The Building Code of Australia (BCA), in particular, contains building standards aimed at achieving health, safety and amenity objectives.

• There has been work over many years to bring a national approach to building regulation. Progress has been made, particularly in:

- reducing differences in mandatory technical requirements across jurisdictions; and

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- changing the BCA to performance-based requirements, rather than prescriptive requirements.

• However, this reform work is far from complete and recent developments are undermining a national and soundly based system of building regulation. The future agenda for building regulation reform should include:

- further reducing variations across jurisdictions;

- better articulating the performance-based requirements;

- examining ways to enhance administration, compliance and enforcement systems;

- examining the BCA’s approach to property protection from fire, in dialogue with interested parties, in order to resolve differences;

- examining ways to reduce the erosion o f a national approach to building regulation caused by actions of local governments through their planning powers; and

- applying rigorous analysis to incorporating environmental requirements in the BCA.

• The Australian Government, as well as the State and Territory governments, should continue to be actively involved in building regulation reform (including funding).

• A new Inter-Governmental Agreement should be negotiated by all nine governments, so as to:

- clarify the Australian Building Codes Board’s mission statement and objectives of building regulation reform;

- strengthen the commitment to national consistency;

- affirm the importance of a whole-of-govemment approach to building regulation initiatives;

- outline the future work agenda, drawing on recommendations contained in this study;

- emphasise the importance of the Australian Building Codes Board giving priority to its core business;

- strengthen the use of regulatory impact analysis; and

- agree to shared and increased funding and removal of some charges for the BCA.

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On release o f the report, the Chairman of the Australian Building Codes Board noted that the Commission had identified a demanding reform agenda and that, together with refinements to the existing Inter Government Agreement, the

Commission’s report ‘gives the Board a clear blueprint to progress building industry regulation reform’ (Laver 2004). The Australian Building Codes Board has representation from all levels of government, as well as industry, and is charged with progressing national reform initiatives.

In a subsequent announcement on the in-principle agreement of the Australian, State and Territory governments to a new Inter-Govemmental Agreement, the Minister for Industry, Tourism and Resources noted that this landmark arrangement followed the Commission’s extensive review and the new Agreement supported the

Commission’s findings (Macfarlane 2005). Specifically:

• the new Inter-Govemment Agreement would provide continued funding and clear direction for the Australian Building Codes Board and strengthen the BCA — through reinforcement of the need to set minimum standards within the BCA; automatic adoption, by all jurisdictions, o f amendments to the BCA; and annual

reporting of variations and non-adoption of amendments to the BCA;

• the States and Territories would begin implementing measures to ensure local governments do not undermine the nationally consistent building code through their planning approval processes; and

• Ministers agreed as far as practicable to restrict deviations for geographical, geological and climate factors and where variations to the BCA are introduced, they will be subject to regulation impact assessment.

Australian and New Zealand competition and consumer protection regimes

Research Report completed 16 December 2004, released 13 January 2005.

The Commission’s principal findings and recommendations were:

• There has already been significant convergence of Australia’s and New Zealand’s competition and consumer protection regimes, particularly by international standards.

- Consequently, the regimes are not significantly impeding businesses operating in Australasian markets.

• Major changes to the two regimes are not warranted at this stage.

Government response

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- Full integration, requiring identical laws and procedures and a single institutional framework, would have high implementation and ongoing costs, change the operation of the existing national regimes and achieve only moderate benefits.

- Partial integration, involving retaining the two national regimes, but establishing a single system to handle certain matters having Australasian dimensions, also would be unlikely to achieve net benefits.

• However, the long-term objective o f a single economic market for Australia and New Zealand would be assisted by a package of measures involving a transitional approach to integration of the two regimes.

• This package would improve the effectiveness and efficiency of the regimes in dealing with present day competition and consumer protection matters having Australasian dimensions.

• The transitional integration package, while retaining national sovereignty for each jurisdiction, would include:

- retaining, but further harmonising, the two sets of laws in relation to competition and consumer protection policy;

- making more formal the policy dialogue between the two governments on competition policy;

- providing scope for businesses to have certain approvals considered on a ‘single track’ (but with separate decisions);

- enhancing cooperation between the two regulatory institutions (the Australian Competition and Consumer Commission and the New Zealand Commerce Commission), including in relation to enforcement and research;

- providing for the investigative powers of the regulators to be used to assist the regulator in the other country;

- enhancing the information sharing powers between regulators (safeguards should be included to ensure that confidential information shared between regulators can remain protected from disclosure); and

- adding consideration of impediments to a single economic market to the scope of the proposed review of Australian consumer protection.

• Implementation of the recommendations would provide a framework in which the competition and consumer protection regimes o f Australia and New Zealand evolve as:

- the Australasian business environment integrates further; and

- the broader policy environment develops further as the two governments make progress towards the goal of establishing a single economic market.

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Government response

In their joint statement o f 17 February 2005, the Australian Treasurer and the New Zealand Minister for Finance broadly endorsed the work program that the Commission had recommended to more closely integrate the competition and consumer protection regimes of the two countries (Costello and Cullen 2005).

Review of national competition policy reforms

Inquiry Report No. 33 signed 28 February 2005, released 14 April 2005.

On 23 April 2004 the Treasurer referred national competition policy (NCP) reforms to the Commission for inquiry and report within nine months. The Commission subsequently sought and obtained an extension in its reporting date to 28 February 2005.

The Commission’s key findings and recommendations were:

• NCP has delivered substantial benefits to the Australian community which, overall, have greatly outweighed the costs. It has:

- contributed to the productivity surge that has underpinned 13 years of continuous economic growth, and associated strong growth in household incomes;

- directly reduced the prices of goods and services such as electricity and milk;

- stimulated business innovation, customer responsiveness and choice; and

- helped meet some environmental goals, including the more efficient use of water.

• Benefits from NCP have flowed to both low and high income earners, and to country as well as city Australia — though some households have been adversely affected by higher prices for particular services and some smaller regional communities have experienced employment reductions.

• Though Australia’s economic performance has improved, there is both the scope and the need to do better. Population ageing and other challenges will constrain our capacity to improve living standards in the future. Further reform on a broad front is needed to secure a more productive and sustainable Australia.

• In a number of key reform areas, national coordination will be critical to good outcomes. These areas — many of which have been encompassed by NCP — should be brought together in a new reform program with common governance and monitoring arrangements. Priorities for the program include:

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- strengthening the operation of the national electricity market;

- building on the National Water Initiative to enhance water allocation and trading regimes and to better address negative environmental impacts;

- developing coordinated strategies to deliver an efficient and integrated freight transport system;

- addressing uncertainty and policy fragmentation in relation to greenhouse gas abatement policies;

- improving the effectiveness and efficiency of consumer protection policies; and

- introducing a more targeted legislation review mechanism, while strengthening arrangements to screen any new legislative restrictions on competition.

• An ‘overarching’ policy review of the entire health system should be the first step in developing a nationally coordinated reform program to address problems that are inflating costs, reducing service quality and limiting access to services.

• National action is also needed to re-energise reform in the vocational education and training area.

• Reform is important in other key policy areas, including industrial relations and taxation, but there would be little pay-off from new nationally coordinated initiatives.

• The Australian Government should seek agreement with the States and Territories on the role and design o f financial incentives under new national reform programs.

Government response

The Treasurer stated that as the Commission’s report was intended to inform the COAG review of NCP arrangements later in 2005, there would be no formal government response to this report (Costello 2005b). The response would instead be the outcome of the COAG review.

Economic implications of an ageing Australia

Research Report completed 24 March 2005, released 12 April 2005.

The Commission’s main findings were:

• Australia faces a pronounced ageing of its population over the next 40 years. One quarter of Australians will be aged 65 years or more by 2044-45, roughly double the present proportion. The proportion of the ‘oldest old’ will increase even more.

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- In itself, population ageing should not be seen as a problem, but it will give rise to economic and fiscal impacts that pose significant policy challenges.

• People aged over 55 years have significantly lower labour force participation rates than younger people. As more people move into older age groups, overall participation rates are projected to drop from around 63.5 per cent in 2003-04 to 56.3 per cent by 2044-45.

- Hours worked per capita will be about 10 per cent lower than without ageing.

• Assuming the average labour productivity performance of the past 30 years, per capita GDP growth will slump to 1.25 per cent per year by the mid-2020s, half its rate in 2003-04.

• While taxation revenue will largely track GDP growth, government expenditure is likely to rise more rapidly, placing budgets under considerable pressure.

- Although education and some welfare payments are projected to increase more slowly than GDP, government spending on health, aged care and pensions will grow at a faster rate.

- The major source o f budgetary pressure is health care costs, which are projected to rise by about 4.5 percentage points of GDP by 2044-45, with ageing accounting for nearly one-half of this.

• In the absence o f policy responses, the aggregate fiscal gap will be around 6.4 percentage points o f GDP by 2044-45, with an accumulated value over the 40 years of around $2200 billion in 2002-03 prices.

- On past trends, much o f this could be expected to be borne by the Australian Government, but there are significant potential burdens faced by State and Territory governments.

• A range of policy measures will be needed to reduce the fiscal pressure from ageing and/or to finance the fiscal gap.

- Plausible increases in fertility and net migration would have little impact on ageing trends.

- Measures to raise productivity and participation would enhance income growth and the capacity to ‘pay’ for the costs of ageing, including through taxation. However their ability to alleviate fiscal pressure directly depends on the extent to which service demands and costs continue to rise with growth.

- More cost-effective service provision, especially in health care, would alleviate a major source of fiscal pressure at its source.

• Timely action would avoid a need for costly or inequitable ‘big bang’ interventions later. Population ageing can only be conceived as a crisis if we let it become one.

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Government response

On release of the report, the Treasurer stated that it provided ‘an independent and comprehensive analysis o f the economic impacts of ageing for all levels of government for the first time’ as well as ‘useful background information for future planning and policy development by all Australian governments, in the context of the projected ageing of the Australian population’ (Costello 2005a). In addition, the Government drew on the Commission’s projections of future fiscal pressures due to ageing and non-demographic health pressures, growth in GDP per person and the distribution of the fiscal burden between the Australian and State governments in its 2005-06 Budget (Costello and Minchin 2005).

Australian pigmeat industry

Inquiry Report No. 35 signed 18 March 2005, released 16 August 2005.

On 31 August 2004 the Treasurer referred the competitive situation and outlook for the Australian pigmeat industry (including both production and processing) for inquiry and report within five months. The reporting date was subsequently extended to 18 March 2005.

The Commission found that:

• Australia’s pig producing and processing sectors continue to experience significant structural change.

• Over the past six years, Australia has become increasingly integrated into world pigmeat markets, with both exports and imports generally rising strongly.

• From 1999 to 2002 most pig producers were profitable. Between mid-2002 and late 2003, however, many pig producers made financial losses and the market shares for Australian pigmeat products fell.

• Declining competitiveness between mid-2002 and late 2003 was due to lower pig prices in competitor countries, high feed costs due to drought and an appreciating Australian dollar. Profitability improved during 2004, with some pigmeat businesses reporting profits, but imports continued to rise and exports

fell.

• Australia’s main competitive advantages internationally are its ‘clean, green’ image, disease free status and closeness to Asian markets. Australia’s main disadvantages are high feed costs and low economies of scale.

• In the long run, the international competitiveness of pigmeat businesses will be driven by sustainable cost advantages and/or product differentiation.

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• Imports of pigmeat into Australia do not benefit significantly from subsidies. Government assistance provided to pigmeat producers in Denmark and the United States is low. Assistance to Australian pigmeat producers is comparable to these countries. Somewhat more assistance (still low) is provided to pigmeat producers in Canada.

• Governments could reduce some impediments to industry performance and to competitiveness by, for example, seeking reductions in overseas trade barriers and reviewing the impact of single-desk grain exporting arrangements in Australia.

- Such actions are unlikely, however, to make a large improvement to the competitiveness of pigmeat businesses or insulate the industry from such short term factors as drought and fluctuating exchange rates.

• Any increase in trade restrictions on imported frozen uncooked pigmeat would impose costs on pigmeat consumers, retailers and manufacturers, and may not be in the long term interests of pig producers or primary processors.

• General government assistance is available to help Australian pigmeat businesses to adjust and further assistance is not warranted at this time.

Government response

The Government response:

• in effect, endorsed the bulk of the Commission’s findings;

• noted the substantial financial grants to the pigmeat industry to help it adjust to market and climatic conditions of the past few years — assistance on top of the $24 million adjustment package provided between 1998 and 2002; and

• importantly, did not commit to additional industry-specific assistance measures for the pigmeat industry (McGauran 2005).

Smash repair and insurance

Inquiry Report No. 34 signed 17 March 2005, released 18 August 2005.

On 30 August 2004 the Treasurer referred the relationship between the Australian motor vehicle smash repair industry and the motor vehicle insurance industry to the Commission for inquiry and report within five months. The Commission subsequently sought and obtained an extension of its reporting deadline to 31 March

2005.

The Commission’s principal findings and recommendations were:

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• Serious issues o f dispute between the smash repair and insurance industries affect fair trading and transparency, and impact on efficiency. The situation has worsened in recent years as insurer power has concentrated.

• Rationalisation and productivity improvement in the smash repair industry will continue in response to a wide range of industry and market factors, not just in response to actions by the four major insurers to reduce costs.

• Preferred smash repairer (PSR) arrangements benefit insurers, consumers and many repairers. Inevitably, some repairers are disadvantaged. But PSR arrangements should not in principle adversely affect the quality and safety of repair. Nevertheless, some improvements can be made.

- Insurers could, at little cost, enhance the transparency of PSR arrangements.

- Provided probity and prudential requirements are met, PSR status should not be automatically terminated on sale or transfer o f a repair business.

- The disadvantages of industry-wide nationally agreed PSR criteria are likely to outweigh any advantages.

• The commonly used quoting system known as funny time, funny money should be abandoned.

- If times and hourly rates are used, they should reflect realistic times and rates. Parts, paint and significant consumables should be separately costed.

- There is no justification for regulating for an industry standard hourly rate or imposing industry standard hours.

• If an insurer specifies repair methods and/or parts, it should accept responsibility in writing for the quality and safety consequences of its requirements.

• Repairers should only be required to guarantee their work for an agreed reasonable time. They should not be required to guarantee parts or paint for longer than the manufacturers’ own warranties.

• Current payment times appear commercially acceptable in the vast majority of cases.

• Consumers wanting choice of repairer can choose a policy from one o f the several insurers offering that choice. On this basis', consumers have restricted, but reasonable, choice of repairer. But insurers should clearly and accurately explain to consumers the choice options under their policies.

• There is prima facie justification for the development of an industry-wide code as a cost effective way to improve the relationships between insurers and repairers.

- However, the net benefits of a code depend critically on its scope and content.

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• Provided that its scope and content follow principles outlined in this report, the benefits for the community as a whole o f an industry-wide code are likely to outweigh the costs, even if mandated.

- If a voluntary code cannot be agreed between insurers and repairers within six months from release of the Government’s decision on this report, a code should be mandated.

Government response

On release of the report, the Minister for Small Business and Tourism announced that the Government agreed with the Commission’s key recommendations. In brief, the Government agreed:

• to work with the smash repair and insurance industries to develop a voluntary code of conduct along o f the lines outlined by the Commission;

• that the code should include most of the matters identified by the Commission although, because of the complexities of moving to a new system of quoting, the funny time, funny money quotation system could continue where clearly specified by insurers in contractual arrangements;

• that the code should not attempt to specify or regulate on an industry-wide basis those matters identified by the Commission as being inappropriate for inclusion; and

• in the event that voluntary agreement between insurers and repairers not be reached within six months, and a voluntary code (in accordance with the Governments’ response) between the four major insurers not be reached within a further three months, the Government would examine further regulatory options

including imposition of a mandatory code under the Trade Practices Act (Bailey 2005).

Impacts of advances in medical technology in Australia

Research Report completed 31 August 2005, released 20 September 2005.

The Commission’s key findings were:

• Advances in medical technology have brought large benefits but have also been a major driver of increased health spending in recent years.

- In many cases, increased expenditure on new medical technologies reflects improved treatment and a significant increase in the number of people treated.

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• Overall, advances in medical technology arguably have provided value for money — particularly as people highly value improvements in the quality and length of life — but the cost effectiveness of individual technologies in practice varies widely and for some is simply unknown.

• Variations in cost effectiveness, and relatively low use by some demographic groups, suggest scope for expanding use of some technologies and possibly reducing use o f others to increase net community benefits.

• Better coordinated, more systematic health technology assessment (HTA) with transparent objectives, underpinned by the principle of enhancing overall community wellbeing, would be a good step forward. HTA can help to target use of new technologies and promote overall cost effectiveness of healthcare spending.

- Evidence and needs based access to new technologies is preferable to existing, often blunt, rationing mechanisms.

- Systematic reviews of efficacy and cost effectiveness of new technologies once they are in use could promote overall cost effectiveness of healthcare, without unduly delaying their introduction.

- Greater procedural transparency and community involvement in HTA have the potential to foster greater acceptance of technology funding decisions and to help ensure that HTA is not used simply to restrain expenditure.

• The next decade or so could see the emergence of revolutionary technological advances based largely on knowledge of the human genome. Many are expected to provide significant benefits to the Australian community, but at significant cost.

• Such technological advances, interacting with (and encouraged by) increasing demand for health services driven by income growth, accelerating population ageing, community expectations that new technologies will be accessible to all, the commitment of doctors to offer the best-available treatments, and subsidised consumer prices, will make for a potent mix, placing increasing pressures on the private and public health systems.

• These pressures underscore the need for better information about the costs and benefits of technology. But technology is only one input in healthcare. Problems related to technology use often reflect broader structural, incentive and resourcing issues in the health system.

• There is a pressing need to explore what the community considers is an appropriate level of subsidised access to healthcare and the technology it embodies, and the institutional and incentive structures that will deliver it efficiently and equitably.

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Government responses to reports from previous years

Rules of origin under the Australia-New Zealand Closer Economic Relations Trade Agreement

Research Report completed 28 May 2004, released 11 June 2004.

In their joint communique of 11 December 2004 following the 2004 CER Ministerial Forum, trade and economic Ministers from Australia and New Zealand announced their rejection of the Commission’s recommendation that the basic form

of CER Rules o f Origin remain unchanged and that a change of tariff classification model not be used for origin determination under CER. Subject to final agreement on ‘sensitive sectors’, a change of tariff classification system would be adopted.

Detailed proposals were to have been developed by the end of March 2005 (DFAT 2004).

Review of the Disability Discrimination Act 1992

Inquiry Report No. 30 signed 30 April 2004, released 14 July 2004.

On 27 January 2005 the Attorney-General announced that the Government had accepted a majority o f the Commission’s 32 recommendations either in full, in principle or in part (Ruddock 2005). Twenty-two of the Commission’s recommendations were accepted in full (including nine accepted in principle); four recommendations were accepted in part; and six recommendations were rejected.

Many of the Commission’s most significant recommendations were adopted in whole or in part. Amendments to the Disability Discrimination Act (DDA) would clarify the reasonable adjustment duty that was implied in the Act, but importantly, also strengthen and/or extend existing safeguard mechanisms. In particular, the

‘unjustifiable hardship’ test would (as recommended) be extended to all areas of the DDA. This would include education after enrolment (where the absence of this defence had created open-ended commitments for education institutions), and administration of government programs. The application of the test would be

strengthened to ensure that adjustments should produce net benefits to the community and that the availability of financial and other assistance (to the respondent) should be considered.

Other notable reforms would include:

• Enabling industry to develop and have certified codes of conduct. Certification by the Human Rights and Equal Opportunity Commission (HREOC) would

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mean that firms applying the code would be deemed to be complying with the DDA (the Attorney General has written to HREOC for proposals on how this could be implemented).

• Extension of the facility to develop standards for any area where discrimination is unlawful or to clarify the operation of exemptions.

• Clarification that disability standards will prevail over State and Territory legislation covering the same matter. This would help create greater certainty for business. In addition a proposal has been put to the States and Territories that they incorporate disability standards directly into their own anti-discrimination legislation.

• Giving complainants more time to lodge complaints with the Federal Court and making conciliation agreements enforceable in federal courts

The Government differed with the Commission’s assessment of the desirability of parties to disability discrimination court cases bearing their own costs and of HREOC establishing a formal cooperative complaints handling arrangements with State and Territory anti-discrimination bodies, arguing that existing arrangements are sufficient. The Government also rejected the Commission’s recommendations to review the Migration Act exemption to the DDA and to limit the application of the insurance and superannuation exemption. In regard to the latter, the Government preferred to rely on industry codes to meet the Commission’s recommendations on disclosure rights in the case of unfavourable underwriting decisions. The Government stated that it would raise the issue with the Insurance Council of Australia before giving further consideration as to whether legislative amendment might be appropriate.

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D Competitive neutrality complaints

The Productivity Commission Act and the Government’s Competitive Neutrality Policy Statement require the Commission to report annually on the number of complaints it receives about the competitive neutrality of government businesses and business activities and the outcomes of its

investigations into those complaints. The Australian Government Competitive Neutrality Complaints Office (AGCNCO) received four formal complaints in 2004-05. Details of the action taken in relation to these complaints, and complaints on hand from the previous year, are summarised in this appendix.

Complaints formally investigated

EDI Post

This complaint was received in 2003-04.

EDI Post (EDI) is a division within Australia Post which provides a range of services including madhouse operations. In its madhouse activities EDI competes with a range o f other businesses, and has around 3 to 5 per cent of the market.

Chandler Enterprises, a private company which provides madhouse services, lodged a complaint against EDI Post in April 2004. Chandler alleged that EDI’s pricing does not comply with competitive neutrality principles. It also alleged that EDI derives an advantage over its competitors through access to information about

competitors’ clients.

During the investigation, Australia Post provided information to the AGCNCO on a commercial-in-confidence basis that allowed it to examine EDI’s financial performance over the past five years, the cost allocation method used to constmct the underlying cost base and EDI’s approach to setting prices. The AGCNCO

released its investigation report (Investigation number 12) in June 2005.

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The AGCNCO found that:

• EDI Post is setting prices that are in accordance with competitive neutrality principles; and

• there is no evidence that EDI Post has obtained information, from other areas of Australia Post on the major clients of competing madhouses, which could provide it with a competitive advantage.

Consequently, the AGCNCO found that no further action was required in relation to this complaint.

Complaints not subject to formal investigation

Printing Industries Association of Australia

In July 2004, the Printing Industries Association of Australia (PIAA) wrote to the AGCNCO expressing concern about a number o f issues. These included that madhouse services provided by Australia Post (through EDI Post) were not

complying with competitive neutrality and that the prices of printing services provided by Australia Post may not fully reflect costs.

The AGCNCO advised the PIAA that a complaint was already underway into madhouse services. It also advised the PIAA that it would need to provide specific information in relation to printing services before the AGCNCO could take further action. The PIAA has not subsequently contacted the AGCNCO.

Australian Newsagents’ Federation

The Australian Newsagents’ Federation’s (ANF) lodged a complaint against Australia Post in late-December 2004. Its concerns fell into two broad categories:

• that the pricing o f Australia Post’s bill payment, magazine distribution and retail stationary services does not reflect full cost attribution; and

• that Australia Post enjoys a range o f other advantages over competitors such as lower distribution costs, reciprocal arrangements with large retailers, and uncommercial retail tenancy agreements.

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Cross subsidies

Claims of cross subsidisation fall within the scope of matters investigated by the AGCNCO. However, in Australia Post’s case, the competitive neutrality complaints mechanism is now not the only process by which such claims can be tested.

In November 2004 (well after the AGCNCO had commenced its investigation into EDI Post) the Government amended the Australian Postal Corporation Act 1989 to require Australia Post to keep records to allow the ACCC to monitor whether Australia Post is cross subsidising its competitive activities. Known as the Record Keeping Rules (RKRs) for Australia Post, these amendments originated from concerns first expressed by the ANF, among others, in 2000. The ACCC has reported that issue of the ‘RKRs should ensure that Australia Post is not using its monopoly power in letters to the detriment of competition in other markets’ (ACCC 2005).

In relation to this complaint, the AGCNCO met with, and subsequently corresponded with, the ACCC, to determine whether the RKRs would operate at a sufficiently disaggregated level to address the issues raised by the ANF. The ACCC indicated that separate information is to be provided by Australia Post for retail and financial services, as well as for a range of other competitive services. The ACCC has now issued the RKRs, and Australia Post must report against these rules by November 2005.

Although the ACCC cannot investigate individual pricing claims, the AGCNCO considers that the outcome of the ACCC’s monitoring process is likely to generate — on an ongoing basis — the same information as a competitive neutrality investigation. In light o f the ACCC’s monitoring processes, the AGCNCO did not

conduct a separate investigation into the pricing of Australia Post’s competitive services.

Other concerns

The ANF’s other concerns related to retail tenancy terms, reciprocal arrangements with businesses such as Coles and Telstra, and lower distribution costs arising from its use of the postal network.

Competitive neutrality policy distinguishes between advantages that arise purely by virtue of government ownership and those that occur for other reasons, such as the size of the operation or access to a particular network. Competitive neutrality addresses only those advantages that arise solely because of government ownership.

The AGCNCO found no evidence to suggest that the alleged advantages cited by

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the ANF arise because of Australia Post’s ownership by the Australian Government. For instance, it is common for large private businesses to negotiate rents in shopping centres that refect the fact that they draw custom to the centre.

As such, the AGCNCO considered that these other issues raised by the ANF did not fall within competitive neutrality policy.

Sea Tow

Sea Tow Services Pty Ltd operates a ‘road service at sea’ which provides non­ emergency breakdown services on the water. On 24 June 2005 Sea Tow wrote to the AGCNCO requesting that it investigate the commencement of similar services by the Australian Volunteer Coastguard and the Volunteer Marine Reserve.

The AGCNCO advised Sea Tow that the activities in question are not businesses owned by the Australian Government, and therefore are not matters that it can investigate.

Complaints subject to ongoing action

CBD Chauffeured Transport

In April 2005 CBD Chauffeured Transport lodged a complaint with the AGCNCO alleging that:

• ComCar had a number of regulatory advantages over potential private competitors; and

• ComCar’s activities in relation to provision of vehicles for ‘Guests of Government’ did not comply with competitive neutrality policy.

ComCar is not currently deemed to be a business activity and is, consequently, not subject to competitive neutrality policy. The AGCNCO is continuing to work with the complainant, ComCar, the Department of the Prime Minister and Cabinet and the Department of Finance and Administration to assess whether ComCar should implement competitive neutrality for any aspect of its activities.

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E Supporting research and related activities

The Commission’s supporting research program encompasses a range of activities. This appendix provides brief summaries of Commission Research Papers and Staff Working Papers published during the year. It also lists the presentations given by

the Chairman, Commissioners and staff to parliamentary committees, conferences and industry and community groups in 2004-05, as well as briefings to international visitors.

Research reports

ICT use and productivity: a synthesis from studies of Australian firms

July 2004

The origins o f this research project lay in an invitation from the OECD to the Commission to participate in an international study of the uptake of information and communications technology (ICT) and its effects on productivity. The Commission initiated a joint project with the Australian Bureau o f Statistics, the Department of

Industry, Tourism and Resources and the (then) National Office for the Information Economy in order to take a more comprehensive approach that could draw on expertise in these different agencies.

The paper drew together the findings from different streams of work undertaken for the project, as well as the completed OECD study. The Commission’s principal findings were:

• Compared with their overseas counterparts, Australian firms have been active in their uptake of ICT and successful in their efforts to turn it to productive advantage.

• Australian firms invested more in ICT, especially from the mid-1990s, as technological advances provided cheaper and readier access to more accurate, timely and useful information.

• The gains from use of ICT stem from the opportunities it provides firms:

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- to undertake existing tasks more quickly, cheaply and effectively by substituting ICTs for other inputs, especially labour; and

- to improve multifactor productivity (the efficiency and effectiveness of input use) by using ICTs as a platform for innovation through new value-adding and efficiency-enhancing products, processes and organisational structures.

• Many of these gains do not come automatically — from the mere purchase and installation of new hardware and software.

- There can be costly and time-consuming adjustments, for example, in staff dislocation and (re)training.

- Product, process and organisational innovations require investments in design, development and implementation.

- Skilled staff and high-order management skills and qualities are needed if potential gains are to be realised.

- The gains also depend on the accumulation o f experience in and learning from the application of ICTs and from the investments in ICT-enabled innovations.

• The acceleration in use of ICT in the 1990s raised the rates of growth in Australia’s labour productivity and multifactor productivity.

- Although the available estimates suggest that the acceleration in use o f ICT contributed a relatively small amount to Australia’s 1990s productivity acceleration, the estimated productivity gains (especially in multifactor productivity) are high by international standards.

• Firms and industries differ in the intensity of their use of ICTs and in their realisation of productivity gains.

- This is largely due to differences in the nature and amount o f their investment in ICT-enabled innovation, in their access to skilled staff and management, and in their accumulation o f learning and experience.

• Countries differ in the intensity of ICT use and associated productivity gains.

- This is largely due to differences in costs of using ICT, in the ability of firms to absorb new technology and in the policy and institutional environments in which firms operate.

• Tapping ICT’s future productivity potential is predominantly in the hands of firms.

- Whilst specific issues require ongoing government attention, the strong performance of Australian firms suggests that additional widespread government support is not warranted. The main role for governments remains

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one of ensuring that markets are competitive, firms have flexibility to adjust and to experiment, innovation is appropriately supported and needed skills are developed.

Assistance to tourism: exploratory estimates

April 2005

This research paper is the first comprehensive attempt to quantify the extent of assistance to tourism on a comparable basis to that for other Australian industries. A core function o f the Commission, in common with its predecessor organisations, is to enhance the transparency of government support for industry by compiling and publishing assistance estimates in a meaningful form. Over the years, this work has broadened from a focus on tariffs and manufacturing, to include budgetary and

other forms of assistance to that sector as well as to agriculture, mining and, most recently, services.

Unlike other service activities, tourism is not an industry in the conventional sense and, until recently, data on it that would enable the calculation of assistance estimates have been unavailable. That has changed with the development by the Australian Bureau o f Statistics of the Tourism Satellite Account — a new collection of data on travel and tourism activity in Australia. Nevertheless, the estimates are called ‘exploratory’, because they have required some judgements and analytical

innovations to overcome the conceptual and measurement difficulties entailed.

While care is needed in the interpretation o f the results, the results show that:

• Tourism receives a lower rate of Australian Government assistance as measured by the Commission than the average for the manufacturing and primary sectors.

- Assistance measures include destination marketing and support for high- profile cultural or sporting events, and funding for art galleries, national parks and transport.

• In total, the sector receives a diverse range of government assistance of around $1 billion.

- Most assistance has been provided by the States and Territories, averaging some $780 million to $960 million per annum between 2000-01 and 2002-03. Assistance provided by the States and Territories is estimated to have amounted to around 6.9 to 7.4 per cent of the tourism industry’s gross value

added as measured by the Commission.

- The Australian Government provided budgetary assistance to tourism of around $230 million to $260 million per annum, on average, over the three

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years to 2002-03. The assistance provided by the Australian Government is estimated to have been equivalent to around 1.1 to 1.4 per cent of the tourism industry’s gross value added as measured by the Commission.

Trends in Australian agriculture

June 2005

This research paper examines some of the key trends in Australia’s agriculture sector over the last 20 years or so and is part of a series tracing developments in different sectors of the Australian economy. The key points were:

• Agriculture has undergone much change over the last few decades. Key drivers have been shifts in consumer demand, changes in government policies, technological advances and innovation, emerging environmental concerns and an unrelenting decline in the sector’s terms of trade.

• While historically agriculture played a dominant role in the economy, its relative importance has declined in recent decades.

• That said, in absolute terms, real agricultural output has more than doubled over the four decades to 2003-04. And agricultural exports have almost tripled in value (real terms) since the mid-1970s.

• In 2003-04 the sector directly generated 4 per cent of GDP and employed 375 000 people or 4 per cent of the workforce. It looms larger in Australia’s exports, accounting for around 22 per cent of total exports in 2003-04.

• Farms are much fewer and larger than 20 years ago. Production is increasingly concentrated on larger farms, accentuating the dual nature of the sector (with a few large commercial farms accounting for the majority of output and many farms accounting for a small share o f output).

• Agriculture has become increasingly export oriented over the last two decades — around two-thirds of production is now exported. Exports have also become more diverse, with less reliance on traditional commodities such as wool and more on processed products such as wine, cheese and seafood.

• The agricultural workforce has a number of distinctive features, including: a high proportion of self-employed, family and casual workers; long job tenure; and a relatively old workforce with relatively low education levels and employee wages.

• The last two decades have seen an increase in the number of employees and a fall in employers and contributing family workers. The educational attainment of workers has also improved.

178 ANNUAL REPORT 20044)5

. Off-farm employment has become increasingly important to maintaining family farm incomes. Since 1990, the proportion of farm families deriving income from off-farm wages and salaries increased from 30 to 45 per cent, with average earnings rising from $15 000 to $33 500 per year.

• Agricultural productivity has exhibited strong growth over the last three decades — more than twice the rate achieved in Australia’s market sector as a whole.

• Productivity growth has accounted for the entire increase in output by the agriculture sector over the last 30 years.

• Performance within the sector has been mixed — over the last three decades the cropping industry recorded the highest productivity gains, and the sheep and sheep-beef industries the lowest.

Staff working papers

Note: The views expressed in sta ff working papers are those o f the authors and do not necessarily reflect the views o f the Productivity Commission. Staff working papers are available from the Commission’s website, but are not fo r quotation without the permission o f the authors.

Responsiveness of demand for irrigation water: a focus on the southern Murray-Darling Basin

David Appels, Robert Douglas and Gavan Dwyer, August 2004

This paper is part of a suite o f research related to water issues in Australia, including the effects of expanding water trade and the management of environmental externalities associated with the supply and use of irrigation water. It examined the demand for irrigation water in major irrigation districts in the

southern Murray-Darling Basin — where the majority of irrigation in Australia occurs. The aim of the research was to gain insights into how irrigators in major agricultural industries — rice, dairy and horticulture — alter their use of water in the short and long run as utility charges and/or the market price o f traded water

change. The principal findings were:

• There is no single market for irrigation water in the southern Murray-Darling Basin. Water utility charges vary between districts. Prices o f traded water (for both seasonal allocations and entitlements) vary temporally and spatially between irrigation districts (reflecting constraints to trade between irrigation

districts).

SUPPORTING RESEARCH AND RELATED ACTIVITIES

179

• Demand for irrigation water is relatively unresponsive to changes in the price of water at relatively lower prices in the short run, but becomes more responsive at higher prices, and in the long run.

• Irrigator responsiveness depends on the total water needs of an irrigator’s crop. These needs are first satisfied from rainfall, then from seasonal allocations, and finally by purchases of traded water.

• Irrigator responsiveness to changes in water prices may vary substantially from year to year because o f seasonal conditions locally and in the headwaters of the relevant catchment. Rainfall variability (and resultant variability o f seasonal allocations) causes volatility in demand for, and prices of, traded irrigation water.

• Irrigators’ responses to changing water prices will vary because of past investment decisions and available substitution choices.

- In the short run, rice growers tend to reduce the area planted to rice in years when they expect relatively low seasonal allocations. Dairy farmers have more substitution choices, such as purchasing fodder rather than irrigating their own pastures. Horticulturists with perennial crops may be relatively unresponsive to changing seasonal prices for irrigation water, because of the

cost of replanting if part o f their crop dies.

In the long run, irrigators may respond to rising water prices by adopting water saving technologies or by altering their mix of irrigated activities. At current prices, on-farm water savings alone are unlikely to justify investment in water saving technology. Water ‘saved’ by use o f water saving technology

is likely to be used to irrigate more land, or sold to other irrigators (in the absence of a mechanism to allocate it to other uses).

- Substitution can occur between alternative irrigation activities, and between irrigated and non-irrigated activities. If a large number of irrigators choose to move from one activity to another, the change may affect commodity prices received in both the activity they leave (prices may go higher) and the one they enter (prices may go lower), and may affect land and water prices.

An integrated tariff analysis system: software and database

Matthew Forbes, Jane Fry, Patrick Jomini and Alexandra Strzelecki, November 2004

The Commission and its predecessor organisations have had a longstanding involvement in the quantitative analysis of trade and assistance regimes. In the

180 ANNUAL REPORT 2004-05

context of market access negotiations in the Doha Development Round, various systematic approaches and formulas have been proposed to reduce tariffs.

The Integrated Tariff Analysis System (ITAS) has been developed by Commission staff to assist researchers in analysing proposals to reduce tariffs in non-agricultural markets. It is designed primarily for use by trade analysts and researchers, but also by negotiators who require an accessible way to assess the effects of different proposals.

The paper provides an overview of the structure of ITAS by:

• describing the raw data on tariffs and explaining how these data are converted into a form suitable for multi-country analysis of tariffs;

• outlining several tarif reduction formulas and explaining how they are used to calculate final tariff rates from initial rates;

• describing the resulting tariff data created by ITAS and the data summaries available; and

• outlining some ways in which ITAS could be extended to tariffs that affect agricultural trade and to include other countries or customs territories.

The CD accompanying the paper also includes an implementation of ITAS covering 19 importing countries and programs that are ready to be adapted to the needs of different users.

Modelling water trade in the southern Murray-Darling Basin

Deborah Peterson, Gavan Dwyer, David Appels and Jane Fry, November 2004

This paper also forms part o f a suite of Commission research related to water issues. It examines the likely economic impacts o f expanding water trade in the southern Murray-Darling Basin using TERM-Water, a ‘bottoms-up’ regional CGE model of

the Australian economy. The key points of the analysis were:

• Markets for trading irrigation water enable water to be re-allocated to more productive uses — with gains to buyers and sellers. Water trade can also lessen the impact of reductions in irrigation water availability.

— If markets for seasonal water allocations continue to develop, further productivity gains may be made even if trades in water entitlements remain constrained.

• A general equilibrium model provides preliminary analysis of the long-run regional and industry impacts of reductions of 10, 20 and 30 per cent in water availability in the base year in the southern Murray-Darling Basin, under

SUPPORTING RESEARCH AND RELATED ACTIVITIES

181

conditions of no trade, intraregional trade only, and both intraregional and interregional trade.

• The model estimates that moving from no trade to intraregional and interregional trade together more than halves the impact of the reductions in water on the gross regional product (GRP) of the southern Murray-Darling Basin.

- Moving from no trade to intraregional trade lessens the impact by 35 to 42 per cent. Including interregional trade reduces it another 22 to 24 per cent.

• For a 10 per cent reduction, the model estimates:

- without water trade, GRP declines by around 1 per cent ($356 million in 2003);

- with intraregional trade only, GRP declines by around 0.7 per cent;

- with intraregional and interregional trade, GRP declines by around 0.5 per cent; and

- with interregional trade, the Murrumbidgee and Murray regions in New South Wales become net exporters of water, while the northern Victorian regions and the Murray Lands region in South Australia become net importers.

• A 20 per cent reduction in water availability has more than double the effect on GRP of a 10 per cent cut, while a 30 per cent cut has an almost fourfold effect. The relative effects of expanding trade in all cases is similar.

• The 10 per cent reduction in irrigation water leads to an output decline in most industries. However, in most industries, declines in output are lower when intraregional and interregional trades are allowed. In the southern Murray- Darling Basin:

- dairy industry output falls by 8 per cent under intraregional trade, and by 4 per cent under intraregional and interregional trade;

- perennial horticulture industry output decreases by 1.4 per cent under intra­ regional trade, and by 0.7 per cent under intraregional and interregional trade;

- rice industry output falls by 15 per cent under intraregional trade and by 20 per cent under intraregional and interregional trade; and

- for each industry, there can be significant differences in effects across regions.

• In years with low water availability, water reductions would have a larger effect on GRP than if the cut had occurred in years with higher water availability.

• Short run analysis of the expansion of trade under variable seasonal allocations shows similar effects.

• This analysis does not take into account the impact of changes in water trade on environmental conditions such as salinity.

182 ANNUAL REPORT 2004Ό5

The growth of labour hire employment in Australia

Patrick Laplagne, Maurice Glover and Tim Fry, February 2005

The paper is part o f an ongoing program of research into labour markets at the Commission to examine developments in employment relationships and the implications of these developments for the labour force and the Australian economy.

Prior to this paper, the relative merits of the arguments for and against labour hire employment could not be properly assessed because no clear or consistent measures of the level and growth of labour hire employment had been constmcted, and

information on why firms use labour hire was largely anecdotal or based on case studies which are not amenable to generalisation. This paper shed light on both these issues by: measuring the level and growth of labour hire employment using consistent, comparable and recent data; and identifying the factors influencing

firms’ use of labour hire. This allowed the analysis to connect the growth of labour hire employment between 1990 and 2002 with a number of changes having affected the Australian economy in that period.

The key points from the paper were:

• Labour hire employees numbered around 270 000 in 2002, equivalent to about 2.9 per cent of all employed persons.

• Labour hire employment grew strongly between 1990 and 2002. In workplaces with 20 or more employees:

- the number of labour hire workers grew from 33 000 in 1990 to 190 000 in 2002, an increase of 15.7 per cent a year; and

- the proportion of labour hire workers among all employees grew almost fivefold, from 0.8 per cent in 1990 to 3.9 per cent in 2002.

• The rapid growth o f labour hire employment over the period can be attributed to how firms manage their workforce, rather than to changes in the economy’s structure (that is, its composition in terms of industry and firm size).

• The following changes in operating environment contributed to firms’ altering of their employment strategy in favour of labour hire workers.

- Changing industrial relations context in the period: there was a decline in the proportion o f firms with ‘closed union shops’, a rise in enterprise bargaining, and an increase in the use of human resources managers. All three changes are likely to have contributed to an increase in the propensity

of firms to use labour hire.

SUPPORTING RESEARCH AND RELATED ACTIVITIES

183

- Rising competitive pressures', trade liberalisation and globalisation put increasing pressure on firms to be competitive. One way for firms to increase competitiveness is to optimise their use of labour. Labour hire employment helped some firms to achieve that objective.

• In contrast, two changes occurring between 1990 and 2002 are likely to have slowed the growth o f labour hire employment.

- The introduction o f new technology', contrary to expectations, new technology is associated with a lower likelihood of using labour hire.

- Changes in the economy’s structure', the slower growth of manufacturing and other intensive users of labour hire employment, relative to other sectors of the economy, slowed the growth of labour hire employment.

184 ANNUAL REPORT 2004-05

Table E.1 Speeches and presentations by the Chairman, Commissioners and staff, 2004-05

Organisation/event

G ary Banks, Chairm an:

Leadership Roundtable, Melbourne

IPAA Spotlight on Spring Street Seminar, Melbourne

Australian Council for Infrastructure Development Infrastructure Exchange Forum, Sydney

Melbourne Institute Public Economics Forum, Canberra

Burgmann College, ANU, Canberra

2004 Conference of Economists Business Symposium, Sydney

National Farmers’ Federation, Canberra

Productivity Commission Conference, Quantitative Tools for Microeconomic Policy Analysis, Canberra

Economic Society (ACT) Annual General Meeting, Canberra

CEDA, Sydney

CEDA, Melbourne

Financial Sector Advisory Council Meeting, Melbourne

Senate Select Committee on the Administration of Indigenous Affairs, Canberra (with Robyn Sheen)

Topic

Economic reform: where to from here?

Prospering in an ageing society — population, participation and productivity

Accessing and improving infrastructure service delivery

The reform agenda for the next federal and state governments

Bad public policy: causes and cures

Implications of economic regulation for infrastructure investment

Economic reform and the rural sector

A Commissioner’s perspective on economic modelling

Economic implications of an ageing Australia — the Commission’s draft report

NCP and beyond: an agenda for national reform

NCP and beyond: an agenda for national reform

Best practice in regulation and the role of the ORR

Overcoming indigenous disadvantage

Date

Jul 2004

Jul 2004

Aug 2004

Sep 2004

Sep 2004

Sep 2004

Nov 2004

Nov 2004

Nov 2004

Nov 2004

Dec 2004

Feb 2005

Feb 2005

(continued next page)

Table E.1 (continued)

Organisation/event Topic Date

Department of Industry, Tourism and Resources SES Seminar, Canberra

Australian Business Foundation Productivity and Innovation Roundtable, Sydney

RSCA Workforce Symposium 2005, Sydney

Centre for Corporate Public Affairs, Politics and Public Policy Review 2005, Canberra

Melbourne Institute/Australian 3rd Economic and Social Outlook Conference, Melbourne

Australian Higher Education Industrial Association Conference, Brisbane

International CEO Forum, Sydney

The Reform Club Luncheon Forum, Sydney

BTRE Transport Colloquium 2005, Canberra

World Bank/IMF, Washington

OECD, Paris

OECD Round Table on Sustainable Development, Paris

Economic reform and growth: from whence the next wave?

Sustaining long-term growth in an ageing society

Sustaining long-term growth in an ageing Australia

Microeconomic reform: the Productivity Commission’s agenda

Reform imperatives for an ageing Australia

Higher education in an ageing society

A reform agenda for an ageing Australia

Economic implications of an ageing population and national competition policy

Competing objectives in infrastructure regulation

Structural reform Australian-style: lessons for others?

Structural reform Australian-style: lessons for others?

Post-Kyoto greenhouse issues — discussant

Mar 2005

Mar 2005

Mar 2005

Mar 2005

Mar 2005

Apr 2005

May 2005

May 2005

May 2005

May 2005

May 2005

June 2005

C om m issioners:

2004 Local Government Association of Queensland Environment Conference, Cairns (Neil Byron)

JobFutures National Forum, Sydney (Robert Fitzgerald)

3rd World Congress of the International Society for Business, Economics and Ethics, Melbourne (Neil Byron)

ABARE Regional Outlook Conference, Sale, Victoria (Neil Byron)

Nonprofit Governance and Management Centre Building Better Boards National Conference 2004 (Robert Fitzgerald)

Australian Communications Authority Spectrum Strategy Seminar, Canberra (Neil Byron)

Collins Club, Melbourne (Philip Weickhardt)

Australian Building Codes Board Meeting, Sydney (Tony Hinton)

Australian Council for International Development Conference, Canberra (Robert Fitzgerald)

Australasian Aquaculture 2004 Conference, Sydney (Neil Byron)

National Industry and Government Liaison Committee, Canberra (Tony Hinton)

IPAA/DVC Conference, Melbourne (Robert Fitzgerald)

The role of local government in environmental management and natural resource management

Productive players in our social economy — challenges choices and opportunities for the not-for-profit sector

Building a green utopia?

Impacts of native vegetation legislation — the Commission’s draft report

Critical challenges and vital choices for nonprofit boards

Importance of economic instruments in spectrum management

Australian firms venturing abroad — is a branch office economy inevitable?

Building regulation reform - the Commission’s Draft Report

Critical choices for charities in a contested environment and expanding social economy

Environmental regulation of aquaculture in Australia

Building regulation reform — the Commission’s Draft Report

Measuring community strength

Jul 2004

Jul 2004

Jul 2004

Jul 2004

Jul 2004

Aug 2004

Sep 2004

Sep 2004

Sep 2004

Sep 2004

Sep 2004

Oct 2004

(continued next page)

Table E.1 (continued)

Organisation/event Topic Date

Queensland Council of Social Service Statewide Conference, Brisbane (Robert Fitzgerald)

Environment Business Australia Summit, Sydney (Mike Woods)

Asia-Pacific Microtechnology & Nanotechnology Commercialisation Forum, Melbourne (Helen Owens)

International Quality and Productivity Centre Conference, Indigenous Service Delivery Outcomes, Darwin (Robert Fitzgerald)

Melbourne Institute/Australian 3,d Economic and Social Outlook Conference, Melbourne (Helen Owens)

Biennial Conference of the Institute of Foresters of Australia, Mt Gambier, SA (Neil Byron)

Agriculture and Food Policy Reference Group, Canberra (Neil Byron)

National Reconciliation Planning Workshop, Canberra (Robert Fitzgerald)

National Water Commission Workshop, Canberra (Neil Byron)

A critical analysis of the role and function of community organisations — trends, challenges, strengths and future good ideas

National competition policy — externalities and market based solutions

Impact of advances in medical technology on healthcare expenditure

Key findings for overcoming indigenous disadvantage through improved service delivery

Technological change in medicine — an opportunity or threat for Australia’s health system

Re-invigorating forestry — an international perspective

Applying economic principles and market-based tools to natural resource management

Measuring success in reconciliation — discussant

Information needs for water resources management

Nov 2004

Nov 2004

Dec 2004

Mar 2005

Apr 2005

Apr 2005

May 2005

May 2005

June 2005

International Symposium on Forecasting, Sydney (Paul Gretton & Jyothi Gall)

Asia Pacific Productivity Conference 2004, Brisbane (Dean Parham)

Asia Pacific Productivity Conference 2004, Brisbane (Paul Gretton)

Inter-departmental Task Force on Increasing the Supply of Housing for Low Income Victorians, Melbourne (Chris Sayers)

Productivity: Performance, Policies and Prospects Workshop, Wellington, NZ (Dean Parham)

2004 Insurance Council of Australia Conference, Canberra (Stephen Rimmer)

Public Service Commission Cost Benefit Analysis Symposium, Canberra (Stephen Rimmer)

Department of Industry, Tourism and Resources, Canberra (Paul Gretton and Tom Nankivell)

APEC High Level Conference on Structural Reform, Tokyo (Robert Kerr)

Property Council of Australia, SA Division Meeting, Adelaide (Jonathan Pincus)

4th Biennial Regional Modelling Workshop, Melbourne (David Appels)

Effects of ICT use on the performance of Australian firms: evidence from a business longitudinal data set

ICT: An enabler or driver of Australia's productivity growth?

Effects of ICT use on the performance of Australian firms: evidence from a business longitudinal data set

Implications of the First Home Ownership Inquiry findings for the supply of low-cost housing

How do NZ and Australia compare?

Impact of regulation — weighing up the pros and cons

Application of cost-benefit analysis to regulatory proposals

Seminar on the Commission’s approach to measuring assistance to tourism

Structural reform in Australia

Automotive industry policy

The Productivity Commission’s recent report on housing affordability

Water trade in the southern Murray-Darling Basin

Jul 2004

Jul 2004

Jul 2004

Jul 2004

Jul 2004

Aug 2004

Sep 2004

Aug 2004

Sep 2004

Sep 2004

Sep 2004

Sep 2004

(continued next page)

Table E.1 (continued)

Organisation/event Topic Date

33,d Conference of Economists, Sydney (David Appels)

2004-05 Australian Labour Market Research Workshop, Perth (Patrick Laplange, Maurice Glover & Tim Fry)

2004-05 Australian Labour Market Research Workshop, Perth (Patrick Laplange)

OECD Trade and Structural Adjustment Project Technical Workshop, Paris (Lisa Gropp)

Victorian Council of Social Sciences Window on Economics, Melbourne (Steven Bailey)

Australian Malaysia Free Trade Agreement Conference, Melbourne (Lisa Gropp)

NCOSS Measuring Social Performance Seminar, Sydney (Robyn Sheen)

Economics Faculty seminar, Monash University, Melbourne (Jonathan Pincus)

OECD Secretariat, Paris (Stephen Rimmer)

OECD, Paris (Stephen Rimmer)

RMIT University Seminar, Melbourne (Maurice Glover)

UK Cabinet Office, London (Stephen Rimmer)

CPA Health Sector Conference, Melbourne (Ralph Lattimore)

CGE modelling of water trade

The growth of labour hire employment in Australia

Enterprise agreements and other determinants of labour productivity

Comments on OECD working draft paper— an Australian perspective

Economics for people in advocacy roles in the non-profit sector — discussant

Regulation in Australia

Approaches to measuring performance — Review of Government Service Provision

Fiscal equalisation: some questions of design

Use of regulation impact analysis in Australia and the role of the ORR

Indications of regulatory quality: an Australian perspective

Staff Working Paper on labour hire — econometric results

Use of regulation impact analysis in Australia and the role of the ORR

Implications of an ageing Australia

Sep 2004

Dec 2004

Dec 2004

Feb 2005

Feb 2005

Mar 2005

Mar 2005

Mar 2005

Mar 2005

Mar 2005

Mar 2005

Apr 2005

Apr 2005

Victorian VET Research and Planning Network Forum, Melbourne (Ralph Lattimore)

Department of Industry Tourism and Resources Seminar, Canberra (Ralph Lattimore)

Parliamentary Library Vital Issues Seminar, Canberra (Ralph Lattimore & Stuart Wilson)

Land and Water Australia’s Social and Institutional Water Research Priorities Workshop, Canberra (Deborah Peterson)

4th Annual Health Insurance Summit, Sydney (Lisa Gropp)

8th Annual Australian Institute of Judicial Administration Tribunals Conference, Sydney (Herb Plunkett)

Hewitt Associates Seminar, Sydney (Ralph Lattimore)

Australian Council for Children and Parents Workshop, Headline Indicators - How Achievable? Canberra (Lawrence McDonald)

Melbourne Institute Public Economics Forum, Canberra (Ralph Lattimore)

Implications of an ageing Australia

Implications of an ageing Australia

Implications of an ageing Australia

Water markets, rights and registers - discussant

Future advances in medical technology — implications for private health insurance

Issues in developing a national workers’ compensation framework

Implications of an ageing Australia

Developing headline indicators — lessons from the report on Overcoming Indigenous Disadvantage

Labour force participation in an ageing Australia

Apr 2005

May 2005

May 2005

May 2005

June 2005

June 2005

June 2005

June 2005

June 2005

Table E.2 Visits from international organisations and foreign delegations 2004-05

Organisation/delegation Briefing/discussion purpose of visit Date and location

Role and functions of the Commission

Commission activities

Member of the French Union pour un Mouvement Populaire and of the Regional Council of Greater Paris

Prime Minister Koizumi’s Council on Economic and Fiscal Policy/Tokyo University

ASEAN Secretariat

Malaysian National Productivity Corporation

Delegation from the Development Research Centre of the State Council of the Peoples Republic of China

Delegation from the Vietnam Ministry of Agriculture and Rural Development

Delegation from the Office of Industrial Economics, Thai Ministry of Industry

Brazilian Ministry of Foreign Relations

NZ Ministry of Economic Development

UK Department for Culture, Media and Sport

APEC delegation from China, Indonesia, Philippines, Papua New Guinea, Thailand and Vietnam

Chilean Ambassador

Delegation from the Danish Ministry of Finance

Fondation Nationale Entreprise et Performance (France)

Prime Minister’s Research Committee (Vietnam)

Role and functions of the Commission and competition policy developments in Australia

Role and functions of the Commission

Regulatory issues and Commission activities

Role and functions of the Commission and policy development processes

The Commission's experience in using computable general equilibrium models

Role and functions of the Commission

Respective research activities

Information and communications technologies and related issues

Role and functions of the Commission

Role and functions of the Commission

Regulatory review and reforms processes including the use of RISs '

Performance monitoring of GTEs and government service provision by the Commission

Role and functions of the Commission

Jul 2004 (M)

Jul 2004 (C)

Jul 2004 (C)

Jul 2004 (M)

July 2004 (C)

Aug 2004 (M)

Sep 2004 (C)

Nov 2004 (C)

Nov 2004 (C)

Nov 2004 (C)

Nov 2004 (M)

Nov 2004 (C)

Dec 2004 (C)

Dec 2004 (M)

Feb 2005 (C)

Chilean visitors

International Energy Agency

UK Department of Trade

Senior business and trade editors, United Arab Emirates, Saudi Arabia and Kuwait

Korean Development Institute

NZ Ministry of Economic Development

NZ Department of Labour

Member of the National Assembly, Republic of Korea

NZ Ministry of Research, Science and Technology

Illinois University

2005 IMF Mission

Delegation of senior public servants from the Shanghai Municipal Government

Institute of Economics of the Polish Academy of Science

Role and functions of the Commission

The Commission’s inquiry on energy efficiency

The Commission’s Integrated Trade Analysis System and analysis of rules of origin in preferential trade agreements

Trade and corporate governance issues and economic reforms

The Commission’s report on first home ownership, regulatory reform and competitiveness issues

Approaches to microeconomic reform

Productivity issues in Australia and New Zealand

Regulatory reform issues

Issues arising from the proposed revision to the Oslo Manual to guide collection of innovation data

Comparative regulatory systems and corporate governance issues

Economic reform issues

Role and functions of the Commission and microeconomic reform issues

Role and functions of the Commission

Feb 2005 (C)

Mar 2005 (C)

Mar 2005 (C)

Mar 2005 (C)

Mar 2005 (M)

Apr 20 0 5 (C)

Apr 2005 (C)

May 2005 (C)

May 2005 (C)

May 2005 (C)

Jun 2005 (M)

Jun 2005 (C)

Jun 2005 (C)

(C) Canberra (M) Melbourne

F Publications

This appendix provides a list of Commission reports and papers completed in 2004-05. It also lists staff working papers, the views of which do not necessarily reflect those of the Commission. The Commission has a comprehensive website providing public access to nearly all of its publications. The availability of printed copies is detailed on the website.

Government-commissioned projects

Inquiries and commissioned research studies — draft reports

Draft reports can be obtained from the Commission and its website during the course of an inquiry. The dates listed are release dates.

• Reform o f Building Regulation, Draft Research Report, 27 August 2004

• Australian and New Zealand Competition and Consumer Protection Regimes, Draft Research Report, 20 October 2004

• Review o f Part X o f the Trade Practices Act 1974: International Liner Cargo Shipping, Draft Report, 22 October 2004

• Review o f National Competition Policy Reforms, Discussion Draft, 27 October 2004

• Smash Repair and Insurance, Draft Report, 18 November 2004

• Economic Implications o f an Ageing Australia, Draft Research Report, 25 November 2004

• Australian Pigmeat Industry, Draft Report, 15 December 2004

• Energy Efficiency, Draft Report, 21 April 2005

• Impacts o f Medical Technology in Australia, Progress Report, 19 April 2005

• The Health Workforce, Issues Paper for COAG, 3 June 2005

PUBLICATIONS 195

Inquiries and commissioned research studies — final reports

Upon release by the Australian Government, copies of final reports can be obtained from the Commission’s publications agent, Pirion/JS McMillan and the Commission’s website. The dates listed are signing dates. Publications marked with

an asterisk (*) were completed in 2004-05, but had not been released at 30 June 2005.

• Reform o f Building Regulation, Research Report, 17 November 2004

• Australian and New Zealand Competition and Consumer Protection Regimes, Research Report, 16 December 2004

• Review o f Part X o f the Trade Practices Act 1974: International Liner Cargo Shipping, Inquiry Report No. 32, 23 February 2005*

• Review o f National Competition Policy Reforms, Inquiry Report No. 33, 28 February 2005

• Smash Repair and Insurance, Inquiry Report No. 34, 17 March 2005*

• Australian Pigmeat Industry, Inquiry Report No. 35, 18 March 2005*

• Economic Implications o f an Ageing Australia, Research Report, 24 March 2005

Performance reporting

Steering Committee for the Review of Government Service Provision

The Commission acts as the Secretariat for the COAG Steering Committee. Except where indicated, copies of these publications are available from the Commission’s publications agent Pirion/JS McMillan and from the Commission’s website.

Publications produced in 2004-05 and many Secretariat reports from previous years are also available on compact disk.

• Financial Performance o f Government Trading Enterprises 1998-99 to 2002-03 (July 2004)

• Report on Government Services 2005, Volume 1: Education, Justice, Emergency Management (January 2005)

• Report on Government Services 2005, Volume 2: Health, Community Services, Housing (January 2005)

• Report on Government Services 2005: Indigenous Compendium (May 2005)

196 ANNUAL REPORT 2004-05

Competitive neutrality complaints

Copies of reports by the Australian Government Competitive Neutrality Complaints Office (AGCNCO) are available from Commission and its website.

• EDI Post, AGCNCO Report No. 12, 7 June 2005

Supporting research and annual reporting

Unless otherwise indicated, copies o f reports are available from the Commission’s publications agent Pirion/JS McMillan, and from the Commission’s website. Requests for printed copies of publications marked with an asterisk (*) should be directed to the Commission.

Annual Reports

• Annual Report 2003-04 (30 November 2004)

• Regulation and its Review 2003-04 (16 November 2004)

• Trade & Assistance Review 2003-04 (22 December 2004)

Supplements to government-commissioned projects

• Modelling Impacts o f Infrastructure Industry Change over the 1990s, Supplement to Discussion Draft on Review o f National Competition Policy Reforms, 2 December 2004

• Modelling Impacts o f Infrastructure Industry Change over the 1990s, Supplement to the final report on Review o f National Competition Policy Reforms, Inquiry Report No. 33, 28 February 2005

• Economic Implications o f an Ageing Australia: Data, Projection models and data used in the preparation of the Commission’s Research Report, 12 April 2005 (available on the Commission’s website)

• Economic Implications o f an Ageing Australia: Technical Papers, 12 April 2005 (available on the Commission’s website)

Commission research papers

• ICT Use and Productivity: A Synthesis from Studies o f Australian Firms (July 2004)

• Assistance to Tourism: Exploratory Estimates (April 2005)

• Trends in Australian Agriculture (June 2005)

PUBLICATIONS 197

Chairman’s speeches

Copies o f the Chairman’s speeches are available from the Commission’s website.

• NCP and beyond: an agenda fo r national reform (December 2004)

• Structural reform Australian-style: lessons fo r others? (June 2005)

Richard Snape Lecture

The second Richard Snape Lecture was held on 8 November 2004. Lectures reflect the views of the presenter and not necessarily those of the Commission.

• Spreading Prosperity and Resisting Economic Divergence: The Significance o f Richard Snape’s Academic Legacy, Anne O. Krueger (published February 2005)*

Staff working papers

Copies of staff working papers are available from the Commission’s website. These papers reflect the views of the authors and not necessarily those of the Commission.

• Responsiveness o f Demand fo r Irrigation Water: A Focus on the Southern Murray-Darling Basin, David Appels, Robert Douglas and Gavin Dwyer (August 2004)

• An Integrated Tariff Analysis System: Software and Database, Matthew Forbes, Jane Fry, Patrick Jomini and Alexandra Strzelecki (November 2004)

• Modelling Water Trade in the Southern Murray-Darling Basin, Deborah Peterson, Gavan Dwyer, David Appels and Jane Fry (November 2004)

• The Growth o f Labour Hire Employment in Australia, Patrick Laplagne, Maurice Glover and Tim Fry (February 2005)

Other publications

Copies o f these publications are available from the Commission and its website.

• The Productivity Commission: A Quick Guide

• pc update, a quarterly newsletter on Productivity Commission activities, covers key events on the work program, major activities, publications released, website and other news (Issue 25, July 2004; Issue 26, September 2004; Issue 27, January 2005; Issue 28, April 2005)

198 ANNUAL REPORT 2004-05

G Financial statements

This appendix presents the audited financial statements for the Productivity Commission for 2004-05. The statements have been prepared on an accrual accounting basis.

Contents

Independent audit report 200

Certification 202

Statement of financial performance 203

Statement of financial position 204

Statement of cash flows 205

Schedule of commitments 206

Notes to the financial statements 207

FINANCIAL STATEMENTS

199

Audit Offici Australian Nations

INDEPENDENT AUDIT REPORT

To the Treasurer

Scope

T h e fin a n c ia l sta te m e n ts a n d C h a ir m a n ’s re sp o n sib ility

The financial statements comprise:

• Statement by the Chairman and the Chief Finance Officer;

• Statements of Financial Performance, Financial Position and Cash Flows;

• Schedules of Commitments and Contingencies;

• Schedule of Administered Items; and

• Notes to and forming part of the Financial Statements

of the Productivity Commission for the year ended 30 June 2005.

The Productivity Commission’s Chairman is responsible for preparing financial statements that give a true and fair presentation of the financial position and performance of the Productivity Commission, and that comply with accounting standards, other mandatory financial reporting

requirements in Australia, and the Finance Minister’s Orders made under the F in a n c ia l M a n a g e m e n t a n d A c c o u n ta b ility A c t 1997. The Productivity Commission's Chairman is also

responsible for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial statements.

Audit approach

I have conducted an independent audit of the financial statements in order to express an opinion on them to you. My audit has been conducted in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing and Assurance Standards, in order to provide reasonable assurance as to whether the financial statements are free of material misstatement. The nature of an audit is influenced by factors such as the use of professional judgement, selective testing, the inherent limitations of internal control, and the availability of

persuasive, rather than conclusive, evidence. Therefore, an audit cannot guarantee that all material misstatements have been detected.

GPO Box 707 CANBERRA ACT 2601

C e ntenary House 19 N a tion a l Cir» BARTON ACT

P h o n e (02) 6203 7300 F a x (02) 621

While the effectiveness of management’s internal controls over financial reporting was considered when determining the nature and extent of audit procedures, the audit was not designed to provide assurance on internal controls.

I have performed procedures to assess whether, in all material respects, the financial statements present fairly, in accordance with the Finance Minister’s Orders made under the Financial Management and Accountability Act 1997, accounting standards and other mandatory financial reporting requirements in Australia, a view which is consistent with my understanding of the

Productivity Commission’s financial position, and of its performance as represented by the statements of financial performance and cash flows.

The audit opinion is formed on the basis of these procedures, which included:

• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial statements; and

• assessing the appropriateness of the accounting policies and disclosures used, and the reasonableness of significant accounting estimates made by the Chairman.

Independence

In conducting the audit, I have followed the independence requirements of the Australian National Audit Office, which incorporate the ethical requirements of the Australian accounting profession.

Audit Opinion

In my opinion, the financial statements of the Productivity Commission:

(a) have been prepared in accordance with the Finance Minister’s Orders made under the Financial Management and Accountability Act 1997; and (b) give a true and fair view of the Productivity Commission’s financial position as at 30 June 2005 and of its performance and cash flows for the year then ended, in accordance with:

(i) the matters required by the Finance Minister’s Orders; and

(ii) applicable accounting standards and other mandatory financial reporting requirements in Australia.

Australian National Audit Office

Allan M. Thompson Executive Director

Delegate of the Auditor-General

Canberra 9 August 2005

Statement by the Chairman and Chief Finance Officer

Certification

In our opinion, the attached financial statements for the year ended 30 June 2005 are based on properly maintained financial records and give a true and fair view of the matters required by the Finance Minister’s Orders made under the Financial Management and Accountability Act 1997, as amended.

Gary Banks Chairman

4 August 2005

202 ANNUAL REPORT 2004-05

Statement of Financial Performance For the year ended 30 June 2005

2005 200 4

Note3 $ ’000 $’000

Revenues from ordinary activities

Revenues from government 28,293 24,346

Goods and services 5A 314 231

Revenues from sale of assets 5B 4 12

Resources received free of charge 34 33

Revenues from ordinary activities 28.645 24.622

Expenses from ordinary activities

Employees 6A 19,690 19,135

Suppliers 6B 6,102 5,756

Depreciation and amortisation 6C 548 775

Write-down of assets 6D 4 8

Value of assets sold 5B — 15

Expenses from ordinary activities 26.344 25.689

Net operating surplus (deficit) from ordinary activities 2.301 (1.0671

Net credit to asset revaluation reserve — 1.076

Total changes in equity o th er than those resulting from transactions w ith the A ustralian G overnm ent as o w n er 10 2.301 9

a The above statement should be read in conjunction with the accompanying notes.

FINANCIAL STATEMENTS

203

Statement of Financial Position As at 30 June 2005

2005 200 4

Note3 $ ’000 $’000

ASSETS

Financial assets

Cash 210 958

Receivables 7 6,346 3,498

Total financial assets 6,556 4,456

Non-financial assets

Infrastructure, plant and equipment 8A 1,580 1,920

Intangibles 8B 29 49

Prepayments 186 296

Total non-financial assets 1,795 2,265

Total Assets 8,351 6.721

LIABILITIES

Provisions

Employees 9 7,052 7.186

Total provisions 7.052 7.186

Payables

Suppliers 187 724

Total payables 187 724

Total Liabilities 7,239 7.910

Net Assets 1.112 (1.189)

EQUITY

Contributed equity 10 1,711 1,711

Reserves 10 1,172 1,172

(Accumulated deficits) 10 (1.771) (4.072)

Total Equity jL m (1.189)

Current assets 6,742 4,752

Non-current assets 1,609 1,969

Current liabilities 3,573 4,386

N on-current liabilities 3,666 3,524

a The above statement should be read in conjunction with the accompanying notes.

204 ANNUAL REPORT 2004-05

Statem ent o f C ash F low s For the year ended 30 June 2005

2005 2004

Note3 $ ’000 $’000

OPERATING ACTIVITIES

C ash re c e iv e d

Appropriations 24,588 24,346

Cash transferred from the Official Public Account (OPA) 1,000 -

Goods and services 345 254

Net GST received from ATO 678 476

Total cash received 26,611 25,076

C a sh u s e d

Employees 19,028 18,523

Suppliers 8.143 5.826

Total cash used 27.171 24.349

Net c a s h fro m (u s e d by) o p e ra tin g a c tiv itie s 11 (5601 727

INVESTING ACTIVITIES C a sh re c e iv e d

Proceeds from sale of property, plant and equipment 4 12

Total cash received 4 12

C a sh U sed

Purchase of property, plant and equipment 192 315

Total cash used 192 315

Net c a s h fro m (u s e d by) in v e s tin g a c tiv itie s (1881 (3031

Net increase (decrease) in cash held (748) 424

Cash at the beginning of the reporting period 958 534

Cash at the end of the reporting period 210 958

a The above statement should be read in conjunction with the accompanying notes.

FINANCIAL STATEMENTS

205

Schedule of Commitments As at 30 June 2005

2 0 0 5 2004

Note3 $’000 $'000

BY TYPE

O th e r c o m m itm e n ts Operating leases 10,379 4,537

Other 971 195

T o tal o th e r c o m m itm e n ts 11,350 4,732

C o m m itm e n ts re c e iv a b le (1,032) (649)

N et c o m m itm e n ts b y ty p e 10.318 4.083

BY MATURITY

O p e ra tin g le a s e c o m m itm e n ts One year or less 2,000 2,322

From one to five years 6,952 2,215

Over five years 1.427 -

T o tal o p e ra tin g le a s e c o m m itm e n ts 10,379 4.537

O th e r c o m m itm e n ts

One year or less 331 195

From one to five years 567 -

Over five years 73 -

T otal o th e r c o m m itm e n ts 971 195

C o m m itm e n ts re c e iv a b le

One year or less (212) (448)

From one to five years (684) (201)

Over five years (136) -

T otal c o m m itm e n ts re c e iv a b le (1,032) (649)

N et c o m m itm e n ts b y m a tu rity 10r318 4.083

Nature o f Lease General description o f leasing arrangement

Leases for office accommodation Lease payments are subject to fixed annual increase in accordance with the lease agreement.

Agreements for the provision of motor vehicles to Senior Executive Officers Lease payments are fixed at the commencement of each vehicle lease. Vehicles are returned on

lease expiry.

a The above statement should be read in conjunction with the accompanying notes.

206 ANNUAL REPORT 2004-05

Notes to and forming part of the Financial Statements for the Year Ended 30 June 2005

Note

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

Description

Objectives o f the Productivity Commission

Summary of Significant Accounting Policies

Adoption of Australian Equivalents to International Financial Reporting Standards from 2005-2006

Events Occurring after Balance Date

Operating Revenues

Operating Expenses

Financial Assets

Non-financial Assets

Provisions

Equity

Cash Flow Reconciliation

Appropriations

Reporting of Outcome

Remuneration o f Executives

Remuneration of Auditors

Contingencies

Act of Grace Payments and Waivers

Average Staffing

Financial Instruments

Special Accounts

FINANCIAL 207

STATEMENTS

Note 1 Objectives of the Productivity Commission

The Productivity Commission is the Australian Government’s principal review and advisory body on microeconomic policy and regulation.

The Government’s outcome objective for the Productivity Commission is:

Well-informed policy decision making and public understanding on matters relating to Australia's productivity and living standards, based on independent and transparent analysis from a community-wide perspective.

The Commission’s one outcome consists of 5 outputs:

• Output 1 - Government commissioned projects;

• Output 2 - Performance reporting and other services to government bodies;

• Output 3 - Regulation review activities;

• Output 4 - Competitive neutrality complaints activities; and

• Output 5 - Supporting research and activities and annual reporting.

The continued existence of the Commission in its present form and with its present programs is dependent on Government policy and on continuing appropriations by Parliament for the Commission’s administration and programs.

Note 2 Summary of significant accounting policies

2.1 Basis of accounting

The financial statements are required by section 49 of the Financial Management and Accountability Act 1997 and are a general-purpose financial report.

The statements have been prepared in accordance with:

• Finance Minister’s Orders for the preparation of Financial Statements in relation to financial years ending on or after 30 June 2005;

• Australian Accounting Standards and Accounting Interpretations issued by the Australian Accounting Standards Board; and

• Consensus Views of the Urgent Issues Group.

The statements have also been prepared having regard to the Finance Briefs issued by the Department of Finance and Administration.

208 ANNUAL REPORT 2004-05

The Statements of Financial Performance and Financial Position have been prepared on an accrual basis, and are in accordance with historical cost convention, except for certain assets which, as noted, are at valuation. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position.

Assets and liabilities are recognised in the Statement of Financial Position when and only when it is probable that future economic benefits will flow and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under agreements equally proportionately unperformed are not recognised unless required by an Accounting Standard. Liabilities and assets that are unrecognised are reported in the Schedule of Commitments (other than

unquantifiable or remote contingencies, which are reported at Note 16).

Revenues and expenses are recognised in the Statement of Financial Performance when and only when the flow or consumption or loss o f economic benefits has occurred and can be reliably measured.

Overheads and other indirect expenses that cannot be attributed directly to outputs are allocated to outputs in proportion to the direct costs (principally salaries) of the activities undertaken within each output.

Revenues and expenses have been allocated to outputs based on the direct costs of the activities undertaken together with a proportion of corporate overheads.

The Commission’s assets and liabilities cannot be attributed to specific outputs.

The Commission is part of the legal entity that is the Commonwealth of Australia, which is ultimately responsible for all the agency’s debts. The existence of total liabilities in excess of total assets of the Commission as reported in the 2003-04 Statement of Financial Position has no bearing on whether the Commission’s debts

will be met.

2.2 Changes in accounting policy

The accounting policies used in the preparation o f these financial statements are consistent with those used in 2003-04.

2.3 Revenue

The revenues described in this Note are revenues relating to the outputs of the Commission.

FINANCIAL STATEMENTS

209

(a) Revenues from Government - Appropriations

The Commission’s outputs appropriations for the year are recognised as revenue, except for certain amounts which relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned. The Commission had no reciprocal arrangements in place in 2004-05.

(b) Interest

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. No interest was received in 2004-05.

(c) Resources received free o f charge

Services received free o f charge are recognised as revenue when and only when a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense.

(d) Other revenue

Revenue from the sale of goods is recognised upon the delivery of goods to customers. Revenue from disposal o f non-current assets is recognised when control of the asset has passed to the buyer.

2.4 Transactions with the Government as owner

Equity injections

Amounts appropriated which are designated as ‘equity injections’ for a year (less any savings offered up in Portfolio Additional Estimates Statements) are recognised directly in Contributed Equity in that year.

2.5 Employee benefits

Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled.

Liabilities for wages and salaries (including non-monetary benefits) and annual leave are measured at their nominal amounts. Other employee benefits expected to be settled within 12 months of the reporting date are also measured at their nominal

amounts.

210 ANNUAL REPORT 2004-05

The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

All other employee benefit liabilities are measured as the present value of the estimated future cash outflows to be made in respect of services provided by employees up to the reporting date.

Leave

The liability for employee benefits includes provision for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non­ vesting and the average sick leave in future years by employees o f the Commission is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis o f employees’ remuneration, including the Commission’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination. The estimate of the present value of the liability takes into account attrition rates and pay increases through inflation.

Separation and redundancy

No provision has been made for separation and redundancy payments as the Commission has not formally identified any positions as excess to requirements at 30 June 2005.

Superannuation

Staff of the Commission are members o f the Commonwealth Superannuation Scheme and the Public Sector Superannuation Scheme. The liability for their superannuation benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course.

The Commission makes employer contributions to the Australian Government at rates determined by an actuary to be sufficient to meet the cost to the Government of the superannuation entitlements of the Commission’s employees.

The liability for superannuation recognised as at 30 June represents outstanding contributions in respect of accrued pay at 30 June 2005.

FINANCIAL STATEMENTS

211

2 .6 L e a s e s

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased non-current assets. In operating leases, the lessor effectively retains substantially all such risks and benefits.

Where a non-current asset is acquired by means of a finance lease, the asset is capitalised at the present value of minimum lease payments at the beginning of the lease term and a liability recognised at the same time and for the same amount. The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease. Lease payments are allocated between the principal component and the interest expense. The Commission has no finance

leases.

Operating lease payments are expensed on a basis that is representative o f the pattern of benefits derived from the leased assets. The net present value of future net outlays in respect of surplus space under non-cancellable lease agreements is

expended in the period in which the space becomes surplus.

2.7 Cash

Cash means notes and coins held and any deposits held at call with a bank or financial institution. Cash is recognised at its nominal amount.

2.8 Other financial instruments

Trade Creditors

Trade creditors and accruals are recognised at their nominal amounts, being the amounts at which the liabilities will be settled. Liabilities are recognised to the extent that the goods or services have been received (and irrespective of having

been invoiced).

2.9 Acquisition of assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken.

212 ANNUAL REPORT 2004-05

2.10 P ro p er ty , p la n t a n d e q u ip m e n t

A sse t re co g n itio n th re s h o ld

Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases costing less than $2,000, which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

R evaluation basis

Land, buildings, plant and equipment are carried at fair value, being revalued with sufficient frequency such that the carrying amount o f each asset class is not materially different, at reporting date, from its fair value. Valuations undertaken in each year are as at 30 June.

Fair values for each class of asset are determined as shown below:

Asset class Fair value measured at

Leasehold improvements Depreciated replacement cost

Plant and equipment Market selling price

The Commission’s revaluation policy and frequency of revaluations is in accordance with the Finance Minister’s Orders.

im pairm ent

The Commission’s property, plant and equipment assets are carried at up-to-date fair value and consequently are not subject to impairment testing.

Intangible assets, which comprise acquired computer software for internal use, are carried at cost and have been assessed for indications of impairment. Where indicators of impairment exist, the asset is written down to the higher of its net selling price and, if the entity would replace the asset’s service potential, its

depreciated replacement cost. All software assets were assessed for indicators of impairment at 30 June 2005. None were found to be impaired.

FINANCIAL STATEMENTS

213

D e p re cia tio n a n d a m o rtisa tio n

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Commission using, in all cases, the straight-line method of depreciation. Leasehold improvements are

amortised on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease.

Depreciation rates (useful lives) and methods are reviewed at each reporting date and necessary adjustments are recognised in the current, or current and future, reporting periods as appropriate. Residual values are re-estimated for a change in prices only when assets are revalued.

Depreciation and amortisation rates applying to each class o f depreciable asset are based on the following useful lives:

2 0 0 5 2004

Leasehold improvements Lease term Lease term

Plant and equipment 3 to 10 years 3 to 10 years

Intangibles (Computer Software) 5 years 5 years

The aggregate amount of depreciation allocated for each class o f asset during the reporting period is disclosed in Note 8C.

2.11 Taxation

The Commission is exempt from all forms of taxation except fringe benefits tax and the goods and services tax (GST).

2.12 Insurance

The Commission has insured for risks through the Government’s insurable risk managed fund, Comcover. Workers compensation is insured through Comcare Australia.

2.13 Comparative figures

Comparative figures have been adjusted to conform to changes in presentation in these financial statements where required.

214 ANNUAL REPORT 2004-05

Amounts have been rounded to the nearest $1,000 except in relation to the following:

• remuneration of executives; and

• remuneration of auditors.

Note 3 Adoption of Australian Equivalents to International Financial Reporting Standards from 2005-2006

The Australian Accounting Standards Board has issued replacement Australian Accounting Standards to apply from 2005-06. The new standards are the Australian Equivalents to International Financial Reporting Standards (AEIFRS). The International Financial Reporting Standards are issued by the International

Accounting Standards Board. The new standards cannot be adopted early. The standards being replaced are to be withdrawn with effect from 2005-06, but continue to apply in the meantime, including reporting periods ending on 30 June 2005.

The purpose of issuing AEIFRS is to enable Australian reporting entities reporting under the Corporations Act 2001 to be able to more readily access overseas capital markets by preparing their financial reports according to accounting standards more widely used overseas.

For-profit entities complying with AEIFRS will be able to make an explicit and unreserved statement of compliance with International Financial Reporting Standards (IFRS) as well as a statement that the financial report has been prepared in accordance with Australian Accounting Standards.

AEIFRS contain certain additional provisions which will apply to not-for-profit entities, including Australian Government agencies. Some o f these provisions are in conflict with IFRS and therefore the Commission will only be able to assert that the financial report has been prepared in accordance with Australian Accounting

Standards.

AAS 29 Financial Reporting by Government Departments will continue to apply under AEIFRS.

Accounting Standards AASB 1047 Disclosing the Impacts o f Adopting Australian Equivalents to International Financial Reporting Standards requires that the financial statements for 2004-05 disclose:

• an explanation of how the transition to the AEIFRS is being managed;

2 .1 4 R o u n d in g

FINANCIAL STATEMENTS

215

• narrative explanations of the key policy differences arising from the adoption of AEIFRS;

• any known or reliably estimateable information about the impacts on the financial report had it been prepared using AEIFRS; and

• if the impacts o f the above are not known or reliably estimateable, a statement to that effect.

The purpose of the Note is to make these disclosures.

M a n a g e m e n t o f the tra n sitio n to A A S B e q u iva le n ts to IF R S s

The Commission has taken the following steps for the preparation towards the implementation o f AEIFRS:

• The Commission’s Audit Committee is tasked with oversight o f the transition to and implementation of AEIFRS. The Chief Finance Officer is formally responsible for the project and reports regularly to the Audit Committee on progress against the formal plan approved by the Committee.

• The plan requires the following key steps to be undertaken and sets deadlines for their achievement:

- All major accounting policy differences between current AASB standards and AEIFRS were identified by 30 November 2004.

- No system changes were necessary to be able to report under the AEIFRS, including the capture of data under both sets o f rules for 2004-05.

- An AEIFRS compliant balance sheet as at 30 June 2005 was also prepared during the preparation of the 2004-05 statutory financial reports.

- The 2004-05 Balance Sheet under AEIFRS will be reported to the

Department of Finance and Administration in line with their reporting deadlines.

• The plan also addresses the risks to successful achievement o f the above objectives and includes strategies to keep implementation on track to meet deadlines.

M a jo r changes in a cco u n tin g p o lic y

The Commission believes that the first financial report prepared under AEIFRS (ie, at 30 June 2006), will be prepared on the basis that the Commission will be a first time adopter under AASB 1 First-time Adoption o f Australian Equivalents to International Financial Reporting Standards. Changes in accounting policies under

216 ANNUAL REPORT 2004-05

AEIFRS are applied retrospectively ie, as if the new policy had always applied except in relation to the exemptions available and prohibitions under AASB1. This means that an AEIFRS compliant balance sheet has to be prepared as at 1 July 2004. This will enable the 2005-06 financial statements to report

comparatives under AEIFRS.

A first time adopter of AEIFRS may elect to use exemptions under paragraphs 13 to 25E. When developing the accounting policies applicable to the preparation of the 1 July opening balance sheet, no exemptions were applied by the Commission.

Changes to major accounting policies are discussed in the following paragraphs.

Management’s review of the quantitative impacts of AEIFRS represents the best estimates of the impacts of the changes as at reporting date. The actual effects of the impacts of AEIFRS may differ from these estimates due to:

• continuing review of the impacts of AEIFRS on Commission operations;

• potential amendments to the AEIFRS and AEIFRS Interpretations; and

• emerging interpretation as to the accepted practice in the application of AEIFRS and the AEIFRS Interpretations.

P ro p e rty p la n t a n d e q u ip m e n t

It is expected that the 2005-06 Finance M inister’s Orders will continue to require property plant and equipment assets to be valued at fair value in 2005-06.

Im p a irm e n t o f in ta n g ib le s a n d p ro p e rty, p la n t & e q u ip m e n t

The Commission’s policy on impairment of non-current assets is at Note 2.10.

Under AEIFRS these assets will be subject to assessment for impairment and, if there are indications of impairment, an assessment of the degree of impairment. (Impairment measurement must also be done, irrespective of any indications of impairment, for intangible assets not yet available for use). The impairment test is

that the carrying amount of an asset must not exceed the greater of (a) its fair value less costs to sell and (b) its value in use. ‘Value in use’ is the depreciated replacement cost for assets which would be replaced if the Commission were deprived of them.

An impairment assessment of the Commission’s assets indicated that no adjustments will be required.

FINANCIAL STATEMENTS

217

D e co m m issio n in g , re sto ra tio n a n d m ake -g o o d

In assessing accommodation leases for the preparation of the opening balance sheet, the Commission has an obligation for make-good in its leases of its Melbourne and Canberra premises. Present value of the estimated costs of make-good at the

expiration of the leases is $700,000.

E m p lo yee b e n e fits

The provision for long service leave is measured at the present value of estimated future cash outflows using market yields as at the reporting date on national government bonds.

The 2003-04 Financial Report noted that the AEIFRS standards may require the market yield on corporate bonds to be used. The AASB has decided that a deep market in high quality corporate bonds does not exist and therefore national government bonds will be referenced.

AEIFRS require that annual leave that is not expected to be taken within 12 months of balance date is to be discounted. After assessing the staff leave profile, the Commission expects that material amounts of the annual leave balance will not be

taken in the next 12 months. Consequently, the non-current annual leave balance has been discounted.

F in a n cia l instru m e nts

AEIFRS include an option for entities not to restate comparative information in respect of financial instruments in the first AEIFRS report. It is expected that Finance Minister’s Orders will require entities to use this option. Therefore, the amounts for financial instruments presented in the Commissions’ 2004-05 primary

financial statements are not expected to change as a result of the adoption of AEIFRS.

The Commission will be required by AEIFRS to review the carrying amounts of financial instruments at 1 July 2005 to ensure they align with the accounting policies required by AEIFRS. It is expected that the carrying amounts of financial instruments held by the Commission will not change as a result o f this process.

218 ANNUAL REPORT 2004-05

Reconciliation of total equity as presented under previous Australian Generally Accepted Accounting Principles (AGAAP) to that under AEIFRS:

30 J u n e 2 0 0 5 30 June 2004

$ ’000 $’000

Total equity under previous AGAAP 1,112 (1,189)

Employee provisions - discounting of non-current annual leave provision 127 118

Total equity under AEIFRS 1.239 11.071)

Note 4 Events occurring after balance date

No significant events requiring disclosure in, or adjustment to, statements have occurred subsequent to balance date.

these financial

Note 5 Operating revenues

N ote 5A - G oods a n d se rvices

2 0 0 5 2004

$ ’000 $'000

Goods and Services

- to related entities 13 14

- to external entities 301 217

Total sales of goods and services 314 231

N ote 5B - N et g a in s (losses) from d is p o s a l o f in fra stru ctu re , p la n t a n d e q u ip m e n t

2 0 0 5 2004

$ ’000 $’000

Infrastructure, plant and equipment

Proceeds from disposals 4 12

Net book value of assets disposed 15

Net gain or (loss) from disposal of infrastructure, plant and equipm ent = 4 LJD

FINANCIAL STATEMENTS

219

N o te 6 O p e r a tin g e x p e n s e s

N ote 6A - E m p lo ye e e xpenses

2005 2004

$ ’000 $’000

Wages and salaries 15,684 14,956

Superannuation 2,737 2,668

Leave and other entitlements 324 498

Separation and redundancies 427 409

Other employee expenses 447 546

Total em ployee benefits expense 19,619 19,077

Worker compensation premiums 71 58

Total em ployee expenses 19.690 19.135

Note 6B - Suppliers expenses

2005 2004

Goods and services

$ ‘000 $'000

- from related entities 317 376

- from external entities 3,716 3,254

Operating lease rentals 2,069 2.126

Total supplier expenses 6.102 5.756

N ote 6C - D ep re ciatio n and a m o rtisa tio n

2005 2004

Depreciation

$ ’000 $’000

- Infrastructure, plant and equipment

Amortisation

528 755

- Intangibles - computer software 20 20

Total depreciation and am ortisation 548 775

220 ANNUAL REPORT 2004-05

Note 6D - Write-down of assets

2 0 0 5 2004

$ ‘000 $‘000

Non-financial assets

Plant & equipment - write-down on disposal _4 8

Total w rite-dow n o f assets = 4 8

Note 7 Financial assets

R e c e iv a b le s

2 0 0 5 2004

$ ‘000 $‘000

Appropriations receivable - undrawn 6,130 3,425

Goods and Services 134 2

GST receivable 82 71

Total receivables 6.346 3.498

Receivables (gross) are aged as follows: Current 6,346 3,498

As the recovery of these receivables is not in question, the Commission has determined that a provision for doubtful debts is not required.

FINANCIAL STATEMENTS

221

N o te 8 N o n -fin a n c ia l a s s e t s

N ote 8A - In fra stru ctu re, P la n t a n d E q u ip m e n t

2005 2004

Leasehold im provem ents

$ ’000 $’000

Leasehold improvements - at fair value 1,269 1,269

Accumulated amortisation (224) —

Total leasehold im provem ents 1,045 1.269

Plant and equipm ent

Plant and equipment at cost - 1,849

Accumulated appreciation — (1.216)

— 633

Plant and equipment - at 1998-2001 valuation (deprival) - 626

Accumulated depreciation — (608)

18

Plant and equipment - at fair value 2,529 -

Accumulated depreciation (1,994) —

535

Total plant and equipm ent 535 651

Total infrastructure, plant and equipm ent 1,580 1.920

Note 88 - Intangibles

2005 2004

Intangibles

$ ’000 $’000

Computer software at cost 559 559

Accumulated amortisation (530) (510)

Total intangibles 29 49

222 ANNUAL REPORT 2004-05

N o te 8 C - R e c o n c ilia tio n o f the o p e n in g a n d clo s in g b a la n c e s o f infra structu re ,

p la n t a n d e q u ip m e n t

Leasehold Plant and Total

item improvements equipment infrastructure Intangibles Total

$’000 $’000 $’000 $’000 $’000

As at 1 July 2004

Gross book value 1,269 2,475 3,744 559 4,303

Accumulated depreciation/amortisation ( -) (1.824) (1.824) (510) (2.334)

Opening net book value 1.269 651 1,920 49 1,969

Additions by purchase - 192 192 - 192

Depreciation/amortisation expense (224) (304) (528) (20) (548)

Write-downs - (4) (4) - (4)

As at 30 June 2005 Gross book value 1,269 2,528 3,797 559 4,356

Accumulated depreciation/amortisation ( 224) (1,993) (2,217) (530) (2,747)

Closing net book value 1.045 535 1.580 = 2 2 1.609

In 2003-04, leasehold improvements revaluations were conducted by independent valuers M. Lancellotte, AAPI and R. Rixon, AAPI, ASIA o f the Australian Valuation Office. Plant and equipment assets which were previously valued at ‘deprival’ and ‘cost’ are now valued at fair value which is not considered to be

materially different from the carrying amount at balance date.

FINANCIAL STATEMENTS

223

N o te 9 P r o v is io n s

E m p lo ye e p ro v is io n s

2 0 0 5 2004

$ ’000 $’000

Salaries and wages 328 692

Annual leave 2,549 2,367

Long service leave 4,166 4,024

Superannuation 9 103

Aggregate em ployee entitlem ent liability 7.052 7.186

Current 3,386 3,662

Non-current 3,666 3,524

Note 10 Equity

Item

Accumulated results Asset revaluation reserve

Contributed Equity Total Equity

2005 2004 2005 2004 2005 2004 2005 2004

$’000 $'000 $’000 $'000 $’000 $’000 $’000 $'000

Opening balance as at 1 July (4,072) (3,005) 1,172 96 1,711 1,686 (1,189) (1,223)

Net surplus/deficit 2,301 (1,067) - - - - 2,301 (1,067)

Net revaluation increment - - - 1,076 - - - 1,076

Contributions by owner:

Appropriations (equity injection) 25 25

Closing balance as at 30 June (1.7711 14.0721 1.172 1.172 i m 1.711 1.112 (M S S )

224 ANNUAL REPORT 2004-05

N o te 11 C a s h flo w r e c o n c ilia tio n

2005 2 0 0 4

$’000 $’000

R econciliation of net surplus to net cash from operating activities

Net surplus (deficit) 2,301 (1,067)

Depreciation/Amortisation 548 775

Loss (profit) on sale of non-current assets (4) 3

Write-down of assets 4 8

Decrease (increase) in receivables (2,848) (22)

Decrease (increase) in prepayments 110 (19)

Increase (decrease) in employee liabilities (134) 612

Increase (decrease) in suppliers liability (537) 422

Increase (decrease) in other liabilities - (10)

Increase (decrease) in contributed equity - 25

Net cash from (used by) operating activities (5601 727

FINANCIAL STATEMENTS

225

N o te 12 A p p r o p r ia tio n s

Note 12A - Acquittal of authority to draw cash from the Consolidated Revenue Fund (CRF) for Ordinary Annual Service Appropriations

200 5 2004

$’000 $'000

Balance carried forward from previous period 4,358 3,934

Unspent prior year appropriations - ineffective s 311 (2,089) (1.823)

Adjusted balance carried from previous period [A] 2,269 2.111

Appropriation Act (No 1) 24,588 24,203

Appropriation Act (No 3) 3,705 143

Sub-total annual appropriation [B] 28,293 24,346

Appropriations to take account of recoverable GST (FMAA s 30A) [C] 678 476

30 June 2005 variation - s 312 [D] 2,438 2.089

Total appropriations available for payments [A+B+C+D] 33,678 29,022

Cash payments made during the year (GST inclusive) [E] (27,363) (24.664)

Balance o f authority to draw cash from the CRF for ordinary annual service appropriations [A+B+C+D+E] .6,315 4.358

Represented by:

Cash at bank and on hand 210 958

Receivables - appropriations held in the ORA 6,105 3.400

Total 6.315 4.358

1 Under Section 31 of the Financial Management and Accountability Act 1997 (the FMA Act), the Minister for Finance may enter into a net appropriation agreement with an agency Minister. Appropriation Acts nos. 1 and 3 (for the ordinary annual services of government) authorise the supplementation of an agency’s annual net appropriation by amounts received in accordance with its Section 31 agreement, eg receipts from charging for goods and services.

One of the conditions that must be satisfied under Section 31 of the FMA Act in order for an annual net appropriation to be increased lawfully in this way is that the agreement is made between the Finance Minister and the agency Minister or by officials expressly delegated (where permitted) or authorised by them. An agency’s Chief Executive is taken to be so authorised.

The Acting Branch Manager, Department of Finance and Administration and the Assistant Commissioner, Corporate Services, Productivity Commission executed the Commission's Section 31 agreement covering the period July 1999 to February 2005. Whilst the Commission has operated and recorded Section 31 monies as though an effective agreement existed, the Commission did not have an express delegation or authority for signing the agreement, with the result that its agreement was ineffective and it did not have control over Section 31 monies. Prior to July 1999 there is doubt as to whether the Commission's Section 31 agreements were effective because the Commission's signatory may not have had an express delegation or authority for signing the agreements.

The Commission's current Section 31 agreement was made on 24 February 2005 between its Chief Executive Officer and the Division Manager, Budget Group, Department of Finance and Administration. Acknowledging the ineffectiveness of the prior agreement, this agreement was varied on 24 June 2005, with effect from 30 June 2005, to capture retrospectively all monies that were subject to the ineffective prior agreement.

226 ANNUAL REPORT 2004-05

Accordingly:

• amounts disclosed in previous financial years as available for spending under the Commission’s departmental outputs appropriations up to 30 June 2004 were overstated by $2,089,000;

• the 30 June 2005 variation to the Commission’s agreement increased its appropriation by the amount of affected receipts for 2004-05 of $349,000 to a total of $2,438,000;

• no spending occurred without the authority of the Parliament and accordingly there was no breach of Section 83 of the Constitution.

A year-by-year analysis of overstatement of the output appropriations is given below.

1998-99 Total

Pre­

accrual budgeting

1999-00 2000-01 2001-02 2002-03 2003-04 Sub­ Total 2004-05 Total

1/7/99 to 30/6/05

R ec eip ts affected 102 102 559 464 457 343 266 2 ,0 8 9 349 2,438

U n sp e n t 102 102 559 464 457 343 266 2 ,0 8 9 349 2,438

A m ount s p e n t without

appropriation - - - - - - - - - -

^ This amount represents receipts of $2,438,000 appropriated by the variation of 30 June 2005.

FINANCIAL STATEMENTS

227

Note 12B - Acquittal of authority to draw cash from the Consolidated Revenue Fund (CRF) for other than Ordinary Annual Services Appropriations

2 0 0 5 2004

$ ’000 $’000

Balance carried forward from previous year 25 -

Appropriation Act (No 4) 25

Total appropriations available for payments 25 25

Cash payments made during the year ( _ ^ 1

Balance o f authority to draw cash from the CRF for other than ordinary annual services appropriations = 2 5 25

Represented by:

Receivables - appropriations held in the ORA = 2 5 = 2 5

N o te 13 R e p o rtin g o f o u tc o m e

Note 1 3 A - Net cost of outcome delivery

2 0 0 5 2004

$ ’000 $’000

Operating expenses 26,344 25.689

Operating revenue Goods and services 314 231

Revenue from disposal of assets 4 15

Total external revenues 318 246

Net cost of outcom e 26.026 25.443

228 ANNUAL REPORT 2004-05

Note 1 3 B - Major classes of revenues and expenses by output

Output 1 O utput 2 O utput 3 Output 4

2 0 0 5 2004 2 0 0 5 2004 2 0 0 5 2004 2 0 0 5 2004

$ ’000 $’000 $ ’000 $'000 $ ’000 $’000 $ ’000 $’000

Expenses

Employees 9,775 9,971 3,175 2,229 2,105 2,085 81 135

Suppliers 2,942 3,104 1,011 714 534 473 22 32

Depreciation and amortisation 272 404 88 90 59 84 2 6

Other 2 12 1 3 — 3 — —

Total expenses 12.991 13.491 4,275 3.036 2.698 2,645 105 173

Funded by:

Revenues from government 13,952 12,787 4,591 2,877 2,898 2,508 113 163

Sales of goods and services 155 122 51 27 32 23 1 2

Other non-taxation revenues 19 23 6 6 4 5

Total revenues 14.126 12.932 4.648 2.910 2.934 2,536 114 165

Output 5 Total

2 0 0 5 2004 2 0 0 5 2004

$ ’000 $'000 $ ’000 $'000

4,554 4,715 19,690 19,135

1,593 1,433 6,102 5,756

127 191 548 775

1 5 4 23

6.275 6.344 26.344 25.689

6,739 6,011 28,293 24,346

75 57 314 231

9 11 38 45

6.823 6.079 28.645 24.622

Outcome 1, and the five contributing outputs, are described in Note 1. Net costs shown include intra-government costs that are eliminated in calculating the actual Budget outcome.

The amounts of total remuneration received/receivable by Holders of Public Office and Senior Executive Service staff, where such amounts exceed $100,000 during the year, are shown in the table.

N o te 14 R e m u n e r a tio n o f e x e c u t i v e s

Total remuneration includes salary, superannuation, performance pay, changes in the value of accrued leave and other package components such as executive vehicles.

2 0 0 5 2004

The number of executives who received or were due to receive total remuneration of $100,000 or more:

$100,000 to $110,000 1 2

$110,000 to $120,000 2 1

$140,000 to $150,000 2 -

$150,000 to $160,000 1 5

$160,000 to $170,000 2 2

$170,000 to $180,000 4 6

$180,000 to $190,000 3 4

$190,000 to $200,000 3 -

$200,000 to $210,000 1 -

$210,000 to $220,000 1 -

$220,000 to $230,000 1 1

$230,000 to $240,000 2 1

$240,000 to $250,000 1 1

$250,000 to $260,000 1 2

$290,000 to $300,000 1 1

$310,000 to $320,000 1

=2Z =2S

A ggregate am ount of total rem uneration of executives shown above $5,182,577 $4,717,084

Aggregate am ount of separation and redundancy paym ents during the year to executives shown above $165,886 $14,491

N o te 15 R e m u n e ra tio n o f a u d ito rs

2 0 0 5 2004

Financial statement audit services are provided free of charge to the Commission. The value of the services provided was: $33,500 $32,500

No other services were provided by the Auditor-General.

230 ANNUAL REPORT 200405

To the best of its knowledge, the Commission was not exposed to any unrecognised liabilities that would have any material effect on the financial statements.

N o te 17 S p e c ific d is c lo s u re s

No expenses and/or provisions in relation to each o f the following compensation and debt relief mechanisms were made during the reporting period:

(a) act of grace payments, pursuant to subsection 33(1) of the Financial Management and Accountability Act 1997 (FMA Act);

(b) waivers of debt owing to the Australian Government (being amounts that the entity would, but for the waiver, have been entitled to receive on behalf of the Australian Government);

(i) pursuant to subsection 34(1) o f the FMA Act; and

(ii) pursuant to other legislation, which must be specified;

(c) payments under the Compensation for Detriment caused by Defective Administration (CDDA) Scheme;

(d) payments under approved ex-gratia programs, the nature o f which must be identified; and

(e) payments in special circumstances relating to APS employment pursuant to section 73 of the Public Service Act 1999 (PS Act).

N o te 1 6 C o n t in g e n c ie s

N o te 18 A v e ra g e s ta ffin g

The average staffing level is in respect o f all employees of the Commission, including Flolders o f Public Office.

2 0 0 5 2004

Average staffing level numbers 192 190

Further information on staffing levels is provided in Appendix A of the Annual Report.

FINANCIAL STATEMENTS

231

N o te 19 F in a n c ia l in s tr u m e n ts

Note 19A- Terms, conditions and accounting policies

Financial Instrument

Accounting Policies and Methods (including recognition criteria and measurement basis)

Nature of underlying instrument (including significant terms & conditions affecting amount, timing and certainty of cash flows)

Financial Assets Financial assets are recognised when control over future economic benefits is established and the amount of the benefit can be reliably measured.

Cash Deposits are recognised at their

nominal amounts.

The Commission maintains its bank accounts with the Reserve Bank of Australia at call. Monies in the Commission’s bank

accounts are swept into the Official Public Account nightly.

Receivables

Financial Liabilities

These receivables are recognised at the nominal amounts due less any provision for bad and doubtful debts. Collectability of debts is reviewed at balance date. Provisions are made when collection of the debt is judged to be less rather than more likely. Financial liabilities are recognised when a present obligation to another party is entered into and the amount of the liability can be reliably measured.

All receivables are with both entities related and external to the Commission. Credit terms

for external entities are generally net 30 days.

Trade creditors Creditors and accruals are

recognised at their nominal amounts, being the amounts at which the liabilities will be settled. Liabilities are recognised to the extent that the goods or services have been received (and

irrespective of having been invoiced).

The majority of creditors are entities that are not part of the Commonwealth legal entity.

232 ANNUAL REPORT 2004-05

Note 1 9 B - Interest rate risk

Effective Interest Ratea

Note 2 0 0 5 2004 2 0 0 5 2004 2 0 0 5 2004 2 0 0 5 2004 2 0 0 5 2004

$ ’000 $'000 $ ’000 $'000 $ ’000 $'000 $ ’000

Financial assets

Cash at bank - - - - 210 958 210

Receivables 7 - - - - 6,346 3.498 6,346

Total financial assets - - - - 6,556 4,456 6,556

Total assets - - - - 8,351 6.721 8,351

Financial liabilities

Suppliers - - - - 187 724 187

Total financial liabilities - - - - 187 724 187

Total liabilities - - - - 7,239 7.910 7,239

$'000

958

3,498

4,456

6,721

724

724

7.910

% %

n/a n/a

n/a n/a

n/a n/a

a Weighted average.

The net fair values of cash and non-interest-bearing monetary financial assets, approximate their carrying amounts.

The net fair values for trade creditors are approximated by their carrying amounts.

Note 1 9 C - Credit risk exposures

The Commission’s maximum exposure to credit risk at reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the Statement of Financial Position.

The Commission has no significant exposures to any concentrations of credit risk.

Note 1 9 B - Net fair values of financial assets and liabilities

Note 20 Special accounts

The Commission has an Other Trust Monies Special Account and a Services for other Governments and Non-Agency Bodies Account. Both accounts were established under section 20 of the Financial Management and Accountability Act 1997. For the years ended 30 June 2000-2005 the accounts had nil balances and there were no transactions debited or credited to them.

The purpose of the Other Trust Monies Special Account is for expenditure of monies temporarily held on trust or otherwise for the benefit of a person other than the Commonwealth. Any money held is thus special public money under section 16 of the FMA Act 1997.

The purpose of the Services for other Governments & Non Agency Bodies Special Account is for expenditure in connection with services performed on behalf o f other Governments and bodies that are not Agencies under the Financial Management and Accountability Act 1997.

234 ANNUAL REPORT 2004-05

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Victorian Competition and Efficiency Commission 2005, Regulation and Regional Victoria: Challenges and Opportunities, Draft Report, January.

Victorian Government 2005, 2005-06 Budget Paper 2 — Strategy and Outlook, Department o f Treasury and Finance, Melbourne, May.

Waite, M. and L. Will 2001, Self-employed Contractors in Australia: Incidence and Characteristics, Productivity Commission Staff Research Paper, Auslnfo, Canberra.

Walsh, C. 1991, ‘Reform of Commonwealth-State Relations: No Representation Without Taxation’, Discussion Paper, No. 2, Federalism Research Centre, Australian National University, Canberra, August.

Wanna, J. and G. Withers 2000, ‘Creating capability: combining economic and political rationalities in industry and regional policy’, in G. Davis and M Keating (eds), The Future o f Governance: Policy Choices, Allen and Unwin, Sydney.

Wooden, M. 2000, The Transformation o f Australian Industrial Relations, The Federation Press, Sydney.

REFERENCES 241

Index

Aboriginal and Torres Strait Islander Social Justice Commissioner, 129

Access Economics, 7, 23, 147, 148

accrual-based budgeting and accounting framework, 60, 93, 94,100, 208

aged care, 10, 11, 13, 18,21, 22, 24, 124, 128, 143, 163

aged care submission, 149

ageing of Australia’s population, 21-2,29, 34, 38, 42, 75, 161, 163

ageing research study, 21-2, 29, 30, 33, 39, 40, 42,44, 47, 48, 49, 50, 51, 52,101, 108, 109, 112, 114, 115, 116, 162-4

agriculture research paper, 149, 178-9

Allen Consulting Group, 7,107, 148

Asia Pacific Economic Cooperation forum (APEC) Secretariat, 52

audited financial statements, 64, 199-234

Australia and New Zealand competition and consumer protection regimes research study, 29, 30, 33, 39, 41, 48, 52, 109, 112, 114,116, 159-61

Australia-New Zealand Closer Economic Relations Trade Agreement (CER), rules of origin research study, 49, 115, 169

Australia Post, 172^1

EDI Post Division, 37, 141, 171-2

Australia-United States Free Trade Agreement (AUSFTA), 49

Australian Accounting Standards Board Consultative Group, 43

Australian Agricultural and Resource Economics Society, 43, 146

Australian Building Codes Board, 33, 48, 114, 158, 159

Australian Bureau of Statistics (ABS), 40, 41, 42, 112, 124, 126, 146, 175

Australian Chamber of Commerce and Industry (ACCI), 46, 106, 138

Australian Competition and Consumer Commission (ACCC), 99, 160, 173

Australian Constitution, 5, 6, 8, 16, 20, 26

Australian Government Competitive Neutrality Complaints Office (AGCNCO), 37, 63, 89, 139, 140, 141, 142, 171, 172, 173, 174, 197

Australian Industry Group, 7,106, 137

Australian Institute of Health and Welfare, 42, 126, 128

INDEX 243

Australian National Audit Office, 62, 66, 200-1

Australian Newsagents’ Federation, 172, 173-4

Australian pigmeat industry inquiry, 29, 33, 48, 164-5

Australian Postal Corporation Act 1989, 173

Australian Valuation Office, 141,223

Australian Volunteer Coastguard, 174

Australian Workplace Agreements, 67

automotive assistance inquiry, 99

benchmarking, 44, 86, 90, 96, 122, 126, 128

broadcasting inquiry, 46, 49, 52, 98, 99, 107, 116

building regulation reform research study, 29, 30, 33, 48, 109, 112, 114, 116, 157-8

Business Council of Australia, 7, 46, 107, 116, 137, 147, 148, 149

CBD Chauffeured Transport, 174

Centre of Policy Studies, 42, 87, 146

Certified Agreement, 67, 68, 69, 72

Chandler Enterprises, 171

childcare, 13, 18, 19, 124

ComCar, 174

Commissioners, 57, 61, 67, 80, 145, 175, 187-8

Commissioners, Associate, 57, 59, 80

competition among jurisdictions

destructive, 8, 14-15, 17

direct competition between levels of government, 8, 9, 10-11

horizontal, 5, 8, 11-15

regimes operating in parallel, 9-10, 26

tax, 14

vertical, 8, 9-11

yardstick, 11, 12-13, 14

competitive federalism, 8-15, 26

competitive neutrality complaints activities, 30, 37, 93, 98, 139-42, 171-4

compliance index, 92

conservation of Australia’s historic heritage places inquiry, 29, 33, 76, 109, 156

cooperative federalism, 15-20, 26

244 ANNUAL REPORT 2004-05

Council of Australian Governments (COAG), 6, 16,18, 23, 24, 25, 27, 29, 34, 46, 51, 96, 98, 106,110, 122, 123, 125, 138, 153

review of national competition policy, 23, 24, 26, 32, 162

RIS requirements, 36,132, 135, 136,137, 139

CSIRO, 43,146

Department of Finance and Administration, 64, 73, 141, 174, 208, 216, 226

Department of Foreign Affairs and Trade, 145

Department of the Prime Minister and Cabinet, 42, 78, 146,174

Department of the Treasury, 59, 95, 132, 133, 141

Disability Discrimination Act 1992, 73, 169

Disability Discrimination Act inquiry, 48, 114, 115, 169-70

ecologically sustainable development (BSD), 76-7

economic impacts of population growth and migration research study, 29, 108, 156-7

economic implications of an ageing Australia research study, see ageing research study

economic infrastructure, 11,17,19,21, 35, 38, 40, 46, 96,106, 107,122

economic modelling, 38, 39, 40, 75, 86,108, 112,143, 144,146,147,179, 180-1,181-2

economic performance of Australia, 23, 116

EDI Post, see Australia Post

energy efficiency inquiry, see private cost effectiveness of improving energy efficiency inquiry

Environment Protection and Biodiversity Conservation Act 1999, 76

environmental sustainability, 20, 21, 38

Exports and Infrastructure Taskforce, 46, 51, 106, 115, 116, 148

federal governance systems, 1-5

Australia’s federation, 5-8

assignment of functions, 3-5

competitive federalism, 8-15, 26

cooperative federalism, 15-20, 26

reassignment of functions, 18, 20

financial and staffing resources summary, 60

Financial Management and Accountability Act 1997, 78, 202, 208, 226, 231, 234

first home ownership inquiry, 44, 52, 108, 116

INDEX 245

fiscal equivalence principle, 4

Freedom of Information, 77, 89-91

Freedom o f Information Act 1982, 77, 78, 89, 91

gambling inquiry, 44, 49, 50, 98, 99, 115, 116

gas access regime inquiry, 99, 116

general practice, 124

Global Trade Analysis Project, 43, 75

globalisation, 20-1

government-commissioned projects, 32-4, 48-9, 95, 96, 108-121, 151-70

government trading enterprises, performance, 13, 30, 35, 45, 96, 100, 122, 126, 130

Great Barrier Reef catchment research study, 51, 115

health care, 22, 24, 153, 163

costs, 22, 163

health workforce research study, 25,29, 30, 34, 51, 110, 153-4

heritage inquiry, see conservation of Australia’s historic heritage places inquiry

Hilmer inquiry, 18

Hogan Review of residential aged care, 149

horizontal competition, 5, 8, 11-15

horizontal fiscal equalisation, 14, 20, 46, 107

Independent Pricing and Regulatory Tribunal of NSW (IP ART), 41, 142

indigenous Australians,

data compendium, 34, 122, 124, 127

indicators of disadvantage report, 29, 30, 34, 35, 50, 51, 52, 95, 100, 101, 122, 123, 124, 125-6, 127, 128, 129-30

Industry Commission, 148, 149

information and communication technologies (ICTs), 140, 142, 175-7

Intergenerational Report, 33

inteijurisdictional spillovers, 16-17

international liner cargo shipping inquiry, see Part X of the Trade Practices Act inquiry

international pharmaceutical price differences research study, 108

interstate bidding wars, 14-15, 17

246 ANNUAL REPORT 2004-05

Kerr, Robert, 59

Krueger, Anne, 143

labour force participation, 22, 26, 46,106, 153, 154, 157, 163

labour market reform, 26

manufacturing trends research paper, 149

Media Entertainment and Arts Alliance, 107

media coverage of the Commission, 49, 52,107, 115, 116, 128, 130, 148,149

medical technology research study, 29, 30, 34, 110, 167-8

Melbourne Institute of Applied Economic and Social Research, 42, 43, 75, 146

migration, 8,15, 163

ministerial councils, 126

RIS requirements, 35, 36, 131,132, 135, 136

Ministerial Council on Consumer Affairs, 110, 155

Ministerial Council on Energy, 99

multifactor productivity, 176

Murray-Darling Basin, 146,179-80,181-2

Ministerial Council, 17

National Resource Management Strategy, 16, 17

mutual recognition schemes, 15

mutual recognition schemes research study, 48

national access regime inquiry, 115, 116

National Bureau of Economic Research, 43

National Centre for Social and Economic Modelling (NATSEM), 42, 75

National Competition Council, 51,106, 130, 132, 136, 137,148

national competition policy, 17— 18, 19, 23, 24, 25, 26, 27, 32, 106, 112, 137

national competition policy reforms inquiry, 15, 24, 25, 26, 29, 30, 32, 38, 40, 44, 50, 51, 52, 98, 99, 101, 108, 112, 113, 115, 116, 126, 143, 144, 147, 161-2

nationally coordinated reform, 18, 23, 24, 25, 26, 162

national workers’ compensation and OHS frameworks inquiry, 9-10, 116

native vegetation and biodiversity regulation inquiry, 50, 51, 115

New Zealand, 30,41,46,48,49, 52, 76, 99, 105, 106, 112, 114, 134, 156

New Zealand Prime Minister, 48, 105

INDEX 247

regulation review activities, 36, 44, 132, 133

see also rules of origin research study and the Australia and New Zealand competition and consumer protection regimes research study

Occupational Health and Safety (Commonwealth Employment) Act 1991, 78

OECD, 43, 44, 51, 107, 133, 134, 148, 149, 175

Office of Regulation Review (ORR), 35-7, 44, 45, 53, 62, 96, 100, 131-9

parliamentary committees, 38, 50, 51, 64, 101, 102-3, 136, 148, 149

Part X of the Trade Practices Act inquiry, 32, 59, 98, 108, 113

performance reporting activities, 34-5, 51, 95-6, 122-30

Printing Industries Association of Australia, 172

preferential trading arrangements research, 43,49, 52, 101

Premier of Victoria, 46, 106, 147, 148

private cost effectiveness of improving energy efficiency inquiry, 29, 30, 33, 44, 52, 76, 109, 116

productivity, 22, 23, 30, 32, 33, 37, 42, 46, 106, 107, 142, 154, 156-7, 161, 163, 16, 179

research, 29,38,41,42, 43,49,51,96, 101, 147-8, 149, 175-7, 179, 181

Productivity Commission

activities in 2004-05, 29, 30, 32-45, 106-13, 122-6, 131-4, 139-40, 143-5, 185-93

appointments, 57, 59,

collaborative research, 42-3

competitive neutrality complaints activities, 30, 37, 93, 98, 139-42, 171 4

consultancies let, 74, 86-8

consultative processes, 39-42

external and internal scrutiny, 63-6

disability strategy, 73, 77, 83-5

environmental management system, 77

feedback on activities, 45-7, 97, 100, 101, 112, 113, 127, 129, 141

financial statements, 73-4, 199-234

funding base review and outcome, 29,47,64, 73-4

governance arrangements, 60-3

government-commissioned projects, 32-4, 48-9, 95, 96, 108-121, 151-70

project costs, 111

government-commissioned research studies, 33-4, 48-9, 51, 95, 100, 108, 109-10, 111, 112, 114-5, 151-70

248 ANNUAL REPORT 2004-05

government responses to reports, 29,48-9, 114— 5, 117-21, 129, 130, 147,159,161, 162, 164, 165, 167, 169-70

management of human resources, 66-73

occupational health and safety, 71-2

organisation chart, 58

outcome objective, 30,47, 93-4, 208

performance management and pay, 68

performance reporting activities, 34-5, 51, 95-6, 122-30

program performance, 45-52, 93-149

publications, 31-2, 122, 144,171, 175-84, 195-8

quality assurance processes, 39-41,100,113, 126-7, 134— 5, 141, 146-7

regulation review activities, 35-6, 44, 51, 53, 96, 131-8

see also Office of Regulation Review

role, 30, 57, 93, 208

service charters, 63— 4

speeches and presentations, 38, 52,145, 185-91

staffing statistics, 59, 81-2

supporting research and statutory annual reporting, 37-8, 41-2, 51, 96-7,142-9, 175-93

training, 70

visiting officials, 38, 52, 192-3

visiting researchers, 41

website, 39, 42,44-5,47,57, 62, 64-5,67, 77, 78,91,99, 113, 116, 128, 129, 130, 134, 139, 142, 149, 153

workplace diversity, 72-3

workshops and roundtables, 39, 40, 95, 112, 123, 127, 131, 146

Productivity Commission Act 1998, 57, 64, 76, 78

Public Service Act 1999, 57

references to Commission work

in Federal Parliament, 49, 101, 115, 128, 129, 136-7

in House of Representatives and Senate committee reports, 46, 51, 102-3, 106, 148 see also parliamentary committees

in Parliamentary Library reports, 51, 104-5

in State and Territory parliaments, 50, 115, 128

in the media, see media coverage of the Commission

INDEX 249

reform of building regulation, see building regulation reform research study

Regulation Impact Statements (RISs), 35-6, 131, 132, 134, 135, 138

compliance with government requirements, 36, 51, 132, 132, 136, 137

reference to RISs in Parliament, 136-7

regulation review activities, 35-6, 44, 51, 53, 96, 131-8

feedback survey, 45,100,134-5

Regulatory Institutions Network, 43

Report on Government Services, 34, 45, 50, 51, 52, 122, 123-5, 126, 127-8, 129

2004 survey of users and contributors, 100

Review of Government Service Provision, 13,29, 34, 43, 44

rules of origin research study, 49, 115, 169

Sea Tow Services, 174

Senate Community Affairs Committee, 106

Senate Economics Committee, 50, 64

Senate Environment, Communications, Information Technology and the Arts Committee, 99, 106, 107

Senate Select Committee on the Administration of Indigenous Affairs, 101, 129

service charters, 63— 4

service provision, see Review of Government Service Provision

smash repair and insurance inquiry, 29, 33, 40, 48, 59, 98, 109, 113, 114, 165-7

Snape, Professor Richard (former Deputy Chairman), 75, 143

2004 Richard Snape Lecture, 143

Steering Committee for the Review of Government Service Provision, 29, 34, 62, 89, 91, 95, 96, 98, 122, 123, 126, 127, 129

Steering Committee on National Performance Monitoring of Government Trading Enterprises, 13-M, 96, 122

subsidiarity principle, 3, 4

supporting research and statutory reporting activities, 37-8, 41-2, 51, 96-7, 142-9, 175-93

textiles, clothing and footwear (TCP) inquiry, 49, 50, 99, 101, 115

tourism, exploratory assistance estimates, 177-8

Trade Practices Act, 19, 59, 149, 155, 167

see also Part X of the Trade Practices Act inquiry

Trans-Tasman Mutual Recognition Arrangement, see mutual recognition schemes study

250 ANNUAL REPORT 2004-05

u n i v e r s i t y r e s o u r c i n g r e s e a r c h s t u d y , 1 1 6

vertical competition, 8, 9-11, 14

vertical fiscal imbalance, 4, 5, 14

Victorian Competition and Efficiency Commission, 51, 115

Volunteer Marine Reserve, 174

World Trade Organisation (WTO), 38, 144

workers’ compensation inquiry, see national workers’ compensation and OHS frameworks inquiry

workplace relations reform, 7, 26

Workplace Relations Reform Act 1996, 67

INDEX 251

ISBN 1-74037-186