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Inquiry Into Microeconomic Reform in Western Australia Draft Report

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Inquiry Into Microeconomic Reform in Western Australia Draft Report Economic Regulation Authority Inquiry into Microeconomic Reform in Western Australia Draft Report 11 April 2014 Inquiry into Microeconomic Reform in Western Australia: Draft Report Economic Regulation Authority Important Notice This document has been compiled in good faith by the Economic Regulation Authority (ERA). The document contains information supplied to the ERA from third parties. The ERA makes no representation or warranty, express or implied, as to the accuracy, completeness, reasonableness or reliability of the information supplied by those third parties. This document is not a substitute for legal or technical advice. No person or organisation should act on the basis of any matter contained in this document without obtaining appropriate professional advice. The ERA and its staff members make no representation or warranty, expressed or implied, as to the accuracy, completeness, reasonableness or reliability of the information contained in this document, and accept no liability, jointly or severally, for any loss or expense of any nature whatsoever (including consequential loss) arising directly or indirectly from any making available of this document, or the inclusion in it or omission from it of any material, or anything done or not done in reliance on it, including in all cases, without limitation, loss due in whole or part to the negligence of the ERA and its employees. This notice has effect subject to the Competition & Consumer Act 2010 (Cwlth), the Fair Trading Act 1987 (WA) and the Fair Trading Act 2010 (WA), if applicable, and to the fullest extent permitted by law. Any summaries of the legislation, regulations or licence provisions in this document do not contain all material terms of those laws or obligations. No attempt has been made in the summaries, definitions or other material to exhaustively identify and describe the rights, obligations and liabilities of any person under those laws or licence provisions. © Economic Regulation Authority 2014 This document is available from the Economic Regulation Authority’s website at www.erawa.com.au. For further information, contact: Economic Regulation Authority Perth, Western Australia Phone: (08) 6557 7900 Inquiry into Microeconomic Reform in Western Australia: Draft Report Economic Regulation Authority Contents Summary of recommendations 1 1 Introduction 6 1.1 Terms of Reference 6 1.2 Public consultation 6 1.2.1 Preparing a submission 7 1.2.2 Next steps 7 1.3 Invitation to make submissions 8 2 The rationale for microeconomic reform 9 2.1 Productivity and microeconomic reform 9 2.2 Overview of microeconomic reforms in the Draft Report 11 2.2.1 Issues addressed in this report 12 2.2.2 Compensation 14 3 Economic performance 17 3.1 Introduction 17 3.2 Recent and forecast economic growth in Western Australia 18 3.2.1 Productivity 18 3.3 The Government’s financial position 23 3.3.1 Western Australia’s credit rating 23 3.3.2 Government financial targets 24 3.4 Employment and Gross Value Added 30 3.4.1 Employment in major industries 30 3.5 Population growth 30 3.6 The cost of living 32 3.7 International considerations 33 3.7.1 International trade 34 3.7.2 Terms of Trade and exchange rates 35 3.7.3 Global Competitiveness Report 37 3.8 Conclusion 39 4 Infrastructure 40 4.1 Introduction 40 4.1.1 Importance of infrastructure 41 4.1.2 Infrastructure spending in Western Australia 41 4.1.3 Current Government financial situation 44 4.2 Public infrastructure 45 4.2.1 Implement and follow good process 46 4.2.2 Fit for Purpose 56 4.2.3 Alternative policies 60 4.2.4 Royalties for Regions 61 4.2.5 Congestion charging 69 4.2.6 Cost-reflective time-of-use electricity charges 75 4.2.7 Commercial activities of Government 81 4.2.8 Innovative sources of funding 86 Inquiry into Microeconomic Reform in Western Australia: Draft Report i Economic Regulation Authority 4.2.9 Public Private Partnerships 91 4.2.10 Unsolicited proposals 101 4.2.11 Infrastructure WA 106 4.3 Divestment of Government assets 110 4.3.1 Background 110 4.3.2 Submissions 111 4.3.3 Why does the Government intervene in markets? 112 4.3.4 Public ownership 114 4.3.5 Criteria for reviewing Government ownership 116 4.3.6 Review of Assets 121 5 Reducing the cost of complying with regulation 142 5.1 Introduction 142 5.1.1 Costs and benefits of regulation 142 5.1.2 Forms of regulatory burden 143 5.1.3 Key forms of regulation in Western Australia 144 5.1.4 Recent reform initiatives in Western Australia 145 5.1.5 Lead Agency Framework 145 5.1.6 The ERA’s approach 146 5.2 Submissions 148 5.3 Addressing existing regulatory burden 151 5.3.1 Key areas of regulatory burden 151 5.3.2 Identification of sectors most affected by regulatory burden 151 5.3.3 Recurring weaknesses in regulatory processes 156 5.3.4 Common practices leading to successful reforms 160 5.3.5 Recommendations 171 5.4 Safeguards against future regulatory burden 172 5.4.1 How can we prevent the implementation of poor quality regulation? 172 5.4.2 Regulatory Impact Assessment 172 5.4.3 Regulatory Impact Assessment in Western Australia 174 5.4.4 Assessing the quality of Western Australia’s Regulatory Impact Assessment process 175 5.4.5 Further opportunities for improvement 181 5.4.6 Post-implementation review 182 5.4.7 Recommendations 185 6 Review of State taxes 187 6.1 Introduction 187 6.2 Background 188 6.3 Minimising the efficiency, compliance and administration costs of taxes 190 6.4 Western Australian taxes 191 6.4.1 Payroll tax 191 6.4.2 Transfer duty 193 6.4.3 Land tax 194 6.5 Submissions 195 Inquiry into Microeconomic Reform in Western Australia: Draft Report ii Economic Regulation Authority 6.5.1 Chamber of Commerce and Industry 195 6.5.2 Chamber of Minerals and Energy 195 6.5.3 Master Builders Association 196 6.5.4 Small Business Development Corporation 196 6.6 Options for reforming State taxes 198 6.6.1 Broaden the base and lower the rate of all three taxes 199 6.6.2 Increase reliance on efficient taxes and reduce or abolish inefficient taxes 203 6.6.3 Comparison of options 204 6.7 Conclusion 206 6.8 Recommendations 207 7 Removing barriers to competition 208 7.1 Retail trading hours 210 7.1.1 Introduction 210 7.1.2 Retail Trading Hours Act 211 7.1.3 Submissions 215 7.1.4 ERA assessment of the benefits and costs of deregulation 216 7.1.5 ERA conclusions 231 7.1.6 Recommendations 232 7.2 Taxi industry 233 7.2.1 Introduction 233 7.2.2 Regulation of the taxi industry in Western Australia 234 7.2.3 Costs and benefits of regulating taxi supply 241 7.2.4 Recommendations 264 7.3 Potato marketing 265 7.3.1 Introduction 265 7.3.2 Overview of the Western Australian ware potato industry 266 7.3.3 Potato Marketing Corporation 267 7.3.4 Submissions 268 7.3.5 Analysis 269 7.3.6 Compensation 289 7.3.7 Potato Marketing Corporation reform process 290 7.3.8 Summary 290 7.3.9 Recommendation 291 7.4 Domestic gas reservation policy 292 7.4.1 Introduction 292 7.4.2 Background 293 7.4.3 Submissions 298 7.4.4 ERA assessment 299 7.4.5 Unintended consequences of a domestic gas reservation policy? 305 7.4.6 Conclusion 311 7.4.7 Recommendation 312 7.5 Keystart 313 7.5.1 Submissions 313 Inquiry into Microeconomic Reform in Western Australia: Draft Report iii Economic Regulation Authority 7.5.2 Keystart loans 313 7.5.3 Costs 315 7.5.4 Benefits 319 7.5.5 ERA assessment 320 7.5.6 Recommendations 320 Appendix 1 Terms of Reference 321 Appendix 2 Glossary 322 Appendix 3 Government service efficiency indicators 325 Appendix 4 Reducing the cost of complying with regulation 326 Appendix 5 Goods that different categories of special retail shops may sell 336 Appendix 6 Goods that can be sold at filling stations 338 Appendix 7 Perth Metropolitan Area as referenced by the Retail Trading Act 1987 339 Appendix 8 The regulation of regional Western Australian taxis and Small Charter Vehicles 340 Appendix 9 Submissions received in response to the Issues Paper and Discussion Paper 342 Appendix 10 Potential areas of reform for further consideration 344 Inquiry into Microeconomic Reform in Western Australia: Draft Report iv Economic Regulation Authority Tables Table 1 Western Australian State Government financial target compliance 25 Table 2 Distribution of Government assets and capital works by sector (2013/14) 29 Table 3 Population projections for Perth 31 Table 4 Interstate comparison of 2013-14 State Government infrastructure expenditure 42 Table 5 Western Australia Asset investment program – ten year comparison (real) 43 Table 6 2013-14 Mid-year Review – infrastructure financial target compliance 45 Table 7 The COAG Reform Council - external scrutiny and endorsement of SAMF 49 Table 8 Department of Treasure value-for-money outcomes in infrastructure 49 Table 9 Recent Auditor General Examinations Involving Infrastructure Planning 51 Table 10 Royalties for Regions Appropriation Overview 66 Table 11 Congestion charging schemes in other jurisdictions 73 Table 12 Solar cities time-of-use tariff trials 79 Table 13 Types of PPPs 93 Table 14 Contracted PPPs, by procuring Government and sector, 2006-11 96 Table 15 WA Department of Corrective Services operational costs per prisoner per day by facility (2012) 98 Table 16 Hospital costs, average per case (2008) 99 Table 17 Strategic Plans by Sector 108 Table 18 Information and Communications Technology reform progress (as at March 2014) 164 Table 19 Broadening the tax bases and lowering the rate - indicative summary of change (based on 2012/13 figures) 200 Table 20 Residential Transfer Duty rate scale 200 Table 21 Land Tax rate scale 200 Table 22 Greater reliance
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