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Productivity In Australia


									Delivering better quality regulatory proposals through
                       better CBA
      Office of Best Practice Regulation Conference
              Canberra, 21 November, 2007

Developing CBA principles to improve the quality
             of regulatory analysis

                 Frances Perkins

 CBA   and public policy advice
 scope   of CBA – where it’s useful
 improvingprinciples and guidance for
 agencies using CBA
   How CBA contributes to public
         policy making

 designed    for public policy evaluation
 systematic framework to assess
  regulations, policies and projects
 assess impacts on whole community
 quantify non-market costs and benefits
 discount using social discount rate
 find total net economic benefits of
  regulation, policy or project
Scope of Cost Benefit Analysis

 Financial analysis: profit of firm

               Firm                           Consumers

            Other firms                       Government

        CBA for Public Policy

 use for all major regulatory, policy and
  project decisions
 quantify/monetise benefits and costs
  wherever possible
 clearly state assumptions – don’t hide in
 do sensitivity analysis - highlight risks and
            Wide range of uses
 all   major regulatory proposals
      eg proposal to regulate fruit and veggies
       wholesalers, real estate agents to discourage
       money laundering
 new    policy proposals
      National Reform Agenda
 new    infrastructure projects
      Darwin-Alice Springs railway
    Application to regulations new
   introduced post Banks Report on regulation, part
    of NRA
   attempt to ensure all regulation necessary
     and has benefits greater than costs
   business very concerned about rapid growth in
    new regulation – very burdensome
   politically popular as seen as cheap way of
    ‘doing something’ about problems
   costs low for government, not whole economy
   CBA can show this
    Application to projects routine
   Australian agencies long used CBA to assess
    infrastructure and aid projects
   international agencies like World Bank routinely
   while agencies usually do analysis, political
    decision making can over-rule
      eg Darwin Alice Springs railway

   results in losses of welfare for Australians
   could have used resources to produce more
    benefits for community
   CBA can show this
             Identifying benefits
 Clearly state assumptions – don’t hide in
 Benefits of regulation?
     losses to consumers from lack of regulation,
       • eg illness caused from bad vegetables
 Benefits    of reform?
     expected impact on productivity, GDP
 Benefits    of project?
     no. project users, time savings, expected
      demand growth
     positive externalities generated, eg traffic
      noise, green house gasses abated
     number of lives saved, how calculated
              Identifying costs
 Costs    of regulation?
• number firms subject to regulation, costs to each
• likely impact on competition, consumers

 Costs    of reform?
•   potential losers from reform, income groups,
 Costs    of project?
• direct fiscal costs
• shadow price of resources
• negative externalities, eg noise, traffic accidents
       Improving CBA quality
 sensitivityanalysis when major risks and
 identify and put probabilities, range of
  values around uncertain events, variables
 do separate CBA for high, medium and
  low scenarios for these variables
 clearly state circumstances when
  regulation, policy or project no longer
  worth doing
Ex-post analysis of policies/projects

 retrospective  CBA assessments for major
  regulations, policies, projects
 identify divergence between predicted and
  actual benefits and costs
 understand reasons for divergence
 use results to improve future analyses
     Social, distributional CBA
economic CBA focuses on total costs and
 implicitly puts equal weight on all
  beneficiaries and payees
 but society may not do this
    eg poor may pay costs and and wealthy

     may benefit
 social CBA can identify winners and losers
 some approaches put weights on benefits
  and costs attributed to different groups –
     Social, distributional CBA
useful addition for CBA of regulations
 eg can show regulation impacts mainly on
  small businesses, less than 10 employees
    may be relatively low income

    high opportunity cost of owners’ time

    more likely result in business failure

 rationale to exempt small business, eg unfair
  dismissal legislation
 Using consultants to do CBA?
 time  constraints on agencies – consultants
 agencies must have CBA capacity
    have officers trained in CBA

    to understand and evaluate consultants’

 consultants cannot be asked to ‘cook’ results
    truly independent – maybe OPBR hires?

 consultants can’t benefit from CBA outcomes
         Improving institutional

Increased consistency
 single CBA agency ? DOFA, OBPR, other
 require use of agreed key CBA variables
    eg social discount rate, statistical value

     of life
 standard format for presenting key
  assumptions and results
        Improving institutional

Increased transparency
 publication on OBPR website of regulation
  CBA assumptions, analysis and results
 publication of CBA analyses for major
  infrastructure projects on relevant
  departmental websites
 CBA   designed to improve public policy
  analysis, assess net welfare gains
 particularly useful for assessing regulatory
 can help get support for reform proposals
 also essential ensure best projects selected
 but must be credible and high quality
 need stronger institutional structures to
  ensure CBAs credible, consistent and

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