Vcec Conference: Opening Dinner Speech, Kim Wells Mp - Melbourne, 31 March 2011

Mar-31-2011

Welcome to VCEC's Regulatory Reform Conference. It is good to see so many of VCEC's friends and key stakeholders here tonight.

The guest list really reads like a Who's Who of Victoria's economic policy elite, which bodes well for the work over the next few days.

I have long been an admirer pf VCEC's work, in highlighting inefficiencies across various areas of government activity.

I am motivated by a strong instinctive dislike for waste in government. A key lesson from my own upbringing was that you have to live within your means and not waste what you have.

Despite my Ministerial duties, I still spend a lot of time in my electorate, among the people I represent. It would be fair to characterise them as honest, hardworking taxpayers and I know that they often shake their heads at the duplication and needless inefficiency they sometimes observe in government.

Those are the basic values which I bring to the job of Treasurer, and which have implications right across the policy activities of the Victorian Government, including regulatory policy.

My main task tonight is to set some context and hopefully provoke a few thoughts which might prove relevant to the conference's proceedings.

As we are all aware, Australia is experiencing a substantial structural shock, in the forms of a trade boom,

I should state clearly that for the most part, the terms of trade boom is a positive for Victoria.

Melbourne and Victoria do well when the national economy does well - remembering that a significant portion of Australia's banking and funds management industries are located here, giving us upside exposure to the commodities boom (remember too that mining companies like BHP Billiton, Rio and Newcrest also have their head offices in Melbourne).

Nonetheless, the terms of trade boom also has the effect of pushing up the exchange rate creating competition for capital and skilled labour.

Added into the mix is the fact recent growth in Victoria as been partly driven by strong population growth, masking dwindling growth in productivity.

In short, Victoria will have to work hard for its future economic competitiveness and growth.

To that end, the Government:

has commissioned the Independent Review of State Finances; (Mike Vertigan)

is implementing a 25 percent reduction in red tape, as part of broader regulatory reform; and

has made a commitment to ask the VCEC to develop a state-based reform agenda as part of the Government's over-arching strategy to boost Victoria's competitiveness.

Because this is a regulatory conference, I will focus on that theme.

Cutting regulation is a bit like cutting government spending - everyone is in favour of it until they get into specific items, and then they tend to lose interest and resolve.

This is why government spending tends to grow and is rarely cut.

Similarly, there is a natural tendency for governments to add new regulations - each new addition impeccably argued on its specific merits - and face real difficulty cutting the existing ones, so that the stock of regulation just grows and grows.

There is no easy solution to that problem.

If I can continue with the Government spending metaphor, I would not that governments make Budget saving in two ways:

Through 'horizontal slicing' - making sure that the existing functions of government are done with greater efficiency, and

Through 'vertical slicing' - reducing the actual functions which government undertakes.

The key point is that there is only so much of the horizontal slicing you can do - eventually you have to face up to the stark reality that if you want extra savings, government has to get out of certain activities and do less.

I think there is a similar issue in regulatory policy.

We can focus attention on ensuring that all existing regulations are as efficient as possible, like reducing the complexity of forms, putting processes on line, etc.

But ultimately, to make real regulatory savings, we will arrive at a point where we have to focus on whether certain regulations are needed at all.

That is a much more challenging exercise, because it often involves fundamental questions about the trade-off between personal autonomy and protection from risk.

Part of the reason we have seen such steady growth in regulation across western democracies is a gradual change in risk appetite -people demand to be protected from all sorts of risks which might previously have been regarded as part of everyday life.

It is the same mentality that has seen us become a more litigious society - the sense that all adverse outcomes should be prevented and when they occur, someone should be blamed and held to account.

Tackling that trend is partly a cultural issue.

The bad news is that whereas the growth in government spending eventually hits some natural barrier - like the willingness of taxpayers or financiers to fund it - the growth of regulation can continue for a long time unchecked.

We need strong institutions in order to prevent regulation from growing out of control.

We also need business leaders to champion regulatory reform.

I have witnessed many business owners who complain about red tape, but then in the next breath advocate some new regulation to restrict competition.

Fortunately, there is some good news. Many societies are seeing some push-back against the 'nanny state', in direct response to the growth in regulation.

Some commentators and think tanks (like Melbourne's Institute of Public Affairs) have become adept at poking fun at the more ludicrous regulations which have found their way onto the statute books.

All this helps to build public acceptance for regulatory reform, but it is still a challenge.

I should emphasise that not all regulation is bad. A robust regulatory system is one which allows those new regulations for which the benefits outweigh the costs.

But implicit in the government's commitment to cut the regulatory burden is an assessment that, on balance, regulations has grown too much in recent decades.

So our focus will be on overhauling existing regulations with the aim of reducing costs to business.

Here the Government is particularly committed to addressing major hotspots such as planning, environment and OH&S.

Thanks to the earlier work of the VCEC, we already have a good handle on the burden in some of these areas.

In addition, we will seek to ensure that all new regulations are fit for purpose and place the lowest possible burden on business.

Our Government believes strong processes for better regulation and for reducing regulatory burdens are extremely important for Victoria. Strengthening Victoria's Regulatory Impact Statement process is a policy commitment.

Last June, VCEC was asked to inquire into Victoria's regulatory framework. The remit was, in essence, to provide advice on ways to improve the current system for managing regulations, and on priority areas of regulation for reform. This inquiry and its two tasks are an important matter for the government.

Around six weeks ago VCEC released its draft report - Strengthening Foundations for the Next Decade - which provided wide ranging draft recommendations for the first of these tasks.

And today the VCEC released Priorities for Regulatory Reform, which provided a draft list of priorities for regulatory reform, including some that are clearly work in progress, and for which the Commission is seeking more evidence.

These two draft reports are an essential stage of the Commission's independent public inquiry process. The government has stepped back from commenting on the draft reports.

This is so the Commission has the best opportunity to get the further comment, input and debate that will lead to robust conclusions and final recommendations for the Government to consider.

I understand the Commission is particularly looking for input from businesses and not-for-profit organisations to make sure the list of regulatory reform priorities is robust and complete and that the report is on the agenda for this conference.

That agenda appears to have the right balance between ambition and practicality. I note that you have chosen to focus attention on:

Better choices in regulation and regulatory instruments;

More effective use of risk-based regulatory approaches;

Opportunities for market-based approaches; and

Improving the outcomes of federal-state regulation.

I wish you well in your deliberations tomorrow, and in seeing some of the fruits being reflected in the Commission's final inquiry report.

Thank you for your kind invitation.

Contact Kim:

9 Lynton Place,
Scoresby VIC 3179
• Phone: (03) 9764 8988
• Fax: (03) 9763 9816

• Email: kim.wells@parliament.vic.gov.au

• Website:
www.kimwells.com.au