National occupational licencing of electrical occupations

Transcription

1 COMMERCIAL IN CONFIDENCE F I N A L R E P O R T National occupational licencing of electrical occupations Assessment of the impacts for Queensland Prepared for Queensland Competition Authority October 2013 THE CENTRE FOR INTERNATIONAL ECONOMICS

2 The Centre for International Economics is a private economic research agency that provides professional, independent and timely analysis of international and domestic events and policies. The CIE s professional staff arrange, undertake and publish commissioned economic research and analysis for industry, corporations, governments, international agencies and individuals. Centre for International Economics 2013 This work is copyright. Individuals, agencies and corporations wishing to reproduce this material should contact the Centre for International Economics at one of the following addresses. C A N B E R R A Centre for International Economics Ground Floor, 11 Lancaster Place Majura Park Canberra ACT 2609 GPO Box 2203 Canberra ACT Australia 2601 Telephone Facsimile cie@thecie.com.au Website S Y D N E Y Centre for International Economics Suite 1, Level 16, 1 York Street Sydney NSW 2000 GPO Box 397 Sydney NSW Australia 2001 Telephone Facsimile ciesyd@thecie.com.au Website DISCLAIMER While the CIE endeavours to provide reliable analysis and believes the material it presents is accurate, it will not be liable for any party acting on such information.

3 National occupational licencing of electrical occupations iii Contents Executive summary 1 1 Purpose of this review 5 Background to proposed national licensing 5 Review scope 6 2 Identifying all the impacts on Queensland 8 Overview of identified impacts 8 Efficiency benefits for Queensland 9 Transition costs 9 Other impacts identified by stakeholders 10 3 Estimating the impacts 14 Understanding the assumptions belying the Decision RIS results 14 Economic growth resulting from national licensing is unlikely to occur to the extent estimated 14 The impact on labour mobility is believed to be overstated 15 Impacts on the Queensland Government 20 Impacts on industry stakeholders 22 Revised estimate of net benefits 25 4 Room for improvement to the national model 29 Consider removal of experience requirements for a contractor s licence 29 Improve consistency between national model and licensing arrangements in Queensland 30 A License categories 32 B Business value-add impacts 34 C Summary of stakeholder workshop 35 BOXES, CHARTS AND TABLES 1 Comparison of Decision RIS and CIE results on the impacts for Queensland 2 2 Net benefits of the options over 10 years Questions to be addressed for OBPR s review Costs and benefits in terms of NPV over ten years Queensland Decision RIS sensitivity analysis on net benefits due to labour mobility assumptions 17

4 iv National occupational licencing of electrical occupations 3.2 Comparison of national licencing and unharmonised model of automatic mutual recognition Estimated costs to government from national licensing of electricians Number of fatal electrical incidents by jurisdiction Key changes underlying CIE estimates Net benefits of the options over 10 years Net benefit of national regulation of plug and cord work 31 A.2 Proposed electrical licence categories in national licence model 33 B.1 Change in economic surplus 34 C.1 Summary of stakeholder issues relating to national licencing of electricians 35

5 National occupational licencing of electrical occupations 1 Executive summary The Decision RIS for national occupational licensing of electrical occupations makes several contentious assumptions that overstate the benefits and understate the costs and risks to Queensland. Using more measured and conservative assumptions, net financial benefits to Queensland are estimated at between $1 million and $38 million over 10 years, well short of the $100.6 million estimated in the Decision RIS. Automatic mutual recognition could deliver a net financial gain to Queensland equivalent to the upper bound revised result for national occupational licensing and may warrant further consideration by the Queensland Government. The COAG National Licensing Steering Committee is currently considering a proposal for National Licensing of the Electrical Occupations. A Decision RIS completed to assess the proposal indicates a strong case for national licensing of electricians, with the proposal achieving a net present value of $ million in net benefits to Queensland over ten years. In light of a number of areas of concern with the proposed national licensing model and the assumptions and findings of the Decision RIS, the Queensland Government requested the Office of Best Practice Regulation (OBPR) to review the Decision RIS. The key questions are whether the proposal provides a net benefit to Queensland, and whether the risks or adverse impacts to stakeholders have been properly identified. Approximately 70 per cent of the estimated net benefit to Queensland is due to labour mobility benefits in the form of increased economic growth within the industry. The assumptions underlying the estimate of labour mobility benefits in the Decision RIS are contentious and not necessarily appropriately applied to labour mobility of electrical trade employees. To explore these issues further, the CIE reviewed the assumptions and findings of the Decision RIS and held a workshop with Queensland stakeholders to consider the key results and potential risks in a Queensland context. Impacts to Queensland businesses, consumers and government The status quo scenario used in the Decision RIS for Queensland omitted the existing external equivalence system for electricians from interstate and New Zealand wishing to work in Queensland. This omission has meant that the extent of labour mobility impacts to stakeholders has been significantly overstated.

6 2 National occupational licencing of electrical occupations The Decision RIS did not assess all identifiable impacts to Queensland businesses, consumers and government, omitting to estimate foregone benefits from changes to regulatory structure. These changes include removal of the restricted licence category for plug and cord work, and requirements for specified levels of experience and completion of additional business and technical competency units. Net economic benefit to Queensland After accounting for the existing external equivalence system in place in Queensland, and a more measured assessment of the gains from the proposed model, the net economic benefit to Queensland is believed to be well short of that estimated in the Decision RIS. Our revised estimate is for national occupational licensing to deliver net benefits of between $1 million and $38 million over 10 years. The alternative option of automatic mutual recognition was not analysed sufficiently in the Decision RIS. It is possible that automatic mutual recognition is the preferred option after adjustments are made to the net benefit estimates of the proposed national licensing model. Based on the assumptions made in the Decision RIS, mutual recognition could deliver net financial gains to Queensland of $38 million over 10 years, which is equivalent to the upper bound estimate by the CIE of the value of national occupational licensing. Table 1 itemises key results from the Decision RIS compared to revised CIE estimates. The difference in total benefits as estimated by the Decision RIS and CIE is shown in chart 2. 1 Comparison of Decision RIS and CIE results on the impacts for Queensland Net present value 10 years Decision RIS ($ million) CIE estimate ($ million) Transitional impacts Time for licensees to understand reforms n.e. Business value-add National Occupational Licensing Authority - set-up costs n.e. National licensing register jurisdictional implementation n.e. Government communications n.e. Ongoing impacts Labour mobility Removal of the need to hold multiple licences community 4.3 n.e. Removal of the need to hold multiple licences government n.e. Maximum licence period of 5 years Removal of additional competency units Removal of plug and cord restricted electrical licence Removal of experience requirements Business value-add National Occupational Licencing Authority - operational n.e. Overall net benefit Note: n.e. represents not re-estimated. Source: NLSC 2013, Decision Regulation Impact Statement: Proposal for national licensing of the electrical occupations. Table 4:34 and the CIE.

7 National occupational licencing of electrical occupations 3 2 Net benefits of the options over 10 years National occupational licensing Decision RIS estimate Result from the Decision RIS $ CIE estimate Mark I $22.78 $37.99 Result using alternative, more conservative options for estimating labour mobility benefits $0.95 CIE estimate Mark II $16.17 Result using alternative labour mobility adjustments, plus consideration of safety issues $0 $100m Mutual recognition CIE estimate based on Decision RIS $37.84 $0 $100m Data source: The CIE. Net financial impact to Queensland government The Decision RIS appears to cover all the identified benefits and costs to the Queensland government of the proposed national licensing model. Overall the assumptions and information used to estimate the net financial impact to government appear reasonable and appropriate. It is not possible to assess the accuracy of the set-up and operational costs of NOLA because no information is provided in the Decision RIS about these costs aside from a statement that the financial contributions were agreed to by the jurisdictions. However, we acknowledge that costs to regulators can often be high, depending on the frequency of meetings to satisfy required governance processes. Impact to industry stakeholders The proposed model will impose a cost to industry stakeholders to transition to the new system, which has been understated in the Decision RIS. Stakeholders have submitted that retraining costs could be $80-$95 million for each utility. While it is not possible to validate these costings, there are areas where work gaps arise under the proposal and additional costs to business should be expected. The proposed model identifies benefits by way of reduced ongoing costs of holding multiple licences. It is likely the assumptions used to estimate these costs are overstated. However, these benefits are overstated. For instance, estimated benefits to

8 4 National occupational licencing of electrical occupations licence holders associated with a 5-year licence should be moderated as some licensees will not renew, and some may elect not to take up a 5-year licence. The estimation approach used in the Decision RIS to estimate increased business value-add to consumers (businesses and/or households) likely overstates (or double counts) the benefit. Possible improvements to the proposed model Regardless of whether the proposed or an alternative option is adopted, there appears merit for the Queensland Government to remove the requirement of competency units and specified levels of experience for contractor s licences. For both licence requirements, there is an absence of a clear rationale for regulation. Stakeholders commented the proposed model provides a lowest common denominator approach to regulating the electrical occupations by removing a number of safety and experience requirements that are in place in different jurisdictions. This includes removing regulation of plug and cord work in Queensland. The CIE recommends that further work be conducted to assess the benefits and costs of nationally regulating such additional regulatory forms.

9 National occupational licencing of electrical occupations 5 1 Purpose of this review The Proposal for National Licensing of the Electrical Occupations (the proposal) must be assessed to properly understand the impacts it would have on Queensland. This includes the net financial impact to the State, to the Queensland Government, and to businesses and consumers in Queensland. This review has been commissioned by the Office of Best Practice Regulation to provide this assessment, based on the completed Decision Regulatory Impact Statement for the proposal and subsequent industry feedback. Background to proposed national licensing The Decision RIS for the proposal estimates substantial returns to Queensland from the proposal, with financial benefits believed to be 11.5 times the costs. Under the Council of Australian Government s (COAG s) 2008 agreement of the Seamless National Economy initiative, the development of a national licensing system for trades has been considered in Australia for a number of years. In April 2009, the first steps towards national licensing were made with the signing of a COAG Intergovernmental Agreement for a National Licensing System for Specified Occupations.1 The framework for legislation enabling national licensing has since been implemented in all jurisdictions in Australia, excepting Western Australia and the Australian Capital Territory. The national licensing of electricians in Australia is part of the first wave of occupations being considered by COAG and the jurisdictions. In July 2012, the COAG National Licensing Steering Committee (NLSC) released a Consultation Regulation Impact Statement (RIS) with assistance from PricewaterhouseCoopers (PwC).2 The Consultation RIS considered both national licensing of electricians and automatic mutual recognition of electrical licences. A quantitative analysis of the national licensing option was presented, but the Consultation RIS sought additional information to support an analysis of automatic mutual recognition

10 6 National occupational licencing of electrical occupations The preliminary results of the Consultation RIS estimated benefits of national licensing to Australia of $124 million over 10 years in net present value (NPV) terms, with a benefit cost ratio of Following an open consultation period, a revised Decision RIS was published in mid The key results of the Decision RIS estimate significant returns to Queensland from the regulatory reform of electrical licences above those that were estimated in the Consultation RIS. Across Australia, over 10 years the benefits are estimated to outweigh the costs by 8.5 times with a NPV of over $374 million. In Queensland, the results are much stronger, with estimated benefits outweighing costs by 11.5 times and a NPV of over $100 million. Review scope Before agreeing to any national licensing regime, it is important that the Queensland Government fully understands the benefits and costs to the Queensland community of the various options. The CIE has been commissioned by the Queensland Competition Authority s Office of Best Practice Regulation (QCA) to review the Decision RIS prepared by NLSC on the national licencing of electrical occupations to review the evidence and provide advice on which option is in the best interests of the Queensland community. The Decision RIS assessed two options against the status quo, national licensing and automatic mutual recognition. The key focus of this study is to assess the costs and benefits of national licensing for Queensland. This includes critiquing the Queensland impacts estimated in the Decision RIS as well as delving deeper into Queensland-specific issues than was undertaken in the national review. The specific focus questions for this review are summarised in box 1.1. This report assesses issues that we have identified as being relevant to understanding the impacts of the proposal on Queensland, which includes the consideration of the above questions. Our advice is based on a review and critique of the Decision RIS, best practice regulatory principles, as well as additional information collected through discussions with key stakeholders at a workshop held at QCA on 16 August 2013 and subsequent submissions from the sector.

11 National occupational licencing of electrical occupations Questions to be addressed for OBPR s review Determine whether the potential impact on Queensland businesses, consumers and the Queensland Government has been adequately identified, and where possible quantified. Does the cost benefit analysis that has been undertaken identify and quantify the potential economic impact on key stakeholders, including disproportionate effects on particular regions? If so please present the key quantitative information, including on Queensland employment and value added. If not, please provide quantitative information where reasonably available. To what extent will Queensland be potentially disadvantaged in terms of a loss of flexibility in defining arrangements that are tailored to specific circumstances in Queensland? Advise whether the reform would be of net economic benefit to Queensland. Advise of the net financial impact of the reform on the Queensland Government Advise about the impacts on operators and stakeholder groups within the relevant industry, including those that operate solely within Queensland, including: Who are the key industries that may be adversely affected and the nature and scale of the adverse effect and associated benefits. What are the key compliance costs (including financial cost) and potential restrictions for industry? Indicate the quantitative scale of the effect. To what extent are there transitional (including financial) costs that are incurred early in the implementation process relative to the realisation of benefits? What are these transitional costs and have they been quantified? If not, can the transitional costs be reasonably quantified with the available information? To what extent are there cost recovery impacts on the Queensland Government and industry? Are these impacts in proportion to benefits for individual stakeholders? Do the benefits (and costs) apply equally to operators who operate solely in Queensland relative to interstate or national operators? If not, how do they differ? Advise of the nature and extent of any improvements that could be made in the national licensing proposal for electrical occupations.

12 8 National occupational licencing of electrical occupations 2 Identifying all the impacts on Queensland The Decision RIS is very limited in the range of impacts that it identifies, particularly for additional costs to industry and foregone benefits under existing arrangements. While the benefits of the proposal are arguably well covered, they are believed to be overstated. Overview of identified impacts The range of transitional and ongoing impacts that were identified in the Decision RIS are summarised in table 2.1 and discussed further below. Benefits are limited to the expected efficiency impacts, with no estimate of changes in safety or quality. Costs relate to time taken to understand the new arrangements and consequent business impacts, with no assessment of the foregone benefits or opportunity costs that might accrue under existing arrangements. 2.1 Costs and benefits in terms of NPV over ten years Queensland Net present value 10 years $ million Transitional impacts Time for licensees to understand reforms Business value-add National Occupational Licensing Authority - set-up costs National licensing register jurisdictional implementation Government communications Ongoing impacts Labour mobility Removal of the need to hold multiple licences community Removal of the need to hold multiple licences government Maximum licence period of 5 years 6.10 Removal of additional competency units Removal of plug and cord restricted electrical licence 1.22 Removal of experience requirements 8.13 Business value-add 6.65 National Occupational Licencing Authority - operational Overall net benefit Source: NLSC, 2013, Decision Regulation Impact Statement: Proposal for national licensing of the electrical occupations. Table 4:34.

13 National occupational licencing of electrical occupations 9 Efficiency benefits for Queensland The rationale for the introduction of national licencing is to remove inefficiencies associated with multiple regulatory systems operating in jurisdictions and the requirements for electricians to hold multiple licences to perform the same tasks in different jurisdictions. The costs that these inconsistencies impose on businesses and electricians that operate in multiple jurisdictions were cited in the Decision RIS as the regulatory problem to be solved.3 Hence the benefits identified in the Decision RIS broadly fall under the banner of efficiency benefits from solving these regulatory problems through national licencing including: time savings for electricians and businesses from not having to apply for multiple licences or for mutual recognition economic growth through allowing electricians to move to where there is unmet demand for their skills when they previously could not or would not move avoided regulatory costs associated with the removal of restricted licence category for plug and cord in Queensland and the Northern Territory, removal of experience requirements, and removal of requirement to complete additional competency units reduced regulatory burden associated with the current mutual recognition system, including time and cost implications, and difficulties in achieving equivalence between licences in different jurisdictions which could result in multiple licences issued or licences issued with insufficient scope for equivalence. Overall, stakeholders thought the regulatory burden described in the Decision RIS regarding current mutual recognition processes related to a minimal amount of extreme cases and not representative of the system at large. Yet a few cases were noted where it is relatively more difficult to receive mutual recognition in other states/territories due to additional application requirements. For example, Victoria requires additional tests to be completed for mutual recognition if an applicant does not meet the requirements of Victoria on a deemed like for like basis.4 Transition costs The transition impacts identified in the Decision RIS include: cost to establish the National Occupational Licensing Authority and the national licensing register time taken to understand the new arrangements, and business impacts associated with this lost time. 3 COAG National Licensing Steering Committee, 2013, Decision Regulation Impact Statement Proposal for national licensing of the electrical occupations. 4 Energysafe Victoria, Mutual Recognition Agreement. Professionals/Licensing-and-registration/Mutual-Recognition-in-Victoria

14 10 National occupational licencing of electrical occupations Other impacts identified by stakeholders The CIE held a workshop with Queensland stakeholders to consider the key results of the Decision RIS within a Queensland context, whether any impacts had been excluded from the analysis and possible risks of the proposed national licensing model that have not been discussed. There are a range of additional impacts highlighted by stakeholders that have not been identified in the Decision RIS. Whilst stakeholders initially expressed general support for national licensing of the industry, support has been dampened since the release of the Decision RIS with many considering that the proposed national licensing model does not represent the feedback industry provided to government representatives throughout the consultation process.5 Stakeholders liken the current proposed national licensing model to a lowest common denominator national licensing model6 and have concerns that the proposed approach will lead to increased safety risks for industry and the community. Key additional impacts highlighted by stakeholders include: risks imposed by the removal of experience requirements for a contractor s licence risks imposed by removing of restricted electrical licence category for plug and cord work risks imposed by the removal of requirement to complete business and technical competency units risks imposed by lack of clarity in the definition of electrical work in the RIS, and increased business costs from the proposed grandfathering of the current system. Risks and opportunity costs associated with change By way of example, within the Decision RIS analysis, the removal of different licence categories is assumed to be a benefit (by providing time savings) without considering the value of differentiation which could potentially be an opportunity cost of the change to a national licensing model. Within a number of the Consultation RIS submissions, there was concern raised about the potential for the national licencing system, as it is currently articulated, to gradually reduce the skill level of the electrical industry as a result of the removal of experience requirements across licence categories. Any such impacts and costs have not been included within the Decision RIS. These risks and opportunity costs are difficult to quantify and require a strong understanding of the risks in the industry, and the role that licencing plays in alleviating these risks. However, it is arguably not appropriate to omit a discussion of opportunity costs on the basis that they could not be quantified. 5 Submission from Master Electricians Australia to Queensland Competition Authority, 21 August MEA Submission to QCA 21 August 2013 and National Electrical and Communications Association (NECA) submission to QCA 31 July 2013.

15 National occupational licencing of electrical occupations 11 Risks of removing the restricted electrical licence category for plug and cord work Plug and cord work is currently regulated in Queensland and the Northern Territory only. The restricted electrical licence for plug and cord work has not been included in the 14 proposed electrical licence categories in the national licence model (table A.2). Plug and cord work is electrical work conducted on portable electrical equipment, such as toasters, vacuum cleaners and fridges, where electrical supply is through a plug and cord. There is a risk of electrocution from plug and cord work, however regulators involved in the RIS process thought the risk of electrocution has been decreasing over past years due to a trend to dispose and replace faulty plug and cord electrical equipment rather than repair. The risk is also minimised because the appliance can be disconnected from an electrical supply prior to work. The Decision RIS estimated the benefit (avoided cost) from removing this licence category but omitted estimating the forgone benefit, primarily the possible avoidance of injury and fatality. Excluding analysis of the benefits implicitly assumes there are no benefits of the existing regulation of plug and cord work in Queensland. Risks of removing of requirement to complete business and technical competency units Electrical contractors in Victoria, Queensland, Western Australia, South Australia, Tasmania and the Northern Territory are currently required to complete between one and four additional units of competency which relate to business and technical skills.7 Under the national licensing model it is proposed that these additional skill requirements are removed for electrical contractors. Master Electricians Australia (MEA) raised concerns about the removal of the requirement to complete business and technical competency units, stating the additional experience and qualifications provide a skill set required to run a business that an electrical worker would not necessarily have attained through their technical training.8 NECA also supported the requirement of competency units for a contractor s licence.9 While the completion of additional units is likely to provide a private benefit to electrical contractors by making then better equipped to manage their own businesses, the benefit to society (and the justification for regulation in this area) is less clear or substantive. Costs of grandfathering of the existing system and scope of proposed electrical licensing structure The grandfathering of existing licensing arrangements is likely to impose costs that have not been considered in the Decision RIS including: 7 Victoria and Tasmania require completion of 1 competency unit per licensees, Queensland and South Australia require completion of 2 units and Western Australia requires completion of 4 competency units. Source: NLSC, 2013, Decision Regulation Impact Statement: Proposal for national licensing of the electrical occupations, page Master Electricians Australia submission to QCA 21 August National Electrical and Communications Association (NECA) submission to QCA.

16 12 National occupational licencing of electrical occupations increased business costs from dual management and scheduling systems under the grandfather approach during the transition years or alternatively training costs to up-skill all staff to the required uniform national level, and increased staff costs as additional people will be required under the national licensing model to complete a task that previously could be completed by a single electrician.10 Stakeholders have also commented that the proposed grandfathering of the existing system as outlined in the Decision RIS is opaque and an administrative nightmare. Stakeholders comment that the proposed electrical licensing structure is a significant departure from the current structure in Queensland. Key changes include: specification of distinct licence types and distinct separation between licences, as opposed to the current system that allows for licences to overlap disciplines and fill voids between licence areas inadequate consideration of all roles that are currently performed by electrical workers, for example electrical mechanics currently perform elements of work authorised across multiple national licence categories currently proposed. 11 The proposed changes are likely to require electrical workers to undergo additional training to meet the new licence requirements, in addition to requiring electrical workers to hold multiple licenses in order to maintain current business operations (for example to conduct work on both electrical installations and electricity infrastructure). Stakeholders noted the proposed scopes of work are unnecessarily disaggregated and would impose additional costs on businesses: Energex estimated the proposed changes would cause a resource and financial impost equivalent to a one-off cost of approximately $80 million to skill single trade licensees in additional trades.12 While it is not possible to validate these costings, there are areas where work gaps arise under the proposal (such as electrical engineers that are no longer able to test equipment that they install, as discussed further below). While the retraining costs estimated by stakeholders appear high, additional costs to business should be expected, and could be particularly onerous for larger utilities. Safety concerns regarding design work Engineers, technicians and draughtspersons currently complete design work. Design work is included under the proposed definition of electrical work for the national licensing model which would require, if implemented, any persons completing design work to hold an electrician s licence. 10 Powerlink submission to QCA 4 September Energex submission and Powerlink submission to QCA 4 September Estimate includes the costs of non-practical and practical training for approximately 800 employees, loss of productivity for mentors during practice training, instructor costs and TAFE and licence fees.

17 National occupational licencing of electrical occupations 13 Engineers Australia states that the majority of electricians would not have sufficient expertise to undertake the design work performed by engineers. Therefore, inclusion of design work in the definition of electrical work may lead to adverse outcomes whereby electricians are working outside their areas of expertise. Potential gaps in service provision due to lack of clarity regarding who can legally conduct electrical work Stakeholders commented during the workshop and in subsequent submissions that the definition of electrical work in the Decision RIS was too general, did not represent the current definitions in place, and may lead to safety risks for workers and the community in addition to legal implications for workers. The proposed definition of electrical work in the Decision RIS is: assembling, constructing, installing, testing, commissioning, maintaining, repairing, altering or replacing an electrical installation; or verifying electrical installations.14 The change to the definition means that work that is currently carried out by certain licensed electricians or unlicensed professionals, such as electrical engineers, would no longer be legally carried out by the same persons once national licensing is in place. The key concerns with the proposed definition of electrical work relate to safety, licensing and testing. Engineers Australia suggests a change to the definition of electrical work to one that is more representative of the work performed by electricians to address key concerns with the proposed licensing model.15 For instance, electrical engineers may be required to perform electrical tests and checks on electrical equipment, such as testing to verify equipment is de-energised prior to doing any checks or work. This testing is a requirement under current work health and safety regulations.16 Engineers Australia claim the definition for electrical work outlined in the Decision RIS means that these engineers currently undertaking testing, will no longer be legally allowed to complete the testing, unless they are licensed. The change may lead to situations where engineers do not complete the necessary testing with potential consequences of not testing including serious injury and fatality COAG National Licensing Steering Committee, 2013, Decision Regulation Impact Statement Proposal for national licensing of the electrical occupations, page Engineers Australia submission to QCA 16 Engineers Australia submission to QCA 17 Engineers Australia submission to QCA.

18 14 National occupational licencing of electrical occupations 3 Estimating the impacts The financial impacts set out in the Decision RIS rely on a range of assumptions that are not necessarily accurate or appropriate. With a broader view of the impacts, and a more measured assessment of the gains, the net financial impact for Queensland is believed to be well short of that estimated. Understanding the assumptions belying the Decision RIS results The key assumptions that drive the financial estimates made in the Decision RIS with respect to impacts for Queensland can be summarised as follows: National licensing is assumed to generate additional economic growth. The Decision RIS assumes that a national licencing scheme for electricians will generate an increase in movement of electricians across State borders, resulting in increased economic activity. This is an important assumption because national licencing is not able to increase the size of the electrical labour force on its own (and where a national licencing system does attract new electricians to the market, they would be a very small proportion of the market). National licensing is assumed to provide time savings to licensees, businesses and governments, which for industry have been estimated as the time value costs that electricians will face as they spend time to understand the new system. The validity of these assumptions, and therefore of the financial estimates made in the Decision RIS depend on many factors, which need to be more thoroughly tested. Economic growth resulting from national licensing is unlikely to occur to the extent estimated National licencing can only achieve increased rates of economic growth if there is currently a binding constraint on labour mobility that will be lifted as a result of national licensing. For this to be the case: the current system of mutual recognition must be imposing a material restriction on electricians moving across jurisdictions, leading to an oversupply of trapped electricians in certain jurisdictions and an undersupply in others, and/or national licencing, by reducing the costs of moving, must materially change the flow of electricians from States where there are too many electricians to States with too few electricians, increasing the total amount of electrical work that is undertaken in Australia.

19 National occupational licencing of electrical occupations 15 Neither of these outcomes were directly considered in the Decision RIS. However, it is the assessment of this review that there is insufficient evidence or reason to believe that either justifications would hold true. While there are benefits associated with streamlining and harmonising processes and reducing transactions costs, these are unlikely in themselves to increase total economic activity. The impact on labour mobility is believed to be overstated Benefits to labour mobility account for 70 per cent of the quantified net benefits for Queensland, or $69 million over 10 years in NPV terms. As labour mobility is such a critical element of the results of the RIS, it is important that the estimation methodology is clearly understood. A tops-down approach was used in the Decision RIS based on estimates provide in a 2009 report by the Productivity Commission (PC)18 that considered the benefits to the Australian economy from full labour mobility. These modelling results were adjusted to reflect implementation of the national licensing system for electrical trades taking account of the alternative in place of mutual recognition. The step by step methodology to adapt estimates from the PC analysis to the Decision RIS are outlined below. 1 PC modelling approach driven by a resources boom The Productivity Commission used a general equilibrium model of the Australian economy to estimate the benefits to the Australian economy of a resources boom. This was modelled by calculating the increase to Gross Domestic Product (GDP) from a 10 per cent increase in export prices for mining commodities PC modelling results based on difference in economic growth with and without labour mobility The difference in increased GDP from assuming no labour mobility to assuming full labour mobility across the country was then estimated. The results indicated that allowing labour to flow without cost to States with higher wages and demand for labour would result in an additional $4 billion of GDP annually.20 3 In the Decision RIS attribution to national licencing was assumed at 10 per cent, yet it was recognised that this additional GDP could not be fully attributed to a national licencing scheme, as mutual recognition is already in place. It was therefore assumed that only 10 per cent of this benefit may be used as a proxy for the scale of benefits achievable under national licencing, or $400 million per year. 4 In the Decision RIS attribution to electricians was based on the proportion of licenced tradespeople who are electricians recognising that electrical trades only represent a portion of the national mobile labour force, national licence numbers were used as a base to estimate the allocation of benefits to the industry. It was assumed that 18 Productivity Commission, 2009, Review of mutual recognition schemes, page ibid 20 ibid

20 16 National occupational licencing of electrical occupations electricians would account for 11 per cent of this national licencing benefit, or approximately $45 million per year. 5 This estimated national benefit was distributed across the States and Territories based on the proportion of national electrical licences that were held in each jurisdiction. Where Queensland accounts for just over 23 per cent of the national electrical licences, just over 23 per cent of the national benefit was attributed, or $10.5 million per year ($69 million over 10 years, NPV). The main limitations of the chosen methodology are that: the underlying economic growth is driven primarily by a resources boom, not by labour mobility in its own right and therefore the estimates of the benefits are externally derived or assumed independent of the national licencing system, and all States have a positive benefit from labour mobility, allocated based on the proportion of national electricians they licence, rather than the expected scenario of some winners and some losers and labour moves to meet demand shortfalls. These limitations arise because the method is not linked to a clearly defined problem. The Decision RIS implies that barriers to labour mobility exist due to time and cost constraints and administrative complexity to achieve equivalence of licences across jurisdictions. However, virtually no evidence is provided in the Decision RIS about the scale and likelihood of the problem. In order to assess the scale and likelihood key issues need to be explored, including: evidence of restrictions to electricians moving across jurisdictions under the current system of mutual recognition, leading to an oversupply of trapped electricians in certain jurisdictions and an undersupply in others clear delineation that an identified undersupply of electricians is not due to a skills shortage of electricians across Australia, and excess demand for electrical work that currently can not be met due to barriers to labour mobility. Recognising the difficulties in estimating the benefits of labour mobility, and the limitations of using the PC figures as a base, the Decision RIS includes a sensitivity analysis around the labour mobility estimates. Further to the base case of 10 per cent, reduced benefits of 5 per cent and 2 per cent of the Productivity Commission s original estimates of the value of labour mobility were considered. The results of this sensitivity analysis (converted to benefit cost ratios by the CIE) are presented in table 3.1. Under the most conservative testing of the labour mobility valuation, there continues to remain a positive NPV for Queensland. However, this is largely because the (small) impact is applied to the whole labour force. Stakeholders consulted as part of this review contend that this is not the case and that the proportion of the market that might possibly benefit is negligible.

21 National occupational licencing of electrical occupations Decision RIS sensitivity analysis on net benefits due to labour mobility assumptions Sensitivity analysis scenarios 10 year NPV ($ million) Benefit cost ratio Base case 10 per cent of Productivity Commission s estimate of labour mobility benefits Sensitivity analysis 5 per cent of Productivity Commission s estimate of labour mobility benefits Sensitivity analysis 2 per cent of Productivity Commission s estimate of labour mobility benefits Note: The base case figures utilises 10 per cent of the Productivity Commission s estimates of the benefits of national labour mobility. Source: COAG National Licensing Steering Committee, 2013, Decision Regulation Impact Statement Proposal for national licensing of the electrical occupations. Omission of external equivalence in base case A key omission from the Decision RIS is the current two tier licencing system in place in Queensland for electricians from interstate and New Zealand. Whilst the Decision RIS notes that notwithstanding the fact that Queensland currently permits holders of an external licence to work in Queensland the Decision RIS does not appear to incorporate this into the base case and take into account when estimating the impact of a change to national licencing in Queensland. The majority of electricians from interstate and New Zealand are eligible to apply for a licence in Queensland through external equivalence. However, if not eligible for external equivalence then electricians can apply through the current national mutual recognition system. Eligibility for external equivalence for existing licence holders in other jurisdictions is detailed in schedule 1 of Queensland s Electrical Safety Regulation Schedule 1 specifies the equivalent Queensland licence for each interstate or New Zealand licence listed. An electrician from interstate or New Zealand who holds one the licences specified in Schedule 1 (table A.1), can work within the scope of the equivalent Queensland licence without having to apply for a Queensland electrical work licence.21 There is no licence fee paid under the external equivalence system in Queensland. Industry stakeholders estimated that approximately 75 per cent of interstate or New Zealand electrician licences fit within the Queensland licence categories of electrical mechanic licence or electrical fitter licence, and therefore would be eligible for external equivalence in Queensland. Interstate and New Zealand electricians holding a licence category not eligible for external equivalence, such as restricted or line work licence can apply for mutual recognition in Queensland. This also applies to a Queensland contractor licence for which external equivalence does not apply. Therefore all electricians working as a 21 Queensland Electrical Safety Regulation 2002, Section 32.

22 18 National occupational licencing of electrical occupations contractor in Queensland must hold a current Queensland electrical contractor licence to contract for electrical work in Queensland. Stakeholders view of labour mobility Stakeholders have stated there is no evidence of: electricians being trapped in a given jurisdiction despite opportunities to work interstate, or an over- or under-supply of electricians in Queensland or other jurisdictions. Stakeholders also contend that the national licensing model will not change the current flow of electricians interstate beyond what currently occurs under mutual recognition, nor will national licensing create economic growth by increasing the quantity of electrical work completed. Electricians are currently relocating to maximise labour opportunities created by positive economic conditions. For example, currently Queensland and Western Australia are absorbing a high proportion of the flow of electricians. It was estimated that currently 5 per cent of the electrical labour force is actively mobile.22 Stakeholders did agree there were time and cost implications with the current system, however these were inconsequential to an electrician s decision to move and work interstate. Instead, the key factors influencing the decision to relocate are the demand for electrical work driven by economic conditions, the financial payoff and other personal and family commitments. In the event these conditions were favourable to follow work interstate, electricians would expend the time and cost to get mutual recognition. If it were the case that only 5 per cent of the Queensland trade market for electricians would benefit, the size of labour mobility benefits would be $0.53 million per annum or $3.5 million over ten years in present value terms, well short of the $69 million estimated in the Decision RIS. Comparisons with automatic mutual recognition The Decision RIS assessed the alternative option of automatic mutual recognition. However, it should be noted that it was acknowledge in the Decision RIS that the analysis of automatic mutual recognition of licences was not fully implemented and that a number of further pieces of information are needed, namely: the proportion of current licensees that are working under licences that have an equivalent licence in another jurisdiction (or, alternatively, a means of estimating these proportions should be agreed with jurisdictions) information on the extent to which transition costs that have been estimated for national licensing should be adjusted for this option (potentially downwards) to reflect differences in this option (as opposed to national licensing) 22 Stakeholder feedback during workshop held on 16 August 2013 at QCA.

23 National occupational licencing of electrical occupations 19 information from jurisdictional regulators on the costs associated with additional compliance activities (such as an estimate of resource costs) information on the cost of the register of disciplinary actions, including information on the potential scale of this register, and how it may work with existing arrangements. A NPV estimate was not explicitly provided in the Decision RIS. Instead, the Decision RIS presented the potential impacts of an unharmonised model of automatic mutual recognition (AMR). The Decision RIS quantified these potential impacts in terms of the likelihood of an unharmonised model of AMR achieving national licensing benefits. This approach is flawed because the impacts of automatic mutual recognition are benchmarked to the preferred option rather than assessed independently relative to the base case. It is further problematic for the analysis of Queensland because the base case, including external equivalence was not established accurately. We estimated the NPV and benefit cost ratio of an unharmonised model of AMR based solely on the potential impacts of automatic mutual recognition outlined in table 4.31 in the Decision RIS. Table 3.2 compares the 10 year NPV and benefit cost ratio figures across national licencing and automatic mutual recognition. The initial calculation of NPV and benefit cost ratios show a sharp drop in the expected NPV from automatic mutual recognition, but a substantial increase in the benefit cost ratio compared with national licencing. 3.2 Comparison of national licencing and unharmonised model of automatic mutual recognition Queensland 10 year NPV Benefit cost ratio Base case national licencing Comparison automatic mutual recognition Source: COAG National Licensing Steering Committee, 2013, Decision Regulation Impact Statement Proposal for national licensing of the electrical occupations. It is worth noting though that automatic mutual recognition (as estimated in table 3.2) provides a higher NPV and benefit cost ratio than national licencing when using the 2 per cent sensitivity analysis of labour mobility figures. The impacts of a harmonised model of AMR would differ to an unharmonised model to the extent that jurisdictions harmonise licensing requirements beyond the status quo. The magnitude of the benefit of harmonisation will depend on the proportion of electrical licences for which equivalence is determined across jurisdictions. Such harmonisation may impose costs on jurisdictions to coordinate licence requirements and centrally govern agreements made. The effectiveness of a harmonised model of AMR will depend on the degree of equivalence which is established and the longevity of agreements made. The impact of AMR relative to the base case As noted the impacts of AMR were not estimated relative to the base case, rather the impacts are benchmarked to impacts from the national licensing option. The impacts of either an unharmonised or harmonised model of AMR relative to an accurate base case