Cutting red tape could save billions, boost GDP by 2020 but states must commit, report reveals

Streamlining business regulations and cutting red tape could add $6 billion every year to the country’s gross national product by 2020, according to a new report released by the Productivity Commission.

But delays are costing the nation billions of dollars, it says, and there are still some areas where there is a risk reform cannot be achieved for some time, or at all.

The update on the Council Of Australian Governments “national seamless economy” plan comes just a few months after the COAG Reform Council found time is running out on the December 2012 deadline for reform.

The report released today was designed to analyse 17 areas of reform agreed to under the COAG plan. Most of the reforms attempt to harmonise laws across all the states, based on agreements made in 2008.

The report predicts business costs could be lowered by $4 billion, but so far, only $143 million in benefits have been realised. Introducing the full package of changes could help increase GDP by as much as $6 billion a year.

“Full implementation could ultimately provide cost reductions to business of around $4bn per year,” the report says.

“After a period of adjustment, national output (GDP) could be increased by nearly one half of a per cent (about $6 billion a year).

There are currently $2.9 billion calculated “prospective benefits”, where reforms have been implemented but a reduction in business costs is yet to occur, while there are still $625 million in “potential benefits”, where reforms have yet to be implemented.

“Because Seamless National Economy reforms are in the early stage of implementation, only a small fraction of this total is likely to have been realised to date,” the report claims.

“Available information suggests that some of the largest benefits are likely to accrue from reforms affecting development and construction – that is, implementation of the National Construction Code and streamlining development assessment processes.”

The plan has hit a snag, however, as Coalition and Liberal governments have taken power in Queensland, Victoria and New South Wales. The report suggests it will take a concerted effort from these governments to reach the December 2012 targets.

“Many of the reforms are just taking effect and have yet to result in ­substantial realised impacts and increased commitment and sustained effort by government will be required to achieve most of the gains,” it says.

“Because the cost-reducing and productivity enhancing benefits of the reforms will accrue over a number of years, realisation of the full potential from the reforms assessed will require continued commitment and sustained effort by government.”

There is also a risk some benefits won’t take effect at all. These include realisation of potential benefits from standard business reporting practices, the benefits from the National Construction Code, and harmonisation of laws across jurisdictions.

“This study has highlighted gaps that can exist between initial aspirations, milestones being ‘ticked’ and impacts on the ground,” it says.

The problem is that harmonisation costs drop more for national firms, which are much fewer in number than regional companies. As a result, “the gains from harmonisation may be eroded to the extent that some firms bear additional transition and ongoing costs not matched by benefits to them”.

But the benefits are too large to ignore – the report predicts meeting COAG targets for higher completion rates in Certificate III and Diploma courses will increase employment by 1.04% by 2020, along with a rise in GDP of 1.95%.

As a result, the report recommends changing the way reward payments are paid to the states. Currently, rewards are provided if milestones are met – but the report points out these payments don’t necessarily correlate with the benefit of the reform.

“In the Commission’s assessment, while there may need to be some initial payments to assist with up-front costs, ex post reform reward payments should be linked, as far as practicable, to the actual achievement of agreed outputs and outcomes.”