16 October 2009

When Should Legislation be Federalised?

Safe Work Australia has now published an exposure draft of occupational health and safety legislation to be largely adopted by Australian jurisdictions.

It was accompanied by a consultation regulatory impact statement prepared by Access Economics, which proves again that the ‘seamless economy’ agenda is for the big end of town.

As it says in the part of the RIS dealing with impact on businesses:

While dealing with multiple OHS regimes does impose significant costs on a number of businesses, only a small proportion of businesses are affected.

Not only are the vast majority of Australian businesses small, but
the Productivity Commission (2004) estimated that 99% of Australian businesses only operated within one jurisdiction in 1998.

Of the businesses that do operate in multiple jurisdictions, nearly two-thirds (65%) only operate in one other jurisdiction than their home one (ABS, 2007).

Even for large businesses with over 200 employees, the Productivity Commission (2004) reported that the majority (58%) still only operate within one jurisdiction.

However, of the remaining large businesses that operate across jurisdictions, they tend to have operations in around five jurisdictions on average (ABS,2007).

These ratios are somewhat different if weighted by employees. While only 0.3% of businesses have more than 200 employees, according to the Productivity Commission, these businesses accounted for 44% of private sector employment. Because of large businesses’ higher propensity to operate across borders, and large employment share, this means that an estimated 28.5% of private sector workers are employed in businesses that operate in multiple jurisdictions.

Access says in its conclusion:

The costs and benefits of the model Act are small and not readily quantifiable.

The qualitative assessment so far suggests that the model Act is expected to bring medium sized benefits for business, principally in reduced red tape for multi-jurisdiction operations. These will be partially offset by a small increase in adjustment costs…. There will probably be some small safety benefits for workers, with no significant offsetting costs to workers. There will be a small increase in adjustment costs for government (relative to such ongoing costs in the counterfactual); partly offset by some marginal benefits in improved compliance efficiency.

Combining these effects, Access Economics expects that the model Act will confer an overall marginal to small net benefit.

An ‘overall marginal to small net benefit seems a small reason to change the legislative requirements for 99% of the regulated cohort – not to mention the loss of clear political responsibility for the development of OHS law in Australia as it passes from parliaments to an unelected COAG ministerial council.

As various pieces of economic literature have suggested, state level governments within a federation should minimise taxing highly mobile tax bases.

Using similar logic, perhaps there should be a threshold test applied when redesignating responsibilities within the Australian federation so that if the thing being regulated is either fixed in one spot (in particular, anything fixed to the land), or happens at a particular spot (for example, law and order issues, or the provision of services to residents) it is appropriate for legislation to be state or territory based.

However, if it is genuinely something that is mobile - for instance either the trade of goods (particularly consumer goods) capable of easy movement across state borders or the setting of performance standards for such moveable goods - it is more appropriate for national regulation.

This would appear to maximise economic efficiency, without overly forfeiting all the advantages of competitive federalism, or, if in particular if the outcome is government by COAG committee, of democracy itself.