The Seamless Economy Regulatory Project and Democracy Deficit Part 1

As a general proposition, the ‘applied model’ of legislation – where one jurisdiction will develop and pass model legislation through its parliament with the remaining states or territories subsequently passing legislation that picks up the model legislation is the favoured way of introducing harmonised legislation when regulating areas previously the province of states and territories.

Whilst nominally capable to amend legislation, state parliaments – including those chambers without government majorities - have typically accepted the national legislation without batting an eyelid, on the grounds that ‘COAG decided’.

This system can give rise to what can be called a ‘democracy deficit’, as can be seen in this example.

During 2008 the Australian Parliaments considered the Australian Gas Law, which instituted a single law for the Australian natural gas market.

South Australia was the lead jurisdiction. The Greens wanted to move an amendment to the legislation in the Legislative Council.

However, as the Greens Member said:

We are going through the motions here. We are able to ask some questions; I guess there is a democratic exercise there but, in terms of amendments, the pressure is very much on legislators here not to propose or to accept any amendments. Really, if we were honest, we are not the lead legislative jurisdiction; we are not the lead legislator: we are the lead rubber stamp. I think that is an outrageous way to pass laws in this country. Having got that off that my chest, I will move my amendments when we get to them.

As an Opposition member (and former Minister) explained:

The only other point I would make is that I doubt very much whether minister Conlon and indeed probably all the other ministers at the moment actually understand the legislation that is going through the council. It is actually only being driven by hard-working and very competent officers who work on this
as their livelihood, and the point that the Hon. Mr Holloway made is almost entirely accurate.

It is certainly my experience that, in trying to debate some of these issues as they were, not in relation to national gas but national electricity, and have a debate with some ministers in the past, they had no comprehension at all of the details of the legislation. Ministers get a summary brief from their office which says 'here is what has been arrived at. These are the major issues.'

The Green member continued:

There were no meritorious reasons that these ought not be accepted. However, as the Hon. Rob Lucas says, we are all in a difficult position, because our various executives have got together and decided what our laws should be, and here we are effectively being invited to rubber-stamp them.

Whilst supportive of uniform national approaches, I for one am not prepared to be a rubber stamp to the extent that I turn my back on sensible amendments that incorporate into our legislation recognised environmental and social principles. It just makes sense that we do it, and I do not think that it undermines the uniform national legislation.

In the ACT Legislative Assembly, when discussing the same legislation, the Green member said:

The reform or harmonisation of the national electricity market, as agreed at COAG's Ministerial Council on Energy meetings, has been happening steadily in the background without much, if any, input by state and territory governments.

Especially now that Australia has Labor governments across all states and federally, an ever-increasing number of decisions are being made at COAG level, meaning that decisions are not subject to the usual scrutiny that parliaments would otherwise have.

This means that these decisions can be made by ministers and their advisers without any public or stakeholder input and without any community consultation; we should be satisfied if they take external views into account at all. It seems that COAG is the new government that counts. It is appointed by premiers and chief ministers, not elected by people.

She also said:

Given the process through which this legislation has been developed, it is a farce to even discuss the matter here in this chamber. The agreements have already been made at the ministerial council level; even though the states and territories are going through the motions of debating the bill in each place, in actual fact the bill that just passed in South Australia is the only one that counts.

A colleague in South Australia, Mark Parnell, put some amendments forward which would take social and environmental aspects into account. However, these were defeated by the two major parties as there was significant pressure there in South Australia not to make any changes at all. Mr Parnell is concerned that the South Australian government is not the lead legislator but the lead rubber stamp for the energy reforms.

She concluded:

Due to the ambulatory forces, whenever South Australia amends its schedules, our legislation is automatically updated. This puts a lot of pressure on our minister for energy, the Chief Minister, to be alert and fully engaged in the COAG processes, where ultimately all decisions about our energy markets are decided—not here in the Assembly. It also leaves the Chief Minister with the responsibility for informing the rest of the Assembly when there are significant updates, as the schedules are inbuilt and not disallowable or even notifiable.

Thus, up until now it has been the case that ‘COAG says’. However as the next article shows, this could be changing.

The Seamless Economy Regulatory Project - an Australian Consumer Law

On 2 October 2008, COAG adopted a recommendation from the Australian Council of Consumer Affairs Ministers to implement a national consumer law, based on the consumer provisions of the Trade Practices Act 1974.

The proposal is for current state based fair trading legislation to be replaced by agreed amendments to the Trade Practices Act, which will be picked up by state legislatures through the applied law model.

State based fair trading law will largely be repealed, with significant responsibility for consumer protection vested in the ACCC.

A discussion paper has been released seeking a degree of input into the structure of the IGA.

However, the input sought is limited. As pages 1 and 2 of the Discussion Paper says:

The purpose of this information and discussion paper is to:

Explain how the national consumer law will be developed; and

Explain the nature and scope of COAG's agreed reforms to create the national consumer law, and, in some limited circumstances, seek views on specific aspects of those reforms.

For example, COAG has decided that the law will provide consumers relief from an ‘unfair contracts’ contained within standard form contracts such as hire purchase agreements.

The ‘unfair contract’ provision proposed to be used is drawn from the law currently in force in Victoria.

The Discussion Paper seeks comment on whether small businesses should also be able to get relief from ‘unfair’ standard form agreements. However, relief from other forms of ‘unfair contracts’ appear to be ruled out because COAG has so decided.

That would appear to (notionally, at least) close off consideration of some of the recommendations of the Senate Standing Committee on Economics relating to relief from ‘unfair contracts’.

At page 49 of a report dealing generally with the unconscionable conduct provisions contained in Part IVA of the Trade Practices Act, non-government senators said:

We (the non government Senators) believe that the current Victorian legislative framework for dealing with unfair contract terms in consumer transactions should be extended to cover business to business relationships involving small business.

It will be interesting to see if the COAG decision will mean that it will be argued that this recommendation can’t be considered – simply because COAG has considered the matter and has made a decision.

The question of whether uniform legislation through the COAG process is a good idea or not is discussed in the next few articles.

The slow breakdown of COAG – Part 2

Gerry Gleeson formally ran the NSW Public Service.

He said in a recent speech:

Both parties, nationally, seem determined to diminish and erode the powers of the states.

State governments must accept that the Council of Australian Governments will play an increasingly important role in formulating national policies. NSW must not abdicate policy development. We must be leaders and not followers. NSW must be represented at COAG by highly talented officers with passion, purpose and policies to ensure the state gets a fair go.

Gleeson implicitly gives COAG the status of a parliament – something the political players have now tumbled to:

Critics of COAG have included Mr Barnett, who has said that COAG has become almost a new tier of government and lacks accountability and transparency. Mr Barnett has said that with 43 ministerial councils, it was too much....

A review of the COAG process is to be conducted by the heads of Australian treasuries.

The review will look at how well the interlocking COAG agreements are operating as well as whether there is a need for clearly specified responsibilities for governments as well as the development of sufficient performance benchmarks.

Unfortunately, one thing not reviewed is the overall capacity of the states and territories to fund any identified ‘clearly specified responsibilities’.

In that context it is interesting to see the emergence of the relationship between the payment of the proposed mineral resources rent tax (MRRT) and state based royalties as an issue.

According to the mining companies (BHP Billiton, Rio Tinto and Xstrata) a term of the document that allowed the ALP to say there was an ‘agreement’ about a mining tax before the election was a promise the Commonwealth would refund the value of state and territory royalties paid by the mining industry.

The Feds now claim that refunds will be paid on the basis of the relevant formula (or any announced variations) in force as at 2 May 2010 - the day the agreement was made was made.

This poses the question of what happens if a state increases a royalty amount.

The Sydney Morning Herald reports that the Government may withhold transfer payments to the States such as the GST if they effectively challenge the collection rate from the mining tax by increasing royalties.


We had anticipated this probable outcome:

The fact is the federal government requires a lot of money to fund the broad ‘social democratic project’ established by pl.51(xxiii) and (xxiiiA) of the Constitution –income transfer payments, health, hospitals and (undoubtedly in the immediate future) disability support and will need more money (and not less) as an increasing number of worthy needs are identified as requiring support in a country with an aging population and an atomising society.

A simple illustration: an portion of the proposed RRT is to help ‘build the roads, rail, ports, electricity and water supply, and other facilities needed to unlock Australia’s resource wealth’.Like housing, health and education, these are subject matters formally considered to be largely state responsibilities increasingly falling under Commonwealth control.

The Feds will increasingly need tax revenues to fund their projects in these areas on their terms. Then there is the ‘seamless economy’ and the wish to remove duplication.

Currently, the Government proposes that miners pay both royalties and the RRT, with royalty payments a claimable tax rebate. But it won’t be too long before calls are made that this is an inefficient way of doing things – only one tax should be levied (in this case) on the extraction of minerals. There isn’t much doubt which tax will go. (our emphasis)

As The Australian reported, the WA Premier has made his views clear:

Referring to the Rudd government's initial resource super-profits tax, Barnett says: ‘With 65 per cent of this revenue coming from Western Australia, it was seen as an attack on the mining industry and on our resource income base. People talk about these resources belonging to all Australians. Well, constitutionally, they don't. They belong to the people of each state.

In its 28 October letter to the Policy Transition Group (the Committee assisting the Government in implementing the MRRT) the Chamber of Minerals and Energy of Western Australia’s (CME) makes some pretty obvious points:

In relation to state royalties, CME has always maintained a strong preference for retention of the current state regime, administered by the state government and with revenues flowing to the state. The state has prime responsibility for resource project approvals and the provision of non-privately owned infrastructure. As such, it is imperative the state government maintains and receives a dividend for WA resources.

It is now reported in The Age that the Treasury ‘is considering using its tax power in the constitution to 'pursue unilateral legislation’ for poker machine reforms.’

Whatever the merits of having the Commonwealth regulate gambling, the decision again attacks the capacity of states and territories to make spending decisions confident that there is a stream of ‘own source’ income available to support the decision.

Whilst it may not be immediately apparent to the players, the issues of who does what in the Australian federation and how states should receive the funds to discharge ‘allocated responsibilities’ are now coming to a head.

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.

The Seamless Economy Regulatory Project - the Commonwealth Buy In

A National Partnership Agreement to Deliver a Seamless National Economy has been signed to encourage the development of the seamless economy.

It is part of an Intergovernmental Agreement on Federal Financial Arrangements, which aims to:

reduc(e) the costs of regulation and enhancing productivity and workforce mobility in areas of shared Commonwealth, State and Territory responsibility

through:

deliver(ing) more consistent regulation across jurisdictions and address unnecessary or poorly designed regulation, to reduce excessive compliance costs on business, restrictions on competition and distortions in the allocation of resources in the economy.

The areas where harmonisation was regarded as being desirable are listed in paragraph 21 of the Agreement.

The paragraph also says:

The States and Territories will have responsibility to work together, and for many specific reforms to work jointly with the Commonwealth, to implement a coordinated national approach….

Paragraph 22 continues:

The states and territories will also have shared responsibility with the Commonwealth for regulatory reform.

Finally, the ultimate Commonwealth weapon: there are ‘reward components’ payable under the National Partnership Agreement by the Commonwealth to states and territories in two tranches from 2011-12, with paragraph 32 of the agreement providing:

The Commonwealth will provide reward payments to the States and Territories following CRC (COAG Reform Council) advice as to the achievement of key milestones, as set out in the Implementation Plan for the 27 deregulation priorities.

So there is a significant Commonwealth buy-in of areas of traditional state responsibility.

The article discusses how regulations develop in the seamless economy.

The Seamless Economy Regulatory Project - Occupational Health and Safety

On 3 July 2008 an intergovernmental agreement (IGA) was signed, which records a COAG agreement to introduce harmonised occupational health and safety laws.

It is proposed to implement harmonised OHS laws through the model legislation method, where a model principal Act supported by model OHS regulations and model codes of practice will be prepared.

Each jurisdiction would then give effect to the laws in as uniform a manner possible after having regard to the drafting protocols in each jurisdiction.

Unlike other national schemes, this agreement anticipates a capacity for some differences between states and territories.

Paragraph 5.1.8 of the Agreement says:

The adoption and implementation of model OHS legislation is not intended to prevent jurisdictions from enacting or otherwise giving effect to additional provisions, provided these do not materially affect the operation of the model legislation, for example, by providing for a consultative mechanism within a jurisdiction.

And so, in this case legislation will be uniform….unless it isn’t.

The Workforce Ministers Ministerial Council have agreed to resolve outstanding policy issues by May 2009, prior to the publication of an exposure draft in August.

There is no particular indication as to what policy issues are ‘outstanding’ between the jurisdictions.

The next article looks at the proposed national licensing scheme for specified professions.

Harmonising Australia's OH&S law - the next step

On 10 June the new Safe Work Australia Council held its first meeting.

One of the first things it was charged with was to give effect to the decisions of the Workplace Relations Ministerial Council (the WMRC) made on 18 May 2009 as to how model occupational health and safety legislation should be framed, following consideration of the two volume National Review Into Model Occupational Health and Safety Laws prepared by a committee chaired by Robin Stewart-Compton.

It decided it would release the model occupational health and safety legislation (and accompanying regulatory impact statement) during September.

The legislation is broadly based on the Victorian model.

The general test for liability will be whether it is ‘reasonably practicable’ to avoid a hazard in a particular workplace.

However, there is no longer a concept of ‘employers’ having duties to ‘employees’.

Indeed, the objective is to move away from the traditional emphasis on the employment relationship when working out whether a duty of care is owed; rather, the intention is to provide greater health and safety protection for all persons involved in, or affected by, work activity.

Company officers will be have a duty to exercise ‘due diligence’ to ensure that workplace hazards are reduced or removed.

The new legislation will also capture independent contractors as well as people working from home.

One significant change is the expansion of the duty of care imposed by OHS legislation owed by a business to anyone who is ‘in or adjacent to’ a workplace.

Whilst the Ministerial Council did say in its consideration of the Stewart-Compton report:

Care needs to be taken during drafting to ensure that the scope of the duty is limited to matters of occupational health and safety and does not further extend into areas of public safety not related to the workplace activity

this will be a tricky drafting job.

Done poorly, it could impact broadly on the general law relating to occupiers liability and negligence.

It remains open how uniform OH&S legislation will be.

As we have remarked earlier, paragraph 5.1.8 of the COAG agreement on OHS reform says:

The adoption and implementation of model OHS legislation is not intended to prevent jurisdictions from enacting or otherwise giving effect to additional provisions, provided these do not materially affect the operation of the model legislation, for example, by providing for a consultative mechanism within a jurisdiction.

And as we remarked earlier:

And so in this case legislation will be uniform – unless it isn’t.

As part of the WMRC decision, unions will not be able to commence prosecutions, and prosecutors must prove OHS offences beyond reasonable doubt – the Council expressly voted down the current position in NSW – making union stakeholders quite cross.

WA declined to sign the communiqué as they were unhappy about the use of conciliation to resolve OHS issues, the low standard of proof for workplace discrimination claims, union right of entry to workplaces and the level of gaol terms.

It remains a question how much of the national model each jurisdiction takes into its own law, although it is noted that uniform OHS laws are one of those things for which states and territories receive ‘reward payments’ under the National Partnership to Deliver a Seamless Economy.

So money may ultimately speak in favour of uniformity.