Decision ris proposal for national licensing of the property occupations

1.Sensitivity testing of key assumptions

A sensitivity analysis of key assumptions of the cost–benefit analysis was undertaken for this Decision RIS. As the Office of Best Practice Regulation states:

‘There may be considerable uncertainty about predicted impacts and their appropriate monetary valuation. Sensitivity analysis provides information about how changes in different variables would affect the overall costs and benefits of the regulatory proposal. It shows how sensitive predicted net benefits are to different values of uncertain variables and to changes in assumptions. It tests whether the uncertainty over the value of certain variables matters, and identifies critical assumptions.’⁸²

Labour mobility assumptions

The benefits from labour mobility represent a significant share of the total benefits attributed to national licensing. Given the exact impact of labour mobility is also uncertain (as it is only one possible scenario), it is appropriate to conduct sensitivity analysis of this impact. The assumption with the greatest level of uncertainty in estimating the benefit of labour mobility is that 10 per cent of the benefit estimated by the Productivity Commission would potentially be realised through national licensing. Sensitivity has therefore been conducted on this 10 per cent assumption.

After the release of the Consultation RIS, no feedback was provided by stakeholders that indicated an assumption of 10 per cent was inappropriate. However, further feedback received from jurisdictions suggests that some States and Territories believe an estimate of 10 per cent should be considered as an upper bound estimate. As such, the assumptions used in this sensitivity analysis represent lower estimates than the 10 per cent used in the main analysis reported in this Decision RIS. The two alternative assumptions shown in this analysis are that:

• 
  national licensing would potentially result in 5 per cent of the full labour mobility benefit estimated by the Productivity Commission
  
• 
  national licensing would potentially result in 2 per cent of the full labour mobility benefit estimated by the Productivity Commission.
  

The overall impact of national licensing for the property occupations under these assumptions, compared to the 10 per cent assumption, are shown in the Table 4.28 below.

Table 4.28: Net overall impact of national licensing under various labour mobility scenarios

NPV over 10 years ($ million)	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	Total
10% change in labour mobility	271.63	35.98	88.89	137.51	51.25	3.05	9.91	13.22	611.45
5% change in labour mobility	245.95	24.26	64.52	129.06	48.00	2.83	8.91	12.54	536.05
2% change in labour mobility	230.53	17.23	49.90	123.98	46.05	2.69	8.31	12.12	490.81

NPV = net present value

[Note that 1% would lead to positive results for all jurisdictions]

Alternative licence period

The national licensing model assessed in the Consultation RIS included a standard licence period of three years across all licence types and jurisdictions. A proposal has been agreed for a flexible approach that will allow licensees to apply for a one, three or five year term (i.e. five years as a maximum based on individual needs. The following discussion was included in the Consultation RIS to inform the decision process. It has been retained here to demonstrate the variables considered and the impact that they have.

The impacts of three alternatives are assessed:

• 
  a shorter licence period of three years as a maximum
  
• 
  a higher licence period of ten years as a maximum
  
• 
  a perpetual licence, meaning that there is no defined period to the licence and it never needs to be renewed.
  

Under a three (or ten) year maximum licence period, licensees in jurisdictions that currently have a licence period of less than three (or ten) years would benefit because they would not need to renew their licence as often. Other than Tasmania, the highest licence period currently set by states and territories is three years. Therefore, under a ten year maximum period, licensees in all jurisdictions other than Tasmania would benefit from renewing their licence less often. It should be noted that real estate agents would still be required to lodge annual trust account reports. Under a three year maximum period, licensees in jurisdictions that currently offer a three year period would not experience an impact.

Under a perpetual licence, licensees in all jurisdictions other than Tasmania would benefit from no longer needing to periodically renew their licence. New licensees would still need to apply for a licence, but once it was received and eligibility criteria met, no renewals would be necessary. Therefore, the cost in time and fees currently spent on renewing licences would be entirely avoided under this option. Tasmania would experience no impact because it already has a perpetual licence for the property occupations.

Assuming that only the processing component of fees would be affected by a change to the licence period, Table 4.29 shows the overall quantified net impact under each licence period assessed.

Table 4.29: Net overall impact of national licensing under various licence periods

Total NPV over 10 years ($ million)	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	National
1, 3 or 5 year licence period	271.63	35.98	88.89	137.51	51.25	3.05	9.91	13.22	611.45
Maximum of 3-year licence period	268.23	31.13	77.84	134.07	51.17	3.00	9.63	13.06	588.13
Maximum of 10-year licence period	274.19	39.63	97.17	140.09	51.31	3.09	10.12	13.35	628.94
Perpetual licence	276.75	43.27	105.45	142.67	51.37	3.13	10.33	13.47	646.43

Net present value assumptions

50.Discount rate

A sensitivity analysis was undertaken on the 7 per cent discount rate used to calculate NPV figures in this Decision RIS. Table 4.30 highlights the impact that alternative discount rates (specifically, 3 per cent and 10 per cent) have on the total cost estimates for the proposed option.

Table 4.30: Alternative discount rates for the proposed option

National NPV over 10 years ($ million)	7 per cent	3 per cent	10 per cent
National licensing (1, 3 or 5 year licence period)	611.45	778.86	516.50

51.Net present value operating period

A sensitivity analysis was undertaken on the operating period used to calculate NPV figures in this Decision RIS. Table 4.31 highlights the impact that increasing the operating period (specifically, from ten years to 15 and 20 years) has on the total cost estimates for the proposed option.

Table 4.31: Alternative net present value operating period for the proposed option

NPV over 10 years ($ million)	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	Total
10-year operating period	271.63	35.98	88.89	137.51	51.25	3.05	9.91	13.22	611.45
15-year operating period	363.50	48.30	118.57	184.39	68.83	4.31	13.39	17.87	819.17
20-year operating period	433.93	57.46	140.74	220.50	82.37	5.29	16.05	21.46	977.80

Note: A real discount rate of 7 per cent has been used.

The results in Table 4.31 highlight the impact that different assumptions about the operating period can have on the estimated costs and benefits of the proposed option. In this case, increasing the operating period has a positive effect on the NPV estimate as the majority of costs are over a short period (i.e. transition), while the majority of benefits are over a long period.