Dris proposal for national licensing of the electrical occupations

35Impact analysis

This chapter provides supporting detail about the costs and benefits of the options being considered in this Decision RIS. The information includes a detailed discussion of the impacts and results of the analysis, including sensitivity results and a summary of the costs and benefits by jurisdiction.

Attachment H contains:

• 
  an explanation of the approach taken to the analysis, including the method and the specific calculations behind the analysis
  
• 
  A detailed list of all of the inputs and assumptions underlying the analysis.
  

35.1Transition and implementation costs of a national licensing system

Before the commencement of the proposed national licensing reform and for the first three years of its operation, several one-off costs would be incurred. For licensees, business and households, there is a time cost associated with understanding the new system of licensing and a small cost for existing licensees in South Australia from the introduction of nominees for contractor licences. For governments, there are costs associated with setting up the National Occupational Licensing Authority (NOLA), implementing the national licensing register and communicating the changes to licensees and the wider community (i.e. businesses and households).

35.1.1Cost to electrical licensees

36Time for licensees to understand the proposed reforms

Under national licensing, licensees would need to understand the changes and how they are affected by them. Time costs would be incurred reading material, attending an information seminar or becoming familiar with the changes by some other means.

The Consultation RIS suggested that licence holders would need 45 minutes to understand the changes to the licensing system associated with national licensing. However, feedback from stakeholder consultations and submissions was that this estimate was inadequate. For indicative purposes, it is assumed that it would take each existing licensee 90 minutes to understand the changes. Based on the assumption that there are just over 230,000 electrical licensees across the jurisdictions, the estimated transition costs to industry would be about $16.79 million. It is expected that these costs would be incurred throughout the year preceding the operation of national licensing (i.e. 2012–13). As at 1 July 2012, the ten-year net present value (NPV) of this cost is therefore $15.69 million. The distribution of these costs across jurisdictions is shown in Table 4.1. New South Wales, Victoria and Queensland incur the highest costs in Australia. While this is partly driven by licence numbers, Queensland has the highest cost because their wage rate is higher than that of New South Wales and Victoria.

Table 4.1: Cost to licensees from spending time understanding the proposed reforms

$ million	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	National
Transition cost (undiscounted)	3.93	3.72	4.06	2.55	1.28	0.42	0.31	0.53	16.79
10-year NPV as at 1 July 2012	3.67	3.48	3.80	2.38	1.20	0.39	0.29	0.49	15.69

NPV = net present value

The estimate of 90 minutes takes into consideration the varying needs of licence holders when they transition to a national licence. It is important to note that licence holders would not be required to change their licence before the expiration of their current licence. Therefore, the 90 minute estimate reflects the potential additional time over and above normal requirements for licence renewal. For some licence holders, changes may be more complex and require more time; for others, changes would be minimal and require less. The estimate in this Decision RIS is intended to be a reasonable average of likely transition requirements, and will be tested further with industry in consultations.

For further information on the assumptions underlying these estimates, see Attachment H.

37Introducing nominees in one jurisdiction

Under national licensing, when a contractor licence is issued to a body corporate the business will be required to nominate an existing licence holder as a nominee. This requirement addresses the issue of a business entity, in itself, being unable to possess skills and expertise.

South Australia is the only jurisdiction that does not currently have this requirement and will incur a cost from introducing this under national licensing. In the absence of other information, it is assumed that the time taken to nominate a licence holder as a nominee is the same as the estimate for the current time taken to apply for a licence (i.e. 30 minutes as per the Victorian RIS on the proposed Electricity Safety (Registration and Licensing) Regulations 2010).

The introduction of nominees in South Australia will lead to a transition cost for existing business licensees, as each business will initially need to lodge their nominee with the regulator when national licensing commences. Based on the time estimate of 30 minutes and there being 855 company licensees in South Australia, the transition cost to existing licensees is expected to be about $20,000, incurred in the first year of operation. This represents about $17,000 NPV over ten years as at 1 July 2012. However, following discussion between jurisdictions, it has been proposed that individual jurisdictions can choose to allow sub-contractors to fulfil the role of a nominee, however, this arrangement may not be recognised outside the originating jurisdiction. The proposal may alleviate some of the cost for licensees in South Australia.

For further information on the assumptions underlying these estimates, see Attachment H.

It is estimated that the South Australian regulator will also incur costs associated with introducing nominees for company licences due to the time taken to assess nominee forms and record information. The cost to the regulator has not been included in the cost–benefit analysis.

37.1.1Cost to business and households

38Business value-add lost

Given that licensees must spend additional time to transition to national licensing (as outlined above), they will essentially be less efficient as a result. There is an expectation that if the reforms lead to a one-off efficiency loss for electrical services, business too will experience a one-off reduction in their profits, or their value-add from electrical services, as less will be generated from a less efficient labour force.

The costs to the business and household buying electrical services are assumed to be one-third of the direct costs to labour. This estimate is based on research conducted by the Australian Bureau of Statistics on income shares for factors of production (labour and capital), which estimate the profit share of total factor income (essentially the return to capital of total income in the economy).³⁰ This measure is the best available indicator of the extent to which income is returned to capital (as opposed to being returned to labour in the form of wages).

It is estimated that there would be a transition cost (to business and households) of $5.60 million, or $5.24 million NPV over ten years as at 1 July 2012. The distribution of these costs across jurisdictions is shown in Table 4.2.

Table 4.2: Business value-add lost as a result of transition costs

$ million	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	National
Transition cost (undiscounted)	1.31	1.24	1.35	0.85	0.43	0.14	0.10	0.18	5.60
10-year NPV as at 1 July 2012	1.22	1.16	1.27	0.79	0.40	0.13	0.10	0.16	5.24

NPV = net present value

38.1.1Costs to government

39National Occupational Licensing Authority – set-up costs

A key element of the national licensing model is the establishment of a National Occupational Licensing Authority. The role of NOLA would be to develop consistent national policy for obtaining a licence and to administer the national system. In doing this, it must consult with stakeholders in relevant occupational areas and establish occupational licence advisory committees. During the implementation phase, NOLA would regularly consult with a jurisdictional reference group on issues that arise regarding the implementation of the national system and on progress with the development of licence policy.

In its first five years of operation, NOLA would have an important role in the following areas:

• 
  supporting the implementation of national licensing for the first-wave occupations (electrical, plumbing and gasfitting, property, and air-conditioning and refrigeration mechanics)
  
• 
  supporting the implementation of second-wave occupations, including building occupations
  
• 
  supporting further reforms related to occupational licensing.
  

Based on the above scope, it is clear that only a proportion of licensing authority resources would be required to support the implementation and future policy direction of national licensing for electrical occupations. Costs for this Decision RIS, therefore, reflect this fact, and attribute a proportion of licence authority costs.

The costs to governments of establishing NOLA will be apportioned to each occupation under national licensing (including the first and second wave of occupations and any future harmonisation of conduct requirements). It is assumed that the first tranche of occupations (electrical, plumbing and gasfitting, property, and refrigeration and air-conditioning mechanics) will be apportioned 50 per cent of these costs. The remaining 50 per cent will be apportioned to the second-wave occupations with 30 per cent to builders and building-related occupations, valuers and conveyancers and 20 per cent to proposed future harmonisation of conduct requirements. Further information is provided below in 4.2.

For electrical occupations, national licensing costs have been estimated according to the following assumptions:

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  Of the 50 per cent of costs attributed to first-wave occupations, 35 per cent are allocated to the electrical occupations.
  
• 
  50 per cent of national licensing costs have been attributed to future reforms, including second-wave occupations and conduct reforms
  

For more detail on these assumptions, see Attachment G.

The transition and operating costs of NOLA have been budgeted for 2011–12 to 2014–15, and notional funding contributions from each jurisdiction have been agreed, but commitments have not been made beyond 30 June 2013. The costs of NOLA have been allocated across jurisdictions according to these agreed contributions by governments (noting these figures are subject to change on agreement of SCFFR). Table 4.3 illustrates the pro-rata distributional effects of the costs (noting that it was agreed that the Australian Capital Territory would not be required to contribute to the cost of NOLA).

Table 4.3: National Occupational Licensing Authority –indicative jurisdictional contributions

Contribution of budget estimate	NSW	Vic	Qld	WA	SA	Tas	ACT	NT
Government	33%	25%	20%	11%	8%	2%	0%	1%

The detailed budget of NOLA provided by the Council of Australian Governments (COAG) National Licensing Taskforce shows that transition costs over the ongoing cost of operating NOLA will be incurred in the first three years. This includes the one-off establishment cost of NOLA, the implementation costs associated with the national licensing register and higher meeting costs during the transition period.

Based on these figures, it is estimated that the transition costs associated with NOLA are about $1.64 million. This cost would be incurred over three years, leading to a transition cost of about $1.61 million NPV over ten years. The distribution of costs across jurisdictions is shown in Table 4.4³¹.

For further information on the assumptions underlying this estimate, see Attachment G.

Table 4.4: Transition costs associated with the National Occupational Licensing Authority

$ million	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	National
Transition cost (undiscounted)	0.54	0.41	0.34	0.17	0.13	0.04	-	0.02	1.64
10-year NPV as at 1 July 2012	0.53	0.40	0.33	0.17	0.12	0.04	-	0.02	1.61

NPV = net present value

40Costs to transition to a national licensing register (jurisdictional implementation)

Under national licensing, a public national licensing register would be established, providing a cross-jurisdictional summary of all the licences issued under national licensing. This would enable the public and jurisdictional regulators to electronically search for licensed entities and the individuals associated with national licences. The register would be the responsibility of NOLA, with all jurisdictional regulators providing information to NOLA’s central database.

Initially, the register would include all first-wave occupational areas (electrical, plumbing and gasfitting, property, and air-conditioning and refrigeration mechanics) in each jurisdiction, with the intention that all subsequent occupations also be included. It therefore assumed that this initial investment in the register for the four occupational areas would have subsequent value for any other occupations that transition to national licensing in the future.

The intention of including the register within a national licensing framework is to provide greater transparency, allowing consumers to make an informed choice when engaging licensees. It may also improve both consumer awareness of licensing and consumer confidence in the licensing system.

The estimates of total register costs for jurisdictions are those costs that are incurred to upgrade current systems at the jurisdictional level to allow IT systems to interface with the national licensing register. As implementation of the system has not yet commenced, there is currently little available data on the full cost of this implementation. For this Decision RIS, a range of cost estimates has been used.

These costs are estimated to be between $2.5 million and $5 million per jurisdiction, with lower costs for small jurisdictions and New South Wales (due to the new system being based on the NSW Government Licensing Service). Given that the register will be used for several occupations, 50 per cent of this implementation cost has been attributed to future reforms, including second-wave occupations and conduct reforms. Of the remaining 50 per cent, 35 per cent is attributable to the electrical occupations.

The cost for jurisdictions implementing the national licensing register is $5.08 million in transition costs or $4.43 million NPV over ten years as at 1 July 2012. The distribution of costs across jurisdictions is shown in Table 4.5.

For further information on the assumptions underlying these estimates, see Attachment H.

Table 4.5: National licensing register transition costs – total costs and the cost attributable to electrical occupations under the first stage of reforms

$ million	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	Total^a
Total costs to government of transitioning to the national licensing register (time and upgrade costs – undiscounted)	2	5	5	5	3.5	3.5	2.5	2.5	29
Total costs attributable to electrical occupations under the first stage of reforms (undiscounted transition cost)	0.35	0.88	0.88	0.88	0.61	0.61	0.44	0.44	5.08
10-year NPV of cost attributable to electrical occupations as at 1 July 2012	0.31	0.76	0.76	0.76	0.53	0.53	0.38	0.38	4.43

Note: The introduction of new enterprise licensing systems in Tasmania and the Northern Territory prior to the commencement of national licensing may reduce this estimate.

^a May not sum due to rounding.

41Government communications

Regulators in each state and territory are expected to develop and implement a communications strategy that seeks to inform various stakeholders of the changes to licensing of electrical occupations. Relevant stakeholders include licence holders, industry associations, training providers, other government agencies with relevant responsibilities and consumer groups. Most regulators would already be conducting regular consultations with these groups as part of their current responsibilities; however, it is reasonable to expect that this reform would require an increased level of engagement and communications with stakeholders before the new licensing arrangements started.

The cost of this engagement would vary considerably across jurisdictions, depending on the type of engagement conducted and the medium used. There are currently no estimates available from each of the state and territory regulators on what it may cost to complete these activities. A state based regulator, does, however, have estimates of the communications costs that were incurred when they made changes to the property industry in their state. This estimate of about $325,000 has been used as the basis for estimating this cost to regulators. This cost has been applied in full to the larger states, and half of this cost has been assumed to be incurred in smaller jurisdictions.

Based on these estimates, the communications cost to government is $1.95 million in transition or $1.82 million NPV over ten years as at 1 July 2012. The distribution of costs across jurisdictions is shown in Table 4.6.

For further information on the assumptions underlying these estimates, see Attachment H.

Table 4.6: Government communications costs during transition to national licensing

$ million	NSW	Vic	Qld	WA	SA	Tas	ACT	NT	National
Transition cost (undiscounted)	0.33	0.33	0.33	0.33	0.16	0.16	0.16	0.16	1.95
10-year NPV as at 1 July 2012	0.30	0.30	0.30	0.30	0.15	0.15	0.15	0.15	1.82

NPV = net present value