Dris proposal for national licensing of the electrical occupations

The scenario modelled for the Decision Regulation Impact Statement

Under national licensing requirements, barriers to entry to the electrical occupations in each jurisdiction are expected to diminish through, for example, reduction in costs for licensing and an increase in the readiness to work between jurisdictions. This may be translated as:

• 
  an increase in efficiency of labour in electrical services
  
• 
  an increase in efficiency of capital in electrical services
  
• 
  reduction in multiple licences fees that electricians pay to government.
  

In addition, the reform will affect the amount of public administration that the state and territory governments consume, as they will have to process fewer licences.

To model each of these impacts, calculations based on the results of the cost–benefit analysis have been drawn upon. As stated above, only the ongoing costs and benefits have been modelled.

Calculating an increase in efficiency of labour in electrical services

To calculate the labour efficiency shock, we have taken the net result from the direct model of time saved for electricians as a result of the reform (that is, the time and effort to obtain multiple licences for those working across jurisdictions) – plus the benefit that has been assumed in the cost–benefit analysis in terms of enhanced labour mobility – and turned it into an efficiency shock. To convert the time saved into an efficiency shock, we have assumed that there will be a decrease in labour cost equal to the monetary cost of the time saved, while revenue for the electrical industry will remain unchanged. The cost and revenue data for the analysis has been drawn from an IBISWorld report on Electrical Services in Australia.⁷⁶ The CGE model does not explicitly contain an electrical industry; rather, the electrical industry is consumed by a variety of industries, the majority being in construction and manufacturing. Therefore, to translate a labour efficiency gain in the electrical industry into the construction and manufacturing industry, 2006 industry employment census data was used to estimate the proportion of the construction and manufacturing industry that can be attributed to the electrical industry. The electrical efficiency shock was then scaled appropriately to be applied to the construction and manufacturing industry in the CGE model. The CGE modelling then uses the calculated efficiency gains to estimate what the broader economic impact would be on the Australian economy.

The modelling assumes that the electricians would use time saved to undertake more work rather than take more leisure time.⁷⁷

Calculating an increase in capital efficiency

The business value-add result from the cost–benefit analysis has been translated as an increase in capital efficiency in the CGE model using the same methodology as outlined in calculating an increase in efficiency of labour (see above). A discussion of the calculation of the business value-add is outlined above.

Calculating a decrease in government fees

The cost saved by electricians as a result of a reduction in fees paid (licence fees paid to government and fees paid for education or training requirements) has been modelled as a cost saved to electricians. This has been calculated by decreasing the proportion of fees paid to government.⁷⁸

Calculating changes to government expenditures

The change in state and territory government expenditures is dependent on the amount the government saves through the reduced processing cost and the ongoing cost of NOLA. The CGE modelling of this is dependent on each state and territory’s net position.⁷⁹

Inputs and assumptions underlying the analysis

Assumptions in the cost–benefit analysis

The following tables provide details on all the key data sources and assumptions made in the impact analysis for this Decision RIS. In some areas assumptions have been made where data is not readily available. Where these assumptions are made the method for making the assumption is explained in the text supporting the relevant table or in the table itself.

Real discount rate

All future cost and benefit cash flows will be discounted to 2012 dollars using a real discount rate of 7 per cent in line with the requirements of the Best practice regulation handbook, which also recommends sensitivity testing using 3 per cent and 10 per cent discount rates.⁸⁰

Table H.2: Discount rate and sensitivities

Assumption	Unit	Value	Source
Discount rate
Real discount rate	% per annum	Headline: 7% Sensitivity: 3%, 10%	Australian Government, Best practice regulation handbook, Canberra, 2010, page 66.

Evaluation period

The Best practice regulation handbook states that

‘the total period [of evaluation] needs to be long enough to capture all potential costs and benefits of the proposal’

and provides guidance that

‘in view of the difficulty of forecasting costs and benefits over long periods, exercise caution when adopting an evaluation period longer than 20 years’.⁸¹

Accordingly an evaluation period of ten years has been used, with sensitivity testing using 15 and 20 years.

COAG has agreed that phase 1 of the national licensing will commence in 2013.⁸² Western Australia has advised that their operating start date is uncertain and will consider its position following the consultation period. This has not been reflected in the cost–benefit analysis.

Table H.3: Timing of analysis

Assumptions	Unit	Value	Source
Timing
Operating start date	date	1 July 2013	Unpublished advice provided by COAG National Licensing Taskforce
Evaluation period	years	Headline: 10 years Sensitivity: 15, 20 years	PricewaterhouseCoopers assumption based on advice in the Best practice regulation handbook^a

^a Australian Government 2010, Best practice regulation guide, Canberra, p. 63.