Dris proposal for national licensing of the plumbing and gasfitting occupations

Impact analysis

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

An explanation of the approach taken to the analysis, including the method and the specific calculations behind the analysis and a detailed list of all of the inputs and assumptions underlying the analysis are provided at Attachment G.

1.9Transition and implementation costs of a national licensing system

Before the commencement of the proposed reforms and for the first three years of the system’s operation, several one-off costs would be incurred. For licensees, business and consumers, there is a time cost associated with understanding the new system of licensing. For government, there are costs associated with setting up the National Occupational Licensing Authority (NOLA), implementing the national licensing register (central database and national public licensing register) and communicating the changes to licensees and the wider community (i.e. businesses and consumers).

Cost to plumbing and gasfitting licensees

Time 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 either by reading material, attending an information seminar or through some other means.

A majority of those providing feedback on the proposal in the Consultation RIS that 45 minutes might be sufficient to understand the impacts of the change, indicated that more time would be needed for this purpose. The period has now been doubled and it is now assumed that it would take each existing licensee 90 minutes to understand the changes. Based on the assumption that there are over 160,000 plumbing and gasfitting licensees across the jurisdictions, the estimated transition costs to industry would be about $11.30 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 10-year net present value (NPV) of this cost is therefore $10.56 million. The distribution of these costs across jurisdictions is shown in Table 4.1. New South Wales and Queensland incur the highest costs in Australia. This is predominantly driven by licence numbers.

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)	4.55	1.48	2.65	1.67	0.50	0.12	0.25	0.08	11.30
10-year NPV as at 1 July 2012	4.25	1.39	2.47	1.56	0.47	0.11	0.23	0.07	10.56

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 no licence holder would 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 the 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 RIS is intended to be a reasonable average of likely transition requirements.

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

Cost to business and consumers

Business value-add reduction

Given that licensees must spend additional time to transition to national licensing (i.e. time for licensees to understand the proposed reforms), 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 plumbing and gasfitting services, business too will experience a one-off reduction in their profits, or their value-add from plumbing and gasfitting services, as less will be generated from a less efficient labour force.

For the purpose of this RIS, the costs to the business and consumer buying plumbing and gasfitting 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).⁸ 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 potential transition cost to business (and consumers) of $3.77 million, or $3.52 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)	1.52	0.49	0.88	0.56	0.17	0.04	0.08	0.03	3.77
10-year NPV as at 1 July 2012	1.42	0.46	0.82	0.52	0.16	0.04	0.08	0.02	3.52

Costs to government

National Occupational Licensing Authority – set-up costs

A key element of the national licensing model is the establishment of the National Occupational Licensing Authority (NOLA). 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 refrigeration and air-conditioning)

supporting the implementation of second-stage 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 the plumbing and gasfitting occupations. Costs for this Decision RIS therefore reflect this fact, and attribute a proportion of licensing authority costs to national licensing for the plumbing and gasfitting occupations.

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

For the plumbing and gasfitting occupations, national licensing costs have been estimated according to the following assumptions:

50 per cent of national licensing costs have been attributed to future reforms, including second-wave occupations and conduct reforms

the remaining 50 per cent of costs are attributed to first-wave occupations, with 35 per cent of these costs allocated to the plumbing and gasfitting occupations.

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 the 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 COAG National Licensing Taskforce shows that transition costs over and above the ongoing cost of operating NOLA will be incurred in the first three years. This includes the one-off establishment cost of NOLA, the establishment and 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 across the first three years of operation, leading to a transition cost of about $1.61 million NPV over ten years. The distribution of costs across jurisdictions is shown in Table 4.4.⁹

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

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

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

Under national licensing, a national licensing register would be established, providing a cross-jurisdictional summary of all the licences issued under national licensing. The national licensing register would be composed of two parts. The first would be a central database that would hold information about licensees, including their status, disciplinary actions and any conditions applied to a licence. The database could only be accessed by jurisdictional regulators and NOLA. This database would be linked to all jurisdictional IT platforms and would be continually updated. The second part, a national public licensing register, would hold a subset of licensing information including licence details (e.g. licence number, licensees name and business contact details), regulated work and disciplinary action. The public register would enable the public to electronically search for licensees who are associated with national occupational licences. This would afford the consumer a greater level of protection. The national licensing register would be the responsibility of NOLA and all jurisdictional regulators would input data to the central database.

Initially, the national public licensing register would include all first-wave occupations in each jurisdiction; it is intended that all subsequent occupations would be included as they are included in the national licensing system. It is therefore assumed that this initial investment in the national licensing register for the four first-wave occupations would have subsequent value for any other occupations that transition to national licensing in the future.

The intention of including the national public licensing 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 national licensing 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 central database. As implementation of the system has not yet commenced, there is currently little available data on the full cost of this implementation. For this RIS, a range of costs estimates has been used.

These costs are estimated to be between $2 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 Government Licensing Service). Given that the national licensing register will be used for several occupations, 50 per cent of this implementation cost has been attributed to future reforms, including second-stage occupations and conduct reforms. Of the remaining 50 per cent, 35 per cent is attributable to the plumbing and gasfitting occupations.

The cost from 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.

The corresponding benefits of a national licensing register are discussed qualitatively in the main body of this Decision RIS.

Table 4.5: National licensing register transition costs

$ million	NSW	VIC	QLD	WA	SA	TAS	ACT	NT	Total^a
Total costs to government of transitioning to the national licence register (time and upgrade costs – undiscounted transition cost)	2	5	5	5	3.5	3.5	2.5	2.5	29
Total costs attributable to the plumbing and gasfitting 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 plumbing and gasfitting 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.

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

Government communications

Regulators in each state and territory are expected to develop and implement a communication strategy that seeks to inform various stakeholders of the changes to the licensing of the plumbing and gasfitting occupations. Relevant stakeholders include licence holders, industry associations, training providers, other government agencies with relevant responsibilities and consumer groups. Most regulators already conduct 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 communication with stakeholders prior to the commencement of the new licensing arrangements.

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. One state regulator does however have estimates of the communications costs that were incurred when changes were made to the property industry in its 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.

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

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