Dris proposal for national licensing of the plumbing and gasfitting occupations

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 report. 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 and tables below.

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.⁴²

Table G.2: Discount rate and sensitivities

Assumption	Unit	Value	Source
Discount rate
Real discount rate	% per annum	Headline: 7% Sensitivity: 3%, 10%	Australian Government 2010, Best practice regulation handbook, 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’.⁴³ Accordingly, an evaluation period of ten years has been used, with sensitivity testing using 15 and 20 years.

The operating start date for phase 1 of national licensing is in 2014, as advised by the National Licensing Taskforce.⁴⁴

Table G.3: Timing of analysis and sensitivities

Assumptions	Unit	Value	Source
Timing
Operating start date	date	1 July 2013	Unpublished advice provided by COAG National Licensing Taskforce
Evaluation period	years	Headline: ten years Sensitivity: 15, 20 years	Assumption based on advice in the Best practice regulation handbook, page 63

Wage rate

A jurisdiction-specific wage rate has been used in the analysis, based on data available from the Australian Bureau of Statistics relating to employee earnings and hours.⁴⁵

Hourly cash earnings

Data on hourly cash earnings for plumbers and gasfitters has been sourced from the Australian Bureau of Statistics, Employee earnings and hours (catalogue 6306.0) using the Australian and New Zealand Standard Classification of Occupations (ANZSCO) codes.

According to the ANZSCO code 334, plumbers install, maintain and repair pipes, drains, guttering and metal roofing, and provide mechanical services and related equipment for water supply, gas, drainage, sewerage, heating, cooling and ventilation systems. ANZSCO suggests that an indicative skill level for this occupation is an Australian Qualifications Framework Certificate III including at least two years of on-the-job training, or an Australian Qualifications Framework Certificate IV.⁴⁶ It is also noted that in some cases at least three years of relevant experience may substitute for the formal qualifications listed above. It is acknowledged that these wage rates overestimate the wage rate for apprentices, as it is expected that this granularity of data will not impact on the robustness of the estimates.

The hourly cash earnings rates below are based on ordinary time worked per person (excluding overtime), based on the specific hours worked in each jurisdiction.⁴⁷

It is assumed that as the activities involved with national licensing are ancillary to employment, the cost of time is the wage rate that can be earned in the industry (i.e. hourly cash earnings).

On-cost and overheads

According to the Australian Bureau of Statistics labour costs survey (2002–03), an on-costs multiplier of 1.172 is appropriate for the ‘electricity, gas and water supply’ industry⁴⁸ that includes:

• 
  employee earnings
  
• 
  superannuation
  
• 
  payroll tax
  
• 
  worker’s compensation
  
• 
  fringe benefits tax.⁴⁹
  

In the absence of any other information, the Victorian guide to regulation suggests that an overheads multiplier of 1.75 is appropriate.⁵⁰ The Victorian Treasury suggests that overhead costs include building costs (floor space, fixtures and fittings maintenance and services), equipment, consumables, IT and other support services, administrative support and corporate overheads (senior management, corporate finance, human resources and legal services).

Due to the characteristics of this industry, including a high proportion of self-employed individuals who have lower overheads and fewer on-costs (i.e. no payroll tax and superannuation benefits), an overheads and on-cost multiplier of 1.5 is applied to the hourly cash earnings of plumbers and gasfitters.