Dris proposal for national licensing of the plumbing and gasfitting occupations

National licensing – costs and benefits

Table ES.1 sets out the impacts associated with each of the proposed reforms as well as an estimate of the potential flow-through benefits associated with increased labour mobility³ and returns to business.⁴ These impacts are presented in a number of different ways to allow readers to consider the difference between establishment and ongoing impacts along with the jurisdictional impacts. A ten-year net present value is presented, which is consistent with the COAG Best Practice Regulation guidelines; however, the reform’s effects could theoretically be considered over a longer time period, which would result in a larger net benefit (as the benefits are expected to continue beyond the ten-year time period provided for in this analysis).

The two tier option would remove the need for all Certificate IV units (other than those relevant for endorsements) for licence holders. This, combined with improved labour mobility, the removal of experience requirements and a consistent licence period, means that, of all the options, it has the highest quantified net present value - $566 million over ten years. It would also result in a positive quantitative impact in all jurisdictions mainly because Certificate IV units are currently required in all states and territories.

Under three tier, sub-option 1, there would be significant costs associated with the increase in the number of required Certificate IV units. In most jurisdictions, these costs would be offset by other benefits (such as improved labour mobility and the removal of experience requirements and there would be a quantified net benefit at the national level of about $226 million over ten years.

The impact from three tier, sub-option 2 (the preferred option) is not driven by changes to Certificate IV units (these broadly remain the same as is currently the case, but are harmonised). Rather, the gains come from enhanced labour mobility, and the removal of experience requirements. This option would lead to a quantified net benefit nationally of about $318 million net present value over ten years.

Table ES.1: Summary of net quantified impacts by jurisdiction

	NSW	VIC	QLD	WA	SA	TAS	ACT	NT	Total
Two tier
Ongoing net impact ($ million per annum)	19.19	17.74	20.35	22.85	4.80	1.84	2.32	1.14	90.24
One-off transition costs ($ million)	(7.28)	(3.59)	(5.07)	(3.60)	(1.57)	(0.97)	(0.93)	(0.72)	(23.74)
Total 10-year NPV ($million)	118.42	112.27	128.07	145.82	29.84	11.10	14.34	6.80	566.67
Three tier, sub-option 1
Ongoing net impact ($ million per annum)	15.43	6.80	9.26	3.71	1.76	0.70	0.16	0.20	38.02
One-off transition costs ($ million)	(7.28)	(3.59)	(5.07)	(3.60)	(1.57)	(0.97)	(0.93)	(0.72)	(23.74)
Total 10-year NPV ($million)	93.92	40.88	55.69	20.94	10.02	3.69	0.20	0.67	226.02
Three tier, sub-option 2
Ongoing net impact ($ million per annum)	16.45	9.77	12.27	8.90	2.59	1.01	0.74	0.46	52.19
One-off transition costs ($ millions)	(7.28)	(3.59)	(5.07)	(3.60)	(1.57)	(0.97)	(0.93)	(0.72)	(23.74)
Total 10-year NPV ($million)	100.57	60.25	75.33	54.82	15.40	5.68	4.03	2.34	318.41

NPV = net present value

Note: Brackets represent a cost.

Given that the options differ based on competency requirements and licence tiers, the ultimate decision between the three options depends on a judgment of the merits of the respective changes and their impact on safety outcomes. In this respect, the two tier option decreases current skill levels and could therefore lead to increased consumer and worker risk from plumbing and gasfitting work, such as that resulting from water contamination, explosion or asphyxiation. The three tier, sub-option 1 increases skills requirements, which could potentially reduce these risks compared with the status quo and the three tier, sub-option 2 maintains approximately the status quo for most jurisdictions in terms of training requirements. The merits of each option are discussed in detail in Chapter 3.

Tables ES.2 and ES.3 provide a further breakdown of the aggregates above in order to clarify the specific impacts associated with the respective changes being considered. There have been a number of changes to impacts compared to the Consultation RIS. In particular, the business value-add changes when there is a change to any impact with a time component, as it is calculated based on all labour efficiency impacts. Several of the changes since the Consultation RIS have contributed to a change in business value-add, including the move to a maximum five year licence period, rather than the standard three year period originally proposed.

Table ES.2: On going net quantified impacts on a per annum basis for each of the proposed reforms/impacts

	Two tier	Three tier Sub-option 1	Three tier Sub-option 2
Total ongoing ($ million per annum annualised)	90.24	38.02	52.19
Changes to the Certificate IV units required ^a	35.31	(5.51)	5.56
Removal of need to hold multiple licences	1.35	1.35	1.35
Removal of need to hold multiple licences – government	(0.82)	(0.82)	(0.82)
Consistent licence period of one, three or five years	6.24	6.24	6.24
Introducing new licences ^b	(0.47)	(0.47)	(0.47)
Benefits from enhanced labour mobility ^c	32.12	32.12	32.12
Removal of experience requirements	5.18	5.18	5.18
Other impacts ^d	0.31	0.31	0.31
Business value-add	12.43	1.03	4.12
NOLA – operational costs	(1.40)	(1.40)	(1.40)

Note: Brackets represent a cost.

^a The extent to which the Certificate IV units currently mitigate safety risks, or whether their removal could potentially increase safety risks, is difficult to quantify. For that reason, the impact on safety and consumer outcomes has not been incorporated into the quantified analysis however a qualitative analysis is undertaken in Attachment D.

^b ‘Introducing new licences’ encompasses both ‘introducing contractor licences’ and ‘introducing worker licences in Queensland’.

^c The benefit from improved labour mobility is difficult to quantify. To provide an indication of the potential benefit, this RIS draws on the work undertaken in this area by the Productivity Commission. While their analysis is not specific to the impacts of national licensing, it does provide one possible scenario to indicate the potential impacts from an increase in the mobility of labour. Given that the benefits from labour mobility under national licensing are expected to be positive, the Productivity Commission’s work has been used as a proxy for the impact under national licensing to demonstrate the potential benefit that may result.

^d ‘Other impacts’ encompasses ‘removing personal probity requirements’, ‘introducing financial probity requirements’, ‘removal of duplicate testing of licensees’, ‘removing the need for apprentices to apply for a licence’ and ‘removing requirement for licensees to prove their skills have been maintained when renewing’.

Table ES.3: One-off transition costs for each of the proposed reforms or impacts

	Two tier	Three tier Sub-option 1	Three tier Sub-option 2
Transition ($ million)	(23.74)	(23.74)	(23.74)
Time for licensees to understand reforms	(11.30)	(11.30)	(11.30)
Business value-add	(3.77)	(3.77)	(3.77)
Government communications costs	(1.95)	(1.95)	(1.95)
NOLA – set-up costs	(1.64)	(1.64)	(1.64)
National licence register – jurisdictional implementation	(5.08)	(5.08)	(5.08)

NOLA = National Occupational Licensing Authority

Note: Brackets represent a cost.

To provide context for the impacts set out in tables ES.4 and ES.5, the following section sets out a high-level overview of the impacts of national licensing for specific sectors and affected licence holders.

Impacts for licensees

The high-level descriptions of the proposed changes set out in tables ES.4 and ES.5 highlight that licensees are the initial beneficiaries of the majority of the proposed changes.

The tables aggregate the impact on licensees, but in reality the reforms will have different impacts on certain licensees. In terms of the impact on licensees:

The most significant potential cost or benefit of the options considered relates to changes to required Certificate IV units. Setting issues of consumer and worker risk aside, there would be sizeable savings to licensees if these were removed altogether under the two tier option because licensees would no longer need to spend time and pay the fees associated with obtaining those units. Conversely, there would be costs if these requirements were increased, for example, under three tier, sub-option 1.

The two tier option would allow an individual who has completed a Certificate III in Plumbing or Gasfitting to sign off on their own work under jurisdictional conduct legislation without the need for a supervising plumber (this will be achieved through the removal of the licence category of ‘registered tradespersons’). This would be a significant change to the structure of the industry and could have an impact on the level of competition and, therefore, wages. Under national licensing, experience requirements would be removed, and plumbers and gasfitters could obtain a licence sooner if they wish to do so, thereby more quickly earning the associated wage.

Licensees will benefit from the removal of the need to hold multiple licences, and a range of other requirements not deemed necessary.

There will be transitional costs for licensees, which relate to the extra time licensees will need to understand the proposed changes. While the actual amount of benefits may differ from those estimated, the transition costs are small relative to the potential ongoing benefits.

Impacts for business and consumers

Those who employ or use plumbing and gasfitting services will benefit from enhanced efficiency in plumbing and gasfitting occupations and the potential for more efficient flow of labour brought about by national licensing. Enhanced labour mobility leads to better allocation of resources – in this case in plumbing and gasfitting licensees. How much this benefits licensees, business, consumers and the economy more broadly will depend on the extent to which the wages and the cost of plumbing and gasfitting services are unnecessarily high (or low) in one jurisdiction due specifically to the limitations of mutual recognition and the current licensing systems in each state or territory. The labour mobility benefit would be greatest for larger companies working in multiple jurisdictions, but would also be felt by small businesses. The vast majority of plumbing and gasfitting businesses are small and businesses operating in border areas are more likely to be smaller companies.

Safety and consumer outcomes

There is a risk that the two tier model will significantly reduce safety outcomes for consumers and workers, as it decreases the level of training currently undertaken and will not provide licensees with the skills necessary to perform work at the unsupervised level. In particular the two tier option removes the requirement for licensees to complete a number of Certificate IV units, and was developed on the untested premise that a Certificate lll qualification could be sufficient to obtain a licence (as currently occurs in the electrical and refrigeration and air-conditioning occupations), although endorsements may need to be introduced. This view has been strongly rejected by industry and regulators.

The ultimate decision between the options is dependent on how the options may affect safety within the occupation. While the extent to which the existing or proposed Certificate IV units currently mitigate safety risks, or whether their removal could potentially increase safety risks, is difficult to fully estimate, there is wide acceptance amongst stakeholders that the level of risk under this option is significantly higher than under the three tier proposals.

Impacts for government

There are a number of expected impacts on government and regulators associated with the proposed reforms.

First, the jurisdictions are contributing their proportional share for the establishment and ongoing costs of NOLA and the national licensing register. While the appropriateness of matching these costs with the benefits of removing selected licensing requirements has been discussed above, the jurisdictions have rightly identified additional costs that will be incurred on an ongoing basis, such as to ensure that current IT systems can feed into the database that supports the national licensing register. There is the potential for further offsetting savings that could occur at the jurisdictional level, in the area of additional policy development across the occupations, relating to licensing, which could be consolidated into NOLA. The extent to which these gains are realised depends on a range of factors, however, including the extent to which jurisdictions continue to maintain policy advisory functions providing input to the national licensing authority.

Second, the removal of various licensing requirements, categories or licences will mean that fewer regulatory activities will be undertaken by most regulators. At the same time, the reduction in licence fees – due to people no longer holding multiple licences – will mean that less money may be available for compliance activities in some jurisdictions. Current jurisdictional fees recover costs for both processing and other activities, such as compliance. Regardless of how costs are recovered, and leaving aside the benefits and costs of NOLA and the national licensing register and database, simply abolishing the need for duplicative licensing should of itself lead to lower government costs and resource needs.

While the modelling does not quantify the potential benefits associated with the national public licensing register and its supporting database, there are potential positives that could flow from its use. In particular, the national public register is expected to:

facilitate identification of any serious non-compliance by licensees nationally – rather than on a state-by-state basis as currently occurs

help to prevent phoenix companies (companies that fail, and/or become bankrupt and which are subsequently re-established by the same business interests but under another name) emerging across borders following a failure in compliance

enable consumers to confirm that any licensee they propose to engage is legitimately licensed, boosting public confidence in the industry and regulatory system.

Additional wider economic impacts

The analysis above focuses on estimating direct consequences assuming that other things remain unchanged. An economy-wide modelling exercise has also been undertaken to check that these broad benefits still apply even when accounting for the resulting changes in other industries and macroeconomic conditions (e.g. exchange rates, wages, balance of payments and so on). In particular, the results of the cost–benefit analysis that are set out above were used as an input into the Monash Multi-Regional Forecasting model. The key inputs are efficiency gains to licensees, fee reductions to licensees, and flow-through value-add to businesses.⁵ This economy-wide modelling demonstrates the potential flow-on effects of the direct impacts estimated in the cost-benefit analysis. The results represent a supplementary source of information for decision-makers, but are not an input back into the central cost–benefit analysis used to assess the direct impacts.

Based on these inputs, Table ES.4 outlines the expected macroeconomic impacts of national licensing for plumbing and gasfitting occupations. The table shows that all of the options would increase GDP, wages and investment; the largest potential gains would come from the two tier option, which reflects the quantified results from the cost–benefit analysis. These results are discussed in more detail in Chapter 4.

Table ES.4: Macroeconomic results for each option ($ million, typical year)

	GDP	Wages	Investment	Exports	Imports
Two tier	54	17	18	33	7
Three tier, sub-option 1	5	1	2	5	0
Three tier, sub-option 2	18	6	6	10	2

Note: GDP, investment, exports and imports have been calculated from the percentage change results from the computable general equilibrium model and applied to ABS 2011 data. Wages have been calculated by taking the percentage increase in wage from the computable general equilibrium model and applying it to the average wage (based on ABS 2011 data), multiplied by the number of plumbing and gasfitting workers in Australia for 2011.

It should be noted that the CGE modelling was not updated from the Consultation RIS. The differences in the structure of the proposed model and changes to assumptions underlying the model between the Consultation RIS and Decision RIS would impact these results. Accordingly, the CGE modelling results are only indicative of the type and scale of the overall long-term impacts on the economy if national licensing is adopted.