2011/SOM/WKSP/033 Qualitative and Quantitative Measures of Progress Some Reflections on Australian Experience

Transcription

1 2011/SOM/WKSP/033 Qualitative and Quantitative Measures of Progress Some Reflections on Australian Experience Submitted by: Australia Residential Training Workshop on Structural Reform Singapore August 2011

2 Qualitative and quantitative measures of progress some reflections on Australian experience Paul Gretton Session 7: Qualitative and quantitative measures of progress Residential Training Workshop on Structural Reform August, Singapore Productivity Commission Outline of presentation Recap the Productivity Commission s s assessment role Measuring progress of domestic reform Trade policy reform Evolution to national competition policy reform Broadening of reform to include human capital Distinguish between Potential benefits of possible reform Realized & prospective impacts of reforms implemented Productivity Commission 2 1

3 What is the Productivity Commission? Government s principal review and advisory body on microeconomic i policy reform and regulation Adopts an economy-wide approach: Impacts of reform A widening remit 1921 Tariff Board -Trade focus - Manufacturing industry development objectives 1974 Industries Assistance Commission - All sectors - Facilitate adjustment 1990 Industry Commission plus - Infrastructure - Barriers to competition - Social & environmental implications Productivity Commission Productivity Commission plus _ Human capital & regulation - Social, environmental & economic interaction An economy-wide measurement framework Reform/Policies/ Implementation Direct impacts Wider implications Inputs Outputs Outcomes Changes in: Productivity Prices/taxes Workforce participation Population Society The environment Flow-on economic, social and environmental impacts Productivity Commission 4 2

4 Early economy-wide assessments in Australia Effective rates of protection Based on Cordon/Balassa frameworks First compiled in early 1970s Focus on protection from import tariffs, subsidies, agricultural marketing arrangements Illustrates costs to industry and consumers; disparities between activities Easily implemented & powerful tool However, static framework & restrictive assumptions Transitioned to Computable General Equilibrium modelling Productivity Commission 5 Transitioned to Computable General Equilibrium (CGE) modelling Commission support for the Impact project from mid- 1970s Key output ORANI CGE model based on Australian Input-Output tables Modelled over 100 industries, consumer & investment behavior, imports and exports Projected changes in national activity (GDP) from changes in industry assistance Powerful new tool for illustrating economy-wide impacts & benefits of trade reform Key early reports: TCF (1985), Chemicals and plastics (1986), Paper and paper products (1986) Productivity Commission 6 3

5 Impacts & benefits of trade liberalisation a 1980s view on TCF In 1985, Ad valorem tariff rates up to 50% plus import quotas High effective protection TCF employment ~ Commission recommended phasing out of quotas as first step in liberalizing TCF trade Expose TCF sector to greater competition Lead to relocation of TCF workers estimated Expansion of other higher productivity sectors export oriented agriculture and mining, Services Projected increase in GDP 0.2% The Commission noted further adjustment and gains available By 2011, Maximum ad valorem TCF tariff 10%. No quotas Productivity Commission 7 Measured progress of phased industry assistance reform lowered effective protection Per cent 40 Effective rates of industry assistance Manufacturing Agriculture Source: Productivity Commission, Trade & Assistance Review (annual release) Productivity Commission 8 4

6 A recent analysis quantitative modelling of trade-policy options Liberalization scenarios considered Preferential bi-lateral, Unilateral action, APEC-style, Global action Simulation: tariffs to zero GDP-Australia Share of potential world gain Per cent change T1. Australia-small country a Per cent 5.7 T2. Australia-large country T3. Australia unilateral T4. Stylised APEC T5. World Source: GTAP model simulations. (a) Simulations are representations of the effects of the removal of barriers to trade. T1 Represents zero tariffs on all trade between Australia and a small economy, T2 on trade between Australia and a large economy. T3 simulates unilateral liberalisation as the removal of tariffs on all imports into Australia. T4 simulates zero tariffs on imports into all APEC economies and T5 simulates zero tariffs worldwide. Source: Simulation results. Productivity Commission 9 From industry assistance to broader reform National Competition Policy (NCP) & related reforms From mid-1980s Emphasized removing anticompetitive barriers to productivity & efficiency Manifested in productivity & price changes Reform involved significant structural adjustment Commission (1995) quantitative modelling illustrated significant potential economic gains GDP 5% Supported in-principle case for reform Provided basis for determining competition payments to state jurisdictions Productivity Commission 10 5

7 Potential benefits of reform contested particularly for rural & regional Australia Commission (1999) inquiry into potential reform impacts on Rural & Regional Australia Ex anti study supported by Economy-wide modelling & quantification of likely prospective regional impacts The quantitative analysis indicated Regional adjustment would occur labour would relocate Overall, national competitiveness would improve & incomes would rise Other factors (eg terms of trade) could play larger role Policy finding - reform program worthwhile & should be maintained Productivity Commission 11 By 2005, most NCP policies implemented what were the outcomes (ex post inquiry) Productivity growth in major infrastructure reform sectors over the 1990s raised GDP Percentage points Total 2.5% Source: Productivity Commission (2005), Review of NCP Productivity Commission 12 6

8 and increased incomes across income groups Percentage change Productivity Commission 13 From National Competition Policy (NCP) to COAG national reform agenda Reform imperatives Population aging, global competition, environmental pressures From 2006, new National Reform Agenda (NRA) formulated Continue competition and regulatory reforms Extend reform agenda to human capital Workforce productivity & participation Through education, health & social policies also, seeks to achieve social and environmental objectives (eg irrigation & urban water) Productivity Commission 14 7

9 Potential benefits of NRA substantial Commission report underpinned policy Net op. balance ( ) Reform area GDP per capita States Cwlth % change $billion $billion Competition, regulation & health service provision Human capital Workforce participation (40%) 13.2 (60%) Workforce productivity (40%) 5.8 (60%) A caution: Estimates from streams not additive Human capital estimates Gross possible uncertain (upfront) costs Subject to long maturation periods (education) Fiscal division sensitive to specific policies Productivity Commission 15 Australian institutions for measuring implementation progress & impacts COAG Reform Council (CRC) (established 2008) Advises COAG on the delivery of the reform agenda Reports against predetermined outcomes & performance benchmarks Productivity Commission to report on Realized and prospective impacts of policies implemented Nature of reforms Timescale of impacts Whether Australia s reform potential is being reached Productivity Commission 16 8

10 The Commission s economy-wide approach to measuring impacts & benefits Similar to that use on previous occasions 1995, 1999, 2005, 2006 Monash Multi-Regional Forecasting Model (MMRF), updated to include A dynamic capability to reflect impacts of demographic and economic change Explicit modelling of demographic change A revised treatment of energy & the environment Social & environmental impacts that fall outside the economy-wide model assessed qualitatively Productivity Commission 17 Key points The Commission s charter has broadened over time It is required to take an economy-wide approach And consider economic, social & environmental impacts The Commission uses economy-wide CGE modelling frameworks These quantitative frameworks enable the impact & benefits of Reform potential to be gauged Reforms implemented to be assessed Quantitative assessments complement & support qualitative analysis Productivity Commission 18 9

11 Productivity Commission 19 Selected bibliography The Productivity Commission: A Quick Guide, Banks, G. 2010, Structural Reform Australian-Style: lessons for others?, in An Economy-wide view: Speeches on Structural Reform, Productivity Commission, Melbourne. Gretton, P. 2008, Assessing the importance of national economic reform Australian Productivity Commission experience, presentation to Conference on the Micro Foundations of Economic Performance in Asia, New Delhi, 3-4 April Industry Commission 1995, Growth and Revenue implications of National Competition Policy Reforms, A Report by the Industry Commission to the Council of Australian Governments, AGPS, Canberra. Productivity Commission 1999, Impacts of Competition Policy Reforms on Rural and Regional Australia, Inquiry Report No. 8, Canberra, September. Productivity Commission 2005, Review of National Competition Policy Reforms, Inquiry Report No. 33, Canberra, February. Productivity Commission 2005, Productive reform in a federal system, in Annual Report, Productivity Commission, Canberra. Productivity Commission 2007, Potential Benefits of the National Reform Agenda, Report to the Council of Australian Governments, Canberra, February. Productivity Commission 2010, Bilateral and Regional Trade Agreements, Research Report, Canberra, November. Productivity Commission (2010), Framework for reporting on the impacts and benefits of COAG reforms, Commission Research Report, Canberra. Productivity Commission 20 10