The second wave of reform faded away somewhat unevenly and, with varying degrees of success, given the differing life spans of the three major developments, National Competition Policy (NCP) reform, regulatory reviews and process reform, based around the preparation of Regulatory Impact Statements (RIS). The reviews conducted as part of the NCP process are still ongoing as of the time of writing but for the most part are completed (Productivity Commission 2005). The various, separate, large scale, individual reviews were implemented at various times after 1996 and the RIS-focused reforms to the making of regulation were implemented by the Commonwealth in the 1996-8 period (Carroll 2006). Hence, the minds of decision-makers began to focus on the future: on the question of what to do next, with discussion focused in the Productivity Commission, COAG and, more generally, in the federal and state political executives, notably in the Victorian Government’s ‘Shared Future’ project (Allen Consulting Group 2004; Banks 2004; Bracks 2005; COAG 2005; 2006a; 2006b; 2007).

In one sense, the answer to the question of what to do next had been partly determined by the results of the second wave of regulatory reform, notably by its less successful elements and those areas of regulation that it had not encompassed, suggesting that they now needed attention. Gary Banks, the Chair of the Productivity Commission, for example, in reviewing the NCP, concluded that it had yielded substantial benefits across the community but that the implementation process had not been perfect, that the public interest tests of existing regulation had not always been rigorously applied, that the independence of some reviews had been questionable and their conduct less than transparent and the outcomes of several key reviews rather problematic (Banks 2004). His view was reflected in the Productivity Commission’s detailed assessment of the NCP Reforms a few months later (Productivity Commission 2005). Against this background, he suggested that:

Banks’ views were in several respects similar to those held by the Victorian Government of Premier Bracks. Some months earlier, in May 2004, the Allen Consulting Group had prepared a report for the Victorian Government that emphasised the need for a major new series of national, coordinated reforms in health and education, as part of the government’s ‘Shared Future’, project (Allen Consulting Group 2004). These were endorsed by Premier Bracks and became the centrepiece of a new, national reform initiative he submitted to COAG, emphasising, in contrast to the earlier period of microeconomic reform, the need for reforms to human capital, constituting what he described as a ‘third wave’, of reform (Bracks 2005). The vision was described as one:

It highlighted, in common with the views of Banks, the need for further development of economic competitiveness by undertaking regulatory reviews and building world-class infrastructure and the need for an improved health system but, in contrast, also the need to improve levels of educational and training achievement and the need to remove disincentives and barriers to labour force participation (Bracks 2005: 8). Interestingly, as with the OECD’s 1987 report, the influence of the OECD on Australian policy debates again can be seen in Premier Bracks drawing upon an OECD report to support his case for a further wave of reform: a report that argued that Australia needed to achieve significant increases in productivity and participation if it was to rise to the never-ending challenge of international competition (Bracks 2005: 10, drawing upon OECD 2005).

In addition, Premier Bracks’ vision differed somewhat from that of Banks with regard to the details of the institutional framework that would be necessary to achieve this ‘third wave’ of reform. Bracks’ view was that, while COAG would retain primary responsibility for setting strategic directions, a National Reform Council should be established to guide the process. The Council might be assisted by bodies such as the Productivity Commission and it would appraise progress and make recommendations on funding flows according to a formula determined by COAG (Bracks 2005: 40-41). Also, it would be an independent body making recommendations to COAG on the funds needed for further work, albeit on the basis of a formula to be determined by COAG (Bracks 2005: 11, 40-47). Banks, in contrast, stressed that the successful implementation of the proposed reforms would require both leadership and inter-governmental cooperation on the basis of ‘robust’ arrangements that included well-articulated reform objectives and underlying principles, were based upon a rigorous analysis of options and provided means for the independent monitoring of progress (Banks 2005; Productivity Commission 2005). However, he had not provided any further detail, which came in the Productivity Commission’s assessment of NCP reforms (2005, especially chapter 12).

The Commission, while supporting the general need for an effective institutional framework for the new wave of reforms, recommended that it be divided into two related parts: one, for reforms that were a continuation of those commenced under the NCP, the existing framework should continue to be used, focused on the National Competition Council and COAG; and two, for the reforms in health care and vocational education, ‘stand-alone’, sectoral programs should be developed. However, monitoring and reporting on reform progress and outcomes should be undertaken by a body or bodies independent of those responsible for policy development and implementation (Productivity Commission 2005: 380). In other words, progress and outcomes should be monitored by a politically neutral body, not any of the governments involved.

As might be expected, given a fair degree of policy consensus, the ALP state governments and the Coalition Government of John Howard had little difficulty in agreeing on the need for further reform if the Australian economy was to remain competitive. They had somewhat more difficulty in agreeing on exactly what should be done, notably, as regards institutional arrangements and funding. Compromise was reached in the form of a three-pronged reform agenda in 2006, with the announcement of a new ‘National Reform Agenda’, focusing on human capital, competition and, yet again, regulatory processes (COAG 2006a; 2006b). While it has excited surprisingly limited public and media attention to date, there is little doubt that the work it undertakes will become of increasing importance in the years ahead. This was made clear by the new Commonwealth government of Kevin Rudd that came to office in late 2007. It was committed to a continuing program of regulatory reform, including those put forward by the Taskforce on Regulation in 2006, arguing that the Howard governments had failed to continue the microeconomic reform process instigated by Labor governments in the 1980s and 1990s, with the result that the regulatory burden had grown and Australian productivity had fallen (Emerson 2007).

Rudd’s critique of Howard seemed to imply that regulating reform was more rhetoric than reality; followed a pattern of ‘punctuated equilibrium’ followed by relative inertia; and proved difficult for governments to accomplish in the long term. We investigate these themes in the remainder of this book.