In the period 1995-97 the RIS system was reformed as part of a broader set of reforms that commenced under the ALP government of Prime Minister Paul Keating but reached fruition in the first two years of the first Howard government. In summary, the major reforms were:

While the Productivity Commission and the ORR might have been happy with most of the general intent and recommendations of the Bell Report and the government’s response to the report, the decision to establish a separate Office of Small Business (the OSB), with new regulatory review and reporting responsibilities, must have been of some concern. The OSB was to be consulted for all cabinet submissions that might have an impact on small business, including regulations of all types and to develop and report annually on a system of nine regulation performance indicators (RPIs). The departments and agencies would monitor and provide the OSB with the data related to their own performance, with the OSB reporting annually on their performance against the RPIs, with the first report to be made in 1999 (Productivity Commission 1999:12). RPIs were seen as an important adjunct to the RIS system, providing information on the effectiveness with which agencies were implementing regulation reform measures and enabling benchmarking of agency performance. In a somewhat clumsy arrangement, however, the ORR was to be responsible for collecting and monitoring agency performance in relation to three of the RPIs and for providing those details to the OSB (Productivity Commission 1999: 12). The situation was made even more awkward in 1998, for Prime Minister Howard committed his second government to the introduction of a system of annual regulatory plans for all departments and agencies in his ‘A Small Business Agenda for the New Millennium’, again to be reported on by the OSB, without the direct involvement of the ORR. The regulatory plans were to provide business and the community with timely access to information about past and planned changes to Commonwealth regulation, with the aim of making it easier for businesses to take part in the development of regulation.

In the first two years of the reformed RIS system (1996-97) compliance with RIS was, however, far lower than the average for the 1999-2006 period. As the Productivity Commission put it, these two years were a learning period for all concerned and it was expected that the level of compliance would improve (Productivity Commission 1999: xviii). It would have been more informative to have noted that there had been a learning period of at least 12 years, from 1986, not two years, with little systematic data on performance in the earlier period being collected. This little matter aside, the major reasons identified for the poor performance in these two years were, in summary: a lack of awareness of the requirements of the new system; varying degrees of understanding of and priority accorded to, the new system; a lack of resources for the ORR; and a slow process of cultural and organisation change resulting in a lack of integration of RIS into departmental policy processes (Productivity Commission 1998; and 1999).

In some cases, especially in regulatory agencies associated with COAG but also in some sections of major departments, communication of the new, reformed status and requirements of RIS simply had not percolated through to those with responsibility for making or amending regulation. Uncertainty about the coverage of RIS persisted even where communication had been effective, particularly in relation to subordinate legislation, quasi-regulation and treaties — to which it now applied (Productivity Commission 1998: xviii-xix). This lack of awareness and understanding applied particularly in COAG and the ORR noted that agencies associated with COAG claimed that they were not informed about, nor trained in, the new guidelines (Productivity Commission 1998: 70).

Rather embarrassingly for the new government, it was also apparent that several ministers’ offices were not aware that the RIS requirements applied to them and, given the lack of awareness and understanding of what the reformed RIS now involved, it is not surprising that there were also examples of differences of opinion between the ORR staff and departmental staff as to how to interpret the RIS Guide (Productivity Commission 1998: xix). On a more positive note, for the relatively few RIS that were submitted in the 1996-97 period, the ORR felt that the level of analysis was adequate in 92% of cases (Office of Regulation Review 1997: 44).

What then, was the performance of this new, reformed RIS after the initial learning period? In terms of volume, as indicated in Table 2.1, in the period from 1999-2000 to 2004-05, a total of 11,545 Bills and Disallowable instruments were introduced, with the ORR receiving 4,832 new RIS queries with regard to this total, of which it advised that 1,085 (9.4%), required an RIS. The relatively small proportion of Bills and instruments subject to RIS was because most of the latter involved minor amendments to existing regulation that did not require the preparation of an RIS (Productivity Commission 2005: 79).

(See Productivity Commission 2005: 78, for further details)

In aggregate, the extent to which the RISs submitted by departments and agencies were regarded as adequate, using the measures developed by the ORR, is indicated in Table 2.2, below, for RIS at both the decision-making stage of the regulation-making process and the Parliamentary tabling stage (see Productivity Commission 2000, chapter three, for a description of how the measure is calculated). On average, 84% of the RISs at the decision-making stage were regarded as adequate, rising to 92% for the parliamentary tabling stage — the higher rate for the latter being, perhaps, a function of the greater risk of causing embarrassment for the minister, the government and the department if an inadequate RIS was provided for parliamentary and public scrutiny. The lower rate of adequacy for RIS developed at the decision-making stage was of concern, as it suggested that at least 16% of decisions on proposed new, or amended regulation, were made on the basis of inadequate information, at least as judged by the ORR.

However, what also becomes evident is that the overall levels of RIS performance indicated in Table 2.2 for the crucial, decision-making stage, concealed marked variations in regulation performance. In particular, the levels of compliance achieved for more significant, new or modified regulation was substantially lower than the overall average for all regulation, even though it might be expected that departments would be most careful in the adequacy of their analysis for more significant regulation. The average level of compliance for the 2000-05 period for more significant regulation, for example, was only 68%, compared to 87% for less significant regulation. It also fluctuated considerably from year to year, ranging from a low of 46% for more significant regulation in 2002-03, after some four years of experience with the new system, to a high of 94% a year later. There was less but still considerable fluctuation for less significant regulation, from a high of 92% in 2003-04.

(See Productivity Commission 2005: 15, for further details)

There is a similar variation in performance when RIS are broken down into primary legislation (Bills), legislative instruments (largely subordinate legislation), non-legislative instruments, quasi-regulation (largely codes of conduct and target requirements) and RIS prepared for treaties. With regard to primary legislation the adequacy of performance fell from 80% in 1999-2000, to 76% in 2004-05, suggesting that RIS performance was not improving, even if it was not getting substantially worse, a disappointing result after eight years of operation for the new RIS system. The RIS performance for treaties, while involving only small numbers per annum and those treaties for which negotiations had commenced before the new RIS system came into effect, was very poor. As might be expected, the variation in aggregate RIS performance is mirrored in variation by department and agency. While the total number of RIS for each of the 19 departments and agencies whose proposals required an RIS is relatively small, only 10 departments and agencies were fully compliant at the decision-making stage in 2004-05 — a sharp drop from 2003-04. Nine departments or agencies were not compliant in whole or in part and the nine failed to develop, in total, some 14 RIS, with three of those that they did prepare having an inadequate level of analysis (Productivity Commission 2005: 31).

With regard to RISs prepared for COAG, performance was poorer, with the average for the period being 76%, nearly 10% lower than that for the decision-making stage for non-COAG RIS (Productivity Commission 2005: 66). There was also considerable variance in the performance by Ministerial Council and National Standard Setting Bodies within COAG (Productivity Commission 2005: 66-7). Despite this variable performance there was a substantial average increase in process performance over the whole of the period 1996-2006 but it was an increase that had largely peaked by the beginning of the 2000s, following the rapid increase in 1998-2000 and the quality of content of RISs improved more slowly.

What factors help explain this variable and sometimes disappointing RIS performance, even if the very poor performance in the learning period, 1996-98, is not included? In drawing upon the sources available four broad factors seem to have been of most importance. They are:

Deficiencies in the design of the RIS system itself have become apparent over time and were highlighted in the recent Banks Report, which found, in assessing both RIS and departmental policy development processes, that the requirements for good regulatory process had generally not been well discharged, agreeing with business groups that this had been a major contributor to the problems identified with specific regulations (Banks 2006a: v). One of the major limitations was the relative lack of initial emphasis in the RIS process on the need for at least adequate consultation with business in designing regulations, leading, it could be argued, to poorer quality regulation. A survey undertaken by the Australian Public Service Commission, for example, found that only 25% of regulatory agencies had engaged with the public when developing regulations, a surprisingly low proportion (Australian Public Service Commission 2005: 56). While it does not necessarily follow that limited or no consultation will result in poorer quality regulatory proposals, it is certainly possible and, where they do occur, will tend to alienate the businesses upon which regulation impacts. There is, of course, something of a dilemma with regard to increased consultation, for, if the RIS and the ORR called, as they did, for greater and more effective consultation, then it might also increase the danger of regulatory ‘capture’, by business interests.

A second limitation was the ineffectiveness of the system of regulatory performance indicators (RPI) introduced in 1998 and managed by the Office of Small Business. The RPI were introduced in order to provide information for decision-makers as to departmental, process-based performance with regard to business regulation (Carroll 2007). However, in practice they had little or no impact on departments, with few departments or agencies using them — at least not explicitly or in published sources — as a means of identifying the causes of poor performance or for improving on existing performance. In this regard it is interesting to note that the recent Banks Report on the performance of the existing RIS system made no specific mention, positive or negative, of the existing system of RPI. Similarly, while the government agreed to all of the recommendations of the Banks Report with regard to the need for better performance indicators it made no specific reference to the existing system of RPI, either positive or negative. The failure, in both cases, to provide an assessment of the RPI implies that they were regarded as relatively ineffective, or not well known, or both — a view supported by most of those interviewed by the author in a range of government departments and agencies. Indeed, it proved difficult to locate persons within departments who were aware of the existence of RPI. Those that were aware indicated, for the most part, that the RPI had been of restricted value and were rarely used by departments in considering their performance. Yet, the information was available, if not used, suggesting that there was a considerable reluctance by ministers and senior officials in line departments and the Cabinet Office to take firm action to improve performance.

A frequently noted cause of poor RIS performance by the Productivity Commission, in both its annual reviews of regulation and by its chair and other senior staff, was a continuing failure on the part of some departments and agencies to fully integrate the RIS system with their established policy development processes (see, for example, Productivity Commission 2005: xx, 25). The result, too often, was that staff tended to regard RIS as merely an ‘add on’ to established departmental procedures, producing the necessary RIS documentation too late in the decision-making process to have any influence, after the proposed regulatory approach had already been determined. There were a number of reasons for this lack of integration:

In the case of any one department only a limited number of RIS are required per annum and those that are conducted are allocated, very often, to different staff in different divisions within the same department, often to those with responsibility for the regulatory area in question. Hence, unless the department has only the one centrally-located policy development unit with staff serving with the unit for several years (which is normally not the case) then it is unlikely that any one individual or group of individuals gains expertise in with RIS, even over a period of years, a phenomenon noted by ORR staff.

One of the key causes of poor quality regulatory proposals has been varying and often inadequate levels of analysis by departments and agencies, especially of the costs and benefits of the regulatory options identified in their RIS. This has been of continuing concern to the ORR and the Productivity Commission, with, for example, recent examples of inadequate analysis including a department not clearly identifying the problem the proposed regulation was supposed to address, another not containing a summary of views received from stakeholders and the community, nor any discussion of how these views had been considered and another not providing any quantification of regulatory compliance costs (Productivity Commission 2005: 26). Where RIS were prepared but failed the ORR adequacy test, an inadequate analysis of costs, benefits and impacts on business, small and large, was typically the case (Productivity Commission 2005: 26). Productivity Commission concerns about poor levels of analysis led its chair, Gary Banks, to assert that 10% of tabled RIS did not even consider compliance costs and only 20% made an attempt at quantifying them (Banks 2005: 10). Similarly, a study of Victorian State government RIS and a small sample of COAG RIS in 2001 found that those conducted on behalf of the state government were clearly superior on all 10 of the criteria used in the study to those conducted for COAG (Deighton-Smith 2006).

As noted above, political support for RIS varied in extent and intensity over time. The primary reason for the variation is not hard to find, occurring, in particular, where ministers are faced, for example, with an RIS assessment that judges their new or modified regulatory proposal as not adequate. In such situations they face a quasi-conflict of interest situation: on the one hand committed under the doctrine of collective cabinet responsibility to support cabinet’s formal support for RIS and the ORR’s assessments of adequacy but, on the other hand, faced with a failed regulatory proposal if the RIS evaluation is negative. Moreover, the staff of ministerial offices, the heads of departments and senior public servants are well aware of this situation. Whatever their personal feelings on the matter, it would be a very brave person who resisted the wishes of a minister by advising that a favoured regulation was not to be recommended and pursued, following an averse RIS assessment from the ORR.

Similarly, when judging an RIS to be inadequate, it is difficult — but not impossible — for the ORR and Productivity Commission staff, even at the most senior levels, to gain the agreement of the department involved of the need to improve the RIS in question. It is even more difficult to persuade them to amend or withdraw a RIS, especially where it has been presented to the ORR at the very last minute and cabinet awaits its submission (Productivity Commission 2005: 82). In recognising this situation, it is rare for the ORR to pursue the matter to the ministerial level. Instead, its staff elect to work more informally with departmental and ministerial office staff in an attempt to amend proposed regulations identified as less than adequate. In this they have had some success. In 2004-05, for example, the ORR was successful in 10 of 71 RIS cases, in persuading departments to modify the preferred regulatory option contained in their RIS (Productivity Commission 2005: 83). However, as RIS have the status of cabinet submissions they are not, at least at the final, submission stage, released for more public scrutiny, so little or no public pressure can be brought to bear by this means on RIS that the ORR regard as inadequate (Productivity Commission 2005: 81).