Licensing reform a cost saver

Hundreds of occupational licences and permits are to be reviewed by the state government’s key economic regulator, with the potential to save consumers tens of millions of dollars.

Earlier this week, the Economic Regulation Authority commenced consultation for an inquiry into licensing, which was announced late last year, and will report in February 2019.

Nearly 600 different types of licences and permits have already been identified by the authority, while that number could grow substantially, with previous work suggesting the amount could be as high as 6,000.

That figure was reported in the authority’s 2014 Microeconomics Reform review, cited from the Small Business Development Corporation.

Beekeepers and timber workers are among the jobs that require registration, while small retail shops need certification.

Local governments are also in the mix, with licences required for the transporting of butcher’s waste, as an example.

The authority’s 2014 report found that licences restricted production of goods and services and could result in higher prices and fewer products available to consumers.

In a 2017 review paper, the Productivity Commission found that occupational licensing costs in Australia could affect consumers by up to $15 billion annually.

With Western Australia making up about 15 per cent of the national economy, that would imply about a $2 billion impost on local consumers.

“This is largely a transfer from consumers to licensed workers, so the net gain must come from an expansion in the number of workers who are able to enter the market,” the Productivity Commission said.

But that costing was quite a simple estimation, with the Productivity Commision adding it had been based on scaling data gathered in the US.

Research suggests nearly 3 million jobs would be created in the US if occupation licensing rules were removed.

The key problem is that licensing not only imposes a cost and time burden on potential applicants, but additionally limits competition in labour supply by placing restrictions on new workers entering the field.

Often that means higher prices without much benefit in terms of quality.

The issue of occupational licensing was also raised in the Harper competition review, released in 2015.

“Licensing that restricts who can provide services in the marketplace can prevent new and innovative businesses from entering the market,” the report said.

“It can also limit the scope of existing businesses to evolve and innovate.

“As a result, service providers can become less responsive to consumer demand.

“This imposes a cost on consumers without necessarily improving consumer protection.”

Previous submissions can give an idea of where the authority might head as the review proceeds.

For example, in 2014, the Committee for Perth recommended a one-stop-shop approach to licensing processes, while others suggested expansion of e-lodgement.