Victoria’s analysis of OHS law costs is unhelpful politics

The Victorian Government has released the PricewaterhouseCooper (PwC) assessment of the potential economic impacts of the introduction of the national Work Health and safety laws.

The government media statement accompanying the report states that

“The proposed laws do not deliver on the intent of the COAG reform agreed to in 2008 which aimed to reduce the cost of regulation and enhance productivity and workforce mobility,” Mr Baillieu said.

“Victoria already has the safest system, the most effective system, the lowest rate of workplace injuries, illnesses and deaths of all states, and the lowest workers’ compensation premiums in the country.  It is estimated that it will cost Victoria $812 million to transition to the new model and $587 million a year in the first five years in ongoing costs to businesses.  Most of those costs will be borne by small enterprises which make up 90 per cent of Victorian businesses…,”

This media statement needs to be seen as, largely, political posturing. PwC has produced a report that confirms many of the suspicions that the conservative politicians in Victoria have held for some time.

Limitations

But let’s look at some of the limitations of the report which are unlikely to get much of a media airing as the Federal Labor Government begins its Council of Australian Governments‘ (COAG) meeting on 13 April 2012.

The PwC report includes a disclaimer that says, amongst other things

“The information, statements, statistics and commentary (together the “Information”) contained in this report have been prepared by PwC from information sourced through business and industry consultations, publicly available material and from material provided by WorkSafe Victoria (WSV). PwC has not sought any independent confirmation of the reliability, accuracy or completeness of this information.” (page i)

The Victorian Trades Hall Council has already pointed out, in its OHSReps SafetyNet newsletter, that the report “was compiled without input from workers or unions”.

In the Government’s media release there is no mention of the National Regulatory Impact Statement (RIS) and it is unlikely that this will be mentioned by the Victorian politicians.  They will want to show that the Victorian analysis of costs is State-specific, robust and independent but the PwC report places itself in the context of a Supplementary Impact Statement (SIA) to the National RIS.

“This report [which summarises the SIA] and the SIA should be considered alongside the National RISs. The National RISs found significant efficiency and productivity benefits across Australia, particularly in respect of multi-state businesses (a key driver of the reform process). While administrative and productivity benefits are legitimate impacts, PwC have been asked to focus on the safety benefits in identifying the impact on Victorian businesses and society.  The SIA analysis concentrates on safety benefits related to each change modelled, although it should be noted that it is often difficult to directly attribute or identify a causal link between the change and the expected safety benefit.  This is why a break-even approach has been adopted.

The SIA follows a different methodology to the National RISs and specifically targets areas considered by the Victorian Government to significantly impact Victorian businesses.” (page 3)

The PwC report also says that “68% of the total costs are attributable to six of the 20 changes modelled.”  Those six are, in cost order:

• “the extended definition of confined spaces,
• changes associated with officer liability,
• the removal of the 2 metre threshold for falls,
• a broader definition of plant captured by the regulations,
• the absolute duty for the development and testing of emergency plans, and
• the extended definition of a worker.”

Only half of these points are likely to affect all Victorian workplaces – 2, 5 and 6.

Also the PwC report says that

“Our analysis suggests that, should this package of reforms be introduced, the overall impact would, in net terms, likely have a negative effect on the Victorian economy (subject to any other considerations made outside this report).” (page 1)

That one paragraph contains a large number of equivocations and conditions (in bold).

PwC was set a fairly tight timeframe for the assessment, acknowledged by PwC on page 27, which may account for the fact that, on page 10, it is stated that

“Of the 101 Victorian businesses consulted, 72 operated in at least one other state or territory other than Victoria.”

It is always possible to criticise the size of any survey sample, and the PwC report includes considerable detail on its methodology, as the following quote shows, however a major concern with the figures above is that, as mentioned in a footnote in the report,

“…multi-state businesses make up only 0.9% of all Victorian businesses.” (page 7)

Of those companies surveyed by PwC almost three-quarters operate across borders yet the reality is that less than one percent of Victorian businesses do so. I think in this context it is difficult to agree with the statement in the methodology appendix that

“In our view, this sample size forms the basis of a reasonable sample of Victorian businesses to assess the impact of the key changes identified. This sample size was agreed between PwC,WSV and DTF.” (page 25)

The terms of reference for the review are not quoted in the PwC report but it is worth referring to the two statements by the Assistant Treasurer and Minister for WorkCover, Gordon Rich-Phillips, in September 2011, to gain an understanding of the context for PwC’s analysis.  The Victorian Government seems to have received what it paid for.

Positives

The PwC report acknowledges some of the substantial economic benefits identified through the harmonisation process:

• “Safety benefits — safety benefits are expected to generally accrue as a result of new obligations representing a higher level of safety and care, for example through specific requirements to consult with other businesses in relation to health and safety or proactive duties on officers of companies in relation to OHS risks and their management in the workplace. It is expected that health and safety benefits, in theory, would be available to all business types.
• Administrative benefits — administrative benefits are primarily expected to be realised by multi-state businesses that would no longer have to understand and comply with multiple OHS legislative frameworks across Australia (that is, businesses that operate in more than one jurisdiction). Less than 1% of businesses operate in multiple states.
• Productivity benefits — productivity benefits could expect to flow from a reduction in business costs (for those businesses operating across multiple jurisdictions) where they can reduce the resources dedicated to regulatory requirements and redirect them towards more productive activities. It is expected that productivity benefits would primarily accrue to multistate businesses. The National Regulation Impact Statements (RISs) undertaken for the Model WHS Act and the Regulations (and codes of practice) sought to quantify the productivity benefits associated with the Model WHS Regulations, estimating national productivity improvements in the order of $1.5-2 billion per annum over the next ten years.” (pages 2-3)

On page 11 of the report there is this mention of business compliance costs derived from the Productivity Commission’s performance benchmarking report of 2012:

“While the costs of adoption of the Model WHS laws are expected to be disproportionately borne by [small – to medium-sized enterprises], this view needs to be tempered somewhat by the reality that 54% of Australian SMEs are either ‘not aware’, ‘somewhat aware of’ or ‘don’t know’ their existing OHS obligations.  To the extent that SMEs do not comply now, and will not comply in the future, they are not likely incur any costs associated with change.”

This fact is an acknowledgement of the reality of compliance costs by PwC but is also a sad comment on the efforts of regulators and safety professionals.

Page 17 of the report offers a glimmer of hope but a glimmer that is quickly dashed.

“Looking solely at reported illnesses and injuries, the introduction of the Model WHS laws would possibly lead to a positive outcome for businesses if the number of claims per worker could be reduced.”

The report states that it is highly unlikely that Victoria would be able to reduce the figures sufficiently to achieve their estimated break even amount of an annual reduction of 2.26 claims per 1,000 workers.

Ian Forsyth, WorkSafe’s Executive Director Health and Safety Deputy Chief Executive presented the graph below in early 2012 showing that over a five-year period claims have reduced less than one percent.

The commissioning and handling of the PricewaterhouseCoopers report has been motivated by politics from the very beginning as indicated by the Ministerial statements hyperlinked earlier.  This has been confirmed by Premier Baillieu releasing the report, after holding off several weeks, on the day immediately before the COAG meeting and on the very day when Prime Minister Julia Gillard has arranged a meeting with business leaders from around Australia, at which the focus was on the reduction of environmental “green tape”.  This focus is best seen in the COAG Communique released this evening.

The significance of the report is likely to be determined by the political negotiations that will likely occur in the 13 April COAG meeting in Canberra.  It is understood that Prime Minister Gillard intends to maintain her stand on the importance of harmonised OHS laws for Australia.

A major omission from the PwC report is the qualitative data offered by the morality of placing human lives before profit.  Many companies say that “our greatest asset is our people”.  The business leaders may interpret this as primarily concerning their ability to create jobs but they should also be thinking about providing safe jobs and how harmonised OHS laws can help in this task.  OHS may emerge as Prime Minister Gillard’s moral imperative.

Kevin Jones