5. Government
   1. Government plays a key role in the economy. Through regulation and its direct role in the consumption and production of goods and services, it impacts on both economic dynamism and competition across the economy as a whole. This section will cover four aspects of the role that government plays in the economy.
   2. First is government’s role as a regulator. Governments regulate many aspects of society for a wide range of reasons. While regulation is often justified, it is important that it be fit for purpose. Regulation can be critically important for both economic dynamism and competition where it: facilitates the flow of information to consumers; ensures fair trading; prevents collusion; and corrects for market failures.
   3. Second, the Committee recognises the role that government plays in the direct provision of services. Sometimes, government provides these services directly, such as public education or building approval services. It can sometimes be the sole provider of services, although in some instances (such as education) it competes against other providers. In some instances, government arranges for the provision of services through markets or quasi-markets, including labour market programs, childcare, aged care, disability services and training. Governments may participate in these markets as one of many providers, or it may simply fund and regulate the market/quasi-market. The Committee notes that, in instances where services are provided through markets and quasi-markets, policies relating to market design and in particular the development of matching markets are increasingly recognised for their potential to stimulate competition, achieve better outcomes, and ensure resources are utilised more efficiently.
   4. Third, governments at all three levels procure many billions of dollars of goods and services each year. The Commonwealth Government alone procures an estimated $70-75 billion each year on goods and services ranging from the simple and homogenous through to the highly complex.[1] Improved procurement strategies would involve more competitive processes and have the potential to save governments very significant amounts of money.
   5. Finally, there are ways that government can be more transparent in how it interacts with citizens. This can improve economic dynamism and help to achieve better outcomes for the public.
   6. These proactive strategies can complement traditional regulation to ensure more transparent and competitive markets, which ultimately leads to a more effective and equitable distribution of resources.

Regulation

5.7Regulation exists because governments identify a problem that requires an intervention to minimise, mitigate or eliminate some kind of harm. It can be defined as ‘any rule endorsed by government where there is an expectation of compliance’.[2]

5.8The Office of Impact Analysis (OIA), previously called the Office of Best Practice Regulation, works to ensure government policy and decisions are supported by the best possible evidence and analysis. The OIA works with departments and agencies to produce detailed, evidence-based assessments of complex policy issues.

5.9‘Red tape’ generally refers to regulations, prohibitions or other requirements perceived to impose an unreasonable burden on people, businesses, or community organisations.[3] Red tape often involves complex or time-consuming administrative processes and compliance requirements for those subject to the regulations. Efforts to reduce red tape aim to simplify and streamline regulatory processes without compromising intended regulatory objectives.

5.10An important focus of the Committee was how to achieve the right balance between regulation and ensuring appropriate safeguards. In its discussions with stakeholders, the Committee inquired into the extent that economic barriers, such as regulatory costs or ‘red tape’, had contributed to market concentration, slowing business formation, and stalled productivity.

5.11It is important that regulation is designed to promote and not hinder productivity. The Productivity Commission, in its 5 Year Productivity Review, viewed sector specific regulation as a lever for a more dynamic economy—enabling competition, efficiency and contestability in markets.[4]

Witness views

Current levels of regulation considered a problem

5.12The Committee heard evidence that red tape was a continuing concern. Sectors that raised the impact of red tape in their submissions included pharmacies, personal hygiene, agriculture, minerals, disability support services, and co-operatives and mutuals.[5] The Committee also looked at the effect of regulation in other industries, including finance, aviation and the technology sector. The evidence is discussed in more detail throughout this report.

5.13The Business Council of Australia (BCA), in its submission, stated that heavy regulation affected whether Australia was viewed as an ‘easier place to do business, not harder’.[6] In the BCA’s view, current levels of regulation are high and hinder the ability for businesses to create productive new enterprises, innovate and hire. Excessive regulation can also raise barriers of entry or contestability for new firms and global competitors.[7]

5.14This view was shared by the Victorian Chamber of Commerce and Industry (VCCI), which stated that fulfilling regulatory requirements was a ‘major impediment’ to businesses of all sizes, but particularly small businesses, which have limited time and resources.[8]

5.15Similarly, the Institute of Public Affairs (IPA) was concerned with increasing levels of red tape and its impact on the economy. Referencing the findings of its forthcoming research, the IPA emphasised that red tape—as measured by the number of regulatory restrictions in force—was at its ‘highest level in recorded history’.[9]

5.16In the IPA’s view, red tape cost the economy ‘about $176 billion per annum’. The IPA saw this as disproportionately affecting small businesses, which do not have the resources to manage the regulatory burden. Red tape was a ‘huge preventer of business formation in Australia’.[10]

5.17The Productivity Commission took a different view on the regulatory burden, describing it as ‘really hard’ to measure, and that the amount of regulation was not necessarily the best indicator of economic impact.[11] It explained that:

You can write a very short regulation in one line that could have very deleterious impacts on productivity, depending on what it says. It is an important indicator in terms of the red tape and compliance burden and so on, but the causal link between that and productivity growth over long periods of time may not be that direct. It's fair to say, in every commission report that I've read and been involved with, that we always advocate quite strongly for regulations that are justified on a benefit cost basis and that also have relatively low compliance costs. In terms of the flow of regulation, I think we're always cognisant of and advocating for the things which have that net benefit test at the end of it, whatever it might be.[12]

Proposed reforms

5.18The Committee inquired into which areas presented the best opportunities for reducing red tape.

5.19The IPA identified duplication between state and federal legislation as one area for improvement.[13] Further, the IPA proposed that a serious red tape reduction program would ‘reinvigorate Australia’s most critical industries’ and make them more attractive to investors—ultimately promoting economic dynamism, competition and business formation in the broader economy.[14]

5.20Similarly, the VCCI recommended that there be a review and redesign of the regulatory environment to reduce the cost to consumers and the burden of compliance on businesses, while also acknowledging ‘that regulation serves an important purpose’.[15]

5.21The Productivity Commission said that reviewing regulations to determine whether they were still needed and/or remained fit for purpose was an area for improvement but a ‘huge exercise’.[16]

Existing initiatives to improve regulation and reduce red tape

Increasing economic dynamism through regulatory approval reform

5.22Australia’s competitiveness to attract global capital for major developments in Australia such as for nascent Green Energy projects relies on the ability of all levels of government to work collaboratively, to set clear direction to industry, establishing harmonised (if not uniform) standards and regulations and developing the workforce skills and capacity.Critical to economic dynamism, business certainty and to de-risk project ventures is streamlined, fast, approval processes.

5.23Whilst historically State Agreements were used to underpin large-scale developments, through improvements with case management and regulatory approval sprints, there is evidence of major projects approved for construction of between 18 months and 3-4 years.[17] However, to meet aggressive government targets such as for greenfield industrial renewable developments by 2030, accelerated approval models are needed.Given the global competition for the same capital, examining case studies internationally for regulatory approval reform best practice, in order to facilitate the dynamics needed for market investment and competition in Australia, is needed.

5.24As an international example, in Germany, in the wake of the Ukraine crisis, Chancellor Olaf Scholz announced the rapid construction of LNG terminal within 10 months and to connect it to Germany’s gas supply network.[18]What would ordinarily take 10 years for regulatory approvals and construction, has been made possible by granting provisional approval for the plant even before the permit has been issued.Provisional approval is granted where:

1a decision in favor of the applicant can be expected,

2there is a public interest or a justified interest of the applicant in the early start; and

3the applicant undertakes to compensate for all damage caused by the granting of the facility up to the time of the decision and - if the facility is later not approved after all - to restore it to its previous condition.[19]

5.25Domestically, a number of existing initiatives and programs aim to improve the quality of government regulation and reduce red tape.

5.26First is the overarching requirement that a Regulatory Impact Statement (RIS) be prepared for all new regulatory interventions. The Department of Finance has issued detailed guidelines around preparing a RIS.

5.27In summary, the RIS guidelines propose that policy makers: clearly demonstrate why something is a public policy problem and the options (including non-regulatory) for addressing it, determine which option delivers the greatest net benefit, consult in a ‘genuine and timely’ way with affected stakeholders, publish the information upon which decisions are based, and periodically review regulation to test its continuing relevance.[20]

5.28The RIS guidelines include seven questions that policy makers must answer. These questions are critical because they help policy makers focus on the potential impact of major decisions: in other words, to what extent is the community affected. The seven questions are:

4What is the policy problem?

5Why is government action needed?

6What policy options are to be considered?

7What is the likely net benefit for each option?

8Who was consulted and how was their feedback incorporated?

9What is the best option from those considered and how will it be implemented?

10How will the chosen option be evaluated?[21]

5.29The Department of Finance also issues guidance (Resource Management Guide—Regulator Performance (RMG 128)) to assist Commonwealth entities that perform regulatory functions, including standalone regulators and those located within policy departments.[22]The RMG-128 regime promotes high standards of performance and consistent regulatory approaches for Commonwealth regulators. The guidance defines regulatory functions; provides information on performance expectations; sets out the three principles of best practice that regulators are required to report against (continuous improvement and building trust; risk based, and data driven; and collaboration and engagement); and provides information on issuing Ministerial Statements of Expectations, Regulator Statements of Intent and their role in the performance framework.[23]

5.30In addition to the overarching frameworks outlined above, the Regulatory Reform Division of the Department of Finance has been tasked with undertaking a series of projects to reduce the regulatory burden. Some will be conducted in the Commonwealth sphere; some in conjunction with State and Territory jurisdictions.

Committee comment

5.31The Committee accepts that tackling high levels of red tape remains a work in progress for all levels of government. The Committee supports the streamlining and simplification of regulatory processes where appropriate, to ensure that regulation remains fit for purpose and relevant to the contemporary economic landscape.

5.32The Committee acknowledges and supports the vital work of the Office of Impact Analysis and the Government’s renewed deregulation agenda. The Office of Impact Analysis’ program should continue to assist the development of policy to ensure it offers the greatest net benefit for Australia, while cognisant of economic and competition impacts.

5.33That the Commonwealth Government continue to advance its better regulation agenda, in conjunction with state and territory governments and other relevant stakeholders.

5.34That the Government continue to strengthen the analysis of the impact of regulation and red tape to ensure that it is fit for purpose.

5.35That the Government consider strengthening the guidelines in relation to the development of Regulatory Impact Statements (RISs) so that they more explicitly include consideration of the impact of new measures on competition and economic dynamism.

5.36That the Government strengthen RMG-128 (regulator performance) so that:

• Ministers are asked to review any Ministerial Statements of Expectations they have issued to regulators to ensure they sufficiently deal with issues relating to competition and economic dynamism.
• That best practice collaboration and engagement with stakeholders should include, where appropriate, seeking advice as to whether regulatory settings optimally manage issues relating to competition and economic dynamism.
• That agencies periodically review and report on the efficacy of regulatory sandboxes.

5.37That the Government consider the extension of the regulatory sandbox currently used by the Australian Securities and Investments Commission.

Market design

The role of traditional markets and the price mechanism

5.38In many areas of service delivery, government over recent decades has set up markets or quasi-markets. The key rationales for this have been to ensure:

• Convenience and client choice
• Competitive tension between providers
• The incentivisation of innovation.
  39. In setting up such markets, governments should be aware of the limits of different allocative mechanisms, particularly when dealing with complex services and vulnerable individuals, families and communities.
  40. In broad terms, the basic function of the market is to determine the distribution of resources—‘who gets what’. This allocation is predominantly influenced by the interplay of supply and demand, with prices acting as the principal mechanism to balance the two.
  41. The Committee recognises the efficacy of markets, particularly in the trading of goods that can be grouped together where each item in a batch is indistinguishable from the others. The Committee also believes that in a fully competitive market (which contains the broad characteristics outlined in Box 5.2 below), the price mechanism is an effective and efficient way of matching buyers with suppliers.

5.42In truly competitive markets, prices effectively convey all necessary information for economic agents to make informed decisions. When prices surpass the ‘market clearing price’, demand falls, resulting in excess supply. This drives prices down toward equilibrium. On the other hand, when prices fall below the ‘market clearing price’, demand increases and some suppliers may cut back on production or exit the market altogether, which pushes prices back up toward equilibrium.

5.43Recognising the self-regulating nature of prices, the Committee endorses the view that in competitive markets, any form of price regulation can potentially compromise efficiency.

5.44Artificially manipulating prices can cause significant market distortions. Setting prices too low leads to shortages, leading to rationing or long waits, as demand exceeds supply. Conversely, setting prices too high results in excess supply, wasting resources. Both scenarios disrupt market equilibrium, negatively impacting both consumers and producers.

Departing from traditional markets

5.45In traditional markets, the primary aim is to create private value, meaning each participant seeks personal gain. Transactions are driven by competition, with multiple buyers and sellers searching for the best deals. This competitive environment determines how goods and services are allocated and priced, based on the dynamics of supply and demand.

5.46The Committee recognises that in moving away from such conventional settings, the complexities of marketplaces become more pronounced and there may be instances of market failure.[24]

5.47The Committee acknowledges the existence of complex quasi-markets designed specifically for the delivery of social services, such as health, education and community services.

5.48For the provision of such services, the goal of transactions is to generate public value as defined by legislation and policy statements. These address specific social needs and ensure that essential services are delivered to those who need them most. The Committee heard from Treasury that in those services, ‘…the concept of consumer sovereignty has even more importance than it may in more traditional markets’,[25]and should be designed to offer clients more autonomy and agency. Additionally, as the Harper review found, equity of access, universal service provision and minimum quality standards are also important.[26]

5.49The Committee is aware that to ensure the best use of taxpayer money it is essential to strike a balance between efficiency and overarching social goals. Therefore, it concludes that a different economic architecture is often needed to ensure market participants are incentivised to prioritise public value over private gain.

5.50Price can play an allocative role in a number of these quasi-markets. Sometimes the prices charged in these markets are regulated. This can take a number of forms—e.g. a schedule of prices, price caps and other arrangements.

5.51However, in less traditional markets, the price mechanism can have limited functionality in some contexts. The desirability of using alternative allocation mechanisms from prices is worth exploring when:

Goods or services are multi-dimensional and consumers have highly diverse preferences

5.52Market mechanisms enable buyers to find products that match their needs. In commodity markets, standardised descriptions and measurement protocols allow for transactions based on descriptions without the need for pre-purchase inspection. Such products are classified as search goods.

5.53However, the Committee heard from the University of Melbourne’s Centre for Market Design (CMD) that, when it comes to the provision of human services, consumer choice is complicated by the inherent diversity of people and the complexity of attributes—such as the nature and severity of the individual's condition, geographical location, timing of service requirement, and cultural, social, linguistic, and gender considerations. Because all services need to be tailored to meet the needs of each individual, the market for delivering human services is distinctly different from, and more complex than, standard commodities.[27]

5.54Treasury highlighted the inherent complexities in the delivery of human services, attributing these challenges to this intrinsic diversity. It told the Committee that:

…In care markets, the good itself is so heterogeneous it's very hard to do comparisons across providers. Ideally, you almost want a service which is specifically tailored to the needs of the recipient for whatever circumstance they're in to make sure that their wellbeing and their life chances are as large as possible.[28]

5.55Further, Treasury advised, ‘the heterogeneity in the service provision raises real issues about how to compare among providers and make sure the best provider is allocated to the client’.[29] Each client might have a unique perspective on how to rank suppliers based on various factors, including their rapport with the supplier or specific needs and requirements.

5.56Where highly individual-specific goods and services are involved, the market may not ensure the best outcomes. The Committee is of the view that there needs to be put in place processes to elicit preferences and specific needs to enable buyers with unique requirements to find appropriate sellers (the search process), facilitate the exchange of information, and group potential trading partners into niche markets to enable negotiations.

Heterogeneous matching preferences between suppliers and consumers.

5.57The Committee recognises that commodity transactions depend on matching easily described items where it is not crucial to involve specific parties. However, this approach is ineffective for the delivery of many social services, where the challenge lies in finding the ‘best’ matches between recipients and suppliers. This is a more complex process. It is not a simple matter of matching items with similar descriptions. Rather, it involves carefully considering the unique needs and capabilities of each party.

Coordination issues that are difficult to resolve in bilateral transactions.

5.58Numerous products are bought and sold as separate items. Many others offer increased value when produced or consumed in conjunction with other items, necessitating coordination among participants or the integration of various product components.

5.59The Committee is aware that with complex, multi-dimensional goods and services, coordination can be an issue. Multiple consumers may need to be matched with each supplier and/or multiple suppliers matched with each consumer to satisfy mutual needs.

5.60The Committee posits that market mechanisms struggle in scenarios where transactions are not purely price-based but involve a mutual selection process that prioritises compatibility and preferences. This is particularly the case in 'matching markets' with varied participants and coordination challenges. In those situations, the focus is on maintaining ‘stable allocations’ because the suggested pairings may not be optimal.[30] It suggests that potential swaps among suppliers and beneficiaries could improve overall welfare in these complex markets, as illustrated in Box 5.3 below.

Thin Markets

5.61The Committee is aware that market allocations may not be optimal when participants on both sides of the market struggle to connect, or there are too few providers, for example. This results in a thin market, which can compromise efficiency and potentially hinder the overall functioning of the market. This problem is especially acute in regional areas.

5.62The Committee recognises the factors that can lead to a thin market:

• Heterogenities on both sides:

• In the context of social services and the challenges presented by the NDIS, the Centre for Market Design stated the following:

Think about a patient in northern Sunshine with a disability who needs services on Wednesday afternoon and every other week on Monday morning. It's very hard, in a decentralised market, for him to find a nurse that's going to look after him. […] If you don't have the matching algorithm or matching platform in place that allows these agents to find each other, you're just not going to have competition. There is never going to be a commodity market for nurses in north Sunshine on Friday afternoon or Wednesday afternoon from 3 to 5 pm.[31]

• Asynchronous arrival problem: where buyers and sellers do not engage in transactions simultaneously, this results in timing complexity.

• In financial markets, for example, electronic trading platforms, which facilitate transactions in milliseconds, can lead to a scarcity of buyers or sellers at any given moment. The rapid pace of trading means that at times, the necessary items for transaction might not be available, making trading risky.[32]
  63. The Committee is aware that thin markets appear to be a defining feature of markets in the care and support services, where the asynchronous arrival problem is combined with heterogeneity and matching complexities.
  64. The CMD emphasised that human service markets thin rapidly due to specific demand-side needs and diverse preferences, significantly narrowing the pool of suitable providers. This results in a wide variation of offerings, skills, location of services, times services are offered, and cultural attributes.[33]
  65. Given this evidence, the Committee concludes that failing to tackle the thin market problem can lead to several inefficient outcomes. Where price drives the market, limited compatible providers curb the competition required to ensure the efficient pricing that is essential for proper allocation. This diminishes the bargaining power of service recipients and enables suppliers to charge above-market rates. Conversely, in markets that prioritise compatibility between providers and recipients, the fewer options result in lower quality matches and poor outcomes.

Designing the rules of the market

5.66The CMD told the Committee that market design is a significant facet of economics, exploring how the architects of policy, or the so-called designers, can establish the rules of the game in prevailing markets or formulate new ones where they are non-existent, to realise commendable policy objectives. Like competition policy, market design is aimed at making markets more competitive and reducing the market power of the various economic actors, as this exertion of market power is usually harmful to society.[34]

5.67The fundamental challenge in designing these markets is to identify the specific rules and processes needed to motivate self-interested buyers (recipients of government support) and sellers (self-interested service providers) to obtain and supply care and support services in a way that implements defined public policy objectives at minimum cost.[35]

5.68Given the challenges posed by departing from traditional markets and based on the evidence presented to it, the Committee believes that market design holds significant potential to tackle a range of market failures. The Committee’s view is that policymakers and regulators can craft market rules to ensure order and fairness in economic transactions, thereby rectifying inefficiencies and imbalances in various sectors.

Fit-for-purpose solutions

5.69The Committee recognises that specific market failures demand tailored solutions over generic ones, underscoring the need for detailed analysis of each problem's economic structure and policy goals. The Committee further stresses that the failure to resolve these challenges may lead to more complex issues.

5.70For example, the Committee heard evidence about a case of trying to promote price transparency at petrol stations in Western Australia which led to unintended consequences. The CMD explained that the state government’s FuelWatch website aimed to provide consumers with price transparency at all the petrol stations and at all times of the day, enabling them to compare and make informed choices. However, this design inadvertently facilitated price coordination among petrol retailers. Consequently, market competition diminished, and petrol retailers were able to double their profit margins.[36][37]

Foundational market design principles

5.71While the Committee recognises that it is essential to tailor detailed analyses to each unique situation, economists have identified recurring market issues. These can often be resolved using foundational market design principles, which offer a framework to tackle a broad spectrum of market inefficiencies and challenges before delving into specific solutions.

i) Market Thickness

5.72Market thickness, as defined by a robust presence of both buyers and sellers, is essential for a well-functioning marketplace. A thick market offers a wide array of potential transactions, but participants need to be able to compare various offers effectively. This requires information to be presented in a clear and accessible way, to allow for easy comparison.

5.73The CMD told the Committee that ‘…thickness or competitiveness of a market is not exclusively a function of the number of agents who are active in the market, like the number of suppliers, but also a function of how these agents interact with each other on one side of the market or across the two sides of the market, and, in particular, of the aforementioned rules of the game’.[38]

5.74Additionally, the CMD explained, ‘Even where there are lots of participants, markets can still thin out and become uncompetitive because of rules and regulations about who can trade with whom’.[39] To demonstrate this point, the CMD cited a 2017 example from New South Wales (see Box 5.5 below).

…one example we have worked on with the New South Wales Government, where they created the capacity for developers to offset degradation in the ecosystem by contracting landholders to replace the vegetation that was destroyed in the development project. There are lots of developers and lots of landholders, but by the time you impose all of the rules and regulations about who can trade with whom and you consider the huge number of species that have to be considered in offsetting—by the time all of those things are put in place—markets thin out and become uncompetitive.[40]

5.75Further, the CMD continued, a well-structured market design can foster market thickness by ensuring the presence of ample actors from both sides.[41] It told the Committee that:

In the case of New South Wales, what we did was to create a search algorithm. Basically, a computer ran through all of the buyers and sellers, and had all the rules embedded in the code, and that allowed us to identify who could trade with whom.

…

The second intervention was to create a bargaining space, a central clearing house, where all of the buyers and sellers that could transact, according to the regulations, gathered in a central location. So you can thicken the market in that way and allow competition to do its thing.

…

The sorts of gains that you might get out of that in terms of value in the economy—we refer to that as economic efficiency—we've tested in the laboratory, and it sort of scales from 18 per cent, where you just allow people to go find their own counterparty and bargain, to 90-plus per cent if you do the sorts of things I've just described. There is a lot of improvement in value created by designing a market in that case.[42]

5.76The Committee has heard how modern technology offers transformative solutions for creating thick markets. Treasury explained that by using technology, the decision-making processes for both clients and providers can be significantly enhanced.[43] Providers can gain insights into optimal locations for service delivery and discern the types of services that are in high demand. Concurrently, clients benefit from real-time information on available choices and their respective advantages. This is particularly crucial as it directs clients towards choices that align best with their needs, based on the services on offer.[44]

ii) Avoiding congested markets

5.77The Committee notes that preventing congestion, caused by insufficient time or resources to assess all transactions, is crucial once market thickness is achieved. With an abundance of sellers and buyers, sifting through every option becomes a daunting task. The Committee is aware of research by US economist Professor Alvin Roth which suggests that congestion can trigger a phenomenon called unravelling, where transactions begin even before the official opening of the marketplace. Such premature dealings can cause participants to miss out on the benefits of a more robust, thick market.[45]

iii) Is it safe to participate?

5.78The economic literature shows that a well-structured market design must not only be safe but also sufficiently straightforward to encourage participation within the market. Otherwise, alternative transaction methods would be sought. Ensuring the system is both secure and accessible to all participants is key.[46] In the words of Treasury, it is critical ‘that the providers and the consumers have trust and faith that what is happening in terms of allocation is best for them’.[47] This will stop participants from engaging in costly and risky behaviour.

Endurance of market design

5.79The Committee heard from Treasury that for market design to be effective and enduring, it is essential to acknowledge the multifaceted nature of human objectives and the limitations of rational judgment. Treasury stated that it is important to incorporate market design with behavioural insights ‘because things that you might think are fantastic and will work well, from a theoretical perspective, may not work because you have humans involved in these markets’.[48] Additionally, human behaviour can deviate from that anticipated by behavioural norms.[49]

5.80Therefore, Treasury continued, ‘thoughtful, deep market design and careful experimentation are important’[50] in crafting rules that remain resilient against a spectrum of misbehaviour.[51]

5.81The Committee is aware that while certain forms of misbehaviour can be anticipated, others remain unpredictable. Therefore, thoroughly evaluating a new design is inherently an engineering task, one that needs to be rigorous to withstand laboratory stress testing when the market design is novel.[52] In the words of the Productivity Commission, ‘…We need a lot more experimentation to properly try things, gather the data, evaluate the outcomes and work out what works, and then we can roll out what works’.[53]

Implementing market design

5.82The Committee acknowledges that the implementation of market design in government and other sectors marks a pivotal shift towards systems that are both more efficient and equitable. It understands that a ‘one size fits all’ approach fails to tackle the unique challenges and market failures inherent in different contexts. The application of market design, demonstrated in scenarios as diverse as organ transplants (Roth et al. 2005)[54] to public housing allocations (Sharam et al. 2018)[55] has shown it can provide robust solutions. The aforementioned examples were successful by creating, analysing, and restructuring markets to optimise performance.

5.83The Committee recognises the transformative impact of matching markets in revolutionising the allocation of human services, where the specific pairing of parties is critical. In matching markets, where allocation is based on type and preferences rather than ability to pay, a range of human services are offered efficiently. These include organ transplants but also offers for places at schools and universities, medical internships, and public housing allocations. Each of these applications relies on a detailed understanding of participants' needs and preferences, highlighting the depth and flexibility of market design in addressing a wide array of societal needs.

The role of a market maker

5.84Successful implementation also requires a market maker. As an architect and facilitator, the market maker smooths market operations, thus ensuring optimal matches and maximising overall efficiency and fairness.

5.85The Committee is aware that the economic architecture sets the stage for interactions between buyers and sellers, often necessitating market maker interventions for optimal function. For example, in commodity markets, centralised clearing houses such as the Chicago Board of Trade manage issues such as asynchronous arrivals, while simultaneously standardising metrics and establishing intermediaries for a streamlined process. Another example is provided by firms such as Amazon and eBay, whose electronic trading platforms and reputation systems facilitate transactions.

5.86The Committee is aware that while all markets benefit from some common interventions such as regulatory oversight, others require specific solutions, particularly in matching markets where central pools of participants, acceptance protocols, and coordinated scheduling are crucial. These interventions, which are often too complex or critical to be left to the mechanism alone, necessitate a market maker to ensure diverse and efficient trading environments. Such interventions may include:

• Engagement Processes and Protocols: Pre-qualification procedures and participant training ensure smooth operations and an understanding of the market's workings.
• Standardised Contracts: Clear definitions of the goods or services being traded and the incentives for all parties involved.
• Thickening Markets: The use of interventions to gather and organise participants, manage their interactions, and implement effective transaction rules and protocols.
• Monitoring and Verification: The establishment and enforcement of standardised contracts with designed incentives and protocols, along with mechanisms to monitor and verify outcomes.
• Strategic Behaviour Management: The integrity of the mechanism is protected by embedding specific rules and processes to prevent unwanted behaviour.

Committee comment

5.87The Committee concludes from the evidence presented to it that the application of market design principles in government operations offers a promising avenue for enhancing operational efficiency and fairness. By recognising the unique attributes of government commodities, such as the need for widespread geographical coverage, market design can be tailored to accommodate these specificities, thereby ensuring that markets are not only competitive but also responsive to the diverse needs of the population.

5.88Moreover, the strategic implementation of well-structured rules can significantly reduce market power while promoting competition, which leads to more equitable outcomes for all participants. Embracing market design in government procurement policy and operations is not just beneficial but essential to modernise and optimise service delivery, ensuring that government agencies can meet their obligations effectively and efficiently.

5.89That the Government examine the potential scope for the use of market design in areas where:

• Traditional market mechanisms face challenges (e.g. price is not the best or only appropriate allocation mechanism).
• This could include situations in which there are:

• Material supplier or consumer heterogeneity issues that limit the effectiveness of the price mechanism.
• Co-ordination issues between suppliers and/or consumers.
• Thin markets.

5.90That the Government explore ways to develop and implement matching markets (or reform existing markets) where thin markets are a problem.This could include:

• Creating platforms or trading mechanisms that encourage participation form a diverse range of stakeholders where such platforms or mechanisms may not arise through other means (eg due to market failure). Where platforms or mechanisms have arisen without government prompting, to consider whether regulation is appropriate.
• Exploring the possibility of setting up physical or virtual marketplaces tailored to the needs of specific regions or communities.
• Incentivising access for all eligible individuals, irrespective of their location or background.
• Using media to contact potential participants and inform them about market opportunities.

5.91That the Government (along with market design experts), develop, undertake and evaluate a series of pilot projects to test the potential for market design to provide benefits in different areas of social service delivery. This could include:

• The delivery of complex services, particularly in outer-urban or regional and rural areas.
• The delivery of services that require considerable co-ordination between clients.

Government procurement

5.92The Committee is aware of the role of government procurement policy as a practical tool in shaping competition. Through procurement, the Federal Government consumes tens of billions of dollars’ worth of goods and services. Ensuring that companies compete on price and quality does not just enhance value for money for the taxpayer—it can also enhance competition in the markets through which government procures, thus serving as an alternative or complement to traditional regulatory mechanisms.

5.93The Committee shares the view of the University of Melbourne’s Centre for Market Design (CMD) and the National Competition Council (NCC) that some areas of procurement could benefit from a more nuanced approach. Where a one size fits all approach is adopted, it may fail to consider the unique aspects of each procurement scenario and ignore what is the ‘best procurement practice to actually get the best outcome’.[56]

5.94The Committee acknowledges that market design offers an opportunity to resolve a specific problem by allowing for the creation of procurement mechanisms that are better suited to the particular goods being acquired. CMD research has shown that procurement design opens up the prospect of harnessing competition and provides incentives that more effectively achieve cost savings for government. Accordingly, it is now possible to design fit-for-purpose mechanisms that improve procurement outcomes for government.[57]

Electronic markets for homogenous goods

5.95The Committee recognises the significant influence that tender design can have on the procurement process for homogenous goods, and how this may affect value for money. The Committee is also aware that the procurement methods employed by many governments for these goods do not always align with best practice.

5.96The use of closed tenders, or restricted tenders, means only a select group of suppliers is invited to bid.

5.97While closed tenders may have advantages where specialised expertise is required, or there are security or confidentiality concerns, the Committee heard evidence that in the supply of homogeneous goods, a closed tender can stifle competition. This is due to the limitation of participation, which may lead to a decrease in innovation and diversity of offerings, less favourable pricing and quality due to a lack of competitive pressure, and can even induce ‘collusive’ behaviour among the participants.[58]

5.98Closed tenders can often involve a select group of bidders who are familiar with each other, which creates an environment that is conducive to collusive behaviour. As Professor Plott noted, a closed tender can cause an ‘extremely thin market…with the possibility of collusion’.[59]

5.99Where there is a small number of participants, they can coordinate on bids and make agreements to divvy up contracts, which reduces competition. Companies may also collude by choosing a tender winner, on the understanding that each company will eventually get their turn in future tenders.

5.100The ACCC commented that:

…in some areas…cartel behaviour is happening through procurement processes. This is either because of the way panels are structured, so parties know who the only competitors are to supply the services or because there are elements about the necessary probity that government procurement goes through that provide greater observability to possible parties contracting with government…[60]

5.101Where bidders have incomplete information about the true value of the item or contract being bid on, closed tenders may give rise to the winner's curse problem. This occurs when the winning bidder realises they have overpaid for a contract.

5.102The Committee also heard that small tweaks in the procurement design can lead to a significant increase in competitive tension.

5.103For example, using electronic marketplaces and their digital platforms to streamline the procurement process can mitigate the constraints of closed tenders. This transformation introduces several key advantages, which may include:

• A broadening of competition and a lowering of the barriers to entry by providing an accessible platform for a diverse range of suppliers, including small to medium enterprises (SMEs). In this vein, the Victorian Chamber of Commerce and Industry (VCCI) told the Committee that in going digital:

…a business doesn't have to duplicate the system or the application process and information that's required for each department each time. That duplication issue is definitely a big issue and a big impediment to our members when they are applying for procurement processes.[61]

• Greater firm entry, which may result in more competitive pricing and better value, and enhanced innovation due to suppliers being motivated to differentiate their offerings from competitors.
• Improved market efficiency and the potential for dynamic pricing through faster and more responsive buyer-supplier matchmaking.
• More flexibility and adaptability to evolving technologies and market conditions as well as the ability to automate tasks to reduce administrative burdens and enhance overall efficiency. In relation to this, the CMD told the Committee that:

The solution to it is to migrate to electronic auctions or systems, build them once, store them as a library and reuse them for the same problem if the problem remains the same. This whole process of design, store, reuse would mean you get better value out of the design process.[62]

• Reduced red tape: CMD research has shown that electronic auctions or markets can be easily reused or adapted at a low cost for repeated or similar procurement activities and have been shown to substantially shorten the procurement life cycle.[63]
  104. Additionally, the Committee heard evidence that governments worldwide have achieved significant savings by using dynamic electronic markets. The CMD submitted that such tendering processes have achieved savings between 15 and 50 per cent. It told the Committee that:

Brazil, for example, went to Comprasnet, which is the use of auctions rather than negotiation to procure paper and, basically, commodities. […] In the UK a lot of procurement occurs in the local government area, and a lot of those have started using slightly more designed procurement processes.[64]

5.105Separately, Professor Plott advised that setting up an e-market in the tender process for petrol purchases by the State Government had delivered substantial savings for the State Government in the tendering process.[65]

5.106The Committee acknowledges that when government entities institute efficient procurement policies, competitive pricing and efficient processes lead to savings.

5.107This allows government to use that money in other critical areas, ensuring that taxpayers receive better value. The abovementioned fuel procurement process in Victoria resulted in a 100 per cent improvement in the discount of fuel purchases compared with previous procurement outcomes, according to the CMD.[66]

Procurement of professional services

5.108The Committee recognises that, in contrast to homogenous goods, professional services exhibit a greater diversity of characteristics. Such services are currently procured through the use of government panels.

5.109The Committee understands that vetting through panels introduces several efficiencies:

• The presence of experts on panels ensures a thorough examination of the issues in the decision-making process, which should mean better outcomes.
• They minimise the need to re-evaluate each company or provider for each procurement, thus reducing transaction costs.
  110. However, the Committee is also concerned that the use of panels can exclude potential service providers who might otherwise introduce competitive tension.
  111. SMEs and social enterprises, for example, may be excluded because participating in the panel procedures can be expensive and complex. The bureaucratic complexity of panel processes often favours instead larger, well-established companies that have the resources to navigate these challenges. Expanding on this point, the VCCI told the Committee that:

If we're encouraging small businesses, in particular, or anyone that hasn't engaged with government procurement at the state or Commonwealth level, there's a capability gap there...There's a language of procurement. It's a whole different world. You can be really good at your work as an employer or as a business delivering a good or service, but you might not be good at writing a tender.[67]

5.112The Committee is also aware that if vetting is done separately by each department, SMEs face a challenge as they have to apply for panels across various departments, thereby incurring substantial costs and risks. This can limit the participation of some SMEs, thus affecting the diversity and competitiveness of the market.

5.113Additionally, the Committee heard that existing procurement processes benefit incumbents. The e61 Institute told the Committee that:

…older incumbents have been increasingly likely to receive government contracts over time. There is an issue there about the extent to which our institutions and government can encourage a level playing field.[68]

5.114Ultimately, there is a trade-off between the efficiencies of vetting and the potential inefficiencies of a reduction in competitive tension.

5.115The ACCC stated that the way panels are structured has the potential to lead to collusive behaviour.

Parties know who the only competitors are to supply the services, or because there are elements about the necessary probity and process that government procurement goes through that provide greater observability to possible parties contracting with government so that it's more discoverable for them to operate in a collusive fashion.[69]

5.116The frequency with which these panels are updated or refreshed with new providers is critical to competition in procurement. Infrequent updates can result in the interim exclusion of numerous entities. The VCCI told the Committee that:

…what's decided at executive government, once it materialises and comes down through the departments and the service delivery arm, doesn't necessarily reflect what the intent was. As a consequence of that, a lot of businesses find themselves quite frustrated.[70]

5.117The Committee also shares the view put forward by Zepto Payments, that making panel entry requirements clearer and more transparent may be an effective way to reduce barriers to entry.

The requirements to get on to a panel could be made more transparent so people can meet them…maybe there’s a way to structure a panel process whereby smaller competitors can come in and give a presentation for one hour, for example, which would be a much easier way for us to do it, and showcase our product…in order to fight for that work.[71]

Small business and social procurement

5.118The Australian Bureau of Statistics defines a small business as an actively trading business with 0 to 19 employees and a medium-sized business as an actively trading business with 20 to 199 employees. Employment size ranges are based on headcount rather than a measure of full-time equivalent people.[72]

5.119Small businesses include SMEs and other types of organisations such as not-for-profits and social benefit suppliers, which are organisations and businesses whose mission is centred on a social purpose. Social benefit suppliers include social enterprises that generate employment and deliver other social outcomes.[73]

5.120The Committee heard that the current design of procurement policy, which often involves bundling goods and services or entails significant transaction costs, risks excluding many SMEs and firms that provide unique or unconventional services. This is because larger, more established firms are typically better equipped to handle such procurement structures. Aggregating services into large contracts often limits the number of firms that can realistically bid, thus reducing competition.

5.121The Committee is aware that the Victorian and Queensland Governments advocate for segmenting parts of the overall procurement package.[74] This approach is designed to enhance competition and enable a greater diversity of providers, while still ensuring value for money.

5.122Unbundling large tasks allows a wider array of firms to participate in different aspects of a project. While this may increase transaction costs, by having to run multiple procurement processes, it could enrich the competitive landscape by involving more firms. Moreover, breaking up tasks could potentially lower the barriers to social enterprises, enabling them to compete on more of a level-playing field with for-profit entities. The Victorian Department of Government Services told the Committee that unbundling:

…allows the social enterprises to win work that they otherwise would not have the capacity to do. Then, once they win that particular work, it provides an opportunity to build their capabilities to be able to tender for even bigger projects as well.[75]

Challenges and opportunities for social procurement

5.123Social enterprises are a growing segment in the Australian economy. Social enterprises exist to create a fairer, more sustainable world. They must do three things:

• Have a defined primary social, cultural or environmental purpose;
• Derive a substantial portion of their income from trade; and
• The public/community benefit must outweigh the private benefit.
  124. There are more than 12,000 social enterprises in Australia. They contribute $21.3 billion to the economy each year and account for 1 per cent of GDP. They employ more than 200,000 people; 1 in 60 jobs or 1.6 per cent of the workforce. This is about the same number of people as employed in arts and recreation services or the mining industry.
  125. The Committee recognises that social enterprises are unique in the economy, blending diversity, dynamism, and a commitment to social good. Differing from traditional businesses, they prioritise social goals, focusing on community and environmental wellbeing. This approach redefines 'value for money' to include wider social and environmental benefits.
  126. The Committee shares the view of witnesses in the social enterprise sector that the current procurement processes often place social enterprises at a disadvantage compared to the offerings from larger, more established firms. Social Enterprise Australia stated that:

The greatest barrier for social enterprises in a procurement sense is when price, not value, determines who is awarded the contract. It is very hard for social enterprises, including large ones, to tender on the basis of price when they fundamentally care about the quality and the public outcomes that their service is creating. The risk at the moment is that if it is just on price it's a race to the bottom. It's not about the specific challenges that the government and the enterprise are both trying to tackle.[76]

5.127The Victorian Department of Government Services stated that:

The value for money concept doesn't necessarily always come down to the price. There are obviously other things that we place value on such as social outcomes…[and a set of] qualities that can flow back to the community…we’ll value the social outcome and the environmental outcomes that flow to the broader community.[77]

5.128Further, the Social Enterprise Council of NSW & ACT advised that:

There is also a mindset difference…[The way] social enterprises think and work, which is relational, shared value, 'How do we all win out of this? How can this project deliver the maximum value to this community?[78]

5.129The Committee also shares the view of witnesses in the social enterprise sector that by adopting a social procurement framework that supports social enterprises, government can use its spending power to generate both social and economic outcomes, thereby creating a more inclusive and beneficial economy. The Committee heard that:

Government is already spending money, buying things, so why not spend the same amount of money but buy from organisations that are having a positive impact on people and the planet?[79]

…

Social procurement is a ready-made solution to embed social value into the economy by directing the market to compete on best value, rather than lowest cost…Social enterprise sector can partner with government to create a more dynamic economy that puts public benefit ahead of private benefit.[80]

5.130The Committee is also aware that focusing on social procurement not only yields social benefits but also offers tangible financial advantages to government. By incorporating a broader range of service providers, government enhances its service provision ecosystem.

5.131For example, the Committee heard evidence that the social enterprise sector includes thousands of firms that employ tens of thousands of people.

5.132The social procurement frameworks implemented by the State Governments in Queensland and Victoria have ensured the successful employment of thousands of vulnerable individuals and have also accomplished various environmental and social objectives. Social Traders told the Committee that:

…by 2030 social enterprise procurement will deliver 44,000 jobs for Australia's most marginalised jobseekers and in doing that it will generate savings to society of over $4 billion.[81]

5.133Regarding the financial viability of social enterprises, the Committee recognises that although they may achieve success and cash flow in a competitive commercial environment, such earnings can be cyclical and uncertain.

5.134The Committee heard that social procurement provides social enterprises with a steady and reliable cash flow, which is essential for stability and expansion. This reliable source of income, often from government contracts, allows social enterprises to plan and grow with confidence. Social Enterprise Australia told the Committee that:

Government…is a secure and reliable buyer. If a social enterprise secures a contract and is able to grow through that contract, that increases its ability to then service other businesses as well. Government contracts can also enable growth in the sector that meets the capacity to deliver services but also public outcomes more broadly.[82]

5.135In a similar vein, the Social Enterprise Network Tasmania stated that:

To have those longer-term opportunities is significant for building the sustainability of social enterprises, rather than knowing that you only have a six-month contract and wondering where you get the next lot of business.[83]

5.136The Committee shares the view of the VCCI that the financial stability of social enterprises may be complemented by capacity building. The VCCI advised that:

One of the greatest impediments to competition is businesses not feeling more encouraged to go and participate. You can look at all the other elements and all the other drivers, but it's making them feel that they have an ability to do it that isn't too cumbersome which is probably more important than anything else…You get someone from a department who helps you go through and navigate the parts you missed out on.[84]

5.137The Committee also heard that the use of advisors may be crucial in identifying potential partnerships and in guiding companies on how to initiate and conduct procurement processes, as well as how to connect with relevant social enterprises. The Victorian Department of Government Services advised that:

We work right through the procurement process. We support the evaluation often as well in those processes, and then we also are undertaking some activity with projects that are during delivery. We'll go in and have a look at what's been committed in contracts when it comes to social procurement and then how the contractors or suppliers are performing against those commitments during the life of the project.[85]

5.138The Committee believes that certification is crucial for social services because it ensures quality and facilitates social procurement.

5.139For example, organisations such as the Social Enterprise Council of New South Wales and the ACT, the Victorian Government, and Social Traders emphasised that when accreditation is rigorous and well structured, it not only validates the credibility of social services but also aids in quantifying their impact. This, in turn, can lead to more informed decision-making and resource allocation by government bodies and other stakeholders, fostering a more accountable and impactful social services sector. The Committee heard that:

…there has been a lack of shared impact measures. At the moment, anyone can pick the social impact measures or environmental impact measures that they want and say, 'Look. We protected three frog species and that was the environmental impact of this project.' We need some shared impact measures so that we're talking the same language, measuring in the same way and reporting in the same way.[86]

…

…the Victorian government is investing…to develop a measurement tool for social enterprises to be able to evaluate and make assessments in terms of their long-term outcomes. […] we embed social procurement assurance advisors within individual projects across the whole of Victorian government to ensure that the Social Procurement Framework, and as an indirect consequence of that social enterprises, are given visibility and are connected to those projects and are certainly engaged where it's fit for purpose.[87]

…

…Social Traders certification is the only way to identify a genuine social enterprise from a business that may be attempting to social wash.[88]

5.140Social Traders told the Committee that the use of aggregated contracts or ‘supporting coalitions and alliances of social enterprises’[89] can significantly streamline the procurement process, offering a strategic advantage to both the public sector and smaller suppliers, including SMEs and social enterprises.[90]

5.141The Committee also heard that consolidating requirements into larger, ‘…aggregated contracts, where there might be a lead contractor and a number of suppliers’[91] can level the playing field for social enterprise SMEs, which might otherwise find it challenging to independently bid for larger contracts. This provides these SMEs with access to opportunities that might otherwise be out of reach due to their size or resources. Aggregation may allow for:

• A diverse range of suppliers to participate, which not only introduces a variety of business models and innovative solutions but also encourages competition that can drive down costs through economies of scale. For example, the Victorian Department of Government Services told the Committee that:

…accessing diverse talent, employees, through social enterprises or through direct employment is so critical because there are skill shortages across a lot of the sectors that government procures from. Filling some of those skills gaps using social enterprises or other sources of talent that face barriers to employment is a huge benefit of social procurement...[92]

• Gaining the experience and exposure necessary for SMEs to enhance their capabilities and market presence through:
  1. Sharing of knowledge and best practices, due to the opportunity to work alongside larger contractors, which can enhance their competitiveness in future tenders.
  2. Increased flexibility due to having multiple suppliers contributes to a more adaptable and responsive procurement system, capable of meeting specific needs and adjusting to market changes.
  142. Where procurement processes establish high barriers to entry, they can exclude firms from participating, reducing competitive tension and overall economic dynamism. This can take a number of forms. Where the barriers to entry are high transaction costs (eg filling in complex forms or lengthy tender processes), this can exclude smaller firms, even though that they may be able to perform the tasks to a high standard. Where the barriers to entry take the form of inflexible panel processes (eg infrequent refreshing of panel members), young firms may find themselves excluded from bidding for work for long periods of time, particularly if they come into existence shortly after a panel is established. Where barriers to entry take the form of work packaging (eg aggregating many tasks together), the government agency might save on transaction costs by procuring multiple tasks simultaneously – but might do so at the expense of competitive tension by excluding small and medium firms who might be able to perform sub-tasks to a high standard.
  143. Finally, the Committee notes that Social Enterprise Australia proposes to create a social procurement policy that sets clear goals for purchasing from social enterprises; improves the availability of diverse funding options to help social enterprises start, expand, and flourish; and compensates social enterprises for their contributions to public or community benefits.

Committee comment

5.144The Committee recognises that adopting social procurement strategies for main contractors or subcontractors could solve the issue of scale that frequently impedes small enterprises, including cooperatives and mutuals, from competing effectively. This approach could help lower the barriers for social enterprises, allowing them to compete more fairly with for-profit entities.

5.145By integrating social procurement practices, the Government can create opportunities for these smaller or socially focused organisations to participate in the procurement process. This could involve setting aside certain contracts specifically for these types of enterprises or incorporating social value criteria into the procurement evaluation process. Such measures would not only support the growth and sustainability of small and social enterprises but would also contribute to broader social and economic objectives.

5.146In relation to the electronic market for homogenous goods, that the Government explore (and fund) pilots for the procurement of selected goods and services where there is potential for material gains in cost savings, quality or both.

5.147In relation to the procurement of goods or professional services, that the Government review the use of panels and whether there are ways to capture the efficiencies of infrequent firm vetting/contractual arrangements—versus arrangements that increase the scope for a wider range of firms to offer their services.

5.148That the Government explore ways it could adjust procurement processes to allow for greater participation by Small to Medium Enterprises (SMEs) and social enterprises. This could include adjusting the way panels are used to be less exclusionary to SMEs and social enterprises.

5.149That the Government explore ways packages of goods and services can be unbundled to allow for SMEs and social enterprises to effectively compete to provide the goods or services. In doing so, the Government should consider:

• How to optimally manage transaction costs, allowing for the possibility that unbundling increases competitive tension in some areas of service provision.
• The potential for SMEs or social enterprises to undertake parts of the work required for an overall project.

5.150That the Government develop a social enterprise accreditation scheme to facilitate its procurement of goods and services from social enterprises, drawing from the models already in operation in Victoria and Queensland.

Transparency and Government data sharing

5.151Evidence presented throughout the inquiry has reinforced to the Committee that transparency and accountability in government is foundational to public understanding of issues and to the design of sound policy responses.

5.152Government also collects and funds large amounts of data and research, which have the potential to be better used for the public good.

5.153Governments require transparency from businesses and not-for-profit organisations in many ways, including: requirements to publish annual reports; public reporting by regulators of financial metrics and disputes with consumers; and continuous reporting requirements for publicly listed companies. This transparency is an important element of good governance, consumer protection, competition and economic dynamism.

Committee comment

5.154Government is already transparent in a number of ways, including through publishing departmental and agency annual reports; holding public hearings, including appearing before parliamentary committees and Senate Estimates; operating Freedom of Information procedures; and other reporting requirements.

5.155However, the Committee believes that transparency requirements could be strengthened, in particular by publicly reporting the performance of key government agencies against a number of benchmarks.

5.156The Committee recognises the significant impact of transparency in performance metrics, particularly in enhancing customer interactions with government services. Public reporting will be important in holding organisations to account for their performance. Ensuring easy access to essential information also means citizens are better equipped to make choices that suit their needs. Additionally, the Committee acknowledges that transparency in government processes will ensure better value for money.

Transparency in government performance

5.157When government discloses performance metrics, particularly in how customers interact with government services, this can boost both dynamism and productivity, by providing better information and by incentivising improved performance. Furthermore, when citizens are well informed and can easily access relevant information, they are empowered to make choices that best suit their needs and preferences.

5.158As stated by the New South Wales Government: ‘Customers interact with government services daily and expect those services to be easy, effective and trustworthy, no matter who they are, where they are or what they need’.[93]

5.159The website of the New South Wales Government’s key delivery agency Service NSW includes a dashboard that outlines the performance of key government agencies that interact with citizens. The metrics are easily accessible and regularly updated. The dashboard focuses on three critical metrics: the ease of interacting with the services, customers’ level of satisfaction, and the degree of trust in the services’ dedication to acting in the best interests of customers. There is information on the number of calls answered, the number of visits to customer service centres, and so on. Data on a number of programs is published, including licence processing and disaster support.

5.160The Committee believes that greater transparency around these metrics in federal government services would lead to several positive outcomes.

5.161A focus on simplifying how users interact with services would facilitate a dynamic approach towards improving service delivery. It would also help cultivate a culture focused on continuous service enhancement. By ensuring that services are readily accessible, the Government could significantly reduce the time, stress, and costs associated with how the public interact with government agencies.

5.162The New South Wales Government website states that: ‘Regardless of their interaction with us, customers should experience the simplest path to get something done and clearly understand what’s needed, including the options and entitlements available to them’.[94]

5.163Drawing from this example, the Committee notes that making satisfaction reports from users publicly available would highlight the strengths and weaknesses of government services. This would lead to, and allow for, consistent adjustments and refinements in line with users’ evolving needs, thus boosting productivity and ultimately leading to increased overall satisfaction.

5.164Additionally, making publicly available how much trust users have in the service could contribute to a more general increase in public trust. When users are confident that services are tailored to their needs, and are provided in their best interests, people are more inclined to use these services.

5.165The Committee believes that regularly updating these metrics is essential to accurately track trends and make better informed decisions. Timely updates will provide a clearer understanding of the evolving landscape, enabling more responsive actions based on current data.

5.166On this point, the New South Wales Government is implementing the NSW Consumer Strategy, which focuses on placing the user at the heart of government services. ‘This approach not only enhances customer experience, saving time and effort, but also boosts employee engagement and productivity. It leads to better decision-making, budget efficiency, and overall productivity. By focusing on impactful areas and avoiding waste, this strategy enhances customer compliance, reduces costs associated with escalations, and supports the reuse of service models for a more integrated experience’.[95]

5.167The Committee emphasises the need for transparency in government services to be coupled with accountability. In this regard, useful models to draw from are:

• The Queensland Government's Performance Management Framework, which emphasises the significance of strategic planning in setting goals, consistently monitoring and measuring performance, and publicly reporting outcomes to maintain accountability within the public sector.[96]
• The Service Victoria Customer Service Standards, which include a comprehensive complaint handling policy that transparently outlines the steps that will be taken in the event of any issues or service failures.[97]
  168. The Committee is also aware that the Victorian Government, through its Service Victoria initiative, has significantly streamlined and expedited the process of conducting online state government transactions. The Victorian Government states that this ‘initiative not only simplifies the procedure for users but also ensures the protection and security of their personal information’.[98]
  169. The Committee, based on the evidence presented to it and drawing from examples across jurisdictions, believes that the development of a government service dashboard aligns with modern best practice in public service delivery. The service dashboard will enhance service transparency, improving user satisfaction and promoting efficient public service delivery. The Committee further believes that the creation of a service dashboard will generate a more responsive consumer-centric public service framework.

Transparency in Government Data

5.170Government collects and funds large amounts of data and research. There are significant opportunities for government funded data and research to be better leveraged for the public good by not-for-profits and business. The Productivity Commission noted these opportunities in their report “Advancing Prosperity” and identified a number of recommendations in this area including Recommendation 4.3 Private Sector access to government data, Recommendation 4.4 Sharing data from government-funded services, Recommendation 5.5 Using government-held data for benchmarking purposes. This use of data should be undertaken subject to suitable privacy and public good limitations, including that the data not be used inappropriately for commercial gain.

5.171That the Government continue to develop and advance its digital strategy, particularly in areas where it can enhance client outcomes.

5.172That the Government develop a dashboard that outlines in an accessible way key performance indicators. This could be started with pilots by Services Australia and the Australian Securities and Investments Commission.

5.173That the Government actively develops greater opportunities to appropriately share or use government funded data and research, in ways that create public benefit, but also preserve privacy.

Footnotes

[1]In 2022-23 there were 83,625 Commonwealth contracts published on AusTender with a combined value of $74.8 billion. However, it is important to note that the contract values on AusTender represent the total maximum value of each contract over its life, including where contracts span multiple years. AusTender datadoes notreflect annual expenditure. In July 2022, the Finance Minister, Senator the Hon Katy Gallagher, said that the Commonwealth spends approximately $70 billion a year on contracts. See Department of Finance, Statistics on Australian Government Procurement Contracts, www.finance.gov.au/government/procurement/statistics-australian-government-procurement-contracts, viewed 12 February 2024; Senator the Hon Katy Gallagher, Minister for Finance, and the Hon Julie Collins MP, Minister for Small Business, ‘A Better Deal for Australian Businesses Under Commonwealth Contracts’, Media Release, 1 July 2022.

[2]Office of Impact Analysis ‘Former Australian Government Guide to Regulatory Impact Analysis, Second Edition’, 2020, p. 10, oia.pmc.gov.au/sites/default/files/2021-06/australian-government-guide-to-regulatory-impact-analysis.pdf, viewed 17 February 2024.

[3]Office of Impact Analysis, ‘Australian Government Guide to Policy Impact Analysis’, 17 February 2023, p. 57, oia.pmc.gov.au/resources/guidance-impact-analysis/australian-government-guide-policy-impact-analysis.

[4]Productivity Commission, ‘Advancing Prosperity: 5-year Productivity Inquiry report: Volume 3’, 17 March 2023,p. xi, www.pc.gov.au/inquiries/completed/productivity/report.

[5]For examples, see: Accord Australasia Limited (Submission 16), Business Council of Co-operatives and Mutuals (Submission 4), Private Healthcare Australia (Submission 10), Marriot Support Services (Submission 58), GrainGrowers Limited (Submission 14), NSW Farmers (Submission 15).

[6]Business Council of Australia, Submission 3, p. 14.

[7]Business Council of Australia, Submission 3, p. 14.

[8]Victorian Chamber of Commerce and Industry, Submission 40, p. 4.

[9]Institute of Public Affairs, Submission 7, p. 2.

[10]Mr Saxon Davidson, Research Fellow, Institute of Public Affairs, Committee Hansard, 2 May 2023, p. 26.

[11]Mr Michael Brennan, Chair, Productivity Commission, Committee Hansard, 16 March 2023, p. 11.

[12]Mr Alexander Robson, Deputy Chair, Productivity Commission, Committee Hansard, 16 March 2023, p. 11.

[13]Mr Daniel Wild, Deputy Executive Director, Institute of Public Affairs, Committee Hansard, 2 May 2023, p. 27.

[14]Institute of Public Affairs, Submission 7, p. 5.

[15]Victorian Chamber of Commerce and Industry, Submission 40, p. 5.

[16]Mr Alexander Robson, Deputy Chair, Productivity Commission, Committee Hansard, 15 September 2023, p. 62.

[17]Joint Committee on Trade and Investment Growth, Australia's trade and investment opportunities in a global green economy, Committee Hansard, 17 March 2023.

[18]How can Germany achieve its plan to build LNG terminals quickly? Hillemann, D 2022 https://www.fieldfisher.com/en/insights/how-can-germany-build-lng-terminals-quickly; Germany will reduce the authorization procedures for new LNG terminals Energynomics 2022 https://www.energynomics.ro/en/germany-will-reduce-the-authorization-procedures-for-new-lng-terminals/

[19]These provisions can be found in the Act on the Prevention of Harmful Effects on the Environment Caused by Air Pollution, Noise, Vibration and Similar Phenomena (Federal Immission Control Act - BImSchG)

[20]Office of Impact Analysis ‘Former Australian Government Guide to Regulatory Impact Analysis, Second Edition’, 2020, p. 9, oia.pmc.gov.au/sites/default/files/2021-06/australian-government-guide-to-regulatory-impact-analysis.pdf, viewed 17 February 2024.

[21]Office of Impact Analysis, Regulatory Impact Analysis Guide for Ministers’ Meetings and National Standard Setting Bodies, 18 January 2024, oia.pmc.gov.au/resources/guidance-impact-analysis/regulatory-impact-analysis-guide-ministers-meetings-and-national, viewed 17 February 2024.

[22]Department of Finance, Regulator Performance (RMG 128), www.finance.gov.au/government/managing-commonwealth-resources/regulator-performance-rmg-128, viewed 24 February 2024.

[23]Office of Impact Analysis, Regulatory Impact Analysis Guide for Ministers’ Meetings and National Standard Setting Bodies, 18 January 2024.

[24]A Roth, ‘Marketplaces, Markets, and Market Design’, American Economic Review, 108/7 (2018), pages 1609–1658.

[25]Mr Jason McDonald, Division Head, Competition Taskforce Division, Treasury, Committee Hansard, 15 September 2023, p. 30.

[26]Professor Ian Harper, Mr Peter Anderson, Ms Su McCluskey, Mr Michael O’Bryan QC, ‘Competition Policy Review – Final Report, Part 2: Findings and Recommendations’, 31 March 2015, p. 35, treasury.gov.au/publication/p2015-cpr-final-report.

[27]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 25.

[28]Mr Jason McDonald, Division Head, Competition Taskforce Division, Committee Hansard, 15 September 2023, p. 31.

[29]Mr Jason McDonald, Division Head, Competition Taskforce Division, Committee Hansard, 15 September 2023, p. 31.

[30]Economic Sciences Prize Committee of the Royal Swedish Academy of Sciences, ‘Stable Allocations and the Practice of Market Design’, 15 October 2012, www.nobelprize.org/uploads/2018/06/advanced-economicsciences2012.pdf, viewed 27 February 2024.

[31]Professor Simon Loertscher, Director, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 24.

[32]G Haeringer, Market Design: Actions and Matching, The MIT Press, 2018.

[33]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 23.

[34]Professor Simon Loertscher, Director, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 22.

[35]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, p. 23.

[36]Professor David Byrne, Director, Capability Building, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 22

[37]D Byrne and N de Roos, ‘Learning to Coordinate: A Study in Retail Gasoline’, American Economic Review. 109/2 (2019), pages 591–619.

[38]Professor Simon Loertscher, Director, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 22.

[39]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 23.

[40]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 23.

[41]In commodity markets, congestion is effectively eliminated through pricing. A price conveys all the necessary information that sellers and buyers need to make informed decisions.

[42]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 23.

[43]Mr Jason McDonald, Division Head, Competition Taskforce Division, Treasury Committee Hansard, 15 September 2023, p. 31.

[44]Mr Jason McDonald, Division Head, Competition Taskforce Division, Treasury Committee Hansard, 15 September 2023, p. 31.

[45]A Roth, ‘Marketplaces, Markets and Market Design’, American Economic Review, 108/7 (2018), pages 1609–1658.

[46]G Haeringer, Market Design: Actions and Matching, The MIT Press, 2018.

[47]Mr Jason McDonald, Division Head, Competition Taskforce Division, Treasury, Committee Hansard, 15 September 2023, p. 30

[48]Mr Marcus Bezzi, Chief Adviser, Competition Taskforce Division, Treasury, Committee Hansard, 15 September 2023, p. 30.

[49]A Tversky and D Kahneman, ‘The belief in the law of small numbers’, Psychological Bulletin, 76 (1971), pages 105–110.

[50]Mr Marcus Bezzi, Chief Adviser, Competition Taskforce Division, Treasury, Committee Hansard, 15 September 2023, p. 30.

[51]G Bolton, ‘Not up to Standard: Stress Testing Market Designs for Misbehavior’ in N Vulkan, A Roth and Z Neeman, eds, The Handbook of Market Design, Oxford University Press, 2013, pages 51–61.

[52]Considering the challenges associated with predicting human (mis)behaviour, it may be prudent to test a new market design in phases. This could begin with a lab setting, which is less costly and poses minimal risk, followed by small-scale field tests that are more expensive and carry somewhat higher risk. Finally, the design could advance to broad implementation, which is the most costly stage and poses significant risks (see G Bolton, ‘Not up to Standard: Stress Testing Market Designs for Misbehavior’ in N Vulkan, A Roth and Z Neeman, eds, The Handbook of Market Design, Oxford University Press, 2013, pages 51–61).

[53]Dr Stephen King, Commissioner, Productivity Commission, Committee Hansard, 15 September 2023, p. 69.

[54]A Roth, T Sönmez and U Ünver, ‘A Kidney Exchange Clearinghouse in New England’, American Economic Review, 95/2 (2005), pages 376–380.

[55]A Sharam et al, ‘Matching markets in housing and housing assistance’, Australian Housing and Urban Research Institute Limited, AHURI Final Report No. 307 (2018), www.ahuri.edu.au/research/final-reports/307.

[56]Mr Martin Wallace, Councillor, National Competition Council, Committee Hansard, 15 September 2023, p. 15.

[57]The University of Melbourne, Centre for Market Design, ‘Procurement Case Studies: Victoria’, pages 5–7.

[58]Professor Simon Loertscher, Director, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 23.

[59]Dr Charles Plott, Private capacity, Committee Hansard, 18 May 2023, p. 11.

[60]Ms Gina Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 17 March 2023, p. 12.

[61]Ms Sonja Rose, Principal Policy Adviser, Policy and Advocacy, Victorian Chamber of Commerce and Industry, Committee Hansard, 4 July 2023, p. 32.

[62]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 26.

[63]The University of Melbourne, Centre for Market Design, ‘Procurement Case Studies: Victoria’, p. 8.

[64]Mr Gary Stoneham, Director, Policy Projects, Centre for Market Design, University of Melbourne, Committee Hansard, 18 May 2023, p. 26.

[65]Dr Charles Plott, Private capacity, Committee Hansard, 18 May 2023, p. 13.

[66]The University of Melbourne, Centre for Market Design, ‘Procurement Case Studies: Victoria’, p. 16.

[67]Ms Sonja Rose, Principal Policy Adviser, Policy and Advocacy, Victorian Chamber of Commerce and Industry, Committee Hansard, 4 July 2023, p. 32.

[68]Mr Dan Andrews, Research Director and Head of Policy Engagement, e61 Institute, Committee Hansard, 2 May 2023, p. 4.

[69]Ms Gina, Cass-Gottlieb, Chair, Australian Competition and Consumer Commission, Committee Hansard, 17 March 2023, p. 12.

[70]Mr Dylan Broomfield, General Manager, Policy and Advocacy, Victorian Chamber of Commerce and Industry, Committee Hansard, 4 July 2023, p. 32.

[71]Mr Gabe Perrottet, Senior Legal Counsel, Public Policy and Regulation, Zepto Payments, Committee Hansard, 3 May 2023, pages 9–10..

[72]Australian Bureau of Statistics, Small Business in Australia, www.abs.gov.au/ausstats/abs@.nsf/DOSSbyTopic/297DB51F08B97920CA256BD000281897?OpenDocument, viewed 24 February 2024.

[73]Victorian Government, Improving access to government business for SMEs – goods and services procurement guide, www.buyingfor.vic.gov.au/improving-access-government-business-small-and-medium-enterprises-goods-and-services-procurement, viewed 24 February 2024.

[74]Ms Sharon Bailey, Deputy Director-General, Queensland Government Procurement, Department of Energy and Public Works, Committee Hansard, 30 June 2023, pages 38–39. Dr Vasko Nastevski, Director, Procurement Assurance, Department of Government Services, Victoria Committee Hansard, 26 July 2023, p. 20.

[75]Dr Vasko Nastevski, Director, Procurement Assurance, Department of Government Services, Victoria Committee Hansard, 26 July 2023, p. 20.

[76]Ms Jess Moore, Chief Executive Officer, Social Enterprise Australia, Committee Hansard, 5 July 2023, pages 16–17.

[77]Dr Vasko Nastevski, Director, Procurement Assurance, Department of Government Services, Victoria, Committee Hansard, 26 July 2023, p. 20.

[78]Ms Kylie Flament, Chief Executive Officer, Social Enterprise Council of NSW & ACT, Committee Hansard, 5 July 2023, p. 7.

[79]Ms Kylie Flament, Chief Executive Officer, Social Enterprise Council of NSW & ACT, Committee Hansard, 5 July 2023, p. 4.

[80]Ms Tara Anderson, Chief Executive Officer, Social Traders, Committee Hansard, 5 July 2023, p. 13.

[81]Ms Tara Anderson, Chief Executive Officer, Social Traders, Committee Hansard, 5 July 2023, p. 13.

[82]Ms Jess Moore, Chief Executive Officer, Social Enterprise Australia, Committee Hansard, 5 July 2023, p. 18.

[83]Mr Paul Quilliam, Managing Director, Social Enterprise Network Tasmania, Committee Hansard, 5 July 2023, p. 5.

[84]Mr Dylan Broomfield, General Manager, Policy and Advocacy, Victorian Chamber of Commerce and Industry, Committee Hansard, 4 July 2023, p. 34.

[85]Ms Sam Edmonds, Manager, Social Procurement Assurance, Department of Government Services, Victoria, Committee Hansard, 26 July 2023, p. 19.

[86]Ms Kylie Flament, Chief Executive Officer, Social Enterprise Council of NSW & ACT, Committee Hansard, 5 July 2023, p. 11.

[87]Dr Vasko Nastevski, Director, Procurement Assurance, Department of Government Services, Victoria, Committee Hansard, 26 July 2023, p. 18.

[88]Ms Tara Anderson, Chief Executive Officer, Social Traders, Committee Hansard, 5 July 2023, p. 13.

[89]Ms Tara Anderson, Chief Executive Officer, Social Traders, Committee Hansard, 5 July 2023, p.16.

[90]Aggregated contracts refer to a procurement strategy where a government consolidates its requirements and procures goods or services in a collective manner. Instead of issuing multiple separate contracts, the government aggregates or bundles the contracts, appointing a lead contractor who further collaborates with multiple suppliers, including SMEs and social enterprises.

[91]Ms Jess Moore, Chief Executive Officer, Social Enterprise Australia, Committee Hansard, 5 July 2023, p. 21

[92]Ms Sam Edmonds, Manager, Social Procurement Assurance, Department of Government Services, Victoria, Committee Hansard, 26 July 2023, p. 21.

[93]NSW Government, Key metrics, www.nsw.gov.au/nsw-government/state-of-customer/key-metrics, viewed 13 February 2024.

[94]NSW Government, Key metrics, www.nsw.gov.au/nsw-government/state-of-customer/key-metrics, viewed 13 February 2024.

[95]NSW Government, Customer Commitments, www.nsw.gov.au/nsw-government/projects-and-initiatives/towards-a-customer-centric-government#toc-why-customer-centricity-is-important, viewed 13 February 2024.

[96]Queensland Government, Managing government performance, www.qld.gov.au/about/how-government-works/managing-government-performance, viewed 13 February 2024.

[97]Service Victoria, Customer Service Standards, service.vic.gov.au/about-us/service-victoria-customer-service-standards, viewed 13 February 2024.

[98]Service Victoria, Customer Service Standards, service.vic.gov.au/about-us/service-victoria-customer-service-standards, viewed 13 February 2024.