Chapter 2


Chapter 2

Issues

2.1        Submissions to the inquiry focussed broadly on the potential for the bills to impact on costs to industry, as well as consequential effects on price, competition and choice for consumers. A number of submitters focussed on the effectiveness of the WELS scheme in general, rather than on the specific provisions contained in the bills before the committee.

2.2        These included the Master Plumbers Australia, as well as the Master Plumbers Association of Queensland.  These bodies did not make specific comment on the bills, but expressed in-principle support for the objectives of the Act. They expressed frustration at what they saw as the Act's failure to achieve its stated objectives due to a number of factors, including the relationship between WELS and other schemes, codes and bodies, and a lack of general awareness and understanding of WELS in the plumbing profession and the general community.[1]

2.3        This view was broadly supported by Mr Keith Burbridge, who submitted that:

Since the introduction of WELS to the Water use in the Australian market several issues have become clear, and need to be addressed along with the very obvious point of why WELS was formed and what purpose and function it was meant to have and was that intention/purpose achieved.[2]

2.4        Mr Burbridge went on to cite the certification of 'testing approval bodies', and the costs associated with compliance, as a major impost on industry, especially smaller players. Mr Philip Doust also took issue with increased compliance costs.[3]

2.5        Conversely, other submitters considered that the scheme has been a success:

[The Australian Water Association (AWA)] recognises the significant contribution that the WELS Scheme has made in achieving the stated objectives since its establishment in 2005. The scheme was a key/valuable part of the success of the government funded rebates during the Millennium drought. The WELS scheme continues to be relevant and important, even though the rebates have been wound back. The Productivity Commission recognised the schemes characteristics of a public good in its 2011 report on Australia’s Urban water Sector stating that: 'The WELS scheme has been successful at providing the public with an objective set of information with which to make informed decisions, and should continue.'[4]

2.6        While supporting the stated intention of the bills to recover 80 per cent of the WELS costs, the AWA expressed concern that the fee structure may generate a higher proportion of the overall administration costs than envisaged, and that:

...an unintended consequence of setting a registration fee too high and creating a barrier, may be inflated product costs as manufacturers pass on the fees. This, in turn could lead to reduced competition and less consumer choice...AWA recommends that a review of the impact of the revised fee structure be conducted to ensure that any unintended consequences are taken into consideration, protecting the interests of manufacturers, suppliers/distributers and consumers.[5]

2.7        In a similar vein, the Plumbing Products Industry Group was supportive of the WELS scheme but expressed concern that the bills would allow the Minister to set the cost recovery percentage in the future 'without reference to either Parliament or Industry', and that:

The Explanatory Memorandum indicates the current intended position is 80%, but there are no safeguards to require agreement before changing this position. [We have] a number of...concerns relating to changes being imposed on industry without the WELS personnel being cognisant of the impact of the changes or understanding the industry with enough depth to see implications which would arise from their independent decisions.[6]

2.8        the Australian Industry Group (Ai Group) was not supportive of the bills, arguing that:

Imposition on manufacturers and suppliers of regulated equipment of increased costs in the form of higher registration fees will necessarily result in these costs being passed through to purchasers of regulated equipment via increased equipment costs. At the margins, some consumers will be deterred from or delay purchasing new equipment because of the higher costs. New equipment will tend to be more efficient, in part because of the requirements imposed by the WELS Scheme. Because of this marginal effect, there will be an impact on efficiency, even though purchasers of new equipment enjoy the direct benefits of efficiency. Manufacturers and suppliers may also be deterred from introducing new, more efficient equipment due to the increased costs of bringing such products to market.[7]

2.9        Rather, the Ai Group called for the administration costs to be recovered, at least partly, from water utilities, on the basis that:

If the Scheme administration costs were to be partly recovered from water utilities, those costs would be passed on to all water users (including broader industry). Less cost to bring products to market will broaden access to newer, more efficient equipment. Ai Group further notes that water utilities and their customers are a major beneficiary from the WELS Scheme, given that utility infrastructure costs will be permanently offset by reduced consumption due to enhanced water efficiency, and these savings will benefit all water users within the utility area of service. Ai Group contends that passing WELS Scheme administration costs to water users more generally would align costs with these broader benefits and avoid a disincentive for the use of newer, more efficient products.[8]

2.10      Ai Group also argued that the Explanatory Memoranda disclose a misunderstanding of the real costs of the WELS scheme, and that:

Ai Group research conducted amongst member businesses has identified that industry currently pays a much higher percentage of the entire Scheme costs than 80 per cent by virtue of the fact that the costing of the Scheme does not factor in the full costs impact on industry of involvement in the WELS Scheme. The costs to industry of involvement in the scheme are estimated at in excess of $7 million per year. This can be broken down into tasks per product:

  • product design and in-house manufacturer testing (engineering specification to WELS requirements);
  • testing (administration and laboratory testing time, checking test reports. A shower test is around $2000 and mixer around $1000 );
  • quality assurance (ongoing production sample in-house testing);
  • marketing resources (catalogue and price list information, label printing and application);
  • product registration onto the WELS database; and
  • sales team market surveillance to determine if 'run-out' products are still in the market in order to maintain, yet minimise registrations.[9]

2.11      While supportive of the WELS scheme, the Water Services Association of Australia (WSAA) would prefer that it be fully government funded, submitting that:

WSAA advises that the impacts on customers through implementation of these Bills could include limited competition and less choice for customers if the fees prove prohibitive for smaller manufacturers [and/or] higher prices for water efficient appliances if manufacturers choose to ‘pass through’ costs to consumers.[10]

2.12      However, the WSAA also submitted that:

WSAA understands that upon reading the two Bills this is purely an administrative process to confirm arrangements following a Determination made on the 15 January 2013 (the WELS Determination) to adjust the registration fees so that 80% of the cost of administering the WELS Scheme is recovered from product registration fees...which WSAA and its members had the opportunity to contribute to through public consultation sessions and providing advice to the National WELS Advisory Group.

Conclusion

2.13      While not strictly a matter for this inquiry, the committee notes that most submitters consider the WELS scheme to be well conceived, and on the whole, successful. Where concerns have been raised about duplication of testing and certification processes, the committee would hope that they are taken into account by the Government in assessing and adjusting the scheme going forward.

2.14      More directly relevant for this inquiry are concerns about increased compliance costs, and the potential for the Minister to increase the proportion of costs that are met by industry.

2.15      In relation to the decision to recover 80 per cent of costs, the committee notes the Department's evidence that it undertook a substantial program of consultations as part of the review process and subsequently, including consulting on implementation options. The committee was informed that, in response to a January discussion paper released by the Department in early 2012, 119 submissions were received from manufacturers, retailers, industry and consumer groups, and that forums were held in Melbourne, Sydney and Brisbane.[11] The committee is satisfied that, while not all stakeholders may agree with the decision to move to 80 per cent cost recovery, adequate consultation about the change did occur.

2.16      In relation to concerns about changes to the level of cost recovery in the future, the committee notes that the bill requires the Minister to supply a draft of any amending instrument to each participating state and territory before any change can take place.[12] 

Recommendation

2.17      The committee recommends that the Senate pass the bills.

 

Senator Doug Cameron
Chair

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