Scrutiny of Acts and Regulations Committee

Regulations just like Acts of Parliament regulate, control and prohibit the conduct of citizens. While regulations are sometimes perceived to be of lesser importance than Acts of Parliament, regulations may adversely effect the rights and liberties of citizens in much the same way as Acts of Parliament. The potential for abuse of the regulation-making power and erosion of citizens’ rights always exists.

One of the most important safeguards against misuse of Executive power is the use of Parliamentary scrutiny committees with power to examine regulations made by the Executive. Since the 1930’s Westminster style Parliaments have retained control over regulations through the use of specialist scrutiny committees. Scrutiny committees exist in all Australian states and territories. Some of these scrutiny committees examine bills and regulations, while others examine only regulations. These Parliamentary committees are described by Professor Dennis Pearce and Mr Stephen Argument "as the most important bulwark against the abuse of executive power".²   This Discussion Paper focuses solely on the scrutiny of regulations and the functions performed by Victoria's Regulation Review Subcommittee.

The scrutiny of regulations has been entrenched in Victoria for some time with the first committee to scrutinise regulations being created in 1956 by the Subordinate Legislation Subcommittee Act 1956. From 1982 to 1992 the Legal and Constitutional Committee was responsible for scrutinising regulations. In 1992, the Scrutiny of Acts and Regulation Committee was created by the Parliamentary Committees (Amendment) Act 1992 and it took over the scrutiny of regulations. As mentioned above, the Regulation Review Subcommittee (the Subcommittee), a Subcommittee of SARC, currently has responsibility for examining all regulations made in Victoria. (It should be noted that this Subcommittee was previously referred to as the Subordinate Legislation Subcommittee.)

What is the role of the Regulation Review Subcommittee?

The major scrutiny functions of the Subcommittee are contained in the Subordinate Legislation Act 1994. The Subcommittee carefully checks the regulations against the heads of review contained in section 21 of the Subordinate Legislation Act 1994 to ensure that they do not unduly trespass on the rights and freedoms of citizens. The Subcommittee also ensures that there has been compliance with the practical and procedural requirements of the Subordinate Legislation Act 1994 for example, that the regulations do not exceed the regulation-making power conferred by the relevant Act of Parliament. The Subcommittee does not examine matters of policy as these are strictly matters for the Parliament to debate and determine. Where there is non-compliance with the practical requirements of the Subordinate Legislation Act 1994 or the principles contained in section 21, the Committee may report to Parliament and recommend that the regulations be disallowed in whole or in part.

What Limitations are there on the Subcommittee's Role?

The Subcommittee is only empowered to examine those regulations which come within the definition of ‘statutory rule’ as contained in section 3 of the Subordinate Legislation Act 1994. That definition empowers the Subcommittee to examine:

• regulations made by or made with the consent of the Governor-in-Council but excluding regulations made by local authorities;

• rules concerning the procedure, practice or costs of courts or tribunals; and

• instruments either prescribed to be statutory rules under the Subordinate Legislation Act 1994 or deemed to be statutory rules by their own authorising Act.

The Subcommittee also has responsibility for reviewing Directions made under the Public Sector Management and Employment Act 1998 and State Environment Protection Policies.

Regulations in the form of ‘statutory rules’ constitute only a small portion of the continually growing number of different types of regulations made each year. This means that those types of regulations which fall outside the definition of ‘statutory rules’ also fall outside scrutiny by the Subcommittee and any form of Parliamentary examination or review. This leaves the way open for the Executive to ‘deliberately’ avoid the requirements of the Subordinate Legislation Act 1994 and Parliamentary scrutiny.

In addition, these types of regulations may be difficult for members of the public to find out about. Regulations which come within the definition of ‘statutory rules’ must comply with the requirements of the Subordinate Legislation Act 1994 which means that copies must be available for purchase from the Government Bookshop and copies must be available for inspection at the relevant Government Department. However regulations outside the definition of ‘statutory rules’ are not subject to these requirements and are often found only in the Victorian Government Gazette. In 1989 the Legal and Constitutional Committee remarked that publication in the Victorian Government Gazette was "not a satisfactory means of making significant laws available to the public".^[3]

Some examples of regulations falling outside scrutiny by the Subcommittee and outside the requirements of the Subordinate Legislation Act 1994 include:

• Fees payable to the Optometrists Registration Board of Victoria under the Optometrists Registration Act 1996;

• Guidelines concerning fees payable to the Building Practitioners Board under the Building Act 1993;

• Declarations of classes of food premises and food vehicles under the Food Act 1984;

• All council by-laws under the Local Government Act 1989;

• Murray Valley Wine Grape Industry Development Order (Victoria) under the Agricultural Industry Development Act 1990;

• Order declaring certain programs to be a declared training program under the Accident Compensation Act 1985.

The only recourse open to an aggrieved member of the public is to challenge such a regulation by using the court system and this may be costly. It has been noted by Professor Pearce and Mr S Argument that one weakness with the Victorian scrutiny system "is that the whole system operates around the definition of ‘statutory rule’ contained in the Subordinate Legislation Act". ⁴

Possible Options for Reform

One option is to broaden the definition of ‘statutory rule’, subjecting many different types of regulations to scrutiny by the Subcommittee and the requirements of the Subordinate Legislation Act 1994. A similar proposal was considered by the Legal and Constitutional Committee in 1989, in the context of the Subordinate Legislation Act 1962, but rejected on the basis that it "would considerably expand the Committee’s workload, thus putting strain on its resources".⁵

Another option may be to ensure that at the very minimum all types of regulations are subject to some sort of Code, Guidelines or some formal requirements. In 1983, SARC recommended that it be given the power to declare different types of regulations to be subject to scrutiny and for this to be reinforced by the ability to amend Acts allowing for different types of regulations, where it was clear that the only reason for the different form of regulation was to avoid the application of the Subordinate Legislation Act 1962.⁶

Another approach is that taken by the Commonwealth in the Legislative Instruments Bill 1994. This Bill has still not been enacted and has been subject to debate and amendment. As it now stands, the Commonwealth Legislative Instruments Bill (No. 2) 1996 applies to all instruments of "a legislative character". "Legislative character" is defined in the Bill to include an instrument which determines or alters the content of the law, rather than applying the law and which has the direct or indirect effect of affecting a privilege or interest, imposing an obligation, creating a right, or varying or removing an obligation or right.⁷   As noted by Professor Pearce and Mr S Argument this definition would make various types of regulations "subject to an ordered and stringent regime in relation to drafting, publication, registration, parliamentary scrutiny and, in some cases public consultation".⁸ In addition this Bill envisages the establishment of an Instruments Register requiring all regulations to be registered. Members of the public would be able to access this register by using a computer.

How should the public be informed of proposed regulations?

The Commonwealth Regulation Reform Unit, which is part of the Office of Small Business, is in the process of introducing an annual regulatory plan which will be available on their website. This plan will provide details of all regulatory activities undertaken during the last 12 months and all regulatory proposals foreshadowed in the coming 12 months. Under the plan, departments and agencies will be compelled to provide information on forthcoming regulatory proposals and will also be required to update the plan as the year proceeds.

In Victoria there is no Instruments Register, however, the Office of Regulation Reform, which is part of the Department of State and Regional Development, publishes the Victorian Regulation Alert. This publication contains details of all regulations which are due to sunset (due to the expiration of ten years) and also proposals for new regulations where the relevant Department chooses to notify the Office of Regulation Reform. This is one way that members of the public can inform themselves of some of the new regulatory proposals. It should be noted that the Victorian Regulation Alert does not contain a comprehensive guide to all new regulatory proposals because there is no compulsion upon Government departments to notify the Office of Regulation Reform of new regulations.

In addition to the Victorian Regulation Alert, any department or agency proposing a new regulation has complete discretion as to how it chooses to notify interested stakeholders and the public generally. Section 6 of the Subordinate Legislation Act 1994 requires a Minister to certify, where required to do so by the Premier’s Guidelines, that adequate consultation has occurred. In addition where a regulation requires the preparation of a regulation impact statement, section 11 requires a Minister to ensure that members of the public are notified of the regulation impact statement and draft regulation and are given adequate opportunity to comment.

The Subcommittee has no ability to recommend that a regulation be revoked if the formal procedural requirements are met and the regulations are otherwise in compliance with the Subordinate Legislation Act 1994. The Subcommittee has been concerned in the past that the Subordinate Legislation Act 1994 does not give adequate guidance to departments and agencies as to the form or extent of notification and consultation they should undertake. The issue of consultation is discussed in more detail below under Premier's Guidelines.

Regulation Impact Statements

Section 7 of the Subordinate Legislation Act 1994 requires a regulation impact statement (RIS) to be prepared for all regulations unless the responsible Minister issues an exception⁹ or exemption¹⁰ certificate. The requirement for departments and agencies to produce a RIS was first introduced by the Subordinate Legislation (Review and Revocation) Act 1984.

A RIS is an assessment of the economic and social costs and benefits of a proposed regulation. It is not supposed to be complex but "a commonsense document which provides an honest assessment of the foreseeable impact of a proposed regulation".¹¹ A RIS does not need to "sell" a proposed regulation but it does need to provide a clear explanation of the reasons for the regulatory change. A RIS should carefully consider and evaluate the impact of a proposed regulation on those affected and the competing interests involved. It should also contain an evaluation of alternatives to a proposed regulation and the reasons for the rejection of those alternatives. A person reading a RIS should be able to conclude that the proposed regulatory change is justified and that the benefits of the particular regulation outweigh the potential costs which may be imposed on the community. Of course there will be some circumstances where the costs outweigh the benefits, however the RIS should demonstrate that despite these costs, there is a clear need for the particular regulation. The Office of Regulation Reform summed up the RIS process in the following terms:

For a regulation to represent the "most efficient" solution to an identified problem it must not only be shown to be likely to yield benefits greater than the costs it imposes but also to yield greater nett benefits (ie benefits less costs) than any of the feasible alternative approaches. It is for this reason that the RIS must include cost/benefit analysis of not only the proposed regulation but of all of the identified alternatives.¹²

Community consultation

The RIS process also includes a requirement that the proposed regulation and the RIS be publicised in the Victorian Government Gazette and a daily newspaper circulating generally throughout Victoria.¹³   Those affected by the regulatory proposal are then given an opportunity to comment to the Government Department or agency responsible for formulating the regulation. Section 11(2) of the Subordinate Legislation Act 1994 requires that people be given at least 28 days within which to make their comments. The responsible Minister must then ensure that all comments are carefully reviewed and that copies of these submissions are provided to the Regulation Review Subcommittee.¹⁴   The requirement for public consultation is an essential feature of the RIS process. Its aim is to allow public participation in the regulatory process and to promote openness and accountability in the making of regulations.

In the Subcommittee's experience, stakeholders affected by a proposed regulation are not always aware of the RIS process by reason of newspaper advertising. There is no compulsion for a department or agency to write to all affected stakeholders. If a minister certifies that there was "adequate" consultation then the Subcommittee cannot under the terms of the current Subordinate Legislation Act 1994 dispute this.

Competition Policy Requirements

Regulations accompanied by a RIS must also be accompanied by an assessment of whether or not a proposed regulation contains a restriction on competition. Part 14 of the Premier’s Guidelines sets out the requirements for this competition assessment.

The requirement to carry out an analysis of competition principles gives effect to an agreement reached between the Commonwealth, States and Territories in April 1995 to implement National Competition Policy. The overall aim of competition policy requirements is to improve economic efficiency and competitiveness and to discourage restriction on competition where the benefit to the community cannot be demonstrated.

Where a proposed regulation does not contain a restriction on competition, the responsible Minister must certify that it does not contain a restriction and this certification should be accompanied by an analysis in accordance with step 1 contained in Attachment B to the Premier’s Guidelines.

Where a proposed regulation does restrict competition, the responsible Minister must certify that it restricts competition, that the objectives of the proposed regulation can only be achieved by restricting competition and the benefits of the restriction to the community outweigh the costs. This certification should be accompanied by an analysis carried out in accordance with steps 2 to 5 of Attachment B to the Premier’s Guidelines.

In the Subcommittee’s experience competition policy certificates are not always worded in accordance with the wording contained in the Premier’s Guidelines. Also, where a regulation does impose a restriction on competition, there appears to be some difficulty in analysing that regulation in accordance with the principles set out in Attachment B to the Premier’s Guidelines. For example some competition policy analyses simply repeat verbatim the words of the RISs. It appears to the Subcommittee that there is a lack of understanding of competition principles and how to adequately assess these principles.

How is the RIS process working in Victoria?

In 1998, 171 regulations were made in Victoria of which 42 were accompanied by a RIS. SARC’s Annual Report concerning Statutory Rules Series 1998 indicates that increasingly the Regulation Review Subcommittee has had to deal with inadequacies concerning RISs.¹⁵ The current Regulation Review Subcommittee is also observing this trend with some RISs being extremely well written, clear and easy to understand while others are confusing, fail to adequately consider alternative options, or fail to provide an appropriate analysis of competition principles. A possible explanation for the variation in the standard of RISs is that department and agency officers responsible for writing RISs often come from very different backgrounds (for example lawyers, engineers, scientists, etc) and consequently do not write with a common approach.¹⁶

In 1997 the Victorian Law Reform Committee examined the extent to which the RIS process was working effectively in Victoria.¹⁷   The Victorian Law Reform Committee found that department and agency officers believed the process was working "reasonably" well, that there was an improved level of consultation and that there was some benefit to the community in terms of cost savings.¹⁸   However other evidence taken by the Victorian Law Reform Committee at public hearings indicated that business organisations were not all that satisfied with the RIS process and that representatives from business felt that Government departments and agencies were more concerned with "process rather than genuine consultation".¹⁹

Role of Office of Regulation Reform (ORR)²⁰ in the RIS Process

ORR frequently provides an advisory role to department and agency officers who are responsible for preparing RISs. ORR sometimes acts as a sounding board for regulatory proposals, which may as a result go no further.

Section 10(3) of the Subordinate Legislation Act 1994 requires a responsible Minister to obtain independent advice as to the adequacy of the RIS and the RIS process. There is no requirement that this independent advice be obtained from any particular source. What is required is that the advice be ‘independent’, that is that the persons responsible for providing the advice should not have played any role in developing the policy, the proposed regulation or the RIS. Frequently ORR is asked to provide this independent advice and on other occasions independent advice is sought from private consultants or from accounting firms and other professional bodies.

A question immediately arises as to whether a government agency can truly provide ‘independent’ advice to another government agency. Some commentators adopt the view that although ORR is a government agency, it does in fact provide ‘independent’ advice and that it "does not merely rubber-stamp RISs provided by government departments and agencies".²¹ Sometimes departments and agencies forward to the Regulation Review Subcommittee copies of written comments made by ORR representatives as to the adequacy of a RIS, therefore implying that in the view of the relevant department or agency, the advice obtained from ORR was independent.

The next issue to arise is whether the most appropriate location for ORR is within the Department of State and Regional Development or whether it should be part of the Department of Premier and Cabinet. In 1997, Professor Allan Fels, Chairman of the Australian Competition and Consumer Commission suggested to the Victorian Law Reform Committee that the functions of ORR could be merged with the competition review functions of the Economic Development Branch of the Cabinet Office and that this merged agency could be located within the Department of Premier and Cabinet.²² Presumably such a merged entity would have a significant focus on additional competition policy compliance. In 1997 in its submission to the Victorian Law Reform Committee’s inquiry into Regulatory Efficiency Legislation, SARC supported the establishment of ORR as an independent statutory authority, commenting that ORR "would then be able independently to advise Ministers from a position outside a Minister’s Department".²³   It could be argued that in this way ORR would be seen to be completely independent when providing advice to Ministers on the adequacy of the RIS and the RIS process.

Possible Options for Reform

As part of its 1997 Report, the Victorian Law Reform Committee considered a number of options for reform of the RIS process and some of these included:

• Increased training of department and agency officers on the RIS process;²⁴

• Strengthening of the consultation process requiring Ministers to take "reasonable efforts";²⁵

• Government departments and agencies circulate Issues Papers to key stakeholders during the development of regulatory proposals;²⁶

• RISs should be accompanied by a summary and list of questions so that busy members of the community can easily and clearly understand the issues which they need to address should they wish to comment upon a particular regulatory proposal;²⁷

• Publication of all RISs on the internet together with a simple form encouraging people to comment on the regulatory proposal.²⁸

In Queensland, the Business Review Unit, which is part of the Department of State Development, has developed a special computer software program which department and agency officers use when preparing RISs. The Business Review Unit runs special training programs for government and agency officers on how to use this program and also provides back-up assistance. The aim of this software package is to assist department and agency officers with the production of uniform, comprehensive and easy to understand RISs.

The Regulation Reform Unit which is part of the Commonwealth Office of Small Business has this year commenced producing an Annual Review of Small Business which contains a series of regulatory performance indicators and a table which shows the performance of all Government departments and agencies in meeting a number of criteria. For example, it shows the number of regulations created or amended in the 12 month reporting period and it shows how well departments are performing in producing RISs. Some of the performance indicators include:

• the proportion of regulations for which there is an adequate justification for the compliance burden;

• the proportion of regulations amended;

• the proportion of regulations in which the RIS explained the consultation;

• the number of relevant appeals which result in agency decisions being reversed.

While many of the performance indicators allow particular government departments or agencies to assess their own performance, the performance indicators relating to RISs are assessed by the Commonwealth Office of Regulation Review.

The Commonwealth Office of Regulation Review has provided all Commonwealth agencies and departments with a guide to making regulations.²⁹ Office of Regulation Review staff provide advice to department and agency officers during the preparation of each individual RIS and follow this up by providing feedback on how RISs can be improved throughout the entire process. Before the regulatory proposal and RIS go to Cabinet, the Office of Regulation Review has to comment on the adequacy of the RIS. The Commonwealth requires that RISs be tabled in Parliament,³⁰ although there is no requirement that the RIS produced for Cabinet be the same as the RIS tabled in Parliament.³¹

Exception and Exemption Certificates

A RIS does not need to be prepared if the regulatory proposal falls within one of the exceptions contained in section 8 or one of the exemptions contained in section 9 of the Subordinate Legislation Act 1994. Where a regulation is excepted from the RIS process under section 8, the reasons why it falls within that exception do not have to be provided although the Minister must certify to the Subcommittee that the regulation falls within a relevant exception. Where a regulation is exempted from the RIS process under section 9, the Minister must specify the reasons for granting the exemption.

Exceptions

A regulation is excepted under section 8 of the Subordinate Legislation Act 1994 where the regulation:

• increases fees by an annual rate which does not exceed the annual rate approved by the Treasurer in relation to the state budget. Currently the rate is 2.5% and this rate can be found in the publication, Guidelines for Setting Fees and Charges Imposed by Departments and Budget Sector Agencies.³² The Guidelines allow departments and agencies to round off to the nearest whole dollar and it is also acceptable for fee increases to be viewed as a package, so that individual fees can exceed the set rate, provided that the total package of fees in a regulation does not.³³ This means that while some increases in the package may fall outside the rate set by the Treasurer, averaged out as a whole the fees do not exceed the set rate. In its 1999 Report, SARC drew attention to the usefulness of agencies and departments providing the Subcommittee with a table providing a comparison of the new fees with the old fees.³⁴ SARC also commented on the growing use of the ‘basket’ approach which enabled some individual fees to increase by an amount far in excess of the Treasurer’s Guidelines.³⁵

• relates only to the procedure, practice or costs of a court or tribunal. These regulations concern the updating of court rules, the introduction of new tribunals, the introduction of new court procedures and so on.

• only prescribes an equalisation factor for the purposes of the Land Tax Act 1958. These regulations state the number by which the land value of Victorian properties must be multiplied for the purposes of calculating land tax.

• prescribes or exempts an instrument or class of instruments from being a ‘statutory rule’ for the purposes of the Subordinate Legislation Act 1994.

• extends the operation of a regulation which would otherwise be revoked by virtue of the automatic sunsetting provisions contained in section 5 of the Subordinate Legislation Act 1994. Under this exception a Minister certifies that due to special circumstances, there is insufficient time to comply with the RIS process and that the existing regulation should be extended. A regulation may only be extended once under this provision and only for a maximum period of up to 12 months.