Scrutiny of Acts and Regulations Committee
Tenth Report to Parliament on Subordinate Legislation

Annual Report concerning Statutory Rules Series 1997

CHAPTER 3 –
Submission on the Discussion Paper of the
Law Reform Committee of the Parliament of Victoria
in May 1997 from the Scrutiny of Acts and Regulations Committee
of the Parliament of Victoria

1.1 This is a submission from the Scrutiny of Acts and Regulations Committee of the Parliament of Victoria on the concept of Regulatory Efficiency Legislation (REL) as developed in the Discussion Paper released by the Law Reform Committee in May, 1997.

1.2 The Subordinate Legislation Committee forwarded its comments upon the concept of REL to the Law Reform Committee under letter dated 13 August, 1997.

1.3 As foreshadowed in that letter, those comments have now been formally adopted by the Scrutiny of Acts and Regulations Committee at a meeting held on 5 September, 1997.

1.4 In this document, references to the "Committee" have been altered to reflect the new status of the document as a submission from all Members of the Scrutiny of Acts and Regulations Committee.

1.5 In adopting the submission, the Scrutiny of Acts and Regulations Committee took account of the expertise of the Subordinate Legislation Committee Members in the scrutiny of delegated legislation.

1.6 Generally, the Committee expresses caution about Alternate Compliance Mechanisms (ACMs). The Committee prefers the checks and balances and openness currently provided by the Subordinate Legislation Act 1994.

1.7 The Committee acknowledges that the Victorian Government may wish to offer choice to business and bureaucracy in delivering outcomes in this area. The reality could be that no party would adopt an ACM, but Government should ensure that any available process complies with legal principles and is open to scrutiny. The Committee concurs with the hesitations outlined by the Canadian Scrutiny Committee.

1.8 As to dissatisfaction with the Regulatory Impact Statement (RIS) process, the Committee attributes this in great part to a public perception that there are too many regulations. It also senses that objections come from individuals and entities whose contributions to the RIS process have not led to a varied outcome in line with their aspirations.

1.9 The Committee observes that objections often relate solely to the content of the relevant cost-benefit analysis. This is the subject of an entire further inquiry.

1.10 The Law Reform Committee will note that the Committee’s submission on RIS derive from the current work of the Committee under the Subordinate Legislation Act. Its comments on ACMs spring from open discussion of a new area.

1.11 The Committee addresses its remarks to Issues 1, 5, 8 and 10.

2.1 The Committee agrees with much of what is presented on regulatory reform in Victoria.

2.2 In addition, the Committee makes the following observations:

2.3 Under 2.3 of the Discussion Paper, there is a suggestion that comments from the public under the RIS process in the Subordinate Legislation Act 1994 must be sought before a regulation can be made. Technically, this is not quite right. All the Act requires with respect to an RIS is that public comments or submissions be invited. There is no onus on the Minister to obtain public comment or to actively seek it out. All that the Act obliges the Minister to do under section 11 is to "ensure" that notices are placed in newspapers and that the Scrutiny Committee is given a copy of all submissions made. There is however no obligation on the Minister to "ensure" that there are submissions.

No public comment was received on the RIS for the Estate Agents (Fees) Regulations 1996 - SR No. 13/96.

2.5 Of course, the silence from the public may indicate satisfaction.

2.6 By contrast, section 6 of the Subordinate Legislation Act states that the responsible Minister "must ensure" that there is consultation.

2.7 Consideration might be given to some sort of "reasonable efforts" expectation of the Minister in the RIS public comment phase of a more substantial nature than is currently required. See the Canadian way discussed at 3.9 of the Discussion Paper.

2.8 There has been some suggestion that the RIS is required by the Subordinate Legislation Act to take place too late in the scheme of things.

2.9 The Committee’s view is that RISs relate to the manner by which government policy is implemented. Public comment is sought not so much on the reasons for regulations as on how the desired aim is to be best achieved. A RIS should approach generously the explanation of why other means of fulfilling the policy objective are not appropriate. The aim of a RIS is to persuade members of the public that government is seeking the most cost-effective manner of implementing a policy.

2.10 Under 2.16 of the Discussion Paper, the belief of the business representatives at the public hearing of 4 April, 1997 is stated to be that the RIS process is not working. The Committee makes some comments on this perception.

2.11 One indicator of the success of the RIS process would be changes in the attached draft regulations brought about directly by public comment on the RIS. Apart from some fine-tuning, one view is that some Departments go through the motions of preparing and releasing a RIS not looking for different ideas but rather for confirmation that the public will wear what they have already come up with.

2.12 This may of course be because the release of the RIS is in fact not at an early stage in the development of a regulatory proposal. Often there has been consultation under the Act, and even additional informal consultation or negotiation before an idea has been formulated in anything like final form. Draft regulations which must accompany a RIS are often the result of many earlier consultations.

2.13 The Committee’s observation is that the RISs tend to sell an idea to which the Department is committed. RISs are intended to persuade. Section 10 of the Subordinate Legislation Act is drafted in this manner. Thus, the Department is not so much examining the question of whether government regulation is appropriate in the area as whether the form of statutory rule developed by the Department is acceptable to the public.

2.14 The purpose of a RIS appears to be to provide transparent economic argument as to why a regulatory approach should be acceptable.

2.15 Noting this focus, it is important that the reasons why other practicable means of achieving the objectives of the regulations are fairly presented. This is arguably a difficult thing to do when time has already been spent drafting up a statutory rule.

2.16 Some RISs do not deal with alternatives evenhandedly. Occasionally this is because the principal legislation appears not to offer a choice.

2.18 There are other instances where the RIS pays only scant attention to alternatives to the proposed draft.

2.20 While Departments are entitled to have a working plan in mind, they should be ready to be persuaded to alter the proposal in more than merely technical ways by input through the RIS process.

2.22 Criticisms of the RIS process raise the question of precisely how many people or which groups of people are dissatisfied with the process. Is this only a small number? Where are they from? Is the silent majority generally satisfied?

2.23 The Committee senses that the loudest noises may sometimes come from those who object to generally accepted public obligations such as those which pertain to safety issues or certain registration matters. For example, the requirements of occupational health and safety regulations are inescapable for the overarching good of the community. Similarly, the protection of the environment is one aspect of the strict regime set in place to record abalone fishing.

2.24 The Committee is aware of the helpful role of the Office of Regulation Reform and acknowledges its assistance in refining regulatory ideas.

2.25 The positive role of the Office of Regulation Reform (ORR) should be recognized. This Office guides most Departments in the preparation of a RIS. ORR is a sounding board for many proposals, some of which go no further than concept. The participation of ORR in early stages of RIS development explains why the documents do generally comply with section 10 of the Subordinate Legislation Act.

2.26 As regards the comments of 2.21 in the Discussion Paper, the Committee believes that there could be benefit in establishing the ORR as an independent statutory authority. It would then be able independently to advise Ministers from a position outside a Minister’s Department.

2.27 The Committee tends to favour the position of ORR being seen to have complete independence from any Minister in the event of ORR once again being the only body to certify as to the adequacy of a RIS.

2.28 The Subordinate Legislation Act is complemented by Premier’s Guidelines. These are to offer clarity to the procedures to be implemented and the steps to be undertaken for the purpose of ensuring consultation, coordination and uniformity in the preparation of statutory rules. They must also address the matters listed in Schedule 1 to the Act. Guidelines were first released to coincide with the commencement of the Subordinate Legislation Act in January, 1995. A subsequent version has been promised since July, 1995.

2.29 The Guidelines are important particularly in this context because consultation under section 6 is limited by the Act to where the guidelines require it.

2.30 Release of the revised Premier’s Guidelines should be a priority.

2.31 The relevant sections of the Act make it clear that it is the Minister (ie the Executive) who bears responsibility for proper compliance with the RIS process and for signing exception or exemption certificates. These certificates set parameters for where a RIS is required.

2.32 The Committee has heard complaints that there are some situations which do not qualify for an exception or an exemption certificate as laid out in sections 8 and 9 of the Subordinate Legislation Act. However, subjecting the proposed regulation to the RIS process would be a poor use of resources.

This question came before the Committee when it was scrutinising the Fisheries (Abalone)(Amendment) Regulations 1997 - SR No. 34/97. The Abalone industry is a highly regulated one, and issues such as impact on new entrants are unlikely to apply.

These Regulations effected certain amendments to the Principal Regulations of 1996. They also reinstated the "Bay line". This meant that divers could take larger abalone in that area while working Bass Strait, thus allowing divers to fish the area during a decompression dive whilst returning to port The abalone industry had asked for this amendment. Even so, it could be seen to constitute an increased restriction on the 34 licensed central zone divers.

The Committee formed the view that if the industry asked for a regulation, there could be no appreciable burden - and accordingly, an exemption from the requirement to do a RIS was appropriate. However, there may be circumstances where a sizeable burden is placed on parties who nonetheless request regulation. Could a point be reached where a RIS should be insisted upon even if the relevant interest groups sought the change?

2.34 Another troublesome situation could be where the limits of a regulation are actually hemmed in by government undertakings. The requirement to prepare a RIS under section 7 of the Subordinate Legislation Act does not apply where a Minister certifies in writing that it is his or her opinion that a proposed statutory rule is of a "fundamentally declaratory or machinery nature". It is unlikely that such an undertaking (for example, an election promise) could render a rule "fundamentally declaratory " or "machinery" in nature. So even in these situations, a RIS is required under the Act before such an undertaking could be implemented.

2.35 Consideration might be given to providing an exemption from the RIS process for a proposed statutory rule which came into being because of existing arrangements.

2.36 If a Minister signs off under section 10(4) of the Subordinate Legislation Act that the requirements of the Act relating to the RIS and the guidelines have been complied with, and that in his or her opinion the RIS is adequate, is it still within the scope of the Parliamentary Scrutiny Committee to consider the issue? Or, if under sections 8 or 9 of that Act, the Minister asserts in his or her certificate of exception or exemption from the RIS process that it is his or her opinion that reasons for the certificate apply, can the Committee investigate whether they actually do or not?

2.37 This raises a legal philosophical question touching on the relationship between the Parliament (and the Parliamentary Committees) and the Executive.

2.38 Parliament has enacted legislation which allows for the making of certain delegated legislation according to specified processes. Parliament charges the Scrutiny of Acts and Regulations Committee under section 4D(c) of the Parliamentary Committees Act 1968 with such functions as are conferred by the Subordinate Legislation Act. It is the Subordinate Legislation Subcommittee in the first instance which has responsibility to ensure that these processes are complied with.

2.39 Does this power go as far as to permit it to challenge Parliament’s legislative fiat? That is, if the Parliament as a whole authorises certain actions and states in Principal legislation that the Act is complied with when a Minister signs a certificate stating that fact, can a Parliamentary Committee still investigate behind those actions and report to the Parliament that the certificates are false or that the Minister’s opinion in this regard was wrong?

2.40 In the normal course, the Committee’s relationship with the Executive is not adversarial. The actions (if any) of the Committee, after scrutiny of a rule, commence with informal negotiation. Its main role is as an overseer of those Executive actions which belong in that narrow area of subordinate legislation which qualifies as statutory rules as defined in the Subordinate Legislation Act.

2.41 Presumably, it is proper for the Parliament to maintain control of the passage of all legislation including delegated legislation. However, there may be some reluctance on the part of some bureaucrats to respond cooperatively to Committee suggestions because of a conviction that subordinate legislation belongs in the domain of the Executive.

2.42 The Committee is of the firm view that Ministerial accountability is a crucial part of the democratic process. It needs to be sure that issues upon which the Minister certifies have been fully and properly considered. This matter and that of the power in this area of the Scrutiny Committees could be the subject of an entire further inquiry.

2.43 This raises the question of what form Parliamentary scrutiny should take. Such questions are also applicable to the scrutiny of ACMs discussed below.

2.44 The Parliamentary Committees Act 1968 has been amended to add to the functions of the Scrutiny of Acts and Regulations Committee such functions as are conferred by the Environment Protection Act 1970. As a result of this amendment, the Committee is authorised to examine state environment protection policies and variations to them. These are documents which do not have force of law in themselves, but which are subject to policy impact assessment comparable to the RIS process for statutory rules.

2.45 As stated to the Committee at a public hearing on 26 March, 1997:

"SEPPs are set, in consultation with the community, in line with the broad goals of the environment. They set out some broad approaches for achieving the goals and set in place systems of measurement for achievement of the goals…"¹²

2.46 While not formally legislation, these are documents to which the Law Reform Committee might give consideration, particularly as they deal with areas of environmental compliance.

ISSUE 5
Has the case been made out for the enactment of Regulatory Efficiency Legislation in Victoria?

3.1 The Discussion Paper focuses on various Alternate Compliance Mechanisms (ACMs) and concentrates in particular on a proposal presented by the Office of Regulation Reform (ORR).

3.2 The Committee discussed the concept of ACMs at length. It examined the ORR proposal with care. Its current position is one of caution. While the RIS process is fundamentally open and subject to Parliamentary review, the ACM mechanism as outlined in Chapter 4 of the Discussion Paper appears less accountable. Through the Subordinate Legislation Act, all major regulatory development is open to public comment. As indicated in the REL Discussion Paper, the initial ACM Bill itself would be subject to review by the Scrutiny of Acts and Regulations Committee. There would also be consultation with groups which would be directly affected by an ACM. However, the precise detail of a particular ACM may not be made public. The Committee has serious concerns about this.

3.3 Regulations are made with the overriding public interest in mind. Their purpose often is to protect the public. Economic savings to a business organisation or to government should be of equal or secondary concern when the value of alternatives is considered.

3.4 Based on the notion of regulatory efficiency, government might enter a private ACM developed by a major company which has the advantage of enormous international resources. It might be so financially advantageous for the company that it wipes out all smaller competition. Even given compliance with the suggested minimum criteria at 4.8 of the Discussion Paper, the Committee expresses reservations about whether such a development in the interest of the public. The competitive neutrality of Regulations is one key issue which could be skewed by ACMs.

3.5 The commitment to an ACM by a Minister appears to result from behind-closed-doors processes. This is particularly so where the ACM is one which has aspects of commercial sensitivity. The Committee commends the ORR approach, which would place all ACMs in the open. In relation to commercial-in-confidence ACMs, the Committee suggests that the possibility of Ministers facing bias and corruption charges could arise because of there being no public checks and balances in place for such documents.

3.6 The Committee is also aware that not allowing full access to an ACM may deprive affected third parties of the possibility of legal redress for all aspects of harm done to them arising out of implementation of the ACM.

3.7 In comparing ACMs to statutory rules, the Committee observed that where a loophole is found to exist in a set of regulations, it can be addressed quickly. Through operational experience of regulations, improvements to them may be made over time. This has been the Committee’s experience with respect to a range of regulations such as the Fisheries (Abalone) Regulations 1996.

3.8 This would appear to contrast with the situation that would apply to ACMs. First, Government may not notice the loophole. Even if it is noticed, will there be provisions in ACMs for amendment at the suggestion of Government alone?

3.9 Another related issue is what becomes of a ACM when the Regulations to which it was alternate are altered by a fundamental policy change. Will the ACM remain, or will it be altered too?

3.10 A further issue is how compliance with an ACM is to be monitored. Would the relevant Minister monitor compliance? Could it be by a purpose-developed statutory authority? In any case, surely there would still have to be government-paid inspectors. On this front, there would appear to be limited savings. The Committee noted that, for example, the EPA is charged to supervise discharges generally, but would it also be able to supervise properly an ACM? Would there be additional restrictions on successful monitoring if the monitoring organisation were not a party to the ACM?

3.11 The issue of penalties applying to ACMs is an important one. Is it envisaged that any non-compliance with a ACM subjects the non-government party to the penalties which apply in the original statutory rule? Another approach could be a threshold of non-compliance which, when exceeded, imposes on the non-government party penalties which exist under government regulation. If the threshold approach is taken, what is to happen to breaches below that threshold? (See further discussion at 3.18 and 3.19 below)

3.12 The Committee is also aware that there has been a development in statutory rules to performance-oriented subordinate legislation.

3.14 Do ACMs sit well with the traditional understanding of delegated legislation? That is, can an ACM be truly described as a technical matter, a non-policy detail? Could they not be viewed by the public as opportunities for personal favour? Their very essence opposes equity and standardisation which is what legislation promotes. Arguably, the reason for their creation is that the current rules may not suit an individual. Could not charges of favouritism be raised infecting both government and business?

3.15 The Committee suggests that an equivalent to the ACM proposal might be achieved within the current system of statutory rules. It may be that alternatives could be set out in Regulations. Compliance with the Regulations would be achieved by adoption of one of the alternatives so provided through familiar channels. The alternatives would be on the public record, and could be subject to public input through the RIS process.

3.16 The Committee notes the comments of the Canadian Scrutiny Committee in rejecting the Canadian Bill set out in 3.18. The concern raised here was the abuse of the principle of Rule of Law which ACMs make possible. This does not appear to have been responded to by ORR in presenting its proposal.

3.17 Apart from matters already raised, the Committee has many questions on the ACM proposal for which immediate answers are not provided in the Discussion Paper. The various questions are set out below.

3.18 ORR suggests that if a body fails to comply with an ACM to which it was committed it should be punished as if for failure to comply with the Regulations from which the ACM was an escape in the first place. The original regulation itself was not breached, and it would seem to be inappropriate to punish for something which was not to apply in the first place. Of course, the Principal legislation could deem non-compliance with an agreed ACM to be a breach of the Regulations.

3.19 If the initiator of it does not comply with an ACM, but other smaller groups have managed to comply with the ACM does the first party’s non-compliance extinguish the ACM for the second party also?

3.20 The Committee is supportive of the thrust of the comments of the Canadian Scrutiny Committee at 3.17 in the Discussion Paper. It joins in asking whether it is anticipated that the scope of dispensations from compliance with subordinate legislation might extend into dispensations from primary laws.

3.21 The Committee also seeks some specific illustrations of the Regulations to which ACMs could be appropriate. This would allow public assessment of how many regulations are under consideration, and also whether the regulations concerned could be grouped into certain types. This, in turn, might narrow the focus of Victoria’s examination of ACMs or even assist Victoria to conclude there is no need for them at present. The Committee observes that an ACM would not be approved if it compromised any safety, health or environmental objectives (See 4.6 of the Discussion Paper). The Committee wonders which rules would be allowed to have alternate compliance mechanisms.

ISSUE 8
Do the mechanisms suggested adequately provide for parliamentary scrutiny? Is the suggested role of the Scrutiny of Acts and Regulations Committee appropriate?

Confirmation of ACM by Parliament

4.1 The Committee believes that the reason for its existence is to ensure Parliamentary supremacy over the Executive. Discussion of ACMs should not be complete without some consideration of whether ACMs should be subject to confirmation by Parliament. This could be on the recommendation of the relevant Minister with the support of the Committee on Subordinate Legislation. Parliamentary confirmation would bring into the public arena arrangements which might otherwise be criticised as secretly prepared. The Committee has already noted that there is a role in the examination of legislation at the Bill stage by the Scrutiny of Acts and Regulations Committee. What the Committee suggests at this point is that it should have a final role in scrutinising particular ACMs.

4.2 The Committee is anxious that the Parliament not lose control over areas which had previously been considered appropriate for statutory rules. The Committee senses that the proposal under examination in Chapter 4 of the Discussion Paper (the ORR proposal) would remove from the Scrutiny of Acts and Regulations Committee all but technical scrutiny of compliance with whatever primary legislation authorised the ACMs. It suspects that if an ACM had been approved by the relevant Department and that any fees contained in it had met the Treasurer’s approval all that would remain for SARC would be to check that the procedure had been properly complied with.

4.3 While this currently is the greater part of the Committee’s role with respect to statutory rules, there are times when legal issues and questions of actual compliance arise.

4.5 The Committee would not wish to see the gutting of the important function of Parliamentary Committees in oversight of statutory rules by finding itself as an insignificant player in the field of ACMs.

4.6 The Committee notes that the proposal of ORR retains the Scrutiny of Acts and Regulations Committee as the vehicle for reporting to the Parliament. The reality might be, however, that if every other player had given the go ahead to an ACM, it would be a very tough Parliamentary Committee which would adversely report on the ACM and suffer the ire of the Executive. As discussed above at 4.1, ACMs themselves could be subject to Parliamentary confirmation or, at the least, the possibility of Parliamentary disallowance.

4.7 The Committee makes some remarks on the concerns raised in discussion at the New Zealand conference and summarised at 4.26 of the Discussion Paper.

4.8 Firstly, clarifying the field for which ACMs would be available might help evaluate the seriousness of concern outlined in (1) that some Departments might not have experienced assistance equal to the task of embarking on ACM negotiations. The Committee again asks what exactly ACMs are to be used for.

4.9 As to the second concern, the Committee tentatively identifies ACMs as a form of contract, limited in scope by legislative criteria (see paragraph 4.17ff of the Discussion Paper). The contract would be proposed and formulated by a non-governmental party and voluntarily committed to by that party with a Minister of Government being the other party.

4.10 If an originating party fails to comply with the ACM, the result is that the party becomes subject to penalty under the statutory rule to which the ACM was alternate. On this formulation, a new creature has evolved. It is not without problems such as that described above (at 3.11) of being punished for something which at the time did not apply. Also, if entities other than the original parties can hitch onto an ACM, aspects of privity of contract do not apply as well.

4.11 Another related aspect is that of how wide the discretion will be for a Minister to enter into ACMs with organisations which must otherwise comply with regulations. The public and in turn Parliament as an institution would be less troubled if scope for discretion were narrow.

4.12 Finally, by way of observation upon the fourth concern, regulations these days are less prescriptive and more goal or performance oriented. Perhaps studies in this area could be constructive.

5.1 Finally, the Committee mentions several other matters which have not been answered to its satisfaction.

5.2 One area which could be explored further is why, with all the effort being made through government awareness of reducing business costs and the use of the Regulatory Impact Statement process, there is still dissatisfaction with the application of statutory rules?

5.3 Is it really the case that ACMs would have the same outcomes as statutory rules?

5.4 Are the costs proposed to be saved primarily those of government agencies’ inspections and so forth? If so, will not monitoring of ACMs impose similar costs?

5.5 Acknowledging reductions in numbers of principal statutory rules, and the changing focus of the extant rules, in specifics what is it that business would obtain by ACMs? The obverse to this question is whether there are areas currently controlled by statutory rule which Government would be best out of? Rather than commit itself to an ACM, it might be that government could vacate the specific area entirely.

The Scrutiny of Acts and Regulations Committee would be pleased to follow up any of these issues with the Law Reform Committee.

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