The Fragmentation Tax

Australians are struggling with high prices while weak productivity growth reduces their wages and living standards. Addressing regulatory inconsistencies in one of the most systemic sectors and biggest employers in the economy - the retail sector - is a unique opportunity to help address both these challenges at once.

To support retail is to support the economy. The retail sector is the second largest employer in the country. It employs over 1.5 million Australians and generates $649 billion of income for the Australian economy every year. The retail sector is highly systemic. It permeates throughout the economy and is a critical part of the supply chain for almost every business in Australia. This presents a significant opportunity: addressing problems in the retail sector is one of the biggest-bang-for-buck reforms the government can pursue.

Left unchecked, inconsistent state and territory regulations will cost the Australian economy $26 billion and cost households $9.4 billion over the next 10 years. Regulatory inconsistencies mean retailers face unnecessary costs as they contort their business operations to deal with inconsistent approaches to regulation. It means a retailer transporting goods from one state to another may have to change trucks at the border. It means fleet managers must design elaborate delivery plans when neighbouring local councils have different delivery curfew regulations. It means national retailers need to procure different types of cups in different states to meet fragmented regulatory requirements.

Areas for immediate reform are in transport and logistics, and in packaging and waste reduction regulations. Transporting goods across Australia is a regulatory challenge. Heavy vehicle standards, accreditation and permit processes, commercial vehicle standards, and fatigue management requirements are inconsistent. Harmonising these regulations alone would inject $1 to $1.3 billion into the economy over 10 years.

Packaging and waste reduction regulations are riddled with jurisdictional inconsistencies. Container deposit schemes and bans on single-use plastics vary. Cleaning up these regulatory inconsistencies alone would add $300 to $350 million to the economy over 10 years.

The Federal Government should use its National Competition Policy framework to prioritise cross-jurisdictional reforms in the retail sector. To achieve this the Commonwealth Government should:

• Increase the National Productivity Fund by $260M to support regulatory harmonisation
• Establish a National Harmonisation Council within the NCC to drive cross-jurisdiction decisions and delivery
• Deliver the first harmonised regulatory package within 12 months
• Mandate that Regulatory Impact Statements explicitly acknowledge and quantify fragmentation risks

Read the full report here.