Notes to Submission to the Productivity Commission Inquiry into the ...

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From an analytical economics perspective, the only meaningful benchmark is economicprofit, and the only issue relevant to whether a cost impost is likely to cause hardship iswhether the firm nets or does not net an economic profit. The percentage of economicprofit would be irrelevant, since the existence of economic profit would be enough tosuggest capacity to afford a cost impost. In practice, however, economic cost is difficultto estimate since by definition, economic cost seeks to estimate ‘next best alternatives’,which necessarily involve speculation, and makes the estimate an art rather than science.Practical standard accounting benchmarks such as turnover, accounting profits, cash flowetc… are less speculative estimates, but using these benchmarks raises other problem.Firstly, benchmarks for thresholds which show hardship will vary across industries andorganisational types. Thus, in low margin industries 1% of turnover may be anunjustifiably high cost while in high margin industries, 1% may not be considered high.This implies that it would be inappropriate to use a single benchmark across allindustries. More critically, the purpose of profit/loss and balance sheet statements areonly indicative estimates of financial position and hardship, implying that no singleaccounting ratio would suffice as an indicator of hardship, and that the interpretation ofthese estimates also involve art rather than science. Finally, accounting ratios arebackward looking, whereas economic hardship is more a matter of future opportunitiesthan of past performance.The above suggests that any single standardardised threshold measure involves anelement of arbitrary “art”, and that it is therefore impossible to create a single benchmarkwhich a court could follow and which would eliminate the uncertainties faced bycomplainants and respondents.It does not follow that a range of benchmarks and criteria for the court to take intoaccount in a flexible manner would not reduce uncertainty. It is more than likely that thisis the approach that has been taken by the Federal Court on a case by case basis. Theproblem then is one of transparency and accountability, where the current inadequateguidelines and legislative direction creates excess uncertainty.Viewpoint 3: Cost Passed Backward to the Property OwnerEconomic analysis suggests that Jaxxjazz is unlikely to bear that portion of the capitalcost that accrues outside the period of its tenancy. The ramp would presumably havevalue to a future tenant, so Jaxxjazz would be able to “sell” the ramp to ZLK Life, whichin turn could pass the cost of the ramp on to next tenant in the form of a higher rent. Withthe $10,000 cost capitalised at $1,000 p.a., it would not be unreasonable to suggest thatJaxxJazz would bear $2,000 over the two years remaining of the lease and while ZLKLife would bear $8,000 over the balance of the ramp’s useful life.This case is relevant if the court recognises that costs can be passed on by the respondentclaiming unjustifiable hardship. By recognising that the costs can be passed on to theZLK Life, there is a greater likelihood that the court will find for Sandra rather thanJaxxJazz unless the court also accounts for the cost to be born by ZLK Life.32
If the court accepts that costs can be passed on, it would presumably have to account forthe cost impact on ZLK, and given the 75% fall in ZLK’s share price, an ‘extraordinary’cost impost could be viewed as involving ‘unjustifiable hardship’. An economicperspective would not find the historical share price fall as relevant to the value ofbuilding a new ramp, but arguably the DDA requires the court to account for the impacton ZLK even though it is not a direct party in the dispute between Sandra and JaxxJazz,and if it does, the court could conceivably find that the construction of the ramp toinvolve ‘unjustifiable hardship’.The three viewpoints above highlight a number of issues which need to be clarified tominimise uncertainty and to enhance fairness, and they also highlight how a project maybe frustrated by the details of the DDA and how a focus on financial expenditures andvaluations instead of economic costs and benefit can discourage economically efficientprojects.Economic analysis suggests that the incidence of a tax or cost impost varies according tothe capacity of consumers, producers and assets owners to find alternatives to the ‘taxed’good or service. This suggests that the incidence of a cost impost varies on a case by casebasis, and therefore for different types of complaints. Thus, while the nominal immediateincidence of improved access to buildings and transport may lie with transport operators,the long-term incidence is likely to be born by asset owners and consumers as well asoperators; and similarly, the long-term incidence of anti-discrimination measures inemployment is likely to be shared by both employers and persons with disability (in theform of lower wage) and the long-term incidence of education access is likely to be bornby taxpayers and parents.ImplicationsIdeally, the DDA needs to be explicit in:• defining unjustifiable hardship as a cost-benefit exercise• defining the parameters of unjustifiable hardship• specifying that the ultimate long-term (as opposed to immediate nominal) incidenceof expenditure should be considered as the relevant criterion for defining hardship• specifying how the gains of people with disabilities should be weighted against thecosts born by consumers, producers, taxpayers• specifying how consumer benefit is to be measured.Without refinement of the concept of unjustifiable hardship along the lines outlinedabove, the DDA will continue to be flawed ineffective legislation which raises the hopesof people with disability and gives the appearance of enhancing the rights of people withdisability without doing so. It will continue to be flawed because of the uncertainties indefinition, and it will continue to offer little advance because of the narrow immediate (asopposed to ultimate) financial (as opposed to economic) perspective that is likely to betaken in defining the cost burden.33
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