As Australia cautiously emerges from the pandemic, governments across the country are looking to the private sector to drive economic growth. A major factor in governments’ ability to achieve this growth is the cost and ease of doing business in their jurisdiction.

Like with any good policy reform, improving the cost and ease of doing business requires a sound evidence base. After all, if you don’t know how you’re going it’s hard to know where you can improve. Unfortunately, Australia lacks a solid evidence base that benchmarks the performance of states and territories on these measures.

With this in mind, the Victorian Chamber of Commerce and Industry recently commissioned the economics team at Nous Group to undertake a ground-breaking analysis of the cost and ease of doing business. That report was released in early February. As VCCI Chief Executive Paul Guerra explained in the report’s foreword, “understanding the true cost of doing business is a significant issue preventing discourse to develop sound policy”.

While the VCCI is using this in its advocacy with government, we think the model used in the analysis has broader relevance to state and territory governments across the country. So we are pleased to explain more about what we did and how we did it.

As a starting point, we knew it was important to capture a broad range of costs not typically measured. Evidence needed to go beyond the profit and loss statement to consider both direct and intangible costs (including stress on the business owner) to give a more complete understanding of the cost of doing business.

Building a comprehensive view of the costs and barriers to doing business required triangulating evidence across different sources. To build an evidence base, we used quantitative data – the cost and ease ranking on cross-jurisdictional metrics – as well as qualitative data – a survey of more than 700 businesses, in the case of the Victorian study.

On the quantitative data, our cost and ease ranking measures performance against other jurisdictions on key areas of business costs and ease.

The ranking methodology and approach are inspired by popular international rankings such as the World Bank Doing Business Report and the World Economic Forum Global Competitiveness Report. But unlike these international rankings, our ranking is tailored to the specific context, evidence and experience of businesses operating in Australia, and does it at the state level.

Our ranking combines 23 metrics, each of which draws on government and non-government data sources, including from the Australian Bureau of Statistics, the Australian Competition and Consumer Commission and crowd-sourcing sites like Numbeo. The metrics are clustered around six themes:

  1. Skills and labour indicate the availability and accessibility of a skilled workforce to businesses in a jurisdiction. This theme includes post-secondary education attainment (higher education and VET levels) and labour access.
  2. Infrastructure and connectivity measure the direct costs (for example, utility costs) and intangible costs (for example, time spent in travel) in a jurisdiction. This theme includes the price of electricity and traffic indices.
  3. Entrepreneurship and growth measure the opportunities available for businesses to grow in a jurisdiction and the capacity for business to act on those opportunities. This theme includes private sector R&D investment and market size of a jurisdiction.
  4. Productivity and stability measure the relative efficiency of businesses operating in each jurisdiction and the stability of the business environment. This theme includes gross state product (GSP) per hour worked and annual changes in state level CPI.
  5. Affordability measures the intangible costs of living and working in a jurisdiction (that is, the costs that come with retaining labour or choosing a jurisdiction to expand business operations). This theme includes house-price-to-income ratio and quality of life.
  6. Government service measures how the operating environment for business is influenced by state and local government in each jurisdiction. This theme includes tax and compliance obligations.

Metrics are standardised by adjusting for size (for example, calculated per capita) and fluctuations (for example, use of a five-year average), and values are converted to z-scores to enable direct comparison across each metric and location.

The directionality of each metric is also accounted for in the ranking, so a higher ranking consistently means a ‘greater ease’ or ‘lower cost’ of doing business. All cost and ease metrics are assessed equally, with no weighting applied when determining rankings.

Performance can be tracked over time by updating these underlying metrics as new initiatives or policies are implemented. But certain metrics require measurement over a longer period (for example, five-year averages for productivity and private sector expenditure on research and development) and others require updates to specific datasets (for example, the National Skills Commission survey response to employer difficulty in recruitment).

Then there’s the qualitative component. In total 746 VCCI members across 19 in industries completed a survey on the cost and ease of doing business in Victoria. The purpose of the survey was to capture the business community perspective by providing a more in-depth understanding of the costs that matter most to business.

The survey provides insights into the costs and barriers that were not clear from other forms of data because they were implicit or intangible. For example, businesses were asked if time or money was a bigger cost to them; if they believed they were receiving value from government services for taxes they paid; and if their mental health was being supported.

The survey findings supported the broader trends in data on the costs of doing business in most cases – however, there were some examples where the survey revealed important nuance to the data. For example, Victoria ranked highly on skills and labour in the ranking of states/territories, but businesses provided a different perspective through the survey: 83 per cent of businesses reported having difficulty in accessing the skills and labour they require.

The combined impact of the quantitative and qualitative components is that Victoria has a clear idea of where it is strongest and where it needs to improve. VCCI have used these insights to shape its eight recommendations to government, which it will be pursuing through its advocacy.

As governments across the country seek to fuel their pandemic recovery, getting a clear idea of the costs and ease of doing business, grounded in hard evidence and lived experience, will be vital.

Get in touch to discuss how we can help you to measure the ease and cost of doing business in your jurisdiction.

Prepared with input from James Rendoth and Tyrone Collins.