While much of the current economic policy debate has been dominated by the need for comprehensive taxation and workplace relations reforms, and to a lesser extent a need to streamline government spending and administration, the impact of growing regulation on our economy and society has been largely neglected - until now. The Howard Government announced on October 12, 2005 the appointment of a taskforce to identify options on reducing the regulatory burden on business. More specifically, the taskforce will:
- identify specific areas of Australian government regulation which are unnecessarily burdensome, complex, redundant, or duplicate regulations in other jurisdictions;
- indicate those areas in which regulation should be removed or significantly reduced as a matter of priority;
- examine non-regulatory options (including business self-regulation) for achieving desired outcomes and how best to reduce duplication and increase harmonisation within existing regulatory frameworks; and
- provide practical options for alleviating the commonwealth’s “red tape” burden on business, including family-run and other small businesses.
So, why all the sudden focus on regulation reform? In an important contribution to the debate, the Business Council of Australia (BCA) released a study which showed not only that the commonwealth and states added 33,000 pages of new law to the statute and law books in 2003 alone, but that more pages of legislation had passed the Federal Parliament in the 14 years since 1990 than were passed by Parliament in the preceding 90 years. In addition, that iconic barometer of regulatory growth, the Income Tax Assessment Act (Tax Act), has grown from 120 pages in 1936 to around 7,000 pages today.
The trends at a state level are equally disturbing - for example, the number of pages of legislation passed in the “low tax state” of Queensland has increased from 13,873 pages during the 1960’s to 77,516 pages so far this decade, representing the fastest growth of all states. While the growth of the pages of legislation provides only a proxy measure for the increase in the regulatory burden, and does not take into account the growth in expenditure and employment in those government agencies charged with administering regulation, these statistics make for sobering reading indeed.
There is abundant empirical evidence to suggest that regulatory growth has imposed substantial costs on the broader economy, undermining our international competitiveness. The OECD estimated that the compliance cost of regulation for small and medium sized Australian businesses in 1998 was more than $17 billion. Other studies show that the time taken for manufacturers to comply with regulations had cost them over $680 million per annum.
Drawing on international evidence, it is conceivable that the cost of regulation in Australia accounts for some 8 per cent of GDP (or about $63 billion in 2003-04). In effect these regulations are “shadow taxes” on Australian businesses and consumers, and they are growing at a significant rate.
Before the varied critics of economic reform erroneously allege that regulation reform would represent nothing but a cynical conspiracy to line the pockets of business, it must also be understood that regulation can stand in the way of achieving social and environmental objectives.
For example, the problems faced by some sections of the community in attaining home ownership are magnified by regulations that add $60,000 to the price of a house in western Sydney. A Productivity Commission inquiry on biodiversity regulations found that rules in New South Wales, Victoria and South Australia preventing the clearing of paddock trees have prevented farmers moving from inefficient, wasteful flood irrigation to more sustainable centre-pivot irrigation.
The growing cost to government to monitor and enforce regulations also leads to fewer direct resources to schools, hospitals and roads which can otherwise benefit local communities.
While sensible, light-handed and transparent regulation can provide a necessary platform in shaping our economic and social affairs in a complex world, what can be done to address the problems associated with Australia’s regulation explosion? A range of interlinked options that could be considered include:
- rationalising the existing body of regulations, including the removal of superfluous rules that are rarely used. For example, it is reported that there are 1,600 pages of Tax Act legislation that are never used;
- to be consistent with the above, consideration of a regular review process of the regulatory stock. In a much welcome move, the Australian Government announced that it intends to introduce a new annual review process to examine the cumulative stock of federal regulation and identify an annual “red tape” reduction agenda;
- the introducuction, and extension of existing, “sunset clauses” to apply to all subordinate legislation, for instance, after a period of ten years. If deemed appropriate, this legislation could be reintroduced after the period. The Commonwealth Legislative Instruments Act already requires regulation to contain such sunset provisions, and some state regulations contain similar provisions;
- imposing a requirement that any new regulatory proposal can only be introduced on the condition that a given existing regulation be repealed (or at least amended);
- that all regulatory proposals, including social and environmental regulations, likely to have a significant impact on business and the broader economy should undergo a detailed cost - benefit assessment process. The Federal Department of Industry, Tourism and Resources (ITR) is reported to have developed a rigorous “costing tool” model which could be applied more broadly;
- improvements that could be made to the current Commonwealth Regulatory Impact Statement process, including a more consistent utilisation of this tool by all public sector agencies, the release of statements for public comment, and allowing sufficient time for consultation by affected stakeholders as a result of any regulatory proposal; and
- intergovernmental co-operation, where needed, to streamline duplicated and overlapping regulatory standards. It is also imperative that the states and territories individually follow the commonwealth’s lead and instigate their own comprehensive regulation reviews.
More fundamentally, there is a need to alter the general mindset that, if there is an issue that needs to be addressed, then more regulation ought to be the first response. The “regulate first, ask questions later” approach represents a fundamentally disempowering approach for individuals, shaping the rise of “Big Mother” regulatory government and could (at least partially) explain the perceived decline in civil engagement where people can otherwise work together to solve their own problems. Therefore, regulation should be seen as the last resort after all other options, such as education, publicity, moral persuasion, self-regulation and other approaches, have been fully assessed and found to be ineffectual.
There is a growing acknowledgement that the gains of two decades of economic reform are being gradually unravelled by the cancer like growth in regulation. The Australian Government’s announcement of a review into regulation promises to play a significant role in reinforcing the hard won gains from economic reform by paring back regulation to more sustainable levels.
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