Action Plan for Enduring Prosperity: Third Column in The Australian

This opinion article by BCA Chief Executive Jennifer Westacott was published in The Australian on 15 June 2013 under the title ‘How to Cut the Red Tape and Lift Productivity’. It is the third in a series of columns exploring the Business Council of Australia’s Action Plan for Enduring Prosperity.

Ask anyone in business “If you could fix one thing, what would it be?’’ and they’ll tell you it’s removing the burden of regulation.

For years, governments of all political persuasions, in all jurisdictions, have promised a reduction in red tape. But, for all our endeavours, we find ourselves with more rules, not less.

Regulation is stifling Australia’s capacity to innovate, to adapt and change, and to compete in a vastly more competitive international environment. While there are many things affecting our competitiveness that we can’t control, the adoption of unnecessary, costly and complex rules is something we can and must take action on.

The issue of regulatory overburden will be a key feature of the Business Council of Australia’s economic action plan.

In this third column describing the plan, I explore the regulation problem, what’s causing it, why we must act now and what we can do to get some common sense back.

First to the problem. At its core is the fact that there’s too much regulation, it’s too complex and things take too long.

In 2006, the Productivity Commission estimated regulatory compliance costs on business at 2 to 3 per cent of GDP. In today’s terms that amounts to $30 billion to $45 billion.

The second serious concern is that rules and policies often don’t even fix a problem or policymakers haven’t properly identified what problem they’re trying to solve. As a result, we get laws and rules which add to cost and weaken the community’s confidence without achieving their desired effect.

Third, sometimes it’s not the rules themselves but the behaviour of regulators that generates the wrong outcome. I hear from businesses, large and small, about how they are required to submit the same information over and over, pushed from one body to the next with no one wanting to be accountable, and the rules change in the middle of approval processes.

The Business Council has previously cited an environmental assessment process that took more than two years, involved more than 4000 meetings, produced a 12,000-page report and resulted in 1500 conditions and 8000 sub-conditions attached to approval.

Fourth, regulations haven’t kept pace with what it means to operate in a globally competitive world. Take penalty rates and operating hours in the retail sector. These were designed for a different era and deny the modern reality of 24/7 retail operations, where competition comes from new ways of buying goods and services, not new brands or outlets.

So what’s causing this? We, the community, need to share some of the blame. We expect governments to fix every problem and do it tomorrow, the “squeaky wheels’’ speak the loudest and government is expected to jump. As a consequence, often the first response is to make a new rule.

The second cause is that we’ve lost sight of good policy process.

We don’t properly analyse the risks and design rules that match an actual problem – in other words, we overreact. For example, governments have been canvassing regulation for service station price boards on the basis of 70 consumer complaints each year.

There is often inadequate or non-existent consultation with industry.

We rush things through without taking the time to assess the costs and benefits of regulatory proposals.

There is no regard for the cumulative effect of multiple rules and regulations on particular sectors or groups in the economy.

Even if governments implement recent proposals for directors’ liability reform, we will still have over 200 Acts with provisions making directors liable for thousands of offences.

Some people may say our economy has thrived, irrespective of these problems. But those days are over. Every day, we see evidence of how hard it is for businesses to stay competitive. On the World Economic Forum measure of competitiveness, Australia has fallen from 14th to 20th place in the last three years, its lowest ranking since the index started in 1980.

If we can’t stay competitive, we’ll lose jobs and stifle growth. When we stifle growth, our living standards will not improve and, worse, could decline.

Every dollar a business spends complying with badly conceived, outdated regulation is a dollar it doesn’t invest in creating jobs or investing in technology and innovation. We must turn this around and do it fast.

So, how does our action plan propose to fix problems with regulation? Here are seven starting actions.

1. Get good policy processes back on track. All regulation should be subject to regulatory impact statements and proper cabinet processes that allow agencies of government to assess the risks, costs and benefits of introducing regulation.

2. There should be a two-step process for introducing new rules, with the first step a rigorous gateway testing that a problem has been properly identified and that it justifies a regulatory response. The Commonwealth government announced this last year but recent regulatory interventions were exempted from the process altogether.

3. There should be sector-based or industry-based rolling audits of the cumulative burden of regulation from all levels of government.

4. Regulations should be subject to mandatory statutory reviews to test that they are meeting their original objectives.

5. Regulators should have explicit legislated charters which define their scope.

6. We should shift the current bias towards increasing the stock of regulation by requiring governments to offset new rules by removing comparable existing rules in the same portfolio.

7. We should introduce a system of productivity payments along the lines of national competition payments to drive reforms across states. These payments would reward reforms that adhere to a best practice national model, but also reforms within states which provide a big economic dividend. And there should be serious sanctions for non-performance.

These are some ideas and our plan will highlight more.

Ultimately, fixing the problem with regulation in this country is a cultural issue – we have to want to change the light bulb.

It’s not that business simply doesn’t like regulation.

We understand its role in a good society. We just want efficient, fair rules and proper processes.

If we are to thrive and prosper, Australia cannot keep putting a handbrake on our competitiveness, our agility and on the creativity of our people.