Good Process Avoids Poor Regulation: Article by Jennifer Westacott in the AFR

This opinion article, by BCA Chief Executive Jennifer Westacott, was published in The Australian Financial Review on 25 February 2014.

In a month’s time, the government will preside over the first of its planned “repeal days”. Parliament will be asked to support the removal of regulation that’s doing the most damage in hindering rather than helping Australia achieve important economic, social and environmental objectives.

An ambitious first repeal day, and those that follow, will be widely applauded among the business community. Poorly conceived regulation has become the greatest obstacle as business works to respond and adapt to the needs of a modern economy.

Regulation plays an important role in our society, but only if it’s well-designed and proportional to the problems it is intended to address.

The Workplace Gender Equality Act 2012 is a good example of regulation that’s the wrong solution to the right problem. We commend the current government for its proposed changes to the regulatory model, and encourage it to go further.

In particular, these changes will benefit small and medium-sized businesses. While the impact on larger businesses is more modest, the changes will reduce the compliance burden by no longer requiring companies to provide extremely detailed breakdowns of gender by occupational area (e.g. the number of female technicians in a company) that offer no useful comparison because the nature of each business is so different.

First principles for policymakers

The Business Council of Australia and its members are passionate advocates for the need to improve workplace diversity, particularly the representation of women in the senior ranks of our companies. We’ve set ourselves an ambitious goal of increasing the proportion of women in senior roles in BCA organisations to 50 per cent in the next decade.

But with more than enough evidence of the problem already available, detailed and mandatory reporting requirements imposed by the former government don’t improve gender equality. Quite the contrary. They divert significant resources, financial and human, from actions that are gradually yielding results – changed recruitment practices, internal employment targets, performance management and promotion guidelines, flexible working conditions, etc.

Similarly, we support the stated intent of the Australian Jobs Act, introduced by the previous government last year, to encourage the use of Australian contractors and suppliers on major capital projects. It is in the interests of businesses procuring goods and services for a big project to purchase locally where it makes commercial sense to do so.

But the regulation was the wrong way to achieve a laudable outcome. It imposes costly, complex and prescriptive compliance and reporting processes on investors for no discernible benefit. Rather than creating any real job opportunities, the policy imposes deadweight costs from unnecessary red tape and more bureaucracy.
In determining whether regulation, and what kind of regulation, is the best way to respond to a perceived problem, policymakers must come back to first principles:

  • the problem to be solved is well-understood
  • new regulation is subject to cost–benefit analysis
  • regulation achieves its objectives at least cost
  • regulators perform efficiently
  • regulation is constantly reviewed
  • reform agenda deserves support.

Once again, the Gender Equality Act is an instructive example of where the former government went wrong by not following these important principles of good law-making.

Although they prepared a detailed regulatory impact statement, lack of data or transparency on gender diversity wasn’t the problem to be solved, so why was mandatory, detailed reporting considered to be an appropriate solution?

On cost, the regulatory impact statement concluded that the public service would be exempted from annual reporting because it would be too expensive. But if the cost was too high for the public sector, why was it acceptable to impose it on private businesses?

While it diverts energy and attention from finding more effective solutions, a plethora of poorly conceived regulation is making it so much harder for Australian businesses – small, medium and large – to stay competitive.

If we are looking for the shortest road to achieving stronger rates of economic growth, it’s the deregulation road we need to navigate. If parliament is serious about achieving important, interdependent social and economic outcomes, I’d urge our elected representatives to support the government’s regulatory reform agenda.

Action Plan for Enduring Prosperity: Rethinking our Approach to Regulation and Governance (July 2013)

Policy Essentials: Standards for Rule Making (September 2012)