Please Keep It Much Simpler, Stupid

09 March 2006

The Age

By Steven Munchenberg
Deputy Chief Executive, Business Council of Australia

Have you noticed that the Saturday morning cake stall has largely disappeared from our streets? This cornerstone of community fundraising, which once supported our kindergartens, churches and footy clubs, has slowly been squeezed out by regulation.

Driven by concern for our wellbeing, governments have placed so many restrictions on how food can be sold on street stalls that many community organisations have simply given up.

The City of Yarra, for example, says that the public expects the local cake stall to meet the same food-handling requirements as restaurants and cafes. We do? Or are we smart enough to know the difference between a professional business and our neighbour’s kitchen and to take our chances if we want to?

Food hygiene is important, but so is the ability of communities to pull together and raise money for local activities.

Over-regulating cake stalls may seem a minor problem, remote from Australia’s future economic prosperity, but there is a common thread.

Across Australia, from community fundraising to multimillion-dollar export deals, Australia is straining under an avalanche of regulation.

Each year, state and federal parliaments pass 30,000 pages of new laws, rules and regulations. That is not counting the annual plethora of new and revised bylaws and regulations from local government.

Much of this legislation is well meaning and society cannot operate without clear and strong rules. But we do not need poorly thought through regulation, which imposes unnecessary costs and restrictions on our community and business.

Poor regulation hurts the Australian economy in several ways. High compliance costs impose a burden, taking time and effort away from running the business, particularly for smaller operators. Restrictive and bureaucratic rules prevent business – large and small – being innovative and responding quickly to new market opportunities or challenges.

Regulation also imposes costs financially and time wise on consumers. It takes hundreds of pages of documentation, for example, to open a bank account.

To understand why we have so much poor regulation, it is necessary to understand the process officials typically follow to develop new rules.

The first step is to identify a problem, which might stem from a company or individual doing something wrong.

The collapse of HIH, for example, gave us new corporate governance laws, even though those involved in HIH were prosecuted under the old laws.

This is rule making by exception, where the majority of individuals and businesses have new laws imposed on them because a handful of people broke the rules that already existed.

More often, new regulations are suggested because existing rules are not being enforced by government, or because the existing rules cannot deal with all the complexity that is a reality in life.

Either way, more regulation is piled on top of existing laws in the hope that what has failed in the past will work eventually if we just keep doing it.

Having identified the problem, officials form a committee and thrash out a solution. They agree on the regulation that is supposed to fix the problem. Once officials have agreed, the proposal goes to ministers and even cabinet, to be signed off.

At that point, government might or might not put the proposed regulation out for public comment. In other words, it is not until government has already decided what it is going to do that it talks to those who will be affected.

Not surprisingly, government has a strong sense of ownership of its proposed new regulations, and does not take kindly to having flaws or practical problems pointed out.

At best, those affected by the regulation might get the worst flaws smoothed out, but any hope of persuading government that there is a better way is usually a hope in vain.

So long as we have this black-box approach to regulation making, we will continue to get poorly thought through laws and rules.

With the best will in the world, officials cannot be expected to understand the detail of every aspect of our society and economy. They cannot, therefore, design efficient and effective regulation in isolation from those who have to live with it.

The answer to excessive and poor regulation lies in turning the current process on its head. The public, including consumers and businesses, need to be involved in developing regulation before firm decisions are made. This will be challenging for officials, and some may resist it, but it is the only solution.

Proper analysis of the potential costs and benefits of different solutions is also needed, with input from those who have to bear the costs or who seek the benefits. Ultimately, it remains for our governments to make the final decisions, but let them be informed decisions.

The Business Council of Australia, other groups and individuals have put these arguments to the federal government’s regulation taskforce. We await with interest the response from the Commonwealth and the states.



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