Tackling Australia's $65 billion red tape industry

This essay by Danny Gilbert AM was published in The Weekend Australian on 25 February 2017. It was the third Priorities For Prosperity essay -- a series exploring the challenges of ensuring Australia's future prosperity.

Australians are only beginning to witness the massive economic opportunities ushered forth by the resurgence of Asia. However, we are being held back by a noxious culture of overregulation that has infiltrated almost every aspect of our lives.

Federal regulations alone burdened consumers and businesses to the tune of $65 billion in 2014, not including the patchwork of other red tape imposed on almost every aspect of life at the state, territory and local level.

To put that $65bn figure in perspective, it’s $7300 per household every year. It’s more than what Australians pay in GST every year, and about four-times what’s raised by the Medicare levy. It’s more than the cost of Sydney’s second airport at $43bn, or the National Broadband Network at $49bn. It’s almost double the total output of Australian agriculture, and equivalent to the entire economy of Croatia, Lebanon or Macau.

It’s beyond dispute that Australians count on good regulation to keep them safe. They should. When done effectively and purposefully, government oversight protects consumers and workers from exploitation and unsafe products.  Similarly, good regulation ensures competitive markets and safeguards our precious environment.

However, when done poorly, regulation strangles economic development, limits new opportunities for Australian workers and jeopardises their efforts to provide higher living standards for their families.

Although the cost of regulation is sometimes hidden, it pushes up prices for everything that Australians consume. It ultimately forces those people who are most vulnerable to bear the heaviest burden.

Government regulation is also an intrusion into the lives of individual Australians, forcing them to change their behaviour or accept additional costs. Our leaders must exercise this responsibility with the greatest respect and caution. If the social and economic costs of a rule are not outweighed by the public benefit, it is bad regulation.

The temptation for policy makers to leap to regulation is an understandable human reaction. Public good is almost always the intended outcome.  However, just because it feels like a desirable, easy and immediate solution does not make it so. Cheaper and easier is no substitute for deep thought when spending taxpayers’ funds.

The same applies to executives who allow excessive rules and red tape to proliferate within their own businesses. They too must remember that regulation is never free. Businesses become less productive, jobs less secure and consumers forced to pay higher prices when businesses are internally complex and overly regulated.

Every time the regulatory burden is increased – especially with rules that are vague, sloppy or excessive – it adds to the anchor of bureaucracy that weighs down Australia’s efforts to drive investment, get the most of new global trade relationships and achieve higher standards of living.

Poorly designed regulation can instill false confidence that an issue is being properly addressed or, even worse, inflame the problem that it was supposed to eliminate – the well-known syndrome of unintended consequences

If we are serious about seizing the opportunities of the coming decades, our culture of hastily drafted and ill-considered regulation must be stamped out. Business stands ready to work with government to make this happen.

Some regulations simply defy logic. In Western Australia, a hardware store can sell outdoor lights before 11am, but not indoor lights. Petrol stations can sell cigarettes before 8am on Mondays, but not nicotine patches. The same goes for pantyhose after 9pm on Thursdays, but not underpants. A country pub can sell takeaway liquor on Sundays, but a liquor store across the road cannot.

For small businesses in particular, overregulation can be crippling. Anyone who has tried to erect a pergola in their backyard, let alone open a new café or factory, understands what it’s like to run the gauntlet of red tape.

Building approvals in Launceston took on average 118 business days – more than five months – compared with one month in Geelong and just five days in Cairns, according to a 2012 report by the Productivity Commission. It shouldn’t take that long for a plain two-storey home or small office to be approved in an area zoned for that purpose.

For large employers, the scale is considerably magnified. One large employer’s environmental assessment process took more than two years, involved more than 4000 meetings, resulted in a 12,000-page report. When approved, the project faced more than 1500 state and federal conditions, with a further 8,000 sub-conditions attached to them. This process cost the company more than $25 million.

For Cochlear, an Australian exporter of medical devices, a new product cleared by European regulators took a full 14 months longer to clear safety checks in Australia – during which time it wasn’t available to patients in either market. We could learn from countries like New Zealand and accept that, in general, products cleared by European or North American regulators should be made available here.

Governments need to be careful whenever they want for an extra report here, an additional permit there, or for businesses to close on the Friday before a footy final. Whether a business is lumbered with 10 small obstacles, or a single big one, the effect is the same.

It’s no wonder that Australia, despite being the world’s 12th largest economy, has slipped to 22nd on the Global Competitiveness Index, behind   countries like New Zealand and Belgium.

This burden compounds Australia’s flagging competitiveness on company tax which, at 30 per cent, is among the highest corporate rates in the developed world and rapidly becoming even more of an outlier.

This is not a call to blindly slash regulation, or to set arbitrary quotas for red tape reduction, but to take a culturally thoughtful, systematic, evidence-based approach to reforming our nation’s insidious regulatory culture and deliver the best outcome for Australians.

A well designed and stable framework for regulation can unleash new economic development with better jobs and higher wages, lower prices for consumers and companies that can better adapt to changing technologies, new consumer tastes and intensified competition.

There are concrete steps governments can take to reform Australia’s regulatory culture. Before politicians and bureaucrats consider how they should regulate, they should first question whether they even need to. Too many government policy reviews accede to regulators’ demands to lump on additional rules rather than refining inefficient regulations that could increase competition and potentially solve the problem.

If regulation is necessary, it should be fit-for-purpose. It shouldn’t be too complex or excessive for the risks involved, or subject to unpredictable chop and change.

All levels of government must come together to remove duplication, overlap and inconsistency on issues like occupational licensing, product safety recalls and retail trading hours. States and territories that have not signed up to collaborate with Canberra on competition and productivity-enhancing reforms are doing their citizens a disservice.

The Business Council last year published a report, ‘Competitive Project Approvals’, which outlined a way to simultaneously enhance community consultation and speed up approvals while preserving Australia’s strong environment protections. It is essential reading for any state, territory or federal minister interested in driving greater investment, more liveable communities and better infrastructure for the future.

Governments must also ensure their voters know what the regulatory burden is costing them. As astounding as the $65 billion figure is, it’s a big step in the right direction that the federal government is even publishing it.

No regulation should ever be regarded as “set and forget”. Every line should be regularly reviewed and recalibrated regularly to ensure that it is appropriate and targeted to an ongoing risk or problem.

New regulation should face transparent cost-benefit analysis – not a political fix, but a genuine consultative study of the government’s proposal and any other feasible alternative, including no regulation.

A new spotlight needs to be shone on regulators themselves. The Office of Best Practice Regulation – the regulator for good regulation, which sits in the Prime Minister’s department – needs the power to hold proponents of additional regulation to account. Taxpayers deserve to know that they are getting value for money.

Some senior public servants have shown leadership by promoting cultural change within their agencies. Commissioner of Taxation Chris Jordan set out to help taxpayers comply with their obligations, rather than continuing the mindlessly adversarial approach taken by some of his predecessors. In his words, the Tax Office has aimed to “design and operate a system for the majority of taxpayers who do the right thing, rather than for the few who don’t”.

The task of deregulation won’t be easy, but it is necessary if we are to make the most of the opportunities at our doorstep.

Danny Gilbert AM is Managing Partner of Gilbert + Tobin and a recently retired director of the National Australia Bank. He chairs the Business Council of Australia’s Ease of Doing Business Committee.