Australia: Decreasing Regulatory Burden: An Important Opportunity for Business

On 31 January 2006, the federal government’s Australian Government Regulation Taskforce (taskforce) issued its report, Reducing the Regulatory Burden on Business. This report immediately places Australia in the middle of a global debate and movement for regulatory reform—cutting down on unnecessary regulatory burdens by adopting a principled approach to regulation of markets.

The report identifies and examines practical options for alleviating the compliance burden on business from Commonwealth regulation, including areas where burden arises from overlap with state and territory legislation.

The report follows on from other major regulatory and economic reforms and reviews undertaken in Australia to make businesses more competitive and the economy more efficient and productive, such as Council of Australian Government’s (COAG’s) current review of the National Competition Policy and the Australian Treasury’s Financial Services Reforms Refinement project. The government has also recently committed to a more rigorous use of cost-base analysis in assessing new regulation and to an annual review of the cumulative stock of regulation.

In addition to the obvious objective to simplify regulation, this initiative reflects an attempt to move away from command based regulation and towards improved standards of accountability, principled regulation and greater scrutiny of regulators, a trend which is occurring internationally.

On 7 April 2006, the Parliamentary Secretary to the Treasurer released a consultation paper entitled Corporate and Financial Services Regulation Review which aims to improve and simplify the operation of corporate and financial services regulation.

The problem of excessive or inappropriate regulation

The taskforce recognised that excessive or inappropriate regulation acts impede economic growth. It limits the scope for innovation, undermines entrepreneurial drive and reduces productivity and competition. The cost of such regulation affects business, government and the community at large. In regard to the effect on business, in addition to the monetary cost, compliance diverts management attention from a company’s core business.

The rise of regulatory burden

The taskforce has identified that the rising regulatory burden in Australia is attributable to both the expanding volume and the variable quality of regulation in Australia. The taskforce has identified that these underlying causes of over-regulation have resulted in:

• excessive coverage, including regulatory creep

• overlapping and inconsistent regulatory requirements

• regulation that is redundant or not justified by policy intent

• excessive reporting or recording burdens

• variations in definitions and reporting requirements.

Solutions to the regulatory burden

The taskforce has identified two broad categories of solutions to Australia’s over-regulation. The first is systemic reform, and the second is reform and review of existing regulation.

Systemic reform

The taskforce recognised that ‘unless the underlying causes of excessive and poor quality regulation are addressed, it is likely that problems will simply re-emerge, as they have in the past’.¹ To this end, the taskforce has recommended that Australia’s governments and regulators adopt three kinds of systemic reform: principled regulation, coordinated and comprehensive consultative practices, and better performance bolstered by sharpened accountability.

The taskforce summarised the style of its recommended principled regulatory process in six principles. These principles will be the guiding influences in any systemic reform that is undertaken. The principles are:

1. Governments should not consider introducing or amending regulation unless a case for action is established.
2. Where a prima facie case for action is established, governments must identify a range of feasible policy options, and then rigorously assess the relative merits of those options with a cost/benefit analysis.
3. The option that generates the greatest net benefit for the community (taking into account economic, social, environmental and equity impacts) should be adopted.
4. There needs to be effective guidance to relevant regulators and regulated parties as the regulation is being implemented.
5. There is a need for mechanisms, such as sunset clauses and period reviews, to ensure that regulation remains relevant and effective over time.
6. There needs to be effective consultation with regulated parties at all stages of the regulatory cycle.

Two key reforms that stem from these principles are the need for governments and regulators to undertake a cost/benefit analysis, and the need for regulatory processes to be regularly reviewed.

The recommendation that regulators and policymakers adopt coordinated and more comprehensive consultative practices seeks to ensure that regulators have access to information and perspectives from business (which includes the likely compliance costs of different options). Two key initial priorities in this respect will be the establishing of a business consultation website, and the encouragement of a consultative culture among policymakers and regulators. That culture should include demonstrated commitment from senior staff, adequate staffing and resourcing of consultation, and an appropriate incentive structure to promote consultation.

The taskforce recommended sharpening the accountability of regulators in order to achieve better regulatory performance. It suggested that regulators’ reporting requirements be expanded to include whether regulators have achieved ministerial ‘statements of expectations’, consultation policy and other best practice requirements. One of the most significant recommendations of the taskforce was the availability of timely review of administrative decisions on their merits. According to the report, ‘merit review by an independent third party not only enhances the accountability of regulators, it can also promote better decision-making over time and increase business confidence’.²

Reforming existing regulation

The taskforce recommended both a number of general reforms that are to be applied across multiple sectors, and 51 further reviews of particular pieces of legislation. The regulatory areas that the taskforce’s report covers in detail include health-related regulation, labour market regulation, consumer-related regulation, environmental and building regulations, financial and corporation regulation, tax regulation, superannuation regulation and trade-related regulation.

In each of the regulatory areas that were reviewed, the taskforce recommended reform along the following lines:

• excessive coverage and regulatory creep is to be addressed

• regulatory overlaps and inconsistency between jurisdictions are to be removed

• regulations matters redundant or not justified by policy intent is to be removed

• reporting and recording burdens are to be reduced, and

• definitions and criteria contained within legislation and regulations are to be aligned.

Of the 51 further reviews that the taskforce identified, it sees the following as warranting priority:

• superannuation tax provisions

• anti-dumping regulation and the wheat export arrangements

• implementation of procurement policies (a review to examine ways to reduce the compliance burden for tendering businesses)

• private health insurance regulations

• directors’ liability provisions and the Corporations Act (the report notes that these provisions appear to be creating uncertainty and driving excessively risk-averse compliance behaviour)

• health technology assessment

• childcare accreditation and regulation

• privacy laws (the report noted that privacy requirements were identified by business as important contributors to their cumulative regulatory burden)

• food regulation

• chemical and plastics regulation

• consumer protection and administration

• national trade measurement, and

• energy efficiency standards for premises.

Reduced burdens for government

In addition to recommending systemic refrm and reform of existing regulation, the taskforce recommended reducing burdens across government. The taskforce considered that by improving access to information, presenting information in a business-friendly manner, exploiting information technology, minimising duplication of reporting, standardising data collection, and streamlining business registration, streamlined regulatory administration and increased efficiency across government can be achieved.

The government’s response

The Australian Government has announced an immediate interim response to the taskforce. That interim response addresses 86 of the taskforce’s recommendations in full or in part. The Australian Government will respond comprehensively to the taskforce’s report by the end of July 2006.

In the interim, the Australian Government has agreed to the recommendations on principled regulation, increased consultation and enhanced accountability. The government cited its commitment to more rigorous use of cost/benefit analysis associated with new regulations (announced on 12 October 2005), and the existing regulation impact statement process, as examples of where the government is already pursuing a principled approach. The government also said that regulators will be asked to ensure that they have internal review mechanisms in place. All of the recommendations on systemic reform will be considered in full in the final response.

Your opportunity

There are three reasons why the taskforce’s report and the government’s interim response³ is important for the business community.

First, the report and the response, is indicative of Australia’s progression towards the global trend of a principled approach to regulation. This report follows important work in the United Kingdom and the United States that require regulators to approach their work on the basis of principles that are consistent with the market forces that are being regulated. That is, regulators should themselves be able to justify why market intervention through regulation is required and how any such regulation aligns with the relevant guiding principle. The principled approach to regulation is an important constraining influence on regulatory creep.

Second, Australia’s regulatory environment has become prescriptive and inflexible through a ‘regulate first, ask questions later’ culture. The movement away from this type of controlling regulation emphasises the continued importance of competitive and efficiency-based initiatives, such as the National Competition Policy. The National Competition Policy requires that any regulation be the least restrictive necessary and that it be in accordance with principles of good regulation.

Finally, and most importantly, the report presents an important opportunity for business to work with the regulator in governing markets for the long term benefit of Australia, through better understanding of what they do and why they do it. To achieve this, business should establish and maintain communications with the regulator and assist the regulator in better understanding the conduct and context of the market. Business must also be proactive and ‘principled’ in managing their risk and business decisions. Compliance programs play an important integrating role in providing a basis of voluntarily self-regulation and assisting the regulator to better understand the relevant market. They should not be seen as simply a cost of doing business, but an opportunity that enables business to manage and shape their regulatory environment. Such an integrated approach by the businesses will also help them justify their conduct to the regulator or the courts, if required.

Time for submissions

While the regulation taskforce’s work is finished, which means business is unable to make further submissions in respect of the report, business can make submissions to the Corporate and Financial Services Regulation Review.

The closing date for submissions to the Corporate and Financial Services Regulation Review is 19 May 2006. Written submissions can be addressed as follows:

Corporate and Financial Services Regulation Review
Corporations and Financial Services Division
The Treasury
Langton Crescent
PARKES ACT 2600

Fax: 02 6263 2770
Email: CFScomments@treasury.gov.au

Where to find the documents:

Click here to view a copy of the Reducing the Regulatory Burden on Business Report.

Click here for a copy of the Corporate and Financial Services Regulation Review Consultation Paper.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.