Like rust, Red tape never sleeps

Like rust, Red tape never sleeps

James Paterson — Australian Financial Review — 1 October 2018


The battle against red tape is never ending. It requires eternal vigilance and creative thinking from governments determined to keep it at bay.

Australia’s 27 years of continuous economic growth is one testament to the relative competitiveness of our economy. But there is at least one area where we perform much more poorly than we should – the burden of government regulation.

The evidence for this abounds. The World Economic Forum’s Global Competitiveness Report ranks Australia 80 out of 137 nations for the burden of government regulation.

The extent of the problem has been well-documented by the Institute of Public Affairs, which estimates red tape costs the Australian economy $176 billion every year. That’s a staggering $19,300 for every Australian household.

According to the Australian Chamber of Commerce and Industry’s 2015 National Red Tape Survey, 74 per cent of businesses were negatively affected by government regulation in the prior year. The survey found that 27 per cent of businesses spent more than 11 hours per week complying with government regulations, while 48 per cent said compliance cost them more than $10,000 per year. Almost half of the businesses surveyed said the impact of red tape prevented them from making changes to grow their business.

The burden of red-tape falls disproportionately on small businesses and entrepreneurs who lack the teams of lawyers and accountants big businesses have for regulatory compliance. That isn’t an option for the vast majority of Australian businesses, 88 per cent of which have fewer than four employees.

It should come as no surprise then, that fewer people are opting to start their own business. In 2018, a book published by Canada’s Fraser Institute found that Australia’s small business entry rate declined by 40 per cent between 2003-05 and 2012-14, a substantially larger decline than the United States, Britain and Canada.

Barriers to start-ups

It is possible that Australians are just becoming less entrepreneurial. But it only takes a quick look at some of the barriers to entry in Australia to see why people might be discouraged from starting a business. In NSW, for example, it takes 48 separate forms and 72 licences just to open a restaurant. Becoming a hairdresser takes 847 hours of study, and can cost up to $9970.

The Senate’s red tape committee – chaired by David Leyonhjelm – has been investigating this problem, sector by sector. The evidence from its interim reports shows red tape is not just a problem for business, but community groups, consumers and our health system, too.

In just one example, earlier this year the committee heard evidence that compliance costs in the dental sector were “conservatively estimated” at $397 million in 2016 – that’s $84,400 per dental practice. Some regulation of dentistry is obviously necessary, but when dentists are required to purchase one licence to own an x-ray machine and a second licence to use it, it’s clear things have gone too far. Ultimately consumers pay the price of this either directly or through higher health insurance premiums.

The Liberal Nationals government has made a start in cutting red tape. Between September 2013 and December 2016 repealing outdated and unnecessary regulation saved businesses $5.8 billion.

Now that much of the low-hanging fruit is gone, new systemic reforms are needed to continue the fight against red tape in perpetuity.

For ideas we can look to the success of two close Commonwealth allies – Britain and Canada.

UK lesson

The lesson from the UK is that we should harness the community in the task of red tape reduction. Between 2011 and 2014 the conservative government ran a “Red Tape Challenge” where they crowdsourced the views from businesses, organisations and the public. They received 30,000 comments and submissions. After regulations were identified, it was up to the responsible departments to justify why they should be kept, or how they could be improved.

The challenge resulted in 3095 regulations being scrapped or improved, with 1376 of these having a material benefit beyond tidying the statute book. This is reported to have saved businesses more than £1.2 billion a year.

The province of British Columbia in Canada has succeeded in cutting red tape by 48 per cent since 2001. Key to this success was the precise way the BC government decided to measure regulation – by counting the number of “restrictive clauses” in legislation (words like “shall” and “must”) instead of more general measures like pages of legislation passed. They then instituted a “one in, two out” rule, ensuring there was a continual reduction in red tape.

The great strength of this approach is that it is not a once-off, but a new permanent feature of the regulatory landscape that guards against new red tape being added in the place of the old. To maintain our vigilance in the constant fight against the stultifying effects of red tape, Australia must embrace systemic regulatory reform.

This article originally appeared in the Australian Financial Review.

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