Sunday, July 15, 2012

Australia chokes on its regulatory mess

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In my last column, which was written just before the federal budget was announced, I pointed to some of the strengths of the Australian economy as well as a couple of its weaknesses. Since then, the economic news has been all over the place, with international gloom warring with unexpected strength in the domestic economy. It all goes to show – as I have argued in previous columns – that businesses are better off ignoring the daily and weekly economic news.

Recently the PM’s Economic Summit has spoken of the need to improve productivity in this country, and about the importance of economic reform. And I agree. When I speak of economic reform I am not talking about taxation reform or the size of the Government, although both may be important. My focus is much simpler; I am talking about the need for immediate steps that will improve economic efficiency.

The Australian economy is choking on regulation. From schools to universities, to doctors to ordinary businesses, more and more resources need to be devoted to reporting and compliance. To help navigate the mess, we need ever more lawyers and accountants, as well as specialists in OH&S and a myriad of other fields. And while we make payment after payment, things don’t seem to get any better.

We have a taxation act of which its size exceeds the total number of pages of the entire Commonwealth economic legislation only fifty years ago. We also have a Corporations Act that seems to be the longest piece of legislation of its type in the whole world. Yet we have seen no proper national estimate of their costs. My best guess is that the direct cost is around 10 per cent of GDP. And that’s only the direct cost. We also need to consider the indirect costs.

For every dollar of direct costs, there is probably another dollar of indirect costs in terms of the scarce executive time that needs to be devoted to considering and responding to the compliance burden. There are also the costs associated with slowed decision-making and the need to get all the required ‘ticks’ across the compliance process. Recently the Business Council of Australia identified this as one of the three cost drivers that is making Australian project cost the highest in the world. We all know these things and we talk constantly about the need for change, but yet nothing happens.

Some years ago I was a member of a high-level Commonwealth taskforce that had been set up by the PM to address the question of deregulation. As we worked our way through all the Commonwealth laws and regulations affecting business (and even then there were hundreds), we found that every single regulation had its supporters who argued that it was in some way critical to the public interest. Every single abolition or reduction involved a political fight with one vested interest or another. So it’s no surprise that nothing happened in the end.

In many ways, the business community is its own worst enemy. As a community and as individuals, we demand regulation and controls to protect things that we consider to be important. Yet we complain when the cost of protecting it affects us.

If the business community really wants regulatory reform then it has to be prepared to address the problem across all aspects of Australian life, and to argue for abolition or at least simplification. I see little sign of this happening.

Note to readers: This column appeared in the July/August edition of Australian Business Solutions magazine. It's not on-line, so I have re-published it here.