The Deregulation Challenge for Small Business

By Scott Ryan - Australian Polity - Volume 2 (Number 2)

Australia needs individuals to play active roles in shaping their communities. We need entrepreneurs to pursue new businesses and we need these businesses to employ people, innovate and explore new markets to grow. But the Gillard Government is doing everything it can to stop this.

The Gillard Government has delivered over two hundred new regulations for every regulation it has removed. This is a far cry from the promise of ‘one in, one out’ made prior to the 2007 election. This overbearing approach not only prevents business growth and stifles the economy, it deters individuals from taking a proactive role in our communities.

The Coalition recently launched its plan to slash the red tape burden for all Australians. This is a plan to increase productivity, reduce administrative waste and return the government to its proper role within our society.

Regulation is ‘a necessary evil’. But this necessity does not justify an approach that stifles individual autonomy, effort and responsibility. Good regulation defines boundaries for economic and social activity and facilitates enforcement mechanisms where necessary — not through trying to control every aspect of our lives. It also needs to be economically efficient, so that the costs imposed are worthwhile given the potential benefits.

We need to be honest about the costs of the regulatory state. It does not come cheap. The Productivity Commission has estimates that the economy-wide cost of compliance is more than $80 billion a year. For small business owners, red tape compliance costs over $1,300 every week.

In his Budget Reply in May this year, Tony Abbott revealed the Coalition’s plan to tackle the red tape problem and reduce the cost of regulatory compliance for everyone.

In particular, he outlined that Government should try to eliminate needless burdens on small business — “less paperwork means higher profits, boosted sales and more time with the family.” He then committed the coalition to slash Labor’s red tape burden and announced a Coalition plan to reduce the regulatory costs to business by at least $1 billion a year.

To achieve this, the Coalition will bring a profoundly different attitude to regulation and, more importantly, deregulation.

There are real problems in the ease in which new regulation is currently created. These problems were made by this Government and are responsible for the influx of regulations we face today.

The first thing we need to do is change the process which currently allows new regulations to be made and passed without proper scrutiny.

This will involve restoring legitimacy to the Regulatory Impact Statement (RIS) process — the process of analysing the social and economic impact of new regulation before such proposals are implemented. By doing this we will guarantee only regulation that has faced thorough stakeholder scrutiny will be passed in the parliament.

As Tony Abbott said during his budget reply speech, this would involve requiring departments to calculate “the costs to business of preparing and making available information, changing their processes and obtaining approvals.”

A key part of improving this process will involve holding government departments to account for the amount of regulation they pass each year.

Currently, government departments are required to submit Annual Regulatory Plans (ARPs) to the Department of Finance outlining their plans for new regulatory proposals. Business can then check online and plan for the future regarding possible regulations they may encounter. This is all good in theory.

The reality is, however, that government is not delivering on even this basic commitment. Last year twenty per cent of government departments did not submit ARPs — including the Department of Finance and Deregulation itself, the very department supposedly overseeing the process!

Under a Coalition government there would be no nasty surprises for business. As Tony Abbott announced in his budget reply speech, government departments would be scrutinised for expanding their regulatory agenda. “Departments and ministers would be accountable for meeting annual red tape reduction targets that the Productivity Commission would verify.”

Additionally, the Coalition will explore opportunities to restore statutory independence to the Office of Best Practice Regulation (OBPR). The OBPR plays a central role in assisting Australian Government departments and agencies to meet the Australian Government’s requirements for best practice regulatory impact analysis and in monitoring and reporting on their performance.

The OBPR was known as the Office of Regulation Review (ORR) in the Howard Government, and was part of the Productivity Commission — a body with statutory independence. However, following the election of the Rudd Government, it was moved to the Department of Finance and Deregulation and renamed the OBPR.

Today, the alignment to the Department of Finance and Deregulation and lack of statutory independence gives the appearance of a lack of transparency in the regulatory process, in particular in relation to RIS requirements, and use of the ‘Prime Ministerial Exemption’ to regulatory scrutiny.

There is the appearance that the Minister for Finance could influence the regulatory process to the detriment. This criticism has been raised by the Business Council of Australia.

The Coalition would also ensure that for every new regulation implemented, one unnecessary regulation will be scrapped.

During his budget reply speech Tony Abbott drew a contrast with the current government who tried and failed to implement this very idea. He said “Under the Coalition, “one in one out” will be a reality, not an aspiration…”

The Coalition will also modernise and simplify the way regulation is facilitated. Reduction in the ever-increasing compliance burden will be a key priority.

Fixing the regulation problem will take time. Since 2007 there has been a remarkable increase in government regulation. It has had a significant impact on the efficiency of the Australian economy and general levels of prosperity.

As Michael Novak writes, this increase is part of a greater shift in the relationship between government and society, in the mechanism by which policy is conducted, and the institutions where political power resides.

We must heed the warning Alexis de Tocqueville provided more than 150 years ago in Democracy in America:

Having thus taken each citizen in turn in its powerful grasp and shaped him to its will, government then extends its embrace to include the whole of society. It covers the whole of social life with a network of petty, complicated rules that are both minute and uniform, through which even men of the greatest originality and the most vigorous temperament cannot force their heads above the crowd. It does not break men’s will, but softens, bends and guides it; it seldom enjoins, but often inhibits action; it does not destroy anything but prevents much being born; it is not at all tyrannical, but it hinders, restrains, enervates, stifles, and stultifies so much that in the end each is no more than a flock of timid hard working animals with government as its shepherd.

Rolling back the regulatory state is a key challenge in once again unleashing the capacity of all Australians and, though, restoring our growth in productivity, providing for our future prosperity. It will be a key priority of an Abbott Coalition Government.