CEO Report: Regulation burden restricts growth opportunities

Tuesday, 01 April 2003


    The cost to business of government regulation consistently ranks as the major concern of small and medium size enterprises in their quest for growth and success.

    The cost to business of government regulation consistently ranks as the major concern of small and medium size enterprises in their quest for growth and success. The OECD has estimated that taxation, employment and environmental regulations imposed over $17 billion in direct compliance costs on small and medium sized businesses in Australia in 1998. The cost of the total regulatory burden must be multiples of this figure.

    While some regulations are necessary for the effective functioning of society and the economy, the complexity and prescriptiveness of many regulations deter business formation and expansion. The costs of understanding and responding to the ever-changing regulatory requirements restrict many individuals' and firms' capacity to take advantage of new opportunities for growth.

    A recent report of the Australian Productivity Commission and a speech by its chairman, Gary Banks, have highlighted both the myriad and complexity of government regulations and the cost of compliance which Australian businesses face.

    Banks has highlighted that we had nearly 55,000 pages of legislation passed by our Commonwealth Parliament in the 1990s. This was twice the page count for Acts passed in the 1980s and almost three times that for the 1970s. He also identified more than 7000 regulations that were passed in the five-year period 1997-98 to 2001-02.

    There are approximately 60 Commonwealth departments and agencies involved in making and administering regulations. The states and territory governments also have their regulatory departments and agencies. In addition there is the local government involvement in the regulatory burden being experienced by Australian business.

    While we recognise that this is largely a world-wide phenomenon, it should not be seen as an excuse for accepting this growth as inevitable.

    The Commonwealth and all states and the ACT require the use of regulation impact statements as part of the process of development of new regulations. This process is intended to provide a quality test to new regulations, and amendments to existing ones, to ensure that the regulations operate in an effective and efficient manner. It requires regulators to specify clear objectives for the regulation, identify prospective problems for users and to consider a range of other options, both regulatory and non-regulatory, as part of the development of new regulations.

    These regulatory impact processes have no doubt helped to reduce some of the 'unintended consequences' of new regulations but more needs to be done.

    The real cost of regulation needs to be accurately assessed and weighed against the gain sought by the regulation and the burden which it places on the regulated and the impact on the community generally.

    Parliaments can do more to review existing legislation and regulations to ensure that they are achieving the benefits initially sought against their cost.

    Banks points out that "it is an established fact that the burden of regulation falls more heavily on small business, not because they are more regulated, but because they have the least capacity to cope".

    Australian businesses are generally concerned with a lack of consultation, perceived lack of consistency in regulator decisions and appeals and complaints processes.

    The Productivity Commission has called for business to be more active in providing feedback on the impact of both existing and intended regulations. Business needs to respond to this call to ensure their views will be heard and acted upon and regulators need be seen to be more "business friendly". This is an important area where success in reducing the regulatory burden would substantially improve our competitive advantage and encourage entrepreneurship and new business development.


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