Tuesday, April 02, 2013

Everyone promises less red tape, but very few succeed

It pays to be sceptical about the promises of oppositions.

Kevin Rudd said he would take a ''meat-axe'' to the bloated public service, and that the reckless spending would stop.  In his 1996 campaign, John Howard promised to halve the regulation that was ''enveloping small business'' during his first three years of government.

Now Tony Abbott says his government will reduce ''red tape'' too.

Labor partisans like to bang on about whether the Coalition's policies are ''fully costed''.  This is a traditional election ploy.  Oppositions can't win that game.  They don't have the policy development resources enjoyed by the incumbents, and errors can be devastating.

So more interesting are the big, bold statements about chopping down the bloated public service and reducing red tape.  They're obviously appealing.  Who could support bloated bureaucracies?  Who likes red tape?  But they're always light on specifics.  And, in government, they're never achieved.

It is these sorts of promises that oppositions need to be questioned about.

This is Tony Abbott's exact promise, which appears in the Coalition's November 2012 Deregulation Reform Discussion Paper:

The Coalition will reduce the regulatory and red tape burden for individuals, businesses and society as a whole by at least $1 billion a year.

That one billion dollar number is nonsense.  (But the ''at least'' is a nice touch.)

There's a rich academic literature on estimating the costs of regulation.  The upshot?  It's very, very hard.  And, more importantly, any estimate will be very, very debatable.

Part of the reason is that regulation imposes two different ''costs''.

There's the paper-burden cost — that is, the time spent filling out government forms, or the money spent on lawyers to make sure you're compliant with the regulations, or the direct cost of license and application fees.  This is usually what people mean when they talk about red tape.

But more significant are the costs imposed on the regulations themselves — that is, what the regulations are actually designed to do.  The firms that aren't started.  The projects which never happen.  The business decisions for regulatory compliance reasons rather than the efficient production of goods and services.

Paper-burden costs aren't easy to estimate, but we have some strategies.  We can survey managers about how long they spend on regulatory compliance, for instance.  The answer will be wishy-washy and inexact, but at least it's something.

Calculating the second types of costs is much more problematic.  Businesses have many reasons they delay or cancel projects.  Tony Abbott discovered this when he tried to blame BHP's decision to shelve its Olympic Dam project on the carbon tax.  Regulations are often a factor in cancelled projects, but try putting a dollar figure on it.

Ultimately, the Coalition's one billion dollar promise is an illusion.  It's just a big, magical round number.  There will be no way for voters to see whether they have achieved the promise or not.

Still, if our political parties want to reduce the regulatory burden, then they'll need to do something.

The Coalition's discussion paper offers up a few ideas.  It proposes a couple of new bureaucratic requirements — cabinet submissions for new policies will have to include regulatory impact statements, for instance — and a system of audits and reviews.  (Hopefully they recall John Howard's regulation taskforce, which did as much good for deregulation as a wet sock.) The most interesting idea is two dedicated parliamentary sitting days every year for repealing existing legislation.

These clever little ideas miss the broader issue.

The greatest success at reducing regulation in recent history occurred in the Netherlands last decade.  In 2003, a new Dutch Coalition government set itself 25 per cent reduction target in the paper-burden costs of regulation.  Using a model of regulatory costs that they developed specially for the task, the Netherlands achieved that goal in 2007.  (Here's an OECD overview of the Dutch program.)

They did this in a number of ways, including setting up two new bureaucratic institutions — one inside the Ministry of Economic Affairs, and an independent advisory watchdog.

But most of all, the success of the Dutch experiment was driven by overwhelming political and institutional support from the Prime Minister on down.  Regulatory reduction wasn't just a throwaway election promise.  It was a sustained, aggressive, and universal program.  It had to be:  the political backbone needed to be stronger than government's natural inclination for increased regulation.

It's trivially easy for politicians, especially in opposition, to talk in big broad strokes.  There is too much regulation, in general.  We're spending too much, in general.  There are too many public servants, in general.

But when it comes to actually reducing those unwanted things, it gets complicated very quickly.  Particularly when a minister is confronted with specific, individual regulations, whose effectiveness is usually unknown, whose cost is debatable, and upon whom layers of special interests have come to rely.

If Tony Abbott's Coalition government isn't single-mindedly, obsessively, neurotically dedicated to lighting a regulatory bonfire, it simply won't happen.

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