Thursday, February 27, 2014

Thirty years on and government still tackling over-regulation

This year marks the 30th anniversary of when an Australian government first turned its attention to combating excessive regulation.

In 1984, prime minister Bob Hawke, questioning a Labor Party philosophy that stressed greater political control over the economy, said Australia had, ''accumulated an excessive and often irrelevant and obstructive body of laws and regulations''.  Thirteen priority areas of over-regulation were identified.  And procedures were introduced to curb the flow of new regulations.  These included requirements for new regulatory proposals to be accompanied by Regulation Impact Statements overseen by a regulatory gatekeeper, now called the Office of Best Practice Regulation.

An early estimate placed the costs of business regulation at 16 per cent of GDP, while acknowledging that there were offsetting benefits.

Included among the designated priority areas for review were export controls over a range of mineral and agricultural goods, financial market regulations and transport including air services.  In all of these areas the following decades saw deregulatory reforms, which were key to the prosperity Australia has enjoyed.

There was less success in other activities identified as being deregulation targets.  These included the building codes, controls over chemicals, food laws and childcare regulations.  Those areas are among the many where we have seen costly new rules and government intrusions, in spite of a great number of reviews.


We currently have yet another inquiry (conducted by the Productivity Commission) into childcare, one of the notable failures among the 1984 activities targeted for regulatory review.  The Productivity Commission estimates that childcare costs have doubled in real terms over the past decade.  Consult Australia reckons it now costs an astonishing $59,000 a year for two children to be looked after in long-term day care.  One regulatory feature alone, the National Quality Framework (NQF), was calculated by the government to add costs of over a $160 million dollars a year due to excessive staffing requirements.

One outcome of a regulatory instrument is that, even if it is not introduced at the behest of a vested interest, it creates new pressures for its retention from those who make investments on the basis of the rules put in place.  This makes it difficult to reverse the process.  Even in childcare, those who have responded to government over-accreditation NQF requirements would resist the influx of people who have not had to make the same sacrifices as themselves to become accredited even though the qualifications are superfluous.

We can see similar pressures operating in the case of housing.  The overwhelming cause of the excess house prices found in all Australian cities is the regulation of land supply through the planning process.  Once in place, egregious regulations of this kind that restrain supply attract support from those obliged to make investments in response to them.

Thus, the Real Estate Institute in its pre-budget submission to the Commonwealth makes several sensible proposals to assist cost containment but does not address the freeing up of development land.  It cannot do so since its members, in accordance with sound business practice, have invested in land stocks, the price of which are inflated by the regulations.  They would lose money with deregulation which would bring more land onto the market and cause prices to fall.  The present losers — those unable to afford homes at today's excessive prices — have no lobby group to promote their cause.


Clearly, the efforts to roll back the stock of excessive regulations have been, at best, mixed.

In addition, during the 30 years since procedures were introduced to vet new regulations these have demonstrably failed.  The number of pages of regulations has increased exponentially over the past three decades.  Unfortunately during the six years of Rudd/Gillard governments, Labor totally abandoned the agenda laid out by Bob Hawke.  At least 4300 major new regulatory measures were introduced together with thousands of minor changes and amplifications to existing regulations.

We now have a renewed assault on regulatory costs with an industrious Parliamentary Secretary, Josh Frydenberg, specifically tasked to assist Tony Abbott in rolling back regulations.  Frydenberg has laid out an ambitious program to cut $1 billion a year in red and green tape.  The measures he has proposed include expediting approval processes, simplification of paperwork and an annual bonfire of regulations, the first scheduled for the end of March.

What we have seen since the Hawke initiative is considerable reduction in economic regulations such as price controls, tariffs, monopoly supply arrangements and privatisation.  These have been offset by increases in social regulations concerning the environment, workplaces and safety as well as a huge increase in the paper burden.  Cutting into these areas will be the challenge for the Abbott government.

No comments: