Australia’s regulatory state Definition – measurement – impact – reform

1. Australia’s regulatory stateDefinition – measurement – impact – reform Dr Julie Novak Senior Fellow Institute of Public Affairs

2. Defining the regulatory state • Governments intervene in economic and social affairs by using an array of instruments and techniques simultaneously. • Regulation. • Taxation. • Expenditure. • Moral suasion. • What is regulation? • ‘Regulation can be defined as a principle, rule or law designed to control or govern conduct’ (Productivity Commission, 2007). • Distinguish between economic regulation and social regulation. • Distinguish between ‘black letter’ regulation (primary & subordinate legislation) and quasi-regulation (codes of practice, guidance notes, etc.). • Distinguish between government regulation and self-regulation.

3. Defining the regulatory state • Most economists focus upon fiscal or labour-use measurements of relative public sector size. • Major advantage of these approaches is that the relevant data is more readily available. • But role of government as taxer and spender, and as absorber of real resources, depends upon regulatory authorisation for it to perform those activities. • ‘Government expenditure and employment derive from, but do not themselves constitute, the power of government. Before the government can spend or employ, it must obtain the authority to promote a specified public purpose. If the requisite authority cannot be acquired (a legislative question) and sustained (a judicial question), then the matter is settled: no authority, no program.’ (Robert Higgs, 1987). • Regulation also imperfect substitute for taxation, or even direct government spending and employment.

4. Measuring the regulatory state • Most popular proxy measure of regulatory burden is number of pages of primary (subordinate) legislation. • New environmental and social legislation, as well as revisions to economic legislation, responsible for upscale of regulatory burden since late 1960s.

5. Assessing the regulatory state • It is often asserted that regulations are necessary to deliver broad social benefits to the community. • Environmental regulations ensure fresh air, clean water, non-human species protection, and redressing ‘dangerous climate change.’ • Labour market regulations prevent economic exploitation of employees by employers. • Consumer regulations required to ensure customers enjoy safe products that reflect reasonable value. • Usually in ex-post fashion, economists suggest regulations address innumerable forms of ‘market failure’ which, if unaddressed, would emaciate private sector activities. • Public choice theorists ask question as to ‘who benefits’ from regulatory state (it is general public at large; or is it crony capitalists, other special interests, or even political class itself?).

6. Assessing the regulatory state • Many proponents of government regulation – politicians, bureaucrats, direct beneficiaries – argue there is some benefit attributable to regulatory activity. • But there are also always costs of regulation. • Most commonly known, and more easily identifiable, costs are the compliance costs of regulation. • Administrative compliance costs. • Costs of filling out and submitting paperwork; record keeping costs; costs of obtaining external advice. • Other compliance costs. • Costs for additional staff hiring and training; capital holding costs associated with regulatory delays; time spent in meeting regulatory requirements. • Dynamic effects of regulation. • Regulations redirect entrepreneurial initiative towards less value-adding pursuits; capacity to eek out regulatory holidays through political lobbying encourages ‘rent seeking.’

7. Assessing the regulatory state • Estimating the burdens posed by Australian regulation: • Early estimates of total regulatory burden, by Dr Alan Moran, between $40bn and $80bn in mid-1980s (incl. paperwork, other compliance costs). • OECD (2001): compliance burdens of tax, employment & environment regulations equivalent to 3.4% of GDP. • Productivity Commission (2007): reducing compliance costs of regulation by 20% would lead to ‘resource savings’ of $8bn. • ANU (2009): direct costs of EPBC Act impact assessments and approvals totalling $820m (over life of Act). • ACCI (2012): 12% of red tape survey respondents spent more than 20 hours pw on compliance; almost 50% spent more than $10,000 on compliance activities.

8. Reforming the regulatory state • Regulatory ‘repeal day’ at federal level a welcome first step (but many more repeal days needed!). • Quality of regulation, and reform governance processes, also important to help slow down rate of regulatory growth. • Need more credible ‘regulatory impact statements’ that incorporate a genuine cost-benefit analysis of regulatory impacts (instead of sweeping assertion of benefits, and crudely devised cost analyses). • All legislation, existing and new, should be accompanied by a ‘sunset clause’ encouraging reassessment of need for the regulations. • ‘One-in, one-out’ rules to stabilise flow of legislation through parliament, or ‘one-in, x-out’ (x>1) to reduce flows.

9. Reforming the regulatory state • Immense barriers to meaningful reduction of regulatory burdens in modern political culture. • Special interests, and voters benefiting from regulations, will spend time and resources defending their preferred regulatory settings. • But the benefits of shifting the political culture towards a climate favourable to deregulation could be immense. • Effect of Adam Smith’s epochal critique of mercantilism on the British regulatory environment: • ‘from the Statute of Merton (20 Henry III.), to the end of 1872, there had been passed 18,110 public acts, of which it is estimated that four-fifths had been wholly or partially repealed’ (Bruce Smith, 1887). • Where is our modern-day Adam Smith, who can reveal the follies of hyper-regulation, in a persuasive way, to the layperson, setting the scene for the next wave of liberal reform?

10. The regulatory state: What you can do about it • Use your growing influence within the Liberal Party to praise Abbott and state governments for good deregulatory deeds, and encourage them to move further, in the face of crony & special interest resistance. • Build political-name recognition in your own communities by championing a deregulatory cause, either at the local, state, or federal level. • Don’t be afraid to publicly critique outrageous regulatory proposals by Labor-Green alliance – signal to others that someone, somewhere does care about our liberties and way of life. • Free-market think tanks are here to communicate liberty’s principles and contemporary policy issues to the general public. • Inform usabout your experiences of onerous regulation and nuisance red tape, so we can communicate the problems to the public, and influence the politicians to do right thing. • Also, please join us or donate to us, so we can continue our good works in the name of freedom!