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Lahey, Katie --- "The 30th Anniversary: What Business Needs From The Law and Decision Makers" [2007] AdminRw 8; (2007) 58 Admin Review 49


The 30th anniversary: what business needs from the law and decision makers

Katie Lahey

Chief Executive, Business Council of Australia

The ARC’s 30th anniversary celebration presents a valuable opportunity to talk about what business needs from the law and decision makers.

The Business Council of Australia represents Australia’s top 100 businesses. We are particularly interested in the way that regulations are drafted and administered because regulation can have a large cost impact on business and the economic prosperity of our nation as a whole.

In March 2005 the BCA released its Business Regulation Action Plan, which highlighted the following:

• Poorly drafted and poorly administered regulation can impose very large costs on the economy.

• The aggregate cost to our economy of ‘red tape’ is overwhelming. The OECD has estimated that the direct compliance cost of regulation for just small and medium-sized Australian businesses in 1998 was more than $17 billion. So, regulatory overload—or, as we have termed it, ‘regulatory obesity’—is a very real issue, and I expect is costing business by 2006 well in excess of $20 billion per annum.

It may be argued that we have a very successful economy, with record low unemployment and relatively low interest rates. However, we cannot afford to be complacent. Instead, the BCA believes we must continue to review and improve our regulatory administrative processes. We would like to move from regulatory obesity to a more slimline regulatory regime.

It is essential that the business regulatory environment is efficient and does not impose undue compliance and cost burdens on business. Costs and benefits must be weighed up when new regulations are imposed. The Prime Minister highlighted this issue earlier this year:

Regulation can help support business activities. It sets standards for corporate governance, helps ensure our safety and security, guards our freedom and choices and protects our environment. However, over-regulation or inappropriate regulation acts to impede economic growth. It limits the scope for innovation, undermines entrepreneurial drive and reduces productivity and competition.[1]

The BCA is therefore supportive of efforts being made to assess, review and improve the implementation and administration of business regulation and welcomes this opportunity to contribute to the debate about what business needs from the law and decision makers.

So what is the underlying cause of our regulatory overload?

There are a variety of reasons for the problems encountered by business with administration and implementation of regulation.

In an increasingly risk averse society, and because of a few relatively recent high-profile corporate collapses in Australia and overseas, regulation makers and administrators have reacted in a number of adverse ways. Some have responded to minimise their own risk of future exposure and to allay community concern. As a result, regulators are:

• regulating more

• adopting a strict application of the law through heavy-handedness and undue legalism

• adopting a compliance focus rather than applying the spirit of the law

• reducing the transparency of some decisions to avoid risk exposure

• avoiding proper dialogue and consultation with those being regulated.

These reactions from our regulators, though understandable in an increasingly risk averse society, are imposing undue burdens and costs on business.

While it is clear there will always be rogue individuals or unintended corporate mistakes, regulation must be directed at the 99 per cent of honest businesses and individuals who are striving to comply with and adhere to our laws.

In order to operate effectively and efficiently, business needs a number of things from the law and the regulators. They are the ‘4 Cs’:

• clarity

• consistency

• certainty

• consultation with regulators.

Some of the goals of the 4 Cs may appear to be mutually exclusive, but business needs regulators to clearly articulate the policy objectives while ensuring that the application of those laws meets those objectives. We expect our regulatory system to be able to be the best in the world and, therefore, be capable of delivering the best outcomes for business and the community. We apply the term ‘world’s best practice’ to our businesses, our sporting teams, our cultural icons—why not our regulators?

Starting with clarity: laws should be clear, should only be applied where the benefits outweigh the costs, and should only be imposed where regulation is the best method of achieving the policy outcome. In turn, this raises the question whether laws can be clear or efficient when there has been an explosion in the amount of regulation imposed on business. For example:

• There are now over 1400 regulators in this country.

• More pages of legislation have been passed by the Commonwealth Parliament in the 14 years since 1990 than were passed by Parliament since the beginning of Federation.

• Red tape is growing three times faster than Australia’s economic growth rate.

• Federal and state governments have added more than 30 000 pages of new laws and regulations a year.

This regulatory obesity raises two related questions. First, who is monitoring the drafting, efficiency and costs of the regulations? Second, how can businesses keep up? When there is such an explosion in compliance costs and complexity, crucial business resources are being diverted away from more productive areas of the economy.

The second C is consistency. As a result of our federal system and a lack of coordination between regulators, there is increasing overlap and duplication in the regulatory environment. Two examples follow. The first example concerns the railway system:

• An operator of an interstate train in Australia may have to deal with six access regulators, seven rail safety regulators with nine different pieces of legislation, three transport accident investigators, 15 pieces of legislation covering occupational health and safety, and 75 pieces of legislation with powers over environmental management.

• Under these laws and agencies, Australia has seven rail safety regulators for a population of around 20 million people. In contrast, the United States, with a population of 285 million people, has one rail safety regulator. As a result Australia, with a land mass the size of a continent, has no truly national rail system.

If the over-regulation of our rail system is the sublime example, in contrast is the truly ridiculous example of the lack of consistency in regulation:

• David Morgan, CEO of Westpac, has highlighted the simple but bizarre example of first aid kits. First aid kits in Westpac branches are required to have differing contents depending on which state they are in. A first aid kit in New South Wales has to have dressing tape 2.5 centimetres wide; in Western Australia it has to be 1.25 centimetres. In Victoria, 60 millilitres of eye wash is a requirement; in Queensland it is 250 millilitres; and in South Australia you don’t need it at all.

This may seem laughable, but in reality it adds real costs to business because Westpac cannot bulk-buy and standardise its first aid kits.

The third C is certainty. Regulators must also provide certainty in the application of laws so that the stated policy objectives are met. Perverse outcomes can result if there is a lack of certainty and laws are applied strictly, regardless of the outcome.

One example is the Saturday morning cake stall, which has largely disappeared from our streets. This cornerstone of community fundraising, which once supported our kindergartens, churches and footy clubs, has slowly been squeezed out by regulation.

Driven by concern for our wellbeing, governments have placed so many restrictions on how food can be sold on street stalls that many community organisations have simply given up. The City of Yarra commented that the public expects the local cake stall to meet the same food-handling requirements as restaurants and cafes. But surely we are smart enough to know the difference between a professional business and our neighbour’s kitchen and take our chances. Food hygiene is important, but so is the ability of communities to pull together and raise money for local activities.

Over-regulating cake stalls may seem a minor problem, remote from Australia’s future economic prosperity, but this is part of the regulatory burden which we must all challenge or these perverse outcomes will remain.

The final C is consultation. Business has highlighted that some regulators are unwilling to engage with business through dialogue about proposed new laws or compliance with the regulatory regime. Some BCA member companies have indicated, for example, that the Australian Prudential Regulation Authority is likely to only use the written-submission model for input by business on new regulation development and, in general, has demonstrated little appetite for dialogue.

Gary Banks, Chairman of the Productivity Commission, put it very clearly in a speech in May 2006:

Regulation without consultation is like a shot in the dark. Yet a recent government survey found that only one-quarter of regulatory agencies consult outside government when developing regulations … This smacks of ‘government knows best’ and has been a major cause of some of the most costly regulatory decisions.[2]

How can regulators develop new, innovative approaches to administration of regulation if they are not listening to and consulting with business? The BCA believes that regulators need to increase the trusted ties with business through a positive dialogue between the regulator and the regulated. Business should be able to feel comfortable approaching regulators with an issue, or seeking advice on compliance, without fearing that recrimination or penalties may be imposed.

Further, in order to increase trust and dialogue, it is essential that regulators have the appropriate experience and understanding of the business environment. This means:

• Regulators must be adequately funded and staffed with appropriate experts.

• Staff must be well trained and understand how business operates.

In conclusion, the BCA believes we need to be constantly vigilant about regulation and its administration and implementation.

Australia cannot, in an increasingly competitive global environment, afford to be complacent, especially when our competitors, such as the United Kingdom and the Netherlands, are undertaking significant regulatory reform. The BCA is of the view that the first developed nation to seriously reduce its business regulatory burden will have a significant economic advantage. We are optimistic that Australia could reap that advantage with the government’s recent review of business red tape.[3]

The government’s commitment to action and real reform could see a significant reduction in the $17 billion regulatory burden. Of course, there have been red tape reviews in the past, but this one promises to be different because it is considering systemic change, rather than simple quick fixes. The BCA is optimistic that our 4 Cs will be considered and reflected in the outcome.

It is not often an article on business red tape can finish on an optimistic note, but this one does. Congratulations again to the Administrative Review Council for the important role it plays in the continual oversight of the business regulatory environment in Australia.


[1] The Hon. John Howard MP, Prime Minister of Australia, and The Hon. Peter Costello MP, Treasurer, 2005, Taskforce on Reducing the Regulatory Burden on Business, Joint media release, 12 October.

[2] Banks, G (Chairman, Regulation Taskforce and Productivity Commission) 2006, ‘Reducing the regulatory burden: the way forward’, Inaugural public lecture, Monash Centre for Regulatory Studies, University Law Chambers, Melbourne, 17 May.

[3] Taskforce on Reducing the Regulatory Burden on Business 2006, Rethinking Regulation, Commonwealth of Australia, Canberra, 7 April.


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