Beyond red tape: Rethinking regulatory reform

Cutting red tape reduces the regulatory burden on business, but to deliver meaningful reform the government needs to look at how adequate regulation is, and how well it's enforced.

The Federal Government’s recent repeal days have rightly shone a spotlight on the difficulties of navigating the regulations that govern our everyday lives. While there are valid economic and political reasons to focus on reducing red tape as a key objective of reform, it is vitally important to also consider the subtle and nuanced relationship between regulation and economic growth.

Cutting red tape is necessary to reduce the regulatory burden governments place on business and citizens, but meaningful regulatory reform encompasses far more than this. Simply focusing on the burden of red tape, rather than also considering whether regulation produces the desired outcomes or how regulation is enforced, is less likely to produce enduring benefits than taking a more strategic and holistic approach.

Indeed, recent Royal Commission revelations into the home insulation scheme - that the Government considered and then rejected a more onerous training regime for insulation installers due to the regulatory burden such a regime would impose – underscore the delicate balance between regulation and deregulation.  Too much regulation and you risk choking innovation and investment; too little, and you risk far more personal outcomes. 

Productive debate requires a deeper consideration of what governments are fundamentally trying to achieve through regulatory reform, and how they should achieve that goal. Regulation, and hence regulatory reform, must enable growth and innovation and also ensure fairness, safety and sustainability.

With these outcomes in mind, several important considerations emerge.

First, discussions about particular regulation should focus on its ultimate objectives. For example, Victoria’s Taxi Industry Inquiry has stated that industry reform is not about licences or monopolies (despite media coverage to this effect); rather, it’s about ensuring the public is getting a fair deal and feel safe when they get into a taxi.

Second, the purpose of regulation should be to improve outcomes and enable innovation, rather than just preventing aberrant activity. In areas as diverse as the National Clinical Safety and Quality Standards for health and aged care, or emissions standards in cars, regulations articulate a minimum acceptable benchmark for performance and leave room for business to decide how to meet that standard.

Third, to achieve desired outcomes, legislation should be aimed at the specific people and companies they regulate. Laws regulating sophisticated businesses that employ expert lawyers (such as those governing security of payment) need to be strictly drafted because these businesses are adept at making the rules work for them. On the other hand, workplace safety laws should be crafted in a way that a plumber can understand and implement. Currently, workplace safety regulations in most states run between 700 and 1,000 pages. This might help improve the prosecution success rate, but to your average business these important regulations remain an unread mystery.

Fourth, regulators should consider all the legitimate instruments available to achieve their regulatory goals. The most effective regulators view rule-making as just one of a range of regulatory levers, and include approaches such as education, ‘risk-based’ audits and ‘capacity-building’ as part of their kit bag. Road transport regulators, for example, are now attempting to reduce car deaths by educating consumers about the safety features in the cars they drive, rather than just enforcing road safety rules.

Finally, with respect to red tape, the tools used to engage in regulatory reform need to improve. Business and citizens comply with a totality of regulation: all the rules that all the regulators impose. Therefore, regulations need to be assessed and refined collectively, not individually. This is why the Business Council of Australia is correct in noting that the number of rules companies must follow, and the swathe of legislation governments pass, are blunt tools through which to assess the burden that governments place on their citizens.

If we can agree on the ultimate objectives regulatory reform seeks to achieve, we can begin to explore new regulatory approaches. The focus can then shift from red tape reduction to enhancing regulators’ capacity to innovate and regulatees’ capacity to grow sustainably. If we develop a regulatory framework that embraces innovative and collaborative approaches, we will place Australia in the best possible position to achieve long term economic growth, whatever challenges we face in the future.

Tim Orton is the founder and managing director at the Australian public policy and strategy consulting firm Nous Group.

Nous Group is a leading Australian-owned management consulting and leadership development firm. Nous partners with clients in complex and highly regulated sectors to create innovative, enduring solutions that deliver positive change. In 2013 Nous Group was named ‘best management consulting firm, Australia’.

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