2. Introduction

Background

What is red tape?

Regulation often imposes costs, or regulatory burden, on those it regulates, the broader community and government. Poorly designed and implemented regulation can lead to unnecessary costs to the community, business and government. This is commonly referred to as red tape. Red tape impedes productivity and economic growth and restricts competition by stifling business creation.

Effective regulation is an essential part of well-functioning economies and supports the achievement of policy objectives, such as:

  • economic objectives - rules that limit entry into industries and what prices businesses can charge. For example, taxi drivers, lawyers and financial advisors require licences to protect consumers from low-quality or unethical providers
  • social and environmental objectives - rules governing how business operations are carried out with a view to correcting market failures. For example, emissions standards may be set to reduce pollutants from manufacturing plants
  • public health and safety objectives - rules to protect the health and wellbeing of citizens. For example, vehicles are required to be periodically inspected to ensure they are roadworthy and safe.

Regulatory best practice principles are designed and implemented by governments to help regulators effectively strike a balance between the objectives and outcomes of regulation, and the costs it imposes.

How big is the problem?

The extent and impact of red tape is difficult to quantify, though indicators suggest that it presents a significant and worsening problem in Australia.

According to the World Economic Forum, Australia's ranking in global competitiveness and burden of government regulation has been slipping (Exhibit 1).

Exhibit 1: Australia's ranking in key World Economic Forum global indicators (out of 140 countries)

Year

Competitiveness ranking Burden of government regulation ranking
2010-11

16

60

2011-12

20

75

2012-13

20

96

2013-14

21

128

2014-15

22

124

2015-16

21

80

Source: WEF Global Competitiveness Reports and database - http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/.

Red tape is also perceived by Australian businesses to be a significant problem. The Australian Chamber of Commerce and Industry's 2015 National Red Tape Survey reported that 73 per cent of businesses surveyed perceived an increase in local, State and Australian Government regulatory burden in the last 12 months, with 68 per cent believing their industry was overregulated.

However, studies suggest regulatory burden in New South Wales is lower than in other Australian jurisdictions. As shown in Exhibit 2, New South Wales' regulatory burden as a percentage of Gross State Product (GSP) is less than Victoria's and Queensland's (these figures must be interpreted with care as they have been derived from regulatory arrangements that are not directly comparable between jurisdictions).

Exhibit 2: Comparison of regulatory burden

 

NSW Victoria Queensland
Reduction (%)

20

25

20

Reduction ($m)

750

715

500

Total burden ($m)

3,750

2,860

2,511

Gross State Product ($m)

410,774

298,123

251,144

Burden as a percentage of GSP (%)

0.91

0.96

1.00

Source: Queensland Competition Authority 2013, Measuring and reducing the burden of regulation, p. 97.

The Productivity Commission's 2008 regulation benchmarking study supports the view that NSW has proportionally lower regulatory burden than in other jurisdictions. New South Wales had the lowest number of legislative pages compared to Victoria and Queensland (Exhibit 3 below). Measuring the volume of legislative pages gives a proxy indicator for obligations imposed on business as well as the time and effort to become familiar with requirements (statute complexity). Again, comparisons should be made with caution as this does not account for the operation of the legislation or page formatting.

Exhibit 3: Number of regulatory instrument pages in 2008

 

NSW Victoria Queensland
Pages

32,700

44,214

49,419

Source: Productivity Commission 2008, Benchmarking Regulation - quality and quantity, pp. xv-xvi.

NSW Government red tape reduction commitments

In 2011, the NSW Government committed to reducing regulatory costs to businesses and the community by $750 million by June 2015. This target was part of the 2021 State Plan goal to reduce red tape by 20 per cent and increase the competitiveness of doing business in New South Wales. All directors-general were also required to meet individual red tape targets and departments were provided with advice regarding eligible red tape savings (Exhibit 4).

Since this initiative, the NSW Government has continued to give priority to reducing red tape. One of the Premier's Priorities is to make it easier to start a business. To create a business-friendly environment for New South Wales' entrepreneurs, the government is focusing on reducing or removing barriers, costs and complexity and making regulatory obligations easier to understand and implement.

Exhibit 4: Definition of red tape savings

The Guidelines for estimating savings under the red tape reduction target defined red tape savings as:

'any reduction in the costs imposed on business, not-for-profit organisations or the community arising from changes in government regulatory requirements or other government interactions that do not reduce the net benefits offered by the regulation or service'.

Examples include the following costs:

  • administrative costs, for example, costs demonstrating compliance or participating in a process
  • substantive compliance, for example, cost relating to equipment and training required to meet standards
  • fees and charges, for example, licence and permit fees
  • delay costs, for example, the time taken to approve a licence.

Source: Department of Premier and Cabinet 2009, Guidelines for estimating savings under the red tape reduction target, pp. 4-7.

The NSW Government also committed to a 'one-on, two off' initiative which required the following tests to be met:

  • numeric - in any year, the number of repealed legislative instruments (Principal Acts and Regulations) is at least double the number of new instruments
  • regulatory burden constraint - for each portfolio, the increase in regulatory burden from new legislation is fully offset by legislative repeals.

For the purposes of the red tape reduction target and 'one-on, two-off' initiative, DPC has advised that the definition of red tape excluded:

  • criminal law
  • savings to government
  • national model legislation
  • tax law
  • staged repeals of legislation under the Subordinate Legislation Act 1989.

DPC's role in administering the red tape reduction program

DPC oversaw implementation of the red tape reduction target and the 'one-on, two-off' initiative.

In assessing progress toward the target, DPC provided guidance to agencies on in-scope reforms (see Exhibit 4) and developed principles to support transparent and proportional effort in assessing cost savings. DPC provided agencies with an assessment template to help standardise the more than 300 savings assessments received, collated and reviewed these agency submissions, and engaged an external consultant to verify individual savings estimates of more than $5 million.

In addition, DPC accounted for changes to numeric and net burden targets for the 'one-on, two-off' initiative. Changes to the net regulatory burden (in legislation) were also verified by an external consultant.

DPC's role in assessing the impact of regulatory proposals

Regulatory impact assessments and guiding principles to reduce unnecessary regulation are a feature of regulatory oversight in all Australian jurisdictions, and aim to prevent and reduce red tape by ensuring that:

  • regulations are efficient and effective in a changing and complex world
  • the policy development process consistently delivers regulations (or other policy solutions) that provide the greatest benefit to the community, relative to the overall costs imposed.

In New South Wales, the Guide to Better Regulation requires new and amending regulatory proposals, with some exceptions, to demonstrate that better regulation principles were applied. Under the guide, the Minister for Regulatory Reform, supported by the Better Regulation Office, was responsible for 'gatekeeping' which required:

  • Better Regulation Statements to be prepared by departments for significant regulatory proposals
  • advice to be provided to Cabinet on all proposals with a regulatory impact
  • scrutiny of regulatory proposals being put to the Executive Council.

The Minister provided advice to the Premier on whether the regulatory burden proposed was justified and whether the following principles were applied:

  1. The need for government action is established.
  2. The objective of government action is clear.
  3. The impact of action is understood.
  4. The effectiveness and proportionality of the action is understood.
  5. Consultation with business and the community is undertaken.
  6. The simplification, repeal, reform or consolidation of existing regulation should be considered.
  7. Actions are reviewed periodically for continued efficiency and effectiveness.

DPC has advised that the transition of these responsibilities to the now Minister for Innovation and Better Regulation is continuing. Functions undertaken by the Better Regulation Office up to mid-2013 were also transferred across other units within DPC and arrangements to establish continuing roles and responsibilities are still underway.

Audit objective and criteria

This audit assessed whether government initiatives and processes to prevent and reduce red tape were effective. To make this assessment the audit answers the following questions:

  • Did savings initiatives effectively reduce red tape?
  • Did the 'one-on, two-off' initiative effectively reduce red tape?
  • Does the Department of Premier and Cabinet (DPC) effectively review regulatory proposals to ensure they prevent and reduce red tape?

The audit reviewed:

  • the assessments for 23 red tape savings initiatives which collectively comprised
    73 per cent of the total dollar savings contributing toward the $896 million in savings claimed
  • DPC's tally of added and repealed legislative instruments between 2011 and 2015, and its assessment of the total change in regulatory burden in dollar terms during this time
  • 11 new and amending regulatory proposals, of varying significance, that were reviewed prior to formal consideration by government.

Terminology used in this report

In this report we refer to several processes and requirements in New South Wales for assessing regulatory proposals for their benefit, costs, proportionality and impact. This includes Better Regulation Statements (a requirement under the Guide to Better Regulation) and Regulatory Impact Statements (a requirement under the Subordinate Legislation Act 1989). We sometimes collectively refer to these processes as 'regulatory impact assessments.' Where we are referring to a specific requirement, we make this clear.