The Abbott Government’s Deregulation Agenda

Josh Frydenberg is the Member for Kooyong and Parliamentary Secretary to the Prime Minister – with responsibility for de-regulation. Prior to entering politics, he qualified as a lawyer and was a director of Global Banking at Deutsche Bank and worked as a senior policy adviser to both the Hon Alexander Downer and Prime Minister John Howard. Frydenberg is only the seventh person to hold the seat of Kooyong. On Monday 28 October 2013, Josh Frydenberg addressed The Sydney Institute to discuss the Abbott Government’s promise to roll back Labor’s over-regulation of the economy.

THE ABBOTT GOVERNMENT’S DEREGULATION AGENDA: PRIORITIES AND STRATEGIES

JOSH FRYDENBERG

It is a pleasure to be here at The Sydney Institute. It is a place which, for over 20 years, has seen ideas and debates flourish and our democracy enhanced. The two people responsible for making this institution what it is today are Anne and Gerard Henderson. Both are distinguished authors, Anne for her biographies of Joseph and Enid Lyons and Gerard for his seminal book ‘Menzies Child’. Both are brave commentators often taking on trenchant critics from the political left. Both are people I consider good friends.

Indeed, one of my fondest memories with Gerard and Anne was a few years ago after Gerard had delivered the Menzies Lecture where he recounted among other things his days growing up in the Kooyong electorate. We went back to The Hotel Windsor and to the very room where Menzies stayed as prime minister. We discussed the halcyon days of the Menzies era and lessons it provided for today. I quickly learnt what great repositories of political history and wisdom Anne and Gerard were and long may they continue to guide and inspire.

Tonight, I will talk about the government’s deregulation agenda – our strategies and our priorities. It comes at a time when the Coalition is moving quickly on a number of economic fronts. The Commission of Audit, chaired by Tony Shepherd, has just been announced, plans are under way to privatise Medibank, for a new White Paper on Tax, a Productivity Commission inquiry into the Fair Work Act, a Productivity Commission review into construction costs, and the terms of reference are currently being finalised for a “root and branch” review of competition laws.

But no micro-economic reform issue is more important or urgent than that of deregulation.  I want to start with a quotation:

The truth is business regulation is now right out of control. The quantity and complexity of business regulation today is eating away at the entrepreneurial spirit of Australian business.

Who said this? Kevin Rudd, in an address to the National Press Club in April 2007.

Unfortunately, however, Prime Ministers Kevin Rudd and Julia Gillard did not solve these problems; in fact they exacerbated them.

During Labor’s nearly six years in office, over 21,000 additional regulations were introduced, productivity declined and Australia fell in the global competitiveness rankings. In the five years from mid-2007, multi-factor productivity declined across the country by three per cent. Last year the respected Economist Intelligence Unit ranked 51 countries for productivity growth, with Australia coming in second last, ahead of Botswana. Out of 148 countries surveyed by the World Economic Forum, Australia ranks a sad 128^th “for burden of government regulation”, down from 96^th the year before. Illustratively, the Australian Chamber of Commerce and Industry surveyed its members and found that 73 per cent of businesses felt the compliance burden had increased in the past two years. This should all come as no surprise.

The government has a regulatory impact assessment process to evaluate the burden of new regulation. But, remarkably, since 2008-09 there have been more than 80 examples of non-compliance or exemptions from the regulatory impact assessment process. The most significant legislative changes over recent years, the Carbon Tax, the Mining Tax, the NBN and changes to the Fair Work Act all escaped detailed scrutiny following exemptions granted by Rudd and Gillard.

In fact, the independent Borthwick-Milliner Review, commissioned by Labor and which reported last year, found “a widespread lack of acceptance of and commitment by ministers and agencies” to the regulatory impact assessment process. This scandalous culture of piling on new regulations without assessing the consequences for productivity, and the costs involved, must now come to an end. We need a new approach.

Questions must be asked first, before new regulations are passed. What is their purpose? What is their cost? What is their impact on productivity? What is their impact on new entrants? And what is their effectiveness in managing risk? Only then, when it is absolutely necessary and with no sensible alternatives available, should we proceed to regulate. We need a new conception of acceptable risk and we need to much better understand the cumulative impact of regulation on business decision making.

Business is not sentimental and capital is mobile. An adverse regulatory regime can make all the difference to the productivity of an enterprise and to a decision when, or whether, to proceed with any major investment. For every new regulation, it is easy to find a stakeholder or lobby group who will argue in favour.

Protecting the consumer, the environment and the worker is often their only battle cry. These are legitimate interests. But there are other legitimate interests that need also to be taken into account. It is at this point that the distinction between the approach of the Liberal Party and that of Labor becomes most evident. Liberals understand the best outcomes for society and the economy are not always within the unique provenance of government.

Interestingly, politicians who support the new regulatory action are, in the words of former Productivity Commission chairman Gary Banks, “often rewarded with public acclaim, as tangible evidence that the government is ‘doing something’”. These “uneven political pressures” said Banks, are “the antithesis of good regulatory process.” This is a point Tony Blair also made when he was prime minister of Britain. He said in 2005:

We are in danger of having a wholly disproportionate attitude to the risks we should expect to run as a normal part of life. This is putting pressure on policy making, not just in government but in regulatory bodies… to act to eliminate risk in a way that is out of all proportion to the potential damage. The result is a plethora of rules, guidelines, responses to “scandals” of one nature or another that ends up having utterly perverse consequences.

Put simply, the incentives are all wrong. The impact is to deter investment and innovation and stifle productivity. This is why the Abbott Government is determined to change course. We need reform at five different levels.

First, we must tackle the volume of regulation itself, clearly already too high. Secondly, we must work to eliminate the extensive duplication and regulatory overlap that exists between different layers of government, particularly federal and state. Thirdly, we must improve the quality of consultation between government and those to be affected by any new regulations. Using particularly strong language, the Productivity Commission has said: “Consultation processes remain a weak point when developing regulations. In many areas consultation lacks transparency, continuity and time frames are too short.”

This clearly has to change. The mantra of regulatory reformers should be, according to Gary Banks, “consult, consult, consult” at “all stages of the regulatory cycle”. This doesn’t mean that policy makers engage in so-called “negotiations” with stakeholders but, rather, undertake genuine consultation. Banks makes the point that “realpolitik necessitates a degree of political negotiation to get policies enacted and implemented”but without real consultation, “negotiation has no anchor and is liable to produce undesirable policy outcomes”.

Fourthly, we must ensure there are rigorous and mandatory post implementation reviews to determine how effective new regulations have been. If it is found that the regulations no longer effectively meet their purpose, then their repeal must be an option. Greater use of sunset clauses may also be a useful tool towards this end.

Fifth, we need to tackle the regulators to ensure they are at all times transparent, accountable and efficient in administering regulations. Regulators are at the front line of this debate and must be brought along as part of any new sweeping cultural change.

If we can achieve reform in all these five areas we shall save billions of what would otherwise be wasted dollars. The Productivity Commission has estimated that regulatory compliance costs could be as high as four per cent of GDP and by removing inefficient regulation savings could be up to 1.6 percent of GDP. In terms of Australia’s current GDP, of around $1.5 trillion, the benefit to the economy from reducing regulation could be anywhere between $12 billion and $24 billion a year.

So now we know why we need regulatory reform, the question becomes what will the reforms look like? Based on the excellent work done in opposition by the Coalition’s Deregulation Taskforce, chaired by Senator Arthur Sinodinos with deputies Kelly O’Dwyer MP and Senator David Bushby, the Coalition took to the election a detailed policy blueprint which will enable us to cut $1 billion a year in red and green tape.

The reforms involve a series of new measures, which will hold both ministers and the bureaucracy to greater account. Cabinet submissions proposing legislative changes with a significant regulatory impact will no longer be exempted from the regulatory impact assessment process.

Ministers have been tasked to establish designated units within their own departments to advise on deregulation priorities while each minister will appoint an advisory committee, with business representation, to provide advice on where regulation can be cut.

Senior members of the public service will have their remuneration directly linked to their performance in reducing red and green tape and two parliamentary sitting days will be set aside for repealing legislation each year. This initiative is not too dissimilar to that under way in other jurisdictions such as the United States, where the House of Representatives has regular repeal days under what is known as the Corrections Calendar.

All these changes will be overseen by the Prime Minister and his department, which has taken over responsibility for the deregulation unit and the Office of Best Practice Regulation previously located in Finance. Regulators too will be subject to the new approach. The government will be instructing the Productivity Commission to prepare a framework for auditing the performance of regulatory agencies.

As the Australian Institute of Company Directors has said: “Regulators have tended to adopt an unduly risk-averse approach to the administration of regulation and are often overly bureaucratic in their interactions with business.” If we are able to enhance the effectiveness and efficiencies of key bodies such as the ATO, ACCC, ASIC and APRA in the way they administer regulations, it will be a big step forward in generating the cultural change we so need.

Reinvigorating the COAG agenda will also be important. So many of the deregulatory challenges require an inter-governmental approach. There are plenty of areas ripe for reform – retail, planning, corporate governance, transport and environment to name but a few. It seems ridiculous that the length of time a person can legally drive a truck without a break differs from state to state and, as the Australian Institute of Company Directors has documented, that director’s liabilities are governed by not just the Commonwealth corporations law, but also more than 700 state and territory statutes.

Or that an environmental approval process, as documented by the Business Council of Australia, can drag out for years, cost the company involved more than $25 million, require more than 4,000 meetings and lead to a 12,000 page report – only then to see the approval comes back with 1,500 conditions attached – 1,200 from the State and 300 from the Commonwealth – including a further 8,000 sub-conditions. In an internationally competitive climate, how can we expect our big investors to participate in a process like that?

James Fazzino, CEO of Incitec Pivot, an ASX Top 50 company with 5,000 employees, talks openly about his company’s own experience called “the tale of two plants”. Incitec Pivot was seeking regulatory approval to construct similar chemical plants in Louisiana USA and Newcastle Australia, each involving around $850 million in expenditure and each creating hundreds of new jobs.

In Louisiana, approval was granted in six months. In Australia, it has taken more than two years with the approval process still ongoing. Fazzino says the Australian plant is now put on hold with a “critical aspect” of that decision being the lengthy and complex regulatory approval process. Fortunately, with new Environment Minister Greg Hunt at the helm, we have quickly seen an improvement in federal-state cooperation on environmental approvals, with the Coalition pursuing its plans for a one-stop shop process.

In order to remove duplication, the Commonwealth will create a single approvals and documentation process under the Environmental Protection and Biodiversity Conservation Act, via the state system, while at the same time ensuring the highest environmental standards apply. Queensland has recently signed on to the one-stop shop plan. There are more state signatures on the way. There are many other areas where the burden of regulation is holding us back.

Take our universities for example. Governed by 100 separate federal and state acts, it is estimated our universities spend $280 million a year just on compliance and reporting requirements, with each university operating a compliance department typically with 15-20 dedicated staff. Universities Australia has detailed how a typical university will be “required to report over 50 different data sets to the Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education (DIICCSRTE) annually, comprising 200 reporting instances per year, and over 50 data sets to other government departments”.

Reducing this burden is a real priority for the government with education minister Christopher Pyne sending a strong message last week by issuing a ministerial direction to the Tertiary Education Quality and Standards Agency (TEQSA) to start cutting red tape and to report back to him with progress and the level of expected savings.

The health, financial services and small business portfolios are others areas where the government wants to move quickly. We took to the election a commitment to streamline medical research grant processes having heard from the sector about the inordinate amount of time wasted by our top researchers applying for grants.

We will extend National Health and Medical Research Council grants from three to five years to provide greater funding certainty and adopt an “early triage” of applications that are unlikely to be approved which will hasten the grants process and reduce the administrative burden.

According to one academic survey, Australian scientists spent more than 500 years’ worth of research time preparing and applying for grant schemes in 2012. This is time that could have otherwise been spent in the laboratory looking for cures. There must be a better way.

In addition to this interesting issue medical research, I acknowledge there are many other areas where the not-for-profit sector has a legitimate interest in deregulation and it is a topic to which I will return at a later date. In terms of the financial services sector, there is much disquiet about Labor’s Future of Financial Advice (FOFA) legislation. The industry has estimated that the additional red tape will cost $700 million to implement and lead to a $375 million annual compliance cost.

Conscious of this additional regulatory burden the Assistant Treasurer, Senator Sinodinos, has already committed to removing one of Labor’s new measures, the opt-in requirements, and is consulting with key stakeholders about the implications of the rest. We recognise small business is the engine room of our economy. We will offer small business relief from the regulatory burden by moving responsibility for administering the paid parental leave scheme from small business to the Family Assistance Office.

We will also give employers the option to remit compulsory superannuation payments directly to the ATO which will enable them the opportunity to avoid being bogged down in paperwork, sending multiple cheques to multiple superannuation funds.

I could go on for hours. There are just so many other areas where we need to cut red tape, like the government procurement process, where there are around 80 different procurement panels with service providers facing costs that have been estimated to be in excess of $40,000 per panel.

In just over the last year, the then Labor government passed new regulations through the parliament without sufficient consultation affecting a range of areas including: 457 visas, the water trigger, coastal shipping, the Fair Work Act and the purchase of materials on major projects under the Jobs Act.

James Fazzino, of Incitec Pivot, has said of the new coastal shipping regulations, it is now cheaper to ship 40,000 tonnes of fertiliser from Townsville to India than from Townsville to Melbourne.  In Fazzino’s words this regulatory change is just another “deal done with the MUA” in which “the benefit you get being a large manufacturer in Australia in given up because of some crazy regulations over coastal shipping”.

Once again, Labor was doing the bidding of the unions with a tin ear to business.

Our political opponents may think in the short term these regulatory changes protect union membership, but in the end it is the workers themselves who really lose out. It is after all business, not government that creates real wealth and long term jobs.

In conclusion, if we do not act now to tackle this avalanche of red and green tape we will be unnecessarily raising the risk on Australia’s $400 billion investment pipeline and, in the process, endangering tens of thousands of potential new jobs.

We must never forget in a competitive world, capital is mobile and in the Asian Century, where the opportunities are so large, we not only need to seize every advantage but we need to eliminate every disadvantage.

This is why the deregulation agenda is just so urgent and important. We must act now. The choice is ours.