Unnecessary rules and regulations are a significant drain on business productivity. Procure investigates where government is taking action and what businesses can do to help themselves.
A staggering $249 billion – or a quarter of a trillion dollars – is spent each year by Australian businesses on complying with self-imposed rules and government regulations.
The extraordinarily high compliance burden also translates into each Australian business spending nearly five hours a week dealing with red tape, according to analysis by Deloitte Access Economics in its “Get out of your own way” report.
“The good news is that there is a rich source of barely tapped efficiency savings we can turn to: setting better rules for ourselves,” the report said.
“The even better news is that this bucket of productivity potential is much bigger than most people realise.”
Government red tape cost the nation $94 billion annually in administration and compliance costs, however this figure was eclipsed by the $155 billion price tag for regulations and rules businesses had imposed on themselves, Deloitte found.
These “self-inflicted wounds” included complying with internal rules that were excessive, duplicative or redundant.
“The cost of our rules is much bigger than it needs to be because our rule-makers – both government and business – often try to achieve the unachievable,” Deloitte said.
“They set rules that are too prescriptive, overreact to momentary crises, let new rules overlap with existing rules, don’t listen to those most affected and don’t go back later to check how well – or how badly – their rules are working.”
While business can do more to reduce their own compliance burden (see Tackling Internal Red Tape, below), State and Federal governments are also under pressure to do their bit.
This year, the federal Government has agreed to hold two annual repeal days, where unnecessary legislation and regulation is cut as part of an aim to reduce the cost of government regulation by $1 billion a year.
The first repeal day was in November 2014, when almost 1000 pieces of redundant legislation and compliance requirements were scrapped at an estimated saving of $2.1 billion for individuals, business and the not-for-profit sector.
This regulatory clean out included scrapping rules that forced business to lodge activity statements even if they had no payable GST, as well as the repeal of the Carbon Tax and Mining Tax.
Parliamentary secretary to the Prime Minister Josh Frydenberg said excessive regulation hurts productivity, deters investment and innovation, and cost jobs.
“There are now two repeal days a year in Parliament, deregulation units in each major federal department, and mandatory regulatory impact statements that better inform decision makers about new regulatory proposals,” he said.
“Across every portfolio and every sector of the economy, cutting red tape creates jobs, boosts productivity and promotes investment.”
2015 will also see the expansion of the Australian Tax Office’s program to replace the Electronic Lodgement Service it launched in the late 80s with a new Standard Business Reporting system.
SBR, which is already used for BAS reporting, reduces data double-handling by providing a more sophisticated data interface between business and government.
Deputy registrar of the Australian Business Register Mark Jackson said SBR would be significantly expanded throughout 2015 to include a broader range of ATO transactions as well as superannuation services.
“Spending hours on time-consuming activities like filling out forms, re-entering data into different systems and portals or interpreting terms for one agency or another, will no longer be necessary,” he told a recent conference.
“Report preparation can be done without having to rekey information, move from document to document or system to system.”
Business Council of Australia chief executive Jennifer Westacott has welcomed the federal government’s red tape reduction agenda, but warned that work was also needed to change the culture of regulation in administrations and regulators.
“That means not jumping to regulation to solve every problem, wherever we can design regulation jointly with affected parties so we get it right and do it efficiently, taking a risk-based approach that ensures we don’t over-regulate problems which may be isolated examples,” she said.
The advice is equally applicable to businesses as they do their own health check heading into the new calendar year.
Tackling internal red tape
- Cleanse: Slash the stupidity – ask staff to list the dumbest things they are required to do as a result of the business’s own rules, then stop doing them.
- Challenge: Businesses should stop asking “What could go wrong?” and focus on “What must go right?”, then challenge their rules in that light. What are their rules really trying to achieve, could they be improved and are they cost-effective? If not, there may be more to dump.
- Create: Foster a culture focused on performance and ensure the organisation’s rule-makers are aligned to its business goals.
- Change: Businesses and others should change the way they set new rules and audit old ones to better link rules with strategy and risk appetite.
- Capitalise: Make the most of these changes to realise the business’s full potential.
SOURCE: Deloitte Access Economics Get Out of Your Own Way: Unleashing Productivity report. August 2014.