Red tape as an issue is again firmly in the eye of the Australian Government, which wishes to save an estimated $430 million per year by deregulating industry and the economy. The thinking is that deregulation will jump start the economy after the disruption caused by COVID-19.
These benefits will come from efforts to reduce reporting requirements for businesses, increase the use of technology and data management, eliminate the duplication of processes and renew focus on the mutual recognition of qualifications and standards.
These efforts are to be applauded. No reasonable person wishes to see the dead hand of government curtailing the economic and social life of the nation.
But the application of technology to monitor the activities of a regulated community or entities is not deregulation. It’s merely the application of technology so that information is collected more efficiently, with less effort on the part of the regulator and the regulated. Does it make sense to update technology? Absolutely. Will it reduce the costs of collecting information? Possibly. Will it reduce regulatory analysis or effort or result in reduced enforcement? Nobody knows.
So care is needed here.
An underlying risk in implementing deregulatory policies is that of relegating outcomes to a secondary role. The recent report on Crown Casino is a case study of what happens when a regulatory framework is weakened over time, bit by bit. With the best of intentions and worst of outcomes, change was driven by a misbelief that the existing framework for regulation was too intrusive and unsuited to modern markets.
The review of the Environmental Protection and Biodiversity Conservation Act 1999 (EPBC Act) also highlighted the problems that arise when policy makers fail in developing an effective regulatory framework with strong, independent regulatory oversight. Simply put, the EPBC is failing because its regulatory design is wrong. Policy objectives are not aligned to the hard grinding work of collecting information, monitoring data and regulatory enforcing behaviour.
The recent report from the Australian Competition and Consumer Commission into the Murray Darling Basin also identifies similar issues. It recommends, amongst other things, the establishment of an independent basin-wide water markets agency to assure market participants that water markets are honest and efficient in their operations.
Regulation addresses real or perceived harms or exists to reduce or eliminate undesirable behaviour in individual markets or society.
So it is here that the government should focus.
Very properly, governments should change policy and regulations before they cause economic or social damage. Regulatory agencies should systematically monitor and assess regulations to determine that they are still fit for purpose.
Writing in the Melbourne University Law Review, Kieran Tranter describes how in Victoria, prior to 1910, motor vehicles were subject to the established road rules. To monitor motor vehicles before 1910, the police relied primarily on the offence of ‘furious or negligently riding or driving through any public place’ under the Police Offences Act 1890 (Vic). But ‘furious driving’ related to harnessed horses, and from the agitation, sweat and breathing of a horse, a police officer could tell if it had been driven furiously.
Alas, a horse is not a motor vehicle, which necessarily lacks such telltale signs.
The prosecution of a motorist for furious driving, therefore, relied primarily on the opinion of the police officer and any witnesses. Prosecution became dependent on the competing credibility of the motorist and the police officer. Because the police and the motorist were at loggerheads, with claims of harassment and bribery being made, the law, and how the law was enforced was changed.
But even when the law and regulation aren’t changed, regulators need to be on top of their game and business.
An effective regulator is a trusted regulator. Effectiveness and efficiency go hand in hand. Trustworthiness is a core principle of regulatory performance. However, trust is the result of the regulator’s actions, including stakeholder engagement, their use or misuse of independence, use of discretion and proportionality in actions, and accountability, both formal and informal.
The regulator that wants to be trusted does not become inert for fear of imposing costs on the regulated community. Enforcement is an essential part of regulatory work and the decision to increase or reduce enforcement efforts is a decision made on evidence rather than one driven by theory.
Regulators should assess their efficiency and effectiveness by measuring what they do – by selecting and using performance indicators. For example, by measuring the impact of their decisions, regulators can identify problems before they become serious or costly for society, provide insights into the outcomes of the regulations they oversee and better understand the cost of a regulatory intervention.
This is why efforts to improve processes and adopt an approach based on risk, data and evidence are fundamental to the work of an effective regulator.
Just as regulators should be disciplined, so should policy makers. Policy that is disconnected from practice will lead to a dysfunctional regulatory regime. Effectiveness and efficiency are not the same. In the desire to cut red tape and unleash the animal spirits of an industry or market, governments must be careful that necessary protections provided by existing regulatory systems are not weakened.