Two incidents from last month illustrate how complicated government regulation can be.

The first was an Australian Broadcasting Corporation (ABC) report on the comments made by NT Cattlemen’s Association’s outgoing president, Mr. Christ Nott. In what was a grim warning for governments, he told members of the association that Canberra was “regulating live exports into oblivion”. Increased regulation came with increased costs and increased costs were paid out of the pockets of cattle producers. The regulation of live exports cut profits for the entire animal husbandry industry.

The second incident occurred when Chair of Australian Communications and Media Authority (ACMA) explained the limitations of its regulatory powers during the additional estimates hearings of the Environment and Communications Committee. She was responding to a complaint made by Senator McKenzie which essentially blamed the ABC for misrepresenting the Australian beef industry as being a major contributor to greenhouse gas emissions.

According to Senator McKenzie, ‘The ACMA is asleep on the couch while the ABC runs rampant around rural Australia blaming our beef farmers and cotton growers for everything from droughts, bushfires and floods.’

To the Senator’s dismay, Ms. O’Loughlin, Chair of ACMA, confirmed that the ACMA could investigate if the ABC had breached its code of practice, however, couldn’t enforce any regulatory action as it is hamstrung by the law.

This is a conundrum that governments are facing. They support regulation in their own neck of the woods, so long as it is to their advantage or interest and so long as someone else bears the cost.

In 2020, speaking to the Business Council of Australia, Assistant Minister to the Prime Minister Mr. Ben Morton defined bad regulation as interventions by governments that impose costs on society in excess of benefits. In saying this, Mr. Morton echoed the thinking of the Roman Emperor Tiberius, who once famously told governors who were in favour of higher taxes that ‘It was the duty of a good shepherd to shear the flock, not skin it.’

This is a principle both in taxation and regulation that’s simple to articulate but hard to realise. If we were to maximise the net benefits of regulation, then we must approach the problem from two directions. The first is to maximise the value of regulation.

We understand that certain behaviours, by industry, by individuals, damage lives and livelihoods and are not to be tolerated.

Two recent reports, the Independent Review of the Environment Protection and Biodiversity Conservation (EPBC) Act 1999 and the NSW Inquiry under Section 143 of the Casino Control Act (NSW), show what happens when private activity is not carefully and scrupulously managed.

The EPBC review identified that the Act does ‘… not enable the Commonwealth to effectively protect environmental matters that are important for the nation. It is not fit to address current or future environmental challenges.’ Legislation is overly complex and data are inadequately collated. The work of compliance and enforcement exist as an afterthought. As a result, administrators are unable to perform their duties effectively of conserving and protecting our environment, biodiversity and heritage.

In NSW, the inquiry into casinos found that the regulation of casinos was entirely deficient and required an overhaul. It recommended:

an Independent Casino Commission be established by separate legislation as an independent, dedicated, stand-alone, specialist casino regulator with the necessary framework to meet the extant and emerging risks for gaming and casinos.

These are instances where value is not being realised as the regulatory framework does not focus on risk prevention. Guided by Professor Malcolm Sparrow, governments focus on the most severe harms, the serious problems, the behaviours that result in real damage to society.

Keeping regulatory costs to the minimum is another concern. Regulation imposes costs on the company or industry or community being regulated, and on the taxpayer generally.

Economists say that these costs result in deadweight losses on the society – we consume less or produce less that we would have, in the absence of regulation, and we become poorer, as a result.

Industries, of course, bear the direct costs of regulation. The time spent complying with the demands of regulators who require forms to be filled, reports to be lodged, tests to be conducted, notifications to be made, all add to their productive capacity. This takes away their focus from work that is more vital to their businesses.

For governments – and we circle back to Mr Morton and Tiberius here – regulatory systems must be well-designed, properly resourced and efficiently administered.

It’s no easy task for regulators to juggle both risk prevention and regulation together. Good regulators keep in mind some simple principles.

Firstly, regulation is about risk. A good regulator puts in place the systems and processes to identify and mitigate risk.

Secondly, the world is dynamic. New harms emerge; old ones disappear. The work of regulation therefore is dynamic. Priorities will necessarily change.

Thirdly, good regulators understand that just because they can regulate something that doesn’t mean that they should. See principle one.

Fourthly, execution is everything.