Brian Fallow: Something must be done Minister

For years business has suffered the consequences of a "regulate first, ask questions later" approach in Wellington.

Now we are in the asking-questions-later phase as the Government's newly launched Quality Regulations Taskforce invites businesses, through industry bodies and directly, to tell it about regulatory and compliance cost problems that are driving them crazy, and to suggest solutions too.

How much good this effort does remains to be seen. Commerce and Small Business Minister Lianne Dalziel seems pretty enthusiastic about it, so maybe the political will is there.

But moves to thin out or streamline the existing stock of regulations, while useful, do not address the root cause of proliferating red tape and ever more onerous regulation.

On the systemic drivers of regulatory overkill and what to do about them, last month's report of Australia's Regulation Taskforce headed by Productivity Commission chairman Gary Banks has some good lessons to impart.

Regulations did not just happen, Banks said in a speech last week.

They are there because the Government responded to a problem brought to its attention. Or brandished under its nose by the media.

We are increasingly risk-averse, and any adverse event is laid at the Government's door for a regulatory fix.

Banks said Governments, for their part, found regulatory solutions politically convenient because the costs were typically "off-budget", diffuse and difficult to measure.

And regulators are as risk-averse as the rest of us. Agencies which enforce regulations have an incentive to adopt strict, legalistic and prescriptive approaches to lessen their own risk of criticism if things go wrong.

To Banks's list of drivers we might add another. It is what Yes Minister's Sir Humphrey Appleby called the politician's syllogism: Something must be done. This is something. Therefore, this must be done.

The first step in the process has to be consideration of whether any action is warranted at all.

There are two parameters: The probability of something happening and how bad it would be if it did. Over time, the threshold for regulatory intervention is creeping lower on both axes.

The contingencies we seek to regulate against are getting less and less likely and less and less grave.

Some level of risk has to be accepted. But as we get better at measuring things, the levels of what is acceptable, or deemed to be safe, tend to get lowered as well.

"What you don't know won't hurt you" has given way to "Better safe than sorry".

But there will always have to be some rules. If it is decided regulatory intervention is warranted, the next question should be: Why are existing regulations not adequate to deal with it? Is a whole new set of rules needed rather than adjustment to existing ones?

An issue here is that regulations tend to emerge within separate administrative silos, leading to the kind of duplication, or even worse, inconsistency, between the demands of different parts of the bureaucracy that drives business people to distraction.

Dalziel cites the example of the overlapping requirements in the area of occupational health and safety of the Accident Compensation Corp's accredited employer scheme, the Health and Safety in Employment Act and the Hazardous Substances and New Organisms Act.

How hard could it be, she asks, to make compliance with one automatic compliance with the others, or at least to co-ordinate compliance activities such as inspections?

A clear message from business to the Australian taskforce was the costs of compliance were not given enough attention and there was generally no attempt to quantify those costs.

"Unlike Government spending programmes, most of the costs of regulation are 'off-budget' and lacking in transparency, making them easy to ignore."

Cost-benefit analyses need to be applied not just to the preferred option but to a range of alternatives, including the option of choosing not to regulate.

Self-regulatory options should be canvassed as a matter of course, the Australian taskforce concluded. Self-regulation is a regime developed, administered and enforced by the relevant industry bodies themselves.

On the benefit side of the calculation, a more rigorous analysis of risk is required. How much of a benefit there is from averting or mitigating some risk clearly depends on how likely it is.

The Australian taskforce worries about whether the necessary skills for doing that analysis are available within the Government departments and regulatory agencies involved. If they have a problem in that respect, ours would be several times larger.

This could turn into a recipe for more pen pushers.

But the taskforce argues that the additional costs involved have to be seen in the context of the compliance costs involved in badly designed or unnecessary regulation.

On the cost side of the calculation, Dalziel likes the look of a compliance-costing tool developed by Australia's Office of Small Business.

It is an interactive tool that allows businesses to indicate under various headings what it is likely to cost them to comply with various regulations or policy options.

The appropriateness of the tool for New Zealand conditions will be evaluated over the next couple of years. But she notes that "if businesses are asked to spend time contributing to the application of the model, they will want to see tangible benefits to their regulatory environment".

It would be ironic, in other words, if it failed the cost-benefit test itself.

The need for effective consultation throughout the process with those who are to be regulated is indisputable.

Businesses complained to the Australian taskforce of a lack of opportunity to comment at an early stage before a preferred option is locked in and of little opportunity to provide feedback on the details when regulation is close to being finalised.

The devil is in the detail, along with a host of lesser imps and demons.

The Government has a website - www.businessconsultation.govt. nz. - which provides businesspeople with the opportunity to register their preparedness to take part in consultation of particular issues, and automatically notifies them of relevant public consultation processes.

But, of course, it can only be as useful as the Government's willingness to consider and take on board the points made.

Among the other recommendations of the Australian taskforce, to enhance consultation and interaction between regulators and stakeholders, are:

* Standing consultative bodies made up of senior stakeholder representatives.

* Codes of conduct for each regulator, setting out the rights and responsibilities of regulator and regulated.

* Timely third-party reviews of the merits of key decisions.

Dalziel has made it clear that she is looking for some early runs on the board from the taskforce, early fixes that can be fast-tracked.

And that the onus is on individual business sectors to come forward not just with their own portfolio of gripes and grievances, but with suggested solutions.

She is also looking for the bureaucracy to get its collective act together by looking for ways to co-ordinate and streamline its own enforcement and information-gathering activities.

In the end, all of this will only prune the the regulatory bush. If it is not to grow back, the underlying causes of over-regulation so usefully traversed by the Australian taskforce will have to be addressed as well.