Dialogue: Compliance costs hold our businesses back

A lessening of the regulatory burden is crucial, writes ROBYN LEEMING*, if New Zealand companies are to compete in the world arena.

To look properly at the jobs challenge, we need a wide lens. Lots of factors are involved in creating a job.

Finding a market or building one, getting capital, training and paying staff, creating goods or services, marketing them, reinvesting, responding to market threats and opportunities - all these are affected by the wider economic environment. If the economic environment cannot support those ingredients, jobs will not be created.

In the past, the boundaries of the economic environment were the same as national boundaries, especially so for New Zealand with our geographic isolation and history of single-desk selling. But new technology is dissolving national boundary lines, tariff walls are coming down, and the economic environment has become very wide indeed.

The good news is that the global environment, along with new technologies, offers many more opportunities for job creation - more markets, more sources of capital, new ways of using employees, better and faster market information.

The harder news is that we have to keep up with changes in that global economy to capitalise on those opportunities. If we want to create more jobs, we must be internationally competitive.

Being internationally competitive means having a workforce that is at least as skilled as the rest of the world. It means a tax level that is the same as or lower than that of other countries to attract international investment. It means having a relatively stable political scene, where the rules don't change wildly with a change of government.

We have to keep an eye on all these areas in order to be competitive.

There is another factor that is less obvious, but crucial nevertheless - the regulatory burden. If New Zealand businesses have to comply with high compliance costs caused by regulation, it will be harder to create jobs here. Unfortunately, that's the way it is now.

As pressures on Government expenditure have increased over the past two decades, there has been an associated trend for Governments to pass costs on to business - that is, shift administration and regulatory costs from the Government to employers.

Compliance costs have become a major burden on businesses. Just about every business has a horror story to tell of the complexities associated with legislation and regulations or how they were messed around by a Government department or agency.

A medium-sized company involved in exporting recently added up the number of forms and various pieces of paper it was required to fill in for Government departments and agencies over a year. The total was 394. The Inland Revenue Department and Statistics New Zealand imposed the greatest compliance costs.

Compliance costs are not just time spent filling in forms. They are also the costs incurred to comply with acts and regulations that affect companies.

Last year, the Employers Federation put out a guide called Rights and Responsibilities in the Employment Relationship to assist employers through the minefield of employment-related legislation. More than 20 acts impinged directly on the employment relationship.

Employ just one person and you have to comply with all these laws.

While the compliance costs associated with each individual measure or policy may be small, once aggregated across the economy as a whole they can be very large and can act as an impediment to growth and competitiveness.

How can we reduce this regulatory burden?

First, we can make it more transparent and accountable. The regulatory impact statements accompanying proposed legislation should be made public as a matter of routine, so the select committee and the public are aware of their potential compliance and other costs.

This should not necessarily scare the Government or its officials, provided they have made a proper analysis of the issues.

Second, greater pressure should be placed on Government departments, not only to minimise future compliance costs but also to assess the current regulatory burden.

Requiring departments to front up with the cash associated with introducing regulations could provide incentives to look seriously at alternative options (including a do-nothing option) before promoting legislation as a first rather than last resort.

There is a good case for introducing a law to bind Government to a set of principles regarding regulation, along the lines of the Fiscal Responsibility Act.

For example, one principle could be that the benefits of any regulation should outweigh the commensurate short and long-term costs.

The Government should still be able to make decisions inconsistent with those principles, but the reasons for these should be made public - just as the Government is required to abide by the fiscal principles enshrined in the Fiscal Responsibility Act or tell Parliament and the public why it has departed from those principles, and when it intends returning to them.

We need a culture change within the Government and within Government departments, particularly those departments involved in promoting regulatory interventions.

The regulatory burden must be reduced so we can compete more effectively on the world stage, and create more jobs.

* Robyn Leeming is president of the Employers Federation.