Peter Verwer |
Thursday, 1 April 2010 1:01 AM |
One Comment
There’s a vaccine for red tape – it’s called a regulatory impact statement: a RIS.
A RIS is meant to ensure new laws deliver net benefits to the community.
It’s a simple test – add up the virtues of a proposed law and subtract all compliance costs. The answer expressed in discounted financial terms should exceed at least one dollar.
Investors undertake similar assessments every day.
In Australia, this RIS vaccine can prove as toxic as the legislative disease it’s treating.
Let’s tour some recent RIS howlers:
- A RIS for proposed changes to the building code that sampled less than five buildings and applied the results to the entire country
- A RIS for residential property that totally ignored apartments
- A RIS for building stock that forgot to include refurbishment projects
- A RIS that produced the `wrong’ answer using a 7 percent discount rate (the government’s preferred value). Luckily, 5 percent did the trick
- A RIS that blithely assumed there were no capital costs to upgrading building performance
- A RIS that ignored the impact of reductions in net lettable area as a cost to owners
- A RIS that underestimated Australia’s building stock by 50 percent – a handy technique for reducing the cost of regulation to investors
- A RIS which calculated that additional regulatory burdens would reduce building costs.
RISs consistently fail to account for Australia’s size and diversity. They ignore climate differences, business culture, types of stock, as well as the impact of complementary or contradictory state legislation.
Many RISs don’t quantify costs and benefits in dollar terms at all.
Others fail to net off costs against benefits. They invent concepts like ‘break even points’ which relieve RIS consultants from the tedium of rigorous modeling.
Then there’s the recent flood of environmental legislation that consistently fails to quantify the ‘planet-saving’ value of proposed laws.
Take the new building code requirement to design to six stars instead of five stars.
Will the increase in one star performance abate 20 kilograms of CO2 equivalent per sqm or person? 30? 50? None? And how many megatonnes will be abated across the economy in aggregate?
It seems perverse to increase environmental performance stringencies without a target in mind. It’s willfully loopy to avoid quantifying the relative costs and benefits of proposed legislation.
A meticulous RIS would assess the environmental impact and cost of a new measure to produce a price per tonne of abatement.
Needless to say, very few RISs assess the virtues and vices of alternative approaches.
Another common RIS shortcoming is their failure to account for the behaviour of building occupants. Policy makers love to say our sector suffers from ‘split incentives’ and yet they rarely ask their RIS consultants to model them.
Let’s finish this exhausting list by noting that almost all RISs fail to account for the timing gap between the capital investment required by new laws and the return received by investors; particularly in relation to the refurbishment of existing stock.
Most RISs simply assume benefits flow from the minute legislation is proclaimed.
The Property Council has outlined a best practice RIS model on several occasions.
The key features of the model are:
- A transparent RIS methodology that states assumptions clearly
- An assessment of who pays costs and who receives benefits
- A quantification and netting of costs and benefits, as well as other dividends (for instance, environmental benefits)
- Rigorous modeling of impacts across the country
- Good governance, including an independent RIS umpire.
One concrete proposal that could be implemented by governments is to establish a UK-style Better Regulation Executive, which has a mandate to cut administrative burdens by 25 percent by th end of 2010.
It’s desperately important that we move from RISs that would qualify for Arts Council creative writing grants to a ridgy didge test of net benefits.
We can then devote greater energy to slashing swathes of existing red tape and harmonising our laws to better reflect our national marketplace and a joined-up Federation.
Peter Verwer |
Thursday, 1 April 2010 1:01 AM |
One Comment
