We'll Not Prosper In A World Tied By Red Tape

While the wider Australian economy struggles under excessive regulatory burden and lack of ­opportunity, the Canberra swamp charges ahead as a perpetual growth machine.

According to Deloitte Access Economics's latest quarterly business outlook released on Monday, Australia continues to suffer the triple threat of drought, a downturn in housing construction, and low confidence among consumers and business.

According to the ­report, Australia is "locked into slow growth" with an outlook ­described as "comfortably treading water rather than roaring into recovery".

Claims about the robustness of the economy do not stand up to scrutiny.  Even Josh Frydenberg in The Australian on Wednesday pointed to an International ­Monetary Fund report showing only "tentative signs of improved market sentiment" and recent data showing unemployment has fallen to the still high rate of 5.2 per cent.  Conditions are sluggish and the federal government is not doing enough to improve productivity.

But while Australia's private sector is living "in the slow lane" and "productivity growth has been as dead as a doornail", Deloitte ­reserved special praise for the ­nation's apparent economic leader, the ACT.

"Canberra is defying the ­national downturn, continuing the drive which has seen it record its largest ever share of the nat­ional economy.  Job growth is healthy and lower interest rates are loosening the noose on family budgets," noted the paper's lead author, Chris Richardson.

Data published by the Australian Bureau of Statistics in Nov­em­ber reveals what is so unique about the ACT.  Last year "public administration and safety" — which refers to most public sector activities but doesn't include education and health — accounted for about 28 per cent of the ACT's economic activity alone.  Nationally, public administration and safety accounts for about 5.7 per cent of the Australian economy.

Success for Canberra is based on a business model of regulatory and bureaucratic expansion.  A paper last year by a team of ­researchers at the Mercatus Centre of the George Mason Univer­sity in the US and RMIT in Melbourne found that the number of regulatory restrictions in Australia increased from about 2000 in the late 1970s to 95,000 in 2015, and in that time has ­become substantially more complex and wordy.

Government agencies have been given broad powers and discretion to administer this regulatory expansion, which in turn leads to further calls for red tape.  This month the Australian Communications and Media Authority ­released a discussion paper on ­impartiality and conflicts of interest in news broadcasting.  Having taken the initiative to identify the problem, it now assumes the ­responsibility for solving it.  This will undoubtedly mean more powers for bureaucrats and more regulatory burden for commercial broadcasters.

Notably, the public broad­casters — another intractable part of the swamp — were explicitly excluded from the scope of the ACMA's review.

The expansion of regulation is further facilitated by former politicians who, on retirement from parliament, rarely cease being members of the permanent political class.

In the past 12 months, former ministers Julie Bishop and Christopher Pyne have come under criticism for taking jobs closely connected to their former port­folios.  For many, this confirms the view that there is a revolving door between the corridors of power in parliament and the lobby and consultancy industry.

This system has many benefits for firms such as Deloitte, which benefits directly from bureaucratic expansion.  Between 2007 and 2017, the annual collective value of government consulting contracts between the federal ­government and the big four ­accounting firms — Deloitte, PricewaterhouseCoopers, Ernst & Young and KPMG — increased from $44m to $453m.  The total in that period amounted to $3.4bn.

But economic success for Canberra, which is contingent on the proliferation of big government, necessarily comes at the expense of the rest of the country, which must contend with more regulations and red tape.

The consequences for this model are plaguing the Australian economy.  For instance, private sector investment has sunk to 10.9 per cent of gross domestic product, which is lower than the levels experienced during the hostile Whitlam years.  The rates for small businesses ­exiting the economy are at historic highs.

Redefining economic success to mean the size of the public sector is a recipe for disaster in the real economy.

Australians already understand the problem of red tape.  Polling by Dynata of 1016 Australians last month found 64 per cent of Australians agreed with the statement that "unelected bureaucrats have too much control over our lives".  The same poll found 58 per cent of ­respondents believe Australia has too much red tape.

Red tape is the largest barrier to economic opportunity and prosperity in Australia.  My research estimates red tape reduces economic output by $176bn a year, the equivalent to 10 per cent of GDP.

You could say that this makes red tape Australia's largest ­industry.

Challenging this status quo and cutting red tape and lowering taxes will lead to significant economic benefits for all of us.  The US under the Trump administration, by adopting red tape ­reduction programs such as the one-in, two-out model for new rules, has lifted the US out of its sluggish Obama era "recovery".

Relying on the bureaucracy to generate economic growth will only feed the beast that is already strangling the private sector.  Draining the swamp will mean that more Australians can reach their potential and unleash prosperity in the Australian economy.