The Stagnant Nation: Lifting Australia’s Dynamism

Compliance with Commonwealth regulation costs Australian businesses $160 billion a year, or 5.8 per cent of GDP. Australia's measured regulatory burden is 33 per cent higher than the OECD average, and its productivity growth has been 85 per cent slower than the OECD average since 2015.

Productivity growth has fallen from 2.2 per cent in the 1990s to just 0.1 per cent today, its lowest rate in more than 60 years. Real wage growth has fallen from 0.6 per cent in the 2000s to -0.7 per cent today, the slowest rate since the 1990s recession. The Productivity Commission has pointed to declining economic dynamism as one cause, with fewer businesses starting, growing and competing. Australia's regulatory burden is one material driver of that decline.

The regulatory landscape has expanded and become more complex. The stock of Commonwealth regulation has tripled in pages since 2000, and regulatory 'thickets' and layers of rules have increased compliance costs and slowed approvals.

Businesses are diverting resources towards compliance. Compliance-specific roles have doubled since 2010, rising 105 per cent on average across all sectors, compared with 30 per cent growth in total employment. Board time spent on risk and compliance has grown 2.3 times since 2015, and directors cite regulatory burden as one of the top three economic challenges keeping them awake at night.

Regulation weighs on dynamism across the economy. A 10 per cent increase in measured regulatory burden is associated with up to 25 per cent lower labour mobility, up to 35 per cent lower business entry rates, up to 22 per cent lower investment as a share of GDP and up to 64 per cent lower R&D expenditure as a share of GDP. Regulation could account for around 20 per cent of declining dynamism. Returning measured regulatory burden to late-2000s levels could lift GDP by at least $20 billion a year over the next decade.

Regulatory reform is needed, and a targeted agenda can start now.

To fix the regulatory foundation, AICD recommends:

• Establishing a taskforce, working with industry, to review regulation and recommend targeted reforms
• Adopting the recommendations 2.1 – 2.4 from the PC’s 2025 ‘Creating a more dynamic and resilient economy’ pillar inquiry that would improve the quality of regulation making and impact analysis

To move the needle now, AICD recommends:

• Expanding the National Competition Policy and National Productivity Fund, where an additional $7.5 billion could help increase GDP by an additional $33 billion
• Adding real consequences to approval shot clocks, where returning to 2000 EPBC approval timeframes could save $4.3 billion per year
• Applying automatic mutual recognition to all jurisdictions and licensed occupations, which could deliver up to $142 million in annual savings
• Removing Group 3 climate reporting obligations, which could save more than $2 billion over four years

Read the full report here.