Scott Morrison’s vision to cut red tape will allow more Australians to reach their potential and for the Australian economy to flourish.
In an address to the Chamber of Commerce & Industry of Western Australia yesterday, the Prime Minister highlighted the need to “bust regulatory congestion” to remove “obstacles to business investment”.
His announcement that Assistant Minister to the Prime Minister Ben Morton will lead a review of red tape is an excellent first step. This move, along with Josh Frydenberg’s commitment to driving productivity growth, is the beginning of an ambitious third-term agenda for the Coalition.
It is right for the government to focus on regulatory reform and cutting red tape.
Red tape is the biggest barrier to economic opportunity and prosperity in Australia. Research by the Institute of Public Affairs estimates red tape reduces economic output by $176 billion a year, the equivalent to 10 per cent of gross domestic product. This makes red tape Australia’s biggest industry.
The lesson from the US under President Donald Trump is that cutting red tape and lowering taxes lead to an economic boom, and not just in terms of profits to businesses.
Since Trump came to office in January 2017, the unemployment rate has dropped to 3.6 per cent; the lowest rate since 1967; unemployment for minorities reached its lowest levels ever recorded; the unemployment rate for women has fallen to 3.1 per cent, which is the lowest since 1953; 422,000 jobs have been added in the manufacturing sector; and private sector business investment has increased from 17 per cent to 18.1 per cent of GDP.
This has led to the US labour market gradually tightening, which has placed upward pressure on wages and put workers in a stronger bargaining position.
The centrepiece of the reduction of red tape in the US has been a one-in-two-out approach, where two regulations are eliminated for every one introduced. Last year, 12 regulations were repealed for each new regulation introduced, resulting in a $US23bn reduction to regulatory costs.
The result is that in Trump’s first full year as president in 2017, total pages of legislation passed dropped by 36 per cent.
This is the largest reduction since records began in 1936.
In Australia, red tape affects every sector of the economy, from multi-billion-dollar projects in the resources sector to small shops on the local high street. The Roy Hill iron ore mine in the Pilbara in Western Australia, for example, required 4967 licences, permits and conditions for the pre-construction phase alone; and a contravention order was recently issued by a local council in NSW to a small food shop whose bottle of hand soap in the bathroom was less than 50 per cent full.
These examples demonstrate why business investment in Australia is just 11.8 per cent of GDP, which is lower than during the business-hostile Whitlam years. Low rates of business investment truncate the nation’s capital stock, which reduces productivity growth, and holds down real wages growth in the private sector.
As well as dragging down productivity and wages, red tape is pushing up the cost of living.
IPA research last year found that consumer prices in sectors with heavy government intervention have risen far faster than sectors with minimal intervention.
Across 20 years from 1997 to 2017, the cost of housing increased by 330 per cent, childcare by 310 per cent and electricity by 215 per cent.
But cutting red tape is not just an economic issue. It is a profound moral issue: red tape is disempowering. It prevents Australians from starting their own business, winning a pay rise and following their dreams.
Every hour spent on complying with red tape is an hour less dedicated to business expansion, in the community or helping the kids with their homework.
It is inherently undignified for an entrepreneur, a farmer, a prospector or a small-business owner to seek the permission of bureaucrats to start or expand a business or take on a new project that will employ more people and create greater opportunities. The disposition of a risk-averse bureaucracy will always clash with the entrepreneurial flair of hardworking Australians who are willing to take a risk, often putting their family home on the line, for the betterment of our nation. What have bureaucrats and regulators ever risked for Australia?
The exciting policy agenda of the Morrison government to cut red tape, along with reforming industrial relations and cutting income taxes, will help reverse the decline of small business, boost investment and allow the Australian middle class to prosper.
More information on the IPA’s Red Tape research can be found here.