Table of Contents
Every political party believes in the idea of better regulation. And yet every political party, once in government, fails to achieve better regulation.[2]
In 1981 President Ronald Reagan’s Executive Order 12291 required US Federal agencies to produce a Regulatory Impact Assessment (RIA) for all proposed major regulations — the first attempt to use RIA systematically to improve regulatory outcomes.[3]
An RIA sets out the problem the regulation addresses, the regulation’s objectives, different options to achieve them, an assessment of the impacts of each option, and the consultation undertaken, and recommends an option (usually the one with the greatest net benefit). Assessing the impact of each option could include estimating the costs and benefits, measuring business compliance costs, analysing risks and considering the effects on competition. Sometimes the document that details the RIA is called a Regulatory Impact Statement (RIS).
The idea of an RIA is to make regulation more efficient and effective by having its designers justify the reasons for implementing a new regulation, consider the costs and benefits of different options at an early stage and take a community-wide perspective of their effects, to ensure that the benefits to society (broadly conceived) of a regulation are greater than the costs (also broadly conceived) and to encourage the design and adoption of the regulation with the greatest net benefit. ‘Ideally, it is used to raise the right questions at the right stages in the policy-making processes with the right people’ (Radaelli and Meuwese 2009: 7).
RIAs have proved popular with governments trying (or trying to be seen) to improve the quality of their regulation. By 2005, 26 of 30 OECD countries, and many non-OECD countries, had adopted formal policies mandating the use of RIA in domestic policy-making.[4] Australia was an early adopter: from 1985 Cabinet required that regulatory proposals with significant effects on business include an RIS (Industry Commission 1994: 228). In 1986, the Hawke Government established the Office of Regulation Review (ORR) to encourage good regulatory practice (Industry Commission 1995: 73). Since then, every inquiry in Australia into how to reduce the regulatory burden at the Federal level has recommended strengthening RIA requirements and increasing the ORR’s resources and gatekeeper role.
International studies, however, question whether an RIA process improves regulatory outcomes. Common themes include non-compliance with the regulatory process and poor-quality RIAs.
For example, a US study of the quality of RIAs found agencies failed to comply with RIA requirements. Most agencies failed to quantify costs and benefits, discuss alternatives, use consistent analytical assumptions, report their results clearly or make their results accessible (Hahn et al. 2000; Hahn 2000). A review of New Zealand’s regulatory regime also found poor-quality RIAs (Wilkinson 2001: 96).
In a more recent survey, the quality of RIAs in the US was found to fall far short of guidelines and the authors concluded that: ‘…it does not appear to be getting any better over time. Thus, although there is some evidence economic analysis can improve the benefit-cost ratio of regulations, there is insufficient evidence that economic analysis of regulatory decisions has actually had any substantial impact’ (Hahn and Tetlock 2007: 3).
A study of the British RIA process also found the standard of RIAs to be poor, a ‘bureaucratic sham’, treated as ‘as a bolt-on extra designed to justify a regulation’ rather than being used to shape and inform policy formulation (Boyfield 2007: 9, 11). There are few incentives for public servants to undertake rigorous RIAs and they often define objectives narrowly, fail to calculate all impacts or consider the effects of non-compliance with the regulation, and resist external scrutiny. Many RIAs actually demonstrate that costs manifestly exceed quantified benefits (Boyfield 2007: 6). The problems are worse if the regulation is politically sensitive.
In their fifth annual report examining UK Government RIAs, Ambling et al. concluded: ‘More substantively we question whether RIAs have changed the political reality that ministers introduce regulations because they want them as distinct from being able to justify them. RIAs continue to be used to facilitate regulation rather than challenge the need for it or the quantum’ (Ambling et al. 2007: 9).
A study of RIA procedures and practices in the European Union and all Member States found:
In almost all cases we have examined, there is a large gap between requirements set out in official documents and actual Impact Assessment practice. …typically assessments are narrow, partial and done at a late stage. In many countries, a large share of proposals is not formally assessed or is assessed with a ‘tick box mentality’.[5]
[1] Principal, Consultecon, markharrison@ozemail.com.au.
[2] Boyfield 2007: 1.
[3] See Hahn 2005: 66–7. A major regulation is one with an annual impact of $100 million or more Some formal and explicit assessment of the impact of some regulations was undertaken in the US, Finland and Canada in the 1970s, and Denmark had a form of RIA in 1966. See Jacobzone et al. 2007: 35.
[4] See Jacobzone, Choi and Miguet 2007: 35, 77–80; Jacob and Associates 2006: 5. The OECD claims ‘in 2005 all member countries routinely carried out some form of RIA on new regulations before finalising and implementing them’ (OECD 2008: 6).
[5] Jacob et al. 2008: 2.