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The impact of regulation on Australian businesses
Abrie SwanepoelManager Industry & Firm Analysis
Industry Economics BranchOffice of the Chief Economist15 September 2015
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
Regulation impacts on firms depending on their activities, size, location and stage of development
• Most firms face regulation of some form
• For some firms, there are added layers of complexity
• Firm decisions reflect a variety of incentives and barriers, including regulation
• Upwards of 60 licensing obligations according to ABLIS
Construction start up example
• Set up, business as usual, expansion and closure
Business life cycle
• 23% of firms sell interstate• 8% sell to overseas markets
Geographic market for goods
and services
• Firms face both direct and indirect compliance costsCosts
A business perspective on regulation
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
Firm perceptions vs. reality
Firms cite labour/IR as main regulatory barrier, but regulation ranks low relative to other factors as hiring constraint
• Labour/IR regulation is primary regulatory constraint for businesses in general
• Finance/tax legislation is primary regulatory constraint for SMEs
• Benefits of regulation are ignored
• Australia’s international ranking mostly favourable
Main constraint on hiring workers
Source: National Australia Bank
Weak demand
Lack of suitable labour
Poor confidence
Wage pressures
Spare capacity
Uncertain cashflows
Govt. policy & regulation
Other
0 5 10 15 20 25 30 35 40 45
SME QBS
Per cent of responses
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
Regulation affects business activities, but…
Businesses perceive regulation has wide-ranging impacts
Almost all firms that were surveyed were impacted by regulatory burdens.
The most direct impacts were most cited by firms.
Other important impacts include:
• Added uncertainty
• Time wasted
• Investment delays
Regulation’s impacts on firms
Higher business costs
Compliance costs
Added uncertainty
Time wasted
Investment delays
Impact on demand
Other
None
Lower productivity
0 5 10 15 20 25 30 35
SME QBS
Per cent of responses
Source: National Australia Bank
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
…other factors play important role as well
Many factors besides government regulations or compliance impact on general business activities
• Around 13 per cent of businesses in general cite regulation as a barrier.
• Weak demand, access to funds, input costs and lack of skilled persons are of most concern.
• Results vary by industry and firm size.
• Cyclical effects impact on perceptions.
Regulatory and other barriers togeneral business activities
Source: ABS Cat. No. 8167.0
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-140
5
10
15
20
25
30
Government regulations and compliance Least indicated barrier overall
Most indicated barrier overall
Per
cen
t of
res
pond
ents
From perceptions to empirical evidence
Literature illustrates regulation has impacts on the behaviour and performance of firms
• Dynamics of firm renewal and resource reallocation across firms and sectors has macroeconomic implications.
• Due to restrictions on data availability, much of the evidence is based on cross-country analysis.
Regulatory impacts on key economic aggregates
Business dynamics
• Can be detrimental to start ups
• Force entrants to be larger
• PC found low barriers to set up/transfer/ closure in Australia
Productivity
• PMR and LMR matter for TFP
• Distance from technological frontier matters
• Impact varies over the business cycle
Economic growth
• Reduces growth and increases volatility
• Impacts depend on quality of the overall institutional framework
• Starting point matters as well
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
What can we learn from the data and empirical studies?
Five key messages
1 Regulation has the potential to impact on firms in various ways
2 Differing impacts depending on industry, firm characteristics and location
3 Perceptions of regulation do not necessarily align with reality
4 Measuring regulatory impacts is fraught with challenges
5 Impacts of reform depend on country-specific factors
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
Australian Industry Report 2015Department of Industry and Science
Abrie SwanepoelManager Industry & Firm AnalysisIndustry Economics BranchOffice of the Chief Economist
Phone: 02 6102 9385Email: [email protected]
Industry InnovationWorkshop 2015
15 September
industry.gov.au/
Further informationContact Details
2014
WWW.INDUSTRY.GOV.AU