The impact of regulation on Australian businesses Abrie Swanepoel Manager Industry & Firm Analysis Industry Economics Branch Office of the Chief Economist.

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

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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

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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

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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

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…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

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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

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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

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