On 21 July 2020, the NSW Treasury kick-started a conversation about NSW's regulatory frameworks and the need for reform to enhance modernisation and efficiency in the 21st century, with the release of its report "Regulating for NSW's Future".
The Report was compiled using RegExplorer, an artificial intelligence tool that drew on regulatory data and insights to uncover where regulations are no longer fit-for-purpose or outdated. For example, RegExplorer showed that 7% of NSW legislation, or 6,139 sections, have not been edited since they were created.
Outdated and archaic regulation
The Report highlights that there is a clear need for NSW's regulatory framework to reflect the way we live and work today. Outdated legislation has failed to take into account recent changes in technology or business practices which can slow businesses down by imposing out-of-date requirements. For example, RegExplorer found that there are 350 references in current legislation to "facsimile", 27 to "telegram" and 19 to "cassette", to name a few.
The Report suggests that flexibility should be granted to regulators to frame regulation in a more outcomes-focused and technology neutral way, instead of the current emphasis on creating prescriptive obligations around processes. This would enable businesses to more freely and flexibly adopt the most appropriate and available technology in any circumstance, without having to seek incremental permission or modification from regulators.
The burden of regulatory compliance
The Report also explains how overly complex or burdensome regulation can impede innovation and slow productivity and suggests that modernising compliance, administrative and legal activities can provide significant cost savings for individuals and businesses. It is estimated that the cost of compliance in NSW ranges between $11 billion and $87 billion per annum. However, reform targeting burdensome regulation is likely to bring substantial benefits, with estimated savings of up to $4 billion. More broadly, a favourable regulatory environment has been shown to lead to greater foreign direct investment, a boost in productivity and an increase in innovation capabilities.
The inefficiency of regulatory overlap
The volume of regulation in NSW is increasing with two times as many sections of regulation passed in NSW between 2010 and 2019 than in the preceding decade. This is due to a number of factors, including the introduction of new markets and changing consumer expectations. The Report highlights that businesses in NSW face significant regulatory overlap which could be reduced by regulators:
- understanding where the volume of regulation is highest (ie the construction and mining industries each have over 2000 sections in NSW regulation relating to their industries);
- gaining awareness of regulatory overlap when reviewing existing regulations;
- simplifying regulatory touchpoints and processes;
- streamlining different compliance requirements applying to end-users; and
- improving collaboration with other regulators.
Ultimately, the Report suggests that sound regulation must balance the various public interest imperatives of safety and consumer protection, as well as productivity and innovation.
Case study: COVID-19 and its impacts
The COVID-19 pandemic has shown that modernised regulatory change can occur and be put into practice quickly. In response to the pandemic, the NSW Government swiftly responded with some 40 changes to NSW legislation that aimed to keep the community safe, while ensuring that the way we work and live in NSW could continue. For example, the changes broadly allowed for such things as electronic execution of documents and the use of audio-visual link to perform various legal formalities remotely such as witnessing documents.
A move away from physical paper-based compliance could also become a permanent benefit moving forward. Currently, NSW legislation still references the use of stamps, envelopes and common seals as paper-based compliance activities. There is an obvious need for regulations to adapt to modern ways of doing business and leverage the use of digital technologies. The Report suggests that the pandemic could act as a catalyst for regulatory reform as regulators can assess how new processes adopted due to the coronavirus reforms have performed and whether they can continue to be adopted in the long term.
What's next for productivity reforms in NSW?
At this stage, there are no substantive official announcements of upcoming regulatory reform in this space, however, the Report does bring to light the case for change to ensure the NSW regulatory framework remains flexible, fit-for-purpose, and responsive to the times we live in. We note that the Report is part of a series of Treasury Research and Discussion Papers, so there may be more to come. The NSW Productivity Commission is also expected to release a Green Paper soon with recommendations on reforms that can improve productivity in the economy, including a number of regulatory reforms, all of which may provide more guidance for the NSW Government and businesses on the next steps, and how business can stay on the front foot when it comes to regulatory compliance and doing business in NSW.