This report kickstarts a conversation about ways to improve NSW regulation, drawing on data and insights using artificial intelligence to identify potential areas of reform. The COVID-19 pandemic has demonstrated how rapidly circumstances can change. It has presented significant and unprecedented challenges to people, organisations and markets globally. Governments had to quickly respond with more flexible regulation to address the health, social and economic impacts of the pandemic. The NSW Government responded with a raft of temporary regulatory changes to protect citizens, while allowing businesses to flexibly deliver their products and services and enabling ongoing legal and administration requirements to be met through digital solutions. COVID-19 could act as a catalyst for broader regulatory reform that will support businesses to adapt to changed business patterns and consumer preferences and facilitate economic recovery. Treasury’s Strategy and Delivery Unit is currently leading the way to ensure the state is well equipped in its response, recovery and reform efforts. Beyond the COVID-19 pandemic, we must also consider the future of regulation in this age of continually changing social, technological and economic circumstances. This report identifies opportunities for New South Wales to future-proof our regulation and keep it flexible, fit-for-purpose and responsive in times of change.It's a standard 'cut red tape' exercise spritzed up with some artificial intelligence.
The report claims
- Compliance costs New South Wales between $11 and $87 billion every year.
- Improving our regulatory frameworks could yield significant economic benefits for the Government, businesses and the community more broadly.
- Technologies such as artificial intelligence and text-analysis software can help regulators target opportunities for reform.
Underpinning the way we live today is a complex regulatory framework. From doing business to how we are educated, from where we live to how we play: modern society is a reflection of the rules that govern our behaviour. Laws sit at the centre of our regulatory framework. Legislation is just one form of regulation, reflecting direct government intervention. There’s also: • self-regulation, such as industry participants entering into voluntary codes of conduct • quasi-regulation, where governments incentivise businesses to comply • co-regulation, where industry develops its own arrangements, which are subsequently underpinned by government legislation. Striking a balance between the costs and benefits of regulation isn’t easy. While compliance can be burdensome, it is also critical to protecting public interest. On the other hand, overly complex or onerous regulation can impede innovation and slow productivity. Estimates of the annual cost of compliance in New South Wales range between $11 and $87 billion per annum. At the top end, this reflects almost 14 per cent of State Gross Product: a massive cost borne by NSW residents. The challenges faced by regulators today are exacerbated by the rapid pace of technological change. New innovations can disrupt markets overnight, putting regulators on the back foot. Regulators are constantly amending and adapting our regulations; in New South Wales a piece of regulation is amended on average 104 times.
This report explores the regulatory framework in New South Wales, the challenges regulators face in ensuring regulation is fit-for-purpose, and identifies opportunities for the development of a roadmap for regulatory reform to enhance the productivity of our State. It also shows how leveraging advanced analytics and artificial intelligence (AI) technology can help regulators target the greatest opportunities for reform.
Even small improvements to our regulatory framework have the potential to drive significant economic benefits. A saving of just 5 per cent of compliance costs in New South Wales could result in a net benefit between $0.6 billion and $4 billion. More broadly, a favourable regulatory environment has been shown to lead to greater foreign direct investment, boost productivity and increase our innovation capabilities. Improving the New South Wales regulatory framework will require addressing a range of features across our regulatory system. Yet, there’s an opportunity to speed up the process. In the same way that AI and advanced analytics are revolutionising sectors like agriculture by helping to optimise yields, they can also be used to help fast-track the process of regulatory reform. Being able to identify where regulation is restrictive or especially burdensome helps regulators target laws that are not fit-for-purpose. This, in turn, accelerates regulatory improvements, driving long-term benefits for the NSW Government, businesses and residents more broadly.
NSW Regulatory Framework
• Reducing the compliance burden could bring significant benefits for New South Wales. A 5 per cent reduction could cover a quarter of NSW Government spending on education in 2018-19. • The volume of regulation in NSW is increasing. Between 2010-19, two times as many sections of regulation were created than in the preceding decade. • AI can identify opportunities to reduce regulatory burden by removing unnecessary compliance functions and ensuring regulation reflects contemporary ways of working.
Governments around the world have recognised a broadly consistent set of best practice principles for regulatory policy. These principles help guide regulatory decisions, ensuring regulation is fit-for-purpose. The increase in volume of legislation in our State is not unique to New South Wales, this is consistent with trends seen Australia is committed to best practice regulation. Australia is a signatory to the OECD’s Best Practice Principles and has committed to implement best practice through the Council of Australian Governments (COAG) Regulatory Reform Plan. This forms the basis for regulatory policy frameworks for all jurisdictions across Australia. New South Wales is no exception. The NSW Guide to Better Regulation, refreshed in 2019, builds on its COAG commitment and underpins all new and amending regulatory proposals in New South Wales. Proposals need to establish the need for government action, ensuring such action reflects NSW’s Better Regulation Principles, including the requirements for evidence-based regulatory development based on community engagement and assessment of the costs and benefits of different policy options.
Yet, despite best practice principles becoming increasingly central to our regulatory ecosystem, opportunities still exist to improve the regulatory landscape. Ensuring an efficient and effective regulatory system is key to unleashing a range of benefits for businesses and residents. The benefits of a 5 per cent reduction in compliance costs could cover a quarter of in Canada and the EU. regulation can sometimes be associated with more compliance this isn’t always the case. Regulation is often needed to promote public safety and enable new markets. Changing consumer expectations has also contributed to this global increase in regulation. Since the 1980s we have seen new markets, products and services emerge. Regulation has helped provide a framework to enable these markets to grow, to implement minimum standards and to create a level playing field for participants by avoiding market power, corruption and insider trading.
Regulators have also legislated to provide society with additional protections by enforcing rights such as privacy, legislating to protect the environment, protecting employees from discrimination and customers from new threats such as cyber security.
Governments across the world have also introduced regulations to respond to rapid technological advancement. For example, the use of drones has moved beyond traditional military applications and expanded into a broad range of commercial settings in recent years, such as, agriculture, mining and construction. This resulted in the introduction of new regulations to address risks arising from the civil and commercial use of drones, and thereby increasing the overall volume of regulations.
But it’s not just up to Government. Part of the cost of compliance comes from rules self-imposed by businesses to manage uncertainty and risk. In fact, middle and senior managers spend on average almost nine hours a week complying with self-imposed rules, while other staff spend an average of more than six hours.
Harnessing data to drive regulatory reform
Many of us already engage with artificial intelligence and machine learning technologies every day. From facial recognition software, to optimising travel to work, these technologies are no longer futuristic. Yet, to date, their application in the context of regulatory reform has been limited. This is despite the significant efficiencies they could facilitate, by helping to target opportunities for meaningful reform.
RegExplorer is a new tool for interacting with regulatory data. It uses AI and text-analysis software to help regulators better target where legislation is not fit-for-purpose. The tool can help us to understand the current regulatory climate by sifting through vast quantities of legislation and identifying where opportunities for regulatory reform lie. It can for example identify the age and number of edits of each section of regulation. While age or number of edits is not a proxy for irrelevance, identifying these sections can present an opportunity for review. For example, 7 per cent or 6,139 sections have not been edited since they were created, 4 per cent or 3,893 sections have only been edited once and 5 per cent or 4,179 sections have not been edited for ten years. Regulators could examine whether these sections are still having the intended effect. ...
AI can also be used to help identify sections of regulation that contain language that could be considered outdated or onerous. It can highlight sections that contain prescriptive language, require burdensome activities for compliance or reference technologies that we no longer use. Regulators can then review these sections and assess if they should be modernised, more principles-based or less onerous. They can also look for opportunities to streamline processes and move away from paper-based compliance by leveraging digital technologies.
