The Cost of Regulation: Drivers for Regulatory Reform and Digital Service Transformation

This year, the Australian Government Estimated Annual Impact on Regulatory Burden increased by $1,925 million. Imagine a small business owner spending more time navigating government paperwork than innovating their product or a community project delayed by years due to regulatory red tape. These aren't hypothetical scenarios—they're the realities of an unchecked regulatory burden. This article explores how Australia's regulatory environment impacts the economy and outlines the steps needed to turn the tide.

Executive Summary

Australia's regulatory burden—a measure of the total costs imposed on businesses, individuals, and communities to comply with government regulations—is reaching a critical inflection point. This burden includes direct costs, such as fees and infrastructure upgrades, and indirect costs, such as administrative delays and compliance reporting. Over the past decade, the regulatory burden has consistently increased, compounding financial pressures on stakeholders and stifling innovation, competitiveness, and economic growth.

The following projections indicate that by 2025–2026, annual costs could reach as high as $13.7 billion (median scenario) if regulatory burdens continue to grow unchecked. Conversely, significant savings of up to $8.9 billion annually could be realised by replicating past high-saving reforms. Without decisive action, businesses and individuals will face escalating challenges, with cumulative and compounding costs potentially exceeding a total of $66.3 billion by 2030.

To reverse this trend, the Australian government has an opportunity prioritise regulatory audits, digital transformation, and policies ensuring zero net impact from new regulations. By reducing the regulatory burden, improving efficiency, and engaging stakeholders, Australia can foster economic resilience, drive innovation, and create a more sustainable regulatory environment. The time for action is now.

What is the Regulatory Burden?

The regulatory burden refers to the total cost imposed on businesses, individuals, and communities due to compliance with government regulations. It includes:

• Direct costs: Fees, infrastructure upgrades, or hiring staff to meet requirements.
• Indirect costs: Administrative efforts, reporting obligations, or operational delays.

The Australian government uses the Commonwealth Regulatory Burden Measurement (CRBM) framework to calculate this burden. It’s typically expressed as an average annual monetary impact spread over a ten-year period.

Why Does the Regulatory Burden Matter?

The regulatory burden has far-reaching implications for Australia’s economy, businesses, and communities:

1. Economic Impact: Excessive regulatory burdens stifle innovation, increase operational costs, and reduce competitiveness—especially for small businesses. Managing these burdens ensures regulations achieve their objectives without unnecessary economic harm.

2. Policy Effectiveness: Regulations must deliver intended outcomes (e.g., improved safety, environmental protection) without creating inefficiencies or unintended side effects.

3. Cost-Benefit Balance: Accurate measurement allows policymakers to weigh compliance costs against societal benefits, ensuring value without overburdening stakeholders.

4. Transparency and Accountability: Reporting regulatory burdens makes costs visible to stakeholders and holds policymakers accountable for efficient regulation.

5. Improved Compliance: Lower burdens increase compliance rates by reducing complexity and confusion, making it easier and more affordable to follow the rules.

How Is the Regulatory Burden Measured?

Quantifying the regulatory burden is complex due to the diverse ways regulations affect different sectors. While exhaustive bottom-up calculations are ideal, they’re often impractical. Instead, the government relies on a proxy approach, using Impact Analyses (IAs) and Regulatory Impact Statements (RISs) to estimate the annual burden.

This method offers several advantages:

• Consistency: The CRBM framework ensures uniform calculations across regulations.
• Efficiency: Using estimates avoids the time and resource demands of exhaustive measurements.
• Actionable Insights: Policymakers can quickly identify high-burden sectors or trends requiring intervention.

Methodology: Using Estimated Annual Impact as a Proxy

Given these challenges, a more practical and efficient approach is to use the estimated annual impact on regulatory burden from Impact Analyses (IAs) and Regulatory Impact Statements (RISs) as a proxy. This methodology leverages structured, government-standardised assessments to approximate the burden:

1. Government Standard Framework:
   The Commonwealth Regulatory Burden Measurement (CRBM) framework ensures consistency in calculating compliance costs. This includes administrative burdens, compliance costs, and delay costs, expressed as an annual average over 10 years.

2. Transparency and Accessibility:
   Estimates are drawn from publicly available documents, ensuring transparency. These estimates reflect rigorous assessments conducted during the policy development process.

3. Sectoral Focus:
   By aggregating annual impact estimates, policymakers can identify high-burden sectors or agencies, enabling targeted interventions without needing exhaustive measurements across all regulations.

4. Efficiency in Time and Resources:
   Calculating the total burden from scratch requires extensive stakeholder consultation, modelling, and validation. Using annual estimates avoids these resource-intensive processes.

Benefits of the Proxy Approach

• Practicality: Directly measurable and easily interpretable compared to attempting exhaustive, bottom-up measurements.
• Comparability: Allows for year-on-year or sectoral comparisons, highlighting trends and priorities for regulatory reform.
• Decision-Making Support: Focuses efforts on managing and reducing the most significant burdens identified through policy assessments.

This proxy balances the need for accuracy with the practical realities of measurement, ensuring regulatory oversight remains informed and actionable.

Where We Are Now: Trends from 2014–2024

Over the past decade, annual regulatory burden estimates reveal a concerning trend: nine consecutive years of additional burden. Despite early savings achieved in 2014–2016, the cumulative burden has grown significantly, as illustrated in the accompanying charts.

The Trend: Where to Next?

The question begs, where does this mean we are headed? Given these estimates are spread over a ten-year horizon, it is important to tally the impact over a 10 year period.

The following graph calculates the Running Annual Impact: signifies the $ amount required to service the regulatory burden in a given year i.e. a sum of the previous 10 years of data.

The running annual impact on the regulatory burden for 2024–25 is estimated at $4,170.79 million.

A linear trendline has been fitted to available data to signify the current increase in nominal annual impact.

The Inflection Point

The key to understanding impact rests not just on annual impact, but the fact regulatory burden in Impact Analyses (IAs) are estimated using the Commonwealth Regulatory Burden Measurement framework and assumed to be spread over 10 years. 

The current trajectory indicates that in 2025–2026, Australia will reach a critical inflection point where the total cost of the regulatory burden will break $0 and result in net positive costs of the regulatory impact on individuals, businesses and communities.

The following graph calculates the Total Compound Impact: The cumulative financial burden over a rolling 10-year period, reflecting the full cost borne by businesses, individuals, and communities. 

i.e. the total additional cost- that year- of the estimated annual impact on the regulatory burden for businesses, individuals, and communities.

Due to savings maximised in 2014-16, we can see the offset of the added impact experienced over the past 9 years.

Since 2014, the total compound impact on the regulatory burden for 2024–25 is estimated at -$951.04 million.

Exploring Future Scenarios

To understand the potential paths forward, we modelled several scenarios for the regulatory burden from 2025–2030. 

a. Net Negative Annual Impact (High Saving)

Scenario Overview: If the Australian government replicates the significant savings achieved in 2015–2016, the regulatory burden could reverse its growth trajectory. This optimistic scenario assumes annual cost reductions comparable to past peak savings.

Running Annual Impact: The cost steadily declines year-on-year, reflecting consistent reductions in regulatory burden. By 2028, the annual impact is projected to drop below $0, signifying net savings for stakeholders.

Total Compound Impact: While the cumulative burden peaks at $8.9 billion in 2028, it begins to decrease afterward, showcasing the power of sustained cost reductions over time.

b. Median Year on Year Annual Impact (Moderate Saving)

Scenario Overview: This scenario models median annual savings of -$133.92 million, based on historical data. While savings are realised, they are less aggressive than in the previous scenario.

Running Annual Impact: Costs decline gradually but remain positive for several years, reflecting slower progress in reducing the regulatory burden.

Total Compound Impact: The cumulative burden peaks much higher, reaching $38.5 billion by 2034–2035, due to the slower pace of savings.

c. Net Zero and Median Annual Annual Impacts

Scenario Overview: These baseline scenarios assumes a neutral ($0) to median annual impact ($307.40 million). Regulatory impacts remain steady, neither increasing nor decreasing year-on-year.

Running Annual Impact: Costs stabilise around $0 but do not drop into negative territory, indicating no relief for stakeholders.

These running impacts peak at $6,404.99 million in 2026-27 and $7,389.39 million in 2029-30, respectively.

Total Compound Impact: The cumulative burden continues to grow incrementally.

d. Median and Mean Year on Year Cumulative Annual Impacts

Scenario Overview: These scenarios assume the regulatory burden increases year-on-year, reflecting a worst-case trajectory. Both median and mean impacts from the last decade are added cumulatively to simulate compounding effects.

Running Annual Impact: The annual cost surges, reaching $13.7 billion (median) and $20.2 billion (mean) by 2030.

Total Compound Impact: The cumulative burden explodes, peaking at $66.3 billion (median) and $83.6 billion (mean) by 2030. This highlights the exponential cost of unchecked regulatory impact.

Visualising the Costs: A Warning and a Call to Action

The two charts for each scenario provide a stark visualisation of the stakes:

• Running Annual Impact shows the immediate financial strain in a given year.
• Total Compound Impact underscores the long-term consequences of inaction or delayed reforms.

Without decisive action, even small incremental increases in regulatory burdens compound into enormous financial costs over a decade, further burdening Australia’s economy. These scenarios stress the urgency of implementing cost-saving measures and sustainable regulatory policies now.

This analysis signals the Australian government faces a critical challenge in managing the economic costs of regulatory burdens. If decisive actions are not taken in the coming year, the cumulative financial impact on businesses and individuals could persist for a decade, costing tens of billions annually to service.

The Opportunity Cost of Inaction

Beyond these projections, it’s essential to consider what businesses and communities could achieve if regulatory costs were reduced. Freed resources could:

• Fuel innovation and entrepreneurship.
• Drive economic growth through expanded operations.
• Support public and private investment in critical sectors like technology and infrastructure.

Tackling the Inflection Point of Ballooning Regulatory Impact

Regulators and policy makers have a number of levers at their disposal to manage these trends accordingly:

1. Reducing Regulatory Burden:

   • To create negative fiscal impacts on the regulatory burden (i.e., achieve cost savings), the government can seek to cut or amend existing regulations that impose significant compliance costs.
   • Without reductions, the financial burden on businesses and individuals is at risk of remaining unsustainable.

2. Improving Cost Efficiency:

   • Alternative or additional efforts should focus on reducing previously estimated costs associated with servicing regulatory burdens. This can be achieved through:
     • Digital Transformation: Leveraging technology to streamline compliance processes and reduce manual, time-intensive tasks.
     • Process Reengineering: Simplifying bureaucratic processes to make compliance less expensive and more efficient.

3. Maintaining Net Zero Impact of New Regulations:

   • Over the next decade, it is imperative to ensure that any new regulatory impacts do not exceed a net cost of $0. This requires robust regulatory impact assessments (RIAs) and mechanisms to offset costs associated with new rules.

Projected Consequences:

If these measures are not implemented:

• The regulatory burden will rise to impose tens of billions of dollars in annual costs on businesses, individuals, and communities.
• Even under a conservative estimate, it would take approximately 10 years before the financial impact of servicing regulatory burdens begins to decline, assuming no further escalation of costs.

Path Forward:

To mitigate the financial impact and accelerate cost savings, the government can pursue a comprehensive strategy that includes:

1. Regulatory Audits and Reviews:

   • Conduct a thorough review of existing regulations to identify high-cost, low-benefit rules for amendment or elimination.
   • Establish a sunset clause mechanism to regularly evaluate and retire outdated regulations.

2. Investment in Digital Infrastructure:

   • Prioritise funding for digital transformation initiatives, such as automated compliance platforms and e-government services, to reduce administrative burdens.

3. Policy Design for Zero Net Impact:

   • Enforce a “one-in, one-out” rule for regulations, where any new regulatory cost is offset by an equivalent cost reduction elsewhere.
   • Improve forecasting models to predict and manage the long-term economic impact of regulatory decisions.

4. Stakeholder Collaboration:

   • Engage with businesses, industry groups, and civil society to ensure regulatory changes address real-world challenges without imposing unnecessary costs.

Conclusion

The regulatory burden is a ticking economic time bomb. Without immediate and sustained action, businesses, individuals, and communities will face compounding financial pressures over the next decade. By leveraging technology, streamlining processes, and committing to zero net regulatory impacts, the Australian government can reverse this trend, paving the way for a more efficient, competitive, and resilient economy.