Deloitte: Compliance costs Australian economy 250 billion

26 November 2014 Consultancy.uk

Internal regulations by industries and companies are known to be one of the key frustrations of businesses, yet a new study by Deloitte reveals that the cost of compliance may be much larger than previously thought. Deloitte’s research shows that the cost of compliance to self-imposed rules is more than twice the cost of complying with government regulations. According to the Big Four firm, these rules are crippling Australia’s productivity and ‘better rules’ could free up time that could be spend on enhancing companies’ productivity.

Big Four firm Deloitte recently released its new report ‘Get out of your own way – Unleashing productivity’, which is the fourth edition of the firm’s ‘The Building the Lucky Country’ series first released in 2011. This series has been launched by Deloitte to drive debate, and action, around issues critical to Australia’s future prosperity. This year’s edition focuses on the costs to corporates and the nation of self-imposed red tape.

Australian business burdened by own bureaucracyThe overall conclusion of the report is that Australia has a bright future ahead as long as the country is able to boost its productivity, productivity that is currently being obstructed by red tape. “Addressing the weight of Australia’s government and corporate red tape is the clearest path to raising national livings standards across the next decade. It is where we’ve made the biggest mistakes as a nation, but also where we can make the biggest – and most profitable – progress,” explains Chris Richardson, co-author and Deloitte Access Economics Partner. The report shows that administering and complying with public and private sector bureaucracy is costing Australia $250 billion every year.

Time spent on compliance

Currently, the average employee will spent around 8 weeks a year just on administering and complying with rules. When breaking it down to professional levels, we see that middle managers and senior executives are spending almost 9 hours a week, which is a full working day, complying with the rules that firms set for themselves, other staff members are spending 6.4 hours a week. Deloitte states that this time spent is posing a crippling burden to the companies and nation, as this time is lost and not spend on productivity. “

Annual costs of regulation

What is most striking about the results of the report, according to the consultants, is that the cost of complying with self-imposed rules created by the private sector is more than double of that of complying with government regulations. Self-imposed rules are costing the nation $155 billion a year, of which 86% ($134 billion) a year is spend on compliance costs. Federal, State and local government rules and regulations are costing Australia $95 billion a year, with $67 billion a year spend on compliance. “Bureaucracy isn’t solely something that governments can do better – we all can. Remember when you actually used to be able to do work when you were at work? The pay offs to better rules have the potential to be a big driver of gains in productivity, as well as our living standards. Individual businesses need to unlock the profit potential they’ve tied up in their own red tape,” concludes Gerhard Vorster, co-author and Deloitte Chief Strategy Officer. The consulting firm states that reducing the total cost of $250 by just 10% could already save 1.6% of national income. As a result, the impact of regulation reform is ranked as one of the largest impacts Australia has ever seen.

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