BURDEN OF GOVERNMENT REGULATION IN THE EU

Out of 148 countries surveyed in 2013 by the WEF (World Economic Forum), in terms of burden of government regulation, many EU countries are near the bottom: Here below is the ranking:

1. Sweden 22
2. Finland 24
3. Cyprus 24
4. Estonia 11
5. Luxembourg 18
6. Netherlands 28
7. Ireland 29
8. UK 45
9. Germany 56
10. Latvia 79
11. Malta 86
12. Austria 88
13. Denmark 101
14. Bulgaria 105
15. Lithuania 107
16. Spain 125
17. Romania 127
18. France 130
19. Portugal 132
20. Poland 133
21. Belgium 134
22. Czech Rep 135
23. Slovenia 136
24. Slovakia 139
25. Hungary 140
26. Croatia 143
27. Greece 144
28. Italy 146

In general, three different types of cost are included in an assessment of the costs that ensue from a regulation: compliance costs for business, direct costs to government, and broader community costs.

The first category refers to costs in order to comply with regulations and includes the time and work that has to be expended on filling in forms, obtaining licences, and the like; investments on personnel (i.e. recruiting and training additional staff); investments on equipment or material (i.e. purchasing and maintaining reporting and information technology systems); obtaining advice from external sources (such as accountants and lawyers) to assist with compliance, etc.

The second category involves direct costs to government and refers to management and maintenance of the regulatory framework and the regulatory authorities. Governments are responsible for the designing, implementation, and enforcement of regulation. They also incur the cost of reviewing and updating regulation. Although it is difficult to determine the government administrative costs deriving from regulation, they can be measured with variables such as budget costs for these activities or number of staff involved.

The last category of regulatory costs includes broader community costs. Apart from the cost on firms, excessive market regulation involves cost for the economy as a whole and reduces social welfare because it undermines a country’s competitiveness and reduces consumer choice.

Excessive regulation restricts willingness to start companies, deters the creation of new professions and jobs, and reduces employment growth. Further, increased business costs are often passed on to consumers in the form of higher prices for goods and services. A country’s adverse regulatory environment discourages also foreign investors and, consequently, reduces the invested resources. Thus, these costs entailed by regulation lead to lower economic growth.

EU countries need to

• reduce administrative burdens, for example by simplifying tax returns;
• minimize compliance costs (costs enterprises incur to comply with the rules);
• prevent more rules, for example by checking legislative proposals in advance for inopportune rules;
• improve public services, e.g. by introducing electronic files for entrepreneurs;
• focus inspections on high-risk enterprises so that those that keep to the rules enjoy an inspection holiday;
• identify problems sector by sector in cooperation with entrepreneurs and employers' organisations.

In conclusion, regulatory burden creates several problems both at firm and at economy and society level and considerable benefits can be gained from reducing unnecessary regulatory burdens. The economic cost of complying with regulations is a key determinant of national competitiveness and the investment environment for businesses. These costs can be direct, such as capital and operating costs. They can also be indirect, that is, opportunity costs, where the principal(s) of the businesses are taken away from their strategic roles of driving innovation, securing investment and increasing productivity.

Therefore, the challenge lies not only in maintaining the benefits that regulations create for a country’s economic environment and for its citizens but also in reducing the negative effects of these measures.