Let's not use politics as an excuse to stall reform

Political rewrites and simplification for its own sake do little more than unsettle existing law and practice and rarely succeed in reform, writes UNSW Business School's Pamela Hanrahan

On his recent retirement as Secretary of the Department of Foreign Affairs and Trade, Peter Varghese said, "I am a convert to radical incrementalism. It is radical in that it sets out a clear vision, clear principles, clear values. And it is incremental because it recognises that translating vision into reality requires a series of smaller steps."

We can learn a great deal from his measured approach to change.

Similar thinking was evident at a roundtable on business law and tax reform hosted in Sydney by UNSW Business School last month.

It brought together more than 50 bureaucrats and regulators, policy heads from professional and industry bodies, and senior academics from a range of disciplines. The aim was to discuss the case for ongoing reform and the best way to progress it in an increasingly complex political environment.

So, what is needed to reboot effective reform in the key Treasury portfolio areas of taxation, corporate law, competition law and financial services regulation?

The starting point is to recognise that our system of business law and taxation is part of Australia's economic infrastructure. Similar to pipelines or train-tracks, leakage, blockages and changes of gauge at state borders all have an adverse impact on its performance.

And as with all infrastructure, the system needs ongoing care and maintenance to remain fit for purpose and respond to changing local and global conditions.

Therefore, while far-reaching economic reform may look increasingly unlikely in the present parliamentary term, the ongoing project of regulatory and tax reform is as important as ever.

In recent years, many major reform projects have stalled. A number of government reports and recommendations - from the Henry Tax Review to the proposed managed investment reforms - have been either shelved or abandoned. When a change has occurred, it has tended to be reactive and piecemeal.

Rewrites, and simplification for its own sake, do little more than unsettle existing law and practice and for that reason rarely succeed

A range of factors has contributed to the problem. Reform fatigue and frustration with poorly designed regulation on the part of the business has reduced its appetite for change. Experts, whose contributions are often sidelined or dismissed as pushing a particular ideological barrow, are increasingly reluctant to generate and develop reform proposals in the public interest.

The changing structure of the public service and the growing influence of ministerial staff in policy development, leading to the 'political amnesia' described by journalist Laura Tingle in her December Quarterly Review essay, has clearly played a role.

More fundamentally, the apparent failure by governments to distinguish between consultation and lobbying, combined with deep community scepticism about the dominance of vested interests in the debate, mean most reform proposals are greeted with suspicion or outright hostility.

Reform is particularly difficult when it is directed at paring back inefficient or poorly targeted rules that are distorting the effective functioning of the whole system. The temptation is to keep plastering over cracks instead of thinking about ‘re-stumping'. The result? Further accretion to the regulatory stock. Periodic bouts of ‘red-tape reduction' do little to help.

The UNSW roundtable explored a number of options that may help to overcome the present impasse. An independent expert group to generate and test ideas outside the political frame would be a useful starting point, to enable thinking to evolve through bipartisan discussion and advice to the government which is clearly differentiated from lobbying.

Here the academy and the professions will need to step up, given the short-sighted decision by the Abbott government in 2014 to abolish the independent Corporations and Markets Advisory Committee.

In setting the reform agenda, incremental and pragmatic reform seems more likely to succeed than ‘big bang' projects. But as Varghese says, this must occur within a rigorous and principled framework to ensure that all changes are directed towards a coherent end goal.

Rewrites, and simplification for its own sake, do little more than unsettle existing law and practice and for that reason rarely succeed.

In the longer term, we need to think more creatively about how rules are made. Given the ‘new normal' in politics and the accelerating pace of change in business, we may need to rely more on delegated rule-making in future.

This can be done, but legislation needs to make its policy goals explicit to support proper implementation and consistent interpretation by regulators and courts. And we need to rebuild the community's trust in the ability and accountability of rule-makers, including regulators.

In the end, every reform project needs a champion at the political level capable of convincing parliamentary colleagues - including the populists on the cross-benches - that proposed reforms are necessary, durable and worth the political candle. The Minister for Revenue and Financial Services, Kelly O'Dwyer, is the obvious candidate.

Parliamentary committees have an important role to play in making the case for change, but ultimately those concerned with business law and tax reform in the public interest will need to convince government and the community that meaningful ongoing reform is possible and as important as ever.

In the present environment, that will be the challenge.

Pamela Hanrahan is a professor in the school of taxation and business law at UNSW Business School.