PMO Panel Seeking Ways to Make Government Red Tape More Transparent, Inject Cost-benefit Analysis

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The cost and benefit of government regulations is being put under the microscope by the Prime Minister’s Office this week, in an effort to cut the costs of bureaucracy to the economy.

A team of PMO-convened officials will be submitting recommendations for public comment. If implemented, they could have a major impact on government bureaucratic requirements.

The recommended policy would require every government ministry and regulatory agency to gauge the relative merits and demerits of its bureaucratic requirements, and demonstrate that they are necessary.

In an extraordinary step even by global standards, the PMO recommendations would also require that government agencies consult with the public before imposing new regulatory requirements. Once the regulations are in place, their effectiveness would also have to be measured.

Senior PMO officials did not deny that the move was prompted by a sense that the bureaucratic burden, and the cost of such regulations, has not received sufficient scrutiny.

The officials vehemently denied, however, that the new policy was designed to put regulatory agencies in a straitjacket, saying that regulators will continue to be responsible for oversight without intervention from on high. Instead, the aim is to encourage effective and transparent regulatory requirements and to have government officials also look at the cost of such regulation to the economy. They were not looking to reduce regulation but simply to make the requirements “smarter,” the officials said.

Generally, according to the Organization for Economic Cooperation and Development, government regulation costs countries about 10% to 12% of their gross domestic product. The cost to Israel’s economy has never been measured, but it is thought to be significantly higher than that range.

In a 2008 survey, Israel was ranked near the bottom when it came to effective government bureaucracy. For his part, Bank of Israel Governor Stanley Fischer commented last week that bureaucracy was one of the long-term threats facing Israel.

The Trajtenberg Committee, which was convened following the cost-of-living and social-justice protests of 2011, also cited government bureaucracy as an obstacle to opening the economy to greater competition, and thereby lower consumer costs.

It was in light of these findings, and those by the OECD, that a team was convened in the Prime Minister’s Office, headed by director general Harel Locker to address the issue of government regulation.

The PMO panel proposes that, in the future, all government offices examine their regulatory requirements. Initially, however, a more limited pilot program will be established in a small number of government agencies, which will only apply to newly proposed regulations.

Adopting the formal regulatory impact assessment criteria used abroad RIA, as they are known the proposed evaluation process involves nine separate criteria required to justify regulations.

The first step is analyzing the existing situation, including the particular problem the regulation would address. The new approach would require that officials look at the wider implications of the problem and the proposed solution including, for example, their impact on competition, on the cost of living and on weaker population groups.

And in a groundbreaking step, the panel is proposing that government agencies be required to consult with segments of the population that would be affected by the bureaucratic requirement, as well as with experts. Bank regulations, for example, would have to be discussed not only with the banks but with consumers of banking services.

Government officials would also have to look at other options to the proposed regulation and set forth a process for future evaluation of the regulations’ effectiveness. Finally, they would have to report their findings to the public.

All over the world, the cost of regulation is being reexamined, officials in Prime Minister Benjamin Netanyahu’s office said. There was an understanding, they said, that the bureaucratic burden can hurt economic growth, and that such regulatory requirements are not currently constrained. They said there was also a convergence of concern expressed by members of the business community and by the social-justice demonstrators, expressing a sense that bureaucracy was exacting an unnecessary price.

The panel consulted officials from dozens of government regulators, in addition to experts on the subject from Israel and abroad. They looked at reforms implemented in other countries, particularly Australia and New Zealand. It will make its draft recommendations public later this week.

Governor of the Bank of Israel, Stanley Fischer, in the Knesset, May 2, 2012.Credit: Michal Fattal

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