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31 March 2015

Cost of delays included in regulatory costs (Australia)

This blog has regularly reported on the current discussion worldwide on what regulatory costs should be measured when considering new legislation (see regulatory costs category containing 46 posts). The best summary is available on the OECD "Measuring Regulatory Performance" page, which contains many useful resources including  the 2014 OECD Regulatory Compliance Cost Assessment Guidance.
A revised  guidance note on  "Regulatory burden measurement framework" has been issued in February by the Australian Office of Best Practice Regulation. The Australian approach targets a broad range of regulatory costs, to include substantive, or compliance costs in addition to the more commonly considered "administrative costs".
What is perhaps the newest is the section on "cost of delays", page 11 of the document, and copied below:
"Measuring delay costs is more complex and might not necessarily involve estimating labour costs or purchase costs. Often, once the regulation is implemented, delay costs could be considered as administrative costs, compliance costs, or both.
Delay costs should only be calculated when a business is waiting on government action to commence trading. For example, an entity may have to wait six months to obtain government approvals to sell a product on the Australian market. Where the entity is otherwise able to begin trading on the day it lodges its application, the delay costs comprise lost sales over the six-month approvals period. However, if the entity is not ready to commence trading until four months after lodging the application, the delay costs will comprise only two months of lost sales.
Delay costs are often incurred through the holding of land and capital. In these cases, you should be careful to consider what the business-as-usual case (that is, without the proposed regulation) is expected to be and whether the cost is a delay cost, a substantive compliance cost or an administrative cost. As an illustration of this distinction, consider a regulation that results in a business purchasing a machine but, as a result of an application delay, the machine sits idle for two months. The cost of the machine is not considered to be a delay cost, as the machine is needed to comply with the regulation, and would instead be a substantive compliance cost. However, the cost of the machine sitting idle is a delay cost and could be calculated as the loss of income incurred by the business as a result of the machine not being used."
A more detailed methodology on the measurement of the cost of delays in France was published by your blogger in 2007, and still online in the archive section.

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