Simplifying the administrative burden

 

Rationale | Key considerations | Policy practices | Resources | Next

10.5. To what extent are the administrative burdens on investors measured and quantified? What government procedures exist to identify and to reduce unnecessary administrative burdens, including those on investors? How widely are information and communication technologies used to promote administrative simplification, quality services, transparency and accountability?


Rationale for the question

Administrative simplification is the most commonly used regulatory reform tool. It aims at reducing and streamlining government formalities and paperwork – the most visible component of which is often permits and licences. Evidence from many countries suggests that the administrative burden imposed on businesses is significant, with small- to medium-sized enterprises (SMEs) particularly affected. The informal economy often reflects administrative burdens that businesses, especially SMEs, cannot meet.  The right level of regulation, including attention to compliance costs when regulations are designed (through the RIA process), can help remove incentives for informal economic activity, with benefits for government, workers, and investors. It is also important to consider the cumulative effect of all the regulations to which enterprises are subject, not just those that have been introduced recently. Increasingly, governments are making use of information and communication technologies as a means of reducing administrative burdens. Excessive red tape adds to business costs, can impede market entry and lower competitive pressures (also see the chapter on Competition Policy) and reduces the incentive to innovate. In addition, it creates uncertainty that can disrupt business planning and hinder the ability of businesses to respond quickly to new market opportunities. Ultimately, this discourages new investment by, both domestic and foreign firms and weakens economic performance.

 

Related PFI questions:

Question 2.1 on an investment climate strategy
Question 6.1 on a regulatory framework for corporate governance

 

Related PFI questions:
Question 1.1 on investment laws and regulations not imposing unnecessary burdens
Question 2.4 on streamlining administrative procedures


Key considerations

Horizontal and multi-level co-ordination is needed within government to ease requirements and resource constraints to comply with administrative procedures. A single business must comply with requirements issued by different public institutions. The role of the government is to ensure that this compliance is feasible and simplified so normal business activity is not overloaded with additional and unnecessary responsibilities. Despite clear benefits, cutting red tape may encounter resistance from created interests inside and outside administration. Strong political support, solid communication strategies and clear and transparent measurement of benefits and costs can help overcoming these difficulties.

The PFI user should consider the following elements:

  • Process re-engineering is based on the review of information requirements for government formalities, their redesign and simplification to optimise them, reduce their number and the burdens they impose on business and citizens. This process aims at facilitating compliance. An efficient approach should make inspection and oversight more targeted, reducing unproductive random inspections and concentrating the use of government resources.

  • One-stop shops are designed to promote interaction between government and the general public, and less commonly within government administration, with as few contact points as possible. The aim is to save resources in the provision of services. They serve as a focal point to provide information, issue or accept notifications, formularies and obtain licenses and other requisites. They are also referred to as “single window” or “service counter”.

  • Silence-is-consent/denial is a tacit mechanism for approval of applications once a fixed period of time expires. It can facilitate simple processes that have low levels of risk. This method improves efficiency of administrative procedures as well as frees government resources.

  • E-government (electronic-government) is not only about electronic dissemination of documents. It also offers great possibilities in improving coherent and efficient regulatory interactions between government, businesses and citizens. Increasingly, governments are using ICT to reduce red tape. The main e-tools available are: electronic procedures, electronic data filing, electronic one-stop shops and e-procurement. Intensive use of ICT applied to administrative simplification should be done thoughtfully and after a re-engineering process of administrative work and organisation to complete a coherent strategy.

  • The Standard Cost Model (SCM) provides a simplified, consistent method for estimating the administrative costs imposed on business by government. The SCM is currently the most accepted methodology and it has helped authorities in the estimation of red tape, providing a justification for administrative simplification strategies and a clear picture of the benefits provided by these policies to citizens, businesses and government. This methodology is costly to develop and, in some cases, its results might fail to meet the proposed objectives. Countries have usually worked on cutting red tape for many years prior to using this model.

 

Policy practices to scrutinise

In assessing administrative simplification strategies to reduce burdens on the economy in general, and on investors in particular, the PFI user should consider the following questions:

  • Is the government designing or applying a programme to reduce administrative burdens? Does this programme have quantitative and qualitative targets? What are they? Are there any surveys measuring perceptions on red tape and on government’s strategies for administrative simplification? Is there an established system to measure administrative burdens? (The size of the informal economy often reflects administrative burdens imposed on business) What kind of accountability mechanisms are in place to monitor the programme(s) over time?

  • How is government streamlining administrative procedures? Are there one-stop shops established to reduce red tape? What are their responsibilities, do they provide information, accept notification and issue licences and permits? Is ICT used in the programme to promote administrative simplification, quality services, transparency and accountability? Is the “silence is consent/denial” rule systematically applied?

  • Is there a reallocation of powers and responsibilities taking place among institutions and levels of government (supra-national, national and sub-national)?

 

Resources

  • The OECD has been working on administrative simplification for many years. There are three key recent publications on this: Cutting Red Tape. National Strategies for Administrative Simplification (2006), Cutting Red Tape. Comparing Administrative Burdens across Countries (2006), and From Red Tape to Smart Tape: Administrative Simplification in OECD Countries (2003). National reviews of the Netherlands and Portugal are available.

  • The World Bank Doing Business project measures business regulations and their enforcement across 181 countries and selected cities at the sub-national and regional level (www.doingbusiness.org).

  • The SCM (Standard Cost Model) Network, formed in 2003 by some European countries, is an informal group working in the area of administrative burdens to share developments and foresee future advances. (www.administrative-burdens.com).

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