Dave Richardson

Today the Financial Review carries an opinion piece by the Managing Director and CEO of the Australian Institute of Company Directors, Mark Riotti, arguing that the red-tape burden is holding us back. He has announced the release of a report they commissioned arguing that the cost of federal regulatory compliance was 5.8% of GDP last year. He admits some regulation is necessary to protect consumers and investors but he claims we have gone too far.

This is the sort of judgement that is in the eye of the beholder, and we can all disagree. But to restore some balance we need only think about child abuse in childcare with the overwhelming problems being in the for-profit sector where the profit motive encourages businesses to cut corners at the expense of maintaining appropriate standards.

Riotti might also think back to the Hayne Royal Commission which revealed serious cultural problems in the finance sector. Banking staff were incentivised to rip off investors rather than managing wealth for the benefit of the investors as they pretended.  

It reminded us of the Presidential Address to the American Finance Association by Professor Luigi Zingales who warned that “in the financial sector fraud has become a feature and not a bug” and the reason: “If the most profitable line of business is to dupe investors with complex financial products, competitive pressure will induce financial firms to innovate along that dimension.”

The perverse impact of the profit motive is not confined to the finance sector. It seems that whenever there is an opportunity to profit with anti-social activity someone will be attracted into that pursuit. Unfortunately anti-social business practices are endemic.

Over the years Woolworths has had more press releases and court action than most other companies with prosecutions resulting in heavy fines. Woolworths seems to be one of Australia’s worst corporate recidivists and continues to “play chicken” with the law.  

The federal income tax legislation is now a massive document. Why is that? Because Parliament enjoys making new laws? Or because taxpayers, especially wealthy non-wage earners are motivated to find ways to avoid or evade paying tax?