Compliance / Regulatory Costs Definition, methodology, practical experiences

1. Compliance / Regulatory Costs Definition, methodology, practical experiences Federal Chancellery, Better Regulation Unit / Federal Statistical Office Joachim.Smend@bk.bund.de / Christian.Zipse@destatis.de SCM Network, Ljubljana, 23 September 2011 – Workshop 2

2. Challenges for taking the admin burden reduction programme forward • citizens and companies have a broader sense of „bureaucratic burdens“ than IOs and the costs resulting from them („tip of the iceberg“) • consolidation of the existing body of law is part of better regulation, but does not necessarily lead to substantially lower burdens • most regulations have a specific goal: scrubbing them is no option • burdens also stem from the interplay of the different – more or less independent – levels (law-making, implementation and enforcement)

3. Some examples: • The Netherlands, 2007: New action plan of the Dutch Cabinet to reduce (substantive) compliance costs of businesses in 2007-11 • Canada, Australia, UK (policy cost concept) • EU? • COM Impact Assessment Guidelines (Jan. 2009, p. 33): „Operating costs and conduct of business/Small and Medium Enterprises… Will it impose additional adjustment, compliance or transaction costs on businesses?” • Conclusions of the March 2011 European Council: „The overall regulatory burden, in particular for SMEs, should be reduced at both European and national levels.”

4. The Netherlands: Substantial Compliance Costs - Definitions and concepts Substantive obligations: to comply in a direct way with norms, standards, codes of conduct etc. to safeguard public goals Substantive compliance costs: all costs to comply with substantive legal obligations Business as usual costs: costs that would remain if there was no legal obligations Marginal costs:costs that would dissappear if there was no legal obligation / the costs of all activities/investments which exceed 100% compliance or average practice Base line: starting point for reduction plans Base line : the average existing relevant practices in businesses (see model next slide) 4 Measuring Compliance Costs | May 19th 2010

5. Composition of substantive compliance costs 5 Measuring Compliance Costs | May 19th 2010

6. Composition of substantive compliance costs Substantive compliance costs Law Transport dangerous products Substiantive compliance costs Base line Law to check identity new employees Substantive compliance costs Law Employees Council = Marginal costs = Business as usual costs 6 Measuring Compliance Costs | May 19th 2010

7. What’s new: The German case (2010 onwards) • Definition of compliance costs (Art. 2.1 of the RCC Act):„The compliance costs embrace the entire measurable time and costs required for complying with a Federal statutory provision by citizens, commerce and public administration.“ • The Regulatory Control Council (RCC) checks in particular the ex ante assessment of compliance costs of new regulations for citizens, the business sector and public administration (which will in principle be obligatory as of July 1, 2011) for comprehensibility and correct methodology, as well as the description of the other costs to businesses and especially for small and medium-sized enterprises. • Information obligations (IOs) are part of compliance costs (Art. 2.2 of the RCC Act).

8. What are compliance costs? What is part of compliance costs: What is not part of CC: • Macroeconomic effects, such as: - effects on competition and economic growth - effects on investment decisions • taxes, social security contributions, monetary benefits according to Art. 104a of the German Basic Law • benefits of a regulation Costs from substan-tive obligations, e.g. installation of a particle filter Costs from information obligations, e.g. documentation of the installation of the filter

9. Objectives of the ex ante procedure To create transparency on the effects of regulations To improve the law-maker’sbasis for decision-making Contribution to better regulation

10. „Interim“ conclusions • The assessment of compliance costs can be much more complex than of administrative costs from IOs, • however: scientific accuracy is not called for … • … but a balance between practicability of the assessment and plausibility of the results! • Therefore: Early involvement and informal exchange with the RCC (as before).

11. How to estimate compliance costs • Step 1: Identify all requirements of a regulation • Step 2: Assess the associated costs: - Step 2.1: Identify the numbers of cases - Step 2.2: Assess time consumption and material costs • Step 3: Presentation of total costs of a regulation

12. Definition of „requirements“ • Requirements are • „Individual regulations which directly lead to a change in costs and/or time consumption for the addressees of the norm.“ • (definition according to the German ex ante manual) • Assessing the compliance costs resulting from fulfilling requirements means estimating the probable financial and time burdens or reliefs of the planned new regulation. • In this process, only the expected change of compliance costs is relevant („delta“).

13. Different types of requirements Citizens / Economy Public administration (implementation and fiscal action) • processing of applications • inspections / surveillance • provision of information • public administration as awarding authority (public contracts, e.g. constructions) • … • target achievements • directives • information obligations • inspections / surveillance • omission (of intended action) • … This results in … Compliance costs

14. Step 1: Identification of all requirements New regulation list ofrequire- ments per normaddressee requirement has to be named and attributed to a norm addressee (IOs on the economy have to be reported separately) requirement requirement relatedrequirements can be bundled! EC process EC (IO) requirement CIT PA

15. Identification of requirements: UV protection act • retrofit/replace old solarium equipment • acquire protective goggles • conduct customer consulting • staff training

16. Step 2.1: Identification of number of cases Require- ment or process number of cases for all require- ments, processes or case groups event-driven number of cases no of affected addressees EC periodical fulfillment x EC (IO) frequency (per year) CIT PA

17. Identification of number of cases: UV protection act • Operators of solaria need to adapt them to the UV protection act Some 4.000 operators with 45.000 units are affected. Two case groups are to be expected: • Retrofitting existing units: about 40.000 cases • Acquisition of new units: about 5.000 cases

18. Step 2.2: Identification of costs per case • Three types of costs: detailed presentation Current costs per case in euros or time units require- ment / case group time consumption (in hours) x tariff (per hour; only EC, PA) + EC€ EC (IO)€ material costs CIThrs./€ PA€ To be reported separately, not per year. EC€ EC (IO)€ implementation (one-off) costs CIThrs./€ PA€

19. Example: identification of costs for citizens „Snow tyre requirement“, Art. 2.3a of the German Road Traffic Act Car owners, which do not regularly adjust tyres according to weather conditions, now have to switch to winter tyres (WT) in autumn and to summer tyres (ST) in spring. • Time consumption • Activities according to check list, estimated time consumption • 33 minuten per case and year • Material costs • New acquisition of WT (700 €) compated to ST (600 €) • difference („delta“) of 100 € are additional costs caused by the regulation • New acquisition every six years => frequency = 1/6 => 17 € per case and year • plus 2 x 20 € installation costs (garage) per case and year • Total costs: 57 € per case and year

20. Identification of compliance costs: overview Planned regulation / norm (e.g. law, decree, ordinance) Requirement 1 (individual regulation) forcitizens, economy and/or public administration requirement 2 requirements 3 to n Vorgabe 2 Vorgabe 3 bis n if necessary, bundle requirements (into processes) / build case groups etc. tariff* time con-sumption material costs (if nec. pro rata) number of norm addressees ** frequency per year** etc. costs (per case) number of cases (per year) etc. costs (per case) x number of cases = annual compliance costs of a requirement / process etc. • compliance costs of requirements / processes 1 to n = compliance cost of the regulation (per year) * tariff not applicable to citizens ** if required for determining the number of cases

21. Step 3: Presentation of total compliance costs e.g. for the economy: list of all requirements (including IOs) Individual presentation for every individual requirement: - number of cases x costs per case = compliance costs Aggregated presentation: - Total compliance costs to the economy from XYZ requirements result in XYZ euros per year, out of which XYZ from IOs…. One-off implementation costs:- XYZ euros from the introduction (of new requirement)

22. The new Explanatory Memorandum* A. Problem and objective B. Solution C. Alternatives D. Financial implications excluding compliance costs E. Compliance costs1. Citizens2. Economy (including costs from IOs) 3. Public administration F. Other costs (in particular other costs to the economy) * According to the Joint Rules of Procedure of the Federal Ministries (GGO)

23. Thank you very much! For further information:www.bundesregierung.de/buerokratieabbau www.destatis.de/webskmwww.normenkontrollrat.de