Regulation Review - IPART - NSW Government

4 Estimating the impacts of recommended reforms
Substantive compliance costs
Substantive compliance costs primarily relate to changes in capital and operating
costs required to comply with regulation or interact with regulators. They can
include, for example, costs of buying and maintaining new equipment or
undertaking specific training in order to comply with regulatory requirements.
According to BRO, compliance cost savings to business and the community may
occur where:
certain equipment is no longer required to be purchased
the government provides the training required to meet new standards
the government removes restrictions or requirements on particular goods sold
in an industry – eg, by moving from mandatory product standards to product
efficiency labelling. 85
To estimate substantive compliance cost savings of a recommended reform, we
will seek to:
Identify the requirement(s) removed if the reform were to be implemented
– eg, a regulatory reform could remove the need to use a particular piece of
equipment and certain production inputs such as energy, chemicals, labour,
etc.
Place a quantity and dollar value on the removed requirement(s) – eg, the
capital equipment may cost $100,000, while the materials (or operating cost
items) may cost an average of $30,000 per annum, per regulated business. To
convert the capital cost to an annual figure, BRO recommends using the
straight line depreciation method. 86 That is, if the average lifespan of the
equipment is 10 years, the annual depreciation cost is $10,000 (ie,
$100,000/10). Costs of avoided or reduced operating cost items can be
estimated by multiplying the quantity of inputs reduced by the market price
of these inputs.
Multiply the average cost saving per regulated entity by the relevant
population of businesses or individuals affected – eg, if the average annual
cost saving per business is $40,000 and there are 100 regulated businesses
affected, the total annual cost saving is $4 million.
BRO notes that estimates of the amount of equipment or training costs that will
be saved from a regulatory reform can be obtained through a combination of
consulting with business and research. 87
85 Ibid, p 13.
86 Ibid, p 14.
87 Ibid.
52 IPART Regulation Review