Lect. 10 Administrative Burdens and RIA

Overview Methodology currently used by many Member States and the European Commission to deal with the problem of measuring administrative burdens

Compliance Costs to Business Direct financial costs Substantive compliance costs Administrative costs Compliance costs Monetary transfers to public administration (taxes, duties, etc.) Modification of productive process or output - Arising from administrative activities businesses would conduct even in the absence of a regulation - Arising from activities businesses realize simply because there is a regulatory requirement. Administrative burdens

A methodology developed by the Dutch Government in Objective: reduce administrative burdens (AB) arising from regulation by 25% within measured In brief, the SCM is a way of breaking down regulation into a range of manageable components that can be measured. pragmatic approach It has been developed to provide a simplified, consistent method for estimating the administrative costs imposed on business by public authorities. It is focused on a pragmatic approach to measurement and provides estimates that are consistent across policy areas. Results obtained in the Netherlands: total red tape costs in 2002 = € 16.4 billion, (i.e. 3.6% GDP). Only in the financial sector = € 698 mil. Thanks to the SCM this amount has been reduced by 30%.  Growing interest of other EU countries The Standard Cost Model (SCM)

The SCM Network In 2003, a network of European countries was formed to consistently apply the Standard Cost Model. The SCM network currently consists of Austria, Belgium, Flanders (Belgium), Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Ireland, Latvia, Luxembourg, the Netherlands, Norway, Poland, Sweden and the United Kingdom. Methodological guidelines International comparisons and best practices Website (  In 2005 OECD starts its own project on administrative burdens (Red Tape Scoreboard)

The EC and the SCM After ECOFIN pressures, the EC defines its own version of the SCM (EU Net Administrative Cost). In March 2005 pilot project (Communication on Better Regulation for Growth and Jobs in the European Union) November 2006: the Commission proposed launching an Action Programme to reduce the AB of existing regulation in the EU and proposed a reduction target of 25%. The EU-SCM has been introduced amending impact assessment methodology and guidelines January 2007: Action Programme for Reducing Administrative Burdens [COM(2007)23 final]. target of 25 %, to be achieved jointly by the EU and Member States by 2012 The 2007 Spring European Council endorsed the Action programme and fixed a reduction target of 25 %, to be achieved jointly by the EU and Member States by Coverage: EC regulations and directives and the associated national transposition and implementing measures.

The EC and the SCM Identification of 13 priority areas:  1. Company law  2. Pharmaceutical legislation  3. Working environment/employment relations  4. Tax law (VAT)  5. Statistics  6. Agriculture and agricultural subsidises  7. Food safety  8. Transport  9. Fisheries  10. Financial services  11. Environment  12. Cohesion policy  13. Public procurement 38 legislative acts A set of specific rules has been identified for each area. Total: 38 legislative acts

Preliminary Clarifications on the SCM The model has nothing to say about effectiveness and social welfare variations associated with public policies The SCM examines only costs arising from information obligations imposed by regulation (especially on businesses) It does not produce statistically representative estimates, but it’s a pragmatic method to obtain approximate estimates on Administrative Burdens (AB). Main advantage: high degree of specification in the measurement of AB It can be used ex-ante or ex-post (e.g. to estimate the baseline) Goals: 1) To increase the awareness about AB (especially hidden) imposed by the regulation; 2) to produce information useful to design simplification strategies

Costs arising from an obligation to produce and communicate information to public authorities or third parties (e.g. consumers). Definition of AB Information Information includes, in a broad sense, costs of labeling, reporting, monitoring, and registration

Different Levels of Government Problem arising with multilevel governance Why could the inclusion of different levels of government regulation be useful?  The solution adopted in the SCM: A, B, C categories  A-regulation: Data requirements that are exclusively and completely a consequence of EU rules and other international obligations. It is described in the international rules what information businesses have to produce.  B-regulation: Data requirements that are a consequence of EU rules and other international obligations. The formulation of the specific data requirements will be left to the MS. The international rules do not describe what information businesses have to produce.  C-regulation:Data requirements that are exclusively a consequence of rules formulated at the national level.

Basic Assumptions 1. Compliance. Full or actual? 2. “Business as usual” costs should not be included

The steps of the SCM 1.Identification and classification of information obligations 2.Identification of required actions 3.Classification by regulatory origin 4.Identification of target group(s) 5.Identification of the frequency of required actions 6.Identification of relevant cost parameters 7.Choice of data sources and/or development of data capture tool(s) 8.Assessment of the performance of a “normally efficient entity” 9.Estimate of the total Administrative Burden

Regulation Information obligation A Activity 1 Administrative burdens Information obligation B Data requirement 1 Activity 2 Data requirement 2 Breaking Down Regulations

IO A Possible List of Information Obligations (IO)...  Returns and reports  Applications for permission for or exemption from…  Notification of activities  Entry in a register  Keeping commercial emergency plans and programs updated, etc…  Cooperating with audits/inspections…  Providing information to third parties (e.g. labeling, financial prospectus, etc.) Adapted from “International SCM Manual”

...and Administrative Activities  Familiarization with the information obligation  Information retrieval  Modification of existing information  Production of information  Monetary costs specifically associated with IO  Internal meetings  Inspection by public authorities  Corrections resulting from inspection by public authorities  Training, updating of statutory requirements  Copying, distribution, filing, etc.  Reporting/submitting information Adapted from “International SCM Manual”

Target Groups: heterogeneity Business classification is crucial because regulatory burden can vary according to:  Dimension  if possible, producing at least estimates for SMEs and big firms  Sector  some regulations impose higher burdens on certain economic sectors

The relevant cost parameters of businesses for the work involved in complying with individual data requirements must be identified before the interviews are conducted. Price: a) Hourly wage for various occupation groups that perform administrative activities; b) Hourly rate for various external service providers that perform administrative activities. Time: Number of hours / minutes spent on administrative activity. This is the object of the estimate. Quantity: population (total no. of businesses) and frequency (no. of times an activity is realized yearly).  Expenditure on necessary acquisitions to comply with specific information obligations and/or data requirements must be included Cost Parameters

Collecting and Standardizing Data Choice of the data capture strategy (existing data, experts, interviews) Business interviews: 3 alternatives (by mail, by , by face-to-face interview) Data collection Data processing. For each administrative activity selection of a “normally efficient business”

Example International SCM Manual

The average cost per action is estimated by multiplying a tariff (based on average labor cost per hour including pro-rated overheads) and the time required per action: Σ (P*Q) (P: Price = internal/external hourly rate * no. hours; Q: Quantity = No. businesses* Frequency) …it’s possible to estimate total AB per activity, IO and regulatory origin SCM Formula

SCM Critical Points disproportionate What is really disproportionate and an irritant to business? The underhanded plot to introduce an “intrinsic CBA.” administrations citizensIntroducing some other “points of view”: costs internal to administrations and citizens