Regulatory reform is becoming a common project of governments across the world. As economies and businesses become more sophisticated in their operations, governments have recognised they must become more selective and innovative in the ways they regulate.

It is hard to describe the historical situation in Australia as one of more or less regulation. Relative to Europe there is a less regulated and rigid business environment. On the one hand, the number of pages of regulation has increased substantially; on the other hand governments have deregulated entire industries over the past few decades.

What we are seeing is change in the favoured style of regulation: these days, the focus is on setting the basic (enforceable) rules of the game and letting the market find its own solutions when this is possible. For example, where possible we expect regulation to be expressed in terms of an outcome to be achieved rather than a process for achieving it. This rewards productivity and innovation as firms seek the most efficient ways to comply.

This ‘market first' ethos has also led to governments opening up many elements of their regulatory functions to the private sector, in recognition that this can lead to improved delivery and client satisfaction.

The more the NSW Better Regulation Office delves into red tape issues, the more it has discovered that a lot of red tape exists not in the law or regulation itself, but in the processes and methods of delivery.

Government service providers are centrally funded rather than earning their income from clients, customers, patients and the like. This means they tend to deliver the service they have prioritised in a manner determined by them.

They do this through a series of rules and processes rather than through engaging with the recipients. If the recipients were in control of the payment and the service providers were in competition with each other, for example public vs private education, or public vs private health, there would be every incentive to lift the performance of the delivery agency and to minimise the inconvenience, including red-tape processes, for the client.  In a competitive market, a rules-based approach is replaced by a service-based approach. Lazy monopoly providers not required to chase their feed would be replaced by hungrier organisations in the hunt against competitors.

People feel Government agencies are not responsive to their issues, priorities or needs. Why should they be? They will be paid nonetheless. Therefore one way to reduce red tape is to make agencies more responsive to their clients by giving clients greater economic power.

Contestability and competition is a great driver of better regulator performance. For example, allowing businesses to choose to have their compliance with safety regulation audited by a certified engineer or by the government agency introduces a competitive tension which leads to greater service delivery and reduces the cost to business.

The key idea is not public versus private provision, but competition and creating a reward relationship that aligns the motivations and incentives of the service provider with those they service.

Private providers are by no means immune to bureaucracy and low-service level performance. Banks, phone companies and insurance companies are just as unresponsive to their customers as Government can be, especially when it comes to paying up or providing service.

It is not ownership that is important but where the economic resource rests. When organisations must respond to customers to earn income, the incentive to reduce red tape is in-built.

It is not possible to apply this approach to every regulatory system. There are limits to this model, for example in the case of law enforcement. This is the case in the private sector too - high security risks, for example, mean we cannot avoid the red tape involved in managing or changing our bank accounts.

There may also be unease in the community about the integrity of private providers, for example there may be a perception the profit motive means private auditors or certifiers may be ‘bought' where government providers would not. While this claim can be made, it is also true the penalty for negligent performance from a private provider is far more real to them than the implication for the public provider that has no capital or business reputation at risk.

Aside from better regulatory outcomes, working with business rather than over the top of them reduces costs to government, encourages private sector expertise, and contributes to economic growth. Where the private sector can responsibly provide a regulatory function at a fair price, it would be imprudent of governments not to take advantage of this.

Globalisation and international competition has put pressure on governments to create the best possible regulatory environment for business to flourish. This is the source of the trends in regulation reform we are now seeing, including closer government/business partnerships, better consultation and outcome-based policy.

What we are hearing from the business community is these trends can only grow stronger.

The Hon Joe Tripodi MP was elected to New South Wales Parliament as the Member for Fairfield in 1995, aged 27. Before becoming a Minister, Joe served as chairman of the Public Accounts Committee and parliamentary secretary for the Minister for Transport. He has been the Minister for Housing, Minister for Roads and Minister for Energy and now holds the portfolios of Ports and Waterways, Regulatory Reform and Small Business.