Who will be the custodian of our custodians?

Parliament must stop the practice of delegating sweeping law-making powers to unelected officials. This practice is economically unhealthy and is likely to be found unconstitutional.

The South African parliament will eventually answer to taxpayers for government’s R334 billion expenditure budget. But who answers for the estimated R78 billion that regulations accompanying legislation adopted by parliament cost taxpayers in the form of compliance and enforcement costs? The bureaucracy now refers to these regulations as “subordinate legislation”, the more authoritative and respectable-sounding of the three terms ‘regulations’, ‘proclamations’ and ‘subordinate legislation’ used in the SA Constitution. The adoption of this term is unfortunate in that it creates the impression that bureaucrats are now empowered to make legislation without obtaining the approval of parliament. If persisted with, this name and process change will have serious implications for the freedoms of SA citizens, as it will deny them the protection afforded by separation of powers and the democratic dictum of “no legislation without representation”.

Bureaucrats generally report to no one other than their ministers. They are consequently not being held accountable to the electorate for the mass of regulations to which citizens are being subjected, including those accompanying the more than 1000 new Acts of Parliament adopted since 1994. Lack of accountability is exacerbated by the fact that regulatory costs are not as visible and recognisable as income taxes. This is because they are hidden in the prices of consumer goods and services and therefore attract little scrutiny. The consequences for the entire economy are serious. While compliance with the regulations is especially burdensome for the emerging business sectors, the entire cost has to be absorbed by consumers, most of whom are poor. South Africa is in dire need of a new way of thinking about, and getting to grips with, its burgeoning regulatory state.

The Financial Services industry, in particular, has been inundated with new legislation and regulations and must now comply with approximately 60 Acts of Parliament, 60% more than just 60 months ago! Each of these Acts is accompanied by “subordinate legislation” that typically absorbs 20 to 30 times more paper than the Acts themselves. Other industries, such as mining and manufacturing, are being similarly burdened.

While many of the regulations are well intentioned, the purpose of others appears questionable. Although the Constitution requires wide consultation, the voters’ and taxpayers’ connection to the regulators has been severed because many of the affected parties, as well as their elected representatives, are unaware of pending regulation and of the ultimate consequences for them if the regulations are adopted. Government takes credit for popular regulatory initiatives but seldom makes any attempt to estimate, let alone publish, the probable costs they will impose on affected parties and especially on consumers. Regulators are fond of announcing that the purpose of a particular legislative or regulatory measure is to protect the consumer but never tell them the cost so that they can decide for themselves whether the protection is worth what they will have to pay for it.

Part of South Africa’s plan for economic recovery and growth must include regulatory reform. Phasing out inefficient rules, making regulatory costs as transparent as direct taxes, and making parliamentarians directly accountable for these costs are crucial steps towards assuring the country’s economic health. Parliament must stop the practice of delegating sweeping law-making powers to unelected officials. This practice is economically unhealthy and is likely to be found unconstitutional.

There are at least three methods that can be employed to address the problem:

  • Implementing regulatory impact assessments
    All legislation and regulations should be subjected to Regulatory Impact Assessments (RIAs) before being presented to parliament. RIAs assess all the probable effects of proposed legislation and regulations and include cost/benefit analyses designed to ensure that the financial and other costs of new law do not exceed the benefits. US President Clinton and UK Prime Minister Blair both introduced legislation requiring that all Bills in their respective countries be signed off by independent RIA Agencies before becoming law. Moreover, provision was made in the legislation for the Courts to subsequently strike down laws if it was shown that RIAs had not been properly conducted. A similar mechanism, if introduced in South Africa, would give our legislators, and the executive, the kind of information they need to decide whether a particular piece of legislation would be good for the country, information they currently do not have at their disposal.
  • Inserting sunset clauses into legislation and regulations
    Every piece of legislation or regulation should contain a ‘sunset’ date upon which it either terminates or is subject to mandatory review and re-approval. In addition, every ministry should be required to table an annual list of laws and regulations that have become redundant and are to be phased out. In order to halt and start reducing the costs of enforcement and compliance, regulators should be required to offset the cost of proposed new regulation by terminating one or more existing statutes or regulations of equivalent cost, even if this means persuading officials in another department to eliminate one or more of theirs. Competition among officials for the “right to regulate” would be promoted if parliament were to place a limit on the total cost of regulation that it would be prepared to countenance. Such a limit would encourage officials to go to great lengths to prove that proposed and existing regulations provide net benefits. This is a culture that is entirely absent in today’s bureaucratic environment.

    As part of the review process, reports should be required of the total number of rules produced in each ministry, the number of these laws and regulations that affect small business, and the total estimated compliance and enforcement costs in each case. Such reports would highlight which ministries are imposing the greatest costs on taxpayers and consumers.
  • Appointing a Regulatory Reduction Committee
    Given that even the most energetic departmental review process would take several years to reduce the existing R78.billion regulatory burden, parliament should appoint a Regulatory Reduction Committee to hold annual hearings and assemble a broad package of cuts to be made each year. This committee should also be responsible for seeking out all regulations or “subordinate legislation” that represent a usurpation by officials of parliament’s law-making authority and either have them scrapped or bring them before parliament as amendments to the Acts to which they are attached.

    South Africa is not alone in being subjected to a regulatory deluge. Recent studies have shown that it has suddenly become a worldwide phenomenon. Senior politicians in the member countries of the European Union are warning of the dangers of over-regulation. The British Chancellor of the Exchequer, Gordon Brown, recently urged that the EU should liberalise and deregulate in order to make its economies flexible, competitive and open. What applies to the advanced countries of Europe is even more important for South Africa. A developing country like ours will be brought to its knees economically by the red tape that is engulfing us with the apparent willing acquiescence of the parliamentary custodians of our laws. In a democracy, parliamentarians are accountable to the people for efficiently carrying out their custodial functions. However, if they are unwilling to respond or incapable of carrying out the functions for which they were elected, who will be the custodian of our custodians?

    Author: Dr Brian Benfield is the Chairman of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.

    FMF Article of the Week/21 October 2003 - Policy Bulletin/12 January 2010

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