Measuring Administrative Burdens
From Ruralinclusion
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Measuring Administrative Burdens in European Countries
Over the last few years, European Union’s concern on the reduction of administrative burdens on businesses has been increased. This objective has become more imperative in the current time period that businesses have fewer resources and need to invest to remain competitive, as stated by the European Commission. Even though there are different types of cost imposed to business by legislation, the Small & Medium Enterprises rank Administrative Burdens as the second most important individual business constraint and believe that administrative regulations will continue to deteriorate.
European countries have followed quite similar paths to reduce administrative burdens as part of their efforts to modernize and reform their administration and improve the business environment and the quality of regulation. In order to proceed to measurement, European Union member states have adopted a model that has firstly been developed by Netherlands, namely the “Standard Cost Model” (SCM), or have developed a variation of it. Already many European countries have been activating towards the reduction of administrative burdens and better regulation, with some having completed a baseline measurement (e.g. the United Kingdom, the Czech Republic, Denmark and Netherland) and others still measuring, launching pilot projects or relevant legislation, such as Austria, Belgium, France, Germany, Estonia, Hungary, Ireland, Italy, Norway, Poland and Sweden.
Check here for more detailed information on the subject of Administrative Burdens.
European Union Initiatives
Businesses are subjected to various requirements and obligations imposed by regulation. The systematic measurement of the costs stemming from regulation is the prerequisite for reducing bureaucracy and safeguarding the prosperity of businesses.
During the last few years, among the priorities of the European Union is the vision for “better regulation”, a term covering a wide spectrum of policy instruments and programmes for enabling public organizations to provide high-quality regulation. In 2002, the European Commission (EC) launched the “Better Regulation” Programme to simplify and improve the regulatory quality through several actions as follows:
- Evaluating the impact and improving the design of EC proposals;
- Simplifying the existing legislation;
- Testing EC proposals;
- Providing consultation into EC initiatives;
- Identifying alternative legislation.
In this context, the Competitiveness Council published a note on the broad economic policy guidelines, including a specific guideline on the quality of regulation, the systematic assessment of regulatory costs and benefits, and the reduction of administrative burdens enterprises.
In 2007, the EC launched the “Action Programme for Reducing Administrative Burdens in the European Union”, setting the grounds for the cooperation with the member states to reduce administrative burdens on businesses. The Action Programme focuses on the identification of information obligations that incur serious administrative burdens so as to be reduced. It focuses on thirteen selected priority areas including company law, employment relations, taxation/VAT, statistics, agriculture, and transport. It has been estimated that administrative costs can be cut down by a quarter by 2012, which in turns will increase the EU GDP by 1.4%. In the light of this significant impact, a large-scale operation to measure administrative costs and reduce administrative burdens has been set up
What are Regulatory Costs
In general, regulation entails various costs for businesses. These costs are defined as regulatory costs. Administrative Burdens are just a part of these costs. The figure below illustrates the different types of costs that regulation can impose on businesses.
Regulatory costs are distinguished into Direct financial costs, Compliance costs and Long term structural costs.
Direct financial cost
These are the result of a concrete and direct obligation to transfer a sum of money to the Government or the competent authority. These costs are therefore not related to a need for information on the part of the Government. Such costs include administrative charges, taxes, etc. For example, the fees for applying for a permit would be a financial cost of regulation.
Long term structural costs
These are the costs for the continuous fulfilment of a statutory duty.
Compliance costs
These are all the costs of complying with regulation, with the exception of direct financial costs and long term structural consequences. In the context of the Standard Cost Model, these can be divided into Substantive compliance costs and Administrative costs.
- Substantive compliance costs: are all costs for complying with substantive legal obligations, namely obligations to comply with legal standards and norms regarding the process of production, products and services.
- Administrative costs: the costs incurred by businesses in meeting legal obligations to provide information on their action or production. Administrative Cost derives from the summation of Business as usual costs and ABs (see figure below), which are defined as:
- Business as usual costs: information that would be collected and processed by businesses even in the absence of the legislation.
- Administrative Burdens: information that is solely collected because of a legal obligation
- Business as usual costs: information that would be collected and processed by businesses even in the absence of the legislation.
For a more detailed overview of methods used for Measuring Administrative Burdens within Rural Inclusion, please check here.
