Managing better number 14



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MANAGING BETTER

NUMBER 14

Regulatory Reform Through Regulatory Impact Analysis: The Canadian Experience


Evaluation, Audit and Review Group
February 1997

© Minister of Public Works and Government Services Canada 1997


Published by
Public Affairs Branch
Treasury Board of Canada
Secretariat

This document is available on line via the TBS home page


on Publiservice, the federal government internal network,
at the following address:
http://publiservice.tbs sct.gc.ca

This series of evaluations, audit guides, reviews and studies is designed to improve Treasury Board policies and programs.

Titles in this series already published:



1.     Review of Operating Budgets – Delegation Framework

2.     Review of Business Planning in the Government of Canada

3.    Review of the Cost Recovery and User Fee Approval Process

4.    Evaluation of the Policy for the Provision of Services for Employees with Disabilities

5.    Audit of Service to the Public in Official Languages   Phase I – Regions of Toronto     and Halifax

6.    Audit on the Use of Translation Services

7.    Review of the Costs Associated with the Administration of the ATIP Legislation

8.    Evaluation of Telework Pilot Policy – Highlights

9.    Evaluation of Telework Pilot Policy – Findings

10.    Audit of Adherence to Treasury Board Information Technology Standards

11.    Evaluation Framework for Early Departure Programs

12.    Validation Review   Audit Guide and Departmental Monitoring Framework

13.    Measuring Costs Associated With The Security Policy

Table of Contents

Executive Summary

Management’s Response

Background

Comments

Next Steps

1. Introduction *

2. Purpose of Canada’s RIA Programme and Historical Background

3. Programme Description

3.1 Questions Answered in the RIAS

3.2 Format of Output

3.3 Methods and Degree of Analysis

3.4 Preparation of the RIAS

3.5 Quality Control

3.6 Support for Regulatory Departments

4. Assessment of the RIA Programme

4.1 Programme Effectiveness

4.2 Costs of the RIA Programme

4.3 Legitimacy



5. Lessons Learned

Appendix A Reforming Canada's Regulatory Process: 1971 1995

Appendix B Impacts Of RIA: Four Case Studies


Executive Summary

Regulatory impact analysis (RIA) is one tool the Canadian government uses for regulatory reform. Requirements for RIA force regulators to think in a structured way before they act and increase the accountability of regulatory departments.

Canada’s RIA requirements include benefit-cost analysis, but go much further. Each proposed regulation must have a Regulatory Impact Analysis Statement (RIAS). The RIAS must: demonstrate that the proposed regulation is preferred over other policy tools to achieve the objectives; describe the stakeholder consultations that have taken place; and explain the strategy to ensure compliance and enforcement.

Despite shortcomings in nearly all regulatory impact analyses, anecdotal evidence indicates that RIA has:

-    helped develop short-lists of preferred policy tools;

-    identified design changes that were built into regulations;

-    identified instances in which more stringent standards would yield higher net benefits;

-    raised enough warning signs that the regulation was sent back for further analysis and verification; and

-    helped overcome industry opposition to the proposal by allaying fears of adverse impacts.

Perhaps the best indicator of the programme’s effect is the degree to which regulatory departments have internalized the way of thinking embodied within the RIA requirements. Several departments have implemented regulatory development processes that reflect new approaches to regulating. These processes increase stakeholder consultation early in the process, increase the range of policy tools considered and make explicit the trade-offs between the benefits and costs of possible interventions.

Major lessons learned from Canada’s experience with RIA include:

-    an effective RIA programme doesn’t have to take a strictly command-and-control approach involving a “gatekeeper” agency with the power to block regulatory proposals;

-    a RIA programme’s major benefit can be achieved by changing the culture within regulatory departments to internalize the principles of RIA;

-    a major strength of Canada’s RIA programme is that it allows regulatory departments flexibility to adopt different, but effective, approaches to meeting RIA requirements;

-    encouraging stakeholder consultation early in the process is perhaps the most important feature of the RIA programme;

-    analytical tools, such as the Business Impact Test, training programs and guidelines are important ways of implementing the RIA requirements; and

-    a RIA programme can have significant benefits to regulatory departments, including providing regulatory support to engage in more meaningful consultations with stakeholders, providing justification for regulatory proposals and improving regulatory proposals.

Management’s Response

Background


-    Regulation is one of the most widely used policy instruments of modern governance. In its many forms, regulations has played a vital role in serving and balancing the diverse interests and values of complex societies and economies.

-    For these reasons, regulatory management and reform is important and will continue to be high on the agenda of governments in coming years.

-    Regulatory impact analysis (RIA) is one tool the Canadian government uses for regulatory reform. Requirements for RIA force regulators to think in a structured way before they act and increase the accountability of regulatory departments.

-    A Regulatory Impact Analysis Statement (RIAS) is a public document published along with the text of the regulation, it is required for all proposals to amend regulations or introduce new ones.

-    Canada’s RIA requirements include benefit-cost analysis, but go much further. Each proposed regulation must have a Regulatory Impact Analysis Statement (RIAS). The RIAS must: demonstrate that the proposed regulation is preferred over other policy tools to achieve the objectives; describe the stakeholder consultations that have taken place; and explain the strategy to ensure compliance and enforcement.

-    The study reviewed and evaluated the methodological strengths and weaknesses of Canada’s RIA programme in improving regulatory quality and identify elements that contribute to its effectiveness.

-    The study was an important part of the exchange of information on current regulatory management and reform activities in OECD countries at the May 1996 meeting.

Comments


Major lessons learned from Canada’s experience with RIA include:

-    an effective RIA programme doesn’t have to take a strictly command-and-control approach involving a “gatekeeper” agency with the power to block regulatory proposals;

-    a RIA programme’s major benefit can be achieved by changing the culture within regulatory departments to internalize the principles of RIA;

-    a major strength of Canada’s RIA programme is that it allows regulatory departments flexibility to adopt different, but effective, approaches to meeting RIA requirements;

-    encouraging stakeholder consultation early in the process is perhaps the most important feature of the RIA programme;

-    the quality of analysis varies significantly between regulatory departments, and between different branches within a department;

-    very few “full” benefit-cost analyses are done with the most significant omissions being benefit estimates, although important costing categories are frequently neglected, as well;

-    relatively little effort is expended in estimating benefits; half of the RIAS examined did not quantify benefits at all -- in some cases, the lack of effort at benefit estimation reflects justifiable concerns about the ability to quantify benefits (i.e., benefits related to the public good and risk reduction);

-    direct costs to industry and government are generally better quantified then indirect costs (i.e., withdrawal of products from markets, substitution of non-regulated for regulated goods, displacement of investment, etc.);

-    generally the RIAS will focus on the distributional impact of costs and benefits; seldom are there good estimates of the impact on economic efficiency, in part because this is very difficult to do (sometimes, regulators are confused about efficiency and distributional impacts); and

-    despite weaknesses, nearly all the RIAS examined contained information that would be valuable in making regulatory decisions such as: quantification of direct costs, identification of some distributional impacts, and some discussion of benefits.

Next Steps


-    Treasury Board Secretariat (TBS) will assist regulatory departments with specific problems in carrying out the RIA requirements by helping design legislation or management systems;

-    Introduction of analytical tools, such as the Business Impact Test (BIT), training programs and guidelines are important ways of helping regulatory developments to implement the RIA requirements. Treasury Board Secretariat is working with Industry Canada to provide training on the BIT;

-    Treasury Board Secretariat, in conjunction with regulatory departments and agencies, facilitated the development of several new training courses to improve knowledge and skills at the working level; courses developed and launched in 1994 included Introduction to Regulatory Impact Analysis, Regulatory Alternatives for Executives, Regulatory Alternatives for Analysts, Benefit/Cost Analysis of Regulations, and Compliance Strategy. Similarly, a number of new courses were developed and delivered in 1996: Business Impact Test, Risk Assessment, Risk Communications, Consultation, Introduction to Plain Language Writing Workshop, and Plain Language Regulations Drafting Workshop. It is too early to determine the effects on the quality of RIAS. The training program and RIAS quality will be monitored to determine needed improvements; and

Treasury Board Secretariat in late 1995 introduced the regulatory process management standards to ensure departments had the management systems in place to adhere to the policy. Treasury Board Secretariat will work with departments to ensure they are in compliance with the new standards.


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