Good Idea From Trump Could Work In Australia, Too
Comment of the Day

December 13 2016

Commentary by David Fuller

Good Idea From Trump Could Work In Australia, Too

Here is the latter section of this common sense article by Nick O’Malley for the Sydney Morning Herald, which is also amusing, not least in its opening:

But among the commitments was an intriguing proposal that appears to have been lifted from a law passed in Canada in 2012, a law that according to its supporters has already had a remarkable effect on the nation's business and public life.

Designed to cut through red-tape, the so-called One-for-One rule mandates that for every new regulation the government seeks to pass, it must first remove an existing one.

In Trump's pledge at Gettysburg, this promise was amped up to become a "a requirement that for every new federal regulation, two existing regulations must be eliminated".

At present it is hard to predict which of his promises Trump intends to stick to – throughout his campaign he proved agile enough to adopt two sides of several issues. But since his victory he has returned again to deregulation, raising the one-in, two-out rule specifically. A concerted attack on business regulation would also be one of the areas in which the Trump agenda is actually in accord with the business and establishment base of his own party, which so far appears to be as nervous as it enthused about his agenda.

When the former conservative government in Canada decided to introduce a similar law it decided to strip it of its ideological teeth by exempting environmental, health and safety regulations. It eventually passed Parliament with the support of socialists and the Greens, 245 votes to one.

According to the Canadian government's most recent scorecard, 20 federal regulations have been abolished as a result, saving businesses 344,000 hours of labour. This might not seem a lot until you consider that in normal circumstances regulatory creep proceeds with the grim inevitably of carbon emissions. Holding it steady is worth celebrating, reducing it seems near miraculous.

In its analysis Forbes magazine noted that such laws are beneficial because they impose a constant vigilance on the accumulation of regulation which would otherwise proceed unobserved, though it noted that removing regulation can be as legally tricky as introducing it.

Given the success of Canada's experiments it is not that surprising that the idea is spreading. The Netherlands has embraced a similar model, as has Britain, which recently upped the stakes to one-in, three-out in an effort to cut red-tape costs by £10 billion ($16.8 billion).

Even Australia has taken steps in this direction in our own quiet, wordy, bureaucratic way.

A federal government guide to regulation introduced early this year included the principal that, "the cost burden of new regulation must be fully offset by reductions in existing regulatory burden".

The principle is good, though since we are almost unique in the world in being protected and guided by three arms of government perhaps it is an idea that could benefit from the simple and direct language of, say, Donald Trump.

David Fuller's view

Overregulation is almost as bad as no regulation, and the heavy hand of bureaucracy has certainly been evident since 2008.  Therefore the recent discipline for reducing at least one regulation for every new one proposed by federal government is most welcome.  Since The Netherlands has embraced this policy there might even be some hope for the EU, which is surely the most overregulated region of the planet. 

Elsewhere, President-elect Trump has appointed a number of highly experienced and successful business people to his Cabinet.  This can only be good for US GDP growth, which has had minimal support from the national government over the last eight years.  Trump’s proposed policies and Cabinet nominations have been enthusiastically endorsed by the US stock market since his surprise election victory on 8th November.     

(See also: Bill Gates Compares Trump To JFK After Phone Conversation: “Leadership Through Innovation”, from RealClear Politics)

Regarding markets, I have mentioned this point several times in the last few weeks, so here is a quick review. 

Brief consolidations aside, we can look forward to a good environment for global stock markets over the next several months.  President-elect Trump has re-jumpstarted the bull market, with new highs for major indices which had mostly ranged sideways for from three to five years.  Paying particular attention to Wall Street, give the upside the benefit of the doubt while these US share indices remain comfortably above their early-November reaction lows. 

US investors have obviously discounted the imminent Fed rate hike, and probably the next two 25-basis point increases, which are the minimum which I expect for 2017.  Some of the money coming out of US Treasury Bonds, shown by the rise in 10-year Treasury yields following their historic low in July, is helping to fuel the stock market rally.  However, this will slow above 3% and begin to become an increasing headwind above 4%.

Arguably, the Dollar Index may already be a slight headwind for US share indices, although not much of a concern while it is ranging below 102.  The US Treasury and Federal Reserve will consider further intervention when the rally resumes towards 110, and perhaps combine that with attempts to slow the greenback’s rise with jawboning.

(See also: Will Yellen trigger a global trade war?, by Karen Maley of the Financial Review)

 

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