Bureaucratic regulations are indispensable for the functioning of a society that is characterised by division of labour. However, excessive bureaucracy puts too much burden on businesses, citizens and the administration. If we succeed in reducing the burden on businesses, resources thus released can be used for other purposes, for example, in research and investments. Also, efficient legislation can enable citizens to save time and money when completing questionnaires and dealing with authorities.
Commissioned by the Federal Government, the Federal Statistical Office measures administrative costs using the objective and internationally recognised method of the Standard Cost Model. The results illustrate the level and distribution of the burden and help politicians to identify unnecessary "time and money wasters" and to reduce them in a lasting manner. In its Programme for Bureaucracy Reduction and Better Legislation, the Federal Government has committed itself to reduce the existing administrative costs by 25% by 2011. This article deals with the administrative costs borne by businesses and the burden placed on various economic branches.
Administrative costs of over EUR 47 billion borne by businesses
The measurement of administrative costs borne by businesses was terminated in autumn 2008 and covered 9,234 information obligations which were in force on the reference day (30 September 2006). They cause an annual burden of over Euro 47 billion on businesses in Germany. About Euro 22.5 billion of that amount are due to national legislation. Euro 25 billion are based on EU and international law.
The costs are concentrated in a rather small number of information obligations. The ten most expensive information obligations account for approximately Euro 28 billion, which is 59% of the total costs. The 100 most expensive information obligations cause a cost burden of just under Euro 43 billion, covering 90% of the total administrative costs.
The administrative burden measured differs between branches (sections of economic activity) because the obligations to be met by businesses of different branches differ in part considerably.
Information obligations may refer to several branches or a specific one. The former are called cross-branch information obligations, such as the obligation laid down in the fourth volume of the Social Code and specifying that employers of all branches must regularly report data on their employees subject to social insurance contributions to the social insurance institutions. Cross-branch information obligations are rather cost-intensive because, generally, they refer to many businesses. However, in many cases, relatively little time is required to comply with those obligations. Although simplifying or abolishing cross-branch information obligations could lead to major savings in the overall economy, many businesses would hardly notice the effect.
Burden caused by branch-specific information obligations
What is a heavier burden for the businesses of individual branches, however, is the branch-specific information obligations. Although the overall costs of such obligations are often in the lower range, which is due to the relatively small number of businesses concerned, the individual businesses generally have to spend more time on such obligations than on the cross-branch obligations. So businesses would benefit more from a reduction of those burdens.
The burden caused by branch-specific information obligations is heaviest for the financial intermediation sector (about Euro 3.3 billion per year), followed by human health and social work (about Euro 1.7 billion). The sectors of wholesale and retail trade as well as community/social/personal services are markedly less affected. They account for costs of Euro 72 million and Euro 70 million, respectively. Community/social/personal services include things like hairdressing and washing activities as well as various recreational activities.
Burden per enterprise by branches
Average burden per enterprise
In most branches, the annual costs per enterprise are between Euro 11,000 and Euro 15,000. The burden is heaviest on financial intermediation (about Euro 80,000 per enterprise), followed by electricity, gas and water supply (about Euro 41,500). As those branches cover relatively few enterprises, the total costs (Euro 323 million) are low in terms of the overall economy (see also chart "burden caused by branch-specific information obligations"); however, the bureaucratic burden on every individual enterprise is usually heavier than for any enterprise of most other branches.
Political activities
Since the results were published in late 2008, the ministries have already initiated 357 simplification measures, which reduce the burden on businesses by about Euro 7 billion per year. For example, when first registering a vehicle (or registering it for another place of residence), it is no longer required to prove an existing insurance through a paper document as this is now settled electronically. Also, the dialogue between insurance companies and registration authorities will entirely be performed electronically from autumn 2009. Due to the second law on relieving family-owned businesses, the responsibility for investigations of local units performed so far by the accident insurance institutions will be transferred to the pension insurance institutions as from 1 January 2010. This will avoid some 130,000 double investigations among local units every year. On its website, the Federal Government provides detailed information on the measures reducing the burden.
Avoiding new bureaucracy
Sustainable reduction of bureaucracy requires not only a reduction of current costs – future legislative projects, too, will have to be checked for new burdens. Since December 2006, all ministries have been obliged to determine by means of the Standard Cost Model the administrative costs of regulatory projects and to show them separately in the justification of their draft laws. Such information is monitored by the National Regulatory Control Council. That independent control and advisory body continues to check all new legislative projects of the Federal Government to avoid future bureaucratic burdens. In the last two years, some 900 draft laws have been checked by the Council. Altogether new administrative costs of an estimated Euro 3.3 billion have been avoided for the businesses.
Outlook
Now that the administrative costs borne by businesses have been determined, the Federal Statistical Office has started questioning the citizens. For that purpose, the methodology of the Standard Cost Model has been adjusted. Contrary to the businesses, the focus now is no longer on costs but on the time spent (hours/minutes). Also, the concrete costs incurred for complying with the obligations are listed, such as postage. In addition, the time required for going to the authorities is taken into account.
Authors: Christine Kronz and Christian Zipse – Federal Statistical Office
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