These burdensome taxes by other names still stink

The fastest-growing industry in Australia produces nothing you can buy, sell or export. It produces rules.

Start with the numbers. Strip the Australian Defence Force’s uniformed personnel out of the commonwealth’s civilian workforce (their numbers barely moved across the period), and the people writing and enforcing rules grew from about 180,900 to 327,000 between June 2018 and June 2025. That’s an increase of 81 per cent in seven years, or a compound annual growth rate of about 8.9 per cent a year.

At June 30, 2018, Treasury employed 912 people. By its own 2024-25 annual report, it now employs 1594, growth of 75 per cent in seven years. The Australian Securities & Investments Commission’s own reported staffing rose from about 1656 in 2018-19 to 1951 in 2024-25, up 18 per cent.

Real growth, but far more modest than the aggregate commonwealth figures suggest. The Australian Competition & Consumer Commission is harder to compare on headcount alone since its remit shrank when the Australian Energy Regulator became stand-alone. Its total expenses still rose from $208m in 2017-18 to a $569.7m budget in 2024-25, almost triple.

Even on more conservative agency-reported numbers, each of these bodies has grown faster than the economy it regulates.

Across the same seven years, business investment has gone the other way. The Australian Bureau of Statistics’ national accounts show non-financial corporations’ capital investment was 10.7 per cent of GDP in March 2018. On the latest available quarterly figures that ratio is running at roughly 12.6 per cent now, a rise of well under two percentage points, or about 18 per cent in relative terms, against a commonwealth civilian workforce that grew 81 per cent.

The OECD’s most recent Economic Outlook put the shortfall in harder terms, finding that business investment in Australia was running about 30 per cent below the level its economic conditions would predict. That’s not a coincidence to be waved away.

Last year, in his National Press Club address, former ASIC chairman Joe Longo declared “nobody wants more regulation”. If only this were true. Australia’s political economy contains powerful incentives that push regulation to expand whether or not the rules deliver any net social benefit.

Every new obligation creates demand for more compliance officers, lawyers, consultants and auditors, a professional class whose interests align naturally with an ever-larger regulatory state. This isn’t a criticism of individuals so much as an observation that institutions, like markets, respond to incentives. And the incentives all point one way: expansion and permanence.

Governments face the voters every three years. Regulators face no such accountability. Ministers come and go. Agencies outlive them, each with a constituency for its own expansion. No regulator has ever told a Senate estimates hearing its budget should shrink. The institutional logic runs one way, more risks identified, more powers requested, more funding secured.

Each year’s budget becomes next year’s baseline. Consider the latest example: extending anti-money laundering and counter-terrorism financing obligations to legal and accounting firms. Every client must be put through know-your-customer checks. Delay, paperwork, fees. Worse, when clients have to repeat identity verification with each new adviser, cost of switching rises, dulling comp­etition that keeps prices honest. Such rules broaden Austrac’s remit but operate as a tax on productivity paid by everyone else.

And a tax is what it is. Governments don’t tax only through measures announced on budget night. They also tax indirectly through regulation. A reporting obligation confiscates hours rather than dollars. A licence condition takes its cut in capital tied up and opportunities forgone. Unlike fuel excise, this indirect tax never faces a vote in parliament or appears in budget papers. Invisibility is not costlessness.

The Productivity Commission inquiry Advancing Prosperity found labour productivity growth in the decade to 2020 averaged only 1.1 per cent a year, the slowest of any decade in 60 years, against a long-run average of 1.8 per cent.

It’s no coincidence this regulatory surge has ratcheted up across the period that output and business investment stalled.

Beneath the incentives sits a deeper error about what firms exist to do. Treat the corporation as an instrument for enforcing government objectives and regulation will expand accordingly.

But a corporation is not a moral agent. It’s a mechanism for pooling capital towards productive use. Force it to measure success by compliance rather than value creation and it will create less value and invest less in creating more.

None of this argues for no rules. Markets need referees. But a referee should keep the game flowing, not stop play every 30 seconds and hire more referees at halftime. A serious government would commit to three things. No new regulatory function without an old one repealed. Sunset clauses with teeth. And an annual audited statement of compliance costs published alongside the budget. Until then, the industry producing nothing tradeable will keep booming while the investment that built this country keeps going backwards.