Lithuania – reform of business supervision institutions Giedrius Kadziauskas, Consultant, Inspection Reform and Better Regulation

Lithuania in short ♦ Lithuania was occupied by Soviet Union in 1940 and restored independence in March, ♦ Since 2004 member of NATO and European Union. ♦ Population less that 3 million. ♦ Balanced climate – 2 weeks - 30C in winter and 2 weeks +30C in summer. ♦ Highest mountain Aukštojas 293,84 m above sea level.

Very different from the UK and the Netherlands ♦ Much weaker public administration (heads of inspectorates – from old public administration) ♦ Corruption is a known phenomenon ♦ High share of shadow economy ♦ Politicized nomination of inspection heads ♦ But on the other hand: - institutions feel they must change because they are not perfect ♦ Small country allows for quick implementation of reforms. ♦ The country is in the mood of change – integration to the EU, had to recover from economic downturn

We did not know many things ♦ how many inspections per year? ♦ How many other institutions have the right to inspect businesses? ♦ Different rules of inspections. ♦ To little of risk assessment. ♦ Inspectorates knew little about each other. ♦ Politicians knew little about inspectorates. ♦ Complains by businesses. ♦ General assessment that inspections are not clean and inspectorates badly managed.

Inspectorate of construction and territorial planning Inspections carried out because the Law on Construction requires inspection of complex buildings Inspections carried out because the complaints from companies and citizens Inspections carried out as the decision of the inspectorate based on the risk assessment

We did not know much about international experience ♦ Little knowledge about the ongoing reforms with involvement of the World Bank, but we had heard about Hampton review

First step — end of 2008 In the programme of the Government of the Republic of Lithuania Goal: to reduce the number of business supervisory institutions Take No.1

Main legal documents Law on Public Administration ♦ new chapter on Supervision of Activities of Economic Entities, amendments enacted by Parliament of Lithuania, 22 June 2010 Resolution On Optimization of Supervision Functions Performed by Institutions ♦ Government Resolution, May 4, 2010

Results of the consolidation of institutions in – minus 10 The number of business supervisory institutions was reduced: 16 institutions were merged into 6. There are 60 remaining business supervisory institutions. But nobody was happy

Take No. 2 – beginning of 2011 ♦ To reduce the burden on business ♦ To improve the efficiency and transparency of business supervisory institutions Take No. 2

The slogan for the reform: “From punishment to advice”

Committee of Experts The 9 largest inspectorates, along with the Reform Team, created a panel for sharing experience and forming examples of best practices Fire and Rescue Department (PAGD) Fire and Rescue Department (PAGD) State Labor Inspectorate (VDI) State Labor Inspectorate (VDI) State Non-food Product Inspectorate (VNMPI) State Non-food Product Inspectorate (VNMPI) State Food and Veterinary Service (VMVT) State Food and Veterinary Service (VMVT) State Tax Inspectorate (VMI) State Tax Inspectorate (VMI) Road Transport Inspectorate (VKTI) Road Transport Inspectorate (VKTI) State Public Health Service (VKTI) State Public Health Service (VKTI) State Territorial Planning and Construction Inspectorate (VTPSI) State Territorial Planning and Construction Inspectorate (VTPSI) Environmental Protection Agency and Regional Environmental Protection Departments under the Ministry of Environment (AAA)

Tools 1.Declaration on the First Year of Business 2.Business-friendly checklists 3.Uniform telephone consulting 4.Risk based planning 5.Managing insignificant irregularities 6.Measurement of inspection performance 7.Consolidation of IT

Declaration on the First Year of Business Penalty for violating safety requirements To improve the business environment To promote job creation To help understand that businesses, especially small ones, need advice, not sanctions, during the first year To allow more business growth - during the first year of business, sanctions/ punishments are not applied; To promote good behaviour instead of simply punishing Sir, it’s my first day…

Insignificant % It’s too narrow. It should be 2 millimeters more. To punish or not to punish? What if 1 mm? 4 mm? Or 10 mm?

From October ,000 inspections (41%) conducted using checklists 41 %

Starting with less, learning by doing December checklists April checklists October checklists for various business activities December checklists for various business activities

You have rights when subject to inspection: Right to prepare for the inspection Right to information and advice Right to clean and transparent inspection Right to participate in the inspection Right to know the reason of inspection

Lithuanian Tax inspectorate call center – consultations per year Started in Preparation 18 months

Difficulties we face ♦ “Inspectorates want to punish, they think they are obliged to punish” ♦ No bottom up approach – inspectorates still are not actively using the reform as a vehicle to solve their problems. ♦ The reform group works with the 9 institutions that conduct the most inspections, but the reforms are having difficulty reaching the other 51 supervisory bodies.

Difficulties II ♦ Currently government is focused on new attempt to consolidate institutions rather than on improving performance of institutions.

Keys to success ♦ Top- down but soft measures. Guidelines, expert meetings, education of inspectors and heads. ♦ No expressed intent to deregulate on our side - inspectorates and sectorial ministries do not feel threatened. ♦ Two ministers heading and coordinating the reform. ♦ Existing differences among inspectorates exploited successfully. ♦ Clear goal. Adaptive and dynamic choice of tools. ♦ Gradual approach, learning by doing.

Representative survey.1000 companies – Lithuania 2013 Do you feel that business supervisory institutions recently provide more support for businesses to meet requirements of regulations? 48 % - YES (39 in the y2012) 34 % - NO (36 in the y2012) Have you noticed recently that there is a positive change in the attitude of inspectors towards businesses - they are more polite and assist in meeting legal requirements? 69 % - YES (64 in y2012) 17 % - NO