1 INTRODUCTION AND MAIN POINTS

1.1 This submission on the Ministry for Regulation’s Discussion Document on the proposed Regulatory Standards Bill is made by The New Zealand Initiative (the Initiative), a Wellington based think tank supported primarily by major New Zealand businesses. In combination, our members employ more than 150,000 people.

1.2 The Initiative undertakes research that contributes to developing sound public policies in New Zealand and creating a competitive, open and dynamic economy and a free, prosperous, fair and cohesive society.

1.3 The Initiative’s members span the breadth of the New Zealand economy. They all experience the effects of regulation, for better or for worse, in each of their activities. Not all regulation is bad. But poor-quality regulation can markedly reduce productivity for inadequate benefits. The views expressed in this submission are those of the author, not those of our members.

1.4 This submission supports the case for such a Bill. The mixed quality of laws and regulations in New Zealand is a problem. Stronger measures to improve regulatory quality are needed. Current incentives to provide competent supportive analyses of proposed laws and regulations are too weak. Unduly high house prices and inadequate public infrastructure due
to excessive delays and costs are symptoms of regulatory problems.

1.5 The Public Finance Act contains principles for limiting the government’s exercise of fiscal powers. This Bill provides a principled legislated discipline to the assessment of its use of its regulatory powers. Some government objectives can be achieved through either regulatory or spending measures: for example, government can reduce the speed limit on a sharp bend in the road, or it can spend money to make the bend safer at speed. Regulation is better in some cases; spending is better in others. But greater disciplines on the exercise of spending powers than on the use of regulatory powers create an undesirable bias in favour of regulation. That bias could see a regulation imposing one billion dollars of cost on the private sector preferred to a government spending measure costing much less to achieve the same objective.

1.6 The last three decades of non-statutory attempts to improve the quality of regulatory assessments by greater analytical transparency have not prevented the current shortcomings that the Ministry for Regulation set out in pages 12-17 of its interim Regulatory Impact Statement on the Bill. The quality of regulatory assessments is mixed because the incentives to do better are too weak.

1.7 The Bill should usefully strengthen current incentives in two ways. The first is to reduce the demand for poor quality regulation by raising the potential cost to those demanding it. The second is to make it easier for Ministers to resist the remaining public demand for such laws and regulations.

1.8 Current land use regulation illustrates the first aspect. Under current laws and regulations objectors can block a housing development without having to buy the land at a price the owner is willing to accept. That purchase offer option is the non-coercive remedy for disputes over land use. The absence of this discipline means that those opposing the development are not confronted with the lost value in the community of the forgone housing development. That deficiency has the makings of a national housing shortage. If, however they would have to buy the land to achieve their preferred use, the price paid would confront them with its value if used for housing. The third aspect of the “Taking of Property” principle mirrors this
cost-confronting virtue. It potentially puts objectors who claim a personal benefit from blocking a change in land use at the risk of being required to compensate the landowner for the cost to the community of providing that personal benefit. (The fall in the market value of the land is an indicator of the lost value to the community.) This principle of confronting people with the cost to the community of providing a wanted benefit is well understood in
environmental debates where terms like “polluter pays” and “user-pays” are commonplace. The principle in taxation policy debates that those who benefit should pay the tax’ is from the same stable. These examples illustrate demand-limiting aspects of a compensation principle.

1.9 On the second aspect, the transparency and certification measures in the Bill should also make it easier for Minsters to resist the demand for laws and regulations that are likely to make the community worse off.

1.10 Despite supporting the Bill, we regret that its effectiveness is limited if its remedies for unjustified violations of its principles are too weak to make a difference. Indeed, if they are the Bill could potentially do more harm than good by making transgressions of its key fundamental constitutional principles look of no account in the public eye. Ongoing consideration is needed to ways of giving teeth to the Bill’s remedies.

1.11 This submission also identifies a number of other suggestions for improving or refining the Bill. A public interest test for takings is needed. More safeguards are needed for the application of the rule of law as long understood, and the composition and location of the Board to assess appeals needs careful consideration. Nor should the need for regulatory decisions by local authorities be overlooked.

1.12 Finally, and importantly, developments with this Bill indicate that Officials do not trust New Zealand’s Supreme Court to apply fundamental legal principles in a predictable manner. This is an alarming situation, Bill or no Bill. It implies that the rule of law in New Zealand is at risk. Parliament needs to deal with this problem independently of this Bill.

1.13 The next section of this submission canvasses some suggestions for improving the Bill. In the process it commends suggestions made in a submission by Leonid Sirota, an associate professor of law at the University of Reading in the United Kingdom. Section 3 of this
submission responds to some of the reasons critics have given for opposing the Bill, Section 4 gives brief answers to some of the questions posed in the Ministry’s Discussion Document. The last section provides a brief conclusion.