New Zealand: New Zealand muddling through regulation: says the Productivity Commission

Last Updated: 3 April 2014

New Zealand's regulatory system is not broken, but is "muddling through" according to the Productivity Commission. The Commission released its excellent draft report on Regulatory Institutions and Practices in early March. The report makes a large number of recommendations to improve the quality of regulation and regulatory decisions. The biggest question however, will be how to implement its findings.

Good regulation is very important

New Zealand has up to 200 different regulatory regimes, affecting everything from the toothpaste used to brush your teeth to the payment systems used to operate our banking system. The wide reach of regulation, and its importance to our economy and society, is exposed in the Productivity Commission's draft report.

According to the Commission this impact means that it is very important that new regulation is properly designed and that existing regulatory regimes operate efficiently.

The draft report is very well researched, reasoned and makes many good recommendations for change across a wide range of areas. If fully implemented, it could lead to significant improvements to many of New Zealand's regulatory regimes and New Zealand would step into the top rank of good regulatory practice.

The report is now open for consultation until 8 May 2014. It is difficult to see what more could be added to the Commission's report. Instead, an issue worth considering in this next stage is whether and how the Commission's recommendations will be implemented.

Government support for change?

At the highest level, implementation of the recommendations depends on the Government's willingness to support the recommendations. The Commission's recommendations are not binding. Essentially, the report needs to stand on its own, but the fact that the report was commissioned by the Government, the Commission's statutory status and independence from other parties, and the quality of the report, should make the report persuasive.

Public and industry support for the report's findings will also be important.

The Commission has a good track record of successfully affecting policy. One of its first reports resulted in the removal of the international shipping exemption from the Commerce Act, and its housing affordability report is having a significant impact in shaping Government policy.

Implementation

The next question is how to practically make the changes recommended by the Commission. Many of the Commission's recommendations are about changing the practices and procedures of agencies involved in making new regulations, or of the regulators themselves. For example, the Commission recommends:

  • More independent regulators and greater delegation of rule-making to regulators
  • A more active role for the Regulations Review Committee
  • Changes to the governance and culture of regulatory institutions
  • Improving workforce capability and funding of regulators
  • Increased monitoring of regulators and accountability to the government

Other recommendations relate to the principles that should be applied. These include clearer definition of regulatory roles, explicit objectives for regulators, greater consistency in allocating material between primary and secondary legislation, and more effective engagement and consultation.

The Commission recommends a number of measures to implement these recommendations, including:

  • Giving a senior Minister responsibility for the regulatory management system
  • Assigning or establishing an agency or agencies to support the Minister
  • Resourcing of specific measures, such as greater disclosure obligations
  • Setting Cabinet expectations for quality regulation
  • Linking executive agreements to achieving Cabinet expectations

These measures are relatively soft-handed, relying on the willingness of the Government, of departments, and of regulators to adopt them, and voluntarily change their practices.

There are only a couple of recommendations that would involve legislative change to implement them. These are the suggestions to consider a legislative requirement on departments to review the operation of regulation and widening of the grounds on which the Regulations Review Committee can disallow a regulation. However, it is worth considering whether other measures could also be achieved through legislative changes.

Regulation to achieve good regulation

Other legislative measures that could be considered are:

  • Amend the State Sector Act and Crown Entities Act to include reporting, governance and regulatory culture requirements, (This has recently been done for matters such as all-of-government measures and employment related matters)
  • Setting consultation requirements for all, or significant, new legislative measures before they are introduced to Parliament and enshrining principles for good regulation in legislation
  • Setting default consultation requirements for all decisions on delegated legislation

Of course, other attempts to codify good regulatory behaviour have failed to gain traction, such as Rodney Hide's Regulatory Responsibility Bill. The failure of that attempt and others however, does not necessarily mean other legislation should not be tried and the Commission's inquiry can be seen as partly sparked by that Bill.

Another reason for not pursuing legislative options may be because of concerns over the separation of powers between the three arms of government, that Parliament should not unduly interfere in the operation of the executive, and (assuming that the Courts are given the power to review new legislation against procedural and substantive requirements) that the Courts should not be able to review the actions of Parliament.

It is entirely appropriate for Parliament to pass laws regulating how the executive arm prepares legislative and exercises its regulatory powers. Regulation relies ultimately on the exercise of coercive power by the state, such power being derived from Parliament. It is entirely appropriate for Parliament to be interested in how those coercive powers are exercised.

The idea that the Courts should not be able to review Parliament's actions is a fundamental constitutional principle in New Zealand. However, if progress is to be made in improving the quality of regulation, both Parliament and the Courts may need to accept that it is legitimate for the Courts to examine parliamentary actions against a set of principles, albeit those set by Parliament.

It is valid to ask whether legislative measures, such as these, will be effective, as many of the Commission's recommendations relate to behaviour and practice. A wide range of non-legislative measures are needed to implement the Commission's recommendations, and most importantly commitment from the Government, departments, and regulators, to change. However, legislation can play a part in achieving behavioural change, as the Commission itself recognises in its report.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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