Adapted from Bill Rosenberg's submission to the Ministry for Regulation.

Summary

The principles of the bill are overly simplistic and biassed towards a particular ideological view, one that has led to multiple costly regulatory failures. In practice, Governments have a much broader view of the purposes of regulation than the principles. Regulatory quality is important but requires consensus between political parties and adequate resourcing to be effective. Without cross-party support, principles of regulatory practice will not survive changes of Government, and the history of the proposed bill shows support for this proposal is unlikely. What is proposed is a heavy-handed system that will hamper adaptable regulation.

The Minister's claim which is presented as his primary rationale for this proposal, that: "Most of New Zealand's problems can be traced to poor productivity, and poor productivity can be traced to poor regulations" is shown to be incorrect. New Zealand has many problems that are not economic, and there are many factors other than regulation that affect productivity.

Comments are made on specific aspects of the proposed bill. Wording is poorly defined and expressed and would increase uncertainty. The principles - particularly those relating to the "taking" of property - could lead to Government paralysis, preventing needed change, huge costs to the Government, and locking in of existing inequities, inequality, discrimination and poor environmental practice. They disregard collective interests and values, and rule out many sensible policies which would be in the public interest. The proposed powers of the Minister would be highly dangerous and with little accountability outside Cabinet and caucus.

I recommend that:
R1. The proposed bill should not proceed.
R2. Consideration should instead be given to implementing existing regulatory quality processes more effectively within the agencies responsible for regulation, maintaining cross-party agreement, resourcing the agencies better for their regulatory quality responsibilities, and safeguarding the expertise residing in their staff.

Introduction

I have a BSc. Hons in Mathematics, a B. Com in Economics and a PhD in Psychology. I have worked as a bus driver, an information technology professional and manager, as an economist, as a Commissioner in the Tertiary Education Commission Te Amorangi Mātauranga Matua, and the Productivity Commission Te Kōmihana Whai Hua o Aotearoa, and am currently a Visiting Scholar at Victoria University of Wellington Te Herenga Waka.

I was a member of the Government's Independent Taskforce on Workplace Health and Safety 2012-13 which reviewed the health and safety system after the Pike River disaster, and have had considerable practical involvement in health and safety regulation and policy. I was also a member of the 2018-19 Tax Working Group, and have served on a number of Statistics New Zealand advisory committees. My research and publications cover subjects including labour economics and industrial relations, productivity, economic rents, income distribution, social support, health funding, health and safety, foreign investment, international trade agreements, and news media ownership.

It is a pity that the important topic of regulatory quality has been poisoned by the ideological approach taken by the Government in agreeing with the ACT Party to enact the Regulatory Standards Bill ("the Bill"). It is ideological in that the bill has been rejected by Parliament on good grounds three times now (in only marginally different forms), and yet the ACT Party continues to pursue principles which embed that Party's values rather than take a sound and realistic approach that will attract ongoing multi-party and public support.

Even if the Government persists and forces this Bill through Parliament in some form it will not survive - and certainly should not survive - changes in Government. It will only reinforce the wide-spread view that "regulatory standards" is a euphemism for damaging deregulation which ACT and some other members of this Government have long advocated (a recent example is Seymour, 2024). People's memories will not fade of leaky buildings, the crash of poorly regulated finance companies and the death toll resulting from weak health and safety laws, to name only a few disastrous and costly regulatory failures which were the result of "light-handed" regulation and weak enforcement.

The public confidence that this Bill has been put forward in good faith is further weakened by the process surrounding the Government's own policy programme which breaks most of the principles that the Bill claims are sound. It has enacted a large programme without Regulatory Impact Analyses, or with only inadequate ones (often produced in a limited form due to the dedication of public servants with limited time and shrinking resources).

The Government has ignored expert advice and/or sound process in multiple areas including transport, road safety, tobacco control, climate change, social welfare, boot camps, and te Tiriti o Waitangi, to mention only some. The Fast Track legislation breaks good legislative practice in its own right and invites future breaches of good regulatory principles including adequate consultation and sufficient time for good decision making. The centralised Ministry for Regulation and associated Ministerial position were created without any rigorous consideration of alternatives or public consultation.

The proposed Bill is itself an example of poor practice by its own standards, signalled by an "interim" - that is, partial and therefore inadequate - Regulatory Impact Study (RIS), which, further, diplomatically points out that a non-legislative solution would be preferable. The fact that the Bill has been through the legislative process unsuccessfully three times is further evidence that it is poor legislation.

Asking the public to waste its time going through this process yet again is not in good faith and is insulting. It is a cynical exercise of power with a predetermined outcome announced in the National-ACT coalition agreement. A quite different process is needed if the Government genuinely desires a sustainable approach to quality regulation.

I will outline some of my specific concerns about the Bill below, but much fuller critiques are available in some of the Institute of Policy Studies articles published in the Policy Quarterly issue linked in the discussion document and in papers from the symposium that most of these articles came from (and to which I also presented a paper on regulation of foreign investment).

The Objectives Of Regulation Are Broad And Varied

However, my main point is this. The key criteria for the quality of regulation are that it should be effective in meeting its objectives and - omitted from any discussion in the papers provided - that the means to implement and enforce the regulation effectively are in place. The latter has historically been a key failing, well documented in the cases of leaky buildings and health and safety (see for example Independent Taskforce on Workplace Health and Safety, 2013; Royal Commission on the Pike River Coal Mine Tragedy, 2012).

The objectives of regulation are many and varied and will differ with the Government in power. They inescapably involve a balance between fiscal, economic, social, environmental and other objectives, and between individual and collective interests. No small, predetermined set of objectives or "principles" can be forced to dominate as the Bill attempts to do, privileging considerations of cost and property ownership - albeit poorly defined - and individual preferences ("liberties") above others. A small, predetermined set of objectives cannot dominate because the real world and what people value are complex. Striking the balance between objectives is intrinsically and unavoidably a political process.

To try to force ideologically selected principles onto such a process undermines democracy itself. It locks society into a status quo which in reality many people want to change because it is far from ideal, and will assuredly want to change in future. Indeed, change is being forced on society by forces such as climate change, technological change, changing international relationships and wars, threats to public health such as pandemics, and demographics. The limited principles limit our ability to make these changes in a socially optimal way. They privilege the status quo distribution of income and wealth, access to resources and tolerance of environmental and social damage.

A sound approach to regulatory quality must be based on encouragement to those involved, both within and outside Government, to carefully clarify their objectives, consider the evidence that will help address the objectives, identify and weigh the options to address the objectives (including, but not limited to cost benefit analysis - see for example Pells [2023]). Encouragement includes ensuring public service staff have the relevant subject expertise, training in analysis methodologies, and sufficient time and resources. Regular raids on "backroom staff" who carry out these analyses is not encouragement.

Much of the pressure for skimping on good analysis comes from the political level as we see across Governments of all stripes. The approach must take that into account. It should try to gain cross-party consensus as far as possible. Before making specific comments on the proposed Bill, I make two other points.

Heavy Handed

The approach being suggested, and perhaps to a lesser extent the Ministry for Regulation's preferred approach, risk making the regulatory process so laden with procedural requirements, impact reports, second and third opinions, audits, assurance, vetting, reviews, appeals and monitoring that it becomes a barrier to the essential adaption of regulation to developing needs. It is a recipe for institutional sclerosis. The suggestion that there will need to be exemptions reinforces this concern.

It risks the development of needed regulation being avoided by agencies because of the cost of the process. It is setting up regulation of the regulatory process which breaks its own principles of minimising costs. There does not appear to be an assessment of the costs of the proposal unless they are in the extensive redactions. In particular, there would be high costs resulting from compensation for broadly defined regulatory takings and from the legal cases that are likely to result from the Bill's principles. I discuss regulatory takings further below.

I have observed an agency (WorkSafe) regularly using less formal instruments in order to avoid the already heavy procedural needs of regulations. This has reduced the effectiveness of both the agency and the instruments, and reduced clarity for those affected. There does not appear to have been any analysis for this proposal of the behavioural impacts of mounting layer upon layer of process requirements. The proposed Bill would only make the situation worse. Avoidance will not lead to improved quality.

The Relationship To Productivity

The Minister in his foreword to the discussion paper makes the sweeping statement that "most of New Zealand's problems can be traced to poor productivity, and poor productivity can be traced to poor regulations". The relationship between regulation and productivity appears to be central to justifying the proposal's heavy overheads and focus on cost and so is worth analysing (I note, though, that a quite different rationale was given in the Cabinet paper - the unevidenced assertion that "In [the Minister's] view, Government regulation imposes costs just as great, if not greater, on people's everyday lives as Government taxing and spending").

To be clear: I am not asserting that good quality regulation is irrelevant to productivity. It certainly is relevant in many cases - often ones specific to a particular industry or project - and is also necessary to ensure that the benefits of productivity growth are widely spread. But I am arguing that any assertion that our productivity problems can be solved by fixing our regulations is greatly exaggerated and does not justify the radical constraints on regulation-making in this proposal. As most experts would advise, there is no single solution to our productivity problems, and there is no instant fix - it is a long game.

The first assertion, that "most of New Zealand's problems can be traced to poor productivity" is clearly untrue if it is suggesting that most of Aotearoa New Zealand's problems are economic ones. Think of climate change, demographic trends, geology and geographic isolation, for example. Limiting the statement to economic problems, it is presumably channelling Paul Krugman's often quoted "productivity isn't everything but, in the long run, it is almost everything" (Krugman, 1997, p. 11). But this was referring only to material living standards.

Krugman has clarified this more recently (Krugman, 2023). He was discussing the possibility that improving workers' health and safety from the "very dangerous places" they were in the US in the 1970s, and improved environmental regulations (that country's Clean Air Act), slowed productivity increases in the US in the 1970s.

The safety regulations were progress but not "progress that shows up in measures of real gross domestic product, and hence in productivity data," he wrote. "So, productivity numbers show only the costs, not the benefits, of safety regulations". Similarly, he continued, the health and other benefits of much cleaner air (which systematic studies had found have much exceeded the costs) would not show up in measured productivity except possibly with a long lag.

So, part of the productivity slowdown during the 1970s probably represented not so much a loss of dynamism as a shift in priorities — deliberate choices to make workplaces safer and skies cleaner, even at the expense of production. Were these choices defensible? Definitely yes. Could the policies have been better applied? Of course - but when isn't that true? ... it's important to realise that making it easier for businesses to do what they want isn't always a good thing.

What Is The Economy For?

And the broader lesson is that measured productivity isn't the only thing that matters. What, after all, is the economy for? The goal is to improve people's lives. This is often achieved by increasing gross domestic product per capita, but GDP is an indicator, not an ultimate goal. We could have a bigger economy if we were willing to have filthy air and a lot more injured workers, but that's not a trade-off we want to make.

Two other notable economists recently reinforced this point that the connection between productivity growth and rising living standards is not automatic. The 2024 Nobel memorial prize in economics winners, Daron Acemoglu and Simon Johnson, find in their recent book on this subject, "Power And Progress: Our Thousand-Year Struggle Over Technology And Prosperity", which gathers evidence from a broad range of historical and current knowledge:

"Better technology offers the potential of better lives for many people, but only if it creates sufficient new tasks requiring human expertise and workers have enough power to demand a matching increase in compensation" (their emphasis. Acemoglu & Johnson, 2024, p. xii). The reference to "sufficient new tasks requiring human expertise" refers to their empirical and theoretical finding that some forms of technology may not raise living standards for many people and instead may concentrate wealth (and power) in a few hands.

The second part of the Minister's statement is a rationale for the heavy apparatus he is proposing to set up: "poor productivity can be traced to poor regulations". He presumably is suggesting that poor regulations are the sole or principal driver of poor productivity (though officials appear not to be as convinced, referring to it as "important" in some places and "crucial" in others in the discussion paper and interim RIS). But the Minister's suggestion is not true. The following illustrates this.

Consider the well-known "New Zealand productivity paradox" that first puzzled the Organisation for Economic Cooperation and Development in 2003: The mystery is why a country that seems close to best practice in most of the policies that are regarded as the key drivers of growth is nevertheless just an average performer (OECD, 2004, p. 29).

As OECD representatives explained at a symposium on the "paradox" in 2014 in Wellington, past reforms of product and labour markets in New Zealand would suggest that the country is in a rather favourable position in terms of broad policy settings that are supportive to private investment, job creation, employment and productivity growth (de Serres et al., 2014, p. 1). They were referring to "policies in different areas (taxation product and labour market regulation, innovation and education)". That is, regulation.

So, at the time, according to the OECD, Aotearoa New Zealand had an exemplary regulatory environment yet looking at the decade of the 2000s, New Zealand has had one of the lowest growth rates in GDP per hour worked among OECD countries, despite trailing the OECD average at the start of the decade by around 15%, and the United States by nearly 40%.

Closing 10% of the latter gap over the span of a decade would require annual productivity growth to exceed the US rate by at least half a percentage point on average. Instead, productivity growth has been on average almost one percentage point weaker. Considering that lagging countries have in principle greater scope for growing faster than most advanced economies, this performance is indeed puzzling. (de Serres et al., 2014, p. 1).

The Causes Lay Elsewhere

Clearly the supposedly exemplary regulatory environment was not fixing the productivity problem. The causes lay elsewhere than in the quality of regulation. It is of course possible that what the OECD regarded as "best practice" was wrong or at least should have been treated as heavily country- and context-specific, rather than being fit for the purpose of broad inter-country comparisons.

The latter is consistent with the views of Skilling (2020, p. 2) and the Productivity Commission (New Zealand Productivity Commission, 2021, pp. 13, 24) that "small advanced economies are not just scaled-down versions of large economies but have distinctive characteristics in their economic behaviour" and that "New Zealand is not a 'standard OECD country' and faces an unusual set of challenges and opportunities". That would be damaging to the case for the current proposal because it in part rests on the assertion that "New Zealand's regulatory performance has also stagnated or worsened over time, according to results from recent international surveys", citing the OECD (p.11 of the discussion paper).

It should be noted that the OECD's indicators reflect a particular view of good practice heavily oriented to market solutions, smaller Government and weak employment regulation: positions which many countries are now revising (such as heavier use of industry policy), which implies greater Government participation, social and economic development objectives for Government procurement rather than simply lowest cost, and backing out of privatisations (see for example Brooker, 2025).

The OECD itself has nuanced its view in favour of policies, including labour regulation, which aim for more inclusive economies and improved wellbeing, but which are not necessarily reflected in its regulation indicators. The OECD data provides evidence that the "quality" of regulation regarding productivity performance is indeed context-specific. The table below uses OECD, World Bank, and Transparency International data.

For 2019 (pre-pandemic) or the most recently available before that, it shows labour productivity levels, average annual productivity increases over the previous ten years, and rankings of those agencies' views of regulatory quality. I compare Aotearoa New Zealand with the small advanced OECD countries in Skilling (2020).

The standout from the comparison is that while Aotearoa New Zealand's labour productivity level and productivity growth are low, those with much better productivity performance (most of the countries listed) mostly have lower or markedly lower rankings than Aotearoa New Zealand on most of the regulation indicators.

It is inescapable from this evidence that regulatory quality issues are not overwhelming determinants of productivity performance. The context is all-important. Other aspects of a country's policies, institutions, economic structure, trade performance, geography, history, culture, education, management skills, labour relations, demography, social cohesion and endowments (among other factors) are likely to be just as important, or more important.

Of course, arguments can be made about the details and definitions of these indicators¹. But it is this evidence that is relied on to call for heavy-handed deregulatory measures. It is the only hard evidence mentioned in the discussion paper and RIS, and the evidence does not support the proposal. There is no other evidence presented (other than generalities and assertions) that Aotearoa New Zealand has remarkedly excessive or low-quality regulation, either on an absolute basis or relative to other countries.

An Evidence-Based Approach

Instead, an evidence-based approach to improving productivity involves diagnosing the real problems we face and designing solutions which address them. This may include regulations which are productivity-enhancing but would cause the OECD to downgrade the country's ranking, and may well breach the proposed regulatory principles, such as:

• Kiwibank being given a public service obligation requiring it to compete strongly with the big four banks in exchange for Government support to expand its services.
• Government procurement practices which encourage local industry development in areas of priority such as reducing carbon emissions or increasing skills, or assist firms develop markets and scale for new products, or assist the development of regional or Māori firms. Such measures are used internationally and have been suggested in the Productivity Commission report "New Zealand Firms: Reaching For The Frontier" (New Zealand Productivity Commission, 2021) and by the Digital Technologies industry in its Industry Transformation Plan (Ministry for Business, Innovation and Employment, 2023).
• A more selective process for Foreign Direct Investment, as is being increasingly used internationally. The quality of Foreign Direct Investment in Aotearoa New Zealand has been low - it tends to be concentrated in non-tradeable sectors and in areas which provide market dominance, there are few spillovers in productivity or workers' skills, or it perpetuates reliance on existing products such as log exports or lightly processed dairy products (Joyce, 2015, para. 23; Rosenberg, 2015). A "frontier firms" strategy to raise productivity, as recommended in the above Productivity Commission report, where development in a particular area is led by a large productivity-frontier firm, depends on selecting a few large firms with the required record and characteristics.

Table: Comparison between small advanced OECD countries of policy indicators claimed to impact productivity performance Rankings: 1=best according to source. Rankings are of all countries within source datasets. Table is sorted by labour productivity level (column 2).

Indicator	Labour Productivity	Labour Productivity	Ease of doing business	Lack of corruption	Individual and collective dismissals	Ease of starting a business (Admin burden)	Govt expenditure on R&D as %GDP
Unit	Output per hour worked	Average annual increase last 10 yrs	Ranking (of 190)	Ranking (out of 180)	Ranking (of 37)	Ranking (of 37)	Ranking (of 37)
Source	OECD US$ PPP, Const price		World Bank	Transparency International	OECD EPL	OECD PMRI	OECD STI
Year measured	2019	2019	2019	2019	2019	2018	2017
Israel	46.2	1.6%	35	35	32	16	1
New Zealand	47.2	0.5%	1	1	12	7	22
Finland	70.9	0.9%	20	3	25	11	10
Netherlands	77.1	0.6%	42	8	35	29	15
Sweden	77.3	1.0%	10	4	28	22	3
Austria	78.5	0.7%	27	12	5	17	8
Switzerland	80	1.2%	36	4	2	18	4
Belgium	84.3	0.6%	46	17	31	32	11
Denmark	85.5	1.5%	4	1	9	3	7
Norway	94.3	0.5%	9	7	21	13	14
Ireland	112.6	4.0%	24	18	13	29	27
Median	78.5	0.9%	24	7	21	17	10
Median OECD	55.5	1.0%	30	23	19	19	19

Specific Comments On The Proposed Bill

I comment here on selected aspects of the proposal. My lack of comment on other aspects does not imply approval: just lack of time and unwillingness to commit further effort to a poor process. The Institute for Policy Studies papers cover most important aspects. It may be argued that because the Bill only provides the ability to require a Minister to explain why regulation is in conflict with the principles, the concerns about the principles do not matter. That would be duplicitous. If it is true, why legislate? The intention is that these principles become part of the interpretation of regulation and constrain the ability and will of Governments to make progressive change, or steer it in the direction of legislating the principles explicitly.

Definition Of "Regulation"

The discussion paper defines "regulation" as distinct from "legislation" as follows: (p.9) This discussion document uses "regulation" to encompass any Government intervention that is intended to direct or influence people's behaviour, or how they interact with each other. "Regulation" therefore includes, but is not limited to, legislation. This is an incredibly broad definition. Does the Ministry intend to investigate the appropriateness of agency suggestions that public servants should smile at clients? It would allow the Ministry to investigate any action of the Government whatsoever.

The Definition Of "Regulatory Systems" Is Even Broader

The Bill (at least in its previous form) in fact defines regulation as legislation, both primary and secondary, plus "legislative instruments". In this submission I am assuming that this is the extent of the intervention proposed. However, it is not clear how widely "legislative instruments" stretch. For example, do they include guidance, as appears on many departmental Web sites? Interpretative notes? Explanations of how the law applies? Verbal advice?

Legislative Design Principles

Lack Of Inclusion Of Te Tiriti o Waitangi

As the Preliminary Treaty Impact Analysis makes clear, despite the large number of redactions, this is a significant omission whose results cannot be predicted. It also reinforces the uncertainty resulting from the terminology used in the Bill, and the lack of consultation, particularly with Māori. As it stands, this aspect of the Bill is a further step in attempting to weaken the significance of Te Tiriti, accompanying the Principles of the Treaty of Waitangi Bill in doing so.

Rule Of Law

Every person is equal before the law. This is simplistic, will create uncertainty and will need extensive interpretation. As the Human Rights Commission states about the principle in its explanation of human rights in Aotearoa: Equality and fairness are not just about having laws and processes that appear to treat everyone equally or in the same way (sometimes called "formal equality"). Equality and fairness are also about what happens in practice in everyday life (sometimes called "substantive equality"). (Te Kāhui Tika Tangata, Human Rights Commission, n.d.)

The principle as stated must contend with

• the existence of multiple local authorities with their own regulations and bylaws, so that different laws apply depending on where you live in Aotearoa;
• the difference between de jure and de facto equality before the law. For example, freedom of speech is de facto quite different for wealthy owners of broadcasting, print or social media, which have their own power to spread their opinions and censor others, than for those who must use those outlets to have their voices heard; tax laws have quite different impacts on those who can pay experts to find ways to avoid them;
• it has always been understood that legislation sometimes needs to treat people differently for a variety of reasons such as to recognise existing rights ("savings" or "grandparenting"), or to reduce de facto disadvantage or inequality, or because they are not citizens of Aotearoa, or because they are Members of Parliament (regarding defamation).

Issues of legal right and liability should be resolved by the application of law, rather than the exercise of administrative discretion. For many people, accessing the law is expensive, time-consuming and stressful. Those with considerable resources are privileged in this. Cost, time and efficiency lead to the need for administrative methods of resolving such issues, with rights of appeal. This principle appears to cut off such options, to the advantage of those with money and expertise.

Liberties

This uses the undefined term "liberties" and focuses solely on individual rights. It does not balance the rights and needs of individuals with those of a larger collective, let alone consider the rights of collectives such as neighbourhoods, workers, customers, clients, families, whanau, hapū and iwi.

Taking Of Property

This provision is filled with dangers. The issue of regulatory "takings" of broadly defined or undefined "property" can lead to paralysis preventing needed change, huge costs to the Government, and locking in of existing inequities, inequality, discrimination and poor environmental practice. Property has been interpreted to extend to not only real estate and material possessions but also contracts, licences, water rights, emission or pollution rights, or legitimate expectations of future income. There will be constant arguments that its interpretation should be extended into new areas. "Takings" can extend to reductions in the value of an item of property and can be "indirect" in the sense that they are reduced by regulation over a period of time or partially, rather than expropriated in a single event.

The theory of "regulatory takings" was developed by Richard Epstein, law professor at the University of Chicago, and it has been described in the US as "rolling back the New Deal". "It will be said that my position invalidates much of the 20th Century legislation, and so it does," Epstein wrote. He told journalist and author William Greider: "Most of economic regulation is stupid.... What possible reason is there for regulating wages and hours? If my takings doctrine prevails, you have no minimum-wage laws. That's fine. You'd have an OSHA (Occupational Safety and Health Administration) a tenth of the size. That's fine too. You'd have no antidiscrimination laws for privileged employees, which would be a godsend." (Greider, 2001)

The principle of regulatory takings ("expropriation") has been at the centre of the international controversies over cross-border investment agreements which provide standing for investors to sue Governments in international tribunals (Investor-State Dispute Settlement or ISDS). There are many other concerns about these provisions. The agreements are either specialist investment promotion agreements or part of larger agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Awards in disputes have been in the millions or even billions of dollars and have covered mining, oil exploration and production, environmental protections, finance, taxation, timber and water rights, water supply, toxic products, electricity price controls, outcomes of privatisations and much else. The renegotiation of the North American Free Trade Agreement (NAFTA) under the first Trump Administration excluded such provisions except in certain circumstances, and Aotearoa New Zealand governments have a policy against agreeing to them in international trade and investment treaties.

Concerns have become so high that negotiators of these agreements often now insert interpretative notes or annexes in an attempt to reduce the scope for cases based on a claim of indirect expropriation and to attempt to protect the country's right to regulate to protect legitimate public welfare objectives, such as public health, safety and the environment (e.g. Annex 9-B of the Investment Chapter of the CPTPP²) . It is too soon to tell whether they have been effective. No such protections are attempted in the Bill.

How this principle would be interpreted in Aotearoa New Zealand law and practice is difficult to predict. But the intention is to make changes to the status quo distribution of property in all its forms expensive and difficult. When property includes rights to degrade the environment, environmental improvements become much more difficult.

When it includes the value of a firm, regulation which increases pay and rights of its workers may be regarded as a taking. The international agreements are said to have created "regulatory chill" - reluctance by legislators to regulate in ways that have a risk of being interpreted as conflicting with the agreements, rather than regulating for the needs of their peoples. The intention of this Bill is similar. There is of course an element of this principle that is reasonable. Compensation when a property has to be taken to build a public road is a well-accepted example. But the bald principle as stated would be disastrous to social, environmental and economic progress.

Even More Pernicious

It is made even more pernicious by the provision that compensation should be provided, to the extent practicable, by or on behalf of the persons who benefit. Apart from the difficulties in fairly identifying the persons and apportioning the compensation they must pay; this may lead to disadvantaged people becoming doubly disadvantaged by having to pay compensation for measures taken to relieve them of that disadvantage.

Examples of how the provision might apply domestically include:

• Tobacco company Philip Morris has argued in World Trade Organisation (WTO) and investment agreement disputes against Australia and Uruguay that requiring plain packaging on their cigarettes was expropriation (a taking) and should be stopped or compensation paid. Tobacco companies were arguing similarly in Aotearoa New Zealand. For example Philip Morris's Aotearoa New Zealand representative, Brett Taylor, wrote to then Associate Minister of Health Tariana Turia in July 2011 that plain packaging "involves the expropriation by the Government of extremely valuable trademarks" (its intellectual property) and breached that Government's own regulatory principles (Taylor, 2011, p. 5). Philip Morris failed in its international disputes, but current plain packaging requirements could be argued to be in conflict with this principle, as could any future Government action of a similar nature regarding other unhealthy products such as sugary or high-fat foods, vapes or alcohol.
• A soft drink company could challenge legislation to reduce the sales of sugary drinks to reduce obesity and improve dental health because it would reduce the value of the company, and demand full compensation if the legislation proceeds.
• In 2008, the Government announced that owners of forests planted before 1990 would have to pay for the liability created under the Emissions Trading Scheme if they converted the land to other uses. The Flexible Land Use Alliance, consisting mainly of large corporates, claimed $3 billion to $4 billion of land value had been destroyed and said that if the Government did not back down it wanted full compensation (Eaton, 2008). The New Zealand Business Roundtable described it as expropriation (Kerr, 2008, p. 62).
• The Business Roundtable also described as expropriation the 2006 legislation that forced Telecom to separate its operations into retail, wholesale and network arms ("unbundling") which was expected to provide significant savings to users. Then in 2010 Telecom warned that a Government levy to expand rural broadband, a requirement for it to provide services to rural customers, and loss of $23m it received from other telecommunications companies as their share of the Telecommunications Service Obligations levy, would reduce its profits and share value, and argued that it was expropriation and illegal (Pullar-Strecker, 2010). Under this principle, Telecom would have been entitled to make a claim to stop the Government reducing costs to users, increasing competition and accelerating the provision of rural broadband - or demand compensation.
• One of the actions considered to break up the supermarket duopoly of Countdown (Woolworths) and Foodstuffs was to force them to sell some of their stores to a new competitor. While breaking up dominant firms is not an unprecedented remedy in competition policy, Countdown described this as "extreme and unwarranted" and as expropriation (Pullar-Strecker, 2021, 2022). In the end both the Commerce Commission and Government backed down. Under this principle, if a breakup had proceeded the supermarket owners would be able to make a claim to stop the breakup, at a cost to consumers, or demand compensation for having their highly profitable duopoly position disrupted.
• Fishing quota is a property right. However, its value is reduced if the Government decides that the fish stock on which it is based has declined to an unsustainable level and takes action to reduce the allowable catch. Even under current law, there have been frequent legal challenges to such decisions, but this principle would open further channels for challenges to the law and its implementation, making management of Aotearoa New Zealand's fisheries much more difficult.

Taxes, Fees And Levies

Legislation should impose, or authorise the imposition of, a fee for goods or services only if the amount of the fee bears a proper relation to the costs of efficiently providing the good or service to which it relates.

This appears to rule out part-charges (such as prescription charges), and charges that are set to encourage or discourage certain behaviours (such as lower costs for disposing of green waste and higher costs for disposal of waste that cannot be recycled). The "cost" is undefined: does it refer only to immediate costs, or to wider costs such as to the environment or people's productivity and health? It cannot be assumed that such costs are internalised to all services, but a Government wishing to take account of broader objectives than the sales of the good or service should take wider costs into account.

Good Lawmaking

Legislation should be expected to produce benefits that exceed the costs of the legislation to the public or persons. Legislation should be the most effective, efficient, and proportionate response to the issue concerned that is available.

That the Minister has been unable to quantify the costs and benefits of this proposed legislation, nor demonstrate that it is the most effective, efficient and proportionate response available - and the evidence available is that it is consistent with neither of these principles - shows how difficult they are to implement.

Costs and benefits must go well beyond financial or resource costs, because objectives may include health, safety, conservation, environmental protection and many others which are difficult to measure, or inherently values-based and unmeasurable, but it is not clear that these principles require that. Cost-benefit analysis is therefore very difficult in many cases, particularly those expected to have long-term payoffs.

Security provides an example of the difficulties in the real world. Several studies have shown that the passenger security measures that are ubiquitous in airports around the world cost much more than quantifiable benefits in terms of lives saved (Blalock et al., 2007; Stewart & Mueller, 2008, 2014). Yet extensive security measures continue, to the inconvenience of travellers.

One explanation is that airlines have an interest in these measures being present in order to persuade passengers that they will be safe when flying so that they can continue to expand the industry. Whether or not this is a valid objective for such costs is difficult to evaluate but it is about more than quantifiable costs and benefits. These principles will often be impractical to implement and their wording is unclear.

Minister To Issue Guidelines On Interpretation Of Principles

As has been illustrated above, the principles will be difficult to interpret and often poorly worded. There are great dangers and uncertainties in their interpretation. To give the Minister the power to interpret them in these circumstances in effect allows him to rewrite the legislation. It is a highly dangerous step.

Regulatory Standards Board

The proposed Regulatory Standards Board would be a further means to hear complaints about regulation. In addition, it duplicates some of the work of the Ministry for Regulation in carrying out reviews. It adds to the regulatory burden on making and maintaining regulation.

The Members Are Proposed To Be Appointed By The Minister

The ability of the Minister to choose who sits on the Regulatory Standards Board, together with the right of the Minister to interpret the legislation and the administration of the legislation through the Minister's Ministry for Regulation, give the Minister enormous power. The power is over matters that are often well outside the Minister's portfolio and which are inherently based on judgement and therefore inherently political. He is accountable for this great power only to his Cabinet colleagues and caucus. Who regulates the Minister?

Recommendations
R1. The proposed Bill should not proceed.
R2. Consideration should instead be given to implementing existing regulatory quality processes more effectively within the agencies responsible for regulation, maintaining cross-party agreement, resourcing the agencies better for their regulatory quality responsibilities, and safeguarding the expertise residing in their staff.

Footnotes

1. For example, in the three areas where Aotearoa New Zealand ranks lowest in the OECD's view: low Government research and development (R&D) expenditure simply needs funding rather than regulatory change. A process for regulatory review in itself does not affect productivity - any impact will result from the regulations themselves. Many disagree that our foreign direct investment (FDI) regulations, affecting mainly land, were as restrictive as the OECD implies.
2. https://www.mfat.govt.nz/assets/Trade-agreements/TPP/Text-ENGLISH/9.-Investment-Chapter.pdf

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Watchdog - 168 April 2025