Section 3: The Strategy in Action
The five strategic priorities represent the areas of Ministry activity with most potential to increase economic growth. This section explains the rationale behind the choice of each strategic priority, and what the Ministry is trying to achieve within them.
It also describes work being done to address the critical issues for each strategic priority, and shows which output classes contribute to them.
Leadership
Leadership > Leading a whole-of-government approach to economic development
Why Is This a Priority?
The Ministry has a sectoral leadership role across the public sector to ensure that a coherent and challenging economic development strategy is both developed and implemented. The Government's economic transformation agenda requires agencies to work together on broad issues. Take productivity, for example. While enhancing productivity is a key aim of the Ministry, other agencies are responsible for some of the key policy areas which influence it, such as access arrangements for international trade, the development of skills and talent, and advising on macro-economic stability.
This sectoral leadership role is about focusing on the key points of leverage for transforming the New Zealand economy and achieving greater alignment and consistency of effort within the government, the private sector and other economic agents. Where we have a legitimate role, we will act; where we cannot make a direct difference, we will work to influence outcomes.
It is ultimately the private sector that drives economic growth. Building consensus around what is required to achieve economic transformation is therefore essential. Our leadership role will be grounded in strong links with a wide range of businesses and organisations, to both enhance and share our understanding of what is needed for economic development.
How the public sector is structured, financed and managed encourages managers to focus on delivering specified outputs. Vertical accountability to Ministers and Parliament is essential, but can work against the cross-agency effort needed to achieve economic development goals. The Leadership Strategic Priority will identify opportunities for improving the overall system by which departments work in a joined-up way to pursue the Government's economic agenda.
What Are We Aiming to Achieve?
The objective of this strategic priority is for the Ministry to work in partnership with key economic players to increase the public sector's effectiveness in shaping and delivering on the Government's economic transformation agenda. This involves:
- providing both the policy development machinery and the ideas for shaping a whole-of-government economic transformation strategy;
- helping to identify areas of complementary work and identifying policy gaps;
- working with other agencies to focus on the "big picture" and our respective roles within it, to increase mutual understanding of our roles in economic development and ensure a more cohesive set of government actions; and
- testing where the Ministry needs to adapt its own strategy.
To achieve this objective, the Ministry will focus on:
- exercising a cross-public-sector leadership role to focus economic development effort;
- building a coherent and shared understanding of economic transformation across the public sector, so objectives, priorities, roles and actions to achieve the objectives are clear; and
- identifying and ameliorating generic or systemic barriers to achieving better collaboration across government on economic transformation.
What Are the Key Issues and How Are We Addressing Them?
The Leadership Strategic Priority will identify opportunities for improving the overall system by which departments work in a joined-up way to pursue the Government's economic agenda.
Building a Shared Understanding of the Policy Approach
Agencies are looking for leadership from the Ministry in developing a consensus around what economic transformation means. Leadership, in this context, is not about encroaching on other agencies' respective patches. It is about building shared understanding and influencing others through the strength of our ideas. It is about challenging ourselves and others to think differently and test our assumptions. It involves a two-way learning process and using that new learning to improve mutual knowledge. In pursuit of this goal, the Ministry will develop a clear statement of what taking an economic transformation approach is likely to mean.
Our particular focus in 2006/2007 will be on leading cross-government work to identify and implement actions aimed at three important themes in the Government's economic transformation agenda:
- Putting Auckland in a stronger position to contribute to New Zealand's economic transformation. This includes leading central government work to complement efforts at a local level in the Auckland region, such as involvement in the development of the long-term framework for the Auckland region, a strategy development process that has emerged from the Regional Strategy review.
- Facilitating infrastructure development. We will lead a cross-government work programme aimed at ensuring that New Zealand has the infrastructure necessary to support economic transformation into the future. This includes improving the functioning of the New Zealand energy system, better harnessing the potential of broadband to support transformative activity and focusing on the infrastructure Auckland needs in order to contribute to New Zealand's economic transformation.
- Helping more New Zealand firms to become globally competitive. This will include working across government to improve the linkages between the private sector and the public science system and ensuring New Zealand businesses have the skills to identify business opportunities and to translate them into commercial success.
Working with the Private Sector to Enhance Mutual Understanding of Economic Transformation
The private sector drives economic growth. Stakeholder feedback suggests that there is room for improving how the Ministry engages with business. We need to engage on the right issues and at a level of specificity that is meaningful to business. This requires staff with good knowledge and communication skills.
Productivity is the key growth challenge for New Zealand. The Ministry will create and maintain dialogue with key influencers in the private sector, to enhance understanding of the economic development framework and how government and the private sector can work together to promote productivity growth. Our work with the Growth and Innovation Advisory Board is an example of this kind of dialogue.
Improving How Agencies Work Together on Economic Transformation Strategy and Policies
The public sector is organised, funded and managed on the basis of vertical accountability. Chief Executives are accountable to Vote Ministers for the production of agreed outputs. But to enhance economic growth requires horizontal engagement across public sector agencies on a range of complex issues. Institutional factors can work against this cross-cutting effort, even in the face of managerial buy-in.
The Leadership Strategic Priority will identify opportunities for improving the overall system by which departments work in a joined-up way to pursue the Government's economic agenda.
The Ministry will advise on improved ways of developing and implementing Government economic development strategy across agencies, to achieve better alignment.
The Growth and Innovation Framework has been the key tool for aligning economic development strategy and policies in this way. The Ministry's leadership of it has raised the level of understanding of growth objectives, and increased the alignment of resources and activities across agencies.
The Ministry will advise on improved ways of developing and implementing Government economic development strategy across agencies, to achieve better alignment. This will support Ministers to identify and implement priority economic transformation agendas.
Accountability tools and levers within the public management system can provide ways of achieving more effective alignment of activity across the public sector. The Ministry will work to improve these mechanisms, where it can, so they are more effective in meeting this objective. To assist with this, we will disseminate and implement a best practice guide to managing our relationship with Crown entities we monitor.
Building a Cross-Sector Evidence Base
Continually building, maintaining and sharing robust cross-sector evidence on what matters for growth in New Zealand is essential to achieving greater cross-government buy-in to those things that will make a difference. This is because it provides the platform for making judgements about priority areas of focus. The Economic Development Indicators provide a potentially powerful part of this evidence base, and this report will be a key tool in the Ministry's economic development leadership.
International Linkages
International Linkages > Improving the international linkages that allow firms to benefit from trade, knowledge transfer and investment
Why Is This a Priority?
International trade, knowledge transfer and investment between New Zealand and other countries stimulate innovation and hence drive higher productivity and economic growth. They do so by:
- helping innovators to identify and take advantage of new opportunities, and exploit their competitive advantage;
- boosting productivity by enabling firms to seek out and access new markets, new technologies and knowledge, skilled labour, and best practice work and management techniques; and
- enhancing incentives for firms to innovate by creating competitive pressure from offshore and providing much greater consumer choice.
As a small, isolated economy, New Zealand faces unique barriers when endeavouring to form and maintain international linkages that support business activity. While transport and communication costs have declined substantially, distance still has important impacts on person-to-person contact and business relationships, and on the transfer of tacit knowledge, such as subtle differences in consumer preferences. Institutional, legal and regulatory differences also create costs for firms. Finding a niche in large international markets can be daunting, difficult and risky, particularly for some of our smaller businesses.
These barriers form a major impediment to improving New Zealand's growth rate. Government can help by reducing the impact of borders on firms, by promoting connections that allow knowledge transfer to occur, and by promoting high-value international trade.
What Are We Aiming to Achieve?
The outcome of this strategic priority is for New Zealand's international connections to support transformation of the New Zealand economy through growth in trade, and through improved flows of investment, skills and technology.
This will be achieved by:
- reducing the impact of small firm scale, distance and international borders so that domestic and foreign firms do not regard them as significant barriers to trade; and
- assisting New Zealand firms and other institutions in their efforts to connect with the rest of the world.
The outcome of this strategic priority is for New Zealand's international connections to support transformation of the New Zealand economy through growth in trade, and through improved flows of investment, skills and technology.
Many of the connections opportunities are external to the Ministry, so we need to work across government to agree overall strategic priorities. We work closely with the Ministry of Foreign Affairs and Trade (MFAT) and New Zealand Trade and Enterprise (NZTE) to pursue our objectives in this area. This collaborative partnership is reflected by the three agencies sharing this outcome.
The Ministry leads specific issues in keeping with our role and expertise. Areas of focus include:
- our relationship with NZTE, and business capability development initiatives that build internationally competitive businesses; and
- most aspects of the regulatory framework for business, where domestic and international frameworks are frequently merging and blurring. These include protection of intellectual property rights, trade rules and remedies, tariff policy, and standards and conformance policy.
In concert with MFAT, NZTE and other agencies contributing to building New Zealand's international connections, the Ministry will focus on countries or regions that are most important to our future. This includes those "bedrock" countries with which New Zealand maintains important economic relationships (Australia, the US, the EU, Japan, the Pacific Island countries and China) plus other important international linkage opportunities that emerge (for example, in the ASEAN region).
What Are the Key Issues and How Are We Addressing Them?
The Ministry is involved in a wide range of international issues across many fora, but we are giving priority to three areas we believe have most potential to produce gains for growth:
- Global connections. We will support the efforts of business to build networks and deepen relationships in other economies that are important to New Zealand.
- Developing a Single Economic Market with Australia. We will advance work on deepening New Zealand's relationship with Australia to advance a Single Economic Market.
- Building a deeper economic relationship with China. We will endeavour to achieve substantial liberalising commitments under a China Free Trade Agreement (FTA), and form strategies to develop broader economic connections, including strategies to leverage an FTA.
Global Connections
Successive governments have worked to open New Zealand's economy to world trade, particularly through the World Trade Organization, and the agenda to achieve this is relatively well established. The Ministry and other agencies involved in this process, such as MFAT and NZTE, continue to build understanding of how best to facilitate connections between local firms and markets overseas. This is relevant in the context of our work on Australia and China, as well as more generally.
To advance a more strategic, "New Zealand Inc" approach to engagement with the rest of the world, we will be:
- improving our understanding about the main ways in which external linkages drive economic development in New Zealand, including in such areas as foreign direct investment, migration and education, science and technology, and knowledge flows;
- carrying out activities designed to support the development of many more globally competitive firms in New Zealand, including work on the Government's Export 2007 project;
- carrying out activities designed to ensure improved policy and regulatory alignment between New Zealand and the rest of the world. This includes relationships between New Zealand standards setters and regulators, and their counterparts overseas, in areas such as standards and conformance, and financial reporting; and
- aligning international connections activities across government in New Zealand, such as work with NZTE to implement the strategy resulting from the global services review.
Developing a Single Economic Market with Australia
Australia is our most important economic partner and the largest market for New Zealand goods and services. New Zealand already enjoys uniquely close social, institutional and business linkages with Australia. It is logical to build on this and to emphasise this relationship, as we seek to forge the international economic connections that will benefit New Zealand businesses.
We will advance work on deepening New Zealand's relationship with Australia to advance a Single Economic Market.
The Single Economic Market is a vehicle to ensure that developing the trans-Tasman relationship remains a high priority. It provides a broader framework for the deepening of economic links that allows for the possibility of more joint policy development, more institutional co-ordination, and the possibility of broader policy trade-offs across issues. Much progress has already been made in removing trade barriers.
We will be:
- establishing effective networks across government, business and the community, on both sides of the Tasman, to contribute to the achievement of consumer and industry policy objectives. This will include further developing the industry development co-operation agenda; and
- deepening regulatory co-ordination, such as implementing the work programme agreed as a result of the 2005 review of the Memorandum of Understanding on the co-ordination of business law, and the Trans-Tasman Mutual Recognition Arrangement.
Deeper Economic Relationship with China
Our relationship with China presents a significant opportunity for New Zealand, through opening up access to large and rapidly expanding markets, especially in primary products, education and tourism.
To make the most of the opportunities, we need to:
- ensure that New Zealand firms have the capability to take advantage of opportunities arising from an FTA with China;
- ensure that sector-specific strategies take account of China's impact on global and regional trading, investment and production patterns;
- make a long-term investment in developing relationships with Chinese institutions. We are developing a programme of co-operation with the Chinese Administration for Quality, Standards, Inspection and Quarantine;
- reduce regulatory barriers and related costs for New Zealand firms doing business in China; and
- build our understanding of the impact of China on New Zealand's economic development, including through our China Impacts project.
Contributions of Output Classes to the International Linkages Strategic Priority
| Vote and associated contributing output class(es) |
Outputs within the output class |
| Vote: Economic, Industry and Regional Development |
| Policy Advice - Policy Advice and Sector Leadership - Firm Capability, Sectoral and Regional Development |
Sector Development Policy
Regional Development Policy |
| Policy Advice - Small Business |
Growth and Innovation Framework (GIF)
Small Business Policy |
| Vote: Commerce |
| Policy Advice - Business Law and Completion Policy |
Business Environment, Business Law and Competition Policy
Business Facilitation Policy
Trade Policy and Rules |
| Registration and Granting of Intellectual Property Rights |
Registration and Granting of Intellectual Property Rights |
| Vote: Consumer Affairs |
| Policy Advice and Support on Consumer Issues |
Consumer Policy |
| Vote: Tourism |
| Policy Advice - Tourism |
Tourism Policy |
Innovation
Innovation > Fostering entrepreneurship and innovation in New Zealand firms
Why Is This a Priority?
New Zealand's economic success depends on the performance of its businesses. Innovation is vital to international business success, as it is difficult for our firms to compete successfully on the basis of scale of operation, or to sustain a position as the least-cost producer. If our businesses are to succeed and be highly productive, relative to their international competitors, they must innovate by finding new opportunities and ways of producing goods and services. Innovation involves a combination of:
- creating and marketing new or improved products and services that consumers both here and abroad value highly; and
- creating and adapting to new forms of organisation and new technologies.
Entrepreneurs are at the heart of this process, spotting new opportunities and motivating those around them to devote resources to innovation. There is a mixed picture of how innovative and entrepreneurial local firms are. New Zealand has relatively high and dynamic levels of entrepreneurship as measured by business start-ups, exits and a business's chance of surviving once up and running. But New Zealand ranks low on the formal technological measures of innovation, such as private sector R&D and patenting. While this can be explained by the relative absence of larger firms in New Zealand, our distance from major world centres of R&D and our industry composition, we still need to do better to lift our growth performance.
Other small developed countries that have ascended to the top half of the OECD productivity rankings have invested heavily in technological innovation.
Other small developed countries that have ascended to the top half of the OECD productivity rankings have invested heavily in technological innovation.
This overall picture masks a lot of variation between and within industries in New Zealand. The best New Zealand businesses compete very successfully. The challenge for New Zealand is to become increasingly innovative and entrepreneurial overall. This is essential if we are to catch up with other developed countries and achieve the Government's economic objective.
Our innovation-related outcomes are linked to the Ministry of Research, Science and Technology's outcomes for the research, science and technology sector, recognising that both agencies have intertwined roles in fostering innovation.
What Are We Aiming to Achieve?
Factors that the Ministry of Economic Development can influence that are particularly relevant to the level and quality of innovation and entrepreneurship include:
- Effective and competitive markets. New Zealand's product, input, labour and capital markets need to support innovation and business activity. This involves a variety of factors, such as maintaining the competitive pressures that generate incentives for innovation, and ensuring the quality and quantity of infrastructure in New Zealand facilitates the flow of ideas, goods and services, and people.
- A dynamic research and development system. Through work on the Government's economic transformation agenda, we need to work with the Ministry of Research, Science and Technology (MoRST) and other agencies to ensure that the public and private R&D systems are operating effectively. These systems need to take into account the unique New Zealand context of few very large firms, distance from large R&D centres and a relatively large primary sector.
- High-quality skills and basic business information for innovation and entrepreneurship. Government policies for education and skills development need to ensure that our firms and emerging entrepreneurs have access to the skills necessary to identify business opportunities and to translate them into commercial success. Effective use of ICT is a particular example.
- Well designed, targeted and evaluated business assistance programmes. Recent governments have significantly increased investment in policies and programmes aimed at improving the productive and innovative capacity of New Zealand's firms, sectors and regions. These programmes are mainly delivered by New Zealand Trade and Enterprise. If we are to achieve a material lift in sustainable economic growth, it is critical that these interventions are consistent with international best practice, are shaped to address the specific needs and challenges facing New Zealand enterprises and are focused on achieving maximum impact for the resources invested.
- Capital markets that can effectively recognise New Zealand innovation opportunities. Venture capital, and other forms of equity investment, play a key role in innovation. There are gaps in the market provision of capital and expertise for early stage companies with high growth potential, which the government has addressed by creating the Venture Capital Fund and Seed Co-investment Fund.
- Effective business links. Strong links between businesses (either in New Zealand or overseas) are often part of innovating. Such links maximise opportunities for businesses to take advantage of information, skills, knowledge and technology residing elsewhere.
- Improving the performance of the innovation system. The Ministry and MoRST work together to keep an overview of government policy on innovation performance as a whole.
The Ministry will undertake a focused programme of policy development, evaluation and research aimed at lifting innovation performance in New Zealand.
The Ministry works collaboratively with a range of other agencies on these issues, including New Zealand Trade and Enterprise; the Department of Labour; the Foundation for Research, Science and Technology; the New Zealand Venture Investment Fund Limited; the Treasury; the Ministry of Education; and MoRST.
The macro-economic framework also affects business innovation and success. Fiscal and monetary policy settings influence the "big picture" context in which businesses operate, through their effects on inflation, interest rates, exchange rates and taxation. However, these issues are addressed more directly by other agencies. We have some input into particular issues, such as the review of corporate taxation.
What Are the Key Issues and How Are We Addressing Them?
The Ministry will undertake a focused programme of policy development, evaluation and research aimed at lifting innovation performance in New Zealand. Within the themes identified above, we have prioritised the following areas of work:
- improving the innovation system;
- effective, competitive markets, including capital markets;
- the research and development system;
- the skill development system;
- improving business assistance programmes; and
- effective business linkages.
Improving the Innovation System
To influence innovation outcomes to best effect, we have been developing a better understanding of the New Zealand innovation system as a whole and the best points of leverage for government. This national perspective is essential to identifying changes that may be needed to enable New Zealand to be fully competitive in the global economy. The National Innovation System project started last year is continuing and will provide an improved framework for innovation policy advice, by developing a clearer understanding of significant influencing factors and effects on innovation outcomes in a New Zealand context.
Improving labour productivity is the key challenge for New Zealand's economic growth prospects. There is a wide variety of views on what behaviours and strategies within firms make the most contribution to raising productivity and innovation. We are working to improve our understanding of what matters most for lifting firm productivity.
Effective, Competitive Markets
New Zealand is less capital-intensive than other OECD countries and has low levels of business investment relative to Australia. Business investment impacts directly on labour productivity by increasing the amount of capital and technology available per worker. Similarly, if access to finance is constrained, it may limit business development (including capital deepening) and is particularly likely at the earlier stages of business growth. The Ministry of Economic Development will continue to develop its understanding of the issues and options for improving capital investment.
Even though New Zealand is seen internationally to have high-quality competition and consumer law, challenges remain. In particular, we have to compensate for the lower short-term competitive pressures experienced because of our small size and distance from major markets. In this context, the effective application of competition law becomes critical, and policies that foster domestic consumer sophistication may create significant opportunities. It is important, therefore, that the Ministry keeps the implementation of competition law under review and builds understanding of the sophistication of consumer behaviour in order to make any appropriate policy changes.
The Research and Development System
Institutional arrangements for the public science system (including CRIs and TEIs) affect critically the rates of knowledge creation, application and diffusion. A strong perception is that there are significant opportunities to improve performance in this system, in particular in strengthening linkages to the private sector both in terms of technology transfer and improved demand-side responsiveness. Addressing this issue will form a critical component of our National Innovation System project.
Improving New Zealanders' ability to capture the benefits accruing from their own and others' innovation is critical to increased economic growth.
New Zealand has one of the lowest rates of private sector research and development in the developed world. While a significant review of current public policy in this area was conducted in the past year (resulting in increases in the quantum of grants), significant analytical challenges remain. In particular, it is critical to deepen our understanding of the reasons for low levels of private sector research and development and to develop specific policy proposals based on that understanding.
One focus of work in this area will be on assessing New Zealand's absorptive and adaptive capacity, particularly from international technological development (given foreign technology dwarves New Zealand technology development) and developing necessary policy advice.
Improving New Zealanders' ability to capture the benefits accruing from their own and others' innovation is critical to increased economic growth. Establishing the right balance between protection of property rights and diffusion is critical to this goal.
The Skill Development System
Whatever matters most within firms for productivity and innovation, managers are the principal agents for change within firms - they largely control what is identified as mattering and what is done about it. As part of the Government's broader workplace productivity agenda, the Ministry has facilitated the Business Capability project to better match supply and demand for services. If effective, this project will improve the capability of managers to make critical business judgements and respond more effectively to the challenges they face. Furthering this work remains a critical goal for the year ahead.
Behaviours which are specific to New Zealand culture will impact on New Zealand's economic development in ways that are different from other countries. Anecdotal evidence suggests there are a variety of New Zealand-specific behaviours which could be an impediment to productivity and growth, as well as a variety which may be uniquely supportive. Over the past year, the Ministry has undertaken some exploratory work to deepen its understanding of cultural processes. It is important to continue to build understanding in this area in order to develop policy advice, if necessary, and to respond effectively to anticipated calls for government activity in this area.
Improving Business Assistance Programmes
It is critical to ensure that the programmes government has introduced to support business growth are effective and achieve the objectives envisaged. The choice of how, when and why to engage at the firm, regional or sectoral level is critical and there are risks that must be managed. Over the past year, a more robust framework for addressing many of these issues has been developed and adopted. However, there remains a significant challenge to take this framework to one level of sophistication further. Particular issues to focus on are how best to ensure New Zealand-grown businesses can generate benefit to the wider economy and the extent to which policy in industry development should be focused on incremental (and therefore low risk, low return) or more radical (and therefore higher risk, but potentially higher return) change.
Irrespective of the precise approach adopted, regular and rigorous evaluation is critical. Quality evaluation can enable effective programmes to be given more resources and ineffective programmes to be downsized or eliminated. The evaluation of NZTE's services is the critical activity for the Ministry in this regard. Although many of these services have only been in place for a short time, almost all of them have now been evaluated for a first time and will continue to be evaluated at regular intervals. This is enabling us to identify ways to increase impact per dollar spent. In parallel with such evaluations, New Zealand Trade and Enterprise, with Ministry and MFAT support, has been working on sharpening and improving operational strategies and performance measurement frameworks. A review of business assistance programmes is underway to pull together all the key lessons from these pieces of work and identify further opportunities to increase the impact of the programmes on business capability and performance.
Effective Business Linkages
Government and state agencies engage with regions to identify barriers and foster new information flows.
It is important that the Ministry develops a view on the extent of problems in this area and the likely benefit of improved cohesion in service delivery. While there appears to be a need for continuous improvement to the delivery of government services to business, in most cases, the largest gains from the perspective of business appear to lie in standard service improvements by individual agencies rather than integrated delivery across agencies. However, there may be benefits from increased integration with regards to specific services - particularly NZTE and FRST services to business.
Government and state agencies engage with regions to identify barriers and foster new information flows. Considerable experience has been gained through these engagements and questions have emerged about the best way of engaging with regions. We will be seeking to refine our approach to such engagements based on what we have learned. Over the next few years, it will be critical to review and revamp the tools. Continued, focused engagement on Auckland issues will be especially important, given the significance of Auckland to the wider New Zealand economy.
Contributions of Output Classes to the Innovation Strategic Priority
| Vote and associated contributing output class(es) |
Outputs within the output class |
| Vote: Commerce |
| Policy Advice - Business Law and Completion Policy |
Business Environment, Business Law and Competition Policy
Trade Policy and Rules |
| Registration and Granting of Intellectual Property Rights |
Registration and Granting of Intellectual Property Rights |
| Vote: Communications |
| Policy Advice - Communications |
Information Technology Policy |
| Vote: Consumer Affairs |
| Policy Advice and Support on Consumer Issues |
Consumer Policy |
| Vote: Economic, Industry and Regional Development |
| Policy Advice - Policy Advice and Sector Leadership - Firm Capability, Sectoral and Regional Development |
Sector Development Policy
Research, Evaluation and Monitoring
Regional Development Policy
Firm Capability
Growth and Innovation Advisory Board |
| Policy Advice - Small Business |
Policy Advice |
Regulatory Environment
Regulatory Environment > Strengthening the growth focus in the regulatory environment for business
Why Is This a Priority?
Regulation plays a critical role in shaping the business environment in which economic activity takes place. The goal of this strategic priority is to ensure that regulation is well designed and implemented to support economic objectives, while ensuring that social and environmental objectives are met.
The OECD ranks New Zealand highly in terms of "growth-friendly" regulation. However, continual improvement is needed for three reasons:
- Other countries continue to improve their regulatory environment for business, and New Zealand needs to keep abreast of regulatory best practice to maintain its comparative advantage.
- The regulatory environment is continually changing, with growing volume and complexity, internationalisation, increased expectations of meeting multiple objectives, and stronger expectations of community and business involvement in regulatory design.
- There is continuing demand from business for reduced compliance costs.
What Are We Aiming to Achieve?
The Ministry's primary aim is to ensure that the regulatory environment supports sustainable growth as much as possible. This means ensuring that regulation affecting business is designed and implemented to minimise the burden of regulations on firms, while achieving the objectives of those regulations. Our objectives are to improve the quality of regulation, reduce the regulatory burden imposed on firms (especially small firms), and give them as much certainty and flexibility as possible in meeting their regulatory obligations.
Where regulation has non-economic (social, cultural or environmental) objectives, the Ministry aims to ensure that economic growth objectives are given due weight when framing the legislation. This includes:
- ensuring that the regulation achieves its other objectives in a way that ideally is complementary to, and at least does not unnecessarily detract from, achieving sustainable economic growth; and
- ensuring that the trade-off between the various objectives and economic growth gives due weight to the sustainable economic growth objective.
The Ministry's primary aim is to ensure that the regulatory environment supports sustainable growth as much as possible.
When the regulation primarily has an economic objective (e.g. competition, intellectual property, insolvency and consumer policy), our goal is to ensure that regulation is designed to foster sustainable growth in income per capita.
For all regulation, therefore, the economic objective is to foster sustainable growth in income per capita, whilst also recognising that the Government will have broader regulatory objectives.
What Are the Key Issues and How Are We Addressing Them?
The Ministry is working to improve the quality of regulation in three priority areas:
- designing and implementing Ministry-led regulation that is key for innovation and economic growth;
- ensuring regulatory design across the public sector takes into account impacts on the business environment; and
- focusing on a small number of key regulatory regimes led by other agencies that have potentially high impacts on economic growth.
When identifying issues and opportunities to improve the quality of regulation, we need to consider:
- if it is or is not appropriate to regulate;
- how important regulation is as either a means of achieving growth or a constraint on growth, both in absolute terms and relative to other factors that affect growth;
- the relationship between regulation and innovation and reflect this in policy settings;
- the balance between improving overall regulatory quality versus reducing compliance costs; and
- the sensitivity of regulatory outcomes to the design of the rules themselves versus their implementation and on-going enforcement.
Improving the Design and Implementation of Key Ministry-Led Regulation
Surveys conducted by the World Bank and others suggest that regulations administered by the Ministry tend to be high quality and to involve low compliance costs.
Surveys conducted by the World Bank and others suggest that regulations administered by the Ministry tend to be high quality and to involve low compliance costs. For example, the innovative use of technology, for which the Ministry has been recognised internationally, has reduced the costs of setting up a company in New Zealand to among the lowest in the world. While the opportunities for change in Ministry-administered regulation therefore may be incremental, we need to ensure that New Zealand maintains high-quality regulation in these areas.
Regulation covering effective functioning of financial markets is a key area, with an important impact on growth. There are a range of reviews in these areas, including Financial Products and Providers, the Securities Act, non-bank financial institutions and insurance companies regulation. The outcomes of these reviews have the potential for substantial impacts on the operation of financial markets.
Promoting High-Quality Regulatory Design across the Public Sector
There is a very large range of regulations that impact on business activity. The regulatory system needs to adapt over time to changing pressures and expectations. The Ministry has an important role in promoting good regulatory design in general and, in particular, design that adapts over time to take into account changing impacts on economic growth.
We can best promote high-quality regulation across the public sector by keeping abreast of international best practice, monitoring departmental performance in the design of regulation, and measuring the impact of regulation on business and growth.
In addition to ensuring that the broader economic costs of regulation are minimised as far as possible, the way regulation is implemented and enforced is as important as the rules themselves. This presents several challenges. We need to ensure that the processes that firms are required to adopt do not create undue compliance costs. The Ministry has already made significant headway regarding implementation of its own regulation, for example, our use of web-based technology has reduced the costs of searching or registering a security interest against personal property.
The second challenge for a small country like New Zealand is to ensure that the institutions that monitor and administer business regulations have the people, skills and resources to do so effectively, and that regulation is appropriately designed to reflect the capabilities available to implement them. Finally, regulators need well-developed and effective relationships with stakeholders and regulatory partners.
Our work on regulatory design across the public sector includes:
- promoting industry-led regulation to achieve shared responsibility for the delivery of outcomes, through reviewing the effectiveness of self-regulation regimes;
- understanding and acting on business concerns about regulation, by developing proposals for applying appropriate international models for identifying the impact of regulation;
- strengthening processes for developing high-quality regulation, with a focus on the Regulatory Impact Analysis regime and engagement with business;
- developing a methodology for examining regulation and compliance cost issues on a sectoral basis and applying this to selected sectors;
- examining whether more flexible application of regulation could ease costs for Small to Medium Enterprises (SME); and
- building strong relationships with regulators for whom the Ministry has a lead responsibility.
Focusing on Key Regulatory Regimes Led by Other Departments
Much of the regulation that impacts on business is developed and/or implemented and monitored by other agencies. This includes the six legislative frameworks about which concerns tend to be raised when businesses are surveyed - Resource Management, Employment Relations, Hazardous Substances and New Organisms (HSNO), Health and Safety in Employment, ACC and taxation. International research also identifies several of these areas of regulation as having potentially important impacts on economic growth.
The Ministry has recently contributed to major reviews of the Resource Management Act (RMA) and the Employment Relations Act, to on-going implementation of the Hazardous Substances Strategy, and to climate change regulation.
Currently we are involved in a multi-year research programme on the impacts on the business environment of the RMA and HSNO. We are also contributing to work on the government's review of corporate taxation.
Contributions of Output Classes to the Regulatory Environment Strategic Priority
| Vote and associated contributing output class(es) |
Outputs within the output class |
| Vote: Commerce |
| Policy Advice - Business Law and Completion Policy |
Business Environment, Business Law and Competition Policy
Business Facilitation Policies
Environmental Policy |
| Vote: Consumer Affairs |
| Policy Advice and Support on Consumer Issues |
Consumer Policy |
| Vote: Economic, Industry and Regional Development |
| Policy Advice - Small Business |
Policy Advice |
Infrastructure
Infrastructure > Improving the quality and reliability of key infrastructure services
Why Is This a Priority?
Sound infrastructure services, such as transport, energy, communications and water distribution, are essential to New Zealand's growth prospects and our general quality of life. Efficient and reliable infrastructure services reduce the costs of production, increase the attractiveness of New Zealand as a location for investment, and facilitate the flow of ideas, goods and services, and people. Infrastructure bottlenecks or shortages of critical services jeopardise the productivity, profitability and even viability of firms. Even a small risk of supply disruption adds substantially to the uncertainty that firms face, and can be an impediment to growth and sustainable development.
It is therefore important that firms and consumers have access to the infrastructure services they need, when they need them. In recent years, however, some significant issues have emerged. These include challenges to the short- and long-term security of New Zealand's energy supply, increasing traffic congestion in and around Auckland, and the need to ensure that New Zealanders have access to and are able to use new telecommunications technologies. The Ministry continues to work with other government agencies and the private sector to address these issues.
In the longer term, infrastructure presents a number of challenges for government policy. For example, the long lead times involved in developing new infrastructure mean that any constraints can impact on businesses and other consumers for extended periods. In addition, because of the small market for infrastructure services, there are often few competing providers - even in those sectors where technology and cost structures make competition possible. This can sharpen the focus on reliability of supply, and where there is less opportunity for competition there is also a risk of less innovation and excessive pricing.
The overarching goal is to ensure that businesses and consumers have access to reliable infrastructure services they need, at reasonable cost.
Given the complexity of these issues, and the fundamental importance of infrastructure in a modern, export-led economy, this is an on-going area of strategic importance for the Ministry.
What Are We Aiming to Achieve?
The overarching goal is to ensure that businesses and consumers have access to reliable infrastructure services they need, at reasonable cost. The hallmarks of effective infrastructure performance include:
- early identification of bottlenecks and shortages, leaving time to implement cost-effective solutions;
- high levels of confidence by investors and the community that an appropriate level of infrastructure services will be available when needed, at "reasonable" prices; and
- pricing and other arrangements (such as education and information provision) that avoid unnecessary volatility and that encourage investors and consumers to take into account the full effects of their decisions.
What Are the Key Issues and How Are We Addressing Them?
The Ministry is addressing a range of important issues in each of the following sectors:
- Energy (Ministry has lead role)
- Information and Communications Technologies (Ministry has lead role)
- Transport
- Water
- Overarching infrastructure.
Energy
Energy Outcomes and the Evolving Energy Landscape
Local and global demand for energy will inevitably increase over time, putting pressure on our energy supplies. Pressure on supply will be reflected in higher energy prices. The challenge over the medium to long term is to meet New Zealand's energy needs in a way that protects our way of life, economy and the environment. More specifically, our aim is to maintain an energy system over time that balances three high level outcomes:
- a high level of supply security (short- and long-term), balanced against the costs involved;
- acceptable environmental impact; and
- competitive and efficient pricing (which also reflects the cost of negative aspects of our energy use).
The challenge over the medium to long term is to meet New Zealand's energy needs in a way that protects our way of life, economy and the environment.
It will be a challenge to achieve these goals over time in the face of global climate change and a tightening demand/supply balance for traditional energy forms, including oil. Innovations and uptake of cleaner and more sustainable energy sources will help reduce supply constraints and mitigate the effects of climate change. With the Electricity Commission now leading work on most of New Zealand's short-term electricity issues, the Ministry is increasingly focusing on the longer-term issues.
Overarching Energy Policy/Strategy
Government can help co-ordinate energy decisions of strategic significance to New Zealand by providing consistent policy signals and ensuring the planning process allows for the development of sustainable energy infrastructure and fast take-up of better energy options as they emerge. This includes being clearer about desired outcomes, the role of government, and setting expectations about when certain infrastructure will need to be in place. The Ministry will be leading work to develop a National Energy Strategy to address these issues.
Energy Security of Supply
Ensuring we can meet energy demand over the long term, at reasonable prices, is critical to the global competitiveness of New Zealand firms and our way of life in general. To avoid surprises, we will be developing and maintaining information on energy supply and demand scenarios. This will help us to maintain a good shared understanding of current and likely future energy requirements and trends, as well as their implications for policy and investment.
We also need to make sure our energy system is diverse and resilient, and encourages the best use of existing and new generation options, including gas and other traditional thermal fuels as well as new, longer-term options such as wind. This is a significant challenge, particularly as New Zealand transitions to a post-Maui gas environment.
The Ministry's work to address these issues includes:
- reviewing a range of electricity market arrangements to ensure that they are effective in meeting the Government's desired outcomes; and
- advising government on the role for thermal fuel in electricity generation and appropriate actions to ensure thermal fuel security.
Significant investment is required to strengthen the national grid to ensure that agreed standards are met. The Ministry will be monitoring the progress of major transmission upgrade projects and leading efforts to manage any issues that require a response from government.
We can also reduce the pressure on electricity supply by promoting more efficient use of electricity, potentially deferring the need for new investment in generation and transmission. EECA and the Electricity Commission are both carrying out on-going work in this area.
There is on-going interest in ensuring that electricity market arrangements are effective, for the Government's desired outcomes for the electricity market to be met. We need to ensure that the Electricity Commission is supported so that it can make its best contribution, and that its performance is monitored so that any issues that may impact on outcomes are identified and dealt with effectively.
Climate Change
The economy needs to be prepared for the change in relative prices that will be brought about by the need to respond to climate change. We will be playing a role in ensuring that climate change policy creates sensible and stable incentives and is robust enough to facilitate a faster reduction of emissions if required, and that climate change is a focus of New Zealand's publicly funded energy research priorities.
Mitigating the Effects of Rising Oil Prices
New Zealand is well short of self-sufficiency in oil and is therefore exposed to price increases. We are also relatively transport-intensive, through our dispersed population, geography and physical isolation from trading partners.
While New Zealand is relatively less dependent on oil and oil products than some other countries, like the United States, we also need to consider more fully the government's role in reducing our medium- to long-term dependence on oil and ensuring a smooth transition to alternative fuels, while ensuring that energy needs continue to be met.
We also need to ensure that New Zealand maintains adequate petroleum reserves (as well as meeting international obligations) and that any regulation to increase stocks is justified by community benefits.
Information and Communications Technologies
ICT Outcomes and the Evolving ICT Landscape
Ensuring that broadband's ever-increasing potential is effectively utilised is a key step in advancing our economic development objectives.
The ICT sector is notable for on-going and rapid developments in technology, leading to very large quantity and quality improvements, and cost reductions.
Ensuring that broadband's ever-increasing potential is effectively utilised is a key step in advancing our economic development objectives. New Zealand is relatively well-connected for internet, but uptake of broadband services is still slow. Furthermore, many New Zealand firms have a poor understanding of how ICT is changing market requirements and opportunities, and they lack the skills to integrate ICT into business processes to obtain the strongest gains in productivity.
Nevertheless, use of ICT in daily commercial and social interactions (e.g. internet auctioning and blogging) has been expanding, in part reflecting falling costs. This is accompanied by increasing concern/awareness of security and safety.
Voice, data and video are converging into single transmission mechanisms (e.g. the voice over internet protocol), serving diverse devices. Next generation networks, based on IP technology, are just around the corner. Technological change is a threat to the market power of incumbent firms in traditional services. In the future, market power may arise in delivery of content, e.g. from merging communications and media activities.
Overall, the challenge remains to maintain investment incentives while reducing bottlenecks. Against this backdrop, the Ministry's main goals in the ICT area are:
- seamless and easy access to information resources to support commercial, research and other productive activity (content);
- enhancing the skills needed to utilise the resources available (confidence and capability); and
- availability of ICT networks, particularly high-speed/high-quality-of-service broadband, to enable access to resources (connection).
Supporting the Uptake of New Technology
New Zealand consumers (including firms) may need support to ensure satisfactory levels of uptake of new ICT technology. Ministry initiatives include:
- implementing measures under the Government's Digital Strategy;
- monitoring and enhancing the telecommunications regulatory regime, particularly a review of the Telecommunications Act and a stocktake review of the telecommunications sector.
Technological Change Brings Some Regulatory Challenges and Opportunities
We need to monitor industry developments with an eye on implications for market power and the current regulatory regime. For example, technology is eroding telecommunication companies' traditional sources of market power, and there is a risk that they may seek to lever market advantages in residual communication links where they may retain control (e.g. local loop) or insist on standards that impede change (e.g. in ITU negotiations).
New technology also offers opportunities to enable greater private sector development of innovative technologies and services, including methods of approaching radio spectrum allocation and management.
We will provide advice to government on technological developments likely to significantly influence the regulatory and economic growth environments.
Transport and Water
The Ministry's role in these areas is to provide supporting advice to the lead agencies and government on particular transport and water issues significant to economic development. For example, our focus in transport over the next year will include participating in work led by other agencies on road pricing and transport funding. Our involvement in key water issues includes participating in the Sustainable Development Programme of Action for Water, led by the Ministry for the Environment.
Overarching Infrastructure Issues
Differences in ownership, governance, regulatory and funding arrangements across the energy, ICT, transport and water sectors mean that most infrastructure policy needs to be tailored to the circumstances of individual sectors. Nevertheless, some general issues apply across several or all sectors, such as suitable mechanisms for financing infrastructure. The Ministry's main areas of focus in the next year and beyond include:
- developing national policy statements for electricity transmission, electricity generation and telecommunications; and
- engaging with local government in Auckland to assist in the development of the long-term framework to offer an infrastructure and economy-based view aimed at fostering Auckland's contribution to national economic development.
Contributions of Output Classes to the Infrastructure Strategic Priority
| Vote and associated contributing output class(es) |
Outputs within the output class |
| Vote: Communications |
| Policy Advice - Communications |
Telecommunications and Postal Policy Advice
Information Technology Policy |
| Vote: Economic, Industry and Regional Development |
| Policy Advice - Policy Advice and Sector Leadership - Firm Capability, Sectoral and Regional |
Infrastructure Advice |
| Vote: Energy |
| Policy Advice on Energy and Resource Issues |
National Energy Strategy
Electricity
Gas, Oil and Other Resources
Energy and the Environment |
| Vote: Energy |
| Management of the Crown Mineral Estate |
Petroleum and Minerals Investment |
| Vote: Tourism |
| Policy Advice - Tourism |
Tourism Policy |
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