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12. Since May, officials have been working on a number of specific projects that form the basis of the Review. These projects are currently in progress with expected completion dates within the first half of 2007. The key features and objectives of the specific projects are detailed in the second part of this paper. In addition, a number of business engagement events have been held to provide businesses with an opportunity to identify issues arising from the implementation and administration of regulation.

13. Many of the projects involve direct engagement with business to identify issues and potential solutions. One of my key messages in this Review is that "we are in this together" - government has made a commitment to address issues where regulation isn't working as it was intended, but we need the help of the business community to identify both problems and workable solutions.

14. This principle prompted the enhancement of the Business Consultation website to enable businesses to contribute their ideas. To date, 51 businesses have taken this opportunity and provided submissions for consideration.

15. New Zealand's regulatory environment is widely considered to be of a high standard. This is frequently commented on by business people operating in multiple jurisdictions and endorsed by international surveys such as the World Bank study Doing Business. New Zealand's high ranking in the World Bank survey continues into 2007.

16. The results of the 2006 Business New Zealand-KPMG Compliance Cost survey were released on 28 September. In general respondents consider that compliance costs have either remained static or have increased over the past 12 months. However, while estimated compliance costs per FTE are greater in 2006 than 2005 for smaller businesses (0-5 employees), the estimated total compliance costs across all surveyed businesses are lower in all areas, including tax, employment and environment. Tax issues remain the top priority for businesses.

Business Engagement

17. There are three main processes underway to seek the views of the business community and identify workable solutions to address particular problems:

1. Interviews being conducted by officials as part of the sector and interface studies;
2. Focus group sessions I (and other Ministers) have been attending throughout the country as part of the business engagement programme; and
3. Submissions that are received via the Business Consultation website.

18. I have undertaken to promote this Review throughout the country and have attended a number of focus groups where businesses have been able to tell me directly the issues they are facing. Since July, focus group events have been held in New Plymouth, Dunedin, Nelson, Auckland, Gisborne, Christchurch, Invercargill, Kapiti and Napier. Other events will be held in Auckland, Tīmaru and Wellington before the end of the year.

What Are the Issues Coming Through?

19. Officials have advised me that the most useful information is predominately coming out of the sector study interviews, interviews relating to the interface projects being led by the Department of Labour (DOL) and the Department of Building and Housing (DBH), and the focus group sessions.

20. While 51 public submissions have been received to date via the website, the quality of these has been variable. Many seek changes to underlying policy (which, as discussed above, is outside the scope of this review). Others contain limited information on the exact issue at hand. For this reason, it has taken longer than originally envisaged to identify particular issues arising from the implementation of regulation. Nevertheless, themes are emerging, which are in line with the issues identified in the May Cabinet paper.

21. Feedback suggests that on the whole businesses are comfortable with the regulatory environment, particularly when compared to the regulatory systems overseas, but have some concerns with the implementation and administration of regulatory requirements. The work done to date on this review has confirmed that particular requirements create frustration and cost at the business level and that there is room for improvement. The themes emerging are detailed below along with specific examples that have been raised by business. I consider there is potential within these examples to progress some changes to make improvements to the regulatory environment.

Duplicated or Excessive Reporting Requirements as Well as Requirements that Are Considered to Be Overly Complex

• Some businesses have raised the account information (audited budgets and annual account summaries) required by the Department of Internal Affairs under the Gambling Act.
• Tourism businesses have questioned the need to complete the surveys required for the Commercial Accommodation Monitor.
• The regulation of hazardous substances under the Hazardous Substances and New Organisms Act (HSNO) is too complex according to many businesses.
• A lack of sharing of information between ACC and IRD, and Work and Income New Zealand, IRD and Immigration which results in a need to provide the same information on multiple occasions.
• Fringe benefit tax requirements are viewed as extremely complicated and would benefit from simplification and better guidance.
• The lack of synchronisation of the annual indexation date for the adjustments to the Alcohol Advisory Council of New Zealand (ALAC) levy and excise tax causes disruption within the liquor industry.
• The strongest frustrations arise when there is no explanation of the purpose for collecting information.

Inconsistent Treatment across Regions, Particularly at the Local Authority Level, Resulting in a Lack of "Fairness" and Impressions of Either Over- or Under-Enforcement¹

• Businesses in the hospitality sector have highlighted inconsistent enforcement of food hygiene requirements across (and even within) local authorities.
• Differences in interpretation at local levels create problems for firms wanting to develop or build across district boundaries.
• Discrepancies between the Sale of Liquor Act and the action of the Police and District Licensing Authorities and inconsistent processes and enforcement by local authorities (including district licensing authorities).

Regulation that Is Disproportionate to the Real Level of Risk or that Disregards Prior Track Records (e.g. in Relation to Licensing Requirements)

• The Sale of Liquor Act and the need to hold multiple licences for different aspects of the business, as well as the one-yearly and then three-yearly licence renewals does not necessarily reflect the real level of risk nor the previous track record of the business. The costs arising from renewal and training requirements are viewed as high particularly when businesses employ several bar managers.
• The same issues have been noted in relation to the licensing requirements under the HSNO Act, for example when the business has been using the chemicals in question for many years.

Disproportionate Enforcement for Unintentional Mistakes and a Presumption by Regulators that Businesses Are Guilty until They Prove Themselves Otherwise

• Many businesses have commented on a perception held by regulators that businesses are guilty unless they prove themselves otherwise, at the business's expense.
• The time taken for ACC and IRD to rectify mistakes in calculation can be costly for businesses both in time taken out of the business in following up and the opportunity cost of the money in question that could otherwise be put into running the business.
• Many businesses have expressed concern that the Employment Relations Act is "stacked against the employer" particularly in relation to the process for dismissing staff.

Absence of Safe Harbours in the Regulation Resulting in a Lack of Certainty over What Is Required to Reach Compliance with the Law

• Difficulties in knowing what a compliant health and safety management process entails.
• Some businesses have requested a template for Risk Management Programmes required under food regulation.

A Need for More Effective Guidance or Information to Assist Compliance

• ACC has been frequently cited as an agency that needs to work on developing a client focus and providing better guidance around invoicing and levy rates. Some businesses have "no idea" how their levy is calculated and others have questioned their industry categorisation.
• Some businesses have suggested that better guidance is needed on what constitutes a compliant health and safety policy.
• There is confusion around the current requirements for fringe benefit tax on vehicles and the alignment of tax payment dates.

Regulation and Regulators Perceived as Acting as Barriers to Business Development and Growth

• Businesses have commented that food and agriculture regulation can inhibit export growth and therefore business development.
• The RMA has been cited as a potential barrier whereby a single objector, who can be a direct business competitor, can block a development.
• The sector interviews have highlighted that the hospitality and wine sectors in particular have found the transition to the pay rates required under the Holiday Act 2003 difficult.
• The design and implementation of excise tax has also been questioned, particularly its indexation to the rate of inflation and the inability to pass it on to consumers.

Delays and Uncertainty in the Processing of Regulatory Requirements

• The building/resource consents interface project has highlighted that delays and uncertainty in processing consents is a big problem and is resulting in economic cost.
• Businesses have also raised the timeliness for building consent decisions by local authorities (notwithstanding the 20 working day statutory timeframe).

Where to from Here?

22. This first part of the Quality Regulation Review has highlighted some important points. The first is the confirmation that New Zealand's regulatory environment is in good shape and one of the best in the world. Nevertheless, there is still room for improvement, in particular in how people and businesses are made aware of the regulatory requirements and how regulation is enforced.

23. A second point is that many of the issues raised by business thus far have been outside the scope of the review as they relate to underlying policy.

24. Of the issues raised that concern implementation and administration, the next stage of the review leading up to the Second Milestone Report in March 2007 will entail a full assessment of the problems and potential solutions that have been put forward by the business community as well as alternative solutions for addressing the problems outlined. This work continues to be based on the principles of good regulation that the government committed to within the May Cabinet paper. I recommend that Cabinet directs departments to reflect in their assessment of options to address issues:

• The need to remove duplicated or overlapping regulatory requirements;
• The need to provide tailored information on regulatory requirements to meet the needs of business;
• The design of safe harbours, which means that if certain conditions are met firms are deemed to comply with the law; and
• More rigorous risk analysis when developing and enforcing laws.

25. Specific issues we can look at now include survey requirements on tourism operators, the information requirements under the Gambling Act, aligning excise and ALAC levy payment dates,² specific licence requirements for liquor licence holders, such as multiple licence and renewal requirements, and the provision of information across a range of laws but particularly HSE, HSNO and ACC.

26. It is clear that central government will need to take a coordinated approach with local government to develop and implement solutions to improve implementation and administration of regulatory requirements at the local level and to improve the consistency of interpretation.

27. Officials have already identified a list of proposals for amendments to regulation that are consistent with the objectives of this review (Annex 1). These proposals represent an initial down payment on our commitment to improve the quality of our regulatory frameworks. As this list will grow going into the second stage of the review, I plan to submit a paper detailing the full proposals to this Committee early in 2007. In addition, I recommend that departments are required to report to their relevant Review Minister prior to Christmas on progress.

28. The Business Consultation website will remain open for submissions into 2007 and businesses should be encouraged to lodge their issues and ideas to the Quality Regulation Taskforce.

29. As the projects within the review are progressed, I am confident that further issues will be identified and solutions developed. This First Milestone Report is an opportunity to gather together the initial proposals and set direction for the next phase of engagement with business.

The Review's Work Programme

Sector Studies

30. Four studies are currently underway in the sectors of retailing, hospitality, wine (all led by the Ministry of Economic Development) and horticulture³ (led by the Ministry of Agriculture and Forestry). These studies aim to identify issues at the business level that relate to the implementation and/or interaction of regulation and are apparently unnecessarily getting in the way of doing business.

31. The sector studies have utilised partnerships with the key industry organisations of the four sectors to identify a selection of business to interview. The objectives of the interviews have been to gain first-hand records of businesses' experience in complying with regulation, and to elicit potential solutions to address issues. Officials will interview 154 businesses throughout New Zealand across the four sectors.

32. The interviews will be completed within October 2006. Reports outlining the issues, large and small, that each sector faces will be prepared by December 2006 with a final study report due in February 2007. A full set of proposals to address the implementation issues raised will therefore be prepared for the March 2007 Milestone Report.

Interface Studies

33. Three projects are focusing specifically on the interface between particular regulatory frameworks:

• the interaction of requirements under the Health and Safety in Employment Act (HSE), the Injury Prevention, Rehabilitation, and Compensation Act and HSNO - led by DOL;
• the interface between building and resource consents processes - led by DBH; and
• the contractual and legislative requirements placed on suppliers of health related services - led by the Ministry of Health (MOH).

34. The HSE/HSNO/ACC interface project involves the Accident Compensation Corporation, ERMA New Zealand, and the Ministry for the Environment (MfE). Preliminary consultation has shown businesses are concerned most with the quality, appropriateness and availability of information on compliance, and with improving access to the competency and/or licensing requirements they need to meet.

35. Some practical possibilities for improvement have already been identified. These will be addressed either through inclusion in the proposed Omnibus Bill (see Fast Track Vehicle below) or through existing specific interdepartmental projects. They include:

• provisions for more easily updating technical material incorporated in HSNO instruments
• better aligning inspection, certification and audit processes
• clarifying HSNO coverage of aerodromes
• resolving fuel storage requirements on farms.

36. The resource / building consents interface study is being led by DBH with MfE, the Department of Internal Affairs and Local Government New Zealand. The focus of the study is the regulatory system provided for by the Resource Management Act (RMA), the Building Act and related pieces of law and regulation. Work to date has involved mapping the overarching system of regulations that developers and builders must engage with when building on land, and targeted discussions with territorial authorities and cross section of developers and builders to understand the practical issues that they face in operating and engaging with this system of regulation.

37. Preliminary findings indicate that the weight of concern rests not with the legal and regulatory foundations of the system, but with the implementation and administration of the system. Particular issues raised by businesses concern the impacts for them and their clients associated with frequent delays and uncertainties in the timing for processing resource and building consents, and variations in interpretation of regulatory requirements across districts. It should however be borne in mind that the RMA devolves to each territorial authority the power and responsibility for making its own district plan based on the resource management issues in its district. Moreover, that developers and other businesses can contribute to administrative problems arising by lack of knowledge or understanding, presenting inadequate information, inadequate communication with councils at the outset, and insufficient allowance for the consenting process. Furthermore, small developers' problems are generally different in nature from those of larger developers.

38. The focus of work is currently on identifying the underlying reasons for the issues that have been identified and on developing practical strategies for addressing the issues. It is likely that any viable strategies will require a joint central/local government/industry approach to ensure their successful design and implementation, which could include delivery of targeted and tailor-made training etc.

39. The MOH-led project is to identify where contractual and legislative requirements could be better enhanced and better targeted to ensure that audits are more effective and efficient and less duplicative. The project will identify problems faced by regulated health providers in dealing with duplicate audits and to recommend sector-agreed solutions. The project is currently in the planning stages. Initial consultation with key stakeholders will begin in November 2006 with a more extensive consultation with health providers scheduled for February-March 2007.

Fast Track Vehicle

40. One of my objectives in this Review is to provide for a vehicle to progress necessary regulatory and legislative amendments as expediently as possible. My commitment to business has been that we will collectively gather the issues that require fixing and the government will ensure that they are translated into action.

41. Officials provided me with an initial report on options for developing a fast track mechanism in June 2006. Based on this, the Ministerial Group for the Review has asked officials to further develop the options of:

• A one-off Omnibus Bill for the reduction of regulatory burdens (e.g. a Regulatory Frameworks Improvement Bill); and
• Consolidated Cabinet papers for proposed changes to secondary regulations.

42. Officials have met with the Clerk's Office to discuss the first option in relation to the requirements set out in the Standing Orders. I have met also with the Standing Orders Committee in my personal capacity. In the meantime, I have asked officials to work on the basis that it will be possible to establish an Omnibus Bill to progress legislative amendments arising from the review.

Regulatory Process Disciplines

43. This component of the Review is important to ensure that our regulatory frameworks are maintained in the best possible shape over time. That is, they effectively meet their objectives (including economic, social, environmental and cultural) in a manner that imposes the least cost on business and society.

44. There are a number of projects that are focused on providing for high quality regulatory design, namely:

1. Strengthening the Regulatory Impact Analysis requirements on agencies developing new or amending existing regulation. The implementation details of the proposals agreed by this Committee in May are discussed in a separate paper.
2. Implementing the Business Cost Calculator through a two-year pilot programme within agencies. My officials are working closely with the Australian Offices of Small Business and Best Practice Regulation to develop the software platform for implementation of the tool at the policy analyst level. I am expecting the tool to be ready for application within agencies in the first half of 2007.
3. Establishment of a Standalone Group to focus issues arising after a regulation has been implemented. This could include the assessment of the cumulative impact of regulation and any other matters that are impeding the effective and efficient implementation of policy.
4. Promoting the use of "regulatory flexibility" as a tool to ease compliance requirements for classes of businesses where the costs of compliance would otherwise outweigh the benefits from doing so. Provisions allowing regulatory flexibility are already present in some statutes but this project is seeking to develop a reference point from which further flexibility can be built into the regulatory environment. Officials have developed a draft compendium of options and will be using this as a basis for providing more detailed guidance on the suitability of particular provisions (for example, safe harbours, exemptions and differentiated requirements) for certain situations. Officials have discussed this project with the Legislation Advisory Committee and the Parliamentary Counsel Office.

Enforcement Strategies

45. This project involves exploring the ways in which enforcement strategies can be subject to a sufficient level of scrutiny to ensure that they are optimal in the particular circumstances in which they are used. Officials have agreed that a one-day forum be held in November under the auspices of the School of Government, Victoria University of Wellington. Members of the Quality Regulation Taskforce as well as representatives from enforcement agencies will be invited to the forum. The forum will provide a useful way of recording the strategies used by enforcement agencies and will help identify how agencies think about enforcement. It will also provide an opportunity for policy agencies and enforcement agencies to get together and learn from each other - strategies used in one area may also be able to be used in another.

The Role of Standards

46. The role of standards was identified in the May paper as an important consideration for regulatory frameworks. The current review of New Zealand's Standards and Conformance Infrastructure looks at how regulators use standards and conformity assessment services to support regulatory objectives. This review is seeking to promote greater awareness and use of the infrastructure among regulators. A formal process to require regulators to make appropriate use of the standards and conformance infrastructure when developing their regulatory requirements will be introduced. The review will also look at how regulators can ensure adequate regulatory enforcement and compliance with New Zealand regulatory requirements including standards. Public submissions to the review close on 24 November 2006 and I will report back to Cabinet with the findings of the review and any recommendations by 30 March 2007.