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Comment


Cabinet Paper: Quality Regulation Review – Final Report

Hon Lianne Dalziel, Minister of Commerce
[ Last Updated 4 September 2007 ]


Within this section…

9. The economic transformation agenda requires the government to focus not only on the removal of unnecessary regulatory constraints on economic growth, but also on continuous improvement in the quality of regulatory frameworks and processes. As such, the scope of the Review was necessarily broad. It sought to tackle regulatory issues at the design stage, and at the implementation and administration stages. The Review did not, however, consider the policy underlying existing regulatory frameworks.

10. The Review is now completed. Good progress was made to address a number of the specific issues relating to the existing stock of regulation that have been causing businesses unnecessary concern, cost, and delay. In addition, a number of changes have been made to regulatory process disciplines to ensure that future regulation is based on sound analysis, complies with the principles of good regulatory practice, and is fit for purpose.

11. Key outcomes from the Review's work programme are discussed further below. Examples of specific initiatives put in place to address issues raised by business during the Review are provided in Annex One. This list builds on those contained in the Second Milestone Report. The next step is to build on the progress made and the lessons learned from the Review to maintain the quality of New Zealand's regulatory environment.

Summary of Key Findings

12. The feedback obtained from businesses during the Review suggested that the current regulatory environment for business is in fairly good shape, with no fundamental or widespread systemic problems having been identified. This is consistent with international surveys that show New Zealand's regulatory environment for business rates well. For example, New Zealand continues to rate well on the World Bank's Ease of Doing Business survey, where we rank second only to Singapore. This does not mean, however, that businesses did not raise concerns with specific aspects of regulation and its implementation, or that there is no scope for improvement. Issues raised by business during the Review covered a range of areas, including: the Employment Relations Act; the Holidays Act; the Resource Management Act; the Hazardous Substances and New Organisms Act; the Building Act; the Occupational Safety and Hazard Act; ACC; liquor licensing; local government practises; food safety legislation; gambling; tax (e.g. excise, income tax and fringe benefit tax) and statistical surveys/data collection.

13. The specific issues raised by business have highlighted some important areas where improvements can be made to the current regulatory environment. In many cases, initiatives have been put in place by the relevant government agencies to address these issues. However, further value can be added by looking across all of the individual issues to identify the underlying learnings or messages that can inform the post-Review approach to ensuring the quality of New Zealand's regulatory environment going forward. In this respect, the key findings of the Review are:

  1. The need to consider the stock and flow of regulation, as well as all stages of the regulatory lifecycle – the Review highlighted the importance of looking at both the stock of existing regulation and the flow of new regulation when thinking about the impact of regulation on economic growth. It also demonstrated that issues that determine the quality of regulatory frameworks and the overall regulatory environment can arise at all stages of the regulatory lifecycle1. In addition, the Review showed that regulatory frameworks do not exist independently of one another, but can influence the effectiveness of other regulatory frameworks; there is a need to ensure that regulatory frameworks are consistent and compatible at the design stage as well as in implementation. In summary, this means that, when thinking about the link between quality regulation and economic growth, it is necessary to view the regulatory environment as a complex dynamic system, rather than a collection of independent and static regulations.
  2. Implementation is as important as design – a number of the issues raised by business during the Review related to the way regulations are implemented, rather than the regulation's purpose or design. Concerns related to implementation by both local government and central government agencies, and included: inconsistent interpretation and application across regions and districts (where inconsistencies were not justified by regional or local differences); capability and capacity issues for regulators; issues relating to the quality of information provided about regulations and how this is communicated; and costs caused by delays and uncertainty. This demonstrated that in terms of ensuring positive outcomes for economic growth, the government should be as concerned about the implementation of regulation as it is with the decision to regulate and regulatory design.
  3. More can be achieved by working together – the resolution of a number of issues raised during the Review required multiple government agencies to work together. Regulatory issues relating to duplication, excessive information requests and inconsistency often require input from more than one agency to resolve. For example, two of the interface projects2 specifically established processes to facilitate this, as did the consideration of issues relating to local authorities performance of their functions. Also, concerns about the cumulative impact of regulation on business can only be addressed effectively through a whole of government approach. As well as the importance of government agencies working together to achieve quality regulation, the review highlighted the need for central government to work with both local government and business to identify and implement workable solutions to regulatory issues at all stages of the lifecycle of regulation.
  4. Constant vigilance is critical – good regulation is not only established at the design stage, but can be influenced throughout the entire lifecycle of regulation. For example, as the broader economic, social and regulatory environment changes, regulations can become obsolete, compliance information can become outdated, and duplication, overlap and inconsistencies can be created. It is important to ensure that the focus on quality regulation is not lost following decisions about the need for, and shape of, regulation. If a quality regulatory environment is to be maintained, government and business must be committed to a culture of constant vigilance and continuous improvement of regulatory frameworks.
  5. Fixes for poor regulatory outcomes are diverse, with no "one size fits all" – the Review highlighted that there are a number of things that can be done to improve regulatory outcomes for business if government agencies are prepared to be innovative, and take an open-minded approach to working with business. Finding a solution doesn't always require considering legislative amendment, and other solutions adopted as part of the Review included changes to departmental administrative processes and procedures, communication and information dissemination initiatives and the inclusion of issues in existing departmental reviews or work programmes. It is also possible to avoid problems for business at the regulatory design stage by adopting best practice techniques, such as undertaking effective consultation and considering options around regulatory flexibility3.

Outcomes from the Review's Work Programmes

Interface Studies

  • The Health and Safety in Employment Act 1992 (HSE), the Injury Prevention, Rehabilitation and Compensation Act 2001 and the Hazardous Substances and New Organisms Act 1996 – A joint interagency document summarising the feedback received and identifying key compliance issues has been made publicly available4. The document sets out how the four agencies involved will improve the "fit" between different pieces of health and safety legislation and ease compliance for businesses. It also sets out some proposals for improving government responses to these issues in the short and medium term. Consultation with business and stakeholders is ongoing, and the list of possible solutions may be expanded. Short term initiatives completed or underway as part of this project are outlined in Annex One.
  • The interface between building and resource consents processes - the results of the study were reported to Cabinet in February 2007 [CBC Min (07) 3/8 refers]. The main issues identified were delays and unpredictable times in processing resource consents, building consents and code compliance certificates; and inconsistencies in the interpretation of regulatory requirements by those administering them. In February 2007, Cabinet agreed to a detailed work programme to help resolve these issues, the findings of which will be reported back to Cabinet in August 2007.
  • The contractual and legislative requirements placed on suppliers of health related services – A survey and mapping exercise has been completed, and feedback from service providers on possible ways to streamline the audit process obtained. Particular areas of duplication identified include: overlap between mandatory certification audits and contractual compliance audits; and the questionable value of interim surveillance audits for those achieving full compliance with certification. The Ministry of Health will work to reduce as much as possible the number of audits it is responsible for requiring. In addition, the Ministry of Health is reviewing the Health and Disability Services (Safety) Act 2001 (the Act), and the four health and disability service standards that are deemed regulations under the Act.

Sector Studies

14. Studies of four sectors – wine, hospitality, horticulture and retail - were completed as part of the Review. A report summarising some of the issues raised by business during the interviews, and some of the solutions implemented by government in response to these issues, is attached as Annex Two. Approval is sought to make this report publicly available as soon as possible following the conclusion of the Review.

15. A key issue that came up as a result of the study of the wine sector is the requirement for winemakers to hold an off-licence under the Sale of Liquor Act 1989 in order to sell their wine, even though they do not sell wine for consumption on their premises. The requirement for an off-licence triggers compliance costs including the need for a general manager's certificate and advertisements for renewal of the licence in the public notices of the newspaper. These requirements are the same as those for an on-licence even though the sales environment at a winery differs from other liquor retailers especially if there is no on-site consumption. Prior to the amendments to the sale of Liquor Act in 1989, all wineries could sell gate sales as an extension to their Winemaker's Licence.

16. There are issues with the resulting extent of compliance costs for those winemakers who do not sell wine for consumption on their premises. It is possible that changes could be made that would make a difference for these winemakers as long as these did not weaken the overall controls on liquor licensing. I recommend that the Ministers of Justice, Food Safety and Commerce be invited to report to the Cabinet Policy Committee by 30 November 2007 on options to reduce the compliance costs to winemakers who do not sell wine for consumption on their premises, while ensuring the risks relating to the sale and supply of alcohol, especially to minors, are managed.

17. A further issue that was raised by the retail, wine and hospitality sectors was the need to ensure that training requirements for identifying problem gamblers and for the holding of liquor licences address the actual risks posed by different venue operators and different types of venue operator, and their prior learning and track-record. I consider that it would be worthwhile to investigate whether improvements can be made in this area to ensure that the appropriate training is provided and risks managed, but in a more cost effective way for business. Therefore, I recommend that the Ministers of Justice and Internal Affairs report to the Cabinet Policy Committee by 30 November 2007 on whether there are opportunities to improve the targeting of training requirements for identifying problem gamblers and for the holding of liquor licences in a way that addresses the actual risks posed by different venue operators and different types of venue operator, while taking into account their prior learning and track-record.

18. In addition, a number of issues relating to the interaction of the Shop Trading Hours Repeal Act 1990, Holidays Act 2003, and the Sale of Liquor Act 1989 were raised by businesses during the Quality Regulation Review. In particular, issues were raised with respect to the inconsistencies around trading on Easter Sunday. The Ministers of Labour and Justice will report to the Cabinet Business Committee seeking the release of a discussion document on options to address the inconsistencies around trading on restricted trading days by 30 August 2007.

Fast Track Vehicle

19. The companion Cabinet paper, entitled "Quality of Regulation Review – Consolidated Legislative Amendments", sets out the final set of suggested amendments for the proposed Omnibus Bill, and should be read in conjunction with this paper.

Regulatory Process Disciplines

20. A number of changes have been made, or proposed, as part of the Review to strengthen existing disciplines on regulation making. These include:

  • Strengthening Regulatory Impact Assessment requirements – changes to the requirements were agreed by Cabinet in May and October 2006 and came into effect on 1 April 2007 [POL Min (06) 9/13 and CAB Min (06) 40/4C refer];
  • Implementing the business cost calculator – Cabinet has agreed that the Australian standard costing tool (i.e. the ‘business cost calculator') be implemented through a two year pilot programme within government departments [POL Min (06) 9/13 refers]. The Ministry of Economic Development (MED) is working with the Australian Office of Best Practice Regulation to adapt and implement the software for the calculator by March 2008;
  • Ongoing review of the quality of regulations – there are a number of options available for enhancing the ongoing scrutiny of the quality of existing regulations. One option is to establish a Standalone Group that could provide the government with an independent ‘business' perspective on issues concerning the quality of regulation. Possible roles for such a Group include providing an ex-post external assessment of the functioning of the regulation-making processes of government and acting as an independent assessor of regulatory concerns raised by business, and the government's response to these. I recommend that the Minister of Commerce be invited to report further to the Cabinet Policy Committee on options available for the ongoing review of the quality of regulations by 15 October 2007;
  • Promoting the use of regulatory flexibility – MED has prepared guidance material for government policy analysts on how regulatory flexibility can be considered and adopted at the regulatory design stage. This material will be made available on the MED and Policy Development Toolkit websites;
  • Regulatory enforcement - Studies and anecdotes from OECD countries suggest that inadequate attention to compliance often underlies regulatory failure5. MED, in consultation with a number of other government agencies, has developed guidelines on regulatory compliance, entitled "Regulatory Compliance Guidelines". The guidelines are intended for use by policy analysts, Cabinet Ministers and regulators to ensure that compliance is given adequate consideration in the design and implementation of regulatory proposals. This material will be made available on the MED and Policy Development Toolkit websites.

Standards and Conformance

21. A report on the findings of a review of New Zealand's standards and conformance infrastructure was provided to Cabinet in May 2007. The review found that while the infrastructure is fundamentally sound, it faces challenges in terms of the growing complexity of the issues it is confronting and the capacity of New Zealand's relatively small institutions that deal with these issues. Cabinet agreed to a range of proposals that aim to improve the infrastructure and its relationship with regulators (summarised in Annex One). This included the establishment of a Regulatory Forum, the details of which will be reported back to Cabinet by 30 November 2007 [EDC Min (07) 9/3 refers].

Quality Regulation Going Forward

22. The need to focus on the quality of regulation will not end at the conclusion of the Review. The quality of New Zealand's regulatory frameworks and the broader regulatory environment are critical for achieving the Government's economic transformation agenda. Therefore, it is useful to set out a clear strategy that articulates the importance of focusing on quality regulation, and the objectives that this focus should aim to achieve.

23. The Review highlighted that the regulatory environment should be viewed as a complex, dynamic system that is influenced by ever-changing social, economic, cultural and environmental factors. It also highlighted that quality regulation is not determined at one point in time, but can be influenced at all stages in the lifecycle of regulations. The Review showed that the way central government, local government, business and other stakeholders think about and deal with regulation is important in determining whether the objectives of the regulation are achieved.

24. Regulation can have both a positive and a negative impact on economic growth, productivity and innovation. An optimal regulatory environment maximises the positive outcomes, while minimising any negative outcomes. The appropriate approach to quality regulation is not just about ‘reducing regulatory compliance costs for businesses or ‘cutting red-tape'. It is about ensuring regulatory frameworks are based on sound analysis, adhere to the principles of good regulatory practice, and continue to be ‘fit for purpose' over time.

25. Taking these factors into consideration, it is proposed that the government's post-Review approach to ensuring the quality of New Zealand's regulatory environment focus on the following four objectives:

  1. Ensuring the quality of new regulation;
  2. Improving the quality of existing regulation;
  3. Developing a culture of good regulatory practice; and
  4. Building the capability of regulators and of business.

26. Some of the key pieces of work that departments intend to undertake as part of their 2007/08 work programme, aimed at achieving the above objectives, are outlined below. It should be noted that government agencies are undertaking a lot of other work that will have positive outcomes for the quality of New Zealand's regulatory environment that is not discussed below. For example, reporting to Cabinet by 30 November 2007 on the establishment of a Regulatory Forum (as noted in paragraph 21 above).

Regulatory Process Disciplines

27. Regulatory process disciplines play a key role in ensuring the quality of new regulation. They can also help to develop a culture of good regulatory practice and build the capability of regulators and businesses. As noted above, the Review included several projects focused on regulatory process disciplines. The changes to the Regulatory Impact Assessment (RIA) requirements have been in place since 1 April 2007 and some insights from their application have emerged.

28. A number of the features of the strengthened RIA requirements will add significant value around ensuring the quality of new regulation. In particular, the greater focus on ensuring adequate consultation recognises the need for central government, local government and business to work together to identify regulatory problems and effective solutions. This is assisted by the Business Consultation website. Also, the greater focus on ensuring adequate identification and analysis of alternative options highlights that there are a range of potential solutions to regulatory issues that should be considered.

29. As the strengthened RIA requirements are embedded, additional enhancements are expected to be recommended. MED intends to consider possible enhancements to the RIA requirements as part of its 2007/08 work programme, and will report to the Minister of Commerce on the outcome of this work as appropriate. In light of the key findings of the Review, one area that MED will consider is how the RIA requirements apply to the analysis that supports proposals for the implementation, monitoring and review of regulation. For example, it might be appropriate to require more detailed consideration of the existing capability and capacity of possible implementers when considering alternative options for implementation. It may also be useful to think about ways in which regular reviews of the information provided by departments about compliance could be incorporated at the regulatory design stage, to ensure the quality, relevance and reliability of the information over time.

Sector Studies

30. Undertaking detailed analysis of the regulatory frameworks for specific sectors of the economy provides opportunities for improving the quality of existing regulation and building the capability of regulators and business. I propose that MED draw on the lessons learnt from the sector studies undertaken as part of the Review, as well as overseas experience, to develop a programme of annual sector studies. The purpose of the studies will be to identify and address the key regulatory issues affecting the particular sector, including the effects on productivity, innovation and global connectedness of firms. The scope of the studies could extend to any relevant policy issues underlying regulatory concerns, a topic that was explicitly outside the scope of the Review. Studies of particular pieces of cross-sector legislation could also be undertaken as part of the programme (for example, the Hazardous Substances and New Organisms Act 1996).

31. The proactive programme of sector studies will enable more in-depth analysis of the regulatory issues and potential solutions. Strong buy-in and engagement with sector stakeholders and the relevant government agencies will be critical for the success of the studies. I envisage that the timetable for the programme will be confirmed and announced early enough to provide certainty for sector stakeholders and secure their buy-in and commitment. This will also enable relevant government agencies to plan for any resourcing requirements.

32. Possible criteria for selecting sectors or cross-sector legislation for review include:

  • the sector is generally considered to be critical for New Zealand's future economic performance;
  • the sector has (or has the potential for) a high level of global connectedness;
  • for reviews of cross-sector legislation, the legislation has the ability to have a significant influence on productivity and innovation across a number of sectors; and
  • there is strong support and demonstrable buy-in from the sector (or relevant sectors in the case of cross-sector legislation) for participating in a review.

33. I recommend that MED, in consultation with relevant stakeholders, report to the Cabinet Policy Committee by 31 March 2008 with detailed proposals for undertaking the programme of in-depth sector studies. The report will include the proposed criteria for selecting sectors or cross-sector legislation to be studied, as well as recommending a draft programme of studies for 2008-2013.

Fast Track Vehicle

34. The proposed fast track legislative vehicle, or Omnibus Bill, which was progressed as a part of the Review and is discussed further in the companion paper (entitled "Quality of Regulation Review – Consolidated Legislative Amendments") provides an opportunity for improving the quality of existing regulation. I consider that there is value in thinking about whether a fast track legislative vehicle could be used on a regular basis as a permanent mechanism for quickly remedying shortcomings in regulatory frameworks. To this end, it is proposed that the current Omnibus Bill be progressed as a pilot, with the outcome used to inform further thinking about whether to use this mechanism on a permanent basis. MED intends to consider these matters as part of its 2007/08 work programme, and will report to the Minister of Commerce on the outcome of this work as appropriate.

Sharing of Government Held Information

35. A number of the issues raised during the Review related to the way government interacts with business around the delivery of services and the collection of information. To empower globally-competitive firms, the government – both central and local – must operate in the same flexible, responsive and efficient manner as the best performing businesses. The government must take a client-centred approach to dealing with business that demonstrates a real commitment to doing the things that business wants in the way great businesses would deliver them.

36. The implementation of a form of Standard Business Reporting (such as eXtensible Business Reporting Language (XBRL)) is an area where there is potential for the government to make improvements in its interaction with business. It is currently being implemented by a number of other jurisdictions. Standard Business Reporting would, for example, enable businesses to electronically submit their financial data electronically to many government agencies in one transaction and thereby reduce the time and effort spent preparing and filing reports for government. This would make a significant contribution towards addressing a number of the issues raised by business during the Review. It could also contribute to the government's objectives of: improving the quality of existing regulation; developing a culture of good regulatory practice; and building the capability of regulators and of business.

37. Another area where the government can improve its interactions with business is the sharing of non-financial data – for example, a company name change or a business address change. Alongside Standard Business Reporting, it has been proposed that the idea of a wider Centralised Information Repository be investigated. This repository would form a ‘one-stop-shop' where business could submit a range of both financial and non-financial data to government and from there those changes be relayed to the relevant government agencies.

38. The Ministers of ACC, Revenue, Statistics and I have asked relevant officials (led by MED) to commence work in this area, including establishing a project steering group and determining the level of funding that will need to be sought as part of Budget 2008 for delivering the project. A detailed budget bid to undertake key parts of this project will be submitted in December 2007. In conjunction with this, I recommend that officials report to the Cabinet Policy Committee by 30 April 2008 on progress, including details of:

  • the business case, project plan and timetable for implementing Standard Business Reporting;
  • Ministerial sponsorship and Cabinet oversight arrangements;
  • governance arrangements, including the need for the Privacy Commissioner's involvement and other relevant parties;
  • the cross-departmental project team and the vote implications;
  • a high level project plan and timeframe from 2008/09 to 2009/10; and
  • detailed analysis as to the feasibility and/or requirements for the establishment of a Centralised Information Repository.

1     The lifecycle of regulation can be thought of as: problem identification; regulatory design; regulatory decisions; implementation; monitoring and enforcement; and regulatory review.

2    The interface between the Health and Safety in Employment Act 1992 (HSE), the Injury Prevention, Rehabilitation and Compensation Act 2001 and the Hazardous Substances and New Organisms Act 1996, and between building and resource consents processes.

3 Regulatory flexibility includes thinking about ways of reducing the costs of complying with regulation by varying the requirements for different parties, or putting in place alternative compliance options, while still achieving the same policy outcome.  A project to develop guidelines on regulatory flexibility was undertaken as part of the Review, and is discussed further below.

4 A copy of the report is available at the Department of Labour website.

5    OECD (2002), Regulatory Policies in OECD Countries – from interventionism to regulatory governance, ISBN 92-64-19893-8.


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