• John Luxton
Commerce and Industry

Special guests, ladies and gentlemen. It is great to back again to speak to you as a Minister in a coalition Government. This year I want to talk about the compliance costs caused by Government by regulation, legislation and as a service provider. I wish also to touch on the changing role of producer boards and the need to keep the changes in Government proceeding

Regulatory Costs
In 330 BC Aristotle wrote that the Locrians, who hailed from the north-east of Greece, made their laws in the following manner. Anyone could propose a law provided that they stood on a three-legged stool with a noose around their neck in front of all those affected by the rule. They could then proclaim the law and the gathering would approve or disapprove vocally. If it was disapproved the stool would be kicked away. If approved by the masses the rope would be cut.

At the time of his writing, Aristotle reported that no laws had been made by the Locrians for the previous 200 years, since this very effective compliance cost reduction system had been first introduced.

A key focus for me as Minister of Commerce and Industry is on one of the biggest costs imposed on business and the wider community - and that is: Government.

Since 1987, Government has enacted over 1600 new or amended statutes and over 3,700 new or amended regulations.

I do not need to reiterate for this audience the costs to business of regulation, not only in the narrow sense of the compliance costs of form filling and delays, but also in the silent disincentive effects and market distortions created by Government intervention.

This is perhaps best described as regulatory rather than just compliance cost, but they all have a compliance cost.

Yes, we sometimes need regulation. But all regulation comes at a cost which is all too often not considered or quantified by those who propose and impose it. Often regulations were introduced to try and cure problems of the past, but instead end up stifling progress for the future. Too often we look at legislation from the basis of what we wish to achieve not always analysing the costs involved.

My vision for New Zealand business is a regulatory regime that enables business to focus primarily on wealth creation, not regulatory compliance, and other New Zealanders to get on with life without unnecessary Government constraint.

In an increasingly globalised marketplace it is important for the Government to keep down its costs and impositions on the business sector to ensure that we remain internationally competitive. This is vital to continue to grow our economy, provide more jobs and better incomes

My Ministry, the Ministry of Commerce, is looking hard at this whole area including compliance costs of existing legislation such as OSH, RMA, ECA, Privacy and Human Rights Acts, not to challenge their basic concepts but rather to improve their operation.

I believe we also need to recognise that the monopolies that government legislation imposes on its citizens, such as with pharmacies, conveyancing, optometrists, registered teachers, local government and the marketing of primary produce can also impose a cost. The latter I will explain more fully later.

Then we have market monopolies where the barriers to entry can result in a dominant player or players and higher costs. Eg energy, telecommunications, tariffs. We need to work on these also.

Government itself can also lock up innovation and impose cost in the monopoly provision of services, such as education, health, ACC, energy, airport services etc. These need to be reassessed regularly. These monopolies often have little incentive to improve their quality of performance and focus on the customer.

We need to have greater contestability in more core functions. Interestingly, despite its sensitivity, Government Social Welfare support is increasingly being devolved successfully to private sector organisations

My personal belief is that such areas should continue to be further opened up to competition and with it the innovation, the drive, and Kiwi ingenuity that private enterprise and freedom from political intervention can offer.

In fact in areas such as education we run the risk currently of being captured by the teacher unions and not being able to keep the education of our children up with a changing world. A recent Economist article showed New Zealand education to be relatively high cost and average in quality.

I believe we underestimate the lost opportunities and costs because Government, for whatever reason, has retained monopoly provision of some services and allows the monopolies of others to remain often by statute.

Open economy
In New Zealand we need to continue to open up our economy to keep up with the rest of the world.

The success of our Asian neighbours has generally been in the industries that have been exposed directly to the pressures of the international market place, rather than those that Governments have tried to pick as winners.

There is plenty of evidence in formerly highly protected areas of NZ industry and commerce becoming internationally competitive only when local protection has been withdrawn. (eg textiles)

Import licensing and high tariffs have gone and we will continue to reduce and eliminate tariff protection. NZ could be tariff free within 10 years. This opens up new opportunity

These changes although not always comfortable, force NZ business to continue to innovate and be internationally competitive. An open economy allows New Zealand industry better access to ideas, products, investment and markets

Role of Government
I personally believe the size and role of Government in the New Zealand economy is still too big. We need more private enterprise. At one-third of the economy, the role of Government is still too large. New Zealanders are paying a cost for the excess. Our Asian neighbours are running their Governments at about 20% of GDP.

Over the last decade, we have made much progress by reducing the Governments proportion of the economy, but frankly its not enough. Government spending is still relatively high.

Government doesnt create wealth, it merely transfers it. Unless business creates wealth and prospers then our standard of living will fall and we will lose the ability to have both a socially cohesive and an environmental friendly society.

The question must always be asked, why should the government operate in areas which private enterprise might be more successful? It is important to ensure that private sector innovation and investment is not crowded out by government activities, or that compliance costs are increased unnecessarily. We need to continue to encourage contestability in our public sector services.

Births, deaths and marriages
For example, as well as being too big, governments are risk averse. Currently we are considering computerising the Births Deaths and Marriages registry which is all currently handled on a paper based manual system.

Registering births, deaths and marriages has been a function of central Government for decades, and many still believe that Government is most capable and best to continue to provide this registry service. One would have to question this.

By contrast in the NZ Dairy Industry, the Livestock Improvement Corporation first brought in computer systems in 1968. This register has been continually improved and developed to record over 9 million animals together with a lot of other data. Each year it records over 800,000 new calf births. Our requirement for the human population is only about 50,000 births per year, which is quite simple relatively. Perhaps the LIC could add an additional breed, the Humans, to the existing database. This would not require the same development costs and hassles as starting a new system

The point I am making is that one would have thought that the automation process for a basic function such as Births, Deaths, and Marriages would be simple and have been done long ago preferably by outside contract. But we are still working on trying to get a business plan to stack up on this one. It will eventually come but it again demonstrates the need for Government to get others to provide essential services instead of trying to reinvent the wheel.

Producer Boards
The role and function of producer and marketing boards in overseas countries is coming under the microscope. Governments are taking decisions to remove monopoly exporting powers if they believe these are no longer appropriate.

The Israeli Government has abolished a monopoly citrus marketing organisation, and the South African Government has removed the monopoly exporting powers affecting the horticultural sector. In addition, the World Trade Organisation has a working party investigating State Trading Enterprises - New Zealand marketing boards are covered within the definition of State Trading Enterprises. At the same time there are other external influences that may also have an impact.

Government policy on producer Boards is well known. we will support legitimate marketing structures supported by the majority of producers or growers.

My personal belief is that frankly the producer board structure of the past and the politics of the agricultural industry have been among the biggest impediments to innovation, progress and profitability. They need to continue to evolve. I am happy to receive any evidence or arguments to the contrary.

Personally I question any regulation especially if it is introduced on the belief that it will increase profits.

However one notes the evolution of the Meat and Wool Boards out of marketing and legislation before Parliament will prevent them from re entering that arena.

The Dairy Board has become corporatised over the last 12 months. This has seen further dairy cooperatives merging in the North Island.

My view is that all producer organisations should have a corporate structure, with farmers being able to have a real ownership interest. Then if they are as good at international marketing as they are believed to be by the majority of their growers or producers, legislation will not be needed to protect them.

What I am saying is that farmers and growers need to be asking for change to allow their marketing organisations to prosper on their merits and ensure that their organisations can compete and survive under WTO and other external influences, if that is what they want.

Interestingly in the local dairy industry I note an increasing recognition of the need to allow such change and to move away from the single seller legislation. This would also allow greater investment into adding value to NZ dairy exports to occur in this country. This requires greater innovation, diversity and enterprise to keep New Zealands competitive advantage in this sector.

This wont happen whilst the legislation prevents this from occurring or whilst farmers, armed with whatever information they can obtain, do not believe it is in their best interests. But I know of no monopoly that long term has been successful in the marketplace.

I only hope our farmers and growers realise the risks inherent in the monopolies they still seek Government assistance in providing legislative protection to, in such a rapidly changing global market place.

One vital point I would like to make today is this. Politics will not increase farmer profitability.

The message from the above is that growers and farmers need to ensure their respective Boards are accountable and performing a valuable function in todays highly competitive international trading environment. They need to ask if in fact they are still relevant. If you started today on a green fields basis would you still set up a producer board?

I am a strong supporter of more industry self regulation and less government regulation. Such an approach can be more responsive to innovation and change. Increasingly the centralised Government approach cannot keep up in a rapidly changing world.

So often we have regulated to try to cure the perceived problems of the past, but ended up preventing progress in the future. That approach is increasingly irrelevant in such a rapidly changing world of today.

This evening I have covered only very briefly the issues of regulatory costs, competition, the open economy, the role of government, and producer boards.

I know it is not an easy market for the private sector to operate in out there at the moment. But what we often find in both public and private sectors is that it is the leaner times which are the catalyst for the most innovation, new ideas and improvements in quality, which can lay new foundations for longterm progress.

Nothing ever stands still. While some may think Government has made all the changes it needs to, simply they are wrong.

If we are to continue to make progress in an increasingly competitive world, I believe we need to have less Government and more private enterprise. We need to have less regulation and more quality in regulation and Government spending.

We need to continue to bring more contestability and international best practice to more of the traditional core government activity areas.

Some also believe that producer boards have made all the changes they need to. Simply they are wrong too.

Producer Boards should not remain a barrier to innovation for political reasons, but should change to allow agriculture in New Zealand to remain competitive in a changing world.

We need to work to ensure the we have as efficient an economy and government sector as we can, so that the job of actually creating the wealth is easier.