REDUCING COMPLIANCE COSTS

  • John Luxton
Associate Minister of International Trade

Manor Inn Wellington

Special guests, Ladies and Gentlemen. Around the business community there is increasing concern being expressed about the compliance costs of Central and Local Government interventions. A letter to the PM a week ago highlighted that concern.

"I wonder if you and your fellow Cabinet Ministers, have any idea today at the sheer complexity and cost of meeting all of the Compliance Costs which have been forced on us in the last five or six years.

The enormous screeds of legislation that has been enacted, usually with good intent, has produced an army of bureaucrats who are determined to wield the power the new legislation has given them, and have imposed themselves on businesses to such a degree that every action we consider taking in the rightful course of our business, now almost always requires advice from Solicitors, or specialist consultants."

Within Central Government the reforms in the financial sector with the Public Finance Act and the Fiscal Responsibility Act have made us leaders in the world in being fiscally responsible in operating public services in our country.

There is however still much to be done to improve financial performance in both Central and local Government sectors. Concerns about inefficient performance across both sectors are still widespread. The pressure to improve performance in financial management and efficiency will continue unabated.

As participants in Government it is important to remember that we are spending other peoples money. I would note that I am pleased with some progress being made in your sector with contracting out, although some might say that progress is too slow. When you are spending other peoples money it is important that the best value for the ratepayers dollars spent is achieved. Sometimes that takes hard decisions.

At the same time, as the letter quoted above says, the costs of legal and regulatory intervention continue to mount. These costs can be great both directly and indirectly, and need to be reduced.

That requires innovation. A good example of what can be achieved was the automation of documentation for the Ports of Singapore some years ago. Forty two different forms were in use and agencies all wanted to get their information in total. The dictate was one simple form, which was eventually arrived at, that has led to one of the most efficient and low cost systems in the world.

However, here in New Zealand, we sometimes seem unable to grasp that principle with respect to information gathering for relatively simple issues.

The letter I received inviting me to speak today has me discussing a proposed programme for the reduction of compliance costs by local authorities. The reduction of compliance costs is certainly something which I would like to see on the agenda of local authorities throughout the country. Equally important is to have it on the agenda for central government. That is my immediate priority and I will outline what I am doing in this regard. However, the experiences of central government in reducing compliance costs are, in my view, relevant to local government. Indeed, there is I believe scope for sharing experiences with a view to improving both central and local government rule making, and hence our overall contribution to social, environmental and econom ic welfare.

Let me put the challenge of reducing compliance costs in perspective. Over the last decade the Government has enacted about 1,600 statutes and 3,600 regulations. Admittedly this is not all new law. In some cases the statutes and regulations were repealing old laws and taking them off the statute books. Regrettably, in other cases they were amending existing law, because we didn't get it right first time. However, they do represent a very large number of regulatory interventions by the Government. Each one carrying with it the promise that it will improve the lot of New Zealanders. Each one carrying the threat that it will add to an already high regulatory burden on the economy and society.

Past regulatory decisions by Governments can often look foolish in the light of current thinking.

For example, the Abrasive Blasting Regulations of 1958, which are still on the books, requires that protective helmets carry a distinguishing mark indicating the person by whom it is intended to be used, and no person is allowed to wear a helmet not carrying his mark. I am sure that there is good reason for this practice. However, is it really the Government's role require by law that workers must name their hats? Do we really want to prosecute someone for wearing the wrong hat?

An example of an outdated law is provided by the Distress and Relevin Act 1908, which I understand allows a bailiff to impound the possessions of someone who has not paid their rent, but requires that their possessions be stored not more than three miles from the premises from which they were taken. Presumably when walking or horseback was the main form of transportation this made sense, as the tenant would not have to travel far to recover their property when they paid their rent. How relevant is it today.

An example of an apparently absurd law is provided by the Auctioneers Act 1928, which states that publicans cannot be auctioneers. The policy objective behind this restriction is not at all clear.
However, while we might joke about some of the decisions of past Governments, and particularly those where the joke does not reflect on Ministers still in the public eye, the propensity of Governments over the years to seek to achieve their policy goals through regulating has lead to a situation today where, despite a decade and a half of deregulation, businesses and individuals in our society are subject to a legal behemoth. To take some examples:

One of the regional Manufacturers and Employers Associations has told me that it provides advice on 24 employment related statutes alone to people wanting to set up a business;

A recent issue of Lawlink, a publication put out by a network of independent law firms, identified 32 statutes which the average business need to have regard to, and;

A recent newspaper article quoted Telecom as saying that its solicitors had identified 160 pieces of legislation which affected the company.
We should be concerned about the regulatory obligations we impose on business and society in general. Regulation is intended to achieve important policy objectives, such as maintaining high standards of health, safety and the environment, protecting peoples rights and allowing commerce to be conducted efficiently.

We enact regulation in the expectation that it will be complied with. There is some evidence that the accumulation of so much regulation is creating an `ostrich' effect. To quote from a recent report the Ministry of Commerce has received from KPMG:

``The very small owner managed operations were typically focused on tax compliance, Statistics New Zealand and in some cases Customs as the main areas of cost. Within these small organisations there was little awareness of the obligations they may face under other legislation. In many cases if their professional advisers to not warn them of the requirements, they fail to comply. These businesses receive little support in education about legislation and just hope that they do not fail in any major area''.

The message from this is clear. We might regulate with the best of intentions, but if the regulatory requirements are not understood, and the task of gaining that understanding is too difficult or expensive, we can not be assured that the law is being complied with and therefore the policy intent is being achieved. A complex regulatory system, such as we have in New Zealand today, compounds the problem of understanding at least amongst some sections of the business community, and reduces the incentives to gain that understanding.

We should also be concerned about how we construct regulation because of the costs it can impose as well as the need to `get it right first time'. In essence, the challenge faced by regulators is to construct laws which achieve their policy objectives, and do so in the least cost manner. Some of these costs are obvious - they are costs of obtaining information about a regulatory requirement, understanding that requirement, assessing the extent to which it applies to one's business, preparing the necessary paperwork and maintaining records. They can include the costs of implementing programmes and procedures, installing equipment and training staff. However other costs are less obvious and measurable. Poorly constructed regulations can impede innovation or create unnecessary barriers to trade, investment and economic efficiency.

Finally we need to be concerned about good regulation becoming poor regulation over time. As illustrated by the examples I mentioned earlier, we cannot assume that what made sense to regulators in 1908, or 1928 or even 1978 makes sense today. It is necessary from time to time to revisit the statutes books and review and revoke those regulations which are outdated, unnecessary or poor constructed. New regulation also needs to be monitored to ensure that it continues to achieve its objectives.

What then are we doing at the national level to improve the overall quality of regulatory interventions and ensure that compliance costs are minimised. To put what I am about to cover in context, it is important to recognise that good regulation is a product of good advice and good decision-making. I am sure that you will be familiar with the situation which I am faced with weekly in Cabinet and various Cabinet committees where I, as a Minister, am required to make decisions on complex and often technical matters on the basis of a large number of weighty papers which I have had, at best, a few days to read.

The confidence I have in those decisions depends, to a large extent, on the quality of the advice which is contained in those papers, which in turn is dependent upon my confidence in the processes which have been gone through in developing that advice. With respect to this process a number of things can go wrong:

the objectives of Ministers (or Councillors) in requiring the work to be undertaken may not have been fully understood;

the analysis has failed to clearly identify the problem which the regulatory proposal is intended to address;

all the regulatory and non-regulatory options for addressing the problem have not been identified and considered;

all of the costs and benefits of alternative options have not been considered;

issues of implementation, including the legal practicality of the proposed new law, have not been fully considered;

the information has not been presented to Ministers (or Councillors) in a form which facilitated decision-making.
The first attempt to address some of these problems, specifically from compliance costs perspective, was in 1994, when the Government issues a discussion paper outlining its proposals for a Business Compliance Cost Reduction Framework. The objective of the Framework was to ensure that the compliance costs of any policy proposal were adequately identified and taken into account by departments as they developed policy advice.

A key element of the Framework was a proposed requirement for a Compliance Cost Assessment Statement, which would be made in all Cabinet papers which contained proposals with compliance cost implications. This would be supported by a more detailed Compliance Cost Assessment Report in cases where compliance costs were substantial. This Report would be available to Ministers on demand.

The Compliance Cost Assessment Framework has been in place since November 1995. A review has just been completed of the Framework, and this suggests that those departments in particular which have a close interface with the business sector, have implemented procedures which allow them to more effectively identify the compliance costs associated with the policy proposals which they are developing. The Ministry of Commerce has supported the efforts of individual departments by publishing a set of guidelines for developing compliance cost assessments and reports.

However, since this initiative was taken my thinking has moved on in terms of the scope of the compliance cost problem.

In effect, the Compliance Cost Assessment Framework, while an important staging post, did not complete the journey towards good quality regulation. This is because compliance costs for the purpose of this exercise were defined narrowly as the incidental costs incurred by businesses in fulfilling government requirements. They were distinct from the direct costs of the requirement, such as the amount of tax payable, the information provided or the costs of installing new safety equipment.

The current package of proposals, which I have this week presented to my Cabinet colleagues, is much broader in its scope. It aims to improve the overall quality of regulation, rather than the more narrowly defined compliance costs, and it aims to address existing regulation as well as new regulatory proposals. There are five main elements to this package:

a Code of Good Regulatory Practice

a Generic Policy Development Process

a requirement for Regulatory Impact Statements

a possible legislative instrument, such as a Regulatory Responsibility Act

a possible Regulatory Task Force
The first four elements of the package are aimed to increase the discipline on the regulation making process and make it more transparent. The final element, a Regulatory Task Force, is intended to identify priority areas for Government action aimed at reducing the burden of existing regulation. I would like to briefly discuss each of these elements in turn.

Code of Good Regulatory Practice
This Code sets out the key policy and process principles which should underpin regulation making. They are in a sense a codification of principles which already guide regulation making, but are not applied consistently because they have not been brought together in one document, and have not been given the profile nor supported with the training and education which is necessary if they to be taken seriously. The key principles, which in the Code are supported by guidelines, are:

Efficiency - governments should adopt and maintain only regulations for which the costs on society are justified by the benefits of society, and that achieve objectives at lowest cost, taking into account alternative approaches to regulations;

Effectiveness - regulations should be designed to achieve the desired policy outcomes. In this regard the guidelines include outcomes such as reasonable compliance rates, compatibility with the general body of law and flexibility of regulations and standards;

Transparency - the regulation making process should be transparent to both the decision-makers and those affected by regulation;

Clarity - regulatory processes and requirements should be as understandable and accessible as practicable;

Equity - regulations should be fair and treat those affected equitably.
Generic Policy Development Process
The Generic Policy Development Process is not intended to be prescriptive, but rather to define the desirable features of a regulation-making process. It is modelled on the Generic Tax Policy Process, which is generally regarded as improving the process for developing and implementing new tax proposals. Some of the problems which have been identified in the regulation making process in the past include:

inadequate consultation. This includes both who is consulted and the timing of the consultation. The generic process highlights the benefits of a green paper/white paper approach;

insufficient regard to the legal practicality of regulatory proposals at a sufficiently early stage in the process, including the interface between new regulation and the existing body of law;

insufficient regard to implementation issues before regulation is enacted.
It is intended that departments incorporate the key features of the Generic Policy Development Process, which aim to address these and other process problems, in their own policy development processes.

Regulatory Impact Statement
I noted earlier that one of the problems faced by decision-makers is having the issues laid out in front of them in a clear and coherent way. Equally, those who may be affected by such decisions have a right to know what the basis of that decision is, and that means the information should be accessible to them.

The proposal for Regulatory Impact Statements is intended to address these issues through providing, in summary form, information which allows Cabinet and others to efficiently evaluate the consistency of regulatory proposals with the principles embodied in the Code of Good Regulatory Practice. It is envisaged that the Regulatory Impact Statements, which would be attached to Cabinet papers, would contain:

a statement of the nature and magnitude of the problem to be addressed;

a statement of the public policy objective;

a statement of possible options, both regulatory and non regulatory;

a statement of the net benefit of the proposal, including the total regulatory costs and benefits of the proposal and other possible options;

a statement of the consultative programme which has been undertaken.
Regulatory Responsibility Act
The concept of a Regulatory Responsibility Act has been canvassed by business groups such as the Manufacturers' Federation and Employers' Federation. The purpose of such an Act would be to increase the transparency of the regulation making process by requiring Ministers to certify that regulatory proposals have either complied with good regulatory principles and processes, or to identify where they have diverged. As such a Regulatory Responsibility Act would be analogous to the Fiscal Responsibility Act. I am personally attracted to a legislative instrument to instil greater discipline on those who propose regulation, although I recognise that a lot of detailed design work will need to be undertaken.

Regulatory Task Force
The final element of the package is the concept of a Regulatory Task Force. I am not looking for a decision from my colleagues to establish such a task force, but rather to agree that further work be done on the concept. Essentially what I want is an efficient mechanism to identify those areas of regulation which should be subject to review, with a view to reducing the overall regulatory burden on business. The United Kingdom has adopted the task force concept, based on private sector membership, and the approach seems to have worked for them. The UK model will be one which we will be considering further.

Other initiatives
Approaches such as the task force for addressing the costs of existing regulation should be seen in the context of other initiatives which are already underway. One such initiative is the Compliance Cost Inquiry which is being conducted by the Commerce Select Committee. Another is the set of reviews which the Ministry of Commerce has initiated into the compliance costs associated with specific areas of regulation. These include the Resource Management Act, Building Act and Occupational Health and Safety Act. The work on the Resource Management Act is the most advanced. It is an area of significant compliance cost for business. It also an area where the impact on the business sector is particularly variable.

The major impact of the Act on the business sector arises from the need to obtain resource consents for many business activities. The operation of the resource consent process therefore is of vital interest to the business sector and an important determinant of the level of the costs arising from the Act.

More than half of the businesses interviewed in a recent study considered that the resource consent process went well from their point of view. It was also considered that consent processes have improved and are continuing to improve due to clarification, internal business process improvement and the existence of precedents and case law.

However there were also eleven of the 73 businesses who considered that the resource consent process was poor from their viewpoint and 23 were indifferent or did not have a view about the consent process they had been involved in. Local Government New Zealand can do much to help your members that will assist in making the resource consent process work better for all participants.

The study indicated that there were a number of particular issues in relating to the resource consent process where lessons could be learnt.

There was considerable uncertainty about what information needed to be provided and the costs of providing information was of concern. In general public processes were considered worthwhile but the telecommunication sector had experienced particular difficulties.

A significant number firms interviewed reported that competitors had been involved in making submissions on their resource consents which raises significant question as to whether the RMA is being used inappropriately to stifle other competition. There have also been reports of neighbours extracting payments and lobby groups using the Act for political purposes.

While the cost of delays and timeliness of processing consents was a significant issue for participants more than half the participants indicated that statutory timeframes in the Act had no impact or were ineffective in improving timeliness of resource consent processes.

There was a wide variation in performance across local councils. This result means that where problems were identified the respondents were not saying that the problems applied to all councils and in some cases it appeared performance varied even within the same Council.

Particular issues included:

A perceived lack of sensitivity to commercial requirements.

The need for council staff to adhere to agreed time frames.

Greater assistance with minimising compliance costs and facilitating consultation.

Questions about the reasonableness of local charges and

Business frustration's at not being able to review conditions imposed.
Thirty two businesses felt that consent authorities were adequately meeting their responsibilities under the Act and another 29 were either indifferent or unsure whether consent authorities were meeting their responsibilities. Twelve businesses considered that authorities were not adequately meeting their responsibilities.

The results of the study demonstrate that the impact of the Resource Management Act on business varies markedly depending on the business's own processes and the operation of particular local government processes. The study did not identify any particular sector, size of business or local authority that had always had good or bad experiences with the Act.

I think that there is much that officials and Local Government New Zealand and its members can do to make the RMA work better for all concerned and reduce the costs for all of us.

Conclusion
I have covered in this address what we in Government are doing or considering doing to reduce compliance costs and improve the overall quality of regulation. Local Government has a similar challenge in front of it. Like Central Government, Local Government is now subject to quite significant fiscal disciples under the financial management provisions of the Local Government Act. Under the Resource Management Act it must also assess the costs and benefits of regulation. I would like to suggest that, in common with Central Government, it now considers going to the next step and consider what sort of disciplines it should apply to its regulatory functions in general. I am sure that the Ministry of Commerce would be more than happy to assist in any deliberations you might have in this regard. It is important for us all to make sure we facilitate rather than inhibit economic growth. Thankyou.Manor Inn Wellington

Special guests, Ladies and Gentlemen. Around the business community there is increasing concern being expressed about the compliance costs of Central and Local Government interventions. A letter to the PM a week ago highlighted that concern.

"I wonder if you and your fellow Cabinet Ministers, have any idea today at the sheer complexity and cost of meeting all of the Compliance Costs which have been forced on us in the last five or six years.

The enormous screeds of legislation that has been enacted, usually with good intent, has produced an army of bureaucrats who are determined to wield the power the new legislation has given them, and have imposed themselves on businesses to such a degree that every action we consider taking in the rightful course of our business, now almost always requires advice from Solicitors, or specialist consultants."

Within Central Government the reforms in the financial sector with the Public Finance Act and the Fiscal Responsibility Act have made us leaders in the world in being fiscally responsible in operating public services in our country.

There is however still much to be done to improve financial performance in both Central and local Government sectors. Concerns about inefficient performance across both sectors are still widespread. The pressure to improve performance in financial management and efficiency will continue unabated.

As participants in Government it is important to remember that we are spending other peoples money. I would note that I am pleased with some progress being made in your sector with contracting out, although some might say that progress is too slow. When you are spending other peoples money it is important that the best value for the ratepayers dollars spent is achieved. Sometimes that takes hard decisions.

At the same time, as the letter quoted above says, the costs of legal and regulatory intervention continue to mount. These costs can be great both directly and indirectly, and need to be reduced.

That requires innovation. A good example of what can be achieved was the automation of documentation for the Ports of Singapore some years ago. Forty two different forms were in use and agencies all wanted to get their information in total. The dictate was one simple form, which was eventually arrived at, that has led to one of the most efficient and low cost systems in the world.

However, here in New Zealand, we sometimes seem unable to grasp that principle with respect to information gathering for relatively simple issues.

The letter I received inviting me to speak today has me discussing a proposed programme for the reduction of compliance costs by local authorities. The reduction of compliance costs is certainly something which I would like to see on the agenda of local authorities throughout the country. Equally important is to have it on the agenda for central government. That is my immediate priority and I will outline what I am doing in this regard. However, the experiences of central government in reducing compliance costs are, in my view, relevant to local government. Indeed, there is I believe scope for sharing experiences with a view to improving both central and local government rule making, and hence our overall contribution to social, environmental and econom ic welfare.

Let me put the challenge of reducing compliance costs in perspective. Over the last decade the Government has enacted about 1,600 statutes and 3,600 regulations. Admittedly this is not all new law. In some cases the statutes and regulations were repealing old laws and taking them off the statute books. Regrettably, in other cases they were amending existing law, because we didn't get it right first time. However, they do represent a very large number of regulatory interventions by the Government. Each one carrying with it the promise that it will improve the lot of New Zealanders. Each one carrying the threat that it will add to an already high regulatory burden on the economy and society.

Past regulatory decisions by Governments can often look foolish in the light of current thinking.

For example, the Abrasive Blasting Regulations of 1958, which are still on the books, requires that protective helmets carry a distinguishing mark indicating the person by whom it is intended to be used, and no person is allowed to wear a helmet not carrying his mark. I am sure that there is good reason for this practice. However, is it really the Government's role require by law that workers must name their hats? Do we really want to prosecute someone for wearing the wrong hat?

An example of an outdated law is provided by the Distress and Relevin Act 1908, which I understand allows a bailiff to impound the possessions of someone who has not paid their rent, but requires that their possessions be stored not more than three miles from the premises from which they were taken. Presumably when walking or horseback was the main form of transportation this made sense, as the tenant would not have to travel far to recover their property when they paid their rent. How relevant is it today.

An example of an apparently absurd law is provided by the Auctioneers Act 1928, which states that publicans cannot be auctioneers. The policy objective behind this restriction is not at all clear.
However, while we might joke about some of the decisions of past Governments, and particularly those where the joke does not reflect on Ministers still in the public eye, the propensity of Governments over the years to seek to achieve their policy goals through regulating has lead to a situation today where, despite a decade and a half of deregulation, businesses and individuals in our society are subject to a legal behemoth. To take some examples:

One of the regional Manufacturers and Employers Associations has told me that it provides advice on 24 employment related statutes alone to people wanting to set up a business;

A recent issue of Lawlink, a publication put out by a network of independent law firms, identified 32 statutes which the average business need to have regard to, and;

A recent newspaper article quoted Telecom as saying that its solicitors had identified 160 pieces of legislation which affected the company.
We should be concerned about the regulatory obligations we impose on business and society in general. Regulation is intended to achieve important policy objectives, such as maintaining high standards of health, safety and the environment, protecting peoples rights and allowing commerce to be conducted efficiently.

We enact regulation in the expectation that it will be complied with. There is some evidence that the accumulation of so much regulation is creating an `ostrich' effect. To quote from a recent report the Ministry of Commerce has received from KPMG:

``The very small owner managed operations were typically focused on tax compliance, Statistics New Zealand and in some cases Customs as the main areas of cost. Within these small organisations there was little awareness of the obligations they may face under other legislation. In many cases if their professional advisers to not warn them of the requirements, they fail to comply. These businesses receive little support in education about legislation and just hope that they do not fail in any major area''.

The message from this is clear. We might regulate with the best of intentions, but if the regulatory requirements are not understood, and the task of gaining that understanding is too difficult or expensive, we can not be assured that the law is being complied with and therefore the policy intent is being achieved. A complex regulatory system, such as we have in New Zealand today, compounds the problem of understanding at least amongst some sections of the business community, and reduces the incentives to gain that understanding.

We should also be concerned about how we construct regulation because of the costs it can impose as well as the need to `get it right first time'. In essence, the challenge faced by regulators is to construct laws which achieve their policy objectives, and do so in the least cost manner. Some of these costs are obvious - they are costs of obtaining information about a regulatory requirement, understanding that requirement, assessing the extent to which it applies to one's business, preparing the necessary paperwork and maintaining records. They can include the costs of implementing programmes and procedures, installing equipment and training staff. However other costs are less obvious and measurable. Poorly constructed regulations can impede innovation or create unnecessary barriers to trade, investment and economic efficiency.

Finally we need to be concerned about good regulation becoming poor regulation over time. As illustrated by the examples I mentioned earlier, we cannot assume that what made sense to regulators in 1908, or 1928 or even 1978 makes sense today. It is necessary from time to time to revisit the statutes books and review and revoke those regulations which are outdated, unnecessary or poor constructed. New regulation also needs to be monitored to ensure that it continues to achieve its objectives.

What then are we doing at the national level to improve the overall quality of regulatory interventions and ensure that compliance costs are minimised. To put what I am about to cover in context, it is important to recognise that good regulation is a product of good advice and good decision-making. I am sure that you will be familiar with the situation which I am faced with weekly in Cabinet and various Cabinet committees where I, as a Minister, am required to make decisions on complex and often technical matters on the basis of a large number of weighty papers which I have had, at best, a few days to read.

The confidence I have in those decisions depends, to a large extent, on the quality of the advice which is contained in those papers, which in turn is dependent upon my confidence in the processes which have been gone through in developing that advice. With respect to this process a number of things can go wrong:

the objectives of Ministers (or Councillors) in requiring the work to be undertaken may not have been fully understood;

the analysis has failed to clearly identify the problem which the regulatory proposal is intended to address;

all the regulatory and non-regulatory options for addressing the problem have not been identified and considered;

all of the costs and benefits of alternative options have not been considered;

issues of implementation, including the legal practicality of the proposed new law, have not been fully considered;

the information has not been presented to Ministers (or Councillors) in a form which facilitated decision-making.
The first attempt to address some of these problems, specifically from compliance costs perspective, was in 1994, when the Government issues a discussion paper outlining its proposals for a Business Compliance Cost Reduction Framework. The objective of the Framework was to ensure that the compliance costs of any policy proposal were adequately identified and taken into account by departments as they developed policy advice.

A key element of the Framework was a proposed requirement for a Compliance Cost Assessment Statement, which would be made in all Cabinet papers which contained proposals with compliance cost implications. This would be supported by a more detailed Compliance Cost Assessment Report in cases where compliance costs were substantial. This Report would be available to Ministers on demand.

The Compliance Cost Assessment Framework has been in place since November 1995. A review has just been completed of the Framework, and this suggests that those departments in particular which have a close interface with the business sector, have implemented procedures which allow them to more effectively identify the compliance costs associated with the policy proposals which they are developing. The Ministry of Commerce has supported the efforts of individual departments by publishing a set of guidelines for developing compliance cost assessments and reports.

However, since this initiative was taken my thinking has moved on in terms of the scope of the compliance cost problem.

In effect, the Compliance Cost Assessment Framework, while an important staging post, did not complete the journey towards good quality regulation. This is because compliance costs for the purpose of this exercise were defined narrowly as the incidental costs incurred by businesses in fulfilling government requirements. They were distinct from the direct costs of the requirement, such as the amount of tax payable, the information provided or the costs of installing new safety equipment.

The current package of proposals, which I have this week presented to my Cabinet colleagues, is much broader in its scope. It aims to improve the overall quality of regulation, rather than the more narrowly defined compliance costs, and it aims to address existing regulation as well as new regulatory proposals. There are five main elements to this package:

a Code of Good Regulatory Practice

a Generic Policy Development Process

a requirement for Regulatory Impact Statements

a possible legislative instrument, such as a Regulatory Responsibility Act

a possible Regulatory Task Force
The first four elements of the package are aimed to increase the discipline on the regulation making process and make it more transparent. The final element, a Regulatory Task Force, is intended to identify priority areas for Government action aimed at reducing the burden of existing regulation. I would like to briefly discuss each of these elements in turn.

Code of Good Regulatory Practice
This Code sets out the key policy and process principles which should underpin regulation making. They are in a sense a codification of principles which already guide regulation making, but are not applied consistently because they have not been brought together in one document, and have not been given the profile nor supported with the training and education which is necessary if they to be taken seriously. The key principles, which in the Code are supported by guidelines, are:

Efficiency - governments should adopt and maintain only regulations for which the costs on society are justified by the benefits of society, and that achieve objectives at lowest cost, taking into account alternative approaches to regulations;

Effectiveness - regulations should be designed to achieve the desired policy outcomes. In this regard the guidelines include outcomes such as reasonable compliance rates, compatibility with the general body of law and flexibility of regulations and standards;

Transparency - the regulation making process should be transparent to both the decision-makers and those affected by regulation;

Clarity - regulatory processes and requirements should be as understandable and accessible as practicable;

Equity - regulations should be fair and treat those affected equitably.
Generic Policy Development Process
The Generic Policy Development Process is not intended to be prescriptive, but rather to define the desirable features of a regulation-making process. It is modelled on the Generic Tax Policy Process, which is generally regarded as improving the process for developing and implementing new tax proposals. Some of the problems which have been identified in the regulation making process in the past include:

inadequate consultation. This includes both who is consulted and the timing of the consultation. The generic process highlights the benefits of a green paper/white paper approach;

insufficient regard to the legal practicality of regulatory proposals at a sufficiently early stage in the process, including the interface between new regulation and the existing body of law;

insufficient regard to implementation issues before regulation is enacted.
It is intended that departments incorporate the key features of the Generic Policy Development Process, which aim to address these and other process problems, in their own policy development processes.

Regulatory Impact Statement
I noted earlier that one of the problems faced by decision-makers is having the issues laid out in front of them in a clear and coherent way. Equally, those who may be affected by such decisions have a right to know what the basis of that decision is, and that means the information should be accessible to them.

The proposal for Regulatory Impact Statements is intended to address these issues through providing, in summary form, information which allows Cabinet and others to efficiently evaluate the consistency of regulatory proposals with the principles embodied in the Code of Good Regulatory Practice. It is envisaged that the Regulatory Impact Statements, which would be attached to Cabinet papers, would contain:

a statement of the nature and magnitude of the problem to be addressed;

a statement of the public policy objective;

a statement of possible options, both regulatory and non regulatory;

a statement of the net benefit of the proposal, including the total regulatory costs and benefits of the proposal and other possible options;

a statement of the consultative programme which has been undertaken.
Regulatory Responsibility Act
The concept of a Regulatory Responsibility Act has been canvassed by business groups such as the Manufacturers' Federation and Employers' Federation. The purpose of such an Act would be to increase the transparency of the regulation making process by requiring Ministers to certify that regulatory proposals have either complied with good regulatory principles and processes, or to identify where they have diverged. As such a Regulatory Responsibility Act would be analogous to the Fiscal Responsibility Act. I am personally attracted to a legislative instrument to instil greater discipline on those who propose regulation, although I recognise that a lot of detailed design work will need to be undertaken.

Regulatory Task Force
The final element of the package is the concept of a Regulatory Task Force. I am not looking for a decision from my colleagues to establish such a task force, but rather to agree that further work be done on the concept. Essentially what I want is an efficient mechanism to identify those areas of regulation which should be subject to review, with a view to reducing the overall regulatory burden on business. The United Kingdom has adopted the task force concept, based on private sector membership, and the approach seems to have worked for them. The UK model will be one which we will be considering further.

Other initiatives
Approaches such as the task force for addressing the costs of existing regulation should be seen in the context of other initiatives which are already underway. One such initiative is the Compliance Cost Inquiry which is being conducted by the Commerce Select Committee. Another is the set of reviews which the Ministry of Commerce has initiated into the compliance costs associated with specific areas of regulation. These include the Resource Management Act, Building Act and Occupational Health and Safety Act. The work on the Resource Management Act is the most advanced. It is an area of significant compliance cost for business. It also an area where the impact on the business sector is particularly variable.

The major impact of the Act on the business sector arises from the need to obtain resource consents for many business activities. The operation of the resource consent process therefore is of vital interest to the business sector and an important determinant of the level of the costs arising from the Act.

More than half of the businesses interviewed in a recent study considered that the resource consent process went well from their point of view. It was also considered that consent processes have improved and are continuing to improve due to clarification, internal business process improvement and the existence of precedents and case law.

However there were also eleven of the 73 businesses who considered that the resource consent process was poor from their viewpoint and 23 were indifferent or did not have a view about the consent process they had been involved in. Local Government New Zealand can do much to help your members that will assist in making the resource consent process work better for all participants.

The study indicated that there were a number of particular issues in relating to the resource consent process where lessons could be learnt.

There was considerable uncertainty about what information needed to be provided and the costs of providing information was of concern. In general public processes were considered worthwhile but the telecommunication sector had experienced particular difficulties.

A significant number firms interviewed reported that competitors had been involved in making submissions on their resource consents which raises significant question as to whether the RMA is being used inappropriately to stifle other competition. There have also been reports of neighbours extracting payments and lobby groups using the Act for political purposes.

While the cost of delays and timeliness of processing consents was a significant issue for participants more than half the participants indicated that statutory timeframes in the Act had no impact or were ineffective in improving timeliness of resource consent processes.

There was a wide variation in performance across local councils. This result means that where problems were identified the respondents were not saying that the problems applied to all councils and in some cases it appeared performance varied even within the same Council.

Particular issues included:

A perceived lack of sensitivity to commercial requirements.

The need for council staff to adhere to agreed time frames.

Greater assistance with minimising compliance costs and facilitating consultation.

Questions about the reasonableness of local charges and

Business frustration's at not being able to review conditions imposed.
Thirty two businesses felt that consent authorities were adequately meeting their responsibilities under the Act and another 29 were either indifferent or unsure whether consent authorities were meeting their responsibilities. Twelve businesses considered that authorities were not adequately meeting their responsibilities.

The results of the study demonstrate that the impact of the Resource Management Act on business varies markedly depending on the business's own processes and the operation of particular local government processes. The study did not identify any particular sector, size of business or local authority that had always had good or bad experiences with the Act.

I think that there is much that officials and Local Government New Zealand and its members can do to make the RMA work better for all concerned and reduce the costs for all of us.

Conclusion
I have covered in this address what we in Government are doing or considering doing to reduce compliance costs and improve the overall quality of regulation. Local Government has a similar challenge in front of it. Like Central Government, Local Government is now subject to quite significant fiscal disciples under the financial management provisions of the Local Government Act. Under the Resource Management Act it must also assess the costs and benefits of regulation. I would like to suggest that, in common with Central Government, it now considers going to the next step and consider what sort of disciplines it should apply to its regulatory functions in general. I am sure that the Ministry of Commerce would be more than happy to assist in any deliberations you might have in this regard. It is important for us all to make sure we facilitate rather than inhibit economic growth. Thankyou.