SPEECH TO THE NEW ZEALAND MASTER BUILDERS FEDERATION INC.

  • John Luxton
Commerce

Hamilton

Special guest, ladies and gentlemen. It is a pleasure to be here today to open your conference.

I want to touch on a few issues today including compliance and regulatory cost, the role of Government, and some specific issues affecting your industry

Resource Management Act (RMA)
I believe some people are abusing the Resource Management Act. There is a growing concern from significant groups of industry and business, including the building sector, over frustration's with the RMA.

There appears to be an increasing prevalence of vexatious objections being raised to a wide range of private and business projects including the related areas of property development and private residential construction.

Indeed in Wellington there have been reports of neighbours accepting substantial payments from people who wish to apply for consents in order that they will not object. This is not good. The intention of the Act was not to increase business costs or provide a tolling option for objectors.

There are further concerns with the RMA being used by competitors to prevent progress and to try to obstruct plans of opponents as much as possible. For example often the major objectors to supermarket developments are their competitors, who's only interest is anti competitive rather than resource management.

One is also aware of similar abuse by lobby groups for political purposes.

It leads to the RMA being attacked because it is being abused by such people and groups.

In addition we have further concerns such as the time and delays experienced in obtaining building and other consents, the level and type of fees being charged by some local authorities, variations in interpretations of the Act, and inconsistent rulings to name a few.

New Zealand families should not have to pay more for their washing machine because there are delays getting a resource consent to build additional storage for the manufacturer.

Home owners should not have to pay off their neighbour in order to build on an extra bedroom. And competition should not be prevented because a competitor objects to resource consents.

The building industry is often between a 4by2 and a hard place in this area.

As a result my Commerce Ministry has been undertaking some research and consultation with business over the nature and extent of the various concerns and issues raised.

It appears that few in industry are questioning the overall objectives and basis of the legislation but that many complaints relate to the overall performance of some local authorities, particularly where interpretation or implementation of the RMA is involved.

Increasingly, companies operating over a variety of Territorial Local Authorities are highlighting inconsistencies around New Zealand.

Valid concerns over certain aspects of the RMA are being made. Once the Ministry has completed its analysis, a firmer course may then be set towards attempting to resolve some of the problems and issues.

Industry Activity Levels
Despite problems with the RMA, the building industry is in pretty good heart. Strong real growth has been experienced in building activity over the last three to four years and further, but slower, real growth is forecast through to the year 2000. One notes however considerable variation around the country.

Your industry is an important industry and a vital part of New Zealand's infrastructure. Not only do you protect our major physical assets from the elements but also provide shelter for our increasing population.

In fact some, particularly exporters, might say that the Building industry has been in too good heart, contributing to increased CPI figures. I believe it is important that we have an appropriate measure of inflation to address these concerns. However I would note that in the latest CPI figures that construction costs fell by 1.1 percent this quarter, the largest quarterly fall since the series began in March 1981.

However stability in the building industry has been assisted by monetary policy (when activity levels are growing too strongly the Reserve Bank raises interest rates) which has tended to reduce the extent of the boom/bust cycle in the industry. This has been of great benefit to consumers and builders alike. (boom : contractors, materials and labour are virtually unobtainable and inflation in the industry is high. bust: builders underemployed, underutilization of materials productive capacity and high worker unemployment levels, many good staff lost to the industry)

Industry Training
But I understand the growth achieved is resulting in some staff shortages particularly in roading and structural engineers, quantity surveyors and in the trades; blocklayers and interior systems workers.

Training and education is very important in any industry to ensure that adequately qualified and competent people are available. Industry Training Organisations were set up to assist this process. Your ITO the Building & Construction Industry Training Organisation (BCITO) is funding a substantial training programme for interior systems people and is also hiring out interior systems apprentices to contractors.

I hope that your can continue to make progress to ensure that New Zealanders demands for builders can be met into the next century.

Regulatory Costs
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.

We need to focus on a regulatory regime that enables business to concentrate 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 as mentioned previously.

Perhaps the best system to keep compliance and regulatory cost under control was that reported by Aristotle in 330BC. He 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.

Perhaps the building industry could send a supply of three legged wooden stools to Wellington!

Monopolies
As well as what are commonly known as compliance costs, 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.

I note that your industry does note have compulsorily occupational regulation but instead has a voluntary quality assurance system, back up by building standards, driven by the consumer rather than politicians. This is a far more progressive way of doing things. 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

Earlier this week I raised the issue of Government spending more taxpayers money computerising our Births Deaths and Marriages registry which is all currently handled on a paper based manual system. My suggestion was that instead of government reinventing the wheel why not contract the provision of this service to the dairy industry. They have been running a computerised births, deaths and mating register for 30 years.

The Livestock Improvement Corporations 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

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 along with other so called ``core'' functions. Afterall we have an American owned company, EDS, providing the computer systems fro the Inland Revenue Dept.

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 Government's proportion of the economy, but frankly it's not enough. Government spending is still relatively high.

Government doesn't 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.

Interestingly the Building sector has continued to develop and grow despite the Government reducing its involvement directly in this area.

Security Of Payment
However Government still does have a role on some aspects of your industry.

Like many industries I understand the Federation is concerned about security of payment and what the Government is doing about it. Problems of payment are not unique to the building industry. It is a very complex issue. It is a problem for anyone who does work on credit.

However, a builder often has little choice but to do work on credit and once his materials and services are included in a building they are, in law, part of the land and they cannot be removed from the site and there is often difficulty in getting paid for work done.

Builders have low priority in case of receivership normally. There used to be a Liens Act. This Act was repealed in 1988 by the then Labour Government. The Act enabled builders to put a lien on a property and hence provided them with leverage, when necessary, to enable them to get paid for work done. Industry security of payment legislation was passed in the UK last year.

The Ministry is undertaking an investigation into the industry's security of payment problems. We surveyed Master Builders and subcontractors last year on the matter.

The survey showed that builders had concerns in respect to:

clients having the full funding to carry out projects;
payment for goods and services being provided before transfer ownership of property is carried out;
the resolution of on-site disputes; and
the security of retention monies.
Our team is currently determining what action, if any, is appropriate. It is clear, however, there will be no "quick fix" solutions to the problems identified.

Building Act 1991
This act, along with a number of others is to be reviewed by my Minister to asses its impact on business costs and competitiveness. I am expecting a report from officials by March 1998.

Standards New Zealand
Standards are an important underpinning of regulation in the building industry - it is important to set clear priorities and secure the necessary funding for the development of the standards. There are some unresolved issues relating to funding of Standards, particularly contributions form the BIA. I would hope these issues can be resolved sensibly.

Conclusion
Today I have covered only briefly some of the issue involving government, business and your industry in particular.

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.

We need to work to ensure the we have as efficient an economy and government sector as we can, so that the job of building a better nation is easier. Thankyou.