Cutting Red Tape: A 2015 update on NZ regulations

New Zealand ranks second in the world for ease of doing business, according to the latest World Bank Group Doing Business report. However, privately owned businesses are grappling with the ever growing volume and complexity of regulations. Backbone talks to Rodney Craig and Andrew Ryan. Businesses have been voicing their concern about the costs of poor quality regulations for years. Now at last the issue is getting the attention it deserves. The Rules Reduction Task Force and The New Zealand Initiative have both recently released reports that describe the extent of the problem and suggest some possible solutions.

Property-related issues and fixes

In September of this year the Rules Reduction Taskforce released The Loopy Rules Report: New Zealanders tell their stories. The Taskforce was established in 2014 by the Minister of Local Government and tasked with engaging with members of the public about rules relating to property.

The Loopy Rules Report arises out of a series of community meetings run by the Taskforce and subsequent submissions to it. It highlights a number of recurring issues with New Zealand regulations, including that regulations:

  • are impractical;
  • set standards that cannot be achieved;
  • are inflexible;
  • can be interpreted in many ways;
  • cannot be updated as circumstances change; or
  • cost more to comply with than the benefits the regulation provides.

The Loopy Rules Report includes a list of ten ‘fixes’ to the problems raised. Most of these are specific to property regulation and include:

  • making it easier to obtain a building consent or resource consent;
  • lifting skill levels in the building sector; and
  • reducing the cost of consenting fees.

More generic fixes include:

  • making the rules clear;
  • establishing a customer focus in the public sector; and
  • introducing a stakeholder engagement approach to developing local government policies and regulations.

Addressing additional areas of concern

The New Zealand Initiative (TNZI) also released a regulation report in 2015. The report, Reducing Unnecessary Costs: Responding to the Prime Minister’s Challenge, was spurred by concerns raised by TNZI members, and by a request from the Prime Minister for members to provide a list of regulations that they felt needed modification. While The Loopy Rules Report focuses on property-related rules (two-thirds of submissions were on the Building Act 2004 and the Resource Management Act 1991), the report of TNZI is focused on commercial regulation. Included in the list are the Copyright Act 1994, the Consumer Guarantees Act 1993 and the Electricity (Low Fixed Charge Tariff Option for Domestic Consumers) Regulations 2004. Ten tax areas are also identified as troublesome, which can be broadly categorised as barriers to protection to capital markets/costs associated with raising funds in New Zealand and tax simplification measures to enhance the ease of doing business. The TNZI report also addresses problems with the New Zealand regulatory process, drawing on an earlier report of the New Zealand Productivity Commission (NZPC), a 2009 proposal of the Regulatory Responsibility Taskforce, and on TNZI member responses. It provides a useful analysis of where things are going wrong, and what can be done to fix regulation in New Zealand.

Bringing solutions

The New Zealand Initiative suggests that a good place to start is giving a more effective ‘voice’ to those being regulated. One way to do this is to give greater protection to the property rights of those who are regulated, as well as providing these people or entities with greater recourse to remedies for poor regulation.

"The report by The New Zealand Initiative provides a useful analysis on where things are going wrong, and what can be done to fix regulation in New Zealand."

In response to the view that taxpayers face significant costs and undue administrative burdens in complying with tax obligations, the Taxation (Transformation: First Phase Simplification and Other Measures) Bill, introduced on 30 June, recently passed its first reading and has since been referred to the Finance and Expenditure Committee for consideration and public consultation.

The bill includes measures to help prepare the way for the staged roll-out of Inland Revenue’s Business Transformation programme, by removing some of the obstacles and making New Zealand’s tax administration simpler for taxpayers. These include proposals to allow electronic communication technologies to be used for certain Inland Revenue communications. Other measures are aimed at simplifying tax rules to make taxpayers’ lives easier, such as making the current rules for employee share schemes less onerous for participating employees.

Further provisions, including changes to allow earlier tax refunds for certain taxpayers, are intended to improve interactions with Inland Revenue and deliver a better service to taxpayers.

A work in progress

The above reports make it clear that more work needs to be done to improve the quality of regulation in New Zealand, and to reduce the burden on the privately owned businesses that are the backbone of our economy. Let’s hope at least some of the reports’ proposed solutions are picked up.

Where are things going wrong?

1. Too much regulation Between 2012 and 2014 New Zealand produced over four times as many statutes as the United Kingdom. The TNZI report concludes that in many cases the cost of increased legislation outweighs its benefits and that increased volumes of legislation make New Zealand an unpredictable place to do business.2. Regulation in the wrong place Primary legislation in New Zealand tends to be more detailed than primary legislation in comparable jurisdictions, with less detail left for secondary or tertiary legislation. The report argues that this makes regulations in New Zealand inflexible and difficult to change.3. Quality Control In its 2014 report, the NZPC notes that New Zealand does a poor job of quality control in the regulatory process. Not enough attention is paid to comparing the value of regulation with the value of non-regulatory options, or to assessing the efficiency and costs of regulation.4. Regulation is not given systematic attention The NZPC report also points out that, unlike taxation, government spending and monetary policy, New Zealand’s regulatory system has no single body undertaking a stewardship role. Instead, regulation is siloed, with a number of individual agencies having regulatory responsibilities. This leads to a lack of oversight and numerous different approaches to regulation.

To find out more about how the issues in the above reports relate to your business, contact Rodney Craig. Or for tax advice, contact Andrew Ryan.

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