Brian Fallow on the economy

Brian Fallow is the Herald's Economics Editor

Brian Fallow: Time to clear regulatory muddle

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Productivity Commission highlights poor relationship and interaction between central and local government.

Typically the Government announces, often at Budget time, in high-level terms some tax change it proposes. Photo / Thinkstock
Typically the Government announces, often at Budget time, in high-level terms some tax change it proposes. Photo / Thinkstock

Local government is where a lot of the governing people care about goes on.

Its regulatory responsibilities range widely, from the use of land and other resources under the Resource Management Act, through building consents and standards enforcement, food safety and waste management, to liquor licensing and gambling. To name but a few.

The overwhelming majority of these regulatory functions have been given to local bodies by central Government rather than undertaken on their own initiative.

The result seems to be a build-up of mutual dissatisfaction, to put it no more strongly, with local government accusing central policymakers of indifference to the practical difficulties of what they require and central Government frustrated by patchy and variable implementation of its legislated wishes.

Businesses and households are caught in the muddle. So the Productivity Commission was set the task of inquiring into local government's regulatory performance and identifying ways of improving it.

It included looking at the processes by which regulations are made and principles for allocating responsibilities between central and local government.

Its final report and recommendations were delivered this week.

Local Government New Zealand chief executive Malcolm Alexander said the commission's process had set the standard for how engagement with local government should occur.

"We may not agree with everything that is in there [the report] but we cannot fault the process. They went everywhere and talked to everyone," he said.

By contrast, in the Government's review of the Resource Management Act consultation with local authorities occurred quite late in the piece.

That is the sort of thing the commission is keen to see change.

It advocates a process - embodied in a "partners in regulation" protocol to be agreed between the two levels of government - broadly along the lines of the way tax policy is developed.

The generic tax policy process, in place since the mid-1990s, puts a lot of emphasis on early and meaningful consultation, particularly with tax practitioners, before changes to the tax laws are enacted.

Typically the Government announces, often at Budget time, in high-level terms some tax change it proposes.

A round or two of public consultation follows, so those who will have to work with the new regime can identify practical difficulties and unintended, even perverse, consequences.

Compliance costs and other trade-offs are weighed, potential anomalies and other boundary issues are identified, all before the legislation is drafted and the final select committee deliberation occurs.

It also gives officials opportunities to explain to interested parties the rationale behind proposed reforms.

Such a process is time-consuming and the results are not always satisfactory, but it beats the legislate in haste, repent at leisure approach.

It is an advantage of living in a small country with short lines of communication and apparently draws admiring or envious comments from other tax jurisdictions.

Whether this approach of early warning and extensive consultation can be replicated across the broad gamut of regulatory design remains to be seen. But it is worth a try.

"One key weakness is the poor relationship and interaction between central and local government," the commission says.

"This is, in part, due to the different views and understanding of the roles, obligations and accountabilities of the two spheres of government."

The commission would like to see institutionalised clear and systematic ways of thinking about what the division of labour between central and local government should be.

"Things to consider when choosing who should set the regulatory standards include where the costs and benefits are likely to fall; how those responsible for setting the standards can be held to account for decisions; and the pros and cons of accepting that regulatory outcomes may vary between regions."

Local and national responsibilities can overlap. A clear example is Auckland's housing crisis, which has become an issue of macro-economic importance for the whole country.

Whatever you think of the result of its intervention, to argue that it is none of the Government's business and should be left to Aucklanders is fatuous.

Businesses often complain about inconsistent applications of some regulatory standard from one council to another. But we have to remember that the phrase "local government" masks a huge variety of scale and resources, ranging from the Super City to sparsely populated rural district councils.

Some have to contend with the demographic pressures of a rising population, others with declining and ageing populations constraining their revenue base.

Central government agencies have few senior officials with an in-depth understanding of the government sector, the commission says, while many of the local authorities struggle to maintain the technical capability needed to administer complex regulations.

Consultative mechanisms are needed to identify gaps in resources and capability that may prevent councils from achieving the results central Government is seeking, and how those gaps will be addressed, it says.

On the basis that councils with limited resources have to set priorities for their monitoring and enforcement activities, it is important they do so based on a sound appraisal of where the greatest risks to their communities lie.

Mechanisms for pooling experience among councils and with central government agencies should assist in that process, the commission suggests.

In the end local preferences and priorities will vary.

If they did not, as Alexander points out, if one size fitted all, there would be no need for local government at all.

- NZ Herald

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