Mai Chen: Look before you legislate should be the golden rule

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Lawmakers must consider the impacts, financial or otherwise, of poor decisions. Photo / Thinkstock
Lawmakers must consider the impacts, financial or otherwise, of poor decisions. Photo / Thinkstock

Today's "zero" Budget demonstrates the importance of ensuring that good quality decision-making and regulation should always be at the forefront of policy makers' and legislators' minds.

The expenditure on rule-making processes within Parliament and the executive branch needs to deliver value for money just as much as the spending of any government department.

Determining how much we spend on making regulations and legislation is not easy, as the expenditure is spread over many different departmental budgets. However, last week Otago University published a study analysing how much money was spent on researching, drafting, developing and then passing laws and regulations through Parliament. It found that on average the cost of passing a law can be estimated at $3.5 million and a regulation at $530,000. Going by the number of each passed in 2011, we will spend approximately $388.5 million on this in 2012. Thus, lawmaking and regulations are not "free". We need to make sure that the benefits outweigh the costs.

Aside from the findings of the Otago University study, there are also the negative economic impacts of poor quality regulation, as well as other non-financial detrimental implications.

For example, the Electoral Finance Act 2007 placed strong restrictions on political campaigning. It restricted who, what and how political speech was exercised during election years. Parliament realised its mistake, and after cross-party consultation the act was replaced by a near unanimous vote in 2009. The Alcohol Reform Bill is Parliament's second attempt since 1999 to change the regulation of alcohol. There was concern that politicians didn't get it right the first time, and if they don't get it right now, the costs to business, taxpayers and youth could be significant. There is also the saga concerning the Terrorism Suppression Act.

Often when something goes wrong, the public's first response is to call for more regulation, which governments often respond to by introducing new laws. Sometimes this is justified, but sometimes what the public wants simply cannot be translated into effective regulation.

Ill-informed or badly drafted lawmaking can be harmful; it can create perverse incentives that undermine the broader public good and impose unintended costs upon businesses and individuals.

The law reform introduced to more tightly regulate the capital markets post-GFC, including the creation of the Financial Markets Authority has been welcomed, but we need to keep a close watch on any regulation that affects our ability to attract vital investment capital to grow our businesses.

Calls for increased regulation of business are always present. Prime Minister John Key has suggested investigating regulation of the adventure tourism industry, after cannabis was found in the body of the Carterton balloon crash operator and in the bodies of two skydiving instructors who died in a plane crash at Fox Glacier. However, a focus on hard cases makes for bad laws, as the saying goes. Over-regulation could price our adventure tourism industry out of an increasingly global market.

There have been repeated calls for regulation of franchisers, and anti-obesity campaigners have suggested that local councils impose "fat taxes" on fast food outlets, which would influence which outlets set up business and where.

This is well meaning, but regulation should hit its intended target and we should be careful it doesn't cause collateral damage by stifling investment and entrepreneurialism. To do this, government needs to do two things.

First, it needs to make sure that the regulations or laws are going to work before they legislate. The public service isn't perfect, but it is a repository of wisdom on what works and what doesn't, and the science of policy analysis is well enough advanced to provide warning lights when we risk making decisions with our hearts rather than our heads.

Second, those affected by government lawmaking need to get involved at the start of the process, rather than waiting until a law change is implemented. Most laws and regulations have consultation periods and those at the coalface are in the best position to know what regulation will and won't work.

The incentive to get the regulation right the first time is made all the more obvious by the reality that once a law or regulation has been made it is very hard to undo. Once government has finished on a process of regulatory or law reform it will be unwilling to have another go. Government needs to strike the right balance between the public interest, effectiveness, and cost of lawmaking to ensure it's worth the money.

Mai Chen, is a partner in Chen Palmer Public and Employment Law Specialists and author of Public Law toolbox.

Disclaimer: Chen Palmer Public and Employment Law Specialists advise on regulatory and law reform issues.

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