Governments are passing tidal waves of rules with no idea of whether they’re worth it, says Robert MacCulloch.

The regulatory state in New Zealand is on the march. The number of regulations made by governments each year from 1985 onward has shot up.

The numbers don't include local government regulations because nobody has counted them.

Has the rise of the regulatory state added to the well-being of our country? No-one knows, as there has been no serious attempt to measure their costs and benefits.

Instead our public debates over whether a regulation is good or bad are mired in claim and counter-claim, based on dogma, ideology and assertion.


Is there a better way? Yes there is. All political parties in New Zealand should commit to taking a disciplined approach to identifying and quantifying the costs and benefits of regulations, a process known as "cost-benefit-analysis".

If the public health, environmental or safety benefits of a regulation, when quantified, are large compared to the costs on business, then enact it. But if a regulation imposes a big economic burden for little in the way of social benefits, then scrap it.

Bad regulations can make nations poorer, leaving them with less resources for medical care, lower nutrition and lower workplace safety.

Poor nations also tend to have worse air and water quality than rich ones.

Unless we get a sense of all their costs and benefits, regulations can easily have the opposite effects to what were intended.

Are there problems with cost-benefit analysis that limit its use? Of course there are laws that don't lend themselves to weighing costs and benefits.

Anti-discrimination laws, for example, are based on a moral imperative and not necessarily subject to this kind of balancing. There are also debates about valuing human life and environment goods.

Many costs and benefits lie in the future and it's hard to put them in today's values.

But even when estimates are difficult to obtain, ranges can be given, and debate can then be focussed on where the uncertainties lie.

Cost-benefit analysis helps ensure that the consequences of regulations are not shrouded in mystery but are instead open to public scrutiny.

Some of the best arguments for cost-benefit are more democratic than economic in nature. Its transparency helps diminish interest-group pressures.

If quantification of a regulation's costs and benefits is not done, what is one left with? We're thrown back into a world of dogma and ideology.

In New Zealand, no serious commitment has been made to cost-benefit-analysis by politicians from the left or the right.

In local government legislation, Section 32 of the Resource Management Act, 1991, calls for a "consideration of alternatives, benefits and costs" but does not prescribe that costs and benefits be quantified.

Section 79 of the Local Government Act, 2002, says local authorities should use discretionary judgment about the degree to which benefits and costs are quantified.

A requirement to consider costs and benefits, but not to quantify them, is like starting a business knowing only that your product will cost something to make but who knows what, and that the benefit will be that some folks may like to buy it, but who knows how many. A recipe for disaster.

What about the government? The Ministry of Business, Innovation and Employment publishes a set of guidelines based on a set of principles, one of which is that "the costs of achieving compliance are not disproportionate to the size of the problem and intended benefits of regulation".

But the ability of our ministries to do proper cost-benefit-analyses is often lacking, and it is not uncommon for them to be outsourced to private accounting firms.

Evidence of this lack of capability is to be found in the NZ Treasury's "Cost-Benefit Primer" which is a beginner's guide, aimed at "public sector policy and financial analysts with little economic or financial knowledge".

When cost-benefit analyses are done, the Treasury not infrequently disagrees with the numbers that ministries come up with, leaving the Cabinet not knowing who to believe and creating public confusion.

How does NZ's piecemeal and non-committal approach compare with the United States?

The past five US Presidents, from Reagan to Obama, have endorsed and strengthened cost-benefit analysis over the past three decades.

A remarkable political consensus has arisen under which Republicans and Democrats have come to agree on the vital need for cost-benefit analysis, which has become part of the informal constitution of the US regulatory state.

Obama made an unprecedented commitment to quantification of costs and benefits, and ordered executive agencies to review all significant rules, mainly with the goal of eliminating or streamlining excessive requirements.

A White House department, the Office of Information and Regulatory Affairs, is dedicated to overseeing the rigorous implementation of cost-benefit-analysis across all government agencies.

No comparable agency exists in New Zealand.

Politicians on both sides of New Zealand's post-election Parliament, you must do what is best for your country.

Refrain from arguing for or against regulations on the basis of your own personal dogma. Support a disciplined quantification of their costs and benefits.

New Zealand needs more capability to make these calculations. Support strengthening that capability.

Robert MacCulloch is the Matthew S Abel Professor of Macroeconomics at Auckland University.