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A 10,000-strong army of bureaucrats is administering as many as 200 different regulatory regimes which often overlap, are outdated, poorly written, or inadequately reviewed before being implemented, says the Productivity Commission in its final report on the impact of New Zealand's regulatory environment on economic performance and productivity.
"New Zealand has a large and complex regulatory system," the commission says in a report that urges much greater leadership from top government agencies, especially the Treasury, because of the potential for too much regulation to act as a dead weight on activity right across the economy and society.
While a variety of mechanisms exist to try and improve the quality of new regulation, the commission says the Law Commission has recently stopped reviewing all legislation for regulatory coherence because of funding cuts, while Parliament's regulations review select committee is a shadow of its former self, with dwindling membership by MPs and insufficient support staff.
The system requiring all new legislation to include a regulatory impact statement, while innovative when first introduced, is not working as intended, the commission says.
The New Zealand Parliament also showed a tendency to a far greater volume of new legislation and regulations than comparable Westminster Parliaments, introducing "on average, 100 to 150 Acts and about 350 Legislative Instruments" annually since the mid-1990s.
"The large stock makes it difficult for ministers and officials to know whether specific regimes are still needed, or are delivering the outcomes that were originally intended," the commission found. "A vigorous and well-focused review programme could help remove unnecessary and inefficient regulation, and fix holes in regimes."
The report also identified "highly variable departmental appointment processes" for regulatory bodies, "including inadequate assessments of the skill needs of boards, poor planning and patchy induction for new board members." Both the Treasury's and State Services Commission's expertise in appointments to departments and state-owned enterprises should be drawn on by agencies seeking to appoint regulators.
In a more wide-reaching proposal, the commission also suggests that policy departments are not always the best judges of the quality of regulatory implementation.
"The commission heard from a number of parties that the best judges of regulatory practice are other regulators, and found these arguments persuasive.
"A system of peer reviews should be established, where panels of senior regulatory leaders, such as current and former chief executives, would examine and provide feedback to regulators, and should become part of the Performance Improvement Framework audits of government agencies overseen by the SSC."
Using polling it commissioned from Colmar Brunton, interviews and a survey conducted by the Public Service Association, which represents government workers, the commission found evidence of a mismatch between the views of regulatory agency leaders and their staff, and between regulators and the regulated.
Staff on the whole disagreed more than they agreed that their agencies were good at learning from mistakes or encouraged challenges to poor practice, while the majority of their managers believed there was good communication and feedback occurring.
"The response of some regulators has been to adapt to their mistake-intolerant environment by encouraging behaviour that minimises the 'threat' of harsh criticism," the report says. "Through time, this strategy has proven successful in reducing criticism, embedding a culture that places a high value on managing institutional risk."
The result was weak evaluation and a 'set-and-forget' mentality that favoured judgements about performance based on recognising mistakes rather than successes. It also found low completion rates for qualifications available to regulatory staff over the last six years.