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Regulatory Impact Statement:Regulatory Impact Statement: Increasing the Visibility of Legislative Quality Issues

Possible Packages of Measures for Giving Effect to an Option 5 Approach

19. There are a number of measures that could be adopted to encourage improvements in the quality of legislation that are consistent with the Option 5 approach. Rather than attempt to assess the impact of every permutation, we have identified three illustrative packages of measures (in addition to the status quo) as a way to represent the range of options available.

  • Each package has a theme, but most measures are discrete options that can be added to, or subtracted from, any package in a modular way.
  • The essential differences between the illustrative packages lie in their level of ambition and, correspondingly, their likely resource costs.
  • The legislative core of all packages is the requirement for a disclosure statement to accompany Government Bills, major amendments to Bills, and significant delegated legislation (see Annexes 3, 4 and 5 for details).
  • Each package is a mix of legislative and non-legislative measures, but the differences between packages relate to the scope of the non-legislative measures (see Annex 6 for more details of these measures).
  • There are, however, definite limits on the range of disclosures we think are robust enough to be implemented as legislative requirements at this point. We have done some testing of key disclosures, but not enough to yet be confident that all suggested disclosures are workable in all likely situations.

20. The packages are:

"Maintain the Status Quo"

  • Continue with the existing regulatory management tools at this time

Package 1: "Legislate but Keep the Cost Low"

  • A basic set of disclosures for Bills and delegated legislation, identifying key legislative features and information on quality assurance processes
  • Provision of guidance and admin support to departments from PCO/Tsy, and provision of extra select committee support from the Office of the Clerk
  • A one-off independent review to commence within 5 years of enactment

Package 2: "Legislate and Reinforce with Other Changes"

Incorporates all the features of Package 1, but also ....

  • Some extended disclosures for Bills, and extended coverage of delegated legislation, to be trialled administratively
  • Supporting measures to encourage more timely and rigorous identification of potential issues earlier in the legislative development process, such as:
    • Tightening RIA expectations for reporting on expected costs, possible economic losses, likely compliance rates, and implementation plans;
    • Reviving the Legislation Design Committee, with a more proactive role to give advice to departments on complicated legislative projects;
    • A revamped Cabinet Legislation Committee, with a greater mandate to consider legislative quality issues and test implementation plans.

Package 3: "Legislate and Lift Attention to Existing Legislation"

Incorporates all the features of Package 1 and 2, but also ....

  • A series of complementary measures intended to significantly lift the attention also given to the management of existing legislation, such as:
    • Clearer expectations of government agencies for the implementation, administration, enforcement, monitoring and review of legislation;
    • Reporting requirements for regulators and administrators of legislation that are better tailored to a regulatory role or perspective;
    • A possible new Office of Parliament role to review how well different regulatory regimes perform against their stated policy objectives.

Analysis of "Maintain the Status Quo"

Core Elements

Agreement not to pursue a Package explicitly based on Option 5 at this time.

Existing regulatory tools and disclosures would continue in place, such as the production and publication of RISs and advice on consistency with NZBoRA.  These tools may further develop over time as part of the natural ongoing evolution of the regulatory management system.

Additional Benefits and Expected Costs

None, unless other approaches are pursued as part of a clear alternative strategy.

Consistent with usual assumptions, we do not count the effects of the ongoing evolution of current settings as costs or benefits, as they represent the base case.  Nonetheless, it may be worth acknowledging that there is some anecdotal evidence of improvements in the average quality of RISs produced by departments, and of increasing use and direct reference to RISs by those commenting on draft legislation - a trend that we would expect to see continue.

Risks

None, other than noting this may not be a durable long-term option, as the demand for further improvements in regulatory management is expected to strengthen with time

There might also be a bit of disappointment, criticism, or adverse inferences drawn in some quarters after expectations were raised by commitments made and consultation undertaken.

Overall assessment of Status Quo Option

The underlying issues and concerns that have driven demand for a Regulatory Standards Bill remain, and are therefore likely to reappear in this or another form before too long under status quo arrangements.  We note that, in New Zealand, this is at least the 4th attempt in 15 years to pursue a legislative option to assist in promoting better legislation. 

Domestic and international developments also point to demand for further strengthening of our regulatory management institutions in the future. 

  • The unfavourable gap in levels of system investment and performance scrutiny between our regulatory management and fiscal management arrangements will tend to grow wider and more obvious as the government beds in departmental 4 Year Plans (for budget management) and better capital asset management practices. 
  • Key international organisations like the OECD and APEC continue to push good regulatory governance, and countries we routinely look to compare ourselves with continue to experiment with ways to avoid or reduce unnecessary, ineffective or excessively costly regulation.

Nonetheless, not pursuing an initiative based on Option 5 could make sense if there is a judgement that a more compelling option and opportunity may then present itself in the future.

Analysis of Package 1:  "Legislate But Keep The Cost Low"

Core Elements of Package

A set of legislated disclosures, to be provided by departments, for govt Bills, substantive amendments to govt Bills, and delegated legislation drafted by PCO (see Annexes 3, 4 & 5)

A recommendation to Parliament that select committees be encouraged to give more explicit attention to legislative quality issues in their deliberations on Bills

Provision of administrative support and guidance for departments by PCO and Treasury, and for select committees by the Office of the Clerk

A one-off formal review of experience with the disclosure arrangements, to start within 5 years

Benefits

The expected benefits from the proposed disclosures are discussed in paragraphs 14-16, which we are unable to estimate.  However, a simple way to think about this might be to consider:

  • whether the value of improved legislation from likely extra scrutiny could be reasonably expected to exceed the extra compliance costs identified below (approx $0.85m pa);  and
  • in the situation where the disclosure requirements induce departments and Ministers to give more care and attention to those issues before they present legislation for scrutiny (which we are also unable to estimate), whether it is reasonable to think that the extra value realised will at least match the extra costs they choose to incur.

Expected Costs

Feedback from consultation, and the testing done for us by a few departments, suggests to us that, with guidance available, an official familiar with the relevant Bill or legislative instrument should be able to complete the disclosure in something like 2 to 3 hours in most cases, with perhaps a bit more time added for QA.  Some simpler Bills or instruments are likely to take less, while complex or unusual Bills will inevitably take longer. 

We estimate disclosures for delegated legislation will take the same time as for Bills, with less time needed for fewer required disclosures but extra time to complete a general policy statement.

Completion of basic disclosures (and assuming 100% compliance)

  • Bills:      100 eligible Bills per year, average 4hrs each (incl QA)
  • SOPs:    40 substantive SOPs per year, 50% with material changes, average 4hrs for material changes, 1hr otherwise (incl QA)
  • Delegated:  400 eligible instruments per year, average 4hrs each (incl QA)

ð   265 days = ~1.2 FTEs per year. 

Additional work and support provided to departments by PCO:  allow 1.5 FTEs per year

Additional support to the House from the Office of the Clerk:  allow 1-1.5 FTEs per year. 

ð  Total extra compliance costs of around 3.5 - 4 FTEs a year (or ~$0.85m pa). 

A one-off formal review in 5 years might involve the equivalent of another FTE (split across the reviewers, those consulted on the review, and those determining the response)

Key Risks and their Mitigation

Feedback suggests the proposed legislative element of this package avoids the main practical problems and legal risks identified by critics of the current Regulatory Standards Bill.

In addition, by including an explicit provision that any failures to comply with the required disclosures will not affect the validity of the relevant legislation, we hope to avoid the most obvious legal risk from legislating for disclosures.  We also plan to seek legal advice on the likely justiciability of the suggested obligations, and the potential use of disclosures as an aid to statutory interpretation, once draft legislative provisions are available. 

The other main risk is that we end up legislating for a disclosure that proves either unworkable in practice or less useful/more difficult than expected, which can't then be changed quickly.  The feedback provided and testing undertaken suggest that the precise wording of the legislative requirements is very important, but the risk should be manageable if trialled first, or by not initially legislating for the potential extended disclosures that haven't been well tested. 

The programmed review to start within 5 years of operation is an explicit reminder of the need to review progress, and is an opportunity to address any problems or make further improvements.

Analysis of the Subsidiary Indicators:

Ability to adapt and amend package in light of experience?

Good.  A conservative approach to use of legislation reduces the risk of locking in unworkable or low value requirements but leaves room for future innovation and development

Alignment with current arrangements for developing legislation?

Very High.  Builds primarily on existing processes and roles.  It brings together in one place a set of existing or easily produced information and then feeds that information into Parliament's existing scrutiny processes.  The main support is provided by existing agencies and is closely aligned with their existing functions.

Consistent with existing constitutional norms?

Yes.  Though some may suggest that this is a matter more appropriate for Standing Orders, there is plenty of domestic and overseas precedent for Parliament using legislation to set out requirements for information to be provided to it by the Executive.

Compatible with different regulatory philosophies and frameworks?

Yes.  Requires mainly factual reporting on processes and content of legislation.  In the limited areas where explanations are required, no fixed normative standard has to be applied.

Overall assessment of Package 1:

This is a low risk, low cost package, with the potential to be built on or extended over time.  Legislating for the proposed disclosures is expected to increase credibility and standards of compliance, but the package could be progressed administratively in advance of passing the Bill.

Nonetheless it also makes for a pretty low key initiative, best represented as another step forward in the long term effort to promote the production of legislation that is robust, principled, and developed in a fair and open way. 

While most of the public law experts we consulted believe the potential benefits are sufficient to make this package worth pursuing, some business interests saw it as far too weak and a lost opportunity to address their concerns with the quality of NZ legislation.  Both in a presentational and substantive sense, the main question with this option is "Is it enough?".

Analysis of Package 2:  "Legislate And Reinforce with Other Changes"

Core Elements of Package

Incorporates all the features of Package 1, but in addition includes:

Testing some additional disclosures for Bills, and testing the viability and value of extending the range of disallowable instruments for which a disclosure statement is produced;

Tightening the RIA requirements to further target recognised weak areas of analysis, and which would support some of the proposed additional disclosures of legislative effects;

Reviving the Legislation Design Committee (LDC) with a more proactive role to advise departments, and perhaps the Cabinet LEG committee, on legislative design matters;

Revamping the Cabinet LEG committee, with a stronger mandate to test the quality of, and implementation plans for, draft legislation, including review of the disclosure statement.

Benefits

As in Package 1, but enhanced by creating extra and earlier prompts to give attention to legislative quality issues before legislation reaches the Parliamentary scrutiny phase.

Expected Costs

As for Package 1 (around 3.5 - 4 FTEs per year), plus the following additional costs

Completion of more enhanced disclosures (and assuming 80% compliance)

  • Bills:      100 eligible Bills per year, average 8hrs extra each (incl QA)
  • SOPs:     20 material SOPs per year, average extra 4hrs each
  • Delegated:    150 extra instruments per year, average 4hrs each

ð   185 days x 0.8 compliance = ~0.7 FTEs per year. 

Additional monitoring and support from Treasury and PCO = ~0.3 FTEs per year

Tighten RIA requirements in weak areas (and assuming 70% compliance)

  • 160 RISs per year, average 5 extra days x 0.7 compliance = ~2.5 FTEs per year

Resurrecting the LDC and revamping LEG

  • 5 LDC members, 15-20 Bills per year, 1 day for prep and meetings = ~0.5 FTEs per year.
  • Deptl engagement with LDC, occasional LDC advice to LEG   allow ~0.5 FTEs per year
  • Increased prep time for LEG paper, extra LEG scrutiny    allow ~0.5 FTE per year

ð  Total extra compliance costs of around 9 FTEs a year (or ~$2m pa). 

Key Risks and their Mitigation

The proposed extended disclosures may prove unworkable or not worth the extra compliance costs imposed.  This can be managed through ongoing monitoring of departmental experience in producing extended disclosure statements and making adjustments to the requirements.

Given the strong pressures to regulate at speed, Ministers may be reluctant to give departments the extra time required to apply or make use of these additional measures, and may be reluctant to commit to meaningful changes to the way that LEG works. Unless senior Ministers stay committed to improving practice, this might eventually lead us back towards Package 1, and having to accept that there will always be difficulties with Bills that are politically important. 

Analysis of the Subsidiary Indicators:

Ability to adapt and amend package in light of experience?

Good.  Conservative approach to use of legislation reduces risk of locking in unworkable provisions.  The additional disclosures would be trialled as administrative requirements initially, and the other supporting arrangements will exist under a Cabinet mandate so can be dropped or changed reasonably easily.

Alignment with current arrangements for developing legislation?

High.  As already noted, the base elements from Package 1 build extensively on existing processes and roles.  The additional measures represent enhancements or extensions of existing processes and roles or, in the case of the LDC, a role that existed until very recently.  The biggest change is that proposed for LEG, which would get a stronger gate-keeping role. 

Consistent with existing constitutional norms?

Yes.  Though some may suggest that this is a matter more appropriate for Standing Orders, there is plenty of domestic and overseas precedent for Parliament using legislation to set out requirements for information to be provided to it by the Executive.

Compatible with different regulatory philosophies and frameworks?

Yes.  The required disclosures involve mainly factual reporting on processes and content of legislation.  In the limited areas where explanations are required, there is no fixed normative standard to be applied.  The additional measures introduce no new regulatory principles.

Overall assessment of Package 2:

This package represents a noticeable step up in effort and profile over Package 1, but comes with some extra costs.  It remains a relatively low risk package.

Adopting the additional measures will send a much clearer message to departments that Ministers expect to see more attention paid to producing good quality legislation, which will help significantly with behavioural change. The additional measures will have less success, however, if Ministers do not allow time in the policy and legislative development process for departments to apply and use them appropriately. 

Nonetheless, while departments will notice the difference, the possible merits will be less obvious to external parties who do not usually observe the dynamics of largely internal government processes.  We doubt that business interests will have any objections to the additional measures, but it may still be hard to convince them that this package represents a credible response to the problems they perceive with the quality of legislation and the legislative development process.

Analysis of Package 3:  "Legislate and Lift Attention to Existing Legislation"

Core Elements of Package

Incorporates all the features of Package 2, but in addition aims to progressively increase departmental attention to the performance of the existing stock of legislation, including by:

Recognising that regulatory regimes have asset-like characteristics, and seeking to introduce equivalents of the basic good management practices we typically apply to other types of asset

Progressively establishing broad Govt expectations for agencies in relation to implementing, administering, enforcing, monitoring, and reviewing legislation

Developing reporting requirements for regulators and administrators of legislation that are better tailored to reflect their legal and stewardship responsibilities

Investigating a substantive new review role for an Office of Parliament which would include undertaking independent reviews/audits of the performance of particular regimes, or aspects of regimes, against their stated policy objectives and good practice expectations.

Benefits

As in Package 2, but seeks an additional range of benefits (which we cannot quantify) from getting existing regulatory regimes to perform better (consistent with our 3rd objective - see page 7), through creating pressure for more active management of the operational aspects of regulation.  

Expected Costs

As the additional measures are not concretely specified, it is very difficult to say much about likely costs, other than that there is huge potential scope to introduce more systematic operational practices into regulatory management, with corresponding potential resource implications. 

Enhanced agency stewardship of existing legislation:  We speculate NZ might have perhaps 200 core regulatory regimes, with 100 warranting regular monitoring/reporting and better periodic review/maintenance.  If we assume extra cost per regime when expectations fully implemented @ $100k per year average, then eventual costs could be in the order of ~$10m per year

New role for an Office of Parliament:  Likely minimum durable scale of the new role ~$5m per year (based on the Law Commission and NZ Productivity Commission budgets)

Key Risks and their Mitigation

A major risk is our ability to turn these general ideas into concrete and effective initiatives.  There are few international precedents for us to draw upon, and Ministers will be challenged to sustain an ongoing commitment to a set of high level ideas that require further development, and might be a significant operational distraction from other things Ministers want to achieve.  This could be mitigated by presenting Package 3 as just setting a direction of travel, with a promise to develop more details and consult before any commitment is made to introduce particular measures. 

A further risk is the extent of actual adoption or compliance.  Developing the necessary capabilities will be a challenge for some agencies.  Effort levels are likely to depend on existing operating constraints including resource pressures, the presence or otherwise of an internal champion, and perhaps at the margin the level of monitoring effort and assistance from the lead agency.  Perhaps the only way to mitigate this risk is to introduce measures progressively over a number of years.

The proposed regulatory review/audit role for an Office of Parliament is a relatively novel suggestion.  The Auditor-General's performance audit role provides the closest fit, but extending the Auditor-General's role to regulatory regime performance has no clear precedent in Westminster jurisdictions (though the US General Accounting Office does do this sort of work). 

Some will also think this role would overlap with the functions of the Law Commission, even though the Law Commission's work programme is directed by the government.  Because of these complications, we only propose that the idea be investigated.

Analysis of the Subsidiary Indicators:

Ability to adapt and amend in light of experience?

Reasonably Good.  Conservative approach to use of legislation reduces risk of locking in unworkable provisions.  Additional disclosures to be trialled as administrative requirements initially, so can be dropped or changed reasonably easily.  The progressive development of additional support measures should allow for adaptation, but change might become harder once new roles and reporting requirements get formalised.

Alignment with current arrangements for developing legislation?

Good.  Builds extensively on existing processes and roles, but will progressively lead to the development of completely new arrangements.

Consistent with existing constitutional norms?

Broadly.  However, the potential new role for an Office of Parliament pushes the boundaries of the traditional performance auditing role of an Office of Parliament in a Westminster system

Compatible with different regulatory philosophies and frameworks?

Not bound to any regulatory philosophy, but will involve a shake-up of existing regulatory frameworks.  Looking to manage existing regulatory regimes more like assets is a new perspective on regulatory management, and existing frameworks will be considerably extended by the government setting good practice expectations for a wider range of regulatory management roles. 

Overall assessment of Package 3:

This package is really about widening the front on which good regulatory practice is being pursued through promoting more systematic attention to the performance of our existing regulatory regimes.  There are no guarantees as to how this might look in practice, just as there are none as to how well it might turn out.  The work of developing concrete ways to take this forward has still to be done.  There are useful ideas we can borrow from other jurisdictions, but this is also new territory internationally.

There are significant longer term implications for the allocation of administrative resources arising out of adopting this approach.  Support for this Package, however, does not involve or imply any commitment to extra costs (beyond those associated with Package 2).  Decisions on resourcing can be made at the time concrete proposals are put forward.  In practice, therefore, the main risk is not a fiscal one, but the ability to actually deliver on the level of expectation that may be set.

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