The NZ Initiative's Eric Crampton says Parliament deserves better advice about the policies it is being asked to consider

By Eric Crampton*

Imagine that you and your partner agreed that you would buy a house together after the wedding – and you both had your eyes on a particular property. After the celebrations, you hired a building inspector to check the place out.

Would it really be sufficient if the inspection report said only, “You promised that you would buy a house together after the wedding. This is indeed a house. You must purchase it.”?

I’d expect any of us would refuse to pay the builder’s invoice. But I also expect that we would give the builder more than five minutes to inspect the place.

I wish that this were about something as inconsequential (in the grand scheme of things) as one couple’s imaginary experience with a dodgy building inspector.

But some of the advice that Parliament has been receiving about the policies contained in Labour’s 100-day plan are every bit as inadequate as that builder’s report.

Legislation in New Zealand is supposed to be accompanied by an impact summary. The bureaucracy is supposed to state the problem that the legislation or regulation is intended to address, to evaluate the options for addressing the problem, and to weigh the costs and benefits of these alternatives. Treasury is supposed to check through the reports and provide comment on their adequacy. Cabinet is meant to receive adequate information for making informed choices about regulatory options, and Parliament is meant to receive a politically neutral assessment of the merits of the legislation put before it.

All of that is meant to ensure that Members of Parliament have clear advice. Some legislation may have fishhooks that affect particular groups, and MPs representing those groups will need a heads-up. Other times, broad categories of policy risk need to be identified so that the Opposition can more robustly debate the legislation – and propose improvements.

This vetting process is also an important part of democratic accountability. If the Ministries or Treasury raise substantial concerns about a piece of legislation, voters need to be able to find out about it through this process. It’s far-fetched to assume anybody but policy geeks would read through the things, but if the boffins find a lot of fishhooks in a government policy, we can generally count on the Opposition to bring it up in Question period.

But it is not working as it should.

It has not been working well for some time, but has been especially poor since the change in government. The problem is not any flaw in Labour’s policy proposals per se, but rather the difficulty inherent in doing this job adequately under the pressures of a ticking 100-day clock.

Consider the Ministry of Education’s Impact Summary of Labour’s proposed abolition of Partnership Schools. I have copied below the Ministry’s summary table of the costs of Labour’s proposal.

While it may be the case that the government will not bear any particular fiscal cost from the proposal, is it likely that there are no costs, either monetised or non-monetised, for the affected schools and their students?

It is reasonable to argue about whether there are net benefits or costs from abolishing the partnership schools. As the Martin Jenkins final report on those schools’ performance has not yet been released by the Ministry, all we really can do is argue. But is it really plausible that there are no costs to abolishing the schools? The students who marched against the change think there will be a cost.

The 100-day plan also has done violence to adequate problem definition. Good policy requires identifying the problem that the policy is meant to solve, so that Parliament can adequately canvass the options available. That is a difficult task for a Ministry when presented with a solution it must assess rather than a problem it must solve.

When Treasury was asked to evaluate the impact of the ban on overseas home buyers, it defined the problem rather succinctly, saying “This proposal seeks to implement the Government’s 100 day commitment to “ban overseas speculators from buying existing houses.”” We could read that as a terse assessment that the policy serves only political purposes, but it would have been nice for that assessment to have included a more thorough enumeration of the policy’s potential costs. Treasury simply would not have had time under the 100-day clock to do the job properly.

MBIE’s Impact Analysis of changes to the Employment Relations Act provided a similar problem definition, that “The suite of changes gives effect to the Government’s 100 day commitments relating to the Employment Relation Act 2000 (the Act).”, before enumerating the changes.

In MBIE’s case, there was at least a stronger canvassing of potential costs and benefits of the changes, with each of Labour’s proposed changes evaluated as being a slight improvement over the status quo. Labour’s changes to reinstate union access to workplaces earned a green tick from MBIE. National’s 2010 changes were not opposed by MBIE’s Regulatory Impact Assessment at the time, though MBIE suggested there was no particular problem that the policy worked to solve. In 2012, MBIE and Treasury supported National’s starting-out wage. If MBIE has yet produced a regulatory impact analysis of Labour’s proposed reversal of that policy, I have not been able to find it. But I note that the 2012 evaluation followed a more thorough process than would be available under the 100-day constraints.

The bureaucracy is a servant of its political masters, and elections do matter. Newly elected governments have a mandate to implement their policy proposals. But in the absence of better official costing and evaluation of election policy platforms, Parliament often just does not have adequate information from the bureaus to assess whether policy promises still make sense after the election.

There is no simple solution, but we might consider one small improvement.

The Ministries will not always have time to provide an adequate assessment of the effects of policies. That can happen because of post-election pressures, but it can also happen because of unforeseen events between elections causing rapid political response.

When proposals have not had a chance to be more thoroughly evaluated, they should undergo more rigorous post-implementation review. A lot of Regulatory Impact Statements promise these reviews, but few seem ever to be undertaken. The reviews should be compulsory for policies undertaken under 100-day clocks.

When we buy houses, we make the purchase conditional on a good builder’s inspection. There often isn’t time to get a proper inspection report before making an offer, so we build in room to get it done properly after the offer has been made. And if the inspection report turns up cracked foundations, we have an out. Should we really expect less than that when it comes to policy changes affecting the whole country?

------------------------

*Eric Crampton is the chief economist at The New Zealand Initiative, which provides interest.co.nz with a fortnightly column.