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Insights 45: 24 November 2017
Free Wgtn event: The Future Catch panel discussion with Hon. Stuart Nash
Latest report: Analog Regulation, Digital World
Sam Warburton joins Guyon Espiner to discuss the dramatic increase in NZTA salaries

Lofty overall rankings for regulation mask weaknesses
Dr Bryce Wilkinson | Senior Fellow |
Voltaire's satirical 1759 novella, Candide, contrasted ‘head-in-the-clouds’ complacency about this being the best of all possible worlds, despite its blemishes, with ‘feet-on-the-ground’ realism.

Viewed loftily, New Zealand’s regulations look blissfully benign. New Zealand ranked 2nd best in the world for the quality of its laws and regulations in the Fraser Institute’s recently-released 2017 Economic Freedom of the World Index. Hong Kong was top, Singapore 3rd. No policy problems there apparently, move on.

Yet, at ground level, poor quality, ill-justified restrictive laws and regulations abound in New Zealand. Seek and ye shall find.

This week’s article on science by DomPost columnist Bob Brockie highlighted New Zealand’s genetic modification regulations. He described them colourfully as the “most comprehensive, restrictive, antiquated and labyrinth laws in the world”.

More generally, a report in 2015 by The New Zealand Initiative identified 14 Acts of parliament that its members saw as unnecessarily troublesome.

Other Initiative reports have identified failings in the Overseas Investment Act, education regulation and land use regulation (which is behind extreme Auckland land values). Our articles on over-zealous scaffolding regulation point to a systemic weakness in value-for-money disciplines within and across regulatory silos.

So what gives? How can New Zealand be 2nd best in the world overall for regulation, yet exhibit low regard for regulatory quality case-by-case?

A big part of the answer is that New Zealand scores 10 out of 10 for freedom of bank ownership and the absence of credit or interest rate controls.

Equally weighted with that category is labour market regulation. Here four countries outscore us (they include Fiji!). Our hiring and firing regulations and minimum wage laws are more restrictive than in many countries, but we make up ground on some other aspects. 

The remaining category is business regulation. We do poorly on licensing restrictions, the burden of tax compliance and other government administrative compliance (permits, regulations, reporting). We make up ground on bureaucracy costs and the ease of starting a business. Overall, five countries have a higher score. They include Hong Kong, Singapore and Ireland.

The bottom line is that New Zealand could be doing a lot worse in some areas and could and should be doing materially better in some others. Voltaire was right. Self-satisfaction about the overall view does not justify suffering the blemishes.

Finding level
Dr Eric Crampton | Chief Economist |
Careful economics and careful carpentry have one thing in common. Building things level is not easy when the floor is a bit crooked. We need to be a bit careful about retailer demands for level playing fields around tax on imports.

As more of us buy from overseas, New Zealand retailers are quick to point to uneven playing fields favouring foreign suppliers. Under the de minimis threshold, imported goods are not taxed unless the amount collected would exceed $60.

All current methods of collecting GST at the border add substantial hassles for consumers buying from abroad, make life difficult for foreign shippers serving Kiwi customers, or wind up costing IRD more than the value of the tax collected.

If there were any simple way of applying GST at the border on low-value imported goods, Inland Revenue would already have done it – both to increase revenue and to avoid having to rely on less efficient taxes. Both National and Labour have wanted to find solutions. It is possible IRD will find one, and international agreements to make it easier are imaginable. But it is not ready yet.

Without good ways of handling tax at the border, trying to level the levelling the pitch on GST risks skewing it in other ways.

While large international shippers like Amazon might jump through new hoops to be able to serve New Zealand customers, it is unlikely that smaller retailers would. Making online shopping harder by holding goods at the border until customers log in to a Customs website to make a GST payment creates distortions too. Either way, New Zealand consumers would risk losing access to the broader range of goods that international online shopping provides.

Some of those arguing for GST at the border might view those hassles as a feature, rather than as a bug.

And there is one other worrying bit. While New Zealand’s size and distance have their advantages in a maddening world, we wind up with less competition in some markets than larger places enjoy. Foreign online retailers add competitive pressure that can even benefit consumers who never shop online.

The uneven playing field on GST might then be tilting things, just a bit, against another uneven part of the pitch. The shim that makes a table unbalanced on an even floor might be just the thing to prevent wobbles in an older house.

Political amateur dramatics - a UK perspective
Briar Lipson | Research Fellow |
So far in this Parliament, our fresh-faced new ministers have succumbed to a bit of over-exuberance on GST reform, some misguided Vietnamese-whispers, and some contorting parliamentary questions.

But if political amateur dramatics is what you are after there has been little to see here, despite our government’s relative inexperience. Look instead to the UK Conservatives, now into their eighth year in government.

First up from the UK this month came sex scandals. Several people levelled allegations of sexual misconduct by members of both major parties. The Conservative Party compiled a ‘sleaze list’, of 40 of their MPs accused of misbehaviour. Though since discredited as inaccurate, allegations included offences from being ‘handsy in taxis’, and ‘groping’, to conducting consensual affairs and sexual peccadilloes.

Defence Secretary Michael Fallon resigned over the allegations, admitting that in the past his behaviour towards women had ‘fallen short’.

Lesson to us all: according to the Oxford English dictionary a peccadillo is a ‘relatively minor fault or sin’. And there was me conjuring images of pocket flutes!

Next up came the curious case of Priti Patel, the UK’s now-former International Development Secretary.

Secretly, during an August family holiday to Israel, Patel met with Israeli government ministers, including Prime Minister Benjamin Netanyahu. It was a clear breach of the ministerial code, so when the story broke, she resigned.

The lesson here is not to waste your holidays on working. No-one likes over-conscientious achievers anyway.

And lastly, comes UK Foreign Secretary Boris Johnson. In what he now reveals was a mistake, Mr Johnson told a select committee that as far as he understood it, British citizen Nazanin Zaghari-Ratcliffe - who has been detained in Iran for 18 months and sentenced to five years imprisonment – was there training journalists.

Since making this remark, Johnson has been accused of putting the British mother at risk of another five years on her sentence. Johnson later apologised, explaining that “Mrs Zaghari-Ratcliffe was there on holiday. She was not there in any professional capacity.”

As with all things Boris-related, I am not sure what the lesson is here, except perhaps not to make blunders, even when you are as experienced as Boris Johnson.

So, while our new government may have appeared a little amateurish at times, we must keep things in perspective. Things could have been a whole lot worse.
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