Certainty and Discretion

  • Daniel Kalderimis, Chris Nixon and Tim Smith “Certainty and Discretion in New Zealand Regulation” (Cross-cutting theme paper prepared for the NZ Law Foundation Regulatory Reform Project, 2013). The attributes of good regulation have long been debated by the legal and economics professions. This paper examines the relative importance of certainty and discretion in regulatory design by developing a framework that explores the linkages between values (related to legitimacy and efficacy), objectives (related to certainty and durability), mechanisms (related to the degree of discretion) and outcomes. Using this framework the research illustrates the importance of certainty as an objective of good regulatory design, and the extent to which mechanism of discretion should be deployed, by using examples from the New Zealand Law Foundation Regulatory Reform Project. The paper concludes that a pragmatic discretionary approach to regulatory development is preferred since (a) New Zealand regulatory design options do not normally abrogate the rule of law and (b) very many difficult design issues are encountered which cannot be answered by reference to traditional rule of law values.

Reducing uncertainty in building regulation

  • James Zuccollo, Mike Hensen and John Yeabsley “Weathertight Buildings and Performance-based Regulation: What Lessons can be Drawn from a Complicated and Evolving Situation?” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). This paper analyses the problems that resulted in the New Zealand building industry from the regulatory changes in the Building Act 1991. It considers these problems in a wider context to gain an understanding of what regulators can learn about performance-based regulation for the future. Further to this end, the paper proposes a framework to help reduce uncertainty in performance-based regulation and outlines three approaches which may help regulators design more durable regulations. The importance of accountability in performance-based regulation is highlighted and three levels of accountability failure in the leaky homes crisis are identified and explained. The paper concludes with some key lessons to be learnt including the difficulty of regulating complex systems and the need to distinguish between risk and uncertainty, the requirement of knowing more about complex systems before regulating them and the fact that performance-based regulations are easier to understand and enforce when performance measures are observable and relevant to the regulation’s goals.

  • James Zuccollo, Mike Hensen and John Yeabsley “Weathertight Buildings and Performance-based Regulation: What Lessons can be Drawn from a Complicated and Evolving Situation?” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). (3) performance-based regulations can operate with a range of combinations of detail and objectivity about outcomes; the variation in objectivity and detail across these dimensions suggests different allocations of uncertainty and expectations of judgment between the regulator and the parties being regulated;

  • James Zuccollo, Mike Hensen and John Yeabsley “Weathertight Buildings and Performance-based Regulation: What Lessons can be Drawn from a Complicated and Evolving Situation?” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). There is an extensive literature on paradigms for risk and reliability, and also on integrated approaches to managing these issues. There is also an extensive literature[10] on how, where there is uncertainty, [it can be argued that] there are inefficiencies associated with the exclusive use of negligence liability and that ex ante regulation can correct the inefficiencies.

Reducing uncertainty in networked industries

  • Paul Scott and David De Joux “Uncertainty and Regulation: Insights From Two Network Industries” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). The effects of light-handed regulation and heavy state intervention on network industries are showcased in this paper that considers both the telecommunications and electricity sectors. The circular nature of regulatory changes that the telecommunications industry has had to endure is a feature of the paper which identifies the history of this industry, regulatory changes and their impact on uncertainty and investment. The social welfare obligations placed on both industries plus the Ultra Fast Broadband Initiative are also discussed because of their impacts on regulation effecting these industries. The paper concludes that experimenting with different regulatory regimes in these industries has not encouraged investment and has not improved regulatory certainty, by but increased uncertainty. Additionally the paper suggests that a fixed regulatory framework, that remains stable and unaffected by changes of government, is the most likely to benefit these two network industries long-term.

  • Paul Scott and David De Joux “Uncertainty and Regulation: Insights From Two Network Industries” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). This was not the end of the dispute, however. In 1996 Clear requested a variation of the agreement, which Telecom refused. Clear then began to withhold part of its payments. When Telecom started actions to claim the amount owing, Clear counter-claimed that there had been breaches of the Commerce Act and "at both the High Court and the Court of Appeal, it was found that Clear could legally withhold payments, pending a substantive determination on the alleged Commerce Act breaches".[16] This had the effect of reintroducing uncertainty in the market, and doubts on the efficiency of light-handed regulation.[17] Clear did not pursue litigation to its end. The appearance of the Internet had redistributed the cards.

  • Paul Scott and David de Joux “Uncertainty and Regulation: Insights from Two Network Industries” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). 11.7.2 Parliamentary uncertainty One of the issues Mladenovic identified as ripe for investigation was regulatory uncertainty.[221] It almost goes without saying it is a concern for regulated entities. However, it can mean different things in different contexts.[222] One type of regulatory uncertainty involves how Parliament has provided for regulation.[223] In New Zealand the path to regulation has, as Ahdar notes, been tortuous.[224] As Mladenovic shows, it has moved from a state-run affair to light-handed relying on general competition law and then on to regulation with specialist regulators.[225] This is not optimal. As Ahdar notes citing Joskow "a continuing stream of reforms rather than one comprehensive package is not conducive to the sort of large, long-term investment the sector needs."[226] This history of pragmatic piecemeal reform has done nothing to improve regulatory certainty. Indeed, the recent reform is the fifth Act of Parliament in the name of reforming industry since the Electricity Industry Reform Act 1998.[227] It does nothing to attract investment into the industry.

Uncertainty and tax

  • John Prebble "General Anti-avoidance Rules as Regulatory Rules of the Fiscal System: suggestions for improvements to the New Zealand General Anti-avoidance Rule" in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). To some extent interpretation statements explain how the Commissioner interprets the policy of the legislation and what his or her policy is in putting the legislation into effect. Interpretation statements were formerly called "policy statements". This name captures some of the flavour of an interpretation statement. Interpretation statements are issued if it seems desirable to reduce the uncertainty of the law in one area or another. They often read rather as if they are legal opinions. They are not binding on the Commissioner, but the Commissioner is expected to adhere to them. For many years there has been considerable pressure on the Commissioner to publish an interpretation statement in respect of the general anti-avoidance rule. In 1990 the Commissioner published "Policy Statement on the Application of Section 99 of the Income Tax Act 1976".[36] That policy statement was never particularly satisfactory. As it happened, changes in the judicial approach to the general anti-avoidance rule eventually meant that the policy statement ceased accurately to represent the law. Work on a replacement statement proceeded over several years, until 16 December 2011, when the Commissioner published a draft interpretation statement on the general anti-avoidance rule, "Tax Avoidance and the Interpretation of Sections BG1 and GA1 of the Income Tax Act 2007" – a document of 259 pages.[37]