But there have been concerns that even a weak norm favouring compensation could block beneficial regulation or otherwise prioritise property owners over the public good.
Because the Bill does not explain how fair compensation would be determined, or the cases in which it would apply, people can imagine either workable regimes or atrocious ones.
Let’s consider the in-principle case for a good regime.
Regulation imposes costs while providing benefits. Beneficial regulation in the public interest will provide more benefits than costs.
That much should not be contentious. Regulatory Impact Statements are meant to weigh costs and benefits. Section 32 of the Resource Management Act requires reports that quantify costs and benefits, where practicable. Treasury has produced several editions of guidance on cost-benefit assessment.
Cost-benefit assessment is broader than you might have thought. Treasury’s standard cost-benefit spreadsheet puts a value on all manner of things, including even the cost of being a victim of discrimination. The spreadsheet tallies almost three hundred lines and has room for more.
A regulation that is truly in the public interest ought to be able to pass cost-benefit assessment.
There has always been a bit of a trick to cost-benefit assessment. Costs are evaluated at the level of society as a whole. So are benefits. But the costs and benefits often fall on different people, so some can be harmed for others’ benefit.
In principle, the winners could compensate the losers and everyone would be better off.
But compensation is relatively rare.
If government takes property under the Public Works Act for a beneficial public purpose, like building a new light rail network, it must compensate the owners of the properties for the taking. It would be wrong to put a disproportionate share of the cost on whoever was unlucky enough to own the land that the government wished to use. Compensation is warranted.
And without compensation, government would be tempted to use the Public Works Act too liberally. Takings would be cheap. It would be far less expensive, to the government, to build a new light rail service if it did not have to compensate anyone whose home were taken and bowled over in the process. The costs imposed on homeowners would be real but ignored.
Compensation for Public Works Act takings forces more serious consideration of the full costs of the project. If the project is truly beneficial, the requirement for compensation does not block the project. If the benefits outweigh the costs, those benefitting can provide full compensation and still be better off.
The same is true for regulation.
The Regulatory Standards Bill sets a principle that legislation should not take or impair property without fair compensation. And, where practicable, that compensation should be provided by those benefitting. Parliament remains free to ignore that principle.
In some cases, the beneficiaries are the broader public and compensation should be provided by the government. In other cases, a smaller group would benefit. Where practicable, that benefitting group should be the one to provide compensation.
Done sensibly, none of this would prevent beneficial regulation. Instead, it would help solve an imbalance and inequity in how things are currently done.
Governments can be tempted to use regulation in cases where a spending measure would be more effective for achieving some desired purpose, simply because government can ignore the cost that regulation imposes on others. Compensation would bring a more level assessment.
And requiring that the beneficiaries compensate those harmed from loss of legal rights accords with many reasonable views of equity. Where the gains to the winners exceed the losses to the losers, those gaining can compensate those losing and everyone is better off.
It is possible to imagine very stupid ways of running a compensation regime. Sometimes, regulation is used because it is more efficient than having everyone sue each other for minor nuisances. It would be daft to require compensation for those kinds of regulations. But careful definitions are needed.
The broad statement of principle in the Bill lacks the required guidance for how to apply it. The quality of that guidance matters. Submitters rightly want to see it. Its absence, combined with a fair bit of misinformation about whether the Bill forces Parliament to provide compensation, has not helped the quality of public debate.
The Bill does not force Parliament to provide compensation for regulatory takings. But if a compensation regime were properly designed and tested, requiring that compensation would be a good idea.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
Because the Bill does not explain how fair compensation would be determined, or the cases in which it would apply, people can imagine either workable regimes or atrocious ones.
Let’s consider the in-principle case for a good regime.
Regulation imposes costs while providing benefits. Beneficial regulation in the public interest will provide more benefits than costs.
That much should not be contentious. Regulatory Impact Statements are meant to weigh costs and benefits. Section 32 of the Resource Management Act requires reports that quantify costs and benefits, where practicable. Treasury has produced several editions of guidance on cost-benefit assessment.
Cost-benefit assessment is broader than you might have thought. Treasury’s standard cost-benefit spreadsheet puts a value on all manner of things, including even the cost of being a victim of discrimination. The spreadsheet tallies almost three hundred lines and has room for more.
A regulation that is truly in the public interest ought to be able to pass cost-benefit assessment.
There has always been a bit of a trick to cost-benefit assessment. Costs are evaluated at the level of society as a whole. So are benefits. But the costs and benefits often fall on different people, so some can be harmed for others’ benefit.
In principle, the winners could compensate the losers and everyone would be better off.
But compensation is relatively rare.
If government takes property under the Public Works Act for a beneficial public purpose, like building a new light rail network, it must compensate the owners of the properties for the taking. It would be wrong to put a disproportionate share of the cost on whoever was unlucky enough to own the land that the government wished to use. Compensation is warranted.
And without compensation, government would be tempted to use the Public Works Act too liberally. Takings would be cheap. It would be far less expensive, to the government, to build a new light rail service if it did not have to compensate anyone whose home were taken and bowled over in the process. The costs imposed on homeowners would be real but ignored.
Compensation for Public Works Act takings forces more serious consideration of the full costs of the project. If the project is truly beneficial, the requirement for compensation does not block the project. If the benefits outweigh the costs, those benefitting can provide full compensation and still be better off.
The same is true for regulation.
The Regulatory Standards Bill sets a principle that legislation should not take or impair property without fair compensation. And, where practicable, that compensation should be provided by those benefitting. Parliament remains free to ignore that principle.
In some cases, the beneficiaries are the broader public and compensation should be provided by the government. In other cases, a smaller group would benefit. Where practicable, that benefitting group should be the one to provide compensation.
Done sensibly, none of this would prevent beneficial regulation. Instead, it would help solve an imbalance and inequity in how things are currently done.
Governments can be tempted to use regulation in cases where a spending measure would be more effective for achieving some desired purpose, simply because government can ignore the cost that regulation imposes on others. Compensation would bring a more level assessment.
And requiring that the beneficiaries compensate those harmed from loss of legal rights accords with many reasonable views of equity. Where the gains to the winners exceed the losses to the losers, those gaining can compensate those losing and everyone is better off.
It is possible to imagine very stupid ways of running a compensation regime. Sometimes, regulation is used because it is more efficient than having everyone sue each other for minor nuisances. It would be daft to require compensation for those kinds of regulations. But careful definitions are needed.
The broad statement of principle in the Bill lacks the required guidance for how to apply it. The quality of that guidance matters. Submitters rightly want to see it. Its absence, combined with a fair bit of misinformation about whether the Bill forces Parliament to provide compensation, has not helped the quality of public debate.
The Bill does not force Parliament to provide compensation for regulatory takings. But if a compensation regime were properly designed and tested, requiring that compensation would be a good idea.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was first published HERE
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