ACT New Zealand Waikato/Bay of Plenty Regional Conference

2. ACT New Zealand Waikato/Bay of Plenty Regional Conference The Case for Economic Constitutions (Monetary, Fiscal and Regulatory) Roger Kerr rkerr@nzbr.org.nz

3. If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In forming a government which is to be administered by men over men, the great difficulty lies in this: you must first enable government to control the governed; and in the next place oblige it to control itself. James Madison, 1788

4. The government’s role is whatever the government defines it to be. Helen Clark, 2003

5. Competing Visions • Governing for the public interest versus governing for private interests • Free trade example • Limited versus unlimited government

6. The purpose of constitutions • To protect citizens from the power of the state • To try to constrain governments to act in the public interest

7. A written constitution for New Zealand? • Few Madisons around • Treaty of Waitangi • Power to unelected judges

8. Economic constitutions • Reserve Bank Act 1989 • Fiscal Responsibility Act 1994 (now in Public Finance Act) • Regulatory Responsibility Act? • Could add State-owned Enterprises Act 1986 and treaties

9. Value of economic constitutions • Constrain governments in practice if not legally • Role of courts • Grow in status over time • Dependent on sound economic underpinning

10. Reserve Bank Act • Price stability objective (section 8) • Policy Targets Agreement • Results in practice • Role of courts?

11. Fiscal Responsibility Act • Focus on objectives, transparency • Some constraints: balanced budget over a cycle; prudent debt levels • Impact on deficits and debt, not spending and taxing • Role of courts? • Case for a TEL: Tax and Expenditure Limit

12. The fiscal problem • Key issue is government spending • Too high; low quality • Implications for growth, monetary policy, equity • Over-taxation: NZ on a par with Germany

13. Form of a TEL • Restraining Leviathan: Bryce Wilkinson • A top-down rule: restrict spending growth to population growth plus inflation • Helps politicians to resist special-interest pressures • Returns power to taxpayers • Rule can be varied via a referendum

14. Form of a TEL (cont) • Not un-democratic (Friedman proposal) • In place in many US states, some national jurisdictions • Relevant to MMP environment • Should apply to local government as well • Bottom-up spending reviews also needed • Attitudes of ACT, National

15. Regulatory reform • Perennial problems with regulation • Responses: ad hoc deregulation, sunset provisions, regulatory budget, OECD code, Legislation Advisory Committee etc • Regulatory impact statements • Limitations of cost benefit analysis • Need for stronger disciplines

16. Regulatory Responsibility Act • From National government to Rodney Hide’s bill • Constraining Government Regulation: Bryce Wilkinson • Would codify RIS and LAC Guidelines • But would go beyond: regulation often a taking of property • Public Works Act analogy • Property rights – takings – compensation

17. Some issues • Property rights are not government-conferred privileges, eg tariffs • Test for a taking: Are existing common law legal rights taken or impaired? • For courts (ultimately) to determine • Issues about compensation (eg materiality, reciprocal benefits, monopoly)

18. State of play • Select committee hearings • Business Roundtable submission on www.nzbr.org.nz • Promising level of support • Legislative backing for RISs and LAC guidelines a possible outcome; must push for takings/compensation link • Way forward