Roger Partridge: Shane Jones's forestry Bill will strangle investment, harm economy

Forestry minister Shane Jones. Photo / File

COMMENT:

CS Lewis once warned that of all tyrannies, "a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies".

The great 20th century writer might have been describing Forestry Minister Shane Jones' new Bill to "fix" the forestry industry.

By any account, forestry is a significant and successful New Zealand industry. Total exports of forestry products exceed $6 billion and the industry employs 20,000 people. With the demise of tourism and the export education sector, selling logs, timber and other wood products to markets overseas will become the country's third largest export earner (behind dairy and meat).

However, Jones has decided the industry can't fend for itself and needs an extra dose of regulation. Yet his actions suggest the industry's interests are not his main priority. His innocuous sounding Forests (Regulation of Log Traders and Forestry Advisers) Amendment Bill will sacrifice the interests of forest owners – among them North Island iwi owners – in favour of utopian plans for an enhanced domestic wood processing sector, which Jones hopes will boost employment, especially in his homeland in the Far North.

The Bill was introduced into Parliament under urgency on May 14. Indeed, Jones was in such a hurry that he gave the industry only a week to provide submissions to the Select Committee considering the Bill. (And for reasons best known to the Minister, the Environment Select Committee has been tasked with evaluating the Bill, not the better qualified Primary Production Select Committee.)

The Ministry for Primary Industry's Regulatory Impact Statement on the Bill was only made available to submitters two days before the date of submissions closed. This haste would be unacceptable in an advanced democracy like New Zealand, even if all the Bill did was set out an occupational licensing regime to ensure log traders and forestry advisers are "fit and proper people" – which is the Bill's ostensible purpose.

Ulterior purpose

But it has become clear the Bill's proposed occupational licensing regime for log traders and forestry advisers is a Trojan Horse hiding more interventionist regulation of the forestry industry.

In speaking to the Bill, Jones said the industry was insufficiently "resilient" and too reliant on a small number of markets. He also called for an "enhanced domestic wood processing sector," in place of an over-reliance on exports of logs, claiming this would "play an important part [in] the recovery [of] our regional economies, helping create new export products, new jobs for Kiwis and a renewed sense of ownership of our forests."

This kind of politicians-know-better-than-businesspeople patter from Jones is easy to brush aside as familiar bluster.

But the Bill includes as its first purpose "[supporting] the continuous, predictable, and long-term supply of timber for domestic processing and export." The Bill provides for the formation of a new Forestry Authority. And, along with occupational licensing of log traders and forestry advisers, the new Authority's functions will extend to economic regulation of forestry owners.

This outcome is achieved through sleight of hand. By defining forestry owners selling logs directly to domestic or export markets as "log traders", an occupational licensing regime becomes a means of regulating forestry owners.

The Bill then proposes extensive regulation-making powers. Regulations may permit the Forestry Authority to set open ended "conditions of registration" and other rules imposing obligations on forestry owners, giving the Minister and the Authority a means of controlling the sale of logs by forest owners.

Using these rules, the new Forestry Authority could, for example, require forest owners to divert or withhold a proportion of their logs destined for international export markets to support Jones' hoped-for new domestic timber processing industry, possibly even at subsidised "domestic" prices.

Even more alarming, the Bill permits the Forestry Authority to delegate its functions and powers to unspecified parties outside the Public Service.

Unsurprisingly, in its submission the Legislation Design and Advisory Committee raised concerns about the consistency of the Bill with "fundamental constitutional principles and the rule of law." Indeed, the Committee even raises concerns about the legitimacy of the provisions in the Bill which purport to grant regulation-making power to an "undefined private body."

Cabinet papers silent

So how does the Ministry for Primary Industries Regulatory Impact Statement (RIS) deal with all of this? The short answer is that it doesn't. The RIS says nothing about the costs and benefits of economic regulation of forest owners. Jones' Cabinet paper advising his Cabinet colleagues of the scope of the Bill is similarly silent.

Instead, both the Cabinet paper and the RIS focus solely on the occupational licensing of log traders and forestry advisers – and not the economic regulation of forestry owners. It is as if both documents evaluate an earlier, narrower version of the Minister's Bill.

Indeed, the RIS explicitly states that the proposed registration system will not preclude forest owners from undertaking the management of harvesting and sale arrangements themselves "if they feel confident in undertaking the work." Yet the regime now extends its regulatory reach to all forest owners, big and small.

The RIS reveals serious shortcomings even with the Bill's more modest occupational licensing objective. The evidence relied on to support the proposed occupational licensing regime is described in the RIS as "qualitative," but it is clearly only anecdotal. Indeed, the RIS acknowledges shortcomings in the evidence available to define the magnitude of the problem faced by small forest owners arising from "time constraints on the policy development process."

This would be concerning enough if all the Bill proposed was an occupational licensing regime. It is in no one's interest for a regulatory regime to be introduced without a proper evidence base.

Threat to investor confidence

But the bigger problem lies with the more ambitious, unevaluated regulatory provisions of the Bill supporting the Minister's lofty plans for promoting "an enhanced domestic wood processing sector." The Minister's failure to subject these provisions to proper assessment – or to even raise them in his Cabinet Paper – shows a concerning disregard for due process.

Submissions from large forestry owners, including Kaingaroa Timberlands, in which the New Zealand Super Fund has a substantial stake (along with central North Island iwi), express alarm about the Bill. The concerns relate both to the impact on them as forest owners and the chilling effect on investor confidence in commercial forestry generally.

Though the stated goal of the Bill may be to increase forestry investor confidence, submissions from forestry owners repeatedly state that the Bill's intrusive powers risk destroying it.

The concerns are understandable. Jones appears to believe he can force one part of the forestry industry (forest owners) to subsidise another part of the industry (wood processors). Little wonder forest owners predict the Bill will harm investor confidence.

Unfortunately, the risks will not be restricted to investor confidence in the forestry industry. If the Government can introduce intrusive economic regulation that could control when, to whom and at what price businesses owners can sell their products – and do so stealthily, under urgency, without making out an evidence-based case – who could invest with confidence in the New Zealand economy?

Jones may think he knows better. But if his Bill is not cut down to size, New Zealand's forestry sector and the wider New Zealand economy will be its victims.

In the wake of Covid-19, the country can ill afford Jones' deluded do-gooding.

Roger Partridge is chairman of The New Zealand Initiative.