The nation feels gloomy. Recent polling shows a majority of New Zealanders still believe the country is on the wrong track – but there’s one glimmer of light on the horizon. Better drugs are coming. Now that Act leader David Seymour’s Misuse of Drugs (Pseudoephedrine) Amendment Bill has passed its third reading, we can all look forward to decent cold medication and clearer bronchial tracts.
Pseudoephedrine was classified as a restricted medicine in 2009 as part of the Key government’s war on methamphetamines.
The reclassification was a total failure: it incentivised gangs to build links with international crime syndicates and they began importing meth and selling it at a much lower price, due to larger volumes of product.
Meanwhile, drug companies began selling decongestants based on phenylephrine that many subsequent studies found to be indistinguishable from a placebo.
For Seymour, this was a fantastic example of New Zealand’s “set and forget” attitude to regulation. Even though it didn’t work, the ban just sat there on the law books for 15 years. In addition to undoing it, Seymour is also setting up a new Ministry for Regulation, which will undertake sector-by-sector reviews of the nation’s regulatory framework. Instead of just leaving decades of legislation in place, like geological layers of rock and sediment, it will excavate and dig everything away. Seymour wants to “remove everything in the sector that we wouldn’t do today”.
In the coalition government’s cosmology, regulation is the great Satan: “the obstruction economy”, “red and green tape” imposing costs on businesses, driving up prices, holding back growth. Over-regulation is the reason there is evil in the world. Alongside Seymour’s Ministry for Regulation, it has announced it will deregulate the building-materials sector. It is 50% more expensive to build a house in New Zealand than it is in Australia, and the complex licensing and consenting system is seen as a large component of that cost.
Goldilocks problem
But that policy stirs up dark memories of the regulatory bonfires of the 1980s and 90s. These led to notorious policy disasters reflected in speculative bubbles and the leaky homes crisis. In 1991, the government liberated the building industry from obstructive red tape (why should some fat cat bureaucrat in Wellington impose insulated cladding on your new home? Wasn’t having the state dictate what kind of timber you needed for your wall frames a new form of fascism?), replacing it with a system of “self-regulation”, which – again, predictably – turned out to be no system at all.
As a consequence, many schools, apartment buildings and tens of thousands of homes were built with substandard materials. They leaked, rotted and bloomed with mould. In 2010, a consultant studying the problem for Auckland Council estimated 89,000 houses constructed between 1992 and 2005 nationwide were leaky homes, and that they’d cost about $32 billion (at 2024 rates) to fix. So the government is reacting to a regulatory regime which is itself a reaction against an era of catastrophic under-regulation. We seem to have a Goldilocks problem in which we veer between ideologically driven extremes instead of finding a coherent balance.
The first sector to come under review by Seymour’s new ministry will be childcare, an industry in urgent need of investigation. Our childcare costs are among the highest in the world. Couples here with young children pay an average of 37% of their income for care, compared with the OECD average of 13%. A 2021 OECD report ranked us 33rd out of 44 countries. As usual, we’re a lot more expensive than Australia. In a recent regulatory impact statement, Inland Revenue and the Ministry of Education admitted that they didn’t know why these costs were so high.
Seymour suspects prices are partly driven by compliance costs imposed by the ministry. So it seems like a sector ripe for deregulation – but it’s all too easy to imagine a future in which an overcorrection and another self-regulation regime – relaxing laws on background checks for staff, or robust health and safety measures, say – leads to the predictably horrible outcomes New Zealand specialises in.
Bribes not fixes
Both National and Labour campaigned on subsidising early childhood care fees: Labour extended 20 hours free to 2-year-olds, National will replace this with a rebate of up to $75 a week. This is a pattern that repeats itself across our political economy: an industry or sector is broken, usually because a poor regulatory environment enables artificial scarcity (as practised by the supermarkets) and drives up prices. Instead of fixing this, Labour and National prefer to bribe voters with transfers and rebates to subsidise demand. Market leaders invariably just raise their prices to capture this new revenue. The accommodation supplement costs about $2.3b a year to help pay rents and mortgages; Labour’s 20-hours-free extension would have cost $1.2b over four years. This is a terrible way to run a country.
Seymour’s new ministry is a rare opportunity to break out of this trap. It’ll function as a central crown agency, meaning that it sits alongside Treasury, the Public Service Commission and the Department of the Prime Minister and Cabinet, helping co-ordinate the entire public service.
But there’s every chance it will just become part of the mess. MMP seems to incentivise creating departments, ministries, funds and commissions.
Even after the current round of cutbacks, Wellington’s bureaucracy will likely remain a sprawling, bloated labyrinth.
Seymour’s deregulators might get lost in the maze of agencies and a purgatory of Zoom meetings. They might battle their way through and make things worse.
But it’s pretty to think they’ll succeed – find the right balance and this government will exorcise its great Satan without desolating the rest of the country.
We’re heading into a dismal winter with inflation and recession still stalking the land – the nation needs more than effective decongestants to look forward to.
