The case for regulatory standards

Dr Eric Crampton
Insights Newsletter
11 July, 2025

Parliament faces tighter constraints when it wants to spend money than when it wishes to regulate. The Regulatory Standards Bill would set the two on slightly more equal footing.  

Legislation like the Public Finance Act matters for spending. But the budget process sets its own binding constraint.  

When Cabinet is faced with requests for more spending than Parliament wishes to fund, some budget bids lose out. That fact is hardly antidemocratic. Neither does it thwart Parliament. 

Regulation does not face anything like the same constraint. The burden of providing the public benefit, through regulation, largely falls outside of government. Regulations do not need to defeat competitors in a budget process. They mainly need to sound appealing.  

The imbalance means that government can be tempted to use regulation in cases where spending would be more cost-effective. For example, heritage preservation would be far more successful and less contentious if government and council paid for the amenity directly.  

The Regulatory Standards Bill heightens awareness of an important principle. Those compelled to provide a public benefit through regulation should be compensated – at least when legislation takes or impairs property.  

If that principle were followed, regulation would be weighed on the same basis as public expenditure. A bid to provide a public benefit through regulation would face the same scrutiny, through the budget bid process, as other spending measures.  

It would not guarantee that regulatory measures pass cost-benefit assessment any more than the current budget bid process does for spending measures. But we would have greater confidence that the public benefit provided by that regulation merits the cost. Or, at least, that Cabinet viewed the proposed regulation as delivering better value than other measures that did not make the cut. 

If compensation were warranted, the cost of providing the public benefit would fall on those benefitting, rather than being imposed on owners of the affected properties. 

The Bill cannot compel that compensation any more than the Public Finance Act can compel fiscal responsibility. It creates no claims at law.  

But it would strengthen regulatory scrutiny where it is needed most. Measures introduced under urgency can currently evade proper regulatory assessment. The Regulatory Standards Board proposed by the Bill could provide assessment even for measures passed under all-stage urgency, because its remit extends to existing Acts. 

It does not fix everything. But it is an improvement. 

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