New Zealand Productivity Commission Bill

on behalf of the Minister of Finance: I move, That the New Zealand Productivity Commission Bill be now read a second time. This bill establishes a new institution to undertake inquiries and research into matters of vital importance to the future prosperity of this country. New Zealand’s overall welfare is dependent on improving our productivity performance in both the private and the public sectors. Improving New Zealand’s long-run productivity requires challenging conventional thinking and requires new ideas. These ideas need to be grounded in evidence and widespread community engagement. The institution that this bill establishes will be given the statutory independence required to think outside the box, and the mandate and resources to provide evidence-based policy and engage widely in the course of carrying out its work.

I would like to thank the chair and members of the Commerce Committee for delivering a timely and unanimous report. The report confirms our shared objective of setting up a New Zealand Productivity Commission that will assist future Governments with the provision of independent advice on productivity-related matters to support the overall well-being of all New Zealanders. I am informed that all submitters supported the establishment of the commission and that they provided useful suggestions and comments. It has always been our objective to ensure that the purpose of the commission is to promote the overall well-being of New Zealanders. The amendment to clause 7 clarifies our objective by ensuring that the commission be open to a wide range of perspectives in undertaking its functions. The committee’s proposed changes to strengthen this objective are, therefore, supported by the Government.

In relation to the focus of the commission, I want to clarify that the intention of this Government is to allow the commission to cover a very broad range of productivity-related matters. Some submitters were concerned that the references to regulation in the functions gave undue emphasis to the commission’s role of considering productivity issues that arise out of how we regulate. Clearly, improving regulatory quality is an important objective of this Government. Regulation that stifles productivity and growth must be reformed, and we expect that the commission will be asked to undertake inquiries into regulatory matters from time to time. However, opportunities to improve New Zealand’s productivity performance will arise in a wide range of areas, and for that reason the Government supports the select committee’s recommendation to specify only the commission’s general inquiry function in clause 9(1)(a) to remove any misconceptions that the commission is primarily focused on regulation.

The Government will determine what inquiries the commission will carry out, although the commission can, on its own resolve, undertake research and promote public understanding of productivity-related matters. Although inquiries are determined by the Government, the commission is independent regarding how it carries them out. That balance, which is the key feature of the Australian Productivity Commission on which the New Zealand Commission is modelled, is seen as a major contributing factor to the success of this type of institution. The committee has proposed some amendments to the bill, in particular a requirement that the responsible Minister consult the commission in the draft terms of reference. We agree with this recommendation, as it reflects what we expect would happen in any event and reinforces the balance that we wish to strike. The committee has also recommended that the bill include an explicit ability for the commission to issue draft reports. Again, we expect that the commission would do that in any event, as the experience with the Australian Productivity Commission is that that is an important part of the inquiry process. We agree that giving the commission an explicit ability reinforces an expectation that it will issue and receive submissions on draft reports wherever practical.

The report of the Commerce Committee clearly demonstrates the widespread community support for the establishment of a New Zealand Productivity Commission. Since the bill was referred to the Commerce Committee, the Government has selected Mr Murray Sherwin as chair designate. In his role as chair designate, Mr Sherwin will be assisting officials with the establishment of the commission and he has chaired the appointment panel for the remaining commissioners. Progressing the appointments process in parallel with the legislation ensures that the commission will be operational on 1 April 2011. Once again, I thank the select committee members for the work they have done on this bill. We look forward to the passage of the bill and the establishment of the Productivity Commission.

I rise to set out Labour’s position on the New Zealand Productivity Commission Bill. Labour will support this bill, despite concerns about the potential for it to adopt a narrow view of productivity, and to move in a direction that is different from that of the cited precedent in the Australian Productivity Commission.

There are two versions of productivity that lie behind this debate. The first is a view of productivity that is broad, deep, and includes all skills, technology, and capital, and the ways in which they contribute to growing output per labour hour. There is another way—a short-term way—that people can contribute to productivity per labour hour and that is simply to reduce the supply of labour, to cut costs, and to sweat the assets harder in the short term, resulting in higher output per input, but mortgaging the future to pay for the present. Labour clearly stands for the former vision, a deeper, richer version of productivity, and for a mandate for the Productivity Commission that gives it the breadth and scope to responsibly address those factors as it must and should.

I am pleased to commend the work of the Commerce Committee in moderating the terms of reference, purposes, and objectives of the commission. It has brought the commission somewhat closer to the Australian model than was proposed in the original draft introduced by the Government. It is on that basis that Labour is prepared to support this bill’s passage through the House and to support the establishment of the commission, but we will do so with a clear reservation. That reservation is that we would have preferred to see in those terms of reference a more explicit mandate for economic and industry development, such as occurs in the Australian case. We hope, nonetheless, that the cooperation between the Australian and New Zealand commissions will be deep, and that the broad mandate of the Australian commission will be reflected in practice in the way that the New Zealand commission discharges its responsibilities. The select committee—

💬 Katrina Shanks: Have you read the commentary? We changed that.

I am very well aware, I say to Ms Shanks, of the changes that the select committee has made, and if the member would restrain herself, she would hear me say that the select committee has made this a better bill by giving the commission a broader mandate, and amending the functions of the commission to remove the previous dominant focus on investigating the impact of regulation.

This commission should not be a regulatory razor gang. We already have a regulatory impact assessment unit, and a regulatory responsibility process, and it is interesting that the Government has observed that in the breach, with fewer than half of the bills that have gone through in the last year having fulfilled its own criteria for regulatory responsibility. So Labour, frankly, does not need a lecture from the Government benches about regulatory responsibility, because Labour, when it was in Government, had a far stronger record of regulatory impact analysis than the Government has proposed. The last thing New Zealand needs is yet another razor gang pretending that deregulation is a substitute for sound economic development, or that sweating assets is a substitute for real productivity. It is our hope that that will not be the case under the new chair of the commission, Dr Murray Sherwin, who is a high-profile and able public servant but, it must be said, not necessarily the person to whom we would have first looked to be the founding commissioner, although we will work with him and look forward to seeing him chart a course to the future.

This is important work. New Zealand is lagging behind many OECD countries in terms of its productivity growth. Indeed, it was ranked only 22nd out of 30 in terms of economy-wide productivity. After a period of relatively strong productivity growth since the mid-1980s, when productivity growth cycles averaged between 2.5 and 2.9 percent, it began to taper off, and averaged only around 1 to 1.5 percent since 2000. The policy areas that could contribute, therefore, to raising New Zealand’s productivity include increasing incentives for investment—appropriate investment in business growth, not in bidding up each other’s property prices. A productivity commission, I believe, will have to deal with the incentives in our investment environment that are misdirecting capital flows to areas that do not raise skills, enhance tools, or improve output, but, instead, simply increase the costs of housing and building. That is not productivity.

Turning to the issue of stimulating innovation, I say that innovation is the engine room of productivity and the lifeblood of progress. Staying ahead of our competitors and enjoying the benefits of sustainable competitive advantage through intellectual property has to be what gives New Zealand the edge, builds on our fine natural resources, and brings home the bacon of a First World income, with which we can build a First World society. Innovation requires investment, and it requires systems that take a bright idea to a commercialisable development that can then reach a global scale and be marketed to the world. In building New Zealand’s skill base, too often it is the workers themselves who are forgotten in a debate about productivity, as though they are somehow an input cost or a commodity. Yet the most successful companies are the ones that involve their workers in building the best possible processes to create their products and services, that eliminate waste, that think of smarter ways of doing things, and that share the profits. Those are the most innovative and productive companies, and that is what we would like to see more of.

Of course, this theory all rests on a sound macroeconomic and fiscal environment. We could go, as we have in the previous bill, into debates about whether such an environment exists today. I can do no better than to point to Standard and Poor’s verdict that the current Government is on negative watch, no doubt as a result of several rounds of irresponsible tax cuts that the country could not afford. The Australian Productivity Commission provides a useful benchmark for how we can take that debate forward. It has played an incredibly valuable role, in our view, in providing independent review analysis and comment on policies and structures in all of the states and territories of the commonwealth. On top of that, in looking at the impact of reforms, the commission’s work assists its Government to benchmark its performance against other jurisdictions within the commonwealth, and to identify ways of doing better. I think it is fair to say that the commission has a reputation for excellence, and that comes, in part, from its independence.

The Australian Productivity Commission is also well resourced, with upwards of $30 million per annum. It attracts high-quality analysts and researchers. For such a commission to work well here, it will also have to have adequate capacity and funding. There may be some question about whether there is a depth of talent here to staff such a body, or whether some of that talent would need to be brought in from overseas. National has found some funding for the Productivity Commission within existing departmental baselines, and the Labour Opposition will be monitoring whether that funding will be sufficient to fulfil its mandate.

Let me summarise and close by saying that Labour is supporting this bill through all stages. The bill has benefited from the discussions in the select committee that improved it, and broadened its mandate and purpose. We do so with vigilance, and we do so with a warning. The warning is that this commission must not become a regulatory razor gang. The path to productivity is paved not with deregulation but with investment in skills, technology, and capital. The role, function, and mandate at the heart of this bill are charting that pathway, developing our industries, and providing sustainable growth in our economy.

Debate interrupted.