Regulation influences economic activity in a wide variety of ways, in such diverse areas as prices, company takeovers, exchange of information, health and safety, the environment and planning.
Parliament does not itself make regulations, but many laws Parliament passes make provision for regulations. For example a price control law might set up a board to regulate price changes.
Price regulation has had a long history in New Zealand, and has impinged widely on economic activity.
Board of Trade Act 1919
Rising prices are often a wartime phenomenon. The Board of Trade Act 1919, passed at the end of the First World War, continued some wartime price control measures. It assigned wide powers to government and contained provisions intended to limit profiteering. It authorised the establishment of fixed, minimum or maximum prices for any goods or services.
When prices dropped in the depression of 1921–23, the provisions of the act fell into disuse.
Price Investigation Tribunal
In June 1939, after a period of rising prices, a Price Investigation Tribunal was established. When the Second World War broke out two months later, price stabilisation emergency regulations were passed to fix prices. The administration of price levels was delegated to the price tribunal in December 1939.
In 1942 the approach was extended to stabilise all prices, including wages, rents and salaries. The cumulative effect of the price regulation was that the government of the day, without recourse to Parliament, had wide powers to enforce rules related to price setting. These rules became very intrusive of transactions among individuals and companies, and restrained economic activity.
Post-war price regulation
The Economic Stabilisation Act 1948 sought to institutionalise controls over prices and other economic indicators, particularly wages, in peacetime. In the 1970s price increases of all manner of goods, services and commodities were debated at price-control hearings.
In 1982–84 Robert Muldoon, who was minister of finance (and prime minister), extended regulation to setting interest rates in an effort to control rising inflation.
Regulation and the rest of the world
For most the period between 1938 and 1984 import and currency controls regulated New Zealand economic activity with the rest of the world. These controls did not much affect the import of raw materials, but they restricted imports of finished goods, limited purchases by New Zealanders of foreign goods, assets and travel. Controls were abandoned in the 1980s in an effort to improve economic performance and because it was increasingly difficult to operate financial controls.
End of direct regulation
The Labour government elected in 1984 believed too much state intervention in the economy impaired economic performance. In 1986–87 Parliament repealed price-control statutes, ending government’s authority to directly regulate prices. They were replaced by laws that were more selective and were designed to be administered by bodies at a remove from ministerial discretion.
The Commerce Act 1986
The Commerce Act 1986 set up a separate body – the New Zealand Commerce Commission – to administer competition law and the Fair Trading Act. The commission was also given the power to apply price regulation to industries that were assessed as natural monopolies.
The Commerce Act had an objective of good economic performance over time. Where competition law operated, the act sought to promote competition. Where there was less competition and regulation was stipulated, it sought particular outcomes in respect of such things as prices and profits.
A return to regulation
After the election of a Labour-led government in 1999, regulation of industry grew significantly in most areas of economic activity, including electricity, gas pipelines, telecommunications, banking, finance, housing construction and planning, education and insurance.
After 2000 the commission's role included administration of:
- the Dairy Restructuring Act 2001, which regulated the New Zealand market dominance of the dairy cooperative Fonterra
- the Telecommunications Act 2001, which regulated prices – particularly of Telecom
- electricity lines businesses since 2001
- gas pipelines since 2005.
The criteria the Commerce Commission used to decide on regulation of prices broadened. Controversy about these criteria and concern about the effect of regulation on investment, particularly in infrastructure, prompted a revision of the Commerce Act in 2008.
Regulation versus property rights
Regulation by statute can reduce both the property rights of individuals and the role of common law. Regulatory bodies such as the Commerce Commission are at the centre of such processes, adjudicating the reallocation, and often the reduction of individuals' rights in furthering statutory goals.
This tension between the objectives handed down by Parliament by statute and the property rights of individuals is addressed in some jurisdictions by placing limits on the extent to which property rights can be over-ridden and by providing for compensation and appeal mechanisms on regulatory decisions.
Since the late 1980s New Zealand’s regulatory arrangements have been evolving, reflecting this tension.