A new Productivity Commission will be set up early next year to help boost New Zealand’s economic performance across the public and private sectors, Finance Minister Bill English and Regulatory Reform Minister Rodney Hide said today.

The commission, which will have a wide-ranging brief, was part of the National-ACT confidence and supply agreement signed after the 2008 election.

“The Productivity Commission is another step in the Government’s programme to lift New Zealand’s economic performance in both the public and private sectors,” Mr English said.

“It is essential that we increase our economic growth if we are to create the jobs, higher incomes and opportunities New Zealand families deserve. Our main challenge is to ensure this growth is based on private sector investment and exports, rather than the unsustainable increases in government spending and borrowing of the past decade.

“This will require action across the board – and it’s why the Government will give the Commission wide scope in terms of the issues it directs it to consider.”

Mr Hide said productivity is crucial in ensuring New Zealand maintains and increases its standard of living.

“In the long run, productivity is the biggest determinant of wages and living standards. Lifting our output per worker - the amount of goods and services each worker produces and the value they add – is critical to closing the income gap with Australia. 

“This income gap is one of the main reasons we lose so many talented, hard-working New Zealanders every year. The Government is committed to taking a number of steps to close the economic gap with Australia.  Establishing the Commission is one concrete step towards arresting New Zealand’s productivity slide,” Mr Hide said.

The Commission’s roles and functions are modelled closely on the Australian Productivity Commission, which has been operating for more than 10 years. The Government intends to enact legislation setting up the Commission by the end of this year so it can be up and running by April 2011.

“It makes good sense for the two commissions to cooperate, given the Government’s strong commitment to create a Single Economic Market between New Zealand and Australia”, Mr Hide said. 

The independence of the Australian Productivity Commission has ensured that important public policy issues have been tackled in a non-political way. Examples of Australian Productivity Commission inquiries include energy efficiency and the economic impacts of migration and population growth.

The new Productivity Commission will be headed by up to four part-time commissioners and will provide independent advice on ways to improve productivity in areas identified by the Government.

Its main functions will include:

• Inquiries into productivity-related matters and reporting back to Ministers.
• One-off reviews of existing regulations.
• Reviews of the efficiency and effectiveness of regulatory agencies.
• Regulatory impact analysis of a small number of proposed new regulations.
• Research into productivity-related matters, to build up its institutional knowledge.
• Promote public understanding of productivity-related issues.

The commission will be funded through contributions from reprioritising the existing budgets of 29 Government agencies.

“No extra money will be called upon to fund the Commission and its activities,” Mr English and Mr Hide said.

Questions and Answers on the Productivity Commission

Q: Will the New Zealand Productivity Commission be a unit of an existing department or a new entity?

A: It will be a new Independent Crown Entity, like the Commerce Commission or the Law Commission.

Q: Wouldn’t it be cheaper to make it a unit of the Treasury, like the National Infrastructure Unit, the Debt Management Office or the Export Credit Office?

A: It would not necessarily be any cheaper to be run as a unit of an existing department and, more importantly, the Government is very keen to ensure that the public of New Zealand are absolutely clear that this is very much an independent agency.

However, we do want the Commission to operate as efficiently as possible, and it will share back office services with another agency. This will be worked through in the course of setting up the Commission.  

Q: How can we afford a new government agency with the Crown forecast to run deficits for years to come and the Crown’s net debt levels forecast to rise dramatically in the years ahead?

A:  Funding for the Commission will be sourced from the existing baselines of 29 Government departments, ministries and agencies that currently provide productivity-related policy advice and those agencies with a significant influence on productivity.  Not one extra cent of taxpayers’ money will be called upon to fund this significant new agency. Contributing agencies will be required to continue to fund all of their normal outputs out of efficiency gains.

Q: How will the NZPC compare with the set-up in other countries?

A: The New Zealand Productivity Commission is based closely on the Australian Productivity Commission – http://www.pc.gov.au  In terms of size it is comparable to the State of Victoria’s Victorian Competition and Efficiency Commission (VCEC), which is judged to have critical mass.

Funding is outlined in the table below, assuming that the required legislation is enacted by the end of December 2010, and the agency commences two inquiries between April and December of 2011, first reporting to Parliament in 2012. 

Q: When will the New Zealand Productivity Commission be up and running?

A:  The Government’s intention is to enact legislation by the end of this year so that the Commission can be up and running by the start of April 2011.

Q: How many staff will the NZPC have when it is fully up and running?

A: The agency will be headed by three or four part-time Commissioners, one of whom will be either a part-time or full-time Chair. There will be the option to appoint Assistant Commissioners, as required. The Commission will eventually be supported by up to 21 full-time equivalent staff.

Q: What will be the specific functions and powers of the NZPC?

A: To hold inquiries into, and report to the referring Ministers about, productivity-related matters; Conduct reviews on the effectiveness of New Zealand’s regulatory regimes; Conduct reviews of the efficiency and effectiveness of regulatory agencies; and, to undertake regulatory impact analysis of a small number of specific regulatory proposals.

On its own initiative, the NZPC will also be empowered to undertake and publish its own research into productivity-related matters and to promote public understanding of matters relating to productivity. The scope of the agency will include all matters relating to productivity, including:  enterprise (tax, regulation and competition), skills, innovation, infrastructure, natural resources, investment, international connectedness, and public sector productivity. 

Q: Why is the scope of the Commission’s work programme set so broadly?

A:  The scope is deliberately broad to enable the agency to do a wide range of inquires and reviews, given that the factors that impact on productivity are themselves many and varied. It is expected the agency will do no more than two or three large inquiries or reviews each year, or a number of smaller inquiries, as required.

Q: Does the establishment of the Productivity Commission signal the winding up of the 2025 Taskforce?

A: The 2025 Taskforce was established as part of the National-ACT confidence and supply agreement, and the establishment of the Productivity Commission does not alter that agreement. Accordingly, the 2025 Taskforce is still expected to deliver additional reports in October 2010 and 2011 as originally agreed.

Q: To whom will the New Zealand Productivity Commission report?

A: The Minister of Finance. Reports produced by the Productivity Commission will be required to be tabled in the House of Representatives. The Government-of-the-day will not be required to formally respond to any particular report from the Commission. 

Q: As we move toward a single economic market with Australia, what steps will be taken to ensure the new agency is up to speed with developments across the Tasman?

A: In August 2009, the Australian and New Zealand Prime Ministers agreed that if New Zealand were to establish its own Productivity Commission, there would be cooperation between it and the Australian Productivity Commission.  Discussions have already taken place with both the Australian Treasury and the Australian Productivity Commission on options for cooperation, and there is a commitment to ongoing cooperation around issues of mutual interest. This includes the potential for joint inquiries or studies into Single Economic Market-related issues.

Q:  What are the next steps for establishing the Commission? 

A:  It is anticipated that legislation establishing the Commission will be passed later this year, although the exact process for getting the Commission up and running is still being decided.  It is likely that a selection process for the appointment of commissioners will also start later in the year.  Recruitment of Commission staff will begin at about the same time. The Commission should be ready to start its first inquiry in April or May of next year.