The Government is seeking to retrospectively change the law to match the Ministry of Social Welfare's practice. Retrospective legislation is bad generally, and very bad in this case.

The Government has introduced a Bill which retrospectively changes the Social Security Act 1964 so as to nullify Crown liability to beneficiaries. It is generally accepted that retrospective legislation is generally not a good thing. I want to talk about why that is, and why this particular retrospective legislation is particularly bad.

Background

The relevant provision currently states that, after a stand down, benefits commence on the last day of a stand down period. However, Ministry of Social Welfare practice has been to pay from the day after the stand down period. This error was identified by the Ministry on 20 May 2014 (according to the Departmental Disclosure Statement), and started to come to the attention of the public a few months ago. Initially, it was reported that the Ministry had changed its practice to match the law, and was making back payments.

The Government has now introduced a Bill to retrospectively amend the Social Security Act back to 3 June 1998 to match the operational practice. If the Bill passes, the entitlement to an extra day of benefit payments that many people must only just have realised that they had vanishes into thin air – it is as if they were never entitled in the first place. There are some exceptions but, for the most part, the Bill retrospectively wipes out entitlements.

Retrospective Legislation in General

My go-to piece on retrospective legislation is Jeremy Waldron’s “Retroactive Law: How Dodgy was Duynhoven?”. That paper explores the problems of retrospective legislation in the context of the then Labour government’s passing under urgency a piece of legislation retrospectively changing the Electoral Act so that Government MP (and minister) Harry Duynhoven did not lose his status as an MP after re-acquiring Dutch citizenship.

Retrospective legislation is generally considered to be a bad thing because it is inconsistent with the rule of law. The essence of the rule of law is the idea that we are governed by the law, as opposed to being ruled by the people who make up the government. Government by people unconstrained by law can lead to arbitrary and capricious decision-making – it is the stuff, as Mickysavage put it, of banana republics. While I’ve quoted a left-leaning Labour-aligned blogger, the rule of law is not a thing of the left. In the Duynhoven case, it was the right-wing opposition that objected to Labour using retrospective legislation. When the beneficiary underpayment story broke, right-wing National-aligned blogger David Farrar, who is generally a rule of law sort of guy gave the following concise take on the issue:

I would have though if practice doesn’t match the law, then it is the practice you should change – no[t] the law.

Even “Whale Oil” Cameron Slater wrote:

You might expect me to take the position that beneficiaries don’t deserve the money, and they shouldn’t get it.  But that’s not on. A deal is a deal…

You can’t just legislate your way out of it when you made a mistake.   What sort of example does that set?

As Waldron puts it, if a Government regularly deploys retrospective legislation then: 

the legal character of the system of governance begins to dissolve. A collapse in legality, a decline in respect for what we would call the principles of the Rule of Law, must lead ultimately to the determination that what we have here is not really a legal system at all.

Waldron quotes Lon Fuller, who observed that retrospective legislation:

undercuts the integrity of rules prospective in effect, since it puts them under the threat of retrospective change.

One of the ills of retrospective legislation is thus that it shakes our confidence that we can rely on the integrity of any of our laws, because the Government might just retrospectively change them. As citizens of a state where law ought to rule, we ought to be able to rely on the integrity of our laws. Our lawful conduct should not retrospectively be made criminal. Our enforceable contracts should not retrospectively be made unenforceable. Our rights should not retrospectively be taken away, and so on.

Generally speaking, we understand intuitively that it is unfair to change the rules of the game part way through. We accept that World Rugby might want to tinker with the number of points given for a try or a penalty. But we wouldn’t normally expect an announcement changing the rules to be made at half-time. Retrospective legislation is far worse than that: imagine an announcement that the new rules would be retrospectively applied to the World Cup, and the scores all re-calculated. Or, imagine if the Government had sought to take back the $1,000 KiwiSaver sign-up bonuses that it had already paid rather than just ceasing paying new ones.

There is a view that retrospective legislation is only bad if it makes people worse off. This was one of the arguments that came up in the Duynhoven situation, since arguably he was a beneficiary of the retrospective change to our electoral laws. In his submission to the Privileges commission, Sir Geoffrey Palmer suggested that beneficial retrospective legislation is not constitutionally objectionable (though Waldron sensibly points out that there were those who lost out as a result of Duvynhoven keeping his seat). Perhaps no one would be objecting if the effect of the Bill was to retrospectively extent the benefit period by a day. But that is not the case.

A further view is, as that, as Jim Allan put it:

Retrospective laws are an evil that have to be weighed against the evil sought to be remedied.

That is, retrospective legislation can achieve valuable ends which can outweigh any of the general concerns about it. Is that what is going on here?

The Case for Retrospective Legislation on Social Security 

Let us start with the arguments for retrospective legislation in this case found in the Departmental Disclosure Statement at 4.3. The Statement correctly observes that the Bill affects rights retrospectively, “which could be seen as contentious”, but suggests that the move is justified in this case to ensure:

  • the Government policy intent is upheld;
  • practice and understanding that has been previously applied by the Ministry of Social Development is validated;
  • financial costs to the Crown that were not anticipated are avoided.

The “evil” sought to be remedied here is thus that:

  • the letter of the law does not match what the Government actually intended, or the Ministry’s “practice and understanding”; and
  • the Crown suddenly has a sizeable and unexpected liability.

Let us consider whether we have here a basis to justify the generally undesirable application of retrospective legislation. The first thing to note here is that this is the most pernicious sort of retrospective legislation, that which takes away rights conferred under the law. The bar for the evil to be remedied thus must be rather high. I will deal with each of the arguments in turn:

Upholding Government Policy Intent

I do not think it is sensibly open to argue that the law should be amended retrospectively simply because that is the current Government’s policy intention. That is not in itself a justification for retrospective legislation. The only argument that might have some merit here is something like this:

Parliament, when it passed the Social Security Amendment Act (No 2) 1998, actually intended for benefits to commence the day after the stand down period ended. That this was always the practice is supporting evidence of this intention. The law should thus be changed to reflect Parliament’s intention.

The problem with this argument is that it is inconsistent with the rule of law. The law is not simply what the parliamentarians voting that day actually thought the law was. The law is Parliament’s intention, as evidenced by what the law actually says.

If Parliament has passed a law that doesn’t say what Parliament actually intended, then the options are either (i) argue for a statutory interpretation other than the plain meaning on the basis of evidence that establishes the intention was different; or (ii) change the law. This is how the rule of law is supposed to work. If the law, interpreted with all the interpretive tools available to Courts these days, does not reflect Government policy intent, then this is the fault of the legislators, not the law. As I have said, Governments can quite legitimately change the law prospectively – but retrospective changes are something else entirely.

If we care about the rule of law, then upholding government policy intention is not a good reason for retrospective legislation because it puts rule by people over the rule of law.

Validating the Ministry’s Practice and Understanding

If we care about the rule of law, then validating a Ministry that has not been applying the law is exactly the sort of thing that we should not be doing! I am really not sure that there is that much more to say here. The Ministry’s practice was invalid and it should not retrospectively be made valid. The Ministry’s understanding of the law was inconsistent with the plain wording of the law and should similarly not be retrospectively be made valid. I do not see how anyone with even the slightest regard for the rule of law could advance this as a reason for retrospective legislation.

The problem with this argument, and the “Government policy intention” argument, is that they fundamentally fail to engage with what makes retrospective legislation “contentious” in the first place. Retrospective legislation is contentious because it is inconsistent with the rule of law. Thus, arguments that are themselves inconsistent with the rule of law are not remotely close to the sorts of arguments that could persuasively make the case for retrospective legislation.

The Crown Liability Issue

This argument has some merit since it paints a picture of a problem so bad that it is justified to resort to retrospective legislation to cure it. However, it does not go far enough to show why this problem is so evil itself that it justifies the evil of retrospective legislation.

Unanticipated liabilities for the Crown cannot be a completely uncommon experience. I do not see anything special about this case that would require trampling over the rule of law. Especially considering that at the same time as it is legislating to remove the rights of beneficiaries to recover money owed to them as a result of an incorrect application of the law, the Government has instituted a process to make corrective payments to former Police staff whose pay had been incorrectly calculated. It also is not easy to imagine the Government retrospectively wiping out some unanticipated liability to businesses, or to insurers. This Bill is taking away from some of the least powerful members of society.

And the state is not known for being forgiving on people that it has overpaid. It was recently reported that the Government was still chasing (sometimes through debt collectors) Ministry of Education staff who were overpaid through the problematic Novopay payroll system. The Associate Minister for Social Development recently issued a press release boasting that:

The quarter to June 2015 saw a record $2.21 million in overpayments recovered from beneficiaries, a one million dollar increase from the previous quarter.

I agree that the Crown having an unanticipated liability is a problem. This is an unfortunate thing to have happened. The solution is to meet that liability, not to make it disappear.

Conclusion 

Retrospective legislation is inconsistent with the rule of law. There is nothing especially compelling about this problem so as to justify the evil of retrospective legislation (indeed, the especially evil evil of retrospectively stripping citizens of a right conferred to them under the law). The solution to this problem is to amend prospectively, and to meet the Crown’s obligations. This is how the rule of law is supposed to work. Any attempts to present this retrospective legislation as simply clearing up a problem ought to be opposed. Waldron noted of purportedly “curative” retrospective legislation that:

Often it is a way of covering up or avoiding the embarrassment of administrative irregularity — pretending it did not happen, and depriving the citizen of the remedies that would otherwise be associated with its occurrence.

That is what the Government is seeking to achieve here. It is deplorable.

Comments (15)

by Alan Johnstone on November 19, 2015
Alan Johnstone

Seems a clear case of the law should be applied as written.

How much actual cash are we talking about here ? Can't be all that much in the grand scheme of things.

by Andrew Geddis on November 19, 2015
Andrew Geddis

How much actual cash are we talking about here ? Can't be all that much in the grand scheme of things.

No idea! The Department Disclosure Statement accompanying the Bill didn't make any attempt to quantify the potential cost of not changing the law retrospectively!

Note also that any underpaid beneficiaries would have to positively request a review of their payments in order to receive the missed day - and how many people are going to ask for a review of their payments from (say) 2005?

by Fentex on November 19, 2015
Fentex

How much actual cash are we talking about here ? Can't be all that much in the grand scheme of things.

No idea!

That missing detail in the argument is what shows the whole matter is just class warfare - any debt to the poor is too much debt, no need to bother calculating it.

by Ross on November 20, 2015
Ross

Note also that any underpaid beneficiaries would have to positively request a review of their payments in order to receive the missed day - and how many people are going to ask for a review of their payments from (say) 2005?

But if the numbers of those asking for a review are small, why the need for retrospective legislation?

A spokeswoman for Ms Tolley said if the problem was not corrected, it would cost an extra $6 million a year for the extra day's benefit.

http://m.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11546801

by Ross on November 20, 2015
Ross

So, $6 million for 17 years is about $100 million. But the liability would be much smaller as many beneficiaries wouldn't apply for a review.

by Ross on November 20, 2015
Ross

But if the numbers of those asking for a review are small, why the need for retrospective legislation?

I'll answer my own question!

Paula Bennett and her Government are not exactly on friendly terms with beneficiaries. Remember the way Natasha Fuller and another beneficiary were treated by Bennett? They were outed for having the temerity to criticise Government police. The Director of Human Rights Proceedings later found Bennett breached Fuller's privacy but the Minister failed to apologise.

For some (many?) National MPs, it's not about the money - they simply don't like beneficiaries. And maybe they feel they're not going to lose many votes by legislating retrospectively.

by Stewart Hawkins on November 20, 2015
Stewart Hawkins

It's a benefit paid for by taxpayers. It's not a human right. The cost of administering this mess according to the law would be an abuse of the people actually working in this country. Thank goodness most commentators here are not responsible people...

by Alan Johnstone on November 20, 2015
Alan Johnstone

Stewart, if we don't live according to the rule of law, then what do we have?

 

by Stewart Hawkins on November 22, 2015
Stewart Hawkins

For Alan, quoting Sampford

"Indeed, the reliance on existing state of the law is an argument for retrospectivity, because the executive and others relied on what turned out to be a mistaken interpretation of the law. In these instances, it would be perverse not to perfect the law given that people have been led into error by the government. The retrospective legislation is concerned with making the law conform to that which people acting in purported reliance on the law believed to be the case. Failure to cure the defects in validate those actions in the circumstances could diminish respect the law rather than support it. "

In this case  I believe it is to prevent the abuse of the working classes by the beneficiary class.

 

by Ross on November 23, 2015
Ross

the working classes by the beneficiary class.

You ignore the fact that beneficiaries can and do become workers, and workers can and do become beneficiaries. Both groups deserve to be treated with respect.

by Andrew Geddis on November 23, 2015
Andrew Geddis

In this case  I believe it is to prevent the abuse of the working classes by the beneficiary class

What is the "abuse" of which you speak? The law gave these individuals a clear entitlement (and this wasn't a case of disputed interpretation of the governing statute - the wording is completely clear!). The Government failed to provide that entitlement, despite the law's clearly saying it must. So where's the "abuse"?

Contrariwise, applying your logic, why shouldn't Parliament urgently pass retrospective legislation to wipe the legal requirement to pay members of the Police for errors such as this and this? After all, the Police "relied on what turned out to be a mistaken interpretation of the law" when calculating the pay. So wouldn't retrospectively validating that error simply be "making the law conform to that which people acting in purported reliance on the law believed to be the case"? And by doing so, it would be protecting the taxpayer (who funds police salaries) from the "abuse" of having to pay to rectify the error?

by Simon Connell on November 23, 2015
Simon Connell

Sampford goes on to say (at 109-110):

[L]egislation validating defects is usually commonsense and unproblematic, and therefore does not provoke much opposition. However, it should be borned in mind that government officials may take too far the idea of 'validating defects': it is probably wise to be way of officials' conviction that the law should be changed to reflect their views rather than that their views should be changed to conform to the law. For example, one criticism of the Planet Protection Amendment Act 2004 (Qld), discussed above, was that it removed the right of affected property owners to challenge and seek review of decisions ... There is therefore some potential for injustice t one done by laws which are intended to validate defects.

One example of this is curative legislation which is made in order to prevent persons from receiving benefits which it was never intended they should receive... While [amendments to the Social Security Act 1947 (Cth)] were undoubtedly necessary to ensure that the intention behind the legislation was effective, they may also have caused considerable injustice to persons who acted in accordance with advice that they were eligible for the relevant payments.

Those examples aren't perfect analogies for the case we're looking at, but certainly establish Sampford also considers that even validating legislation is sometimes problematic.  

by Stewart Hawkins on November 23, 2015
Stewart Hawkins

The duration of the error, the numbers involved, the relative size of the error per person involved and the unknown liability all make disproportionate the effort, and more importantly cost, required to rectify the situation. In Andrew's examples perhaps the government might prefer to retain a productive Police staff by making this effort yet perhaps not wish to encourage beneficiaries any further. With regard to Simon's comment was there really much opposition? Pragmatism rather than idealism.

by Andrew Geddis on November 25, 2015
Andrew Geddis

The duration of the error, the numbers involved, the relative size of the error per person involved and the unknown liability all make disproportionate the effort, and more importantly cost, required to rectify the situation.

How do you know this? The Departmental Disclosure Statement doesn't tell us anything at all about the potential costs of just leaving things as they are and paying those individuals who lodge claims for reassessment of their benefits. (And those liabilities aren't "unknown" - they can (and have) been quantified and provided to Cabinet, it's just that we're not told the results of that exercise.)

"Pragmatism" in this case is just another term for "what can we get away with". There's no real political cost to treating beneficiaries (and the law governing the payment of benefits) in this way. There'd be a large political cost to doing the same to Police. So the importance of the legal rules controlling governmental action boil down to political calculations - which is kind of the antithesis of "the rule of law".

by Ross on November 26, 2015
Ross

The Departmental Disclosure Statement doesn't tell us anything at all about the potential costs of just leaving things as they are and paying those individuals who lodge claims for reassessment of their benefits. (And those liabilities aren't "unknown" - they can (and have) been quantified and provided to Cabinet, it's just that we're not told the results of that exercise.)

As per the Herald article above, the notional liability is apparently $6 million per year or about $100 million in total. The actual liability would be considerably less.

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