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Guidelines for Setting Charges in the Public Sector -April 2017

Overview

The government provides a variety of services to the public in pursuit of its policy objectives. There is a range of possible funding sources for these government activities, including cost recovery, general taxation, revenue from government investments, and revenue received through commercial charges which are usually based on market rates.

In some cases, legislation allows the cost of these services to be recovered from users. The types of activities that are cost-recovered are decided on a case by case basis depending on the nature of the activity, the intended policy outcomes, who can or should be charged, and the effectiveness and efficiency of cost recovery.

Users and the public should be assured that government agencies are managing their costs efficiently and effectively, and taking appropriate consideration of principles such as transparency and accountability.

Purpose of this guidance

The purpose of this guidance is to assist government agencies in designing and advising on cost recovery regimes and to effectively manage and monitor cost recovery. It provides guidance on the issues to consider and on engaging stakeholders in the development of cost recovery proposals.

When this guidance should be used

The guidance should be used when there is statutory authority to charge third parties to cover the costs of an activity undertaken by the government (or local government) and the government is a monopoly supplier of the activity.

This might include the supply of goods or services (such as passports), approval activities (such as inspection of facilities or equipment, assessment to undertake activities, evaluation of products for safety) or compliance activities (such as monitoring compliance with safety standards or investigations of breaches of standards).

You should use this document as your starting point for preparing analysis on cost recovery regimes, both when they are being established, and when existing charging regimes are being reviewed.

Internal regulatory review panels, Treasury teams, and stakeholders of charging regimes may also use this guidance to assist in their roles in providing feedback and advice on developing cost recovery regimes.

This guidance does not apply to:

  • commercial or market-based products or services where users could choose alternative providers (such as the provision of legal advice). In these instances, it is presumed that competitive pressure ensures that prices are set at efficient levels
  • contractual payments
  • charges for Crown-controlled resources (such as minerals) and access charging regimes, as such charges may be determined on a basis other than cost recovery
  • taxes, duties or levies (where they are more akin to a tax – more on this in sections 1.1 and 5.2)
  • penalty fees that are not related to cost recovered activities (for example, motor vehicle speeding fines), and
  • intra-government charges (ie, charging arrangements between government agencies for services performed on another's behalf).

However, the principles and information outlined in this guidance might be of use when determining prices in these kinds of situations.

Where there is more specific charging guidelines in place (eg, the Ministry of Justice's guidelines for charging for official information requests) this guidance should be read alongside the specific charging guidance.

What's new and the context

The Treasury first issued guidance for cost recovery in thOverview The government provides a variety of services to the public in pursuit of its policy objectives. There is a range of possible funding sources for these government activities, including cost recovery, general taxation, revenue from government investments, and revenue received through commercial charges which are usually based on market rates. In some cases, legislation allows the cost of these services to be recovered from users. The types of activities that are cost-recovered are decided on a case by case basis depending on the nature of the activity, the intended policy outcomes, who can or should be charged, and the effectiveness and efficiency of cost recovery. Users and the public should be assured that government agencies are managing their costs efficiently and effectively, and taking appropriate consideration of principles such as transparency and accountability.e public sector in 1999. This latest review of the guidance has been prompted by Ministerial interest in ensuring an 'open book' approach is applied to cost recovery charges imposed by the public sector; that is, that charges are efficient and effective and that stakeholders have visibility over the costs that underpin the charges they pay.

'Open book' refers to engagement and transparency throughout the fee setting process, from the initial proposal to charge, to setting levels, to monitoring the efficiency and effectiveness of fee structures, and in reviews.

At its simplest, this expectation is that agencies need to demonstrate to fee payers throughout this process that fees are fair and reasonable, and this requires demonstrating transparency about the composition of fees (that is, inputs and costs), how the agency will assess efficiency (eg, benchmarking) and that there are appropriate constraints on charging practices (in particular where charges are on an hourly or variable basis).

This update also responds to a recommendation by the Productivity Commission, in its inquiry on Regulatory Institutions and Practices, [1] to review and consolidate guidance on cost recovery. The Productivity Commission included a chapter on 'Approaches to Funding Regulators', with a range of recommendations to improve New Zealand's approach to cost recovery through strengthening the governance and accountability framework.

The guidance has also been expanded, with more detail on the legal aspects of cost recovery, as well as implementation and monitoring of cost recovery regimes, and a clearer expectation for regular reviews.

Finally, this revised guidance also launches a new set of Regulatory Impact Statement templates that are specific to cost recovery proposals, called Cost Recovery Impact Statement templates.

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