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Guidelines for Setting Charges in the Public Sector -April 2017

1  The policy and legislative frameworks

This section covers the key policy and legislative considerations of a cost recovery analysis. It sets out some of the initial questions that the analysis should cover.

1.1  What is cost recovery?

Cost recovery occurs when an agency seeks to recover some or all of the costs of service provision from the users of that service, over a reasonable period of time. Cost recovery specifically applies to services that the government has a statutory authority to deliver. Broadly, there are two main categories of cost recovery - fees and levies.

  • Cost recovery fees: charges imposed on a specific individual or organisation for a good, service or regulation directly provided to (or directly benefiting) that individual or organisation.
  • Cost recovery levies: charges imposed on a group of individuals or organisations (eg, an industry) as a proxy for the individuals or individual organisations who directly receive or benefit from the good, service or regulation.

In reality the distinction between fees and levies is not always a bright line. Whether a fee or levy approach is used will depend on the facts of a given situation, such as the characteristics of the service and the overall policy objectives. This is discussed in more detail on pages 26-27.

Important note: Charges that are in excess of the costs of providing the service could be interpreted as a tax, in which case such charges must be authorised by or under an Act of Parliament as required by section 22(a) of the Constitution Act 1986. Taxes are outside of the scope of this guidance.

1.2  Should the government cost recover?

In a cost recovery analysis, it is worthwhile considering whether the government should in fact recover costs at all. Even if cost recovery has been in practice for some time, it should still be able to be justified. In some instances, it might be more appropriate to cover the costs of an activity through general taxation. Other alternatives to cost recovery are also covered on page 18.

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