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Guidelines for Setting Charges in the Public Sector -April 2017

3  The policy rationale for cost recovery

This section focuses on the key policy questions that should be considered when setting up a cost recovery regime and when reviewing charges. Having legal authority to charge for an activity, is not the same as justifying a particular charging policy. This is a matter of good policy practice and goes to the objectives of transparency and efficiency.

For some reviews, a restatement of the existing policy rationale from previous reviews may suffice. However, if there has been stakeholder feedback on the policy rationale, changes in related policy areas, or changes in the environment then the policy rationale may need more substantial re-working.

3.1  Understanding what is intended to be achieved and the related outputs

Describing what is intended to be achieved (the policy objectives or outcomes) and the outputs to be delivered will help identify whether cost recovery is appropriate. This should be available from the policy work underpinning the regulatory regime.

In addition to a description of what is intended to be achieved, agencies also identify who will be affected by the activity (both positively and negatively), and what the situation would be if the activity wasn't performed by government. See also the section on externalities.

Figure 2: How outputs link to policy outcomes[2]
Figure   .

Example: Food safety inspection fees

The Ministry for Primary Industries operates a cost-recovery process when carrying out the outputs (in this case, inspections of premises) which ensures that food is safe and suitable, and eligible for export (the intended outcome).

Do the outputs still deliver the desired outcome?

Agencies should assess whether the outputs still deliver the intended policy outcomes. This might involve asking:

  • Has anything in the environment or other policy settings changed?
  • Are these still the right outputs to deliver the policy objectives?

These questions will help determine whether a policy review or business process review is needed before undertaking a cost recovery review.

Are there other ways to achieve the outcomes?

As part of articulating the policy rationale for cost recovery, there should be an exploration of whether there are other ways to deliver the outcomes more efficiently or effectively.

Alternative delivery options could include:

  • Alternative public-sector provision - are there other providers in the public sector that could deliver (or partner with to deliver) the outcomes more efficiently or effectively? Are there other agencies providing similar or related goods or services?
  • Introducing contestability - are there ways in which contestability could be introduced into the delivery of the outcome, or components of it as a way of driving innovation and efficiency?
  • Outsourcing - could production be outsourced (for example, where the private sector undertakes similar activities, could it be more efficient due to the scale or use of existing infrastructure)?
  • Devolution - could production be devolved to an industry or other private sector provider to deliver at its own cost (potentially subject to Government imposed standards)?


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