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Guidelines for Setting Charges in the Public Sector -April 2017

3.4  Impacts and incentives in cost recovery regimes

Understanding the impact of a cost recovery regime on current and potential users is an important step in assessing whether the cost recovery regime is appropriate. The questions that should be considered include:

  • What is the cumulative impact of government cost recovery charges on those who pay the charges? (ie, there should be consideration of the impact of the range of charges that affect those who pay charges, not just a narrow focus on the impact of a particular cost recovery regime)
  • Is the cost recovery charge likely to be a barrier to entry for new entrants to the market?
  • What incentives and behaviours is the regime likely to create for those who pay charges?
  • What incentives and behaviours is the regime likely to create for the charging entities?

When reviewing fees, it might be possible to use data and evidence based on previous changes to the cost recovery regime to understand potential impacts. In addition the impact of cost recovery regimes can be illustrated by user experience analysis, through developing 'personas' of some typical charge payers. This can help to demonstrate the impact of new charges or changes in charges in the context of the range of government charges that a fee/levy payer may face.

Incentives for users/payers

Consideration should be given to how to set incentives for the right behaviour from users and payers. This will require going back to the outcomes sought by the implementation of a cost recovery regime. The kind of behaviour sought might be things like ensuring the services are accessible, using the services at efficient levels (that is, not over-using them, but also not having inappropriate barriers to use), that businesses operate in accordance with regulations, and ensuring adequate levels of safety responses.

Charging regimes can influence these behaviours so consideration should also be given to ability to pay and other aspects of differential pricing. For more discussion on this, see section 5.6.

Incentives for agencies

Cost recovery regimes should be designed so that agencies can demonstrate that the outputs they deliver are cost efficient, in order to avoid the perception of things like cost-padding, or inefficiency. Being clear about the analysis of the cost regime in the CRIS, benchmarking, and reviewing the charges periodically are practical ways to achieve this.

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