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5.1  Who should pay?

There are some options about who should pay cost recovery charges. These might include:

  • people who benefit from the output (such as the holders of permits, owners of passports and so on), and
  • risk exacerbators (that is, the individuals or organisations whose actions make it necessary for the government to become involved). Examples of risk exacerbators include firms that produce waste or pollution, or certain road users.

The analysis should identify the parties that could be charged, and then assess the possibility of charging each of them on the basis of:

  • legislative authority
  • administrative feasibility
  • behaviour and incentives on the parties, and
  • equity.

In reality, the decision about who to charge may be based on what is administratively feasible, and in some instances the charges will subsequently be passed through to the final consumers. This includes managing the transaction costs involved (eg, costs of collection, compliance and enforcement), and ensuring that levels of evasion of charges would not be unacceptably high.

Where a charging entity cost recovers from a party who is not a direct beneficiary of the service, they should be able to justify this. In some instances, such as in the example below of airline tickets and aviation levies, the enabling legislation might require this. Beneficiaries should bear the economic burden so that they consume an efficient level of the good or service.

Behavioural changes can be prompted by cost recovery charges and the analysis should consider the implications of this for take up rates and the wider policy objectives. For example, charging risk exacerbators could lead to users avoiding activities like safety inspections and therefore undermine the overall policy objective.

Equity has a role to play in this consideration. In general it is more equitable to charge those who benefit directly or singularly from the output rather than spread the cost across the general public through taxation. The economic characteristic analysis will help here (for example, excludable and rivalrous goods will likely have a strong case for charging the user). For more on analysing the economic characteristics, see section 3.2.

The final decision will likely involve a weighing of these three factors.

Example: Airline tickets and aviation levies

International and Domestic Passenger Safety Levies are paid by airlines to the Civil Aviation Authority. These levies are passed through to airline passengers in the ticket price. Passengers are not able to be levied directly as the Civil Aviation Act 1990 only allows levies to be imposed on aviation document holders.

Although airlines bear the legal burden of paying these costs, passengers are the beneficiaries of the safety services driving these costs, and therefore bear the economic burden in the sense that the costs are being passed on to them.

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