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6.7  Reviews of cost recovery regimes

Cost recovery regimes should be 'living' regimes that are reviewed regularly to ensure that they are operating efficiently and that over-recovery or under-recovery is minimised.

We recommend that they be reviewed at least every three to five years.

However, there are other reasons why a cost regime might be reviewed outside a regular review cycle, including:

  • a legislative requirement
  • if the accumulated surplus or deficit in the memorandum account is trending away from zero
  • change in government priorities or a policy change
  • a material change in service delivery costs
  • changes in service relevance, and
  • a change in market conditions.

Triggering a review

When a cost recovery regime is established or changed, the process should identify what the trigger points for the next review are. This might include financial triggers such as large memorandum account balances, or material changes in forecast costs or levels of demand. For some cost recovery regimes a review period is set out in legislation. Good practice is for regimes to be reviewed at a minimum of every three years.

The information gathered through regular monitoring of cost recovery regimes should provide a good indication of when a cost recovery regime requires reviewing. Other factors when considering the timing of fee reviews are the stability of the service users and the stability of demand for the service.

Example: Border clearance levy

A new border clearance levy came into effect in New Zealand on 1 January 2016. It is designed to recover the costs of protecting New Zealand from imported pests, diseases, illegal drugs and contraband. Previously these costs were met by taxpayers. However, in recent years, passenger volumes have increased substantially, and are forecast to continue to increase. The Government considered that it was fairer for border risk management services to be funded by travellers. The levy rate was initially set at $18.76 + GST for air travellers and $22.80 + GST for cruise passengers for 30 months. At the end of this period it will be reviewed to assess its effectiveness and whether it needs to be adjusted.

Planning a review

Reviews should be adequately planned and scoped. Things to consider:

  • Process. How will the review run? When will the entity report to decision makers and in what form? How will this fit with other functions of government such as the annual Budget cycle, particularly if it seems likely that taxpayer funds might be required? How will consultation with stakeholders be run and managed?
  • Scope. What entities will be involved in the review? What charges, or types of charges will be reviewed? What activities will be considered?
  • Research. What other reviews have taken place? What other contextual information is relevant? What has changed since the last review? How has the implementation of the cost recovery regime performed against the performance measures that were identified at its establishment or at the last setting of the rate? What (if any) are the policy, legal or operational issues and risks that have been identified in the implementation?

Earlier sections of this guidance should be helpful when planning and scoping a review.

Reporting on the outcome of a review

Our expectation is that the CRIS templates will be updated with the outcome of the review.

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