Introduction
The focus of this paper is to identify principles for where and how the Crown[2] should charge for the use of natural resources that it owns or manages (see Appendix 1 for examples), along with a brief discussion on how the revenue from such charges should be used.[3]
There is currently no substantive general guidance on the design of royalties in New Zealand.
The reason for writing the paper is the inadequacy of current guidance, in particular the lack of generally accepted goals or design principles. This lack stands in sharp contrast to the formal guidance available for cost recovery arrangements, which can overlap with royalties.
The paper also briefly notes the types of charges that may be levied on natural resources and Appendix 2 summarises a range of such mechanisms.[4] The focus, however, is on designing royalties to optimise incentives for resource use, with some discussion around how revenue is used, specifically arrangements that tie revenue to certain activities.
Alternative definitions exist for royalties and resource rentals. A summary version is that royalties are payments for extraction or depletion of a finite resource, while resource rentals are payments for non-depleting use or occupation of a resource. The distinction is relevant to some policy discussions but for simplicity this paper uses the single term ‘royalty’.
Natural resource ownership is outside the scope of this paper.
The paper does not distinguish between Crown ownership or management of a resource, or discuss arguments for or against outright sale of natural resources. Those arguments are typically based on social or economic considerations outside the scope of this analysis. The assumption here is that Crown ownership or management will continue for some time at least.
The following proposed goal and design principles are not intended as formal guidance, but rather to support an explicit debate that should improve the final outcome in this important policy debate.
Notes
- [2]There may be circumstances where the interest in a resource is particularly local, or for specific reasons a resource is deemed to be held at the local government level. In such circumstances, the arguments in this paper would apply within that local area.
- [3]An outline of how natural resources are broadly managed in New Zealand can be found in previous papers: Guerin, K. 2003. Property Rights and Environmental Policy: A New Zealand Perspective. Wellington: New Zealand Treasury, Guerin, K. 2004. Theory vs Reality: Making Environmental Use Rights Work in New Zealand. Wellington, New Zealand: New Zealand Treasury.
- [4]A separate note, available on request, “Specific revenue mechanisms in environmental policy – 22 September 2006” describes the range of environmental revenue mechanisms available and factors relevant to their application. Its focus is practical rather than theoretical, dealing with feasibility, objectives, mechanisms and uses of revenue.
