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Charges in the nature of a tax

It is a fundamental constitutional principle that Parliament, and Parliament alone, can levy money for the Crown. This has its origins in article 4 of the Bill of Rights 1688 (UK) and is reaffirmed in section 22 of the Constitution Act 1986, which provides that it is not lawful for the Crown to levy a tax except by or under an Act of Parliament.

The imposition of a tax, which is a compulsory exaction of money not related to any benefit received, can have potentially significant impacts on the financial rewards or costs individuals face from their actions or activities, with consequential effects on the economic choices they make. Therefore it is important that the potential taxpayers are well aware that a tax is proposed, and that Parliament provides for appropriate safeguards when it grants discretionary powers over taxes to another party.

Question 4.2

4.2.  Does this Bill create or amend a power to impose a fee, levy or charge in the nature of a tax? [YES/NO]

What matters are covered by the question?

This is not intended to require disclosure of all provisions that impose a tax. A tax, excise or duty imposed where the rate of tax is itself specified in an Act, and where the tax paid will form part of the general revenue of the Crown, does not need to be disclosed under this question as it will be very clear that Parliament is setting a tax, and that the revenue is not for a specific purpose. Examples include the imposition of income tax by s.BB1 of the Income Tax Act 2007, and imposition of totalisator duty by s.4 of the Gaming Duties Act 1971.

This question does, however, seek disclosure of any provisions that create or amend the imposition of a charge (by whatever name) that is to be set to meet the costs of specified functions, at rates to be specified by someone other than Parliament, and is in the nature of a tax. The Legislation Advisory Committee Guidelines (Chapter 3 , Part 4) suggest that a fee, levy or charge can be viewed as having the nature of a tax if it:

  • is greater than cost recovery
  • does not bear a clear relation to the cost of the function performed or service provided to those paying the fee or charge;  or
  • is compulsory, for a public purpose and enforceable by law, regardless of whether it is less or more than cost recovery.

For this to be lawful, it will need to have been expressly authorised by Parliament in an Act, in accordance with s.22 of the Constitution Act 1986. Otherwise a legislative reference to fees will be presumed to only authorise charges for a particular identified service supplied to the person required to make payment, that bear a clear relationship to the cost of supplying the service - for which no disclosure is proposed through this question.

There are a number of judicial decisions that consider fees and whether they are actually in the nature of a tax. For example, the High Court has held that a levy in excess of the costs incurred or services provided will be a tax:[30]

There can be no doubt the councils' concession that the levies in question were taxes was correct. The waste levy is a tax, as it involves the compulsory exaction from licensees of moneys not related to services received or costs incurred. It is intended to fund general waste management strategies not connected to the specific activities of the licensees.

As the Auditor-General sets out in the good practice guide Charging fees for public goods and services:[31]

Setting a fee that recovers more than the costs of providing the goods or services could be viewed as a tax. Unless expressly authorised by statute, this would breach the constitutional principle that Parliament's explicit approval is needed to impose a tax. Accordingly, any authority given to a public entity to charge a fee is implicitly capped at the level of cost recovery.

Examples of taxes include a regional fuel tax under the Land Transport Management Act 2003, non-earner levies under the Accident Compensation Act 2001 where the levy payer is not the beneficiary of the services funded by the levy, and the levy on contracts of insurance for fire that funds the New Zealand Fire Service.

What is the nature of the further information sought?

If the answer is YES, please:

  • identify the provision(s) that create or amend the imposition of a fee, levy or charge in the nature of a tax;
  • describe the nature and extent of the taxing power;
  • explain why the taxing power is necessary; and
  • explain the nature of any safeguards that will apply to the taxing power to ensure it is properly constrained and used appropriately.

When describing the nature and extent of the taxing power, describe:

  • what the taxing power will apply to (and who will pay the fee, levy or charge);
  • how the fee, levy or charge will be calculated;
  • how much money is expected to be collected;
  • what the money will be used for.

When explaining why the taxing power is necessary you should explain why this method was considered preferable to the alternatives that were considered, such as a fee for service or payment out of general taxation.

Safeguards that might apply to the taxing power include:

  • clarity about the range of functions, and types of costs, for which costs can be recovered;
  • provision for consultation on the level of costs to be recovered, and/or on the basis on which charges will be calculated;
  • provision for reporting on costs and revenues, and service levels provided
  • provision for refunds and waivers, and for handling cases of hardship or disputes; or
  • mechanisms that will ensure the tax applies fairly between those subject to the tax and those not subject.

Example: (for a YES answer, concerning the Land Transport Management Amendment Bill 2007

Clause 31 will insert a new subpart 3 into Part 2 of the Act to enable regional fuel taxes to fund capital projects.

Proposed section 65P will enable an Order in Council to be made prescribing the rate of the regional fuel tax.  The tax will be paid by wholesale distributors to the New Zealand Transport Agency, who will be responsible for distributing the revenue to the agencies responsible for the projects to be funded by the tax. The tax will be limited to a maximum of 10c per litre of petrol or diesel for up to 35 years.

The regional fuel tax will provide additional funding for regional capital projects that are a priority and that would not otherwise be funded within the timeframe desired by the region.

Regional land transport committees will be required to prepare and consult on proposed regional fuel tax schemes, which will then be forwarded to the Ministers of Transport and Finance for them to decide whether to recommend to the Governor-General the making of an Order in Council to approve a regional fuel tax scheme.  The Ministers will have to be satisfied that a regional fuel tax will contribute to an integrated, safe, responsive, and sustainable land transport system, and will result in net benefit to the region.  Commercial non-road fuel users will obtain refunds.  An Order in Council will be a regulation for the purposes of the Regulations (Disallowance) Act 1989 and the Acts and Regulations Publication Act 1989.

If the answer is NO, no further information is required.

Further sources:

  • Guidelines for Setting Charges in the Public Sector, The Treasury, Wellington, (December 2002); and
  • Report of the Regulations Review Committee on the Inquiry into the constitutional principles to apply when Parliament empowers the Crown to charge fees by regulations.[32]


  • [30]Carter Holt Harvey Ltd v North Shore City Council [2006] 2 NZLR 787 (HC). See also, Haliburton v Broadcasting Commission CA14/99 15 July 1999; Mount Cook National Park Board v Mount Cook Motels Limited [1972] NZLR 481 (CA), citing Re a Bylaw of the Auckland City Council [1924] NZLR 907; Air Caledonie International and Others v Commonwealth of Australia [1988] 82 ALR 385 (HCA).
  • [31]Charging fees for public sector goods and services, Office of the Controller and Auditor-General (2008) at [1.6].
  • [32](1989) AJHR, I. 16C.
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