Vote Customs - External Sector - Estimates 2016/2017

Overview of the Vote#

The Minister of Customs is responsible for the efficient and timely collection of Crown revenue forecast to be $13,498 million in the 2016/17 financial year.

The Minister of Customs is also responsible for the departmental appropriations in the Vote for the 2016/17 financial year covering the following:

• a total of over $9 million for services relating to clearance of craft crossing the border and the protection of New Zealand (through interventions, investigations and enforcement) from risk arising from international craft movements
• a total of over $75 million for services relating to the facilitation and clearance of goods crossing the border and the protection of New Zealand through (interventions, investigations and enforcement) from risk arising from international trade
• a total of over $68 million for services relating to the facilitation and clearance of passengers and crew crossing the border and the protection of New Zealand (through interventions, investigations and enforcement) from risk arriving from international travel
• a total of over $13 million on information, intelligence and risk assessment services relating to people, goods and craft crossing the border, and goods that attract excise duties
• a total of over $9 million on representing New Zealand in the international customs environment and providing services and support to the Minister
• a total of nearly $5 million on policy advice to Ministers relating to border security, border management, and customs revenue
• a total of over $11 million on collecting revenue on behalf of the Crown, and
• a total of $15 million for capital investment in departmental assets.

The Minister of Customs is also responsible for the non-departmental appropriations in the Vote for the 2016/17 financial year covering the following:

• a total of $8 million to provide for doubtful debts on revenue collected for the Crown, and
• a total of $60,000 for payment of New Zealand's annual contribution to the World Customs Organization's operating budget.

Details of these appropriations are set out in Parts 2-4.

Details of Appropriations and Capital Injections#

Annual and Permanent Appropriations#

Capital Injection Authorisations#

Supporting Information#

Part 1 - Vote as a Whole#

1.1 - New Policy Initiatives

1.2 - Trends in the Vote#

Summary of Financial Activity#

Note - where restructuring of the vote has occurred then, to the extent practicable, prior years information has been restated as if the restructuring had occurred before the beginning of the period covered. In this instance Total Appropriations for the Budgeted and Estimated Actual year may not equal Total Appropriations in the Details of Appropriations and Capital Injections.

Adjustments to the Summary of Financial Activity Table Due to Vote Restructuring#

There have been no restructuring adjustments to prior year information in the Summary of Financial Activity table.

1.3 - Analysis of Significant Trends#

Significant changes in departmental appropriations in Vote Customs are discussed briefly below (there is no significant change in the non-departmental appropriations).

Departmental Output Expenses

Annual appropriations for the purchase of departmental outputs is a total of $190.964 million for 2016/17, an increase of $17.416 million compared with 2015/16. The net change in the total appropriation primarily relates to additional funding in Budget 2016 for:

• providing a world-class experience at the border (a suite of border sector initiatives in the Business Growth Agenda Exports Markets work stream) - an increase (of $9.564 million) in the funding in 2016/17 compared to 2015/16
• modernising and transforming the New Zealand Customs Service workforce - while funding (of $784,000) was provided for 2015/16, the total increases (by $3.974 million) from 2016/17.

That net change also includes additional funding in Budget 2015 for managing our border through:

• the implementation and ongoing operation of next-generation SmartGate automated passenger processing technology - an increase (of $2.98 million) in the funding in 2016/17 compared to 2015/16
• extended risk screening of departing passengers - an increase (of $674,000) in the funding in 2016/17 compared to 2015/16.

In the Clearance and Enforcement Services Related to Passengers and Crew appropriation, the mix of operational funding has changed. With the introduction of the passenger Border Clearance Levy (BCL) on 1 January 2016, the funding provided by the Crown will significantly decrease in 2016/17 (compared to prior years) as this funding is replaced by, and the appropriation transitions to, increased third party funding from the BCL. By 2018/19 this appropriation will be almost fully funded by the BCL.

Departmental output expenses are currently expected to increase to $193.440 million by 2019/20. From 2016/17, the total includes the additional funding provided in Budget 2016 for providing a world-class experience at the border (a suite of border sector initiatives in the Business Growth Agenda Export Markets work stream), and for modernising and transforming the New Zealand Customs Service workforce.

Over the last five years (comparing the total for 2011/12 and the total budgeted for 2015/16), the net funding for Vote Customs has increased by $33.523 million. This change primarily relates to an increase in the operational funding provided for the Joint Border Management System - an increase of $18.408 million (from $5.207 million to $23.615 million) over that five year period.

It also includes specific ongoing increases in operational funding provided in Budgets 2009, 2010 and 2011 for SmartGate (initially funded in Budget 2009, and then additional funding provided for increased capacity in Budget 2011), and disrupting 'P' supply and dismantling criminal networks through Digitally Enhanced Systems technology; in Budget 2014 for ongoing management of the changes to duty-free tobacco concessions; in Budget 2015 for Managing our Border through expanding SmartGate and extended risk screening of departing passengers, and Building Export Markets through growing secure exports (particularly to China and ASEAN); and in Budget 2016 for modernising and transforming the New Zealand Customs Service workforce.

Departmental capital expenditure

The total forecast capital expenditure for 2016/17 is $15 million, a decrease of $10 million from the estimated 2015/16 spend of $25 million. This decrease primarily relates to the timing and level of capital expenditure for projects. These projects include the Joint Border Management System, and the purchase of the next-generation technology SmartGates (for which capital funding was provided in Budget 2015 for 2015/16 and 2016/17).

Capital expenditure also includes the standard replacement of operational assets as required to maintain and increase capability, including upgrade of core business systems.

Crown revenue

Under Vote Customs, the New Zealand Customs Service collects revenue on behalf of the Crown by way of customs duty and GST on imports, together with excise duty on domestically manufactured alcohol, tobacco, and petroleum products, and excise equivalent duty on the same products imported into New Zealand.

Since 2011/12, Crown revenue collected by the New Zealand Customs Services has exceeded $11 million each year, and is forecast to steadily increase from the $12,486 million collected in 2014/15 to a total of $15,504 million in 2019/20.

The total Crown revenue forecast to be collected in 2016/17 is $13,498 million, an increase from the forecast total for 2015/16 of $12,947 million. That $13,498 million total is expected to be composed of $8,820 million in GST (65.3% of the total), $2,442 million in Customs duty (18.1% - including excise equivalent duty), and $2,236 million in excise duty (16.6%).

Part 2 - Details of Departmental Appropriations#

2.1 - Departmental Output Expenses#

Clearance and Enforcement Services Related to Craft (M21)

Scope of Appropriation

Expenses and Revenue

What is Intended to be Achieved with this Appropriation

This appropriation is intended to achieve the operation of secure and efficient border processes in relation to craft so that New Zealand remains safe and secure from risk associated with international craft movements.

How Performance will be Assessed and End of Year Reporting Requirements

Note 1 - Boarding will be required for craft showing a high (Priority 1) risk, craft visiting New Zealand for the first time, craft where information is incomplete, and craft where a visit is needed to complete an administrative process (such as immigration or bonding ships stores).

Note 2 - Secondary interaction means any interaction undertaken over and above the initial boarding and clearance function and may range from talking to the crew to a full rummage. This output maintains high levels of compliance, and acts as a check on risk assessments.

End of Year Performance Reporting

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Current and Past Policy Initiatives

Reasons for Change in Appropriation

The increase in this appropriation for 2016/17 is due mainly to:

• the increased funding of $702,000 for workforce modernisation and transformation

• increased funding of $454,000 to improve the efficiency and effectiveness of the border sector.

Clearance and Enforcement Services Related to Goods (M21)#

Scope of Appropriation#

Expenses and Revenue#

What is Intended to be Achieved with this Appropriation#

This appropriation is intended to achieve the operation of secure and efficient border processes in relation to goods so that New Zealand remains safe and secure from risk arising from international trade, while ensuring that New Zealand's trade flows freely and the due Crown revenue can be collected.

How Performance will be Assessed and End of Year Reporting Requirements#

Note 1 - Customs' stakeholder survey has a 4% to 5% margin of error at 95% confidence. A 90% result, for example, could arise when the true actual level is 85% and, if so, a different sample could have generated a result of 80%. Budget standards for survey results build in an allowance for this expected range of results.

Note 2 - These measures indicate reduced intervention with export shipments where Customs can assure New Zealand's trade partners that the goods are secure. Exporters who are members of Customs' trusted trader programme, the Secure Exports Scheme (SES), can provide that assurance through their security processes, thereby reducing the need for inspecting their goods. These measures relate to full container loads.

Note 3 - The percentage of import transactions deemed compliant is lower than the percentage of export items deemed compliant because the nature of the risk is different between imports and exports; the nature of the traders involved is different, and risk for many exports is managed under the SES.

Note 4 - 'Intervention' means action by Customs to carry out further risk assessment. This may include, but is not limited to, document inspection, screening, or search.

Note 5 - Trade compliance field audits are carried out on the basis of identified risk, and this can result in complex audits.

Note 6 - The following output classes also contribute to the Protection outcome: Clearance and enforcement services related to passengers and crew; Clearance and enforcement services related to craft; Information and intelligence services; Policy advice; and International services and ministerial servicing. Most protection activity involves illicit goods.

Note 7 - The value of drug harm avoided, and loss to importers of illegal goods through seizure of drugs and cash is affected by drug importation activity.

Note 8 - From 2016/17, this will be measured by a survey of the New Zealand public (in previous years, the result was obtained from travellers surveyed through Customs' stakeholder survey). The measure gauges public confidence that Customs protects against people coming into or leaving New Zealand illegally, illicit drugs, people with criminal or terrorist intent, cultural and heritage items, endangered species and flora and fauna, illegal and stolen goods, and indecent materials entering or leaving New Zealand.

Note 9 - Enforcement consequence is comprised of Customs' Activity Reports raised at the International Mail Centre; and items referred to the Ministry for Primary Industries, New Zealand Post, or Ministry of Health. Activity Reports are raised when non-compliant items are found, and action is taken in response.

Note 10 - Investigations measures apply to all investigation cases. The 10% of investigation cases that take more than 12 months are particularly complex, and may be connected to subsequent investigations. They may be open for a number of years.

Note 11 - A serious investigation case involves, or has the potential to involve, serious community harm. Examples of serious investigation cases would include those that involve more than $250,000 drug harm (as calculated using the New Zealand Drug Harm Index), Class A or B drugs for supply, objectionable material involving child exploitation, or the importation of counterfeit medicines.

Note 12 - Punitive actions are actions resulting from a closed or completed serious investigation case where an offence has been committed and an offender has been identified, and where the result includes, but is not limited to: offender being placed before the Courts by Customs or New Zealand Police; seizure of goods; a formal warning to the offender; imposition of section 223 Customs and Excise Act 1996 penalty ie, fine or other penalty; or an administrative penalty.

End of Year Performance Reporting#

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Current and Past Policy Initiatives#

Reasons for Change in Appropriation#

The increase in this appropriation for 2016/17 is due to increased funding of $4.868 million to improve the efficiency and effectiveness of the border sector.

Clearance and Enforcement Services Related to Passengers and Crew (M21)#

Scope of Appropriation#

Expenses and Revenue#

What is Intended to be Achieved with this Appropriation#

This appropriation is intended to achieve the operation of secure and efficient border processes in relation to passengers and crew so that New Zealand remains safe and secure from risk arising from international travel, while ensuring that travel to and from New Zealand flows freely.

How Performance will be Assessed and End of Year Reporting Requirements#

Note 1 - Customs' stakeholder survey has a 4% to 5% margin of error at 95% confidence. This means that there is uncertainty about what the actual level is. For example, a score of 90% could reflect a true actual level of 85%. With an 85% actual level, a different sample could have generated a result of 80%. Budget standards for survey results build in an allowance for this expected range of results.

Note 2 - All passengers and crew are assessed for risk, including screening against advance passenger information. Information is collected from all passengers and crew as part of the facilitation process. Passengers and crew may be subject to dog and X-ray screening, and may also be referred from Ministry for Primary Industries screening.

Note 3 - 'Intervention' means action by Customs to carry out further risk assessment. This may include, but is not limited to, further questioning, interview, or baggage search.

Note 4 - 0.6% to 1.0% of passengers and crew are selected for further risk assessment, and directed to secondary areas for further intervention. From this point on, passengers and crew are no longer being facilitated, and Customs is carrying out an enforcement role.

Note 5 - All passengers who are searched produce either intelligence information, or discovery of prohibited, restricted, or dutiable items, or both.

Note 6 - For the purposes of this measure, 'eligible' means passengers aged 12 years and over travelling on a New Zealand or Australian electronic passport and arriving at or departing from airports that have SmartGate. Extending eligibility can affect use by existing eligible passengers where, for example, families do not complete SmartGate processing if one child does not process successfully.

End of Year Performance Reporting#

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Current and Past Policy Initiatives#

Reasons for Change in Appropriation#

The increase in this appropriation for 2016/17 is mainly due to:

• increased funding of $3.148 million for Managing our Border by expanding the use of SmartGate automated passenger processing technology
• increased funding of $2.164 million to improve the efficiency and effectiveness of the border sector.

Information and Intelligence Services (M21)#

Scope of Appropriation#

Expenses and Revenue#

What is Intended to be Achieved with this Appropriation#

This appropriation is intended to achieve the provision of information, intelligence and risk assessment services to external clients, and the operation of secure and efficient information and intelligence services in relation to people, goods, and craft crossing the border, and in relation to goods that attract excise duties.

How Performance will be Assessed and End of Year Reporting Requirements#

Note 1 - Requests are accepted if they are within the capability of the fleet resources. Acceptance is not determined by the availability of fleet resources.

End of Year Performance Reporting#

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Current and Past Policy Initiatives#

Reasons for Change in Appropriation#

The increase in this appropriation for 2016/17 is mainly due to:

• the increased funding of $721,000 for workforce modernisation and transformation

• increased funding of $81,000 to improve the efficiency and effectiveness of the border sector.

International Services and Ministerial Servicing (M21)#

Scope of Appropriation#

Expenses and Revenue#

What is Intended to be Achieved with this Appropriation#

This appropriation is intended to achieve the provision of international policy advice and services to ensure New Zealand's interests are effectively represented in international customs policy and the maintenance and development of relationships, and the provision of services and support to the Minister.

How Performance will be Assessed and End of Year Reporting Requirements#

Note 1 - For the purposes of this measure, "working day" means a working day as defined in the Official Information Act 1982.

End of Year Performance Reporting#

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Current and Past Policy Initiatives#

Reasons for Change in Appropriation#

The increase in this appropriation for 2016/17 is mainly due to:

• the increased funding of $1.044 million for workforce modernisation and transformation

• increased funding of $73,000 to improve the efficiency and effectiveness of the border sector

• a decrease in the funding provided for projects to support customs sector development in the Pacific and in other regions.

Policy Advice (M21)#

Scope of Appropriation#

Expenses and Revenue#

What is Intended to be Achieved with this Appropriation#

This appropriation is intended to achieve the provision of quality, timely, and cost-effective policy advice to Ministers to support decision-making by Ministers on border security, border management, customs revenue, and other policy proposals.

How Performance will be Assessed and End of Year Reporting Requirements#

Note 1 - The budget standard is based on the Minister's preference that a score of 70% corresponds to "meets expectations".

Note 2 - Reporting of this indicator is provisional on the Minister completing the assessment.

Note 3 - The higher the robustness score, the stronger the methodological quality of the completed assessment. The estimated robustness is based on NZIER carrying out a review of at least 10 randomly selected Policy Advice output papers.

Note 4 - Based on the allocation of FTEs to output Policy Advice appropriated by the Policy Advice output appropriation.

End of Year Performance Reporting#

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Current and Past Policy Initiatives#

Reasons for Change in Appropriation#

The increase in this appropriation for 2016/17 is mainly due to:

• the increased funding of $675,000 for workforce modernisation and transformation
• increased funding of $325,000 to improve the efficiency and effectiveness of the border sector
• a decrease in one-off funding in 2015/16 for the Low-value Imported Goods project.

Revenue Collection (M21)#

Scope of Appropriation#

Expenses and Revenue#

What is Intended to be Achieved with this Appropriation#

This appropriation is intended to achieve the operation of secure and efficient processes in relation to the collection of due Crown revenue to ensure that due Crown revenue is collected.

How Performance will be Assessed and End of Year Reporting Requirements#

End of Year Performance Reporting#

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Current and Past Policy Initiatives#

Reasons for Change in Appropriation#

The increase in this appropriation for 2016/17 is mainly due to:

• the increased funding of $832,000 for workforce modernisation and transformation

• increased funding of $1.599 million to improve the efficiency and effectiveness of the border sector.

2.3 - Departmental Capital Expenditure and Capital Injections#

New Zealand Customs Service - Capital Expenditure PLA (M21)#

Scope of Appropriation

Capital Expenditure

What is Intended to be Achieved with this Appropriation

This appropriation is intended to achieve the renewal and replacement of life-expired assets in support of the delivery of the New Zealand Customs Service's services.

How Performance will be Assessed and End of Year Reporting Requirements

End of Year Performance Reporting

Performance information for this appropriation will be reported by the New Zealand Customs Service in its annual report.

Reasons for Change in Appropriation

The decrease in this appropriation for 2016/17 is as a result of the profile and timing of the delivery of capital expenditure projects between financial years.

Capital Injections and Movements in Departmental Net Assets

New Zealand Customs Service

Part 3 - Details of Non-Departmental Appropriations#

3.4 - Non-Departmental Other Expenses#

Change in Doubtful Debt Provision (M21)

Scope of Appropriation

Expenses

What is Intended to be Achieved with this Appropriation

This appropriation is intended to achieve provisioning for doubtful debts on revenue collected by the New Zealand Customs Service on behalf of the Crown.

How Performance will be Assessed and End of Year Reporting Requirements

End of Year Performance Reporting

Performance information for this appropriation will be reported by the Minister of Customs (the Appropriation Minister) in a report appended to the New Zealand Customs Service's annual report.

World Customs Organization (M21)#

Scope of Appropriation#

Expenses#

What is Intended to be Achieved with this Appropriation#

This appropriation is intended to achieve New Zealand meeting its commitment as a member of the World Customs Organization (WCO) to contribute to the running costs of the WCO.

How Performance will be Assessed and End of Year Reporting Requirements#

End of Year Performance Reporting#

Performance information for this appropriation will be reported by the Minister of Customs (the Appropriation Minister) in a report appended to the New Zealand Customs Service's annual report.

Reasons for Change in Appropriation#

The increase in this appropriation for 2016/17 is due to an increase in the sum payable to WCO and a forecast exchange rate change.