Save Search

Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Commonwealth cost recovery policy.



Download PDFDownload PDF

4 December 2002 44/2002

Commonwealth Cost Recovery Policy

 The Government will introduce a formal cost recovery policy to heighten the transparency, consistency and accountability of cost recovery by government agencies, the Minister for Finance and Administration, Senator Nick Minchin, announced today.

 “Following a Productivity Commission review, I am pleased to announce that significant changes have been made to the way agencies set charges for particular products and services,” Senator Minchin said.

 The new policy requires that fees and charges set by government agencies reflect the costs of providing the product or service.  Costs, including certain overhead and infrastructure costs, which are incurred by government but are not directly linked or integral to the product or service, will not be recovered.

 Agencies with significant cost recovery arrangements will be required to have adequate mechanisms for stakeholder consultation, which may include consultative committees with stakeholder representation.

 The policy will apply immediately to new cost recovery proposals and will be progressively phased in for existing government cost recovery arrangements.  All significant existing cost recovery arrangements will be reviewed over a five-year period, according to an agreed schedule.

 “The Government’s cost recovery policy will deliver benefits to small businesses, industry and consumers alike by improving the consistency, accountability and transparency of cost recovery arrangements.  Cost recovery will now be undertaken within a clear and explicit framework and will be subject to increased scrutiny and periodic review,” Senator Minchin said.

 In announcing the Government’s policy, Senator Minchin also thanked the Productivity Commission for their report, Cost Recovery by Government Agencies, which the Government drew on in forming the policy.

 The Government’s response to each of the recommendations made by the Productivity Commission, the schedule of reviews for existing cost recovery arrangements and further information, including the Guidelines for Commonwealth agencies, are available at: http://www.finance.gov.au

Attached Documents Government Response to Recommendations of Productivity Commission Schedule of Reviews

 

Media contact:    David Wawn        (02) 6277 7400                 0409 866 462

Attachment 1: Government Response to the Recommendations of Productivity Commission Report no. 15 ‘Cost Recovery by Government Agencies’

 

Recommendation Response

3.1 All cost recovery arrangements should have clear legal authority. Agencies should identify the most appropriate authority for their charges and ensure that fees-for-service are not vulnerable to challenge as amounting to taxation.

Agreed.

The Government agrees that cost recovery arrangements should have clear legal authority and that all fees-for-service should ensure they are not vulnerable to challenge as amounting to taxation.

3.2 Revenue from the Commonwealth’s cost recovery arrangements should be identified separately in budget documentation and in the Consolidated Financial Statements. It should also be identified separately in each agency’s Annual Report and in Portfolio Budget Statements.

Agreed.

The Government agrees to the separate identification of cost recovery receipts in order to increase transparency of the revenue obtained from cost recovery arrangements.

Cost recovered revenue should be clearly identified in agency financial statements in both annual reporting and portfolio budget documentation.

4.1  The Commonwealth Government should adopt a formal cost recovery policy for agencies undertaking regulatory and information activities. This policy should implement the cost recovery Guidelines recommended by this inquiry.

Agreed in part.

The Government has announced a formal cost recovery policy for all Commonwealth agencies engaged in cost recovery.

To promote a rigorous application of this policy by agencies, the Government is issuing pragmatic and principles-based cost recovery guidelines.

The guidelines are based on those recommended by the Commission and reflect the Government’s cost recovery policy.

6.1  Subject to the completion of a Cost Recovery Impact Statement, the Australian Competition and Consumer Commission should adopt a cost reflective approach to setting charges for those activities for which it is appropriate to charge. Any departure from this general principle should be justified in the Cost Recovery Impact Statement.

Agreed.

The ACCC’s cost recovery arrangements will be reviewed in 2003-04.

Subject to this review, the ACCC shall adopt a cost reflective approach to setting charges for those activities for which it is appropriate to charge (and over which the ACCC has discretion to charge).

6.2  The Australian Competition and Consumer Commission should improve public information on the costs that the Trade Practices Act charges are intended to recover.

Agreed.

To aid transparency in Government cost recovery arrangements, the ACCC will review its provision of public information and improve information on the costs that the TPA charges are intended to recover.

 7.1  Cost recovery arrangements that are not justified on grounds of economic efficiency should not be undertaken solely to raise revenue for Government activities.

Agreed in principle.

The Government considers that cost recovery arrangements should have sound economic underpinnings and should not be undertaken solely to raise revenue for Government activities. The Government considers that one-off measures to address specific and exceptional policy needs fall outside the scope of the cost recovery policy.

7.2  Cost recovery arrangements should apply to specific activities or products, and not to the agency as a whole.

Agreed.

Cost recovery should be undertaken on an activity basis or, where it is efficient to do so, applied to groups of activities with similar characteristics or objectives. Cost recovery arrangements should, as a matter of principle, be considered on an activity basis rather than as broadly applying to the agency as a whole.

7.3  Cost recovery of activities should exclude those undertaken for the Government (such as policy development, and Ministerial or Parliamentary services), or to comply with certain international obligations.

Agreed in part.

Where functions undertaken for Government (such as the development of policy for Government and Ministerial/Parliamentary servicing functions) are directly linked to service and product delivery, they are validly considered to be integral to the costs of the activity and should appropriately be included in agency charging.

However, the Government agrees that, where the link cannot be well evidenced, such functions should not be cost recovered.

Similarly, international activities that are relevant and integral to the ongoing regulatory or information activities of agencies, should continue to be considered in the design of cost recovery arrangements (for example, some international regulatory standards conformance).

However, where activities are undertaken to comply with certain international obligations that arise as a result of general Government policy, the Government agrees that, in general, they should not be cost recovered.

7.4  The practice of the Government setting targets that require agencies to recover a specific proportion of total agency costs should be discontinued.

Agreed.

Consistent with the Government’s response to Recommendation 7.2, the Government agrees that the practice of setting agency cost recovery targets should be discontinued; cost recovery arrangements should apply to specific activities or products, and not the agency as a whole.

The Government notes that internal targets for private contributions may still be set for agencies that seek private funding for their work outside a cost recovery context.

7.5  Agencies and the Government together should define a basic information product set. This should be a dynamic process, with basic information products determined by reference to:

‘public good’ characteristics; ●

significant positive spillovers; and ●

other Government policy reasons. ●

Agreed.

The Government agrees that basic information products that are either substantially ‘public good’ in nature and/or have significant positive spillovers, and are not inconsistent with the Government’s policy goals should form the basic information product set.

7.6  The basic information product set of agencies should be funded from general taxation revenue. Agreed in principle. Where the Government has agreed with the basic information

product set, as determined according to the characteristics outlined in Recommendation 7.5, the Government will fund the collection and collation of information and reasonable means of dissemination from general taxation revenue.

Determining the basic information product set and the relevant funding by Government will be negotiated in the normal course of the Budget process.

7.7  As a general principle, the costs of providing information products that are additional to the basic product set should be recovered. However, cost recovery should not be implemented where:

it is not cost effective; ●

it would be inconsistent with policy objectives; or ●

it would unduly stifle competition and industry innovation. ●

Agreed.

The Government recognises that this recommendation is broadly consistent with the approach currently adopted by most Government information agencies.

The Government agrees that cost recovery should not be undertaken where it is not cost effective, would be inconsistent with other Government policy objectives, or would unduly stifle competition and industry innovation.

7.8  Additional information products should be classified into three broad categories and priced accordingly:

dissemination of existing products at marginal cost; ●

incremental products (which may involve additional data collection or compilation) at incremental (avoidable) cost; and

●

commercial (contestable) products according to competitive neutrality principles. ●

Agreed.

The Government recognises that this recommendation is broadly consistent with the approach currently adopted by most Government information agencies and agrees that additional information products should be classified into the three broad categories listed by the Commission and priced accordingly. Where a product is incremental to the basic product set, agencies should consider adopting an avoidable cost model to better reflect the true incremental cost of providing the product. Products that are to be disseminated beyond the means agreed by Government are to be priced using marginal costs.

In instances in which a government business activity is subject to existing competitive neutrality principles, the disciplines of competitive neutrality will be applied in preference to cost recovery principles.

7.9  As a general principle, the administrative costs of regulation should be recovered, so that the price of each regulated product incorporates the cost of efficient regulation. Cost recovery should not be implemented where:

it is not cost effective; ●

it would be inconsistent with policy objectives; or ●

it would unduly stifle competition and industry innovation. ●

Agreed.

The Government agrees that administrative costs of regulation are validly considered to be costs of the activity and should be recovered. This principle should support, to the greatest extent possible, the efficient pricing of regulated products.

Where cost recovery would not be cost effective, would be inconsistent with other Government policy objectives, or would unduly stifle competition and industry innovation, cost recovery should not be undertaken.

7.10  Cost recovery charges should be linked as closely as possible to the costs of activities or products. Fees-for-service reflecting efficient costs should be used wherever possible. Where this is not possible, specific taxation measures (such as levies) may be appropriate but only where the basis of collection is closely linked to the costs involved.

Agreed.

The Government agrees that charges for products and services should, as closely as possible, reflect the costs of providing the products/service; efficient costs should be used where possible. Where relevant, these costs should include operational/administrative costs and other costs integral to the activity.

The Government agrees that, as a general principle, fees-for-service should be used wherever possible, as they clearly evidence the nexus between the cost and the provision of the activity.

The Government notes that in some instances it may be appropriate for entities to introduce levies rather than a fee for service.

8.1  Agencies should not have automatic access to cost recovery revenue from compulsory regulatory activities. Funding for these activities should be subject to the same budgetary and Parliamentary scrutiny as activities funded from general taxation revenue.

Agreed in principle.

The Government notes this recommendation aims to improve the transparency and accountability of regulatory agencies with cost recovery arrangements. The Government has agreed, in its response to Recommendation 3.2, that agencies will separately identify revenues from cost recovery activities in budgetary documentation and annual reports. The Government considers that this provision will allow for increased parliamentary and budgetary scrutiny of all cost recovery arrangements.

The Government agrees with the principle that regulatory entities should not have the capacity to extend the scope of regulatory activities without this being subject to Ministerial and Parliamentary scrutiny. The Government adopts a range of financial mechanisms to ensure efficient and responsive Government operations. Such arrangements should be subject to similar levels of Government scrutiny and transparency as activities funded from general taxation.

8.2  Agencies with significant cost recovery arrangements should have adequate mechanisms in place to promote meaningful consultation with stakeholders. Consultative committees should include the following characteristics:

stakeholder representation; ●

a chairperson independent of the agency; ●

ability to monitor agency efficiency; ●

access to adequate information on agency processes and costs; and ●

transparent reporting processes. ●

Agreed in part.

The Government agrees that all significant cost recovery arrangements should have appropriate mechanisms to promote consultation with stakeholders. Where stakeholder consultation mechanisms exists, these could consider cost recovery arrangements.

In a devolved governance framework the Government does not consider it appropriate to mandate that consultative committees be established. However, the characteristics of consultative committees outlined in the Government’s guidelines may be a useful guide for agencies.

8.3  All existing, new and amended cost recovery arrangements of a significant nature should be assessed against the Guidelines recommended by this inquiry. All significant cost recovery arrangements should then be subject to periodic review, at least every ten years.

Agreed in part.

The Government agrees that all new and substantially amended significant cost recovery arrangements should be assessed against the Government’s cost recovery guidelines.

For existing significant cost recovery arrangements, the Government considers a five year review schedule is appropriate. Where possible, cost recovery arrangements should be reviewed in conjunction with other relevant agency reviews. These reviews shall form part of the normal Budget process.

The Government agrees that after initial review, all significant cost recovery arrangements should be subject to periodic review, as a matter of best practice policy review, by Government agencies, at least every five years.

The Government is issuing cost recovery guidelines based on those recommended by the Productivity Commission and reflecting the cost recovery policy as part of this response.

8.4  The Regulation Impact Statement process should be clarified to make it explicit that, where a regulation under review includes a significant cost recovery element, the Regulation Impact Statement should apply the Guidelines recommended by this inquiry.

Agreed in part.

Where a Regulatory Impact Statement (RIS) is required for a new policy proposal, and the proposal includes a significant cost recovery element, the RIS should apply the Government’s cost recovery guidelines. If significant cost recovery arrangements are not fully assessed against the guidelines at the point a RIS is completed, these arrangements should be assessed against the guidelines prior to implementation.

The Government will amend the RIS guidelines to include consideration of cost recovery arrangements in line with the Government’s cost recovery policy.

8.5  A Cost Recovery Impact Statement process should be applied to all significant cost recovery arrangements not covered by a Regulation Impact Statement. These include:

existing cost recovery arrangements; ●

new cost recovery proposals for regulations that affect individuals, not businesses; ●

new cost recovery proposals of information agencies; and ●

periodic reviews. ●

Agreed in principle.

Subject to the Government’s response to Recommendation 8.4, all significant cost recovery arrangements not covered by a RIS should address, where appropriate, issues outlined in the cost recovery guidelines through a Cost Recovery Impact Statement (CRIS). The Government considers the preparation of a CRIS to be a matter of good policy practice.

Existing significant cost recovery arrangements will be reviewed and CRIS’s will be prepared to ensure they comply with the Government’s cost recovery policy. This review process will take place over five years (see the Government’s response to Recommendation 9.1).

8.6  An independent review body should be appointed to assess whether Cost Recovery Impact Statements adequately address the cost recovery Guidelines.

Not agreed.

The Government does not accept the need for an independent review body to be appointed to assess CRISs. The Government considers that the increased transparency and accountability established by its cost recovery policy shall provide sufficient mechanisms for review.

All new significant cost recovery proposals will be reviewed by the Government as part of the Budgetary cycle. Existing significant cost recovery arrangements will be reviewed against the guidelines over five years and the findings of these reviews will be considered in the Budget context.

8.7  Agencies that cost recover should publish Cost Recovery Impact Statements and the assessment of the independent review body on their websites and include a summary in their Annual Reports. Cost Recovery Impact Statements should also be made available to Parliament through tabling or publication in Portfolio Budget Statements.

Agreed in part.

Agencies should include a summary of their CRIS in their Portfolio Budget Statements and should consider publishing them on their websites.

Consistent with the Government’s response to Recommendations 3.2 and 8.6, the Government has agreed to increase the transparency of reporting of cost recovery revenues in portfolio budget statements and annual reports. Similarly, the results of any reviews of significant cost recovery arrangements should be included in portfolio budget statements.

9.1  All existing significant cost recovery arrangements should be reviewed against the Guidelines within five years. The Department of Finance and Administration should prepare a review schedule.

Agreed.

The Government agrees that there is merit in existing cost recovery arrangements being reviewed over time.

The Department of Finance and Administration will coordinate the Government’s review schedule over a five year period. Where possible reviews will be incorporated into other appropriate review processes.

The results of all reviews to be considered in the Budget context.

 

Attachment 2 :  Schedule of Reviews Schedule of Reviews 2003-2004

Australian Competition and Consumer Commission Bureau of Meteorology Australian Government Analytical Laboratories Department of Transport and Regional Services (over two years)   2004-2005 Australian Quarantine and Inspection Service National Library of Australia Attorney Generals Department IP Australia Civil Aviation Safety Authority Therapeutic Goods Administration Department of Transport and Regional Services (over two years) National Industrial Chemicals Notification and Assessment Scheme

 

2005-2006 Australian Customs Service Australian Nuclear Science and Technology Organisation Department of Environment and Heritage Department of Foreign Affairs and Trade Australian Prudential Regulation Authority Australian Tourist Commission Australian Communications Authority

 

2006-2007 Australian Federal Police Commonwealth Scientific and Industrial Research Organisation Department of Industry, Tourism and Resources Australian Trade Commission Australian Bureau of Statistics Department of Finance and Administration Department of Immigration and Multicultural and Indigenous Affairs

 

2007-2008 Australian Securities and Investments Commission Airservices Australia Geoscience Australia Department of Agriculture, Fisheries and Forestry Australian Maritime Safety Authority Department of Education, Science and Training