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Discussion paper - a more equitable charging system



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TO MEMBERS OF THE AVIATION COMMUNITY

DISCUSSION PAPER - A MORE EQUITABLE CHARGING SYSTEM

The Board of the Civil Aviation Safety Authority (CASA) is proposing a fairer, more equitable charging system for funding the Authority.

I want to draw the proposal to your attention - not just because it is important and because it will have a direct affect on the way we manage aviation safety - but because the proposal needs the support of the aviation industry to succeed.

I believe it offers us all an opportunity to get the balance right between costs and service, and between tax and direct charges.

Under the present arrangements, where industry pays CASA’s costs through the aviation fuel duty, there are clear inequities. Heavy fuel users, for example pay more than those who use less - and often there is no match with the levels of service that they receive from CASA and what they pay.

Many other services have no charges and many users of the regulatory services pay little if any of the costs they incur. For the same service, compliant and proficient operators pay the same amount as the operator who is neither compliant or proficient.

Our number one priority is the fare-paying passengers and the Board is committed to ensuring that more time is allocated to fare-paying passenger operations.

This proposal meets the priority commitment - as well as providing a common sense solution to the inherent problems in the way the regulatory fees and taxes fall now.

While I commend the proposal to you - 1 also encourage you to let us know how it may affect your operations. This proposal will only proceed after the Board has considered industry views.

Dick Smith Chairman

15 April 1998

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C ivil A viation S afety A ut hor it y A u st ra li a

Discussion Paper

A MORE EQUITABLE CHARGING SYSTEM

DICK SMITH

CHAIRMAN OF THE CASA BOARD

15 APRIL 1998

Document DP9804FB

DISCUSSION PAPER

A MORE EQUITABLE CHARGING SYSTEM

The purpose of this discussion paper is to propose a better and more equitable way of funding CASA that is consistent with Government policy.

A central plank of the Government’s aviation policy “Soaring into Tomorrow” is that there needs to be a review of CASA’s funding system to ensure that it is fair and that any alterations to the system are revenue neutral.

In its first mandate letter to CASA, the Government indicated that “... the failure to charge, or failure to charge at any level worthy of the costs and value conferred, for licences and registration is clearly not acceptable, at a time when services are being fully cost-recovered”. The Government

requested CASA to undertake ”... an appropriate revision and extension of charges” but made it clear that the intention was not to form a major revenue raising exercise.

The CASA Board’s proposed new charging policy, which is discussed in detail below, will help move CASA to greater efficiency and accountability in the way it conducts it service activities. It will also enable CASA to examine its activities and decide whether some matters can be more effectively administered by industry. When revenue is hidden in fuel taxes, it is difficult for any organisation to be open and accountable for its time and resources.

The Board’s proposal is one element of an integrated Government approach to new funding arrangements for CASA. Details of the other elements of the Government’s proposed funding strategies are also discussed later in this paper.

Proposing a Fairer System

Presently, 38% of CASA’a annual operating budget is funded by taxpayers, 58% is funded by the aviation industry through aviation fuel duty and 4% is funded by the aviation industry through CASA fees.

The CASA Board proposes to recommend to the Government that the way that the aviation industry contributes to CASA’s operating costs be changed. The Board believes that the aviation fuel duty should be reduced over a period of time so that it only funds about 38.5% of the costs of running CASA.

In practical terms this would mean about a 0.8 cents per litre drop in the price of Avgas and Avtur.

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To balance the reduction in revenue from aviation fuel duty, the Board proposes the extension of the existing regulatory charging system to recover the costs of the services provided by CASA. Under the proposed system, the amount of direct charge will be based on the time taken by CASA to provide the service. Fees will also be charged for some of the time spent by CASA

inspectors conducting scheduled audits of Airservices Australia and the holders of Air Operators’ Certificates, Certificates of Approval and aerodrome licences.

However, it is important to note that the introduction of these fees will be off-set by a corresponding reduction in fuel levy.

Under the proposed new arrangements, taxpayers will continue to contribute 38% of CASA’s operating budget. This contribution reflects that fact that CASA’s roles in setting rules and standards, enforcing standards, providing safety education and participating in international aviation organisations are properly regarded as services to the community generally.

Why change?

In general terms, the present system for extracting a financial contribution from the aviation industry works on the basis of “the more you fly the more you pay”. People who buy more aviation fuel fund CASA to a greater degree than those people who buy less.

While this principle has some merit, the problem is that some people who absorb a great deal of CASA’s time and resources do not “fly” or buy fuel at all. For example, aerodrome operators, commercial balloon operators, maintenance organisations and Airservices Australia all require surveillance

by CASA, but purchase no fuel. Additionally, those Australian operators who choose to conduct commercial operations overseas continue to require CASA oversight but do not purchase fuel in Australia and therefore contribute little to CASA’s funding. On the other hand, some aerial work operators (for example, those involved in aerial mustering) purchase large amounts of fuel but receive

little in the way of surveillance or services from CASA.

The current system means that those who are required to use fuel are effectively subsidising those who don’t, although the non-fuel users may consume considerably more of CASA’s time and resources. The system is unfair.

Another anomaly in the present system is the inconsistency in the matters which attract charges. Many services provided by CASA attract a fee while many others do not. The is no rationale for the difference.

A stark example of the inequity in the current system can be seen in the case of an airport owner who may have paid hundreds of millions of dollars purchasing an airport. Under the current charging system, CASA inspectors

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carry out inspections of the airport and CASA often provides exemptions to the licence holder of the airport. These services do not attract a CASA charge whereas a student pilot who requires a flight check is required to pay a fee. It is difficult to contemplate a more inequitable system.

There is also a very strong trend for all government services (Commonwealth, state and local) to be provided on a charge for service basis - with good reason. Such a system makes the costs of services transparent and reduces cross-subsidisation.

Additionally, under a charge for service system industry participants have at least some capacity to manage the amount of their contribution to CASA’s funding - at present they have almost none.

Indirect benefits

There is one very important benefit of the Board’s proposal. Under a system where charges reflect the cost of the service provided, individual units of CASA will be accountable for the work they do.

The Board’s proposal will also result in a number of other indirect benefits. For example:

• The new system will provide incentives for self-administration in those areas not involving the safety of fare paying passengers.

• Aircraft that are not operational are less likely to be kept on the register thereby taking up less CASA time and resources in unnecessary administration.

• Individuals are less likely to continue to hold onto reserved registration marks for years at a time if a yearly charge is made for reservation thereby freeing up CASA resources and also freeing up those marks for other users.

• People who do not actively exercise the privileges granted by certificates, licences and approvals are less likely to retain them.

• Industry participants are likely to apply for fewer exemptions if a charge is made for the time spent on processing the exemption. Additionally, once a charge is made for exemptions, it will place pressure on CASA to continually review and update the regulations to ensure that they are drafted in a way that does not require industry to seek exemptions from CASA.

• By facilitating safety audits, industry participants can ensure that they are shorter and less costly.

A Ticket Tax to Completely Replace the Fuel Tax

Since its election in March 1996, the Government has been looking at developing broader options for fundamentally changing the mix of funding sources for CASA.

The existing fuel excise charging system unfairly imposes high costs on some parties who are not central to CASA’s regulatory efforts; and may also create inefficient cross-subsidies between airlines. Also, the present funding model

for CASA is based on a somewhat arbitrary mix of fuel excise, Budget funding and charges for CASA services and goods.

The Board’s proposal covers ways of improving the last of these three, without increasing revenue.

The Government will shortly consider whether, and if so how, to change the former two funding sources. The intention is to do so without recovering any additional revenue.

One option which will be given consideration is to replace the present fuel excise with a ticket tax. For around $1 per ticket, plus collection costs, this would establish a clear linkage between CASA funding and the passengers who are CASA’s primary interest and responsibility. It would also ensure that

any ticket sold on an airline operating within Australia would specify on the ticket that the passenger had paid a small fee to support the efforts of the aviation safety regulator. Absence of the levy from a ticket should encourage passengers to question why they are flying with that carrier.

To ensure that the money collected under a ticket tax is only available to CASA for safety work on behalf of passengers, one option being considered is the creation of a trust fund for such money.

Additionally, a participation levy for private aircraft operators (who, with the abolition of the fuel excise charge, may otherwise not contribute to CASA’s costs) is also under consideration by the Government to complement the passenger ticket tax.

It is also possible that, after receiving views from industry and the public, the Government will choose not to endorse any change along these lines.

However, should the ticket tax proceed, it will apply at a later time than the “charge for service” system proposed in this paper.

This element of the funding strategy is being managed by the Department of Transport and Regional Development.

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No increase in CASA’s budget

The Board’s proposal does not involve CASA getting any additional money. The aviation industry will continue to contribute exactly the same amount to CASA’s revenue as it does presently - all that will change is that some people in the industry will pay less and some others will pay a little more.

While the financial “losers” under the new arrangements (ie those who are presently being subsidised by other parts of the industry) may complain, these people need to bear in mind one very important point. However worse off they believe they may be under the new arrangements, they will still be

paying less than the cost of the services provided to them by CASA. All that is happening is that the unfair system of industry cross subsidisation is being partly removed.

Amount of the fees

For a variety of legal reasons, the fees that can be charged for a regulatory service provided by CASA can never be greater than the cost of providing the service. This is a tremendous guarantee for the industry. There can never be

any question of CASA exploiting its monopoly as a safety regulator to extract unreasonably high fees.

The Board proposes that the hourly rate for CASA services and scheduled audits be fixed at $95. This is significantly below actual cost. The New Zealand CAA charges $NZ 135 per hour. The New Zealand CAA considers

the real cost (including overheads) is over $300 per hour.

Details of the fixed fees that are proposed to be charged under the new system are set out in the table at Attachment A to this paper. It should be noted that the existing system of perpetual licences will not change under the new charging system. However, there will be a charge to cover the medical assessments associated with Private Pilots Licences and Commercial Pilots

Licences. This charge will only be payable if the assessment is undertaken by CASA and will be $26 for a PPL and $45 for a CPL.

A comparison table is also set out at Attachment B to this paper.

Fees for scheduled audits

A key feature of the Board’s proposal is that fees will be imposed for some of the time spent by CASA inspectors conducting scheduled audits of Airservices Australia and the holders of Air Operators’ Certificates, Certificates of Approval and aerodrome licences. A condition will be imposed

on these certificates and licences requiring periodic safety audits to be undertaken.

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The safety audits will be performed by CASA inspectors, who will charge for their time. If a certificate holder or licence holder can organise themselves in such a way that the audits take less time to complete, the costs of the audit will reduce.

The frequency of the periodic safety audits will vary depending on the type of the activities authorised (in the case of AOC or C of A holders) or the category of aerodrome (in the case of aerodrome licence holders). As a general rule, audit frequency will remain at the current planned levels.

Charging for periodic safety audits is not a new idea. A similar system has worked successfully in New Zealand for over 5 years. The New Zealand experience has shown that the alignment of the regulator’s direct costs with direct charging has provided a high level of accountability on individual

managers of the New Zealand CAA to deliver services efficiently and effectively.

No charge will be made for normal unscheduled surveillance or enforcement undertaken by CASA as this is considered to be a benefit to the community generally and should continue to be funded by the Australian taxpayer.

How will the charging system for scheduled audits work in practice?

For an organisation that both maintains and operates its own aircraft - from a small flying school to a large airline - the system will be simple. The organisation will receive a charge for scheduled audits, and at the same time receive a direct reduction in fuel costs.

For an organisation which does not use fuel, such as a maintenance organisation or an airport owner, a charge would be made for the scheduled audit. This charge would be reasonably expected to be handed on as an

additional cost to the beneficiary (such as a slightly increased labour charge) - ie the aircraft owner or operator, who would receive a reduction in fuel costs.

The costs of collection

Some of those who benefit from the inequities in the current charging system will be keen to point out that if the Board’s proposal is implemented, CASA will incur additional administration costs in collecting the new fees.

While collection costs are an issue, the problem can easily be overstated. It needs to be remembered that CASA already has a fully developed system for direct charging (including the overheads that go with such a system). CASA therefore has the infrastructure in place to accommodate the extended

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It should also be noted that late payment and bad debts by a small minority of the industry means that the rest of the industry eventually has to pay for these debts. It is proposed to introduce late payment charges based on the current system used by Airservices Australia. However, unlike Airservices Australia, CASA will not have power to impose liens on aircraft.

Comments

I welcome comments on the Board’s proposal. Written comments should be sent by no later than 15 May 1998 to:

Sue-Ellen Bickford Civil Aviation Safety Authority Document DP9804FB

Free Post: Reply Paid 744 GPO Box 2005 CANBERRA ACT 2601

Facsimile: 1800 653 897

E-mail: amecs@casa.gov.au

The Board will consider all comments before taking a final decision in relation to the reduction of the aviation fuel duty and the introduction of the new fees. You should be aware that CASA may publish responses as part of the process.

Implementation

If the Board decides to progress this proposal, CASA will be working hard to have the new arrangements in place by 1 September 1998. However, given that both changes to the regulations and significant changes to CASA’s internal systems are required, there may be some difficulties in ensuring that all parts of the proposal are in place by this date. The latest date for full

implementation of the proposal will be 1 January 1999.

Dick Smith Chairman

15 April 1998

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ATTACHMENT A

A MORE EQUITABLE CHARGING SYSTEM

CERTIFICATE OF AIRWORTHINESS Issue/renewal of CofA Hourly Rate Hourly Rate Hourly Rate

Validation of a foreign CofA Hourly Rate Hourly Rate Hourly Rate

APPROVALS & PERMITS - - .

Issue/renewal of certificate of type approval Hourly Rate Hourly Rate Hourly Rate

Accreditation of a synthetic flight trainer Hourly Rate Hourly Rate Hourly Rate

Issue/renewal/variation of CoA Hourly Rate Hourly Rate Hourly Rate

Training course conducted by an organisation under CoA Hourly Rate Hourly Rate Hourly Rate

Application for exemption Hourly Rate Hourly Rate

Subsequent approval of Chief Pilot Hourly Rate Hourly Rate

Permit to fly Hourly Rate Hourly Rate

Permit to consign or carry dangerous goods Hourly Rate

Permit to tow a banner Hourly Rate

Pertmit to undertake a low level acrobatics Hourly Rate

Permit to fly over public gatherings Hourly Rate

Permit to undertake low flying Hourly Rate

Permit to drop articles from an aircraft Hourly Rate

MANUFACTURE AND MAINTENANCE APPROVALS . ·

Aircraft component, repair, design of a modification Hourly Rate Hourly Rate Hourly Rate

System of maintenance / maintenance control manual Hourly Rate Hourly Rate Hourly Rate

Maintenance schedule Hourly Rate Hourly Rate Hourly Rate

Permissible unserviceability / minimum equipment list Hourly Rate Hourly Rate Hourly Rate

Maintenance of o/s operations Hourly Rate Hourly Rate Hourly Rate

Metallurgical examination / investigation of defective components Hourly Rate Hourly Rate Hourly Rate

AERODROME LICENCES Issue Hourly Rate Hourly Rate Hourly Rate

Annual obstacle survey of aerodrome licence holders Hourly Rate Hourly Rate Hourly Rate

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ATTACHMENT A

A MORE EQUITABLE CHARGING SYSTEM

P r o p e r a t o r ? c e S j ' ■

Issue/renewal/variation Hourly Rate Hourly Rate Hourly Rate

AIRWORTHINESS AUTHORITIES 1- ________ _______________ . . . _....... • _ ' .

Issue/renewal/variation of airworthiness authority Hourly Rate Hourly Rate

Issue/renewal/variation of aircraft welding authority Hourly Rate Hourly Rate

AIRWORTHINESS EXAMS 5 * " . ' '

Core / specific group subject $110 $52 $148

Specific type subject $175 $60 $148

Category technical competency $95 $40 $148

To conduct non-destructive testing $190 $65 $148

Welding or weight control authority Hourly Rate Hourly Rate $148

Essay format exam Hourly Rate Hourly Rate $148

Re-mark of exams $75 $80 $32

Provision of AME licence history details $20

AME LICENCE ’ i

Issue $205 $170 $110

Renewal/re-issue $60 $95 $110

Endorsement - initial $110 $110 $110

Endorsement - additional $20 $20 $146

FLIGHT CREW EXAMS ■ . : ' '

PPL $45 $50 $35

CPL $50 $50 to $140 $80

ATPL $100 $50 to $205 $151

Commercial Balloon $140

Student Flight Engineer $75 $140

Command instrument rating, flight instructor rating, agricultural pilot rating $65 $50 $80

Check flight engineer Hourly Rate Hourly Rate ________

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ATTACHMENT A

A MORE EQUITABLE CHARGING SYSTEM SERVICE ITEMS

FLIGHT CREW EXAMS (cont)

CASA Fees Regs (current) Hourly Rate: A$75

Proposed CASA Fees Regs Hourly Rate: A$95

NZ CAA (AS)

Hourly Rate: A$121

Flight test Hourly Rate

Re-mark of exams

Hourly Rate $80

$443 to $1793 $17 to $75

Provision of FC licence history details FLIGHT CREW LICENCE PPL CPL $45 $40 $55

ATPL $60 $75 $55

Flight engineer $55 $55

Validation for private / commercial operations Specia[pilot licence _______

$20 to $100 $20 to $100

$50

Flight crew rating $10

$75 $10

$55 $45 $45 $45

Aircraft endorsement $15 $12 $45

Aircraft endorsement o/s $20 $23 $45

Verification of flight crew qualifications $10

Medical assessment record maintenance administration standard (Class 1 - CPL) ___ $68 $74 to $148

Medical assessment record maintenance administration standard (Class 2 - PPL) ______ ______ $45

Medical assessment record maintenance administration

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ATTACHMENT A

A MORE EQUITABLE CHARGING SYSTEM

INSTRUMENTS OF APPOINTMENT To permit an issue of maintenance release during an o/s operation

Hourly Rate

Person to perform maintenance on an Aust aircraft o/s Hourly Rate

Exemption for aerodrome operators under CAR 89ZD Hourly Rate

Exemption for aircraft or persons under CAR 308 Hourly Rate

Instruments of delegation of CASA's powers and functions under C A R T Hourly Rate

Instruments of delegation in regard with aeroplanes in flight or on the manoeuvering area of land aerodromes under CAR 196

Hourly Rate

MAINTENANCE OF AIRCRAFT REGISTER* Initial registration $95

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$155

Registration renewal $42 $33

Change of registration $40 $78

Change of registration holder $30 $27

Allocation of particular registration mark $30 $27

Reservation of registration mark for 12 months $30 $27

P la n n e d a u d it an d s u r v e illa n c e Γ "

AOC holder Hourly Rate Hourly Rate

CoA holder Hourly Rate Hourly Rate

Aerodrome Licence holder Hourly Rate Hourly Rate

Airservices Hourly Rate Hourly Rate

Authorised persons and delegates Hourly Rate Hourly Rate

* This charge only covers the administration cost o f maintaining the Aircraft Register.

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ATTACHMENT B

A MORE EQUITABLE CHARGING SYSTEM

COMPARISON TABLE

Flight Crew Exams Price Com parison*

*AII prices converted to Australian dollars **Exams are priced per subject: - PPL $35x6 = $210 - CPL $80x3 = $240

- ATPL $151 x 7 = $1057 - IREX $80 x 3 = $240

‘ “ Prices differ by types within the category CPL: $50 for Aeroplane/Helicopter Conversion Exams (including overseas conversion exams) $140 for CPL Aeroplane/Helicopter ATPL: $50 for Aeroplane/Helicopter Conversion Exams (including overseas conversion exams)

$100 for ATPL Helicopter $205 for ATPL Aeroplane

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