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Cost Recovery Proposals under the Animal Products Act 1999

4 Legislative Framework

Part 9 of the Animal Products Act provides for the recovery of costs of administering the Act which are not provided for by money appropriated by Parliament.

4.1 Cost recovery principles in the Animal Products Act

Once it has been determined that costs will be recovered from industry, the principles of how cost recovery will be achieved and the methods of cost recovery are provided for in sections 113 and 114 of the Animal Products Act. Section 113 provides the criteria that need to be considered when determining the most appropriate method of cost recovery. The criteria are:

• Equity

• Efficiency

• Justifiability

• Transparency

Equity

Equity means that users or beneficiaries of a function, power or service will generally be required to fund the cost of providing the function, power or service at a level that reflects their use or benefit.

Efficiency

Costs should generally be allocated and recovered in a manner that ensures maximum benefits are delivered at minimum cost.

Justifiability

The costs (including the indirect costs) associated with providing a function, power or service should be reasonable and justifiable.

Transparency

The cost of providing a service, function or power should be identifiable and allocated in a transparent manner.

NZFSA is not required to strictly apportion costs for a particular function, service or power based on usage. Fees or charges may be determined by averaging the costs or potential costs.

Fees and charges may also be set at a level that takes into account costs of services which are not directly provided to the person who pays the fees or charges but are indirect arising from the delivery of a service to a class of persons or all persons who use the service.

4.2 Cost recovery methods provided for in the Animal Products Act

The methods of cost recovery (Section 114) that can be used under the Animal Products Act are identified as:

• Fixed fees or charges

• Fees or charges based on a scale or formula or at a rate determined on an hourly or unit basis

• Fees or charges of actual and reasonable costs expended in or associated with the performance of a service or function

• Estimated fees or charges, or fees or charges based on estimated costs paid before the provision of the service or function followed by reconciliation and an appropriate further payment or refund after the provision of the service or function

• Refundable or non-refundable deposits paid before provision of the service or performance of the function

• Fees or charges imposed on users of services or third parties

• Levies

• Any combination of the above

Fees and Charges are prescribed by regulations (section 117) and levies can be imposed by regulation (section 118). Under section 120 the Director-General of MAF can also prescribe charges.

4.3 Government Guidelines

In determining the proposals, the Treasury document Guidelines for Setting Charges in the Public Sector and the Audit Office Guidelines Costing and Charging for Public Sector Goods and Services have been taken into account.

The government’s guidelines for user charges are set out in a paper prepared by the Treasury titled “Guidelines for Setting Charges in the Public Sector”. The Treasury paper was endorsed by the Government in December 2002.

In summary, the key principles for cost recovery from the government’s guidelines that are most relevant to cost-recovery under the Animal Products Act are:

• charges should in general be set at the full costs of providing the service, where full cost includes all overheads and non-cash costs (such as the capital-charge), measured in accrual accounting terms;

• charges should not be excessive in relation to the costs incurred;

• charges can be set to vary by the location where the service is provided or by the time at which the service is provided but a balance needs to be struck between the gains from complex fee structures and the costs in terms of a loss of simplicity;

• the process for setting charges should be clear and appropriate;

• transaction costs in setting and collecting the charges should be kept low;

• appropriate consultation with those affected should be undertaken when setting and changing the charges;

• there should be a robust statutory basis for any charges; and

• there should be fair treatment for taxpayers, beneficiaries of the service and risk exacerbators.

The government’s guidelines are at quite a high level. In addition to this, as the Treasury paper notes, given the widely varying nature of government provided services, no single charging formula can be developed that would apply to every case. The guidelines therefore set out a checklist of issues on which to base a sound analysis.

The New Zealand government’s guidelines are consistent with those recommended by the OECD in its 1998 paper “User Charging for Government Services”.

The proposals also take into account constitutional principles as set out in Parliament’s Standing Orders and guidance received from reports of the Regulations Review Committee.

In August 2006, NZFSA published a background paper on the methodology to be applied in this cost recovery process. The methodology is consistent with the Treasury document ‘Guidelines for Setting Charges in the Public Sector’ and the Audit Office Guidelines on ’Costing and Charging for Public Sector Goods and Services’. That paper (which can be found at www.nzfsa.govt.nz) states that ultimately it is the Government that makes the decisions about the provision and funding of government provided function, through the budget and its associated appropriations and estimates. A range of considerations are taken into account in making funding decisions which are guided by the contents of the various guidelines, but may include, equity between taxpayers, trade considerations, behaviour and efficiency impacts on the regulator and regulated industry and consumer behaviour.