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Cost Recovery Proposals for Dairy 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 that are not provided for by money appropriated by Parliament.

4.1 Cost recovery principles in the Animal Products Act

The principles of cost recovery 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 - 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; and

• 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 that are not directly provided to the person who pays the fees or charges but which are indirect arising from the delivery of a service to a class of persons or all persons who use the service.

4.2 Government guidelines

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.

The key principles for setting the rates for the fees and charges follow:

• Charges should in general be set at the full costs of providing the service, where full cost includes all overheads and non-cash cost (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 basis for any charges; and

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