Peter Costello

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Release of the Productivity Commission Report on Cost Recovery by Government Agencies

NO.009

RELEASE OF THE PRODUCTIVITY COMMISSION REPORT ON COST RECOVERY BY GOVERNMENT AGENCIES

The Treasurer and Minister for Finance and Administration today announced the release of the Productivity Commission's final report on Cost Recovery by Government Agencies and also announced the Government's interim response to the report.

The Government agrees with the Commission's recommendations that all cost recovery arrangements should have clear legal authority and that revenue from cost recovery should be transparently identified in budget documentation and agency reporting.
Furthermore, the Government agrees in principle to adopt a formal cost recovery policy and to review existing cost recovery arrangements.

The Commission proposes detailed cost recovery guidelines for reviewing existing arrangements and testing new cost recovery proposals. It considers that guidelines will enable Commonwealth agencies to decide on the appropriateness of cost recovery for their activities and the best approach to implementation of cost recovery.

The Ministers welcomed the Commission's observation that well designed cost recovery arrangements will promote agency efficiency and equity, in part by instilling cost-consciousness among agencies and users.

The Government will now commence a process of examining in detail the proposed guidelines in consultation with affected agencies. This process will inform, over the coming months, the preparation of the Government's final response to the Commission's report.

The Treasurer also noted that the report includes a National Competition Policy legislation review of user charges under the Trade Practices Act 1974. The Commission's key finding is that current Trade Practices Act charges (by the Australian Competition and Consumer Commission) appear to have little if any impact on competition and economic efficiency and hence are not inconsistent with the competition tests under the Competition Principles Agreement. Overall, the Commission makes no recommendations to change this legislation.

The Government accepts this finding and notes that this completes this review commitment under the Commonwealth Legislation Review Schedule.

The separate recommendations made by the Productivity Commission in relation to the Australian Competition and Consumer Commission's charging regime will be considered along with the detailed cost recovery guidelines as part of the Government's final response to the report.

The Government's interim response to the report is available at http://www.treasurer.gov.au and http://www.finance.gov.au

CANBERRA
14 March 2002

Contact:
Niki Savva ph. 02 6277 7340
Jennifer Eddy ph. 02 6277 7400



RECOMMENDATIONS OF PRODUCTIVITY COMMISSION REPORT NO. 15
'COST RECOVERY BY GOVERNMENT AGENCIES'

RECOMMENDATION

SUGGESTED RESPONSE

COMMENT

Chapter 3 Legal and fiscal framework

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.

Agree

The Government agrees that cost recovery arrangements should have clear legal authority.

The Government notes that there are no specific problems identified with current cost recovery arrangements.

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.

Agree

The Government agrees that separate identification of cost recovery receipts will increase transparency of the revenue obtained from cost recovery arrangements.

Chapter 4 Current cost recovery arrangements

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.

Agree in principle

The Government agrees that there should be a formal cost recovery policy for government agencies, and that part of that policy shall be a set of guidelines for appropriate cost recovery processes.

The Government will finalise the guidelines as part of the Government's final response to the report, with the preparation involving consultation with all affected agencies.

Chapter 6 Cost recovery under the Trade Practices Act 1974

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.

To be considered as part of the Government's final response.

The report also undertakes a review of user charges under the Trade Practices Act, as required under the Commonwealth's Legislation Review Schedule. The Commission finds that current Trade Practices Act charges appear to have little if any impact on competition and economic efficiency and hence are not inconsistent with the competition tests under the Competition Principles Agreement. Consequently, the Commission proposes no change to the Trade Practices Act.

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.

 

The Government accepts the Commission's finding and notes that this completes this legislation review commitment.

The specific recommendations in relation to the user charging regime will be considered as part of the Government's final response to the report.

Chapter 7 Improving the design of cost recovery

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.

To be considered as part of the Government's final response.

Comment will be made in conjunction with the Government's final response to the report.

7.2 Cost recovery arrangements should apply to specific activities or products, and not 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.

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

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.

7.6 The basic information product set of agencies should be funded from general taxation revenue.

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.

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.
   

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.

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.

Chapter 8 Improving agency efficiency

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.

To be considered as part of the Government's final response.

Comment will be made in conjunction with the Government's final response to the report.

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.

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.

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.

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.
   

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

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.

Chapter 9 Implementation

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.

Agree in principle

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

The Department of Finance and Administration will prepare a review schedule in consultation with agencies, with reviews to be incorporated into other review processes (including output pricing reviews) where possible.

 

14 Mar 2002

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