Rationale
One reason why cost recovery is often pursued is because it creates incentives for those from whom costs are recovered to urge operational efficiencies and to communicate service levels and standards of delivery. Further reasons may be assessments that it will compliment or advance the outcomes the outputs or activities contribute to, and other efficiency, equity and fiscal cost objectives.
In respect of part b of this step, there are a range of means by which cost recovery decisions can be given legal effect. Included are contractual arrangements, gazette notices, regulations and statutory provisions. There are pros and cons associated with each. Which is best will depend on what characteristics are most desired by MAF in respect of each case (flexibility versus certainty, paying versus non-paying stakeholder say; refer discussion below). As such, we suggest a way for thinking through the issues, but we do not apply the thinking to a specific example.
Suggested approach
Mechanisms for persons or groups from whom costs are recovered to encourage productivity and quality gains at least cost over the long run could include:
- formal requirements to consult or negotiate with parties from whom costs are recovered or their representatives with respect to service levels, cost and standards of delivery;
- gatekeeping government departments and ministers formally seeking the views of parties from whom costs are recovered or their representatives as part of the annual budget negotiations; and
- direct accountability of service providers to parties from whom costs are recovered.
None of these options are exclusive. They should be assessed in terms of:
- their relative ability to facilitate transparency and accountability;
- their practicality;
- whether, in an effort to keep the costs met by paying parties down, there risks such parties demanding a level and quality of service that is less than desired by society;
- whether the options are likely to facilitate a sharing of views and building of a consensus or whether they are more likely to compromise these ends; and
- other relevant considerations.
The options to give legal effect to cost recovery decisions have different implications in respect of:
- their relative certainty;
- the flexibility to alter:
- any sharing of costs, either in light of new information or changes in the extent to which different groups benefit or give rise to risk
- the mix of products and services delivered, reflecting changes in strategic priorities, greater contestability, or devolution;
- who could be charged if, for example, persons or groups who were initially ruled out as candidates for cost recovery became viable options due, say, to their property rights becoming better defined or advancements in technology;
- the desirability and potential for paying and non-paying stakeholders to influence cost recovery decisions;
- what is and is not constitutional: in particular, the Constitution Act 1986 provides that the power to tax must come from Parliament (refer boxed discussion over);
- their relative appropriateness. Tighter constraints may be appropriate in respect of charges for the products and services of government monopolies that are compulsorily purchased compared to voluntary purchases from contestably provided government products and services; and
- other relevant matters.
If we envisage the various options to give legal effect as a continuum, with contracts at one end and statutory provisions at the other, the degree to which the above implications are advanced or impeded run in opposite directions.
Figure 10: Characteristics of options to give legal effect
From Figure 10 we can see that as we move towards the:
- statutory provisions end of the continuum certainty is facilitated and so too the ability of non-paying stakeholders to have an influence; while contractual end of the continuum greater flexibility is enabled and the ability of the paying party to influence decisions
| If a charge can be considered to be in
the nature of a tax, then section 22 of the Constitution Act 1986 provides that the
authority to impose the tax, and how, must derive from Parliament in the form of an Act or
a provision in an Act. If, on the other hand, the charge is a fee payable for services directly provided then other means for giving that charge legal effect may be considered, such as by contract, gazette notices or regulations. The distinction in law hinges on issues of compulsion and enforcement. The grounds for distinguishing charges and taxes in this manner are argued in the Australian case law, Air Caledonie International and Ors v Commonwealth of Australia [1988] 82 ALR 385. If consideration is given for a service voluntarily sought then in law that consideration is in the form of a charge. Payments for non-voluntary services, on the other hand, that can be enforced are viewed as a tax in law. These distinctions apply whether or not fees charged are commensurate with the cost, or the value, of services provided, which is the grounds advanced by a number of economists for distinguishing charges and taxes. |
Contact for Enquiries
MAF Information Services
Pastoral House
25 The Terrace
PO Box 2526
Wellington, NEW ZEALAND
Fax: +64 4 894 0721
Contact this person
