Part 10: Charging fees for goods and services

Local government: Results of the 2007/08 audits.

We published a new guide in June 2008, Charging fees for public sector goods and services, to replace our 1989 publication on this topic.

We worked closely with the Regulations Review Committee and the Treasury to produce the guide, which we will use when we review how local authorities set charges.

What the guide covers

The guide is intended for all public entities that have a legal right to charge a fee for the goods or services that they are obliged to provide. This will include some charges set by local authorities (for example, fees set under the Dog Control Act 1996, which contains detailed provisions about charging fees for dog registration). The guide also covers fees set by local authorities under section 150 of the Local Government Act 2002 for various certificates, authorities, approvals, and permits.

The guide does not apply to contractual payments. A local authority does not need specific permission in legislation when, for example, it hires out a hall or community facility for an afternoon. The local authority is not obliged to provide this service. Instead, it is a simple agreement between the local authority and the individual (even if it is based on a schedule of charges).

The guide does not apply to levies, which are usually charged to a certain group or industry for a particular purpose rather than relating to goods or services provided to an individual. Applicants pay building levies, for example, to the Department of Building and Housing for building consents. The amount of the levy is based on the estimated value of the building work to which the consent relates. It is not based on the cost of providing any building-related services to the applicant.

Our expectations

The guide sets out our expectation that public entities will set fees in keeping with the following principles:

  • Authority - the entity must have the legal right to charge a fee for the goods or services that it is legally obliged to provide. The fee must be set within the scope of the provision that gives the entity that right.
  • Efficiency - the entity must understand and monitor its costs in providing the goods or services. It has to operate efficiently, and accurately calculate the cost of providing the goods or services.
  • Accountability - the entity must ensure that its methods to identify costs and set fees are transparent, and consult with the public where appropriate.

The guide sets out the matters that we expect public entities to consider when calculating the costs of providing goods or services and setting the associated fees.

The starting point is that a fee should be set at no more than the amount needed to recover costs, unless the legislation expressly allows the entity to recover more than its costs. The guide notes that while an entity may be authorised to recover all its costs, sometimes entities deliberately set fees to recover less than the full cost. This is a policy choice for the entity to consider.

For local authorities, sections 101 and 150 of the Local Government Act 2002 provide strong direction for local authorities making funding decisions and setting fees. Section 101 allows local authorities to consider "user pays" aspects in making funding decisions. Section 150 states the general principle that, for fees prescribed by bylaw, cost recovery is limited to no more than the reasonable costs incurred by the local authority in providing the good or service.

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