Part 8: Fees and charges

8.1
The Board receives no funding from the government and must cover its costs through the fees it charges. Both the 1976 Act and the 2006 Act enable it to charge fees for registration applications, licences, applications for exemptions, supplying certificates and copies of documents, and any other matters that the Board must do to carry out its functions. A separate provision enables it to charge a disciplinary levy to fund the costs of investigations and disciplinary proceedings. The Gas Act 1993 also enables the Board to charge a fee for gas certificates.

8.2
Cost was a regular theme in our interviews and the correspondence we received. People were concerned about the licensing and registration fees – both the size of the fees and the requirement to pay the same fee for each licence. The examination fees are contentious, particularly given the concerns with the quality of the process, and the fees for the newly introduced assessment for overseas applicants have also provoked criticism.

8.3
Many in the industry have been concerned with increases in the licensing fee in recent years. For example, the licence fee was increased in 2007 from $75 to $85 a year and increased again in 2008 to $155 a year. Each licence holder has also, until now, had to pay an annual disciplinary levy of $50 for each licence.

8.4
We examined how the Board set its budget, managed it costs, and decided what fee to charge for particular services. In this Part, we set out our findings about:

• the general approach that we expect public sector organisations to take when setting fees for goods and services; and
• the fees charged by the Board.

Summary of our findings

8.5
Overall, we found that:

• in the past, the Board did not always appear to have carried out strong analysis or costings in setting some of its fees; but
• the recent work that it has done on the cost structures and fees being charged has laid the groundwork for an improved approach.

Setting fees in the public sector

8.6
The approach that we expect public sector organisations to take when setting fees for goods and services is set out in our good practice guide, Charging fees for public sector goods and services, which was updated and reissued in June 2008. We prepared this guide in collaboration with the Regulations Review Committee of Parliament, because one of the functions of that Committee is to review whether fees set in regulations are an appropriate use of the legal authority given by Parliament. We have, traditionally, helped the Committee with this work.

8.7
The starting point is the constitutional principle that Parliament's explicit approval is needed to impose a tax. Setting a fee that recovers more than the costs of providing the goods or services could be viewed as a tax. Any statutory power to charge fees is implicitly limited by a requirement that the fee be set at no more than the amount necessary to recover costs.

8.8
The precise application of this principle will depend on the scope and generality of the legislative authority, the extent to which cross-subsidisation between different types of activity is authorised, and the way in which the organisation forecasts and budgets for its costs.

8.9
The main points in the guidance are:

• the need for all fees to be within the scope of the legislative authority, which can require careful consideration of how to avoid over-recovery while spreading costs across a number of years, and of what level of cross-subsidisation is permissible;
• the need to understand and monitor costs in some detail to ensure that the organisation is functioning efficiently and delivering value for money for those paying for its services; and
• the importance of accountability, which requires an organisation to ensure that its processes for identifying costs and setting fees are transparent. Transparency and accountability are best achieved through effective public consultation, clear financial records, and oversight by the Regulations Review Committee, the High Court, and the Auditor-General.

What we found in 2008/09

8.10
As noted above, the 1976 Act (and the 2006 Act) gave the Board the power to charge fees for certain matters. The Board also had a separate power to charge a disciplinary levy to fund the costs of the disciplinary system. The Gas Act 1993 gave it power to charge fees for issuing gas certificates.

8.11
Section 15(3) of the 1976 Act provided that:

… all money received … by the Board may be applied for … the payment of all costs and expenses incurred in doing whatever the Board considers expedient to best accomplish the purposes for which it is established.

8.12
This was an unusual general enabling provision that appeared to give the Board significant capacity to spread its costs across its different sources of revenue, and to enable a measure of cross-subsidisation.

8.13
We note that there is a similar, but narrower, provision in the 2006 Act. It limits the Board to applying money for the payment of any expenditure, costs, or expenses incurred by it in the performance of its functions and duties or the exercise of its powers.

Problems with the setting of its fees and budget

8.14
We were concerned about some aspects of the way in which the Board had set its fees and budget in the past. The Board could not provide us with analysis and costings to show the basis for setting particular fees or the expected costs of particular activities. For example, the Board could not provide us with any costings to show how it set the fees for the new practical test of workmanship for migrant plumbers and gasfitters.

8.15
The assessments take four days, and the first such test was held in Wellington in November 2008. The fee for each assessment had been set at $3,200. An applicant who wished to practice as a plumber and a gasfitter would need to pay $6,400 for the assessment. They were also required to pay separate fees to sit the written examinations, as well as fees for registration and licensing if they were successful.

8.16
Other matters that we queried included:

• some fees that might have been excessive, such as an examination reconsideration (that is, remarking an examination paper) fee of $100 when the marker was paid only $21 and the administrative overhead for this activity was low; and
• the reason why practitioners were required to relicense or reapply for exemptions every year when there was legislative capacity to issue licences for up to five years. Without a clear reason, this policy risked being seen as a revenue-gathering exercise.

The income from gas certificates

8.17
The income from gas certificates made up a significant proportion of the overall income of the organisation. Figure 2 sets out the Board's main sources of income for the last three years.

Figure 2
Main sources of income for the last three years

8.18
The Board explicitly stated that it used the income from gas certificates to meet the costs of the competency-based licensing system for gasfitters, the main components of which were the gas audits and the continuing professional development programme.

8.19
In practice, however, the gas certificate fees appeared to support a wide range of general office costs and overheads. From the Board's published financial statements, and from our interviews with staff, it seemed that the particular functions associated with the competency-based licensing system were relatively small.

8.20
For example, the direct cost of the gas audit system in 2006/07 was only $132,603, although there were other internal costs, but the revenue gained from gas certificates in that year was $905,065. We were surprised to read, in a 2007 submission to the Ministry of Economic Development asking for the gas certificate fee to be increased, that the Board estimated that the gas certificate system cost it $1,218,579 each year. It also estimated that the salary cost was $258,000 when the total salary cost for all the Board activities in the previous year was $736,157. In our view, the case made by the Board to increase the fee in that submission was not credible.

8.21
Given the general capacity given to the Board under the 1976 Act to spread costs, noted above, this might have been within the authority of the charging provision, but it appeared to be an extensive level of cross-subsidy.

8.22
The Ministry of Economic Development declined to increase the fee payable for gas certificates, because it was not persuaded that the increase was necessary. The Board then decided to increase the licence fee, to cover the costs it anticipated it would incur as a result of the 2006 Act coming into force.

8.23
Papers prepared for the Board showed that an increase from $80 to $120 was considered to more than cover the expected deficit. However, the Board set the fee at $155, and we have seen no papers justifying that additional increase.

8.24
These examples suggest that the Board's approach to budgeting and setting fees has not always been robust enough.

Recent changes

8.25
The costs of regulation by the Board are a significant and contentious issue for the industry. We discussed the issue of fees with the Board when we provided it with our first draft report in December 2009. We encouraged the Board to be more open about how it budgets and allocates costs to set fees. Transparency and clear explanations of the cost drivers and approach to spreading those costs may help to reduce the level of concern and achieve greater acceptance of the fees. We also advised the Board to give more attention to the principles of cost recovery, the limits of the various legislative provisions, and the importance of consultation, as set out in our good practice guide.

8.26
The Board told us that it intends to develop policies and procedures about fees and that it will publish these. It has also recently thoroughly reviewed fees with the assistance of an external consultant, which has included careful consultation with the industry. For the first time, it has consulted on issues such as the methodology to set the fees, the level of cross-subsidisation, the level of reserves, and the actual fees to be charged. The Board told us that the fees review was carried out using the principles in our good practice guide. The consultation paper is available on the Board's website.

8.27
The new fees were approved on 29 June 2010 and were published in a New Zealand Gazette notice that is available on the Board's website. They are a significant change from the previous fee structures and levels, and may attract some comment. But they have been set transparently, after open consultation with those who must pay.

Issues that still need attention

8.28
We encourage the Board to maintain and embed this approach to managing its budget and setting fees. It must recognise that the cumulative effect of the various fees can be significant, and that the people paying those fees need to understand the basis for these charges. Being transparent about costs can only help people trust that the Board is setting the fees responsibly and fairly.