Part 1: Introduction

Setting and administering fees and levies for cost recovery: Good practice guide.

If you work in a public organisation1 that has legal authority to charge a fee or levy2 for the goods or services that it provides, then this guide is for you.

This guide is intended to help you implement and administer equitable and transparent charging practices so you can justify the fees and levies you use to recover the costs of producing goods or providing services. This enables your organisation to be accountable to Parliament, the public, and fee and levy payers.

It provides guidance on setting fees and levies to recover costs. It has been updated from the guide we published in 2008.

We are interested in ensuring that:

  • the costs public organisations recover through fees and levies are justified;
  • public organisations use the revenue they gather from fees and levies appropriately; and
  • the practices of public organisations are transparent to fee and levy payers.

This guide discusses the legal basis for charging. It also describes the principles that we consider should underpin any charging arrangements and how you should apply them and sets out other factors you should consider when creating, implementing, and managing charging arrangements.

Why do public organisations charge for goods and services?

Public organisations generally charge fees or levies when the goods or services they are required to provide:

  • provide an individual or group of individuals (and not the population as a whole) with a direct benefit; or
  • are necessary to mitigate risks presented by the activities of an individual or group of individuals.

In these circumstances, charging fees or levies for the goods or services might be considered more equitable than using Crown funding or rates revenue to pay for them.

Why is the Auditor-General interested in fees and levies?

We seek to provide Parliament and the public with an independent view about how well public organisations operate and account for their performance.

We want to ensure that the charging practices of public organisations that charge fees or levies for goods or services are not only lawful but also equitable, efficient, justified, and transparent enough to provide accountability.

What this guide covers

This guide covers fees and levies that public organisations charge for goods and services that they are required to produce or provide.

The focus of this guide is on recovering costs. This guide is not intended to provide detailed information on all possible charging arrangements. Rather, this guide sets out the principles and administrative matters that you need to consider when setting and administering charges, noting that you always need to work within the confines of the specific empowering provisions in the relevant legislation.

This guide has been expanded to include levies, as well as fees, designed to recover the costs of providing services.

What this guide does not cover

Levies designed to create a fund

This guide does not cover levies that are designed to create a fund to be drawn on for future unspecified costs. This includes road user charges, Accident Compensation Corporation levies, or premiums paid to the Earthquake Commission to fund the recovery of residential property after a natural disaster.

Contractual payments for goods and services

Contractual payments for goods or services that a public organisation provides to third parties on a discretionary basis are normal commercial transactions. They are voluntary for both parties and are outside the scope of this guide.

For example, when the Department of Internal Affairs provides translation services to businesses, central and local government, and private individuals, this is a normal commercial transaction. The Department is not obliged to provide these services. The amount the translation service charges is a contractual payment that the recipient agrees to. This means that it is not a fee within the scope of this guide.

The following two examples illustrate the differences between charges for services a public organisation is required to provide and charges for services that are discretionary.

The Dog Control Act 1996 contains detailed provisions setting out the basis that councils can charge fees for registering dogs on. Dog owners are required to pay the fee. However, a council does not need equivalent empowering provisions when it hires out a hall or community facility to a private party. This is a simple matter of contract, and there is no obligation for the council to hire the hall out.

This guide covers the fees charged to register dogs but not those for hiring out the hall (even if the council hires out the hall for dog control purposes).

Why have we updated the guide?

This guide updates and replaces our 2008 good practice guide Charging fees for public sector goods and services. We have expanded it to cover some levies. It also provides detail on using levies.

This guide also discusses aspects of cost allocation you need to keep in mind. It encourages more focus on the monitoring of fees and levies, and on reporting systems to promote greater transparency.

The Regulations Review Committee is the Parliamentary select committee responsible for scrutinising regulations, including those that set fees and levies. In updating this guide, we have considered the Committee’s reports Activities of the Regulations Review Committee in 2019 and Activities of the Regulations Review Committee in 2020.

Guidance from other organisations on charging

The Treasury and Taituarā – Local Government Professionals Aotearoa (Taituarā) also produce guidance on charging fees and levies.3

One of the purposes of the Treasury’s guide, which it updated in 2017, is to help you to take proper account of relevant policy considerations when you prepare charging regimes. It also helps you to operate your cost-recovery regimes transparently.

The Treasury’s guidance discusses issues that we have no mandate to comment on. This includes who should be charged a fee or levy and why, and whether you should recover less than the full costs of producing the goods or providing the services.

Taituarā’s guidance provides support for local government staff when setting prices for goods and services. It includes information on understanding the legal framework, setting prices, and consulting on, implementing, and reviewing charging practices.

The Treasury and Taituarā’s guidance and this guide complement each other and should be read alongside each other. The first point of reference for resolving any conflict between the guides should always be the legislation and regulations that provide the legal authority to charge the fees or levies. We provide more information on this in Part 2.

1: In this guide, we use the term “public organisations” to describe those entities within the Auditor-General’s mandate. Section 5 of the Public Audit Act 2001 defines these entities.

2: For the purpose of this guide, we use the term “fees” to describe fixed charges to individuals and “levies” to describe charges to groups of individuals.

3: The Treasury (2017), Guidelines for setting charges in the public sector; Taituarā – Local Government Professionals Aotearoa (2017), The price is right – the Kiwi version.