A funding framework for maritime regulation
Background – funding public sector agencies
A set of funding principles has been developed by the project team and the sector reference group, and approved by the Minister of Transport. These principles form the framework for considering the appropriate mix of funding sources for Maritime New Zealand’s activities.
A funding framework for maritime regulation
A funding framework is needed for maritime regulation that:
- clarifies the authority for Maritime New Zealand to undertake specified regulatory activities
- ensures value for money, efficiency and effectiveness of delivery of each of these activities
- considers options and tradeoffs around quantity and quality of outputs delivered, risks and price
- supports accountability and transparency for government and for the maritime community
- recognises that both the funding and the activities of Maritime New Zealand create costs for the maritime community
The current Maritime New Zealand funding model comprises a mix of levies, fees (sometimes called charges) and general taxation. A mix is probably still appropriate, although the balance might need to change, informed by a robust analysis of the cost of sustainably delivering outputs.
Government will expect consideration of the opportunities to reduce reliance on general taxation, where consistent with legislation and funding principles.
Potential funding sources for Maritime New Zealand are:
- fees charged directly to a person or organisation:
- fixed fees, hourly rates or sometimes reimbursement of expenses
- levies including:
- marine safety charges “in respect of ships entering any port in New Zealand or operating in New Zealand waters” from which “all pleasure craft are totally exempt”
- oil pollution levies (out of scope for this review)
- fuel excise duty – paid by those who purchase petrol for recreational boating
- other levies eg the ACC and Health and Safety in Employment levies
- general taxation – direct to Maritime New Zealand or through another public sector entity
The four key principles for funding public sector entities relate to:
- authority – for outputs/services delivered and for levies and fees
- efficiency – achieving value for money
- accountability – to Parliament and to taxpayers
- equity – dealing equitably with general taxpayers, those who benefit from an activity and those whose actions give rise to the need for the activity.
These are detailed further to become a set of principles for the Funding review. They provide the criteria against which both the process and the various funding options will be evaluated.
- The form and method of funding maritime regulatory activity should comply with relevant legislative and constitutional requirements.
- The approach to funding of maritime regulatory activity and of services provided for the maritime community (including aids to navigation and distress and safety radio) should support the:
- purposes of Maritime Transport Act, ie to:
- ensure that participants in the maritime transport system are responsible for their actions
- promote safety in maritime transport
- protect the marine environment
- enable the implementation of New Zealand’s obligations under international maritime agreements and conventions relating to marine pollution
- range of functions assigned to Maritime New Zealand:
- under the Maritime Transport Act, the Maritime Security Act, the Civil Aviation Act, the Health and Safety in Employment Act, the Ship Registration Act and the Hazardous Substances and New Organisms Act
- including meeting New Zealand’s obligations under international agreements
- as directed by the Prime Minister or the Minister of Transport
- or as properly assigned by other government agencies.
- The approach to funding maritime regulatory activity should support, or at least not conflict with, the achievement of wider economic, environmental, social and cultural outcomes that government is seeking for New Zealanders, including:
- lifting real long-term economic growth
- better and less regulation
- better and smarter public services for all New Zealanders.
- The volume and standard of outputs/services required to achieve statutory requirements and contribute to the outcomes government seeks should be clearly identified.
- The approach to funding should provide a sustainable basis for Maritime New Zealand to perform its statutory and contractually mandated functions.
- The full cost (including indirect and support costs) of producing each output/service efficiently in the medium term (say three years) – and the long term where significant capital is required – should be identified.
- Consideration should be given to the costs and benefits of achieving the outcomes that outputs are designed to achieve, both the costs and benefits that lie within the public sector and those that fall in the maritime community
- The funding system should be easy to administer and should not impose unnecessary compliance costs on the maritime community.
- Levies and fees should be reviewed regularly, preferably every three years, include simple updating provisions where suitable, and not be subject to random changes or frequent adjustments.
- Funding should be from those who give rise to the costs and/or from those who benefit from the provision of the output/service.
- Where the costs cannot be assigned to specific participants directly, there must be a sound basis for apportioning costs between funders.
- The method and level of cost recovery by levies or fees should be sensitive to – although not dictated by – the ability to pay, with consideration given to phasing in changes over time to enable adjustment.
- The volume, standard and cost of each output (service or activity) should be transparent.
- The allocation of costs to funders should be transparent; including any cross-subsidy ie where costs are not fully funded by those who use or receive benefits from the service or those who create the need for the output.
- Those who are obliged to pay should be consulted on any proposed funding changes, and have as much certainty and stability as possible regarding the level of funding they are expected to contribute in the medium term.
A balance needs to be achieved between the principles described above.
Background – funding public sector agencies
Public sector entities and their outputs and services vary widely. No single funding formula applies universally, although well-established principles guide funding and cost-recovery. These guidelines are set out in:
- Guidelines for Setting Charges in the Public Sector, Treasury 2002
- Good Practice Guide for Charging Fees for Public Sector Goods and Services, Controller and Auditor General 2008
- Reports from Parliament’s Regulations review Committee.
The high level principles for designing and funding public sector entities relate to:
All costs incurred in producing outputs need to be funded somehow:
- either by those who use or receive benefit from the services – the beneficiaries
- or by those whose actions create the costs (including risks) – the exacerbating factors
- or by taxpayers in general.
Potential funding sources for public sector entities are:
- fees for services, charged direct to a person or organisation, typically set by regulation
- localised taxes or levies on groups or activities, authorised by an Act of Parliament,
- general taxation (taxpayers as a whole) ie direct Crown funding.
A Crown entity can impose charges:
- when the imposition of a levy or fee is authorised by statute (ie an Act of Parliament)
- at a level generally set by regulation (ie approved by Cabinet).
Fees are essentially contractual payments:
- the public sector entity is selling goods or services
- purchase of the service by an individual is discretionary
- costs should be as low as possible consistent with service standards.
Levies require legislative authority (Parliament) and are:
- localised or sector-specific taxes charged to a specific group (sector, industry)
- used for a particular set of purposes (not services to an individual or organisation).
The Minister may set a levy:
- higher than full cost recovery, given statutory authority
- lower than full cost recovery, if an alternative source of revenue is available.
The Regulations review Committee of Parliament expects:
- robust and transparent costing records to justify the level of a levy
- evidence of consultation with the group being levied.
Treasury and Auditor General guidelines for funding and cost recovery set out expectations of:
- transparent decisions on the volume and standards of services required to achieve the outcomes government seeks in providing the service
- accurate costings of services – in the short term, and also over the long term when capital costs are significant, and looking for new ways to lower costs
- balancing costs and revenue over the medium to long term
- dealing equitably with general taxpayers, beneficiaries (of the services) and those whose actions give rise to the need for the service; with reduced reliance on funding from general taxation where possible
- ensuring that entities do not set excessive fees
- efficiency of resource allocation, low transaction costs, and evasion held at acceptable levels
- regular reviews, which may result in price changes.