The Charging Policy Australian Government Charging Policy (Charging Policy) relates to activities of exchanging specific goods, services or regulation services, or a combination of these, for money, delivered by the Commonwealth entity to an individual or organisation in the non-government sector.
The Charging Policy classifies these activities into two types of activities:
- regulatory - where the government is seeking to control or influence behaviour, manage risk and/or protect the community.
- non-regulatory - where the non-government sector obtains a good or a service from Government on a discretionary (non-compulsory) basis. Non-regulatory activities are further classified as:
- resource activity - involving access to public resources, infrastructure and/or equipment
- commercial activity - involving sale of government goods or services.
The Australian Government (the Government) provides diverse services, support and benefits to the Australian public through a range of activities to achieve its policy outcomes. These government activities are funded from different revenue sources including charging, general taxation, sales of public assets and investments.
The Charging Policy is a policy of the Government, which is underpinned by the:
- Charging Policy Statement
- Charging principles
- Charging considerations
The Charging Policy Statement is the cornerstone to government charging. These 3 components, along with the definition of the type of activity and the policy outcomes sought, inform the Government decision to charge, or not charge, for an activity.
Charging Policy statement
Charging decisions are made by the Government based on the type of activity, policy outcomes sought and relevant public interest considerations. The Government may decide to charge for an activity, taking into account the charging policy statement:
Where specific demand for a government activity is created by identifiable individuals or groups they should be charged for it unless the Government has decided to fund that activity. Where it is appropriate for the Australian Government to participate in an activity, it should fully utilise and maintain public resources, through appropriate charging. The application of charging should not, however, adversely impact disadvantaged Australians.
It is the task of the Accountable Authority for the entity to ensure the considerations, principles, requirements and reporting requirements of the Charging Policy are addressed to alignment to the Charging Policy Statement and the purpose of charging.
Charging Policy Principles
Charging Policy Principles
The Charging Policy is underpinned by 6 principles:
- effectiveness - the degree of achievement of the Government’s purpose for charging for an activity.
- efficiency - the lowest cost of effort necessary to provide an output of an activity, while also achieving the quality, policy objectives of the charging, the policy objectives of the activity and any other legal and policy objectives, as agreed to in the charging decision made by the Government.
- transparency - open communication and appropriate scrutiny of the level of government charging, charging decisions and management processes.
- accountability - clear roles and responsibilities for key stakeholders in all stages of the charging process and appropriate governance structures.
- stakeholder engagement - consultation on the impact of charges.
- performance - regular review of charges and charging processes relative to the purpose of charging for an activity.1
Purpose for charging
The Government considers the types of activities to charge for on a case by case basis based on a number of considerations.
It can send important 'price signals' to individuals and groups about the cost or value of a government activity.
Charges should be consistent with the policy intent and legislative objectives of the activity and/or the entity.
Each Accountable Authority is responsible for ensuring that the policy problem and the proposed solution, including the roll of charging (the purpose of the charging), is developed.
Considerations when developing advice on whether to charge for a government activity
There are a number of considerations in determining whether it may be appropriate to charge for a government activity. These include:
- policy considerations, such as the problem and proposed solution, whether the government should be involved in the activity, and whether it is appropriate to charge for the activity (that is, it might not be appropriate to charge for some activities, for example policy development, ministerial support, law enforcement, defence or national security activities); and
- specific considerations, such as whether charging is the most efficient and effective source of funding for an activity and, if so, use of an appropriate charging model depending on the type of activity.
Entities should set charges to recover the full cost of providing activities, unless otherwise decided. In some cases, either partial recovery of costs or no charging may be appropriate, subject to the policy objectives and Government decision.
Pricing consideration
Regulatory (cost recovery) activity pricing (both fees and levies)
Pricing to recover only efficient costs
Pricing regulatory charges on a full cost recovery basis to recover all of the efficient costs of the specific government activity from the non-government sector.
Pricing regulatory charges on a partial cost recovery basis to recover some of the efficient costs of the specific government activity from the non-government sector.
Non-regulatory - Resource activity pricing
Value-based pricing
The price should consider the cost of the activity, the non-financial benefits gained by both the government and the non-government party, the impact of utilisation or access of the resource, the policy intent and legislative objectives of the activity and/or entity (this means the price may be at, above or below cost).
Non-regulatory - Commercial activity pricing
Market-based pricing
Commercial pricing supports commercial activity by creating a profit. This is sometimes referred to as competitive-based pricing and is based on the prices of similar products in the market.
The price should consider the cost of the activity, be market driven and be consistent with the policy intent and legislative objectives of the activity and/or entity (it must be at or above cost).
Efficient Costs
Efficient costs are the minimum costs of the effort necessary to provide the activity while achieving the policy outcomes and legislative functions of the Government.
All activities undertaken by any Commonwealth entity are expected to be delivered in the way that promotes proper use of public resources, with evidence of efficient cost. Efficient costs are particularly important in the context of capital costs. ‘Gold plating’, or installing assets that are unnecessarily large or sophisticated, is an example of inefficient costs that should be avoided.
Examples of Pricing models
Regulatory (Cost recovery) pricing
| Charging type | Description |
|---|---|
Regulatory charges | There are two types of regulatory charges: Regulatory fees are a charge imposed by law for regulatory outputs to a specific individual or organisation. The price of the fee is no more than the efficient cost a regulated party causes for a regulatory output. Regulatory levies are a charge imposed by law for regulatory outputs provided to a group of individuals or organisations rather than to a specific individual or organisation. A regulatory levy is a tax and is imposed via a taxation Act. It differs from other taxation as it is 'earmarked' to fund the regulatory activity provided to the group that pays the levy and the price is calculated to reflect the likely or reasonable cost of the effort each individual in the group causes. |
| Full cost recovery | Charging the non-government sector all of the efficient costs of a specific government activity output. |
| Partial cost recovery | Charging the non-government sector some of the efficient costs of a specific government activity output. |
Resource (Value-based) pricing
| Charging type | Description |
|---|---|
Fee for privilege | A charge imposed in relation to access to a public resource that confers a clear right or privilege (including access to a limited resource). This could include a royalty payment calculated in respect of the quantity or value of things taken, produced or copied, or linked to the occasions upon which the right is exercised. It may be for services for processing a unique Commonwealth data resource. |
| Fee for access | A charge for access to or use of a specific public resource (e.g. entering unique facility or leases of unique building or equipment). |
Commercial pricing
| Charging type | Description |
|---|---|
| Market-based pricing | This is sometimes referred to as competitive-based pricing and is based on the prices of similar products in the market or a proxy, where there are no actual competitors. This price is never less than cost. Depending on whether the Australian Government activity has more or less features than the competition, the government may set the price higher or lower than the competitor pricing, taking into account competitive neutrality principles policy. |
Activities in scope
The Charging Policy applies to all activities that deliver goods, services or regulation, or a combination of them, to the non-government sector, unless otherwise decided by Government.
The Charging Policy applies to:
- regulatory activities where the government is seeking to control or influence behaviour.
- non-regulatory activities where the government charges for access to public resources or government goods or services.
The Charging Policy also applies to activities where more than one government entity (Commonwealth entities/state and territory, local government) are involved in providing a charging activity to non-government stakeholders. In this situation any relevant intra-government or inter-government charging activities are an input to the overall activity and should be set on a Charging Framework basis.
Activities out of scope
There are a number of Government activities that are not subject to the Charging Policy. These excluded arrangements are those that involve:
- inter- and intra-government activities. These are transactions between Commonwealth entities or between the Commonwealth Government and Foreign, State and Territory or Local Governments. They are not in-scope unless the non-government sector creates the need for them.
- partnership activities or similar arrangements.
- activities of Commonwealth courts in conducting their prescribed business, including the imposition of penalties and settlements, court fees and similar fees.
- any one-off or ad hoc event, activity or service.
- investment activities that result in investment returns, interest, dividends, debt charges and related charges being paid to the Commonwealth Government.
- loan activities that result in repayments to the Commonwealth Government.
- activities that are established in response to an arrangement whereby the Government receives co-payments or co-funding.
- activities involving grants, donations or similar amounts.
- sale of assets, investments or similar capital items.
Charging mechanism
Charging type
Under the Charging Framework, the key criteria for the regulatory charging type is the link between the activity and the individuals or groups that creates the demand:
- A regulatory fee is used when the activity is regulatory and its costs can be attributed to a specific individual or organisation (for example, application for a license).
- A levy is used when the activity is regulatory and its costs can be attributed to a group of individuals or organisations by a proxy that reasonably aligns to the effort each party in the group causes (for example, compliance audits across an industry).
The table below provides an overview of the mechanisms, whether they constitute taxation or non-taxation revenue and are inside or outside of the Charging Framework. Note that different names may be used to define government charges. Regardless of the title, the nature of the activity and arrangement determines the appropriate mechanism to use and the requirements that apply.
Charging mechanisms
Revenue type: Non-taxation revenue
- Regulatory (cost recovery) fee
- Regulatory (cost recovery) levy*
- Non-regulatory (commercial and resource) charges
- Exempted fees or charges (for example, FOI)
- Penalties and fines
Revenue type: Taxation or may be taxation revenue
Regulatory charges (cost recovery) where the Government has agreed to recover the costs from those who cause the effort with a price that is not based on the effort each member of the group causes.
Cost recovery charge where the Government has agreed to recover the costs by charging a third party the cost of the regulatory effort.
Taxation (tax, levy or other)*
Excise, customs duty
*requires a taxation Act
Levies
All levies are a tax and require a tax Act. Under the Government’s financial framework, regulatory levies consistent with the Charging Policy are classified as non-taxation revenue rather than taxation because the charge to each and all parties is no more than the cost each party cause i.e. the charge does not make revenue for the government.
Regulatory (cost recovery) levy is different from general taxation. All levies and taxes raise revenue, but the direct link between the likely cost of the effort cause by the individuals or organisations in the group and the charge for a specific activity output the individual or organise pays distinguishes regulatory (cost recovery) levies from other forms of taxation.
It is the attribution of only the efficient cost of the effort to those who pay and ensuring the price is no more than this efficient cost that differentiates the regulatory charges under the Charging Policy to other charges.
Under the Financial Framework, whether total revenue exceeds total cost causes the classification of the revenue raised by a tax as non-taxation or taxation. The Charging Policy applies to the sub-group of tax based charges where the group of individuals or organisations that has created demand for the activity is also the same group of individuals or organisations paying the levy, and the pricing is set based on the likely cost each party causes, (for example, levy for ongoing monitoring and compliance), provided total revenue charged for activity does not exceed the total cost of the activity.
If a revenue from the levy is classified as ‘taxation revenue’ or the price arrangement to each party does not align to the efficient cost of effort cause by each party, then the costing and charging arrangements for that activity is not governed by the Charging Policy. However, if the activity is in scope of the Charging Policy, the activity and the charging approach must still be reviewed in the Portfolio Charging Reviews.
Entity staff should seek guidance from Finance and the Treasury early in the policy development process. Consult with Finance on non-taxation revenue matters and their policy contact at the Treasury on taxation matters.
