The Australian Government Charging Framework (Charging Framework) 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 Framework 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 may be 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 Framework is a policy of the Government, which is underpinned by the:
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 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:
The Charging Framework is underpinned by 6 principles:
- transparency – making available key information about the activity, such as the authority to charge, charging rates, and, where relevant, the basis of the charges.
- efficiency – delivering activities at least cost, while achieving the policy objectives and meeting the legislative requirements of the Government.
- performance – which relates to effectiveness, risk mitigation, sustainability and responsiveness. Engagement with stakeholders is a key element of managing and achieving performance. Entities must regularly review and evaluate charges in consultation with stakeholders to assess their impact and whether they are contributing to government outcomes.
- equity – 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. Equity is also achieved through the Government’s social safety net, to ensure that vulnerable citizens are not further disadvantaged through the imposition of a charge.
- simplicity – whereby charges should be straightforward, practical, easy to understand and collect.
- policy consistency – charges must be consistent with Government priorities and policies, including entity purpose and outcomes. The Government agreement may be required for the introduction of new charges and/or changes to charges.
Three additional principles apply to the Regulatory activities charges.
Intra-government and Inter-government charges and principles
Government entities may undertake activities that involve charges to each other. These intra-government and inter-government charges may be between entities from the Commonwealth entities or state, territory, local or foreign governments, and may involve activities performed by an individual entity or as part of joint service provision.
The Australian Government Charging Framework does not apply to government activities for which only government entities are charged.
Although the Charging Framework does not apply to government activities for which only government entities are charged, where these activities are ongoing, those entities should apply the following principles, consistent with other government requirements:
- the accountable authority (or delegate) provides authority to charge for the specific activity
- the Commonwealth entity should recover only the efficient costs of the specific activity and should not retain amounts that have already been appropriated to the entity for the activity
- the Commonwealth entities to be charged should be consulted and where possible agree on the charges, the costs included in charges and the standard of the product or service being provided
- the charging activity should be documented in proportion to the size and complexity of the activity. The documentation should include information on how the charge was determined. The types of documentation can include an inter- or intra-government agreement, service level agreement, exchange of letters or memorandum of understanding.
The Government considers the types of activities to charge for on a case by case basis based on a number of considerations.
Charging should only occur where it is cost effective and efficient
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 entity is responsible for outlining the policy problem, the proposed solution and the impact charging may or may not have on the activity.
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 generally set charges to recover the full cost of providing activities. In some cases either partial or no cost recovery may be appropriate, subject to the policy objectives and Government decision.
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
The price should consider the cost of the activity, any market prices, the impact of utilisation or access the resource, the policy intent and legislative objectives of the activity and/or entity (this means it may be at, above or below cost).
Non-regulatory - Commercial activity 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.
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 (this means it may be at, above or below cost).
Efficient costs are the minimum costs 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
Cost recovery pricing
There are two types of cost recovery charges:
Cost recovery fees are a charge for a good, service or regulation (in certain circumstances) to a specific individual or organisation.
Cost recovery levies are a charge imposed when a good, service or regulation is provided to a group of individuals or organisations rather than to a specific individual or organisation. A cost recovery levy is a tax and is imposed via a separate taxation Act. It differs from general taxation as it is ‘earmarked’ to fund activities provided to the group that pays the levy.
Full cost recovery
Charging the non-government sector all of the efficient costs of a specific government activity.
Partial cost recovery
Partial charges the non-government sector some of the efficient costs of a specific government activity.
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.
A charge for access to or use of a specific public resource (e.g. entering an exhibition or leases of a building or equipment).
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. Depending on whether the Australian Government activity has more or less features than the competition, the government can set the price higher or lower than the competitor pricing, taking into account competitive neutrality principles.
Activities in scope
The Charging Framework 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 Framework 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 Framework 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 under Charging Framework basis.
Activities out of scope
There are a number of Government activities that are not subject to the Charging Framework. These excluded arrangements are those that involve:
- charges between inter- and intra-government (not involving non-government). These charges may be between Commonwealth entities, state and territory. Although the Charging Framework requirements do not apply to these charges, the policy offers a set of principles to apply for these charges. In addition, entities are encouraged to apply the Charging Framework when considering and implementing these charges as a matter of a better practice.
- charging by Commonwealth companies
- investment returns, interest, dividends, debt charges and related charges
- repayments of loans to the Government
- co-payments, co-funding, partnership activities or similar arrangements
- charges (including costs associated) with activities under the Freedom of Information Act 1982
- grants, donations or similar amounts paid to the Government
- contractual penalties and settlements, court fees and similar fees
- receipts from asset sales, investments or similar activities
- charges that offset the cost of a specific one-off or ad hoc event, activity or service (for example, running a one-off event or service)
- where the cost of the activity is recovered via general taxation.
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 regulatory levy is used when the activity is a regulatory and its costs can be attributed to a group of individuals or organisations being regulated by a proxy that reasonable aligns to the effort each party in the group causes (for example, compliance audits across an industry).
The table below provides an overview of these mechanisms, whether taxation or non-taxation revenue, and inside or outside the Charging Framework. Note that different titles 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.
Inside Charging Framework
Regulatory (cost recovery) fee
Regulatory (cost recovery) levy*
Non-regulatory (commercial and resource) charges
Outside Charging Framework
Exempted fees or charges (for example, FOI)
Penalties and fines
General taxation (tax, levy or other)*
Excise, customs duty
*requires a taxation Act
All levies are a tax and require a taxation Act. Under the Government’s financial framework, regulatory levies consistent with the Charging Framework are classified as non-taxation revenue rather than general taxation.
Regulatory (cost recovery) levy (or tax) is different from general taxation. All levies and taxes are used to raise revenue, but the direct link between the effort cause by a group of individuals or organisations and the charge for a specific activity distinguishes regulatory (cost recovery) levies from general taxation.
Under the Charging Framework, the relationship between the group of individuals or organisations causing the effort for the activity and the group being charged, determines the financial classification of the revenue raised by the levy.
- 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, the revenue is generally classified as non-taxation (for example, levy for ongoing monitoring and compliance), provided total revenue charged for activity does not exceed the total cost of the activity.
- where there is no direct relationship between those charged and the group of individuals or organisations causing the activity, or when the revenue exceeds the cost of the activity, the revenue will most likely be classified as general taxation.
If a revenue from the levy is classified as ‘general taxation revenue’ then the costing and charging arrangements for that charging activity is not governed by the Charging Framework and its policies' requirements. However, if the activity is in scope of the Charging Framework, the activity and the charging approach must still have future periodic reviews of the charging arrangement 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.