Australian Government Cost Recovery Guidelines Finance Circular
To all FMA Act Agencies and CAC Act bodies Australian Government Cost Recovery Guidelines Purpose
This Circular replaces Finance Circular 2002/02 and announces the publication of revised Australian Government Cost Recovery Guidelines (the revised Guidelines). Cost Recovery (CR) applies to all Financial Management and Accountability Act 1997 (FMA Act) agencies and also to those Commonwealth Authorities and Companies Act 1997 (CAC Act) bodies that have been notified, under sections 28 or 43 of the CAC Act, to apply the cost recovery policy.
No changes have been made to the CR policy. The guidelines have been revised to focus more on activities, rather than agencies, and to clarify a few areas (Attachment A contains more detail of these changes).
Target AudienceThis Circular is relevant to Chief Finance Officers and relevant FMA Act officials and CAC Act officers with responsibilities for existing or potential cost recovery arrangements.
Application of the Cost Recovery policy
1. The CR policy has been in place from December 2002 in respect of new or significantly amended CR arrangements and is being phased in for all existing arrangements according to a government agreed review schedule extending to 2007- 2008 (refer to Attachment B).
2. Many arrangements are not cost recovery for the purposes of the policy. Exclusions include:
- any form of intra-agency or inter/intra-governmental charging;
- charges by government business enterprises. These businesses operate in competitive or potentially competitive markets and are subject to competitive neutrality principles;
- other commercial charging arrangements in competitive or potentially competitive markets that comply with competitive neutrality principles (eg. commercial research);
- general taxation;
- repayments of loans to the Australian Government;
- receipts from asset sales, rental of property, royalties, including the sale of rights to access resources;
- fines and pecuniary penalties;
- payments by customers to non-Australian Government organisations and firms where Commonwealth policies may affect prices;
- receipts from one-off specific policy measures that have explicitly been recognised by the Government as not being subject to the cost recovery policy (subject to the provisions of paragraph 19, requiring the agreement of the Minister for Finance andAdministration) – for example, where the Australian Government introduces a levy to fund an exceptional policy measure;
- charges relating to industry-government partnerships;
- statutory marketing levies; and
- fees charged by courts and tribunals.
Key points regarding the application of the Cost Recovery policy3. Agencies should set charges to recover all the costs of products or services where it is efficient to do so, with partial CR to apply only where new arrangements are phased in, where there are government endorsed community service obligations, or for explicit government policy purposes.
4. CR should not be applied where it is not cost effective, where it is inconsistent with government policy objectives or where it would unduly stifle competition or industry innovation.
5. Any charges should reflect the costs of providing the product or service and should generally be imposed on a fee-for-service basis or, where efficient, as a levy.
6. Agencies should ensure that all CR arrangements have clear legal authority for the imposition of charges.
7. Costs that are not directly related or integral to the provision of products or services (e.g. some policy and parliamentary servicing functions) should not be recovered. Agencies that undertake regulatory activities should generally include administration costs when determining appropriate charges.
8. Where possible CR should be undertaken on an activity (or activity group) basis rather than across the agency as a whole. CR targets on an agency-wide basis will be discontinued.
9. Products and services funded through the budget process form an agency’s ‘basic information product set’ and should not be cost recovered. Commercial, additional and incremental products and services that are not funded through the budget process fall outside of an agency’s ‘basic product set’ and may be appropriate to cost recover.
10. Portfolio Ministers should determine the most appropriate consultative mechanisms for their agencies’ CR arrangements, where relevant.
11. CR arrangements will be considered significant (‘significant CR arrangements’) depending on both the amount of revenue and the impact on stakeholders. A ‘significant CR arrangement’ is one where:
- an agency’s total CR eceipts equal $5 million or more per annum – in this case every CR arrangement within the agency is considered, prima facie, to be significant, regardless of individual activity totals; or
- an agency’s CR receipts are below $5 million per annum, but stakeholders are likely to be materially affected by the CR initiative; or
- Ministers have determined the activity to be significant on a case-by-case basis
- reviews consistent with the Australian Government’s review schedule for existing cost recovery arrangements are undertaken; or
- new cost recovery arrangements are proposed; or
- material amendments are made to existing arrangements (a general rule-of-thumb is that price changes greater than the Consumer Price Index would be considered material. However, in making a decision about materiality, agencies should also consider the likely impact on stakeholders); or
- periodic reviews of cost recovery arrangements are undertaken
14. A CRIS will not be required where a Regulation Impact Statement that also addresses CR arrangements against the revised Guidelines has been prepared.
15. Agencies with significant CR arrangements should ensure that they undertake appropriate stakeholder consultation, including with relevant departments.
16. Agencies are to review all significant CR arrangements periodically, but no less frequently than every five years
17. Agencies will need to separately identify all CR revenues in notes to financial statements – to be published in portfolio budget statements and annual reports consistent with the Finance Minister’s Orders.
18. Portfolio Ministers are responsible for ensuring that the CR arrangements of agencies within their portfolios comply with the policy and will report on implementation and compliance in portfolio budget submissions.
19. Where a Government entity considers that a significant cost recovery arrangement that is new, materially amended or which has been reviewed, should be exempted from the CR policy, either wholly or partly, relevant Ministers must obtain the agreement of the Minister for Finance and Administration.
20. The foregoing is an outline of the requirements of the CR policy. Agencies should refer to the revised Guidelines for more comprehensive information and guidance.
Acting Division Manager Financial Framework Division Financial Management Group