Stage 1 – Policy design and authority

The objective of Stage 1 is to prepare or amend the policy approval and authority for charging, for consideration by Government.

Government approval to enable charging for an activity requires separate decision points. The decisions may be sought separately or concurrently, depending on the situation and the nature of the activity.

Policy design - Entities conduct appropriate research and analysis to design policy for regulatory or non-regulatory activity for consideration by Government
Charging design - Entities conduct appropriate research and analysis to develop rationale to charge, charge partially or not to charge, as part of the policy considered by Government.

Policy - Government approves policy, which enables legislative drafting that provides the legal ability to charge, irrespective of the nature of the activity (regulatory or non-regulatory)
Charging - Government agrees to charge for a regulatory activity, Government, Relevant Minister and/or Accountable Authority agrees for non‑regulatory activity charges.

Regulatory activities - Legislation is required. Government approves policy, which enables legislative drafting that provides the legal ability to charge.
Non-regulatory activities – Legislation may be required. In this situation Government approves policy, which enables legislative drafting that provides the legal ability to charge.
Where no new or amended legislation is required Relevant Minister or Accountable Authority of the entity may agree activity charges through contractual arrangement (subject to risk assessment discussed below)

Charging - Either Government, Relevant Minister or Accountable Authority agrees level of the charge (price), depending on nature of the activity (if not agreed at policy approval stage), and how the charging will operate.

Prior to seeking policy approval for the goods, service or regulation, entities should first consider development and design of the policy.

Policy design

There are a number of considerations that entities should take into account when developing advice on whether it is appropriate to charge for a government activity. These include:

policy considerations, such as the policy problem and proposed solution, whether the Government should be involved in the activity, and whether it is appropriate to charge for the activity
specific charging considerations, including the nature and type of activity being proposed, whether charging is efficient or another form of funding is more appropriate.

Depends on whether the policy is new or an existing, entities need to determine the policy changes needed:

charging for a new government activity
charging for an existing government activity not previously charged for
amending an existing authority for, or level of, a charge for a government activity.

Policy design and rationale for charging

In developing the policy rationale, entities should consider the following steps:

Entities should assess the goods, service or regulation activity to understand:

what is the policy problem and how would the proposed solution (activity) address this?
what are the characteristics and nature of the activity?
does it involve the provision of goods, services and/or regulation and can those only be provided by government?
should government be involved in the activity?
is policy approval required from the Government to undertake the activity?
is statutory authority required to undertake the activity? Noting that this is required for all regulatory charging and may be required for resource or commercial charging activities.

Entities should consider who the activity is delivered to, including:

who would be charged?
can the individuals or organisations that create the need for the service, regulation or good be identified or characterised?

To support assessment of whether activities can be charged for, entities should consider the following questions:

what is the potential size and scope of all the activities?
can all or some of the costs associated with each activity be recovered?
is policy approval required from the Government to charge for the activity or activities? Noting that policy approval is required for all regulatory charging and may be required for resource or commercial charging activities that are material, sensitive and/or complex.
is statutory authority or legal basis required to charge for the activity or activities? Noting this is required for all regulatory charging and may be required for resource or commercial charging activities.

When developing the rationale for the level of a charge, entities should consider:

consistency with other government policies
what is the impact of charging on the desired policy outcome, such as any impacts on Australia’s obligations under international treaties? (for example, free trade agreements) or other government policies and legislation (for example, access to essential community services, or access to government data)
would charging impact competition, innovation and the financial viability of the individuals and organisations charged, in a way the Government does not want?
would charging contribute to the cumulative effect on individuals or organisations from other government activities in a way the Government does not want?
would the administrative fixed cost of charging be a substantial portion of the total cost of implementing and managing the charging arrangement, and is this a concern?
are disadvantaged Australians impacted by the proposed charging approach? If charging impacts on disadvantaged Australian individuals, then the activity should generally be funded by general taxation (budget appropriation).

The Government may consider it inappropriate to charge for a range of government activities, such as policy development, ministerial support, law enforcement, defence and national security. In certain circumstances, charging may be contrary to intended policy outcomes, such as the provision of community services or support.

Due to the difficulty in identifying pure public good, community services are not considered to be a criterion in determining whether charging is appropriate. A range of other relevant considerations inform the final decision by the Government about charging for a specific activity.

Entities should consider how much to charge for the activity, including whether there is a need to align expenses and revenue. This alignment between cost and price is a requirement for regulatory charging activities and means that expenses and revenue balance out over a reasonable period (for example, the business cycle of the activity).

The Government's policy default position is that the full cost of an activity should be recovered from those creating the effort. However, there may be certain circumstances where it may be inappropriate to charge the full costs, such as where it may not align with other government policy outcomes. The Government decides as part of the policy approval the level of charge, such as full or partial cost recovery and the level of costs that will be recovered (for example, 80 per cent of total costs of an activity).

Based on the policy intend and the stakeholders consultations, entity is informing the Government about the policy outcome's impact and any risks related to the level of charge.

Entities should develop a broad implementation strategy that considers the following:

timing: - when should activity and charging for the activity commence? Should the charging be phased in? Has adequate time been allowed for the passage of any legislation and for stakeholder engagement?
governance: - are appropriate structures in place to manage costs or do they need to be developed? (for example, internal controls)
staffing: - does the entity have the right skills to deliver the charging activity? Are special skills required for the detailed design and implementation of the charging activity?
government: - is there involvement of different levels of government in the charging activity? (that is, local, State/Territory, Federal)
stakeholder engagement: - how can engagement with stakeholders be a meaningful opportunity to provide input into the detailed design and implementation of the charging activity?
sensitivity: - is there stakeholder sensitivity about the introduction of charging for activities that have not previously been charging for?
procurement: - do any goods or services need to be procured for the implementation of the charging activity?
risk management: - is there a risk engagement and mitigation strategy for implementing the charging activity?

Entities should develop and document how the charging for the activity will be managed across its life. This could include:

maintaining appropriate up-to-date records, including the publicly available documentation and reporting
maintaining and reviewing the accuracy of the charging model (both costs and prices)
understanding and analysing financial outcomes of charging
ongoing assessment and management of risk
ongoing stakeholder engagement strategy
is there the opportunity to benchmark similar activities (financial and non-financial) undertaken in Australia or overseas? If so, what can be learned from these similar activities and approach?

Entities should consider establishing systems for ongoing monitoring and evaluation of charging for the measure. This ensures the policy intent of the activity is being suitably supported and the level of charge paid by users is appropriate.

Entities should consider the timing of the responsible Department of State’s Portfolio Charging Review when implementing new or significantly amended charging, this process may support timing of reviews.

Broader regulatory reforms, audits and enquiries into government operations, may result in identifying changes to existing charging.

Entities should ensure the systems are in place for recording and documenting decisions to meet accountability and transparency requirements. A record of when, by whom and what document(s) provided the approval and authority should be kept on file.

Stakeholders engagement

Stakeholder involvement generally results in better design, planning and implementation of government activities. Successful stakeholder engagement involves well planned and meaningful consultation. government entities should have open dialogue with stakeholders, consider their views and, where appropriate, take action.

Stakeholder engagement during policy design is particularly important for regulatory charging activities, as regulatory charges are mandated and cannot be negotiated or the service acquired elsewhere.

For regulatory (cost recovery) charges, stakeholders, particularly those directly affected by charges, should be consulted in developing the rationale for charging where possible, before the Government considers the proposal. Early engagement provides an opportunity to refine policy proposals and signals the potential for regulatory charging to stakeholders. If early engagement is not possible because of the Budget process or other constraints, entity staff should engage with stakeholders as soon as possible after the Government decision.

For regulatory activities, entities must contact the Office of Impact Analysis prior to seeking policy approval, to check whether a Policy Impact Analysis (PIA) will be required.

Legal authority

Legislative authority to allow charging

All charges must have statutory authority through specific legislation, legislative instruments or contractual arrangement, and the policy proposal would indicate how this can be achieved. For example, the ability to charge may be included in activity specific legislation, in legislation of an entity or in taxation legislation. Charging may require a new legislation or amendment of an existing one to provide statutory authority for charging.

All legislation must have full policy approval before it is introduced into the Parliament.

The basis for the policy approval will inform the relevant legislation, it may include:

the ability to charge for an activity
any criteria that may be put into legislation to limit what may be charged for or the level of the charge (full of partial cost recovery for regulatory charging activities)
any subsequent decision to charge and the level of the charge.

Entity staff should consider the level of detail required in primary legislation to enable charging and how this is influenced by desired flexibility and certainty. This may include defining the activity or sub-set of activities that may be charged for, the methods of calculation for charges, or prescribing details of charges such as rates. Entity staff should consider the degree of flexibility required for charging arrangements to respond to changes in costs/required indexation and whether subordinate legislation or legislative instruments may be appropriate to meet these needs. It may also consider the types or frequency of mechanisms of the future costs review.

Charges can be designed before or when entity staff have begun drafting legislation for the activity. When drafting or amending charging provisions in the relevant legislation, staff should consider:

whether the legislation is consistent with the Government policy approval, such as any associated conditions
legal requirements for the imposition of charges
how charges will continue to reflect any increases in costs
ministerial responsibilities
the timing required for passage through the appropriate bodies (for example, Parliament) before charging commences
the level of specificity about charges in relevant legislation.

Example:

Where the regulatory (cost recovery) fee amounts sits within the primary legislation, while this may provide certainty, it is often difficult to respond to changes (decrease or increase) in costs of undertaking the activity.

Where the regulatory (cost recovery) fee amounts are specified in subordinate legislation, such as a Rule or Determination, there is greater flexibility for adjustment of prices on an annual basis to reflect any changes (decrease or increases in undertaking the activity).

Entity staff should consult with the Department of Finance and the Treasury when drafting or amending charging provisions of relevant legislation.

The Department of Foreign Affairs and Trade should be consulted if there is a possibility that international law and other obligations (for example, treaties that govern the sharing of information) that could constrain the application of charging.

Further information of legislation is available in the Legislation handbook. For requirements regarding legislation and on regulatory powers refer to Regulatory Powers Act on the Attorney General’s Department's website.

Legal challenge of the charges

Entities need to ensure that they are only charging to recover costs for the activities within the remit of the original policy authority from the Government, as well as the remit of their legislation and to the level allowed by their legislation. This information is particularly important should the validity of regulatory (cost recovery) charges be legally challenged.

Should the legal basis or constitutional validity of the regulatory charge be challenged, the information collected on who causes the effort should assist the entity to demonstrate that costs have been appropriately allocated.

Checklist for the policy proposal information

Specifically, the policy proposal for charging for a regulatory or non-regulatory activity should include:

the rationale for proposing charging for the activity:
- who will be charged
- why they will be charged
- how charging relates to the relevant government policy outcomes
- the characteristics of the charging activity, including where it limits or requires specific pricing approaches
- how charges will be priced to support the desired policy outcomes of the activity
  - Regulatory charges, to recover all or part of the costs of the activity (and reasons when partial costs recovery is proposed)
  - Non-regulatory charges, priced in line with the activity available during charging model.
an analysis of the impact of charging following consultation and/or feedback from stakeholders.
the high level charging model, that includes
- costing of each proposed option in the policy proposal and assumptions it has been based on
- types of the proposed charges (fees/prices), such as
  - regulatory (cost recovery) fees and/or levies
  - non-regulatory charges that includes value-based or market-based, dynamic-based, consumption, subscription and/or freemium commercial charges
- estimates of proposed charges on an output to the user basis (this may include a price per output basis, time based rate or a scaled rate driven by an appropriate proxy for example, effort)
- estimates of expected expenses and revenue for the activity over a year
- proposed appropriation mechanisms (for example, annual departmental appropriation or special appropriation).
- outputs of the activity, which are the expected deliverables to those being charged and that contribute to the achievement of government policy outcomes.
the broad implementation strategy.
performance measures for the outcomes of charging.
a request for authority to bring forward any relevant legislation.
risk assessment of the activity of charging and charging for the activity:
- for regulatory charging activities, the Charging Risk Assessment (CRA) must be completed and agreed with Finance, and included in the policy proposal.

Entities should consider building in enough flexibility within the policy proposal to minimise the need to seek variations to the original policy decision.

Portfolio Charging Reviews, under the Australian Government Charging Framework, provide ongoing authority for charging policy proposals to be brought forward for Cabinet consideration in the Budget process.

Entity staff should refer to the Office of Impact Analysis for comprehensive guidance for the Policy Impact Analysis process.

High level charging model

At the policy design stage, where there is the potential to introduce charging, entity staff should develop a high-level charging model, to support policy approval.

The high level charging model supports Government to make decisions regarding all new policy proposals for regulatory and non-regulatory charging arrangements, where the arrangement is considered sensitive, complex or material.

Where the policy proposal is related to charging for regulatory activity, the high-level charging model informs the Charging Risk Assessment (CRA) supporting the assessment of charging activity's sensitivity complexity and materiality.

Where the policy proposal is related to non-regulatory charging, a high-level charging model may support the responsible Minister or/and Accountable Authorities when making decisions relating to commencing or changing charges.

In developing a high level charging model, entity staff should identify the appropriate charging mechanism:

regulatory (cost recovery) fees and/or levies
non-regulatory charges
- value-based resource charges
- market-based commercial charges

The high level charging model should:

provide estimates of expected expenses and revenue for the activity
identify appropriate types of charges based on the business processes (fees, levies or both)
provide estimates of the charges
support proposed funding mechanisms
list assumptions and known risks that may affect the final charging model.

If more than one government entity is involved in providing effort or inputs for the activity that is charged for, the cost of any relevant intra-government or inter-government services or goods are inputs to the total cost of each output and the total cost of the activity, and should be included in the charging model.

In addition, the high level charging model should consider:

the review mechanisms for charging that allow flexibility in addressing variances in estimates and actuals to the original policy decision
removing any incentives for ‘cost padding’, inefficiencies and the expansion of the activity beyond the policy intent
where possible, benchmarking similar activities for charging, costs and business processes
changes in risk that impact on the assumptions of the policy intent.

Regulatory activity pricing strategies for policy approval

When developing a policy for charging for regulatory activities, entities should establish charges to recover the relevant minimum efficient costs of the activity, unless there is a policy rationale for charging on a partial cost basis. This rationale needs to be clearly stated in the policy submission for the Government decision. There must be a discernible relationship between the effort caused by the individual or group and the charges for the regulatory activity.

For more information on regulatory charging activities requirements refer to Regulatory activities.

For information on developing pricing strategies for regulatory activities refer to Stage 2 of the Charging Lifecycle.

Non-regulatory activity pricing strategies for policy approval

The price for a non-regulatory activity must have policy approval from the relevant minister, or Accountable Authority or their delegate (unless charging activity is considered sensitive, material or complex). Entities should develop an internal documentation of the charging model indicating estimations of costs of delivery of the commercial or resource activity, to allow for an informed decision of what price charges for the activity are appropriate.

In instances where the risk assessment of the charging activity is determined as high (activity is sensitive, material or complex for either the user or the Government), a Government decision on the policy approval and the level of the charge may be required. In this situation entities should discuss the charging risk assessment with Finance to decide appropriate approval process.

The Accountable Authority makes the decision on the level of the price for non-regulatory activity based on understanding of the efficient minimum cost, charging risk assessment and the type of activity.

For more information on developing pricing strategies for non-regulatory activities refer to Stage 2 of the Charging Lifecycle.

Changes to existing charges and the charging model (costs/prices)

Changes to the existing policy charges are discussed in Stage 4 of the Charging Lifecycle

Summary

		Regulatory	Non-regulatory
Policy approval	Authority to undertake the activity	Cabinet/Prime Minister	Relevant minister or Accountable Authority unless material, sensitive or complex
New charges approval	Authority to charge for the activity (including level – above, at or below cost)	Cabinet/Prime Minister – sometimes supported by further information to the Finance Minister	Relevant minister or Accountable Authority unless material, sensitive or complex
Operational changes within existing policy approval	Price changes	Relevant Minister or Accountable Authority (as specified in the legislation and supported by charging model)	Relevant Minister or Accountable Authority (supported by charging model)