Fisheries Cost Recovery Standing Committee Meeting #24

10.00am to 4.30pm Friday 27 July 2012

Location: Department of Primary Industries, Conference Room 18-1, 1 Spring Street, Melbourne, VIC.

Members attended:

Observers/presenters:

Introduction

Meeting #24 was the first to be held in 2012, with the last meeting of the Fisheries Cost Recovery Standing Committee (FCRSC) held in October 2011. The primary purpose of the meeting was to consider a review of the current cost recovery process in Victoria's wild catch and aquaculture fisheries, including the Fisheries Activity Costing System (FACS) and the proposed range of actions (with associated timelines) to be taken by the Department of Primary Industries (DPI) following the review.

Cost recovery process Review

The FCRSC has for some time acknowledged that FACS is in need of replacement with a more accurate, cost-effective and efficient means of accounting for expenditure. The problems associated with FACS, and the delays in undertaking the Review has resulted in data from FACS not being used for the last four years. Instead, the 2006/07 levies have been 'rolled over' and increased by an appropriate CPI index provided by the Department of Treasury and Finance.

Both the FCRSC and DPI have generally been supportive of developing an approach based on prospective budgeting such that costs for various fisheries are identified up front, discussed with industry, and levied. This is in contrast to the current system, which levies for a range of costs and services after they have been delivered. Significant issues have been raised over time concerning the accuracy, accountability, and transparency of the current cost recovery system.

This review was commissioned by the Executive Director of Fisheries Victoria and conducted on an independent (of Fisheries Victoria) basis by DPI's Economics and Policy Research Branch. The degree to which an arm of government within the same Department could be classed as 'independent' was raised by industry as an issue.

The review includes recommendations on the functionality of the current system and opportunities for improvement, taking into account distributional impacts and transitional arrangements. The FCRSC had input into the terms of reference for the review and has been provided with regular updates. The review is designed to consider all means of improving the cost-effectiveness and efficiency of the current fee, levy and royalty-setting approach for cost recovery from industry. The original timeframe for delivery of the review was the end of 2008, however due to a range of delays and other work priorities within DPI, the report has only just become available.

The Economics and Policy Branch provided the report to the FCRSC for comment at the meeting and will also seek written comments from the Committee on the report. Comments received will be considered before the report is finalised and presented to the Executive Director Fisheries Victoria. This report, and other relevant input, including that from the FCRSC, will be used by Fisheries Victoria to design and implement a new cost recovery system.

It should be noted that the cost recovery system in Victoria can be considered to consist of two major parts. Firstly, the Fisheries Activity Recording System or FACS, which is a form of accounting system that uses an allocation of time spent by DPI staff on various fisheries to derive a range of attributable costs and secondly, the process by which these costs are levied by government at various rates of recovery, i.e. all paid for by government, all paid by industry (through cost recovery levies) or some mixture of the two.

Industry members of the Committee worked through the Review document, having expressed the view that it would have been helpful if they had been given more time to review its content. The comments provided by the Committee were for two purposes: i) to provide advice to the authors of the Review document and ii) provide some early advice to the department on a number of key issues that needed to be addressed to fix the current cost recovery system. It should be noted that the Review is just that; an independent document that will be provided as advice and information to the Executive Director of Fisheries Victoria. Key issues raised by industry in considering the Review included:

• a strongly stated intention to reserve its position on agreement to any changes to current arrangements until the nature and extent of the impact of those changes was clarified and found acceptable;
• the view that, in principle, a move to forward budgeting would allow an increase in transparency, and enable industry to have strategic input on the nature, extent and design of services to be provided by DPI or alternative service providers, potentially realising both improved efficiency and cost savings;
• that the predicted annual saving was an inadequate incentive to move to the proposed prospective cost recovery system i.e. the potential risks/costs involved with change appeared out of proportion in relation to the benefits. It It was also noted however that even if there is no substantial reduction in costs recovered, the benefits of greater transparency, better value for money and improved management outcomes could be sufficient to justify change;
• concern at the lack of consultation with 'grass-roots' industry members in the review process, but noting that consultation had occurred with FCRSC, in line with the review's Terms of Reference and that there will be industry-wide consultation with FCRSC and with licence holders via a Regulatory Impact Statement on any proposed changes to the current cost recovery framework;
• that the 'special circumstances' provisions be carried over into any new cost recovery arrangements – i.e. the exemption of certain classes of licence holders from the need to pay levies because of exceptional prevailing circumstance, as has occurred in the past (bush fires, disease outbreaks etc);
• that the current arrangement whereby costs associated with Executive Management are not recovered continue; and
• any proposed new cost recovery system that is implemented following the recommendations made by this review should only be implemented after meaningful, transparent consultation with industry.

Much of the comments on the report were detailed in nature. General comments from industry included:

• concern that the other jurisdiction cost recovery examples used in the report were not best practice, and did not advance the cause for "forward budgeting";
• the need to ensure adequate inclusion of aquaculture noting, as appropriate, differences with wild fisheries;
• the importance of including the notion of competitive tendering as an aspect of efficient service supply given the propensity of Government to use its own services as sole providers; and
• need for a detailed comparison of costs between the existing and proposed cost recovery systems and greater attention to the budget allowance for IT systems.

Proposed move to forward (prospective) budgeting)

DPI proposes moving towards and implementing a prospective approach to setting levies for planned management services to be delivered during the forthcoming year(s), rather than the current process for recovering costs after the fishery management services (FMS) have been delivered (a retrospective approach).

Industry were strongly of the view that in considering any timetable for the investigation/consideration of forward budgeting DPI must: allow sufficient time for the Committee to adequately investigate any proposals and possible alternatives; acknowledge the fact that the move to forward-budgeting has not yet been accepted as the best option of cost recovery in Victoria; and provide sufficient time for consultation with the entire commercial sector on a proposal which is likely to be vastly different to the current regime. Industry also noted that at the time of the FCRSC meeting the Review has yet to be completed.

The Committee noted that for the 2008/09, 2009/10, 2010/11 and 2011/12 licensing years, levies had been rolled over (with inflation adjustment) each year originally based on FACS data for the 2006/07 year. It was further noted that the roll over of the first year (2008/09) was due to the failure of the FACS and the pending introduction of a forward-budgeting cost recovery system due to be introduced in 2008/09.

Industry members' noted that the move towards forward-budgeting had taken longer than expected. As a result there has been an increased gap between actual and recovered costs in some fisheries. Industry favoured a further roll over period of 12 months to ensure that any prospective cost recovery system was properly costed, considered and implemented with adequate time for good consultation with industry, as per the concerns expressed above.

Industry wish to secure a list and associated cost of the 'base' services that would be provided to industry by DPI that could be subject to cost recovery, including the proposed associated fees/levies.

DPI undertook to take account of the strong views expressed by industry.

Other Business

Effectiveness of Compliance and Enforcement Activities: Department of Primary Industries and Department of Sustainability and Environment

This audit, being conducted by the Victorian Auditor General's Office (VAGO) will examine the effectiveness of DPI's and DSE's compliance monitoring and enforcement and activities.

At a broad level, it will examine how the Department's assure themselves that they are effectively administering their legislation, particularly in relation to compliance monitoring and enforcement.

Industry raised the possibility and appropriateness of providing a submission on behalf of the FCRSC, however the Committee noted that the role of the FCRSC is to provide advice to the Minister on cost recovery matters, and VAGO had not sought public comments on the review. For these reasons it would be inappropriate for the Committee to provide a submission to VAGO. It was agreed that DPI will provide copies of the final audit report to FCRSC members for discussion, once the report has been tabled in Parliament.

Marine Parks and Sanctuaries Compensation Initiative funding

The Committee noted that fisheries management services (compliance) provided through the Marine Parks and Sanctuaries compensation initiative ($6.3 million for 2011/12)will continue to be exempt from cost recovery, subject to the Government continuing to provide this initiative funding. It was reported there has not been a reduction in compliance services funded from other sources since this initiative funding was made available.

Aquaculture representation on FCRSC

The Committee noted that difficult of effective representation on the FCRSC for the aquaculture sector given the lack of a forum for key aquaculture operators to meet to discuss key issues of concern, such as cost recovery. Without such meetings, where the opinions of other operators could be sought, it is almost impossible for a single operator to effectively represent aquaculture interests in Victoria. The FCRSC noted that DPI had established a forum to engage with the aquaculture sector, where cost recovery matters, including representation of the aquaculture sector on the FCRSC would be raised for discussion.