Fisheries Cost Recovery Standing Committee Meeting #25

Approved Minutes

Attendees:

1. Ian Cartwright – Independent Chair
2. Geoff Ellis (Industry member)
3. Vince Collins (Industry member)
4. Hugh Meggitt (Industry member)
5. Vin Gannon (Industry member)
6. Mark Edwards (DPI member)
7. Terry Truscott (DPI member)
8. Renee Vajtauer (Permanent Observer)

Executive Support
Chris Padovani - Project Officer Statutory Consultation

1. Welcome and Introductions

• Anthony Hurst, Executive Director Fisheries Victoria, DPI
• Gary Leonard, Industry
• Bill Allan, Industry
• Sean Buck, Industry

Chair's Opening Statement

Welcome to the meeting, especially to those who have not attended before.

This Committee was established by the Minister for Agriculture to provide him, and indirectly, the Department, with advice on the design, implementation and monitoring of cost recovery for commercial fisheries in Victoria.

Among other things, the role of the Committee is to:

1. promote efficiency, equity and transparency;
2. facilitate an understanding of the cost recovery process; and
3. oversee and facilitate, through an industry/government partnership, the provision of fisheries management services and research in a budgetary context, and ensure consistency with Government policy and guidelines.

The Fisheries Cost Recovery Standing Committee's Terms Of Reference (ToR), which are essentially an agreement between two parties [the Government and Seafood Industry Victoria(SIV)] are now somewhat out-dated in some aspects. For instance, the Fisheries Activity Costing System (FACS) has ceased to be used to meaningfully inform the setting of fees and levies for the last four years. The principles, in the view of the Department, need to be revisited and there have been concerns raised about the transparency of cost recovery processes. Accordingly, the Department has indicated that once decisions have been made on a revised cost recovery regime, a review of the TOR's would be appropriate.

Last week, a turning point in the development of cost recovery occurred. I met with the Minister and raised a number of personal concerns, as well as reflecting, first hand, some of the views that have been expressed from around the FCRSC table. Partly as a result of this meeting and subsequent discussions by the Minister's office with the Department and SIV, the Committee has been provided with some clear directions.

These are:

• To achieve a new forward-looking/prospective cost recovery system ready for a RIS in 2013, to be phased in over a period commencing 1 April 2014 in such a way that it does not 'overburden' industry, while moving towards an appropriate level of cost recovery;
• On the matter of 2012/13 levies and the issue of rolling over by the Consumer Price Index, or apply some other level of increase, the Minister does not require comments from the FCRSC. The matter will be determined in consultation with SIV. Essentially this matter is off the FCRSC table.
• A broadening of attendance at the Committee to reflect the major fisheries, broaden the level of expertise available; and increase the level of support for its outcomes. In the short term and to expedite progress, additional attendance would be achieved using the current provision in the FCRSC TORs for advisers, As such, the Committee, at least until the review of the TORs is complete, will remain an expertise-based committee, but with significant and valuable input from a wide range of industry sectors. In order for the Committee process to be as effective as possible, it is suggested that there not be a provision for alternatives should nominated advisers not be available.

As I outlined in my email which most of you will have received, it is proposed that the FCRSC should initially:

1. develop a timetable that allows for the considered and staged development of this revised regime. I would intend that, following next Wednesday's meeting (5 September) and in line with expectations from the Minister's office, I will report back to the Minister with a proposed timetable that would allow staged implementation to commence by the proposed date; and
2. confirm the services for which costs should be recovered from the commercial sector, and the principles for the operation of a cost recovery regime.

Operating with a larger attendance and ensuring adequate communication with the wider industry will be challenging, will require the work of the Committee to focus on key issues and be conducted in good faith. This will not be easy given some of the residual concerns from the past performance of the fisheries cost recovery process.

After each meeting, as has occurred in the past, I propose that I shall prepare a Chair's summary which will be available on the department website not more than three weeks after the meeting, and ideally within two weeks.

Minutes of the meetings will be committee in confidence until they are cleared at the next meeting of the Committee, when they will be placed on the Department website. As such the minutes will not be attributed unless there is a specific request to do so. I hope this facility will not be used widely.

Committee members and advisers are encouraged to discuss the outcomes of each FCRSC meeting with stakeholders. Issues or details identified by exception as being of a particularly sensitive nature are to remain Committee in confidence until resolved or a decision taken. In essence, all matters discussed by the Committee can be aired with stakeholders where members/advisers consider it would be helpful, or are asked by the Committee to do so.

2. Apologies

Anthony Ciconte (Industry)

3. Confirmation of previous Minutes

Background
Draft Minutes of FCRSC meeting #24 of 27 July 2012 were circulated to members on 6 August 2012.

Recommendation
That the FCRSC confirms the Minutes of FCRSC meeting #24 of 27 July 2012.

OutcomeConfirmed following one minor amendment made by Chris Padovani.

4. Progress on Action Items from meeting #24

5. Items for discussion/noting

5(a). A timetable for cost recovery in Victoria to move to forward budgeting

Outcome:

1. The FCSRC discussed and agreed upon both the actions that need to be completed in order to meet the Minister's stated intention to implement a new cost recovery regime by 1 April 2014, and the timeline required to complete those actions (Attachment A).
2. The Committee noted that when it comes to considering a transition period to implement the new cost recovery regime, this may not be limited to a phase in of levies, but also a phase in of any new systems that DPI may need to adopt or any other matters that have yet to be considered.

Action Item:

1. DPI to format and distribute to the Committee the agreed timetable to develop and implement a new cost recovery regime.
2. The Chair to communicate the agreed timetable to the Minister for Agriculture in accordance with the requirement for the FCRSC to provide a timetable to implement the new cost recovery regime.

5(b). Principles of cost recovery

Outcome:

1. The Committee discussed a number of cost recovery ideas and objectives, before agreeing on the following cost recovery principles:
   1. Cost recovery systems should be designed to promote;
      • Economic efficiency; i.e. improve the allocation of resources in an economy by providing price signals for service provision that incorporate all of the relevant costs; and
      • Equity; i.e. those that benefit from a government service, or contribute to the need for a service, should pay for the associated costs. Where a number of groups benefit from a service, costs should be apportioned.
   2. The cost recovery system should be administratively simple and minimise operating costs;
   3. Operation of the system, including planning for the provision and delivery of services, should involve well designed, cost effective, consultation with those paying for the costs of services;
   4. There should be transparency about the nature, extent, delivery and cost, of services for which there is cost recovery;
   5. Operation of the system should promote opportunities for efficiency improvements;
   6. Cross subsidisation between fishers and fisheries should be minimised;
   7. Fee for service should be used where possible to directly recover the costs of transactions/services;
   8. Between year volatility should be minimised in order to smooth costs to better enable businesses to plan;
   9. Where resources are diverted to non-recoverable services (e.g. emergency services) or are materially under- delivered, a corresponding adjustment to future levies or services should be made; and
   10. The implementation of the system should include monitoring and periodic review.
   11. The design, nature and extent of services should take into account the risks posed by the fishery and the value of production generated by the fishery.

Action Item:

1. DPI to provide the agreed cost recovery principles to the Committee once adjusted to reflect the discussion of the FCRSC.
2. The Chair to prepare a letter to the Minister for Agriculture which highlights the agreed cost recovery principles that will underpin the design of the new cost recovery regime.

5(c). Cost recoverable services provided to Victoria's wild-catch and aquaculture fisheries

Outcome:

1. The Committee discussed and made suggestions concerning the categories of services that DPI would provide to the commercial wild-catch and aquaculture industries, and the level of cost attribution applicable to industry for each of those categories (see Attachment B).
2. The Committee amended the definitions of some of the services to be provided to industry.
3. The Committee requested DPI provide a better definition of the following services:
   1. Operational management of marine fisheries;
   2. Operational management of fresh-water fisheries; and
   3. Operational management of aquaculture fisheries.
4. The Committee requested that the table of services be amended to include an additional column containing the Committee's comments.
5. The Committee agreed in principle to the cost attributions for the majority of services, except for the three categories listed above in dot point #4 which require further clarification at the next FCRSC meeting.
6. Industry strongly suggested that the idea of 'base-level' and 'above base-level' services be scrapped, and that the new cost recovery regime should contain 'services'. While accepting that more services cost more, and less services cost less, Industry members felt that the process to determine base-level and above base-level services would detract from the FCRSC's objective of implementing a prospective cost recovery regime by 1 April 2014.
7. DPI advised that FCRSC that all cost recovery revenue goes to the consolidated fund (Treasury). DPI can only provide additional services if Treasury provides an increased appropriation to the Department for that year.

Outcome:

1. DPI to clarify if an adjustment would be made to cost recovery levies for industry if the Court awards 'costs' to the Government following a successful prosecution.
2. DPI to amend the table of services to include better definitions for some services as requested, insert an additional column containing the Committee's comments, and provide to Committee members to review prior to the next FCRSC meeting.

6(a). Miscellaneous matters related to the introduction of a prospective cost recovery system

Outcome:

1. The system currently in place is retrospective and is based on setting levies for the coming year using information provided by the Fisheries Activity Costing System (FACS) on time spent on recoverable activities in the preceding year. Due to the breakdown of the FACS system, this data has not been used for the last four years except to reduce levies for some fisheries, and the 2006/07 levies have been 'rolled over' and increased by an appropriate CPI index provided by Treasury.
2. DPI acknowledged the shortcomings of the Fisheries Activity Costing System (FACS), and the need to move to forward budgeting, which 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. The problems with incurring costs and being charged after the event were acknowledged by the FCRSC.
3. The Committee noted part of the Chair's opening statement…'Operating with a larger attendance and ensuring adequate communication with the wider industry will be challenging, will require the work of the Committee to focus on key issues and be conducted in good faith. This will not be easy given some of the residual concerns from the past performance of the fisheries cost recovery process'. The Committee further noted that whilst it would need to learn from the past, there is a strong need to avoid re-iterating these matters, and instead focus on the development and implementation of a new cost recovery regime. The Committee also acknowledged the need to maintain momentum to get the job done in a timely manner.
4. The Committee noted that further industry attendees for rock lobster (Western Zone), aquaculture (marine waters), and the abalone (Western Zone) and abalone (Central Zone) will be invited to FCRSC meetings as advisors to assist in the development and implementation of a new cost recovery regime. These advisors would be reimbursed for reasonable travel expenses incurred as a result of attending FCRSC meetings. Accommodation expenses for those attendees residing outside of Melbourne, where the timing of meetings makes travel on the day impractical, will also be incurred by DPI.
5. The Committee noted the advice from the Executive Director Fisheries Victoria, that DPI is committed to working with the FCRSC in the development of a new cost recovery regime, and confirmed that DPI considers this task a high priority and will allocate sufficient resources to achieve the Minister's target date of 1 April 2014.
6. The Executive Director Fisheries Victoria also advised the Committee of the need for transparency, but also simplicity, taking into account that some of Victoria's fisheries are small, for example bait fisheries, and the need to ensure the smoothing of levies.
7. The Committee noted that a move towards forward budgeting will allow an increase in transparency of costs, and the ability for industry to have input into the nature, design and extent of services to be provided by DPI or alternative service providers, with a view to realising both improved efficiency and cost savings.
8. Regulations currently specify that the combined royalty and cost recovery payable annually in the abalone fishery is limited to 7.21% of GVP (Gross Value of Product). The figure was reached by agreement with government. Industry noted their strong view that this cap on recovery for the abalone sector should be retained. DPI advised the Committee of their understanding that the 7.2% cap for abalone fisheries would remain.
9. Industry noted that where the Government benefits from research, it would be appropriate that they incur a proportion of the cost. For example, if research was conducted on best practice of trout production, both aquaculture trout operators, plus DPI's Snobs Creek production facility would benefit from the project's outcomes.
10. The FCRSC discussed the potential that cost recovery in Victoria might create competition issues, for example in circumstances where Victorian products are in the same market as competitors who didn't face the same costs. While acknowledging the issue, DPI suggested that this was not a matter that would amend the cost recovery principles. It could be addressed as an adjustment made in the implementation of the new cost recovery regime by the Minister at the time.
11. The FCRSC noted that environmental groups might advocate for restrictions in fishing to address environmental issues. DPI noted that regulation of fisheries was driven from legislative and regulatory requirements, with decisions ultimately made by the Minister. Industry would be involved in those decisions. These circumstances were not a reason to change recoverability principles for related services.
12. The Committee agreed that the Regulatory Impact Statement (RIS) that DPI will be required to prepare in order to implement a new cost recovery regime should be specific to cost recovery.
13. Given the instructions provided by the Minister, and the level of work required to implement a new prospective cost recovery system, the Committee noted that it might be necessary to adjust the timing of meetings to commence to ensure all agenda items can be addressed. For example a 8:30am start was agreed for the next FCRSC meeting.
14. The Committee noted 7.2 in the ToR's that… agenda papers and supporting documentation shall be circulated at least two weeks prior to the meeting, however the FCRSC agreed to waive this requirement to allow DPI an additional week to complete all of the work/action items arising out of each meeting. As such, agenda papers and supporting documentation will be provided both in soft and hard copy to members at least one week prior to the meeting.
15. Industry specified that it does not want an off-the-shelf cost recovery model from another jurisdiction. DPI agreed, noting that it would draw from a number of Government guidelines and documents in designing a revised cost recovery regime. The Committee agreed that the new cost recovery regime needs to be suitable for Victoria's fisheries.
16. The Committee agreed that efficient service delivery is a key component of a revised cost recovery regime. Industry used the example of the Abalone Fishery Management Plan as being a product/service that has not been delivered by DPI in a timely and efficient manner.
17. The Committee noted that DPI had conducted a review of its current fee structure (quota transfers, etc.), and has identified that the fees being charged to individuals do not cover the cost of these transactions. On the basis of current systems and staff complements, DPI is under-recovering for the cost of providing these services to individuals. However, these systems are currently being redesigned, and there is the potential for efficiency improvements.
18. The Committee further noted the intention that transaction fees be reviewed in 2015, once the new systems are operating. In the meantime, fees will be maintained with an appropriate CPI index provided by Treasury.
19. The Committee noted the Final Draft Wild Catch Fisheries and Aquaculture Cost Recovery Review had been completed by DPI's Economics & Policy Research Branch, subject to professional editing and formatting. Hard copies were distributed to attendees to inform discussion and input to FCRSC discussions.

Action Item:

1. DPI to investigate the pros/cons regarding the use of fee units versus actual dollar amounts under the new cost recovery regime.

7. Next meeting:

8:30am Friday 28 September 2012.

Meeting closed at: 5:00pm

Action Items: