Fisheries Cost Recovery Standing Committee Meeting #26

Approved Minutes

Attendees:

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

Executive Support
Chris Padovani - Project Officer Statutory Consultation

1. Welcome and Introductions

• Sean Buck - Industry,
• Gary Leonard – Industry
• Bill Allan – Industry
• Harry Peeters - Industry

2. Apologies

• Anthony Ciconte (Industry)
• Hugh Meggitt (Industry) – resigned
• Sue Alcock (Industry)

3. Confirmation of previous Minutes

Background
Draft Minutes of FCRSC meeting #25 of 5 September 2012 were circulated to members on 7 September 2012.

Recommendation
That the FCRSC confirms the Minutes of FCRSC meeting #25 of 5 September 2012.

Outcome

1. The Committee agreed that any Draft Minutes were 'Committee in Confidence' until confirmed as being accurate at the next meeting.
2. The Chair advised the Committee that Mr Gary Blackwood, Parliamentary Secretary for Forestry and Fisheries was impressed with the outcomes of FCRSC meeting #25, and looks forward to continuing to receive updates on the progress of the Committee in developing and implementing a prospective cost recovery system.
3. The Committee confirmed the Minutes of FCRSC meeting #25.

4. Progress on Action Items from meeting #25

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

Background:

At FCRSC meeting #25, the Committee asked 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.

Court costs relate to costs associated with the conduct of court proceedings, such as briefing a barrister to attend hearings, service of summons etc. When Courts award 'costs' to the Government following a successful prosecution, they do not include the costs of investigation.

As the FCRSC has previously agreed that costs incurred by DPI in relation to prosecutions are 0% recovered, it would not be appropriate to adjust levies following recovery of these costs. If levies were to be adjusted downwards if DPI was granted costs, it would be appropriate that an adjustment be made upwards if the prosecution was unsuccessful and costs were awarded against the prosecution.

Court costs are at the discretion of the presiding magistrate (costs cannot be awarded for indictable matters heard by a judge and jury). Where costs are awarded against an accused, the accused can seek to pay by instalments. This means that in many cases costs are only received in small amounts over a number of years. DPI pays costs into a trust account which is used to pay for barristers in future cases, or to pay the defendant if costs are awarded against the prosecution. DPI has to top up the trust annually from state recurrent funds as the costs incurred outweigh the costs actually received.

Fines, proceeds of the sale of seized goods and pecuniary penalty orders made under the Confiscation Act must be paid into the consolidated fund (Treasury). It is Government policy not to hypothecate these funds back to enforcement agencies because it creates perverse incentives that could undermine the justice system.

Recommendation:

That the FCRSC note the Victorian Government's policy regarding this matter.

Outcome:

1. The Committee noted the Victorian Government's policy not to hypothecate any funds collected under the Confiscation Act back to enforcement agencies because it creates perverse incentives that could undermine the justice system.
2. The Committee further noted that the service 'prosecutions' was not subject to cost recovery.
3. Industry maintained a view that as a result of paying annual levies for the provision of fisheries regulatory services such as surveillance, intelligence, etc. it would not be unreasonable that any revenue received by the Victorian Government for the costs of prosecution, through the judicial system following the successful use of that surveillance or intelligence, be used to off-set the levies paid by industry for those services.

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

Background:

At FCRSC meeting #25, the Committee asked DPI to amend the table of services to include better definitions for some fisheries management services, insert an additional column containing the Committee's comments, and provide to Committee members to review prior to the next FCRSC meeting.

The table showing amendments in track mode was provided to the Committee on 7 September 2012. Three services have been more clearly defined as requested, and are shown in Attachment A. Note that further adjustments will need to be made to address the issues raised about emergency management. These will be discussed at FCRSC #27.

Recommendation:

That the FCRSC review and decide on the amended definitions and the cost attribution for the three services.

Outcome:

1. The Committee agreed on the intent of the definitions of 'operational management of marine fisheries' and 'operational management of freshwater fisheries' and 'operational management of aquaculture fisheries' with further wording adjustments to be made.
2. The Committee agreed that more explanation was needed regarding cost recovery and emergency management, including what are deemed cost recoverable and non-cost recoverable 'emergencies'. Some examples could include disease outbreak, severe depletion of the fishery caused by over-fishing, introduction of an exotic species, the spread of sea urchins, fire and an oil spill. The additional explanation should consider: in what circumstances could the Minister's ability to waive levies be exercised and for how long. If necessary, DPI can seek advice from the Aquatic Consultative Committee on Emergency Animal Disease (Aquatic CCEAD).
3. The Committee noted that existing public policy may influence the Victorian Government's position on these matters, which may mean that they are outside the jurisdiction of the FCRSC.
4. The Committee agreed that the document should also specify the process required for a fishery to obtain an exemption(s) from the requirement to pay cost recovery levies in exceptional circumstances (e.g. via the FCRSC to the Minister for Agriculture and Food Security).

Action item:

1. DPI to amend the table of services to include amended definitions for the three operational services, provide more detail about the relationship between cost recovery and emergency response and provide to Committee members to review prior to the next FCRSC meeting.

5(c) Fee Units

Background:

At FCRSC meeting #25, the Committee asked DPI to investigate the pros/cons regarding the use of fee units versus actual dollar amounts under the new cost recovery regime.

The Victorian Government has a policy of automatically indexing levies, fees and fines each year for inflation, so that thereal value of those levies, fees and fines is maintained.

Levies, fees and fines are officially set and revised by legislation relevant to their application [e.g. Fisheries (Fees, Royalties and Levies) Regulations 2008].

The annual rate is set by the Treasurer, and is relevant to:

1. the annual automatic indexation of the amount of a fee unit or a penalty unit for the next financial year (section 5(4) of the Monetary Units Act 2004); and
2. determining the maximum amount that fees and fines can be increased in the next financial year without the obligation for a Regulatory Impact Statement to be completed (section 8(1)(d) of the Subordinate Legislation Act 1994).

Without indexation via the use of fee units, there would be significant administrative work and cost in undertaking Regulatory Impact Statements on a regular basis.

Recommendation:

That the FCRSC note the Victorian Government's policy regarding indexation, and the use of fee units.

Outcome:

1. The Committee noted the the Victorian Government's policy regarding indexation, and the use of fee units.

5(d) Proposed operation of a prospective cost recovery system

Background:

Attachment B (Proposed approach to operating prospective cost recovery) provides a narrative of the basis on which a prospective cost recovery system will operate.

Attachment C (Cost recoverable Fisheries Regulatory Services for the Abalone Eastern Zone Fishery) provides an example of the template in which the cost recoverable services (Function, Description, and Deliverables / Milestones) are proposed to be described for each fishery. The template will ultimately include the total and recoverable costs for each fishery.

Recommendation:

That the FCRSC consider the documents with a view to endorsing them as foundation documents for the new prospective cost recovery system.

Outcome:

1. The Committee discussed and made suggestions concerning the basis on which the prospective cost recovery system could operate, noting the relevance of the cost recovery principles.
2. The Committee agreed to rename the document…'Guidelines for the operation of cost recovery'.
3. The Committee amended some of the words/grammar used in the Guidelines.
4. Cost recovery principle 5 sets out that "operation of the system should promote opportunities for efficiency improvements". Industry asked what would happen if an alternative service provider could be proven to deliver a particular service at 50% of the cost that DPI could deliver that service. DPI acknowledged that benchmarking was an appropriate approach to assess the efficiency of service provision. Where such a process clearly established the service was inefficient, consideration could be given to lowering the cost of those services. Consideration could also be given to external provision of some types of services where standards and specifications could be developed, and monitoring, where necessary, was practical to ensure integrity of provision. The costs of some of these processes (development of standards and specifications, monitoring, contract management) would themselves be recoverable.
5. The Committee noted the five working example draft templates (including costs, FTE's and milestones) for the Abalone Eastern Zone, Western Port and Port Phillip Bay, Bait (General), Rock Lobster Eastern Zone and Aquaculture Bivalve Shellfish fisheries.
6. The Committee noted that these example templates contained a rough first estimate of staff effort and costs, and were provided for discussion. Final FTE's and costs will clearly be contingent on the final nature and extent of services and deliverables. Accordingly, the Committee agreed that these FTE's and costs are confidential to committee members/advisors at this time, but that the services and draft milestones may be discussed more broadly with other industry groups/persons as appropriate.
7. The Committee noted that there are currently 42 licence classes. The Committee asked DPI if it could group some classes for discussion at the next FCRSC meeting.
8. The Committee agreed that consultation regarding the level of services and schedules should be considered by persons fully representative of those paying levies at a fishery level. The Committee noted one option was to consider the ability of SIV to assist in the future consultation process with industry via a number of committees such as the ones it currently administers (Abalone, Bay and Inlets). Appropriate governance and other factors would need to be considered if this task was assigned to SIV. Other options include using fishery management plan bodies or more direct consultation with levy payers.
9. The Committee agreed that a long term cycle (four or five years) would be appropriate to smooth out fluctuations and lumps in costs across fisheries and reduce transaction costs to a more manageable level. The Committee also agreed that a trial period to bed in the new prospective cost recovery system would be appropriate. Industry members had reservations about committing to the length of the trial period at this stage. As such, the Committee agreed that the implementation of the prospective system should be reviewed after one year.
10. The Committee noted that wherever possible, there should be alignment between Fishery Management Plans and the cost recovery cycle. Fishery management plans should contain the objectives, strategies and services for fisheries; there are therefore close links to cost recovery.
11. The Committee noted the need for transparency about the delivery of cost recovered services, but also the need for practicality and simplicity. It was acknowledged that it would be the deliverables and milestones that would be important within any year, rather than hours or dollars which would be costly to track. Industry was of the strong view that regular feedback and reporting at the fishery level would be necessary. DPI agreed to develop a proposal based on reporting at the level of deliverables every four months.
12. In regards to reporting on compliance activities/services, DPI advised the Committee that there was the need for a careful balance between the degree of accountability and not compromising the integrity of compliance and potentially damaging any investigation/operation. The Committee discussed the process for compliance reporting in other cost recovery jurisdictions and agreed it would be useful to consider their approaches, including that in NSW.
13. DPI reminded the FCRSC that all cost recovery revenue goes to the consolidated fund (Treasury). DPI can only provide additional services to industry if Treasury provides an increased appropriation to the Department for that year.
14. The Committee noted cost recovery principle number six "Cross subsidisation between fishers and fisheries should be minimised" and agreed that any new fishery should fund costs associated with the management of that fishery in line with the cost recovery principles.
15. The Committee requested that DPI include a breakdown of the 2011/12 levies paid by industry for compliance, management and research in each of the templates for comparison purposes. The Committee noted that these amounts would be deleted at a later date. 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. The Committee noted the Chair's statement that the FCRSC has been concerned for some time that the costs now being attributed to some fisheries may not reflect reality and that once a prospective cost recovery system is introduced the levies for some commercial fishers may require significant adjustment.
16. The Committee agreed that the Guidelines should contain a section that specifies that costs associated with the Executive Director, the Business Management Team, Directors and their assistants are not subject to cost recovery.
17. The Committee noted the approach that DPI took to estimate time against each service and to determine the draft costs based on that staff effort. Industry requested that DPI provide a break-down of the overheads associated with staff in different areas.

Action item:

1. DPI to amend the Guidelines as requested and provide to the Committee members for review prior to the next FCRSC meeting.
2. DPI to clarify whether the education services currently provided to the aquaculture sector (educational pamphlets, fact sheets, newsletters, videos, etc.) were at the request of industry.
3. DPI to provide two versions of the five working example templates to the Committee members prior to the next FCRSC meeting. One version would contain no draft costs or staff complements, and is suitable for industry members to consult their respective organisations/wider industry with. The second version will contain draft costs and staff complements, and the 2011/12 levies charged to industry, and is Committee in Confidence at this time.
4. DPI to group the 42 fisheries and provide to the Committee members to review prior to the next FCRSC meeting.
5. The Committee will confirm the mechanism for consultation regarding the level of services and schedules at a future meeting.
6. DPI to assess whether the licensing year can be moved to be in line with the financial year and provide an answer to the question "could levies be paid by industry on 1 July with the licensing year continuing to commence at 1 April?"
7. DPI to develop a proposal for reporting based on reporting at the level of deliverables every four months for discussion with the Committee.
8. DPI to investigate the level of compliance reporting by other jurisdictions in regards to a cost recovery system.
9. DPI to provide the Committee with a break-down of the DPI overheads associated with staff in different areas.

6) Other Business

6(a) Industry attendance at FCRSC

Background:

At FCRSC Meeting #25, 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.

Seafood Industry Victoria has made repeated attempts to involve attendees from the Rock Lobster Western Zone and Aquaculture (marine) sectors in the development of a new cost recovery regime. Unfortunately, no person has been willing to become involved in the process.

Recommendation:

That the FCRSC notes the efforts made by SIV to involve additional industry attendees in the cost recovery process.

Outcome:

1. The Committee noted the efforts made by SIV to involve additional industry attendees in the cost recovery process.
2. The Committee further noted the resignation of Mr Hugh Meggitt (aquaculture representative) due to increased work commitments and impending retirement. The Committee agreed that Mr Meggitt had been a valued member of the FCRSC and was sad to learn of his resignation.

Action item:

1. The Chair to prepare a letter to Mr Meggitt thanking him for his valuable contribution to the cost recovery process in Victoria.
2. DPI to provide SIV with freshwater aquaculture representative groups to identify a replacement for Mr Meggitt.
3. DPI to provide SIV with additional marine aquaculture representative groups to involve the sector in the cost recovery process.

6(b) Principles of cost recovery

Background:

At FCRSC Meeting #25, the Committee discussed a number of cost recovery ideas and objectives that required further amendments by DPI.
DPI subsequently provided eleven amended cost recovery principles to the Committee for review out of session.

Recommendation:

That the FCRSC approve the eleven amended cost recovery principles.

Outcome:

1. The Committee agreed and approved the following eleven cost recovery principles:
2. 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;
   10. The implementation of the system should include monitoring and periodic review; and
   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.

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

Outcome:

1. Industry sought clarification from DPI on the matter of ownership of information generated from research conducted by DPI, or an agreed service provider, where industry had paid levies for that service. DPI's initial response was that the outcomes of research conducted would be publicly available if they were to be used in statutory decision making; however, DPI agreed to clarify the ownership of that information and provide advice back to the Committee. DPI did specify that it would protect the rights of any individual licence holder/representative group that provides commercially sensitive information to DPI.
2. Industry requested that DPI provide the Committee with a current organisational chart without names of staff, and an amended organisation chart, once the 'Rethinking DPI' process has been completed.
3. The Committee noted that DPI will provide copies of the final VAGO compliance report to FCRSC members for discussion, once the report has been tabled in Parliament (late October, early November).
4. 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 reiterated their strong view that this cap on recovery for the abalone sector should be retained. DPI advised the Committee of their understanding that the 7.21% cap for abalone fisheries would remain.
5. DPI noted that regulation of fisheries was driven from legislative and regulatory requirements, with decisions ultimately made by the Minister. Industry and other stakeholders would be involved in those decisions. The involvement of other stakeholders was not a reason to change recoverability principles for related services.
6. The Committee reaffirmed its agreement 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.
7. 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. 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 annual CPI index adjustment provided by Treasury.
8. On 16 November 2002, National Parks (Marine National Parks and Marine Sanctuaries) Act 2002 came into effect. The Committee again noted that the (then) $3.4 million of FMS provided through the Marine Parks and Sanctuaries (MPS) initiative will continue to be exempt from cost recovery, subject to the Government continuing to provide this initiative funding. The Committee noted that actual expenditure through this initiative was about $6.3 million for 2010/11.
9. Industry suggested that the purpose of this funding was to significantly reduce the level of illegal take in the abalone fisheries. As such, industry maintain that this funding should off-set the level of funding provided by the abalone sector via cost recovery for compliance within the three abalone fisheries and there should be reporting on the expenditure of those funds. DPI maintains that the Government made a commitment to boost fisheries enforcement including for abalone. The Chair requested that DPI and the abalone representatives on the FCRSC resolve this matter as a priority, preferably out of session before the next FCRSC meeting, as it continues to be a distraction in trying to develop a prospective cost recovery system.
10. The Committee noted that attribution of costs within quota managed fisheries is a matter that requires further consideration (i.e. quota units or licence holders).

Action item:

1. DPI to clarify the matter of ownership of information generated from research conducted by DPI, or an agreed service provider, where industry had paid levies for that service.
2. DPI to provide the Committee with a current organisation chart without names of staff, and an amended organisation chart, once the 'Rethinking DPI' process has been completed.
3. DPI to provide the Committee copies of the final VAGO compliance report for discussion once the report has been tabled in Parliament.
4. DPI and abalone representatives on the FCRSC to confer out of session to resolve the matters outlined above related to the Marine Parks Initiative.
5. The Committee to consider the attribution of costs within quota managed fisheries at a future meeting.

7) Next meeting:

FCRSC meeting #27 – Friday 2 November 2012.

FCRSC meeting #28 – Thursday 22 November 2012.

FCRSC meeting #29 – Friday 14 December 2012.

Meeting closed at: 4:00pm

Action items