When Is a Tax Not a Tax?

Few things anger businesses more than governments tying them down with layers of regulation and then charging them rapaciously for the privilege.

The racket has been going on since the year dot, but it has become noticeably worse in recent years with the growth in the number and powers of "independent" regulators and agencies and the adoption of a policy of "cost recovery".

The problem for business has been the absence of hard evidence to prove that it was happening.  Data on user charges has been quietly dropped from the budget papers of all governments.  Individual departments are typically silent on the issue and complaints are addressed on a case-by case basis and fobbed off as isolated anomalies.

Thanks to an inquiry by the Productivity Commission -- Cost Recovery, Draft Report, April 2001 -- hard evidence is now available and it shows what we have long thought:  regulators have been fleecing us.

Since the mid-1990s fee income from Commonwealth agencies has grown by 24 per cent -- adjusted for inflation -- and now stands a $3.2 billion.  Although there is no data on user charges levied by the states, one can confidently predict a similar level of revenue and pattern of growth.

How have these charge been allowed to grow so rapidly?  Well, it turns out no one was looking.  The Commonwealth -- and the states -- have largely left the question of the level and pattern of fees up to individual agencies, allowed them to keep a large share of the booty raised and hide the revenue from the scrutiny of parliament by adopting "net appropriations" reporting.

Not surprisingly, the Commission has found that "there is no uniform approach as to which activities are subject to cost recovery and there are wide variations in the proportion of costs recovered for comparable activity by different agencies".

Some agencies, particularly financial regulators, have been allowed to turned themselves into independent taxing agencies.  The Australian Prudential Regulation Authority (APRA) raised just over $88 million last year via fees, yielding a cost recovery ratio of 150%.  Even worse, the Australian Securities and Investment Commission (ASIC) has been allowed to double its fee levied on businesses over the last four years generating a cost recovery ratio of 249 per cent.  In plain language, ASIC's fees income now exceeds its costs by over $200 million.  And the typical fee for establishing a new small business of around $900 could be reduced to $360 while still allowing the ASIC to cover it costs.

The Australian Communication Authority and the National Registration Authority for Agricultural and Veterinary Chemicals also collected more in fees than they paid-out in expenses.  Many other regulatory agencies have pushed up their fee income to near full cost recover.

Now, cost recovery has it merits.  If well targeted, it can provides a link between costs and service provided which brings with it a number of efficiency and equity benefits.  However, if there is no discretion on the part of the consumer, as is the case for most regulations;  if the fees are levied according to the agencies' costs rather than the services rendered;  and if fees are allowed to exceed benefits;  then cost recovery has a perverse and destructive impact.  The Productive Commission has found much evidence of this.

The solution is simple.  Government should take back the power to tax and regulate their regulators.

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