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3.3 Design of cost recovery charges

Both licence and permit fees and levies are used to recover costs based on whether the benefits of particular services (costs) are able to be linked directly to individuals or are provided to industry and the community more generally.

Costs associated with the provision of services under this Program are recorded under discrete cost centres within the Department’s financial management system and are readily identifiable.

Import and manufacture licence application fees are set under the Ozone Protection and Synthetic Greenhouse Gas Management Regulations 1995, with these also available on the Department’s web site.

Maximum levy rates are set within the respective levy acts (Ozone Protection and Synthetic Greenhouse Gas (Import Levy) Act 1995 and Ozone Protection and Synthetic Greenhouse Gas (Manufacture Levy) Act 1995) and Regulations, with the rates applicable under the legislation available on the Department’s web site.

Import, export and manufacture licence fees were set in 2003 and end-use licence and authorisation fees set in 2012 when the cost recovery arrangements for the Program were last reviewed by Government. They were set, after consultation with stakeholders, at levels that at that time reflected the costs of delivery of the services provided.

Import and manufacture levy rates were also reviewed and confirmed as reflecting the costs of delivery of services provided in 2012.

Fees and levy rates will be reviewed and adjusted as appropriate in the process of implementing recommendations from the Program Review, following industry consultation.

Table 2: Charge rates and revenue estimates for 2016-17 are set out in the following table



Charge title

Type

Rate

$

Estimated

volume

Estimated

total revenue

$

Business process

Import, Export & Manufacture Licences













Output 1: Import, Export and Manufacture Licences – Administration

Output 8: Intelligence monitoring, compliance, and enforcement activities



Equipment

Fee

3,000

287

861,000




Controlled substances - SGGs

Fee

15,000

0

0




Controlled substances - HCFC

Fee

15,000

0

0




Controlled substances - MB

Fee

15,000

0

0




Used

Fee

15,000

0

0




S 40

Fee

3,000

12

36,000




Sub-total







299

897,000




End-use Licences#













Output 2: End-use Licence – Administration

Output 8: Intelligence monitoring, compliance, and enforcement activities



Refrigerant Trading Authorisation (2 years)

Fee

452

6,885

3,112,020




Restricted Refrigerant Trading Authorisation (2 years)

Fee

140

29

4,060




Restricted Refrigerant Handling Licence(1 year)

Fee

71

743

52,753




Restricted Refrigerant Handling Licence(2 years)

Fee

140

76

10,640




Refrigerant Handling Licence(2 years)

Fee


140

25,801

3,612,140




Trainee Refrigerant Handling Licence

Fee

29

5,912

171,448




Extinguishing Agent Trading Authorisation

Fee

452

75

33,900




Extinguishing Agent Handling Licence (Qualified - 2 years)

Fee

269

770

207,130




Extinguishing Agent Handling Licence (Experienced -1 year)

Fee

134

170

22,780




Trainee Extinguishing Agent Handling Licence

Fee

134

15

2,010




Halon Special Permit

Fee

269

42

11,298




Sub-total







40,518

7,240,179




Import & Manufacture Levy

Levy

Various*

NA

1,000,800

Outputs 3 – 7: Policy, international interactions and commitments, phase out and emission minimisation Programs, research and administration



















TOTAL










9,137,979




# End-use licence fees are indexed annually in accordance with the Wage Price Index.

*For:


HCFCs the levy is $3,000 per ozone depleting potential tonne ($165 per metric tonne for the most common HCFC)

Methyl bromide the levy is $135 per metric tonne

SGGs the levy is $165 per metric tonne


4. RISK ASSESSMENT


Complexity, materiality and sensitivity all need to be considered when assessing the risks for the cost recovered activities. Each of these factors applies to OPSGG activities. For example:

The variability in demand for, timing and duration of, and licence / permit type all contribute to the complexity of projecting fee and levy revenues.



  • Import, export and manufacturing licences, end-use licences and permits, and import and manufacturing levies are all sensitive to market fluctuations

  • Licence and permit applications are initiated by applicants and the timing of applications is determined by the needs of applicants

Licence and authorisation fees can vary significantly depending on the volume and duration of each licence / authorisation type issued

Extensive consultation was undertaken with stakeholders in setting licence and application fees and the import and manufacture levy. Strong support for the fee and levy amounts was provided based on the services and benefits provided in return. Any changes to these fees and levy to account for the outcome of the Program Review will again involve extensive consultation with stakeholders.

The majority of activities (import and end-use licensing) and associated costs are essentially demand driven, determined by industry in response to industry and consumer demand / confidence. This demand impacts on resource costs with licence fees and levies having been set at a level to cover respective costs in 2012.

Levies are set under legislation and adjustment upwards or downwards therefore requires considerable forward planning and opportunity. Licence fees are set under the OPSGGM Regulations with the Regulations required to be tabled in Parliament, which also requires considerable forward planning. As a result, setting of levies and licence fees in response to activity demands can involve considerable lag time before the appropriate adjustment can be implemented.

Changes in refrigeration and air conditioning technology and overseas and domestic pressures to reduce emissions have seen an increase in the use of non-SGG alternative refrigerant gases which are not scheduled substances under the Act. The pace of this trend and its effect on end-use licence numbers will be difficult to accurately predict over the next two decades.

Due to the number of licences for import, export and manufacture and end-use, and the overall volume of imports, fluctuations in demand by individuals and companies tends not to impact dramatically between 2 year cycles.

The Department manages the risks of the complexity, materiality and sensitivity factors by monitoring and reviewing both revenue and activity (and associated resource) levels on a monthly basis. This allows the Department to identify any such issues in a timely manner and allow reallocation of resources as required, within the resourcing constraints of the Department. Further, the availability of the Special Account which receipts revenues and funds expenditures, and retains cash balances for the Program, provides some scope and flexibility to manage fluctuations in revenue and expenditure both within and from year to year.

The overall risk associated with the cost recovery of the Ozone Protection and Synthetic Greenhouse Gas Program was assessed as Medium.




5. STAKEHOLDER ENGAGEMENT


OPSGG Program stakeholders include: importers, exporters and manufacturers of ODS and SGGs, and equipment containing ODS and SGGs; the refrigeration and air conditioning and fire protection industries; foam producers, aerosols producers, medical equipment suppliers, electricity distributors, fumigators and solvent suppliers; and industry peak bodies (such as Refrigerants Australia, Air Conditioning and Refrigeration Equipment Manufacturers Association, Australian Industry Group, Consumer Electronics Suppliers Association, state and territory Motor Trades Associations, Refrigeration and Air Conditioning Contractors Association, Airconditioning and Mechanical Contractors Association, Automotive Air Conditioning, Electrical and Cooling Technicians of Australasia, National Electrical and Communications Association, Refrigerant Reclaim Australia, Customs Brokers and Freight Forwarders Association, Plastic and Chemicals Industry Association, Medicines Australia, Solvents Australia, Aerosols Australia and Fire Protection Association Australia, Toolangi Strawberry Runner Growers Co-operative Limited).

The Department has a well-developed stakeholder engagement and communication strategy that identifies key stakeholder groups and details a range of mechanisms for engaging with them.

Through the strategy, the Department seeks to ensure that:

stakeholders have a good understanding of the Program and its intent, and have access to relevant information on the activities conducted under the Program

stakeholders:


  • are able to access accurate and easy-to-understand information regarding the Program

  • have an understanding of their responsibilities, are encouraged to comply with these obligations and

  • are encouraged to inform the Department of issues associated with Program communication and implementation

    1. the Department is aware of likely environmental and economic changes to the industries

clear background information on the Commonwealth’s intervention is easily available for the public

information on aspects of the Program is readily accessible by the general public in order to influence their purchasing and maintenance behaviour

constructive consultation is undertaken with stakeholders about the Department’s regulatory approach

Key stakeholders consulted in the development of the current cost recovery arrangements (determined in 2012) included:



  • Refrigerants Australia

  • Air Conditioning and Refrigeration Equipment Manufacturers Association

  • Federal Chamber of Automotive Industries

  • State and territory governments

  • Methyl bromide users

  • Australian Refrigeration Council member organisations

  • Motor Trades Association of Australia (MTAA)

    • MTAA acknowledged and supported the ARC’s proposal to increase its fees in order to meet increased costs it faces

  • Refrigeration and Air Conditioning Contractors Association (RACCA)

    • RACCA noted that whilst it would generally oppose fee increases, they did understand that fees must inevitably increase and that linking the fees to CPI was a fair method

  • Air Conditioning and Refrigeration Wholesalers Association (ARWA)

    • ARWA unanimously agreed with the proposed fee increases

  • Automotive Air Conditioning, Electrical and Cooling Technicians of Australasia (VASA)

    • VASA supported in principle the proposed permit fee increase on the proviso that there was no reduction, or preferably, an increase in the ARC audit regime

  • National Electrical and Communications Association (NECA)

    • NECA supported the proposed fee increase on the basis that fees had not increased since the scheme’s inception and the need for the ARC to maintain their service levels

  • Fire Protection Industry Board members

    • FPAA

    • Lee Fire Management

    • Tyco Fire and Security

    • Lateral Fire Design

    • Chubb

    • Wormald

    • Kidde

The Department in its conduct of the Program Review has consulted with stakeholders, including:

  • Calling for submissions to the terms of reference for the Program Review

  • Holding Technical Working Group meetings with industry represented by relevant peak bodies to discuss issues raised by stakeholders, the Department or the peak bodies themselves

  • An options paper with supporting analysis was released for public comment in October 2015

Industry (through peak bodies) will be consulted on any changes to the cost recovery arrangements resulting from the Program Review that will impact on the level of Departmental resources dedicated to the OPSGG cost recovery activities and the impact on fees and levies. Peak bodies include:

    • Victorian Automobile Chamber of Commerce

    • Australian Industry Group

    • Fire Protection Association of Australia

    • Plastics and Chemicals Industry Association of Australia

    • Refrigerant Reclaim Australia

    • Automotive Airconditioning, Electrical and Cooling Technicians of Australia

    • Australian Institute of Refrigeration, Air Conditioning and Heating

    • Air conditioning and Mechanical Contractors Association

    • Air conditioning and Refrigeration Equipment Manufacturers Association

    • Refrigerants Australia

    • Methyl Bromide Users

  • The Department also consulted individually with affected groups and companies including the aviation, methyl bromide, aerosols and disposal sectors.

  • Further information is available at http://www.environment.gov.au/protection/ozone/legislation

6. FINANCIAL ESTIMATES

Table 3: Financial estimates to 2019-20




Budget year

Forward estimates




2016-17

$

2017-18

$

2018-19

$

2019-20

$

Expenses = X

11,933,634

11,933,634

11,333,634

11,333,634

Revenue = Y

9,137,979

13,519,367

9,716,491

14,063,943

Balance = Y – X

-2,795,622

1,585,733

-1,617,143

2,730,309

Cumulative balance

-349,583

1,236,150

-380,994

2,349,316

Explain material variance

A number of factors contribute to the budgeted financial results:

The majority of licences and permits issued are of two year duration which can skew the revenues and therefore accentuate the variance in annual balances from year to year

Growth in licence numbers and resulting revenues is forecast to continue through 2016-17 and the forward years

Expenditures in 2016-17 are budgeted to increase by $1.784m from 2015-16, primarily in the areas of:



  • Outsourced licensing and permitting arrangements for refrigeration ($1m) and fire protection ($0.55m), and related Act review implementation and research projects ($0.34m)

  • Policy and legislative change associated with the Act review implementation ($0.379m)

  • Increased compliance and enforcement activity ($0.091m)

These increases have been partially offset through a reduction of $0.541m in the management of import licences.

The increased expenditures will continue through to the end of 2017-18, with expenditure estimates reducing by $0.6m in 2018-19 and 2019-20.




Explain balance management strategy

Annual surpluses and deficits are managed through the Ozone Protection and Synthetic Greenhouse Gas Special Account.
In implementing the approved recommendations of the Act review, which will impact on the expenditures and revenues of almost all outputs, the department will review the levels of fees and levies to ensure that the Program operates both a sustainable and fully cost recovered basis over the long term. Changes could be expected to commence from 2018. No account of these changes has been included in these budgets.





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