Authorising the charging of fees and levies

The ability to recover some or all of the cost of providing or performing a public function will often be vital to the ability of an agency to provide or perform that function. Granting a public body the power to charge fees or levies is a common method of cost recovery.

Legislative authority for imposing fees or levies is usually granted by empowering provisions that authorise secondary legislation to provide for fees or levies. This chapter will help to ensure that those empowering provisions are included in appropriate circumstances, and that the authority to make secondary legislation is exercised in an appropriate manner.

There is an important distinction between a fee or levy and a tax.

Parliament may delegate to the Executive (or others) the power to set and charge a fee or levy, but generally a tax may only be imposed by an Act. In rare circumstances Parliament may delegate the setting of certain features of a tax to the Executive, but only in very certain and confined terms. Failure to provide adequate authority for a tax in the empowering Act may result in the courts declaring the subsequent secondary legislation to be invalid. This may result in disruption to the provision of the service or exercise of a function and considerable financial consequences to the agency concerned.

There is a further distinction between a fee and a levy. A levy is more akin to a tax in that it is usually compulsory to pay it, and is usually charged to a specific group. Also, a levy charged to members of a certain group or industry is usually used for a particular purpose (such as market development), rather than relating to specific services provided to an individual. In the Regulation Review Committee’s (RRC) view, imposing a levy using a fee-setting power is contrary to Standing Order 327(2)(c) in that the regulation “appears to make some unusual or unexpected use of the powers conferred by the enactment under which it is made”.

The considerations in Chapter 14, relating to delegated powers, apply to powers to set fees or levies. A delegated power to set fees or levies will ordinarily be considered to be legislative, and the appropriate form for the secondary legislation will usually be regulations. As such, the safeguards that apply to secondary legislation, including review by the Regulations Review Committee, will apply.

Two essential pieces of guidance to review at an early stage are the Treasury’s Guidelines for Setting Charges in the Public Sector (2017), and the Office of the Auditor-General’s guidance Charging fees for public sector goods and services (2008).

Part 1

Should the service or function be subject to a fee?

Fees should be charged only if the nature of the service or function is appropriate and the fee can be quantified and efficiently recovered.

Whether a service or function should be subject to a fee is not always clear and will involve a number of considerations. The table below sets out some of the key issues to consider when determining whether it is appropriate to charge a fee:


Fees may be appropriate

Fees may be inappropriate

Service or function is rendered to an individual and confers a benefit

Service or function is provided to the community as a whole

Service or function is rendered by request

Service or function is non-voluntary

Fee is easily quantifiable

Impractical to quantify the fee

Fee is easy to recover

Impractical to recover the fee

Service or function is transactional or regulatory in nature

Service or function is contractual in nature (and the level of charge can be negotiated contractually)

Examples: driver licensing and passports, and Overseas Investment Office consents

Examples: police, public hospitals, and Department of Conservation concessions


Legislation should not provide for secondary legislation to set a fee for a service if the service is something that the user is not bound to use or the provider is not bound to provide, and the level of the fee could be negotiated contractually when the service is requested (such as granting a licence to run a business in a national park).

Whether the courts find that a particular charge is a fee or a tax will involve considering:

  • the terms of the empowering provision;
  • the level of the charge;
  • the costs of providing the service or performing the function, relative to the income from charges;
  • the purpose for the charge;
  • who the charge applies to; and
  • in what circumstances the charge is imposed.

A fee may be considered a tax if it does not bear a proper relation to the cost of providing the function or service to which it relates.

Part 2

Should the objective or function be subject to a levy?

Levies should be imposed only if it is appropriate for a certain group to contribute money for a particular purpose.


A levy does not relate to a specific good or service. It is usually charged to a particular group (often referred to informally as a “club”) to help fund a particular government objective or function. Accident Compensation Corporation levies, for example, are factored into the costs of petrol and vehicle licensing to help cover the cost involved in treating people who are injured in motor vehicle accidents. The person paying might never benefit personally from the government service, but it is desirable that they contribute to the cost.

Another example is where the members of a particular industry pay a levy to cover the costs of a regulator or promoter of that industry. A particular member may have little direct contact with the regulator or may not directly benefit from the promotion, but it is appropriate that the member contribute towards the costs. If the Commodity Levies Act 1990 applies, it is usually not acceptable to enact (by Act) a parallel scheme for a particular industry.

The key distinction between a levy and a general tax (such as income tax or GST) is that revenue gathered by a tax is not usually earmarked for any particular purpose. Rather, it is appropriated and spent by the Government according to the particular policy objectives or requirements of the day.

In some cases, it will be appropriate to use a levy to pay for the costs of a particular government objective or function. In other cases, it will be appropriate to use a tax-funded appropriation; for example, if the benefits accrue primarily to the public as a whole and there is only a remote connection to the group that would pay the levy.

Part 3

Does the Act provide authority to prescribe a fee or a levy?

An Act must include an empowering provision that specifically authorises secondary legislation to prescribe a fee or levy.

With the exception of payments received under contractual agreements (public bodies generally do not need statutory authority to enter into contracts for commercial transactions), it will usually be unlawful for a public body to charge a fee or levy without express authority from Parliament.

Part 4

How is the fee amount determined?

Legislation must set out the manner by which the fee should be determined.

The empowering provision should state the basis by which to prescribe the fee. Fees for a service or function should normally be determinable in advance by the payer before the service is provided or the function is performed, unless the Act contemplates otherwise. Often a fee or levy will be a fixed amount. However, if a fee is to be determined by a particular method or calculation (such as a fee calculated by reference to an hourly rate), this should be authorised in the empowering provision.

The fee amount recovered should bear a proper relation to the cost of providing the service or performing the function and should not exceed that cost. If the fee amount exceeds the cost, the fee will be at risk of being declared unlawful on the basis that it is an unauthorised tax.

Any authority given to charge a fee is, therefore, implicitly capped at the level of cost recovery. Specific authority in the Act would be required to charge a fee that would recover more than the cost of providing the service because of an intention to impose a penalty, to limit access to, or demand for, a service or to meet a social objective. It is good practice that the relevant Cabinet papers provide a clear justification for the level of the fee.

A fee that cross-subsidises other services or other groups of users should generally be avoided. However, in the rare cases in which it may be appropriate for a fee to cross-subsidise other services, or other users, the cross-subsidisation should be transparent and the empowering provision must be drafted widely enough to authorise the cross-subsidisation.

Part 5

How is the levy amount determined?

Legislation must set out the manner by which the levy is determined.

There must be a proper relation between the levy amount charged and the particular objective or function concerned. The amount of a levy imposed on a particular group should be commensurate with the degree of connection between the group and the objective or function concerned. For example, if a levy covers the costs of a regulator, it may be inappropriate to impose a large levy on a group that has little to do with the functions of the regulator.

In some cases, an objective or a function is funded from a mixture of levies and an appropriation (for example, levies may pay for a portion of the costs of a regulator while an appropriation may pay the balance). In this case, the benefits that accrue to the regulated industry should be considered, as should the broader public benefit.

Part 6

Who will pay the fee or levy and in what circumstances can it be waived or refunded?

Legislation must clearly identify who may be charged the fee or levy and the circumstances in which it may be waived or refunded.

Fees should only be charged to those people who benefit from the service or function. The fee should not be used to offset the cost of future users of the service or to attempt to recover any deficit that may have occurred as a result of previous under-recovery. A fee that does either of those things will risk being declared unlawful.

Levies may be charged to a class or group of people (often defined by the fact that they are undertaking a certain activity) to fund certain costs that may arise in connection with that activity. It is not necessary that the person paying obtain a direct benefit from paying the levy.

Payment of a fee or levy cannot be waived or refunded without authorisation from an Act. The Act may either explicitly authorise the refund or waiver, or it may empower the making of secondary legislation to authorise a refund or waiver. In either event, the Act or secondary legislation should identify the circumstances under which the fee or levy may be waived or refunded.

A power to waive or refund a fee or levy is, in effect, an exemption power, so the considerations in Chapter 16 apply.

Part 7

Should there be a special process for secondary legislation that prescribes the fee or levy?

Legislation that delegates power to set a fee or levy should identify any procedural requirements that must be satisfied in doing so.

In some cases, it will be appropriate for the Act to set out specific procedural requirements that must be satisfied before secondary legislation is made setting a fee or levy.

It may be desirable for the Minister responsible for the empowering Act to consult with existing and potential users of the service, industry groups, or the public more generally before recommending secondary legislation to impose or amend a fee or levy.

In some cases, it may be appropriate for a significant levy to be subject to a confirmation process (under which regulations lapse at an identified time unless confirmed earlier by an Act). See Chapter 14.6 for more information on confirmation.

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