Fees and charges—cost recovery by local government

Local councils provide a wide range of services to their communities, often for a fee or charge. These user fees and charges are a significant source of income for councils each year totalling around $900 million; on average, 14 per cent of all council revenues.

The report found that the councils examined were not effectively managing the full costs of the services they provide. Further they are not basing their fees and charges on any clear understanding of these costs, or of the other societal, economic and legal factors that should be taken into account when establishing prices for community services.

None of the four councils had adequate policies on service costing and fee setting, and none provided sufficient guidance to staff on the procedures required to achieve good practice.

While all councils had financial systems that captured the direct cost of services, only Campaspe had a system for systematically identifying and allocating all its indirect costs to service areas to establish their full cost.

This situation, coupled with weak costing and monitoring practices means that most councils do not understand the true cost of their services and the extent to which they subsidise them.

There is little assurance that councils are setting their fees strategically to optimise cost recovery following consideration of competitive neutrality obligations including the principles of equity, accessibility, affordability and allocative efficiency. Better documentation of the evidence supporting fee setting decisions is required to demonstrate they are soundly based.

Council oversight of the efficiency of service delivery also needs to be improved to include information on full costs and service efficiency.

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