16 February Clerk of the Regulations Review Committee Bowen House Parliament Buildings Wellington

Transcription

1 16 February 2009 Clerk of the Regulations Review Committee Bowen House Parliament Buildings Wellington To the Clerk of the Regulations Review Committee Complaint re: Marine Safety Charge Regulations 2008 The New Zealand Shipping Federation (NZSF) submits the enclosed complaint to the Regulations Review Committee regarding the Marine Safety Charge Regulations The NZSF requests the opportunity to appear before the Committee to address this complaint. Regards Bucide am Executive Director, NZ Shipping Federation 33111W WOO M31A3H $1\!O~!wTOO~H GBAIB 03~

2 New Zealand Shipping Federation Complaint to the Regulations Review Committee Marine Safety Charge Amendment Regulations 2008 RECEI VED February 2009 REBUumONS REVIEW C0 Wo j g a i 6 yo, I FEB 009 1R FF~ ;003 i negut "I JON~ HEVIEW COMMITTEE I Complaint:... _TABLED... This complaint concernit e arine Regulations Safety Charge Amendment Specifically, it relates to the introduction of passenger based levies for New Zealand passenger ships. From: The New Zealand Shipping Federation. We can be contacted via Sam Buckle, Executive Director, at: PO Box 10739, The Terrace, Wellington 6143 sam.buckle@shipfed.co.nz Details: The NZSF represents New Zealand shipping companies carrying freight, passengers and bulk cargoes along the New Zealand coast and between the North and South Islands, It has seven member companies. Support: This complaint is made primarily on behalf of, and supported by, two companies, Interislander and Strait Shipping. Between them these companies operate five passenger capable vessels (all operating on the Cook Strait). Appearance: The NZSF requests the opportunity to appear before the Committee. The following people are likely to appear before the Committee: Sam Buckle (NZSF Executive Director), Sheryl Ellison (Strait Shipping Managing Director), Peter Clarke (Interislander GM Operations). Related Actions: The NZSF has taken this issue up with Maritime New Zealand and the Ministry of Transport.

3 Introduction The NZ Shipping Federation ("NZSF") submits a complaint to the Parliamentary Regulations Review Committee regarding the Marine Safety Charge Amendment Regulations 2008 ("Regulations"). These regulations introduced a range of new marine safety charges for a range of vessel types. They are intended to cover the costs incurred by Maritime New Zealand ("Maritime NZ") providing regulatory services in relation to these vessels. The Regulations came into force on 1December Specifically, this complaint concerns the introduction, under these Regulations, of a passenger based levy to be paid by 'New Zealand Passenger Ships'1. Two companies (Strait Shipping and Interislander) in respect to five vessels (two operated by Strait and three by Interislander) ("Cook Strait ferries") are required to pay this levy. Collectively, this passenger levy increases the total marine safety charges paid in respect to these five vessels from close to $277,000 per annum to close to to $894,000 per annum a more than three fold increase. The NZSF holds wide ranging concerns about the process through which these regulations were determined, particularly in relation to the passenger levy described. The NZSF understands this complaint must be contained to the specific issues which the Regulations Review Committee is mandated to consider. As such, the complaint focuses on three specific grounds, which, under the Standing Orders, the Committee has the power to investigate: o Standing Order 315(2)(f) that the regulation "contains matter more appropriate for parliamentary enactment", as the new charges represent a tax. o Standing Order 315(2)(c) that the regulation "appears to make some unusual or unexpected use of the powers conferred by the statute under which it is made", as the new charges are inconsistent and contradictory. o Standing Order 315(2)(h) that the regulation "was not made in compliance with particular notice and consultation procedures prescribed in statute", that is, Maritime NZ failed to adequately meet its consultation obligations under the Maritime Transport Act "New Zealand passenger ship" is defined by the Regulations as "a New Zealand commercial ship that has a passenger capacity of more than 12 passengers and that (a) is 45 metres or more in length and proceeds beyond restricted limits; or (b) is engaged on an international voyage."

4 Background Marine Safety Charges Amendment Regulations 2008 The Marine Safety Charges Amendment Regulations 2008 ("Regulations") have been made pursuant to section 191 of the Maritime Transport Act Section 191 (Marine safety charges) states: (1) The Governor General may from time to time, by Order in Council, make regulations providing for the payment of marine safety charges in respect of ships entering any port in New Zealand or operating in New Zealand waters and prescribing the amounts of those charges. (2) The purpose of marine safety charges is to provide funding to enable the provision of o (a) Navigational aids to which section 113 of the Harbours Act 1950 does not apply; and o (b) Distress and safety radio services; and o (c) Marine safety information; and o (d) Other services related to the safety of shipping. (3) Any such regulations may o (a) Specify the persons by whom the marine safety charges are payable including (without limitation) all or any of the master, owner, charterer, person responsible for the management of the ship, or any agent of any of those persons who by law or by contract is liable to pay any other charge on account of the ship: o (b) Prescribe different marine safety charges for different classes of ship based on length, tonnage, equipment available for use on board the ship, or such other criteria as may be specified in the regulations: o (c) Provide for the refund or waiver of any marine safety charge in whole or in part, in any specified case or class of cases: o (d) Provide that the marine safety charges are payable on an annual or other equal basis in advance or otherwise, or on a per voyage basis at the option of either the Director or the person liable to pay the marine safety charges; and provide for the changing of those options, and for the making of adjustments where an option is changed whether or not persons levied use, or the ship in respect of which the levy arises uses, any such services. The Regulations came into force on 1 December They set new marine safety charges payable by ships to Maritime 'NZ. The Schedule lays out the new charges, and include the following charges relevant to this complaint: o o As of 1 December 2008 New Zealand passenger vessels pay $269 per passenger capacity of the ship. As of 1July 2009 New Zealand passenger vessels pay $277 per passenger capacity of the ship. "Passenger capacity" is defined as "the maximum number of passengers that may be carried on a ship as set out in the relevant certificate" (section 4).

5 Complaints Complaint A: Regulations contain matters more appropriate for Parliamentary (Standing Order 315(2)(f)) enactment The NZSF considers that the new charges imposed on the Cook Strait ferries are substantially greater than cost recovery, revenue driven rather than cost bases and, therefore, represent a tax rather than a fee. As taxes must be approved by Parliament, the NZSF therefore considers that the Regulations contain matters more appropriate for Parliamentary enactment. Maritime NZ has acknowledged that the cost of providing services to these vessels "is in the region of $500,000 $700,000 per annum" (Maritime New Zealand Cost Recovery Options Discussion Document, December 2007, ("Discussion Document") p20). However according to Maritime NZ, the new charge rates mean that those total charges paid by the inter island ferries will increase to $894,000 per annum. The new charges are therefore an over recovery of approximately $200,000 $400,000, or between 28% and 79%, which NZSF considers an excessive over recovery of Maritime NZ's cost of providing services (this also assumes all costs are necessary) Under Article 4 of the Bill of Rights 1688 (UK), it is illegal for the Crown to raise money without parliamentary approval. Further, section 22(a) of the Constitution Act 1986 provides that it shall not be lawful for the Crown, except by or under an Act of Parliament, to levy a tax. In its Inquiry into the Constitutional Principles to Apply when Parliament Empowers the Crown to Charge Fees by Regulation [1989] AJHR 116C ("Report"), the Committee acknowledged that: In situations where people are charged a fee as a result of a regulatory regime, the issue may be whether the 'fee' is so excessive that it is really a tax in disguise. If the fee is considereda tax, then it must be approved by an Act of Parliament. The Committee also expressed concern at situations where greater than cost recovery is sought by regulations, as this may indicate that the charging of fees is simply a revenue gathering exercise. There is evidence that this is the case with the present Regulations. The introduction of a passenger based levy for the Cook Strait ferries (replacing the previous tonnage based levy) is based on Maritime NZ's argument that "the number of passengers, rather than the GT (or DWT)2 of the vessel, is inherently a better proxy for the demands which such vessels place on Maritime NZ in terms of regulatory and other services provided" (Maritime New Zealand Cost Recovery Options Discussion Document, December 2007, p13). This suggests a bottom up, risk based approach to setting levies that ensures charges reflect costs. It suggests that each passenger represents a certain risk and, therefore, a certain cost to MNZ. However, in reality Maritime NZ's Discussion Document reveals a top down, revenue target driven approach to setting levies meaning there 2 GT = gross tonnage. DWT = deadweight tonnage

6 is, in fact, no relationship between costs and charges and no commitment to the principles of cost recovery. For instance, a table provided on page 20 of the Discussion Document (see Table A below) sets out a range of scenarios for its proposed passenger levy approach. It sets out the different 'Effective per Passenger Levies' required in order to achieve different revenue targets based on different vessel load factors. For instance, to achieve annual revenue of $1 million from the ferries, the table indicates that a 23c 'Effective per passenger levy' would be required if the ferries operated to 75% capacity, but that an 81c 'Effective per passenger levy' would be necessary if the ferries operated at only 20% capacity. Table A Load Factor 20% 50% 75% MSC Revenue to be Collected $230,000 $500,000 (2005/06 level) Effective per Passenger Levy (per journey) ~0.19 $0.41 $0.07 $0.16 ~0.05 ~0.12 $1,000,000 $0.81 $0.32 $0.23 If Maritime NZ was genuinely committed to a risk based charging model based on passenger numbers, it should have indicated the actual cost per passenger (or at least an indicative range). Instead, it provided scenarios that varied widely between 23c and 81c per passenger. It seems clear Maritime NZ was working backwards from a revenue target, which means Maritime NZ is not only excessively over recovering from the ferries, but it is doing so on the basis of an approach that lacks integrity and does not genuinely attempt to correlate charges with costs incurred. Further, although in its Report the Committee accepted that there will be occasions where a substantial fee, greater than cost recovery, is entirely proper, none of these situations apply to the present case. One such situation is where fees are set greater than costs recovery in order to discourage over use of a service. This argument is irrelevant in the present case, as the Cook Strait ferries do not have a choice about using Maritime NZ's services. Another situation is where a privilege has been granted to one individual or group to the exclusion of others. In the present case, the Cook Strait ferries have not been granted a privilege to the exclusion of others. The services provided by Maritime NZ are provided to all ships, and in fact there is evidence to suggest that services smaller vessels in fact cost Maritime NZfar more than those to the Cook Strait vessels. According to the Ministry of Transport, fishing and other smaller passenger vessels cost $5.1 million for Maritime NZ to service per year (Proposal to Increase the Marine Safety Charge and Maritime Fees, Report to the Minister of Transport, 16 April 2008, p4). Yet, under the new charging regime they will pay only $1.7 million in levies (Maritime New Zealand Cost Recovery Discussion Document, p26). This represents an under recovery of $3.4 million. 5

7 It is important to note that the government, in its responses to the Committee Report stated that it agreed with the general approach of the Committee and endorsed the constitutional principle that no tax is to be levied without Parliamentary approval, and that on analysis a 'fee' could be found to constitute a tax in disguise. It further noted the test laid down by the High Court of Australia in Air Caledonie International and Others v Commonwealth of Australia [1988] 82 ALR 385: If the person required to pay the exaction is given no choice about whether or not he requires the services and the amount of the exaction has no discernible relationship with the value of what is acquired, the circumstances may be such that the exaction is, at least to the extent that it exceeds the value, properly be seen as a tax. The Cook Strait ferries are given no choice about whether or not they require the services (except, of course, to stop sailing altogether), and as demonstrated above, the relationship between the services and what is acquired has more to do with revenue collecting and cross subsidisation rather than a true recovery of the cost of providing safety services. The charges can therefore be seen as a tax. There is also extensive guidance for government agencies explicitly stating that significant over recovery of charges is likely to represent a "tax" and is therefore beyond the authority of a government agency to impose or collect. For instance, the Audit Office Guidelines for Costing and Charging in the Public Sector state that: O "A fee should be set at no more than the amount necessary to recover costs, unless the entity is expressly authorised to do otherwise"; and that "Setting a fee that recovers more than the costs of providing the goods or services could be viewed as a tax. Unless expressly authorised by statute, this would breach the constitutional principle that Parliament's explicit approval is needed to impose a tax. Accordingly, any authority given to a public entity to charge a fee is implicitly capped at the level of cost recovery." Maritime NZ's Discussion Document also notes that: The approach to cost recovery must not. compensate for any inefficiency or excessive cost; to do so would amount to imposing a selective tax on the sector and would not be consistent with the overarching objective of fostering a sustainable transport system (Maritime New Zealand Cost Recovery Options Discussion Document, December 2007, p13). The NZSF accepts there may be some legal scope for Maritime New Zealand to charge some user groups slightly more than the costs imposed by those groups. However, we consider the scale of over recovery involved here goes far beyond any latitude afforded by legal or constitutional principles. 28% 79% over recovery is s Government Response to the Report of the Regulations Review Committee on the Inquiry into the Constitutional Principles to Apply when parliament Empowers the Crown to Charge Fees by Regulations [1989] AJHR 120.

8 excessive. It constitutes a tax rather than a charge, and is therefore a matter more suited to Parliamentary enactment. Complaint B: Unusual or unexpected use of powers (Standing Order 315(2)(c)) The NZSF considers that the arguments presented above (that is, in relation to excessive over recovery against the ferries, no relationship between costs and sharges antlsignificantcross sub_sidies), and_additionally, the_inconsistent and fundamentally contradictory application of the passenger based charge (as explained below), demonstrate that the introduction of a passenger levy for the Cook Strait ferries represents an inappropriate or flawed use of the power conferred by statute. Previously, the Committee has found the exercise of a regulation making power so inappropriate or flawed as to represent an unusual or unexpected use of a regulation making power (see Report of the Regulations Review Committee, Complaint Relating to the New Zealand Food Standard Amendment Act 1996, Amendment No 11 [1999] AJHR 116Q). While passenger based charges have been introduced for the Cook Strait ferries, Maritime NZ decided against introducing passenger based charges for other smaller vessels, including commuter ferries. Therefore, despite Maritime NZ's arguments that a passenger levy is appropriate on the grounds that it best reflects risks and costs, we now have a contradictory situation in which some vessels for which their sole business is to carry passengers (e.g. commuter ferries) are not subject to a passenger levy, yet other vessels for which carrying passengers is only part of their business (the Cook Strait ferries which also carry freight and vehicles) a_re subject to a passenger levy. Further, Maritime NZ has opted to base its passenger levy upon passenger "capacity" (certified passenger capacity to be precise) as opposed to actual passengers carried. In the case of some vessels, there is a very large difference between the two. Whatever its reasons for doing so (we understand it relates to administrative ease), this further undermines the case it had attempted to establish that the need to move to a passenger based levy reflected the need to ensure charges reflected 'real' risks and costs. Complaint C: Regulations not made in compliance with particular notice and consultation procedures proscribed by statute (Standing Order 315(2)(h)) The NZSF considers that the regulations ought to be drawn to the special attention of the House on the grounds that Maritime NZfailed to adequately meet its consultation requirements proscribed in section 446 of the Maritime Transport Act In doing so, Maritime NZ also failed to meet its own stated consultation commitments, and failed to provide equal opportunities to parties affected by the introduction of the Regulations. 7

9 Section 446 of the Maritime Transport Act states that before making any rule under the Act the Minister must: o give interested persons a reasonable time to make submissions to the proposal (section 446(b)); and o consult with such persons and representative groups within the maritime industry as the Minister considers appropriate (section 446(c)). As evidenced by the process in which the charges were finally determined, it appears that the Minister has delegated its power to determine the level of the marine safety charges to Maritime NZ (the Minister has this power to delegate under section 441). Therefore, Maritime NZ has the obligation to consult in accordance with section 446 when determining the appropriate charges (which, presumably, are then recommended to the Minister, who in turn recommends these to the Governor General in order for the regulations to be made). NZSE believes that Maritime NZ has failed to adequately meet its consultation requirements. The Committee has previously summarised based on the High Court decision of Air New Zealand Limited and Others v Wellington International Airport Limited the expectations associated with consultation, including that "the effort made by those consulting should be genuine, not a formality; it should be a reality, not a charade." Although Maritime NZ gave NZSF and its members an opportunity to make submissions on its proposal to change rates, NZSF believes that this consultation process was a mere formality. Further, NZSF believes that Maritime NZ did not even follow its own, nor Audit Office, recommendations as regards how new charges should be phased in. NZSF and its members relied on the expectations created by these recommendations in writing their submissions, and as they were not followed, they therefore did not have a meaningful opportunity to submit on the process that Maritime NZ in fact intended to follow. In its Discussion Document, Maritime NZ states that: Audit Office guidelines relating to the setting of fees by regulation note that in instances where cost recovery is being introduced, public sector agencies should introduce full cost recovery on a gradual (staged) manner. Although the MSC [Marine Services Charges] and direct user charges are not new, Maritime NZ considers that consideration should be given to a phased approach to any changes in the level and structure of cost recovery arrangements. (Maritime New Zealand Cost Recovery Options Discussion Document, December 2007, p27). Maritime NZ then proceeded to confirm that: "Maritime NZ considers that a phased approach is desirable" and described "a stepped approach to modifying the rates of MSC payable" (Maritime New Zealand Cost Recovery Options Discussion Document, December 2007, p28)." In addition to the requirements of the Audit Office and the Treasury Guidelines (which make specific reference to the phasing in of new charges), the NZSF accepted

10 these comments as a genuine commitment to phased introduction of any new charges on the part of Maritime NZ. However, the level of charges and the dates of implementation finally determined by Maritime NZ do not constitute a meaningful phasing in, particularly when the scale of increase is taken into account. In the case of Interislander, the first increase (on December to $269 per passenger) represented 96% of the total increase (with the further rise to $277 per passenger representing the remaining 4%)? On top of that it was given only seven months to adjust from charges of $178,060 per year (when the $269 per passenger rate came into force on December ) to charges of $709, 920 per year. The NZSF believes that by failing to provide for a meaningful phasing in of the new charges MNZ is grossly in breach of the fundamental good faith expectations of consultation. The NZSF also considers that because the commitments and information provided in the Discussion Document in relation to a phasing in of charges were misleading, those consulted, including the ferry companies, were not provided with the "reasonable information" necessary to tender their views. As the Committee has previously stated (see Report of the Regulations Review Committee, Investigation into the Biosecurity (Ruminant Protein) Regulations 1999 {2000) AJHP 116A), those consulted must know what is proposed before they can be expected to give their views. If the NZSF had understood that Maritime NZ intended did not intend to phase in the charges in any meaningful way, we would have looked to address this issue very seriously in our submission. It is also worth noting that Strait Shipping and Interislander contacted Maritime NZ on several occasions after the passenger levy was announced requesting information as to how "passenger capacity", the basis for determining the charges, was going to be defined, as this would have implications for actual costs. The NZSF also wrote to Maritime NZ in June requesting the opportunity to be consulted in relation to the drafting of the Regulations in order to have some input into and understand this critical definition. No response was received to any of these approaches. Indeed, it was only during November, when the NZSF requested copies of the final regulations from the Ministry of Transport, that we became aware of the actual definition being applied (i.e. "the maximum number of passengers that may be carried on a ship as set out in the relevant certificate"). 4 Until 31 Novernber 2008, Interislander's annualised MSC was $177,000. As of 1 Decernber 2008, its annualised MSC increased to $688,000 (with introduction of the $269 per passenger capacity levy). On 1July 2009, its annualised MSC will rise again to $709,000 (with introduction of the $277 per passenger capacity levy) 9

11 The NZSF also believe that the consultation was unfair and unjust, in that Maritime NZ failed to provide equal consultation opportunities to parties affected by the introduction of the Regulations, for the reasons explained below. In the submissions made by each of the NZSF, lnterislander and Strait Shipping, the introduction of a passenger based levy was strongly opposed. For instance, the NZSF submitted that it "is strongly opposed to the introduction of a passenger based charge" (NZ Shipping Federation submission) and Strait Shipping submitted that it is "strongly opposed to the introduction of a passenger based charge for NZ SOLAS inter island vessels" (Strait Shipping submission). The Marine Transport Association ("MTA"), along with the Tourism Industry Association and other parties representing smaller passenger vessels, also opposed the introduction of a passenger levy as was also originally proposed for other, smaller passenger vessels. When the final charges were announced it was revealed that while a passenger levy would be implemented for the Cook Strait ferries, no such levy would be implemented for the smaller passenger carrying vessels. Through information collected under th e Official Information Act it seems evident that the decision not to introduce a passenger levy for the smaller vessels was the result of meetings and correspondence between Maritime NZ and representatives of the smaller vessels that took place following the closing date for submissions on the Discussion Document, 31 January The correspondence released under the Official Information Act includes: o a submission made to Maritime NZ by Fullers Group Limited on 8 February 2008; o an indicating a meeting was held between Maritime NZ and the Marine Transport Association on 15 February o an from Maritime NZ dated 7 February stating that "MNZ has arranged to meet with the Marine Transport Association (MTA) and some of its members to get a better understanding of their issues next week"; and o a submission made to Maritime NZ by the Marine Transport Association on 25 February 2008 accompanied by an thanking Maritime NZ stating that "We thank you for the extension of time and look forward to hearing the outcomes of your deliberations." The NZSF does not object to the MTA or any other party pursuing their interests with MNZ. However, we object strongly to the fact we were not given the same opportunity to meet with and discuss our concerns with a passenger levy, particularly given the strength of our opposition to such a levy in our submissions and particularly given the scale of the increases involved for the Cook Strait ferries. Unlike the MTA, none of the NZSF, Strait Shipping or lnterislander received any information from MNZ in relation to the review of marine service charges until June (in fact, despite repeated requests for further information, we were not advised of the outcome of the review until a month after Cabinet had approved the new charges, including the passenger levy). 10

12 We consider it is a fundamental requirement of government agencies to treat stakeholders with an even hand and allow them the same chance to engage ina consultation process. When MNZ decided to engage with MTA beyond the deadline for submissions, to further discuss its concerns about the introduction of a passenger levy, it should have extended that opportunity to all parties opposed to a passenger levy. By not doing so, it is in breach of the fundamental principles of fairness and natural justice. Proposed Remedy In light of the arguments above and the resulting scale of the unjustified financial impact of the passenger levy upon the Cook Strait ferries, the NZSF proposes that the Regulations ought to be drawn to the special attention of the House, and that the Committee recommends in its report that: o the Marine Safety Charge Regulations 2008 are amended in order to ensure the Cook Strait ferries are leyied on a tonnage/size basis and to an extent that constitutes no more than cost recovery. 11