- Compulsory Levies
- Purpose of Compulsory Levies
- Current Levies
- Policy Issues
- Accountability
- Operational Efficiency
- Use of Levy Income to Fund Commercial Activities
- State of Play
- Options for Compulsory Levies
SECTION TWO: ISSUES
45. The principal public policy issues relating to the non-trading Boards are:
· their funding: in particular their use of compulsory levies;
· options for their financial reserves;
· their corporate form; and
· implications for meat quota administration.
46. These issues are addressed below.
Compulsory Levies
Purpose of Compulsory Levies
47. In essence, compulsory levies provide for the raising of money to collectively fund activities for the benefit of levy payers, where those activities would not be provided by voluntary means. Without a levy activity may be under-provided, or not provided at all. A compulsory levy only works properly if the activities it funds provide more benefits than the cost.
Current Levies
48. The non-trading Boards, in aggregate, collected approximately $71 million from their levy payers in 1998/99.
49. The average sheep and beef farmer pays approximately $3,300 per annum in levies. In 1998/99, the net income (after tax and interest) of the typical sheep and beef farmer was approximately $32,000. In the absence of the levy, a typical farmer would be able to reduce on-farm debt by over $50,000 in ten years. On-farm debt of the typical sheep and beef farmer was approximately $260,000 in 1998/99.
Policy Issues
50. There are a number of issues for Government to address in considering the Boards’ levy powers, including:
Accountability
51. Levy payers do not have the opportunity to vote on whether they have a levy, its level, or what it is to be used for. Accountability for the levy is indirect through the election of board members and views expressed at AGMs, for example.
52. The Boards also have an information and resource advantage over levy payers. To a large extent the Boards are able to control the consultation process, which can make it difficult for opposing views to be heard and assessed impartially by levy payers.
53. Effective accountability is made more difficult by a high level of farmer apathyFor example, 1.1 percent of farmers attended the recent Wool Board AGM, with 11.8 percent participating in voting on the day (mainly through proxies).
Operational Efficiency
54. There are a number of reasons why levy funded organisations (ie: the Boards) are unlikely to be efficient compared to organisations providing goods and services in a competitive environment:
· the cost of poor investment decisions fall on levy payers rather than the Boards;
· there is no threat of take-over to discipline behaviour;
· performance is not able to be assessed throughthe transparent indicator of profit; and
· levy payers have neither the information, nor the sanctions available to them to ensure the Boards always operate in their best interests. This allows Boards to operate in areas best left to voluntary provision, or into areas that provide little benefit to levy payers.
Use of Levy Income to Fund Commercial Activities
55. The Boards can spend levy income on commercial activities. Such activities have included:
· quality assurance programmes;
· branded marketing; and
· proprietary research that has benefited processors and consumers as well as levy-payers.
State of Play
56. By September 1999, officials and the Wool, Meat and Game Boards 5 agreed that their levy powers should be consolidated under one piece of legislation. A draft Compulsory Levies Bill was prepared as an aid to discussions with the Boards. The key features of the Bill are outlined in Appendix One. Disagreement with the Boards arose in two key areas:
· the turnout thresholds that would need to be met before a levy was imposed; and
· the range of activities able to be funded by a levy (with the Boards favouring a lower turnout threshold, and a wider range of activities).
57. The Boards were also concerned to ensure a sufficient transition period to:
· allow time to make their commercial activities more self-funding; and
· allow time for the Boards to demonstrate to farmers the value of their activities so farmers would vote in favour of a levy at a “reasonable rate”.
Options for Compulsory Levies
58. The four main options available to the Government in considering the levy powers of the non-trading boards (or the organisations that replace them) are:
Option 1:
Remove the Boards’ current specific statutory powers, but allow the organisations that replace them to seek a levy under the Commodity Levies Act.
· This has the advantage of treating the Boards in the same way as the 18 organisations currently operating under the Commodity Levies Act (CLA). Compared to the Boards’ current powers, the Commodity Levies Act provides for:
- greater accountability to levy payers (through a referendum on whether the levy is to continue);
- a slightly more restricted range of activities levy income is able to be spent on; and
- greater Government involvement on whether there is to be a levy and the form of that levy.
· Of the four options, this option would take the least time to implement. But it has risks as:
- there is no turnout threshold (under the CLA levies have been approved with as little as 17 percent industry support);
- levy income can be used to fund many commercial activities;
- levy organisations are not required to undertake a cost-benefit analysis of their levy proposals;
- views opposing the levy proposals need not be represented to farmers;
- few types of organisations are able to raise a levy (the organisation must be “representative” of levy payers), therefore reducing competition; and
- only producers are able to be levied, even where it may be more efficient to levy others in the industry.
Option 2:
Leave the Commodity Levies Act as is, but provide generic legislation for the Boards to use (the Compulsory Levies Bill).
· This option would make the Boards more accountable to levy payers and minimise the risk of levy-funded activities replacing private sector activities. However, organisations operating under the CLA would be left unchanged. It is also likely to take longer to implement this option than Option One as a new Act would need to be prepared and passed.
· At this stage, officials see little justification for providing two levy regimes with different levels of enforcement, accountability, and discretionary powers.
Option 3:
Amend the Commodity Levies Act to incorporate the key features of the Compulsory Levies Bill (refer Appendix One) and place the Boards under the amended Commodity Levies Act.
· This option has the advantage of treating the Boards the same as the organisations operating under the CLA. Compared to Option One, it has the added advantage of making levy organisations more accountable to their levy payers. There would be less risk that levy expenditure would crowd-out private sector activity. This option would require consultation with the 18 organisations and their industries that operate under the CLA (in addition to the Boards).
Option 4:
Undertake a “first principles” review to determine whether compulsory levies achieve net gains for levy payers.
· To date, officials have sought to design a compulsory levy regime that operates better for levy payers than the current regimes. The primary question of whether organisations, other than government, should be granted the power to effectively tax groups of individuals has not been addressed.
· It would be timely to consider again the rational for compulsory levies, the risks surrounding their use, and whether the current regimes are generating net benefits for levy payers.
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5 The Pork Board sought a levy under the Commodity Levies Act and to be reconstituted as an incorporated society. However, these changes were not advanced, primarily due to uncertainty over the level of industry support for the changes.
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