Fees and funding review

The independent MartinJenkins review found our funding is unsustainable. We reviewed our funding and fees to find out exactly what our financial situation is.

Our regulatory activities are currently funded from fees, charges, and the government. The money we get from these should cover all the costs of providing services.

We spent 18 months reviewing our fees, charges, and funding and:

• confirmed how much it costs us to do our work as regulators, and to monitor the agents, individuals and companies who do some of this work (like AA, VTNZ, and your local mechanic)
• tracked where current funding (from government loans, fees and charges) is used, and where our services are unfunded
• looked at who was currently paying for our services, how much they were paying, and whether the right people were paying the right amounts for the right things.

This was the first comprehensive review of fees and charges we’ve done since the agency was established in 2008. We haven’t raised most of our fees since – not even adjusting them for inflation, or for changes in regulation or legislation. The number of vehicles and drivers needing to be regulated has also increased a lot since most fees and charges were set. 

The review found that most of our fees and charges don’t reflect the current cost to regulate and to provide regulatory services, and it confirmed our current funding situation isn’t sustainable. It found:

• the costs of regulation have been unfairly placed on driver licence holders and vehicle owners, with 97% of revenue collected coming from fees. This means some people and companies have been paying more than they should for services, some have been paying less than they should, and some haven’t been paying at all
• not all costs are paid fairly by people and companies who receive the benefits and increase the risk to the land transport system
• Waka Kotahi doesn’t currently have a way to recover costs for more than a third of our regulatory products – vehicle identification number (VIN) approvals, vehicle chassis ratings (new, used, and light), and additional transport service licence (TSL) labels to name a few - even though it costs us money to provide them.

Our financial situation

In 2017 we were receiving $165.3 million in funding per year. This amount of funding left us with a shortfall.

Our costs are $185.5 million per year to do the work we’re currently doing, which is propped up by $95 in government loans - $80 million over four years to stabilise and start rebuilding our regulatory function, and $15 million to tackle a backlog of unsafe vehicle cases (see below for details).

The money we’ve borrowed from the government will run out, and we need to be able to continue paying the extra staff we’ve hired to do regulatory work, to pay back the loans, and to keep building to be a better regulator.

To fully fund the costs of effective regulation, we need $264.6 million annually – an extra $100 million each year – to continue to strengthen the regulatory function, increase our regulatory activities, address past and future inflation, and for the repayment of loans.

What costs do we have to cover?

For Proposals 2 to 8, our costs fall into eight general categories:

What are the government loans we need to pay back?

Waka Kotahi received $95 million in government loans after regulatory failure. They are:

• Rectification costs loan
  This was used to address the backlog of 850 unsafe vehicle cases identified after regulatory failure. At first we thought we’d have to spend $15 million to inspect and repair the backlog of unsafe vehicles, but now we think it’ll only cost around $4.6 million (including interest).

• Core regulatory loan
  This $80 million loan is being used to stabilise and start rebuilding the regulatory function in Waka Kotahi, to hire additional staff to fill critical frontline roles, strengthen governance and leadership through the development of our regulatory strategy Tū ake, tū māia, and to increase compliance and enforcement in critical areas.
  
  In September 2019 a $30 million loan to pay for core regulatory activities was approved, and in February 2021 we got another $50 million to maintain the rebuild of the regulatory function while the funding and fees review and consultation is completed.  The total repayable amount is around $90.6 million (including interest). 

Loan repayments have been included in the future costs that need to be paid by fees, charges and government funding.

• Rectification loan
  • The current total repayable amount of the rectification loan (around $4.6 million) is recommended for funding from land transport revenue (Proposal 1).
  • If we can’t fund some public good activities through land transport revenue, we may need to use the $11 million we haven’t spent and borrow more until new fees and charges are introduced.
• Core regulatory loan
  We’re proposing the rest of the loans are repaid through fees and charges (Proposals 2-8). Some groups pay a higher share of these loan costs because that’s where we’ve spent the loan money.