FAQs

What are Customs and the Ministry for Primary Industries (MPI) consulting on?

The consultation document proposes:

• border processing levy rates and caps
• an amendment to the Biosecurity (Border Processing Levy) Order 2015 to future-proof the levy order and allow for the options to be implemented.

The proposed levy rates for each option differ depending on:

• the date that levy rates are reset
• the duration of the levy period
• who funds the deficits related to travel before the levy rates are reset.

Who is this consultation document intended for?

Customs and MPI is welcoming feedback from the public, particularly people who are potentially impacted by the options in this consultation document:

• people intending to arrive or depart New Zealand
• international airlines and cruise ship operators
• operators of other aircraft carrying passengers arriving or departing New Zealand
• owners of private marine craft that may arrive or depart New Zealand
• other businesses and organisations that may be affected by the impact of levy rate changes on the number of travellers arriving and departing New Zealand

What happens when the consultation period closes on 2 July 2021?

Once consultation has ended, Customs and MPI will consider the feedback and provide advice to the Minister of Customs and the Minister for Biosecurity. The outcome of any decision will be made public.

Will submissions be published?

Customs and MPI intend to publish a summary of submissions to cover the main themes identified by submitters, or individual submissions.

As your submission will be official information anyone can request a copy under the Official Information Act 1982 (OIA). Customs and MPI must release this information unless there is a good reason for withholding it under the OIA.

Further guidance can be found on the Ombudsman website.

Email LevyConsultation2021@customs.govt.nz to make your submission.

When were the Border processing levies introduced and why?

The Border Processing Levies came into force on 1 January 2016.

The purpose of the levies is to ensure that the Customs and MPI are resourced to manage risks and threats at the border effectively. Prior to the outbreak of COVID-19, Customs and MPI processed increasing numbers of travellers and invested in technology and staff capability.

What impact has COVID-19 had on border processing levies?

COVID-19 resulted in a 98 percent fall in the number of travellers arriving and departing New Zealand, and a fall in levy revenue.

As part of the Government’s COVID-19 Aviation Relief Package, the Government suspended funding reviews of aviation and border agencies, including reviews of border processing levies.

The Government funded deficits in border processing services up to 30 June 2021, estimated at $186 million, because of the extraordinary circumstances following the outbreak of COVID-19. The Government has directed Customs and MPI to consult on options for travellers to resume meeting the costs created by their travel.

When did Customs or MPI last increase the levies?

The levies have not increased since 1 July 2019.  In March 2020, the government agreed to an aviation relief package to relieve the immediate impact of the COVID-19 pandemic on the aviation sector. This package included suspending funding reviews across aviation and border agencies for 12 months.

How do you ensure that the levy rates are set at the right amount?

Customs and MPI will continue to report on the levies annually and propose adjustments to rates if necessary. This will ensure the levy rates remain appropriate and avoid any over-recovery or under-recovery of costs.

How have Customs and MPI border services been funded since reviews of border processing levies were suspended?

The Government decided to fund deficits up to 30 June 2021, estimated to total $186 million, because of the extraordinary circumstances in which these deficits accumulated following the outbreak of COVID-19.

How did Customs and MPI respond when COVID closed our borders?

Customs and MPI took immediate action in response to the sharp decline in travellers due to COVID-19. The cost for Customs and MPI staff working outside of processing travellers, including the costs of staff redeployed to other work areas, are not charged to the Levy Memorandum Accounts. 

Customs and MPI staff were temporarily redeployed from border processing to other work. An example of this is the redeployment of Customs staff to address COVID-19 related pressures such as implementing the Maritime Border Orders.

Travel options are now expanding slowly and traveller numbers remain low due to COVID-19 and border restrictions.  For air travel, Customs and MPI airport staff have largely returned to the airport from their earlier redeployments. Costs per traveller are higher due to processes to protect against COVID-19, and because there are fewer travellers to cover the fixed costs.

How do we ensure that levies are fair?

Customs and MPI both use robust cost recovery frameworks consistent with guidance published by The Treasury and the Office of the Auditor-General. The frameworks are used to determine how activities should be funded.

A key principle of this framework is that the user who creates the need for those services meets the cost of services. This will inform the current review of the levies.

Customs has recently undertaken a significant piece of work to review its cost recovery methodology.

Customs also developed a new Activity-Based Costing (ABC) methodology. The ABC methodology has given Customs a better understanding of the actual cost of its activities.

Customs began using the ABC methodology to allocate its costs from 2019/20. This methodology involves:

• assigning Customs’ costs to three broad categories: directly attributable costs, corporate services costs, and business sustaining costs
• applying a two-step methodology to attribute resources firstly to activities, and then to services on a casual basis
• allocating the cost of corporate services (for example finance and people and capability) to the operational users of the services they provide
• assigning business-sustaining costs (such as statutory reporting costs) to services proportionately based on cost.

How is Customs supporting NZ’s COVID free status?

Customs is working with other relevant agencies and private sector organisations on facilitating quarantine-free travel (where air travellers would be able to enter New Zealand without being required to stay in managed isolation or quarantine), including developing advice and identifying potential solutions.

This work commenced in 2019/20 after international and New Zealand border restrictions were introduced due to COVID-19, and are continuing during 2020/21.

Quarantine free travel is only established once necessary border, health, transport, and other protocols have been developed and met.

How much will operational costs change to run the air border drop while demand is down by 42-88%?

Customs’ best estimate of future costs relating to non-cruise travel is the same as the costs that Customs budgeted immediately before the impact of the COVID-19 pandemic as part of preparing for Budget 2020, and adjusted for consumer price inflation to maintain their real value.

Customs is taking this approach because of the uncertainty over what border processing will involve and how much it will cost. Customs budgeted $79.6 million for 2020/21 immediately before the impact of the COVID-19 pandemic. Over the coming year, Customs expects to know more about how much it will cost to process travellers in a COVID-19 environment.

MPI services are budgeted at approximately $57.6 million for 2020/21 and are estimated to increase to $69.9 million in 2023/24, reflecting the planned investment in new technology to improve border scanning capability of passengers.

The ongoing impact of the COVID-19 pandemic on international travel creates uncertainty in these cost estimates. Customs and MPI will continue to monitor costs and the number of levied travellers, and provide updates through the annual performance reports on the levies. The performance report on the year ended 30 June 2022 may propose adjustments to rates, if necessary.

For more information, see Section 3 and page 48 of the consultation document.

How much did each organisation save in operating costs since COVID-19 as a result of re-deployments? What were the main drivers of the savings?

In March 2021, Customs estimated that it would spend $17.9 million less than budgeted for 2020/21 on non-cruise border processing. This reduction was a result of redeployment and other savings actions that Customs took while maintaining core services to process the few travellers still crossing the border and retaining the capacity to process gradually increasing numbers of travellers in the future. Customs’ savings actions included:

• reviewing the need to fill vacancies, holding vacancies, and reducing the use of consultants
• redeploying airport staff to other functions such as enforcing the Maritime Border Order, and therefore not allocating these costs to the levy memorandum account. Usually, Customs has 350 staff working at international airports. After New Zealand’s borders largely closed, Customs needed only half that number
• managing overtime and reducing leave balances
• reviewing contracts with service providers
• limiting other discretionary spending such as staff travel.

MPI estimates that full year expenditure will be $9.5 million less in 2020/21 than 2019/20, largely due to a staff redeployment programme. The programme included:

• the early retirement of approximately 20 staff
• temporarily redeploying more than 100 staff into vacancies in other parts of MPI. These staff will return to border processing services as the demand for those services increases
• suspending baggage handling contracts in Auckland, Wellington, Christchurch and Queenstown airports.

The introduction of quarantine-free travel in April 2021 has reduced the estimated savings.

For more information, see Section 3 of the consultation document. 

What is the operating cost per passenger per year for the forecast period?

The table below shows the estimated costs, based on the information presented in Section 3 the consultation document.

Estimated border processing costs per levied traveller (non-cruise)

Before COVID-19, Customs’ estimated border processing costs in was $11.19 per arriving levied traveller and $2.96 per departing levied traveller, and for MPI the cost per levied traveller was $12.69. Customs and MPI published this information in their annual performance report for the year ended 30 June 2020.

New Zealand Customs Service and Ministry for Primary Industries. (2020). Border Clearance Levy: Performance report for the year to 30 June 2020.

What are the frontline operational FTE assumptions for each year for each agency?

In preparing the consultation document, neither Customs nor MPI made explicit assumptions about the number of frontline operational FTEs.

Usually, Customs has 350 staff working at international airports. After New Zealand’s borders largely closed, Customs needed only half that number. Before the COVID-19 pandemic, MPI usually had approximately 370 frontline staff working at international airports.

In managing their costs during 2020/21, Customs and MPI needed to retain sufficient capacity to process travellers in the future when the number of travellers is estimated to recover, and therefore did not make structural changes that would have enabled permanent reductions in fixed costs or FTEs.

When quarantine-free travel with Australia opened in April 2021, most of these staff returned to the airports despite relatively low traveller numbers because processing travellers is now more resource-intensive than before the COVID-19 pandemic. Changes to border processing have included:

• separate areas for processing travellers from quarantine-free travel flights
• health certification related to COVID-19 such as evidence of a pre‑departure test
• new processes to manage the risk of travellers transmitting COVID-19 when they arrive, including health checks
• differences in the use of eGates, which closed when New Zealand’s borders closed, but reopened for quarantine-free travel with Australia and the Cook Islands.

There is still uncertainty over what border processing will involve in this environment, but we will have more information over time.

For more information, see section 3 of the consultation document. Appendix 8 provides further details about the processing of travellers at airports before and after the outbreak of COVID-19, including the diagram on Border processing activities at airports - download the document.

What operating expenditure reduction targets have each organisation set to keep operational costs more aligned with demand levels?

In preparing the consultation document, neither Customs nor MPI set cost reduction targets. However, before COVID-19, Customs and MPI had been continuing to improve their border processing services.

Improvements in the way Customs protects New Zealand from risks and threats included:

• an expanded capability to identify and target risks early, including stronger liaison with partners and better capability to investigate and disrupt organised crime networks
• better cash detection and financial analysis to identify and target cross-border smuggling of criminal proceeds and financial support
• a mobile app to provide frontline officers with better access to information for interacting with travellers and more structured and consistent data for risk targeting
• equipment to more quickly detect traces of illicit substances while processing travellers.

Improvements to Customs’ productivity in processing legitimate travellers included:

• expanded use of eGates before the COVID-19 pandemic. In 2019, ePassport holders from 13 countries could use eGates, up from five countries in 2017. Customs suspended its use of eGates due to the COVID-19 pandemic, but is resuming their use for quarantine-free travel
• use of the mobile app and the trace detection equipment to improve the speed that Customs can inspect travellers of interest.

MPI has recently invested in the biosecurity system to ensure it continues to manage the growing scale and complexity of these risks. While this has resulted in ongoing improvements, a 2019 independent review commissioned by MPI, found that more still needs to be done in response to the rapidly expanding range and intensity of these risks.

For more information, see Section 3 of the consultation document.

After the COVID-19 outbreak in 2020, Customs and MPI took actions to keep border processing costs to a minimum, including redeploying staff. When quarantine-free travel opened with Australia in April 2021, most of these staff returned to the airports despite relatively low traveller numbers because processing travellers is now more resource-intensive than before the COVID-19 pandemic. For more information, see our responses to questions 2 and 4.

Customs and MPI have not made structural changes that would have enabled permanent reductions in services because Customs and MPI need to retain sufficient capacity to process travellers in the future when the number of travellers is estimated to recover. The types of reductions in services that Customs and MPI might need to make if they were required to substantially reduce costs include:

• reducing the number of airports that process travellers
• reducing working hours at airports (for example, Customs currently operates 24/7 at Auckland and Christchurch airports)
• reducing performance standards for the time taken to process travellers. For example, before COVID‑19, the performance standard for processing travellers was 45 minutes from the aircraft arriving at the gate to the traveller being free to leave the airport.
• reducing the level of risk assessment of and intervention with travellers, thereby reducing the level of border protection against biosecurity breaches and other risks and threats (such as smuggling drugs).

See the section headed “Options not considered” in Section 4 of the consultation document.

How have the core metric of passenger processed per FTE hour changed for each organisation since COVID-19?

Neither Customs nor MPI has calculated or reported the number of passengers processed per FTE hour.

Customs and MPI publish financial and non-financial performance measures annually in performance reports on the levies, including estimated border processing costs per levied traveller.

For more information, see our response to question 3.

What is the current breakdown in forecast variable versus fixed costs to operate the air border compared to pre-COVID-19?

Below is a breakdown of Customs’ costs by resource type, including personnel, and asset-related costs. This is the breakdown of budgeted costs for 2020/21. Customs’ best estimate of future costs relating to non-cruise travel is the same as that budgeted for 2020/21 (adjusted for inflation).

Figure 3 of the consultation document shows a breakdown of MPI’s costs by resource type.

Breakdown of MPI border processing costs

Neither Customs nor MPI published a breakdown of costs in the 2019/20. Activities in that year were disrupted by COVID-19.

Customs and MPI published a breakdown in the performance report for 2018/19.

New Zealand Customs Service and Ministry for Primary Industries. (2019). Border Clearance Levy: Performance report for the year to 30 June 2019.