FINA Committee Report
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In 1994, the government made cost recovery a priority for departments and government agencies. This initiative was undertaken in conjunction with spending cutbacks designed to eliminate the deficit, as well as Program Review, which was designed to deliver better and more appropriate government programs. As a result, fees were introduced for many services previously provided to individuals and businesses at no cost. These user fees were implemented not only to provide an alternate means of program funding, but more importantly to make government more efficient: to "get government right." According to University of Toronto Professor of Economics Richard Bird, user fees are important tools for government, not because they generate revenues but because they provide important signals to service providers about the demand for those services. Because of this, they help improve economic efficiency.
The current Cost Recovery and Charging Policy was put into place in April 1997. It sets out a number of major principles for departments and agencies to apply when setting up user charges, e.g. that user charges should not only generate revenue, but improve services and focus them more on clients’ needs.
Since the implementation of this policy, dissatisfaction has only increased. In its 1999 Pre-Budget Consultation report, this Committee noted growing concerns surrounding the government’s cost-recovery program and the manner in which it is being followed:
According to the Business Coalition on Cost Recovery (BCCR), these fees are more like taxes than prices for services. They appear to be subsidizing other activities or adding to general revenues. They are more like taxes because government departments are not following the guidelines originally set out in the Cost Recovery Program. They are not linking the charges to the value of services provided. They are not minimizing their costs of delivering services and they are not re-engineering themselves to provide better services. Indeed, in some cases such as veterinary drug approvals, service quality has deteriorated and is far from promised standards.
As taxes, these user charges impose upon the economy the same kinds of distortions as do personal and corporate taxes. … The introduction of new products in Canada is being delayed, imposing direct costs on consumers and causing our economy to be less productive.
The Office of the Auditor General (OAG) has also highlighted problems with user charges on several occasions. Its December 1997 report commented that "recent audits by our office have highlighted weaknesses in the implementation of user charges. For example, we have found that government accounting systems are typically not designed to provide costing information needed to justify the levels of user fees charged."
More recently, the OAG has criticized Agriculture and Agri-Food Canada for its failure to implement fully the Treasury Board policy. Specifically, it found that impact assessments (covering both costs and benefits) were incomplete, service standards were not widely used and that reviews of performance were largely absent.
The Committee, in hearings with department officials and industry groups, among others, examined two basic questions: Is the Cost Recovery and Charging Policy being implemented consistently across the government? And, is the policy itself sound?
The Committee’s hearings confirmed the sentiments expressed in its 1999 Pre-Budget Consultations report. While the Policy itself generally conforms to sound economic practices, it is not being implemented consistently across government departments. Though flawed implementation in the various departments and agencies clearly play a role, there is also a problem stemming from a lack of effective direction from Treasury Board, which is responsible for the Policy. Central supervision, and dispute resolution, have proven to be ineffective or absent: departments have been left to their own devices in designing and implementing user charges.
As the Auditor General, Denis Desautels, told this Committee: "I know that many observers have criticized the way user charges have been implemented and that our audit work over the years supports many of those criticisms." This should not be completely surprising. Richard Bird, a noted Canadian public finance expert, told the Committee that it is easy to design a tax system but hard to implement it. With respect to user fees, it is difficult just to design a system.
This study is divided into two parts. The first examines the Policy itself, looking at its soundness and how well it is being implemented. The Committee notes that much of what is said about user charges can be expanded to include regulations in general. Consequently, Part I concludes with a recommendation that the government review also its regulatory regime, in the spirit of the Committee’s cost-recovery review. Part II examines the policy’s implementation through three case studies: on Health Canada, specifically user charges faced by drug manufacturers in the Therapeutic Products Programme, on Agriculture and Agri-Food Canada, and on the Marine Service Fees charged by the Canadian Coast Guard.
The Committee also notes that federal user charges comprise only part of the government charges faced by Canadian businesses. While this Report is centred on the federal government, provincial and municipal governments should also examine their fee structures to ensure that Canadian businesses do not face an overly burdensome user-charge and regulatory burden. The challenges faced by the federal government in implementing its user-fee program apply equally to other levels of government.
One easily overlooked benefit of user charges is that, by bringing the cost of government services out into the open, they have raised the level of awareness as to how government works. It has also spurred the discussion as to how to run a more efficient government. It is important to note that this ongoing discussion, of which this Report is part, itself represents significant progress.