The rise of the user fee – Canadian Government Executive

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November 22, 2012

The rise of the user fee

For the last few years, governments around the world have been preoccupied with cutting  costs to strike a better balance between government revenues and expenditures. While most of the current action in Canada has been directed at the spending side, a recent study conducted by the Parliamentary Budget Office (PBO) on federal user charges signals that the revenue generation side is equally important when looking at public finances.  

The PBO report garnered limited attention from the media. This is unfortunate since this study demonstrates that there are billions of dollars that move through the budget cycle that receive almost no public scrutiny and oversight.

User fees are a particular form of government revenues that are “levied on consumers for government goods or services in relation to their consumption.” All Canadians are familiar with the various forms of user fees since they will have encountered them often in their day-to-day lives. As examples, they apply to the use of public transit, public recreational facilities, tuition fees for higher education, road or bridge tolls, resource royalties, accessing government data sets, and purchasing various types of licenses.

Even a cursory look at the revenue stream of the three levels of government in Canada reveals that user fees are present in all areas of government activity. In fact, the PBO reports that user fees are the fastest growing area of taxation in Canada. For instance, at the federal level, revenues from user fees grew from $3.4 billion in 2000-01 to $8 billion in 2010-11, representing an average increase of 9% per year, whereas overall tax increases have been limited to 1.8% per year over the same period. While user fees are only 4% of total tax revenues at the federal level, the rate of growth is eye-catching especially since it mirrors similar growth patterns at the municipal and provincial levels.  

In general, there have been two significant developments since the mid-1990s when user fees became a large-scale feature of revenue generation. First, governments are now charging for a wide range of services that were once free to citizens and, in other cases, the fee is no longer a nominal amount but covers the actual cost of providing the service.  

Given the growing importance of user fees as a revenue source, in 2004 the federal government passed the User Fees Act to regularize the use of user fees, to increase the role of Parliamentarians in setting user fees, to prescribe a pre-consultation regime before introducing new user fees, and to require public reporting to improve the accountability regime.  

The Auditor General was quick to follow the lead set by Parliament by undertaking a review in 2008 of user fees administration. At that time, the AG noted that user fees were becoming more important but there were wide inconsistencies in the way departments determined the fees. Departments also did a relatively poor job of explaining the rationale for determining the fees and describing the process used to consult the public and to analyze the fee regime.

User fees are never a popular measure since the public does not like the idea of more taxes, especially regressive forms of taxation. For this reason, politicians are always ambivalent about introducing more user fees even though they are also perceived as a “good tax” since they are imposed only on service users.

Given the rate of growth of user fees over the past decade, the PBO study raises the question of what in the future we can expect to be provided to us as taxpayers and citizens and what we will be expected to pay as customers or consumers of government services.

This is a very complex question that goes to the heart of the future role of government in Canada.  It is a wonderful example of a “wicked problem” and it deserves the attention of decision-makers at the three levels of government. The City of Toronto has attempted to address this issue and in other jurisdictions there should be a similar effort to categorize and measure the impact of user fees on demand, service improvement and accessibility. At a minimum, Canadians have a right to know more about this important form of taxation.  


David Zussman holds the Jarislowsky Chair in Public Sector Management and is director of the Graduate School of Public and International Affairs at the University of Ottawa (dzussman@uottawa.ca).

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