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This policy document replaces the policy titled "External User Charges for Goods, Services, Property, Rights and Privileges" approved by Treasury Board on December 7, 1989.
This policy has been updated to clearly set out the guiding principles for cost recovery and charging activities of departments and agencies. It emphasizes the need for participatory consultation between departments and agencies and their clients before introducing or amending user charges, and on a continuing basis thereafter.
As a result of continued efforts to improve the focus of government spending, it has become evident that more attention must be paid to who receives benefits from government activities and whether it is reasonable for Canadians in general to continue to pay the full cost in cases where direct benefits accrue to specific individuals or organizations. The economic rationale for levying user charges is to improve the efficiency with which departments and agencies make use of available resources. To the extent that user charges finance activities previously funded through tax dollars, those limited tax dollars can be reallocated to activities that benefit the general taxpayer or to reduce the debt.
Charging, however, cannot be used simply as a means of generating revenue to meet the funding requirements of a department or agency. There must be a relationship between the fee charged and the cost of the good or service, or the value of the privilege provided to clients. Charges help determine the proper scale of delivery by applying a market test of underlying demand, thus tending to eliminate the over-use that often exists with "free" services. Charges also result in better and more client-oriented services, if for no other reason than the fact that users demand value for their money. Adopting client suggestions to improve service delivery and efficiency is a prime example of responsive government. Even in situations where services are mandatory, there may be scope for tailoring the service to better suit the operations of the clients it serves.
User charges are often perceived as another form of taxation; but they differ from taxes in that they are linked to specific benefits which are over and above those enjoyed by the general taxpayer. User charging is not appropriate for all government activities -- many programs are provided for the general benefit of all; and others, for public policy reasons, are specifically designed to assist the recipients. Such programs will continue to be financed from general taxes.
A cost-recovery regime is only appropriate where the benefits to the government outweigh the startup and ongoing costs of administering the charges. Cost-recovery can only be initiated where the Government has deemed the activity in question to be a legitimate and necessary role for the federal government, and one that cannot be provided adequately by the private or voluntary sector. Departments and agencies must also address the question of whether there are better and/or cheaper ways to deliver the service without compromising program objectives such as health and safety.
It is government policy to implement user charges for services that provide identifiable recipients with direct benefits beyond those received by the general public, unless overriding policy objectives would be compromised (see reference note 1). The aim is:
This policy is to be followed by all departments and agencies (i.e., those organizations considered to be departments within the meaning of Section 2 of the Financial Administration Act), regardless of the authority used to establish fees and whether or not there is a statutory requirement to follow the regulatory process. This policy does not apply to charges between and within these organizations, which are governed by the Treasury Board policy on interdepartmental charging. Furthermore, the policy does not apply to other federal institutions (e.g., Crown corporations) which operate at arm's length from the Government in a more commercial environment, although these institutions must pay the same applicable user fees set by a department, as any other client.
Where it is appropriate to implement new or amend existing user charges, departments must adhere to, and be open in, the application of a number of underlying principles.
(a) Departments must undertake meaningful and effective consultations with clients throughout the fee setting process -- the focus is on ensuring that those who pay for the service have an effective voice in the design and delivery of that service. Departments also have an obligation to consult with other affected parties to ensure that competing policy objectives are not compromised. Both departments and their clients will have to make best efforts to avoid impasses from developing. Failure to reach consensus cannot compromise the Minister's right to impose user charges as provided by Parliament; but the consultations must be meaningful and therefore reflect an element of openness and flexibility. The aim of consultations should be to avoid imposing unreasonable cost burdens on clients and to get client buy-in to new partnership arrangements. Specifically, departments and agencies must:
There may be situations where Budget secrecy or other public policy objectives preclude prior consultation. In such cases, the design of the announced program should be sufficiently flexible to allow for changes which emerge from post-announcement consultations.
(b) Departments and agencies must follow appropriate costing and pricing practices. The former are set out in the TBS Guide to the Costing of Outputs. Before attempting to establish a price, it is important to be aware of the full cost of providing services. Only in that context, can one determine the appropriate price to be charged. In the case of rights and privileges, pricing based on market value is often a more appropriate approach (see reference note 4). When there is a mix of public and private benefits, fees should be lower than full cost. However, the price may also be influenced by the public policy rationale underlying an activity. More specifically, public policy considerations may increase a price to compensate for incremental social costs associated with an activity. Prices should be:
The following provides illustrative examples of activities under the various categories.
|Goods, Regulatory and Optional Services, Information Products, Use of Public Facilities, and Rights and Privileges of a personal nature
|Sale, Lease, or Licence of Public Property
|Rights and Privileges which are de facto commercial inputs for users
|inspection services, use of federal testing facilities such as a wind tunnel, drug evaluation fees, passports, consular service fees and visas, park entrance fees and camping permits for individuals
|sale of real property,
leasing space in federally-owned buildings,
licensing of Crown-owned intellectual property
|import/export licences, spectrum fees,
commercial fishing licences, mineral rights
Fees should be set on the basis of clear, and preferably agreed, service standards and performance measures unless it can be demonstrated that it is not practical or reasonable. The establishment of such standards will require ongoing collaboration between clients and departments and should be reviewed periodically, as appropriate.
Where competitive situations exist, but there is a requirement for government to continue in the business, departments must refrain from competing unfairly (i.e., by setting prices that undercut the private sector as a result of ignoring sunk capital costs or other indirect pricing subsidies).
(c) All user-charge revenues collected are public monies governed by the Financial Administration Act. Authority to spend those revenues requires prior Parliamentary and Treasury Board approval. Individual cases will be judged on their own merits. As a general rule, the Treasury Board will recommend approval to spend user-charge revenue only when the revenues are being used to finance the service from which they are generated, and where there is a direct relationship between the costs incurred and the charges collected.
The Treasury Board Secretariat has developed and will interpret the general policy on user charging and will make recommendations to the Treasury Board on departmental user-charge proposals where TB approval is required -- whether that requirement is by statute or by previous Treasury Board or Cabinet decision.
Individual Ministers are responsible for implementing or amending user charges within their areas of responsibility in accordance with their legal authority and the above policy principles. Ministers or their officials must also ensure that:
The President of the Treasury Board will serve as a point of contact for clients who feel departments or agencies have not given them a fair hearing in the fee-setting process. The Treasury Board Secretariat will monitor departments' adherence to the principles in this policy, through client feedback, internal and external audits, program evaluations, special studies, and the review of annual Departmental Business Plans. Depending on the circumstances, the Treasury Board may subsequently provide advice to the Minister responsible or establish other measures through authorities within the Financial Administration Act. If necessary, the Treasury Board may issue specific directives or regulations to govern the application of cost recovery and charging in specific departments and agencies.
Although the timing will vary depending on the nature and significance of the user charge, departments must conduct periodic reviews to ensure user-charge policy requirements are being met. Such reviews should also address whether fees should be increased or decreased where cost structures have changed, where the mix of public and private benefits has changed, or where service levels have been altered.
Departments and agencies should be open to client requests for reviews of any unforeseen impacts which emerge.
The Treasury Board will initiate a review of this policy within three years of its introduction.
Enquiries from departmental officials about how this policy relates to their organization should be directed to their program analyst in the Treasury Board Secretariat. All other enquiries about the policy should be directed to:
Expenditure Management Sector
Treasury Board Secretariat
FAX: (613) 952-2399
1. Departments and agencies must work with their clients to determine an appropriate allocation of private and public benefits. There is a continuum between purely "public" and purely "private" goods. Some government activities are closest to the "public" end of the scale, such as defence, international assistance, income redistribution, tax collection, and disease control. As one moves towards the "private" end of the scale, one encounters: access to the radio frequency spectrum, weights and measures and other commercial inspections, loan guarantees, fishing licenses, recreational use of national parks, applied research activities, specialized publications, and housing rentals. While many government activities generate both public and private benefits, differentiating between the two is a highly subjective area. While it is difficult to be precise in quantifying the two elements, reasonable approximations can be based on such criteria as:
A background paper on User Charging in the Federal Government is also available on the TBS web site on the internet. That paper sets out the views of prominent economists and public finance practitioners on the subjects of when user fees are appropriate, what distinguishes public and private goods, and what approaches should be followed in establishing fees. The paper is intended to contribute to a better understanding of user fees and improved communication between departments and their clients.
2. Impact assessments should focus on such economic factors as competitiveness, product development, investment, and the levelness of the playing field with competitors in other jurisdictions, and on such social factors as access to government services by low-income people. The Business Impact Test (BIT) is one measure which has been developed for this purpose, although other methods may be more appropriate in cases involving individuals or smaller businesses.
3. Assessing cumulative impacts will not be easy. Departments will only be able to do this with the help of their clients. TBS can assist in the coordination of inter-departmental effort only when problem areas are identified. The aim should be for clients to perceive they are getting value for money from the various services for which they are charged.
4. Market value means the amount that would be paid to acquire an interest in public property, or a publicly-controlled limited right or privilege, if it were offered in the open market with enough time and in a way to attract potential investors (e.g., through competitive bidding or auction).
5. Information products refer to products, regardless of format or media, that contain information about federal policies, programs and services that have been created and published by or for government departments and agencies for the purpose of distribution or sale. Many institutions have a responsibility for disseminating information pursuant to specific legislated requirements. In the absence of a specific authority, they must determine their responsibilities in this area in the broader context of promoting "open government". This principle is inherent in the "Access to Information Act" and is supported by the government-wide "Communications Policy". Departments and agencies should not charge for the information they disseminate when it:
6. Several types of legal authorities exist for setting fees (e.g., specific departmental legislation, Financial Administration Act, contracting authority). No single authority is prescribed for setting fees. Departments, with advice from their legal counsels, are best positioned to determine the most appropriate authority to use and whether the regulatory process should be followed. Those decisions should be based on such factors as the specific wording of the legislation itself, the nature of the activity and the impact of charges on users.
Questions and Answers
1. Can the new policy be summarized as "User-Pay, User-Say?
It is not quite that simple. Those expected to pay have a clear right to be consulted on the costs and efficiency of programs instituted on their behalf, as well as on the quality standards achieved by such programs. However, there may be practical limits to this when there are competing policy objectives. Departments and agencies should work as closely and cooperatively as possible with their clients to deliver services efficiently without losing sight of fundamental policy objectives.
2. Can we expect to see offsetting reductions in tax levels as new fees are introduced?
When cost-recovery fees are introduced to pay for services previously funded through general taxation, the Government must decide whether it wants that new-found flexibility to contribute to debt reduction, to be reflected in reduced taxes, or to be used to enhance service delivery.
In fact, some fees may be needed to finance the continuation of an activity in the face of a Government decision to reallocate the tax dollars previously used to finance it to more essential activities, or to reduce the deficit.
One should not forget that cost-recovery and other charges (excluding such day-to-daycommercial transactions as real property rentals, concessions, military services, contract policing, airport landing fees, and the air transportation tax) account for about 1% of total government revenues and most individual initiatives recover much less than full cost.
3. Won't the redress mechanism proposed in this policy mean that the President of the Treasury Board will be interfering in the management of other Ministers' portfolios?
This is an obvious role for the President given his responsibility for the government-wide policy. The role was explicitly set out in the new policy to assuage the concerns of the private sector that they have nowhere to turn if they are totally ignored in the process.
The President will be a point of contact, or mediator, for clients who feel departments or agencies have not adhered to Treasury Board policy in their fee-setting process. The President will not arbitrate policy decisions within another Minister's portfolio.
The Treasury Board Secretariat will monitor departments' adherence to the principles in this policy, through client feedback, internal and external audits, program evaluations, special studies, and the review of annual Departmental Business Plans.
Depending on the circumstances, the Treasury Board may subsequently provide advice to the Minister responsible or establish other measures through authorities within the Financial Administration Act. If necessary, the Treasury Board could transform these principles into regulations for application to specific departmental fee-setting legislation.
4. Does the policy relate to activities undertaken outside of Canada?
Yes, but these may also be impacted on, or governed by, international convention.
5. Does the policy apply to dealings with other levels of government within Canada?
Yes, but again one must not lose sight of the fact that there may be overriding public policy objectives which could be of relevance in any such decision.
6. How can "user-pay, user say" possibly be of any relevance in the context of mandatory regulatory services?
Just because a service is mandatory, does not mean that the regulators cannot learn from their clients with respect to the most efficient and least obtrusive ways to carry out such a function. The users cannot decline the service, but they may well have a comparative advantage in determining the most efficient methods of regulating themselves and their competitors. Departmental personnel will have to keep an eye on public policy interests and maintaining a level playing field for all clients, but they must remain open to suggestions for improving service delivery and minimizing cost burdens.
This process will not necessarily be straightforward. For example, clients of regulatory and quasi-judicial processes (panel hearings and reviews) may be reluctant to put their views on the table with respect to levels of service such as timing as that may inappropriately affect the deliberations.
7. What is a right or privilege?
A right or privilege represents an authorization by government to access or exploit publicly owned or managed resources or areas of activity; this is conferred through granting licences, permits, certificates of necessity and convenience, patents, copyrights, quotas, or the like. In all cases, this confers a special permission or privilege to an individual or group, to which everyone else is excluded.
8. Are user charges meant to generate additional revenue for departments or are they simply intended to introduce a market discipline into the delivery of services?
There is a mix of factors underlying most charges. Fiscal pressures have certainly been a catalyst in promoting the increased focus on cost-recovery. Getting government right has focused attention on who receives benefits from government activities and whether it is reasonable for Canadians in general to continue to pay the full cost in cases where direct benefits accrue to specific individuals or organizations. Charging cannot be used simply to generate revenue to meet the funding requirements of a department or agency. There must be a link between the fee charged and the cost of the good or service, or the value of the privilege provided to clients. Charges also help determine the proper scale of delivery by applying a market test of underlying demand, thus tending to eliminate the over-use that often exists with "free" services.
9. How do you define "benefits" (in the "Prerequisites" section) when you say they must outweigh the start-up and ongoing costs of administering charges?
This is not a reference to benefits to specific clients, but rather the benefits which accrue to Canadians generally from the recovery of costs as opposed to general funding of the activity. In this use of the term, benefits can be broader than simply financial considerations. This is a subjective area where common sense will go a long way to providing an answer. Benefits may include more intangible outcomes such as changing behavior to minimize social costs, or limiting overuse of a free service.
10. Is it TB policy to give departments 100% respending authority in all cases? If not, why not?
That is not TB policy. This perception may have developed as a consequence of a decision during Program Review to treat increases in revenue the same as reductions in spending when considering budget targets.
Program Review was indeed a catalyst for many changes in service delivery, including posing questions as to who should pay for the provision of specific benefits to identifiable clients, the taxpayer or the recipient, but specific fee initiatives should only be pursued on the basis that direct benefits are provided to users, over and above those provided to the general public. Cost recovery initiatives must stand on their own merits, and not simply be viewed as a source of funds.
Departments cannot respend revenues without Parliament's authorization. All user-charge revenues are public monies governed by the Financial Administration Act, and any authority to spend those revenues requires the approval of Parliament. In the absence of that approval, all revenues must be credited to the Consolidated Revenue Fund. The basic premise is that Parliament is accountable to the Canadian public for all spending by the federal government, and therefore must have the opportunity to review all such spending. As stated in the policy, Parliament may grant the authority to spend user-charge revenue in individual cases where the revenues are being used to finance the service from which they are generated, and where there is a direct relationship between the costs incurred and the charges collected.
11. Does the new policy measure the cumulative impact of user fees?
The new policy is a set of guidelines for departments and agencies to follow when introducing or amending fees. Departments and agencies will have to work with their clients to assess cumulative impacts, and the role that clients will have to play in any such exercise should not be underestimated.
12. Will a freeze or moratorium on the introduction of new fees be introduced pending the assessment of cumulative impacts?
Individual Ministers may choose to introduce new fees for program reasons in keeping with the general policy, and the Government will not impose a moratorium on this. However, we want to ensure that departments carefully assess how such fees affect clients before they are put in place.
13. How will this new policy impact on current and past initiatives?
The government cannot review everything at once. If an initiative is underway, the policy should be followed to the extent possible. If an initiative is already in place, it should be assessed in the context of the new policy principles at the time of its next periodic review.
14. Why can you not be more specific with respect to the identification of private benefits?
This is not an area where there are any easy answers. The reference notes in the policy provide some guidance in this area. The private element is clear when there are direct benefits conferred with respect to marketability, but there are other situations where the market activity imposes public risks and the costs of mitigating those risks should be borne by those profiting from the activity rather than the general taxpayer.
15. Why does the new policy use such terms as "meaningful" consultation, and "reasonable" means in place to notify clients, "unreasonable" cost burdens on clients, and "reasonable" opportunity to provide input, without providing any criteria by which to determine meaningfulness or reasonableness?
This is not designed to make the policy ambiguous in any way, nor to accentuate differences of opinion between
departments and their clients. However, the Treasury Board cannot provide a step-by-step guide which will be
universally applicable. Departments have to decide what is appropriate in given circumstances. The principles-based
approach is meant to provide flexibility to deal with different situations -- something which cannot be done through
the imposition of rigid rules. Success will be measured by client reaction -- not necessarily their satisfaction. The
key to "meaningful" consultation is that clients believe they are given a fair hearing and understand the rationale
underlying the outcome. One should interpret "reasonable" as something which is defensible to an impartial observer as
being fair, right, and sensible.