Annex 6: User Fees

How could user fees be equalized?

The Panel considered whether or not user fees should be equalized, and discussed with provinces and academics how disparities should be measured if there was a case for continuing to equalize user fees. In the Panel’s view, the current approach for equalizing full and partial cost-recovery user fees – based on overall fiscal capacity (excluding resource bases) – is arbitrary and has no conceptual basis.

The Panel heard views that the most obvious approach, in keeping with the RTS, would be to use an approach similar to that used for consumption taxes (e.g., water consumption in litres to equalize water charges). However, in order to do this, an extremely complex model would have to be built to estimate how much revenue each province could raise if it levied a national average user fee on the many activities for which governments levy user fees.

Measuring these disparities would add tremendous complexity to the formula and would require many assumptions. For example, returning to the case of residential care facilities, a model would have to simulate how much a province could raise if it levied average user fees and had the average number of government run facilities. Simulating this result for a province that only had private sector residential facilities would require numerous arbitrary assumptions.

Moreover, the results would be difficult to interpret. For example, would a province that had an above- average number of seniors using public residential care facilities be at a fiscal advantage because it could raise higher than average user fees, or would it be at a disadvantage because it would have to provide higher than average subsidies?

The other approach to measuring user fee capacity that was suggested involves the use of actual revenues. The Panel considers this approach to be extremely problematic. First, provinces receiving Equalization would have an incentive to not levy user fees, as any loss in user fees would be offset by gains in Equalization. Second, even with a partial inclusion rate, provinces would have a strong incentive to structure their financial affairs to report only net revenues or profits (in order to maximize their Equalization entitlements).

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