Annex 6: User Fees

User fees are charges paid for goods and services provided by the public sector. The fees are wide-ranging, including water, sewer and garbage charges, fees for the use of skating rinks and recreational facilities, rents for low-income housing and long-term care, parking fees, and a host of other miscellaneous charges.

A brief history of user fees and Equalization: 1982–1999

Starting in 1982, virtually all the user fees collected by municipal and provincial governments entered the Equalization formula. By 1999, equalized user fees had grown to approximately $20 billion.

Consistent with past practice, the fees collected by institutions outside of the general provincial and municipal government universe (e.g., post-secondary, health, and social services institutions) were not equalized. These institutions are generally not consolidated in provincial accounts and are not considered to be part of the government universe for purposes of Equalization.

User fees were equalized under the miscellaneous revenues base of the program represented about 70 percent of the revenues in this base (the base also included fines, penalties, and various other small revenues).

A proxy measure was used to allocate the fiscal capacity of miscellaneous revenues. A proxy was chosen because the miscellaneous base included a broad range of revenues, making it very complicated to build representative tax bases to measure disparities for each revenue source. Moreover, even if the magnitude of such disparities had warranted creating a Representative Tax System (RTS) model, based on actual revenue-raising practices, there would have been a great deal of uncertainty as to the conceptually correct way to build the model.

The proxy chosen to determine fiscal capacity for user fees and other miscellaneous revenues was a measure that reflected a province’s overall ability to raise revenue from all sources, except for natural resources. This measure was derived by adding up the fiscal capacity measures for all other non-resource tax bases within the Equalization program. This meant that, if a province had low fiscal capacity, as measured by all other non-resource bases, it was deemed to have low capacity to raise user fees and other miscellaneous revenues.

In the 1998–99 fiscal year, just before the 1999 Equalization Renewal, user fees resulted in Equalization payments of $740 million to receiving provinces.

The 1999 Equalization Renewal

As part of the 1999 Renewal, the federal government decided that only 50 percent of user fees would be equalized. This reduced Equalization entitlements for user fees by half.

The federal position was that user fees should generally not be equalized. However, 50 percent of user fees collected by provincial and municipal governments were retained in the formula to mitigate the financial impact on provinces and to reflect provincial views. The majority of provinces strongly supported the equalization of all user fees, disagreed with the change in its treatment, and expressed concern that the federal decision was motivated by a desire to reduce the cost of the program.

In 2003–04, some $8.2 billion – half of eligible user fees – entered the program. The measurement of the base continued to use the sum of the fiscal capacities of all other non-resource bases. That year, under the five-province standard, Equalization entitlements in respect of user fees were $425 million.

Table of Contents	Next