December 2001
Misused User Fees
by Filip Palda
Early this fall, students at Queen's University in Kingston voted against deregulation of tuitions in the Arts and Science faculty. Queen's is home to a disproportionate number of students from wealthy families who benefit from a splendid education at taxpayers' expense. The majority of Queen's students who whine that user fees are unfair could only strike sympathy in similar recipients of state handouts such as executives at Bombardier, oil companies pumping money from Ottawa to build the Hibernia project, and owners of sports stadiums who build their arenas with the dollars commandeered from local taxpayers. But Queen's students have a point. User fees for student tuitions need to be resisted.
User fees for government services are proving to be the drug of choice for politicians trembling with the need for injections of cash. Addicts are virtuosos at finding excuses for their habit. Like the crusaders who needed a dash of holy water from the pope to bless their looting sprees in Palestine, politicians have found blessing for user fees in the scriptures of economists.
When you can charge directly for a service, user fees are preferable to a general tax. General taxes take money from people, put that money in a central pot, and then use the money to provide a service free of direct charge. General taxes are the admission charge to a smorgasbord of government services. The problem with smorgasbords is that light eaters end up subsidizing the habits of trenchermen.
User fees sensitize users to the true costs of their consumption. A lack of user fees for domestic water in most Canadian communities explains why Canadians are among the most profligate water wasters in the world. The power of user fees to restrain thoughtless behaviour is best seen in the parking lots of supermarkets, where shoppers who leave their empty carts to roll across the lot lose their $1 deposit. The unattended shopping cart is now a thing of legend.
That's the part of user fee scripture politicians like. The scripture they have not read or prefer to consider as heresy, is that when you impose a user fee on a service funded by a general tax, two things need to happen. The general tax should disappear, and those providing the service should feel the prod of competition.
User fees are not supposed to be escape hatches for politicians who sink a public enterprise through their mismanagement. Allowing politicians to tack user fees onto services that we were promised would function nicely with tax revenue, is to treat our leaders like prodigal sons. Awarding them the right to levy user fees to salvage blundered enterprises makes nonsense of the user fee's power to make people act responsibly.
Universities should not be allowed to deregulate their tuitions without changing the way they manage themselves. Universities are a cartel coordinated by the province. It is impossible for new universities to put old universities out of business because the province funds higher education and gives itself the power to block new entrants. Universities inside the cocoon of government protection can function in cozy disregard of students' needs.
Imagine if a provincial government withdrew all funding for universities, and sent the money it saved to potential students in the form of university vouchers. With these "food-stamps for the mind" in hand, students would shop for those universities with the best combinations of tuition and quality. Some universities would charge more than the value of the voucher, while others charged less. All universities would be forced to bend to the needs of their clients, for fear of bankruptcy. Students, not bureaucrats, would be the regulators of user fees. Their beliefs about the quality of an institution would determine how much that institution could charge for its services.
If politicians keep extorting user fees to rescue mismanaged ventures, voters will develop an allergy at the mention of user fees. The antihistamine voters need is an understanding of how such fees can be used for their benefit, rather than as payment for the politician's blunders.
Filip Palda is Professor at l’École Nationale d'Administration Publique in Montreal, and Senior Fellow of The Fraser Institute. He received his Ph.D. in Economics from the University of Chicago.
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