Regulate Smarter: Bringing Back Fee Fairness

The 2017 federal budget introduced a largely unnoticed legislative change that will have long-term implications for Canadian businesses. It overhauled the cost recovery rules that govern how federal departments and agencies set user fees charged to businesses and individuals.

The budget replaced the 2004 User Fees Act with the Service Fees Act. The Service Fees Act makes it much easier for departments and agencies to introduce and increase the fees for their goods and services. For some fees, the budget legislation went a step further and, without explaining why, exempted fees under the Food and Drugs Act from the new rules, giving the Minister of Health the authority to increase fees via Ministerial Order. These exemptions and the Service Fees Act were included in an omnibus budget bill, meaning the changes received far less parliamentary and public scrutiny than they would have as stand-alone legislation.

User fees play an important role in how departments and agencies are funded. Like taxes, they affect the competitiveness of businesses that pay them. Given the hasty implementation of changes to federal cost recovery rules, it is worth examining how the government and Health Canada, specifically, have exercised these new authorities.

The principle of cost recovery is a reasonable one: that some government goods or services should be paid by the user that benefits from them instead of from general tax revenues. When the benefit is entirely private, some fees recover the entire cost to departments of providing the service. Some fees recover a portion of the service delivery cost when there are benefits to both private interests and the broader public.
Canadian businesses are accustomed to paying fees to all levels of government to comply with regulatory requirements, including a seemingly endless number of registrations, licences and permits. Individual Canadians are also used to paying federal user fees for things such as passports and admission to national parks.

While user fees are generally not compulsory like taxes, many businesses cannot obey existing laws and regulations without paying them. These requirements are from a public monopoly, meaning there are no alternatives for businesses that are unhappy with the service or the fee. As a result, it is crucial departments
provide the highest levels of transparency and accountability in setting fees and ensure fees are strongly connected to the services they fund.

When the User Fees Act was introduced by Roy Cullen in 2002, he stated:
"It is time for parliamentarians to take greater ownership of user fees. What began as a legitimate attempt to more fully recover costs for proprietary services and goods has developed into something that is beyond that which was contemplated."

Cullen’s private members bill, the User Fees Act swung the pendulum in the opposite direction to a point where departments found the fee process too burdensome. There are signs that the Service Fees Act and the exemptions to it have swung the pendulum too far back the other way. The new unregulated approach to setting industry fees sends a hostile signal to foreign investors and companies looking to do business in Canada. Health Canada’s 2017 attempt to dramatically increase fees for drugs and medical devices gave no
consideration to business competitiveness impacts and reinforced industry concerns about the federal shift on fees.

2020 will mark three years since the passage of the Service Fees Act. Given it was drafted without
consultation and received little public scrutiny, it is an appropriate time to conduct a review of the legislation. Doing so provides an opportunity to build business confidence in the federal cost
recovery regime and ensure the Service Fees Act, like the user fee policies of the mid-1990s, does not develop into something beyond which it was intended.

Recommendations:

• Remove all current exemptions from the Service Fees Act, including authorities that have been provided to Health Canada under the Food and Drugs Act and the Cannabis Act.
• Require that any individual fee increases of more than 25% levels include a business competitiveness impact assessment.
• Before the end of 2020, conduct a review of the Service Fees Act. The scope of the review and its final recommendations should be approved by the Treasury Board External Advisory Committee on Regulatory Modernization.

Regulate Smarter: Bringing Back Fee Fairness