Four Seasons Hotel, Toronto, Ontario

Bill C-212,

An Act respecting user fees

Facilitating a More Productive Relationship Between Industry and Government to Ensure Continued Innovation

Ladies and Gentlemen, I m very pleased to be with you here today to discuss how a smart regulatory environment can be a great catalyst in the quest for innovation.

My private member’s bill – Bill C-212, An Act respecting user fees, is designed to bring greater transparency and accountability and parliamentary oversight to federal government departments and agencies when they attempt to recover costs through user fees. I believe the passage of my bill will encourage more innovation in Canada.

First, a brief word on the progress on Bill C-212 in the Parliament of Canada.

My Bill is voteable, and is coming up for the third and last hour of debate later this week. Following this debate, the Bill will be voted on in the House of Commons; and, if it passes, it will proceed to a Committee of the House (in all probability the House of Commons Standing Committee on Finance) where the Committee will review it. Amendments to the Bill will be considered, and the Bill reported back to the House of Commons (with amendments as appropriate). The Bill will then be voted on again, and, if passed, will then proceed to the Senate. Passage in the Senate would be followed by Royal Assent, and Proclamation of the Legislation, at which point it is the law of the land!

I was very pleased to see a reference to User Charging and Cost Recovery referred to in Finance Minister John Manley’s February 18th Budget – in his budget speech and in the budget documents. In the Budget Plan, the government reaffirmed its commitment to bring in a revised policy on external charging focused in improved management practices. The government stated "This new Treasury Board policy will highlight the importance of consultation, service delivery and results in all user charging activities ranging from optional to regulated services. Enhanced implementation requirements, including the annual reporting of revenue and performance information directly to stakeholders and Parliament, underscore the significance of parliamentary oversight and ministerial accountability. Departments will be required to assess the performance and related cost implications associated with the revised policy and to engage their stakeholders on how best to achieve its objectives."

These are good words and very encouraging. As the saying goes, "The devil is in the detail!" I am not sure that the Treasury Board’s new policy goes as far as my Bill; however, having said that I am working closely with the Minister and her Parliamentary Secretary to try to reach a reasonable compromise. We will have to wait and see.

Now, to the substance of my Bill C-212.

User fees take many different forms and are meant to defray some or all of the costs of a service provided by government presumably in the public interest, but which also provides a specific service to the client (for example license fees, registrations, etc.)

At the outset I should say that I support the government’s objective to recover costs through user fees for private goods or proprietary services. What my Bill addresses, are the following concerns -

• The need for more parliamentary oversight when user fees are introduced or changed;
• The need for greater stakeholder participation in the fee-setting process;
• Improved linkages between user fees, and federal department and agency performance specifications and standards;
• The requirement for more comprehensive stakeholder impact and competitiveness analysis when new user fees, or fee increases, are contemplated;
• The goal of increased transparency with respect to why fees are applicable, what fees are charged, what costs are identified as recoverable, and whether performance standards are being met;
• The need for an independent dispute resolution process to address the complaints or grievances of the payers of user fees; and
• The need for an annual report outlining all user fees in effect that would be tabled in the House of Commons, and referred to the appropriate Committee of the House (Finance).

Our government has embarked on a very ambitious innovation agenda. We need to ensure that our regulatory environment supports and encourages this very important objective. The government recognized this connection when it launched the Smart Regulation initiative in the last Throne Speech. The government announced that it will "move forward with a smart regulation strategy to accelerate reforms in key areas to promote health and sustainability, to contribute to innovation and economic growth, and to reduce the administrative burden on business."

I would suggest to you that the government’s current cost recovery user fee policy runs counter to the innovation agenda and should be a major part of the smart regulation initiative. Bill C-212 does just that, in my view.

In my view it is time for the Parliament of Canada to take greater ownership of user fees. What began as a legitimate attempt to more fully recover costs for proprietary services has developed into something that is beyond that which was contemplated. User fees currently bring in $4 billion annually in revenues for the federal government. There is a systemic bias for federal government departments and agencies to increase user fees. Departments and Agencies of the federal government have, in many cases, expanded the concept and introduced user fees, and increased user fees, beyond what is reasonable, and, more often than not, without any reference to service or performance standards. It’s not that federal civil servants are poor managers - we have some of the best in the world – but we do know that individuals will respond to incentives that are built into the rewards and recognition system. It is only natural. If they are rewarded for increasing user fees – if this assists them in the resource allocation process by Treasury Board and the Department of Finance – they will respond accordingly. Let us keep in mind – these are monopolies increasing their prices! I don’t need to remind this audience that if a company wishes to have a drug approved, for example, they cannot shop around if the price charged by Health Canada is excessive!

The fact that certain of these user fee revenues accrue to what are referred to as net votes may be a motivating factor as well. A net vote is one where user fee revenues are credited directly to the budget of the government entity – they do not accrue to the consolidated revenue account of the government as general revenues. The result of user fee revenue that is credited to net votes is that the budgetary requirements of the department or agency are reduced, because the fees are deducted from expenditure budget requests. Even where user fee revenues find their way to consolidated revenue, and not to a net vote, this additional revenue implemented by departments and agencies is seen as a positive measure by Treasury Board and the Treasury Board Secretariat – the body that recommends annual budgetary appropriations for these organizations for inclusion in the annual budget and budgetary estimates.

The result of this process is that departments and agencies are highly motivated to introduce, and increase, user fees beyond what was originally intended. There is a systemic incentive to generate high volumes of these fees. It is time to introduce more transparency and accountability into this process.

My own sense of the situation, although I have no hard evidence, despite many enquiries, is that during the Program Review cycle adopted by this government in the mid 1990’s, there was more cost cutting in those government divisions, branches or agencies that were responsible for delivering goods or services on a cost recovery basis. At the time, there were few if no performance standards, and very limited attempts to clearly define costs. Much of this still exists today.

Companies in my riding of Etobicoke North – companies like Bayer Canada and BASF Canada – who are exposed to such fees for drug approvals, or approvals of chemical products, do not argue about the appropriateness of user fees for proprietary services. They understand that this is required. What they believe is seriously eroding their competitiveness, however, are increasing fees with no corresponding increase in service or performance. Since fees have been on the rise, in most cases there has been no corresponding improved service or response times.

As you know only too well, in Canada it takes on average 750 days for a drug to be approved. In the United States, the corresponding time is 500-550 days. In Europe, the time frame is less. User fees charges, however, are as high or higher in Canada when compared with these jurisdictions.

With drugs, and chemical and agricultural products, competitive advantage often depends on being the first mover to the marketplace. It is easy to understand why our Canadian companies are seeing their competitive position eroded.

In the U.S.A., the United Kingdom, and Australia user fees are tied in some way to service and performance. The Government of Canada does not at present have any such linkage to performance. In Australia, drug reviews must be completed within legislated time frames or the relevant authority loses up to 25% of the user fee.

In the U.S.A., written performance goals tied to the fee collecting authority were negotiated with the industry. The Medicines Control Agency in the United Kingdom sets targets for ‘clearance times’.

I was very pleased to see that in the recent federal budget, $190 million over five years was provided to "improve the timeliness of Health Canada’s regulatory processes with respect to human drugs, in order to create better climate for research in pharmaceuticals, while preserving the principle that safety is of paramount concern." Hopefully these additional resources will move Health Canada closer to a more competitive and reasonable timeframe for the approval of new drugs.

Bill C-212 potentially affects Canadians from coast to coast to coast because it applies to federal government departments, agencies, boards, crown corporations, commissions or any other body that has the power to fix a user fee or a cost recovery charge under the authority of an Act of Parliament. Thus, individuals paying fees to visit a federal park, or those passengers paying the Air Travelers Security Charge, or individuals paying a fee to the Passport Office for a passport, or provincial or territorial authorities paying fees to the Canadian Coast Guard for ice-breaking services, would be affected by this Bill.

I should say that I would introduce amendments to my bill to exclude crown corporations, based on feedback I have had to date, given the greater commercial focus of crown corporations. I will also clarify my Bill so that is more clear that my Bill does not apply to federally regulated industries – it was never my intent to have Parliament approve the fees that companies like Bell Canada charge consumers for the use of a telephone!

I introduced this Bill because of a certain level of frustration with the lack of progress on this issue. The House of Commons Standing Committee on Finance some two years ago recommended significant changes to the cost recovery/user fee policy; but progress to date has been minimal. In fact there are concerns that the policy may be moving in the opposite direction!

More recently, the President of the Treasury Board, my colleague Lucienne Robillard, circulated proposed changes to the government’s cost recovery/user fee policy. I should say that, in my view, there has been positive progress in improving the policy in the areas performance standard setting, and in providing greater transparency and accountability. There appears also to be an improved emphasis on benefit/cost analysis.

Notwithstanding these developments, I still have concerns that the policy will not necessarily lead to better results. I believe the policy is also seriously lacking because it does not provide parliament with any oversight role.

The following are my lingering concerns about the proposed new policy –

• While I am pleased to note that the Treasury Board Secretariat will provide resources to monitor compliance with the policy, there are no apparent consequences should departments or agencies fail to meet performance targets;
• It is unclear whether or not these resources for monitoring compliance will be sufficient to meet the indicated mandate;
• While the Dispute Management process that is proposed may be an improvement over the existing policy, the process is still an internal one which may lack objectivity;
• There is no assurance that a substantial and complete consultation with stakeholders will occur, and that the proposed fees will be competitive with Canada’s major trading partners;
• The proposed new policy fails to clarify what is a public and what is a private good or service, and how full costing will be defined and implemented.

Many of the above concerns would be addressed if more parliamentary oversight was in place. This would provide greater transparency and public debate.

I would be prepared to moderate the extent of parliamentary oversight that Bill C-212 contemplates to reduce any excessive, redundant, unworkable or inappropriate work by Members of Parliament; however, I will insist on a much greater role for MP’s than that which is implicit in the proposed policy.

Bill C-212 will require that before a federal regulating authority introduces, increases, or expands the application of, or increases the duration of, a user fee, it must consult meaningfully with affected stakeholder and client groups –

• It must take reasonable measures to notify clients, and other regulating authorities with a similar clientele of the proposed user fee changes;
• The regulating authority would be required to give all clients or service users a reasonable opportunity to provide ideas or proposals for ways to improve the services to which the user fee relates;
• The regulating authority would be required to conduct an impact assessment to identify relevant factors, and take into account its findings in a decision to fix or change the user fee;
• The regulating authority would need to explain to clients clearly how the user fee is determined and identify the cost and revenue elements of the user fee; and,
  The regulating authority would be required to establish an independent dispute resolution process to address a complaint or grievance submitted by a client regarding the user fee or change.

On this last point, my Bill is silent as to the operation of the independent dispute resolution process; however, my intent is that the recommendations of an independent party who investigate any complaint or grievance would not be binding on the government; but the report would be available to the parliamentary committee who was reviewing the fee.

We would need also to have a mechanism to ensure that complaints that are frivolous, and designed only to delay the implementation of a fee or fee increase, would not be entertained. Hopefully this won’t happen, and we may only be able to assess this properly once we have some experience with the process.

To some, the provisions that I just described may appear completely reasonable – to others they may appear to be onerous. I will acknowledge that these measures will not simplify life for these regulating authorities. I make no apology for that. I believe that all these steps are necessary because these fees can have an enormous impact on companies and individuals in Canada. Groups like you will have some constructive ideas about how the service could be improved – especially if they are paying more for the service.

It is also important to understand what costs are proposed to be recovered with the proposed user fee or fee increase. How expansive or limited is this definition? To what extent are direct and indirect costs, like departmental or agency overheads, included in the cost recovery formula? How costs are defined can make a major difference in the level of the user fee. We need more transparency and accountability in this area as well. Bill C-212 provides that transparency and accountability.

Parliamentarians need to understand also how departments and agencies define what is a public good, and what is a private good. These definitions are usually not easy, to be sure. They are typically not black & white, and some are easier than others. But these are important considerations, because user fees should only be charged for proprietary goods and services. There are examples where the government has moved away from this concept, for example, the New Substance Notification Program and its related fees – where proprietary benefits may not conferred.

Parliamentarians need to be involved in these debates. Bill C-212 allows for that to happen.

Every user fee proposal under C-212 must be tabled in the House of Commons, and referred to a committee of the House, by the relevant Minister. That proposal would –

• Explain in respect of what service, facility, authorization, permit or license the user fee is being proposed;
• State the reason for any proposed change in the user fee rate;
• Outline what performance standard is being proposed, as well as the actual performance level that has been reached; and,
• Provide an estimate of the total amount that the regulating authority will collect in the first three years after the introduction of the user fee, and identify the costs that the user fee will recover.

Should the amount of the user fee being proposed be higher than that existing in those countries that are our major trading partners, the Minister would be required by Bill C-212 to give reasons for the difference.

These questions are very important for the competitiveness of Canadian business. A case in point is the New Substance Notification Program. Chemical, and perhaps other companies in Canada, when they introduce a new product into the domestic market, must appropriately obtain approval from the federal government prior to launching the product. The federal government reviews the application and makes a determination as to whether or not the product is safe and effective. To cover the costs of this approval process, companies must pay a user fee. Companies that I have approached have no difficulty with this, as I said earlier. They do question, however, why our government will not recognize assessments and approvals from our major trading partners, particularly the U.S.A. In addition, once approval has been given, shouldn’t the company that requested the review of the new substance, and paid the fee, be permitted some initial competitive advantage in the marketplace? Questions such as this should attract more scrutiny from the House of Commons and the relevant committees.

Bill C-212 also spells out what the requirements are when adjustments in the application of user fees are proposed. This provision is necessary - because broadening the application of a fee can have as large an impact as a fee price increase. If a regulating authority wishes to amend the definition of persons subject to the application of a particular user fee for the purposes of maintaining fairness or covering additional cost, the regulating authority may implement the amendments, but the Minister must, within forty days of their implementation, seek the Committee’s approval for the new measures. Failure to do so would invalidate the adjustment.

Despite this provision, a regulating authority may not fix, increase, expand the application of or increase the duration of a user fee unless the result gives an additional benefit to clients.

One criticism of Bill C –212 that the President of the Treasury Board has raised with me is that it interferes with Ministerial accountability and the responsibility of Ministers to set policy and direct their departments. While I understand this argument, I believe that parliament has a much more legitimate role in the area of user fees, for the following two main reasons –

Firstly, because user fees are a form of taxation, or indirect taxation (some would say taxation by stealth!); and,

Secondly, I can’t envisage the circumstances where the introduction of a user fee, or an increase in a user fee, could not be developed with the requisite lead-time required for some parliamentary review. A Department or Agency should, if they are managing their affairs, have a forward-looking corporate plan, including an assessment of any need for new fees or increases in fees. While I can’t foresee how these decisions, which have a large impact on stakeholders, would need urgent decisions, I would be prepared to entertain an amendment to my Bill that allows a Minister to implement a fee or fee increase immediately, such as a fee impacting national security, for example; subject later to the approval of Parliament. Should the approval of Parliament not be forthcoming within a period of time, say one year, the fee would be considered as null and void.

A Committee of the House, or Committees of the House, would have the power to review every user fee proposal and make recommendations to the House of Commons as to the appropriate fee. Although this step would result in a large volume of work, at least initially, the Committee of the House, I expect, would design the appropriate mechanisms to handle the volume of proposals. The formation of a user fee subcommittee, or an exception reporting system, are two such possibilities. We currently have a number of examples where Committees handle a regular volume of routine matters. There would clearly be a learning curve, and a bulge of work at the launch of this initiative, because many user fees have had very limited or no scrutiny by parliament. This work would become more regularized over time.

My Bill does not call for a new Committee of the House of Commons – the existing committees could handle this work. The House may decide that the review of fees would be referred to the relevant committee covering the applicable portfolio. For example, health related user fees could be referred to the House of Commons Standing Committee on Health; fees related to agricultural products could be referred to the Standing Committee on Agriculture and Agri-Food; and so on. Where there is a will, there is a way!

In conclusion, the early indications are that Bill C-212 has broad support across a wide spectrum. Support letters are continuing to come into my office, and many more are expected. Thank you to many of you here today for your support.

The Bill is supported also by many of my colleagues in the House of Commons and the Senate. I believe it has a very good chance of being approved in principle by the House of Commons at the end of March, and referred to a Committee of the House, probably the Finance Committee, for review and a consideration of amendments.

If you support my Bill, you should write to your Member of Parliament and ask him or her to support my Bill in the House of Commons.

Also, please feel free to contact me if you have any questions or concerns.

Again, thank you very much for the opportunity to be here today. I would be happy to take any questions that you may have.