- Nothing costs nothing. Someone will have to pay. Additional expenditure on any government program comes at cost to other programs or to the taxpayer. The question is who will pay?
- Price to the consumer should cover LR marginal cost of producing the service, unless there are external benefits
- Unless the charge covers the cost of the service it will gradually be run down
- Only fair that the consumer pays for the benefits that she/he personally receives<
- The critical issue then is the nature and scope of external benefits<
- The fact that the consumer is poor is not necessarily a reason for not charging the full marginal cost
- For example, the two most basic necessities of life are food and water, but poor people are given income support and then charged the full cost of such basic necessities as their food
- general recognition now that water is a scarce commodity and that should pay more to ensure that we use water more efficiently
- Water has always been privately supplied in France ' despite a bigger public sector ' and the higher charges have encouraged more recycling than in Australia
- For some services the LR marginal cost is close to zero, and it is typically inefficient to collect a low user charge
- Roads and parks are good examples where the cost of an extra user is practically nil and user charging would be inefficient. But if there is congestion then a user charge related to the amount of congestion will be more efficient, and will improve the ammenity of the road or the park for those who most want to use it
- Marginal cost of a gallery or museum may be close to zero
- A modest charge may be a useful revenue raiser ' revenue has to come from somewhere ' and does it reduce access?
- Where the LR marginal cost is more than zero, and there are external benefits, then the user charge should reflect the private benefits and the government subsidy should reflect the external benefits
- Such a charge is also fairer if most taxpayers can never expect to benefit from the service
- For example, the majority of the population will not attend a university, and the user charge for a university degree is typically around 35% of the cost of the degree which on most calculations is less than the private benefit
- The life-time benefit in this case is the difference in life-time earnings that results from obtaining a degree less the cost involved, including the loss of earnings while studying, discounted back to give the net present value
- There could be a concern about charging even if the individual has a net gain if cash flow problems prevented the individual student from attending a university
- But the HECS loan preserves access and effectively reduces the charge if the student's subsequent income is less than expected
- In other words the government bears the risk of the student making a poor investment ' in terms of future earnings ' not the student
- On the evidence so far the introduction of HECS charges has not affected university access, although there must be a point where higher charges might affect access
- There are some goods, which are described as merit goods, where we consider that society is better off if everyone has equal access to these goods. The classic examples are
- school education, and
- health care
- One view is that the external benefits of these 'social' services are very high.
- Society as a whole is better off through education, which helps inculcate the civic values on which our democracy depends.
- Fairness is also integral to the nature of our society and we are all better off if everyone is fully protected against the costs of ill health.
- And we all make roughly equal use of schools and health services, or could make equal demands on these services irrespective of our incomes
- Another view, however, is that government subsidies for health should be limited to paying for health care for the poor and providing a safety net against high health expenditures by those who are not poor. This has been the traditional position of the Liberal Party, but the ALP is correct in saying that it is not consistent with Medicare as originally conceived.
- Some degree of private funding and choice is probably necessary to gain the necessary consensus on which all good policy depends. The worry is that if private funding is the main source of funding for services for a substantial proportion of the population there is a risk that a two-tier system for the provision of health or education will develop.
- The argument against a two-tier system for the provision of health and education services is that our community's social capital is enhanced if we not only pay for these services collectively, but if we also consume these services collectively.
- A strong conception of citizenship argues against the privatisation of 'social' services and/or the limitation of these services to only provide a safety net. This conception insists that the members of our society are interdependent and have a mutual obligation to each other. In such a society collective consumption of social goods and services makes an important contribution to wellbeing. The contention is that these services should not only be available to all, but as far as possible they should be universally used in order to maximise social inclusion and cohesion. In this argument, these 'social' services should then be paid for by taxation, which reflects ability to pay rather than use, as part of our mutual obligation to each other. In effect the citizen is seen as an individual bound into wider social relationships, both contributing to and receiving benefits from the civic community. (Keating, 2004)
- In the case of health it is also arguable that the overall economic cost of a safety net is higher, because of the inefficiency of multiple but non-competing insurance funds
- Need to recognise that most countries that have a universal system for the public provision of health care do not finance that system uniquely from general revenue. Most European countries for example also have a system of social insurance financed by employers and sometimes by employees that also helps to finance health care. If Australia wants to maintain a system of universal health care in 10 or 20 years time it may find that it needs to broaden the tax base or otherwise increase the ratio of taxation relative to GDP (See also Keating, 2004)
To sum up, user charging can make a lot of sense where there are private benefits and people are unlikely to ever have broadly the same access to the service. There are, however, some 'social' services where the external benefits are much higher, especially if one takes the view that common use of these services is integral to maximising social inclusion and cohesion.
Keating, Michael, 2004, 'The Case for Increased Taxation', Occasional Paper 1/2004, Academy of the Social Sciences in Australia. This paper is also available on the Academy's web site.