Canada: Pricing Policies Cost Recovery
According to the Government of Canada - Treasury Board, Cost Recovery and Charging Policy, the first step to establishing a price is to determine the full cost of providing the service. The second step is to identify "where direct benefits accrue to specific individuals or organizations" then, for that part of the service, the appropriate fee to be charged is determined. "When there is a mix of public and private benefits, fees should be lower than full cost." However, the fee may also be influenced by the public policy rationale underlying an activity. More specifically, public policy considerations may increase a fee to compensate for incremental social costs associated with an activity. Fees should be:
- "…cost-based for goods, regulatory and optional services, information products and use of public facilities."
The policy recognizes that "…there is a continuum between purely ’public’ and purely ’private’ goods…” While it is difficult to be precise in quantifying the two elements, reasonable approximations can be based on such criteria as:
- the extent to which individuals can be excluded from a good or service for which they have not paid;
- the extent to which charging will influence demand for a good or service;
- the extent to which a mandatory service confers direct benefits with respect to marketability, reduced liability through the mitigation of risks that would otherwise be created, or a leveling of the ’playing field’;
- the relative importance of policy objectives associated with the activity (e.g., when the objective of a program is income redistribution, it makes no sense to charge beneficiaries in accordance with the benefits they receive. However, when a program is in place to regulate an activity because of the increased social costs which arise from it, there is a good case to charge the costs of that program to those creating the additional costs).
Service pricing should also consider the impact fees will have on factors such as competitiveness, and product development. This influence will be examined during the business impact analysis of the proposed fee structure.
Government of Canada Treasury Board Policy - Treasury Board of Canada, Guide to the Costing of Outputs in the Government of Canada, February 1989 (with minor editorial amendments made in 1994 to bring references up to date).