In the case the financing of a public institution is not related to the amount of financial resources collected as user charges and is made from the budget depending on the number of persons requesting a service, such an institution may have an interest in the understatement of charges in order to increase the number of requests. In this case, there arises an opportunity to request more funds for financing of such an institution justified by considerable volume of its activities. Besides, the influence of the persons heading the institution may be determined not only by its budget, but by the scale of the institution’s activities as well. Thus, in the case the price and the number of persons requesting a service are understated, the leadership of the institution may request an increase in the regular staff. While the personnel directly rendering services may receive relatively small salaries, an increase in their number may result in a more complex structure of the institution and an increase in the number of senior officers, their status and salaries. The reason behind the understatement of charges may be related not only to the deliberate wish to increase the scope of activities, but to the lack of interest in the revision of charges in accordance with the changes in the costs of services in relation to the growth in prices.
However, the considerations discussed above do not mean that budget revenues of the institution directly generated by collection of charges are the necessary condition of its efficiency; on the contrary, this circumstance may result in an overstatement of the amounts of charges. The important aspect is that the conceptual basis of the amount of charges would be taken into consideration, as well as that in the course of the future analysis of the issue of the amounts of production and financing of services there would be taken into account the amounts of funds accumulated via collection of charges.
It is also important to note that user charges associated with services rendered by the public sector usually are not set with the purpose to redistribute incomes or encouragement of certain groups of the population to use such services. There are more efficient mechanisms, such as progressive or proportional taxation of incomes or property, as well as targeted transfers to those in need, which may be applied for the realization of the redistribution function. Therefore, as a rule, the payment should be the same for all consumers of the same service. In reality, the setting of a differentiated payment for services, which citizens consume very seldom, may rather be a demonstration of care for certain groups of population than a real care. However, in this case the correct consideration of the amount of the value of services rendered and the costs associated with the rendering of such services. If half of the persons requesting the service receive it on preferential terms, an increase in the respective costs of the other half is inevitable, even in the case the price they have to pay is set at the level of marginal costs. These costs may be expressed in a longer waiting time or an increase in financing provided from the budget and, therefore, underfinancing of other public goods or higher taxes.
The principles discussed above are rather justified and are widely implemented around the world.
However, there may be three exceptions from these rules.
First, setting a user charge it is necessary to decide if the introduction of a payment of a certain service is feasible. For instance, in many countries the charges for such public goods as elementary education or access to certain loans are negligible or absent. Such provision of public goods without charges from users may be feasible in the cases where the current costs are relatively small in comparison to the fixed costs, where the state wishes to encourage the use of certain services, or where the state sets forth the mandatory for all users procedure of the use of a service (for instance, the issuance of the domestic passport).
Second, the payment for a service may be below the respective costs in the cases, where in the situation of effective price formation the payment for a service may become prohibitively high for certain groups of the population, while the use of such a service is considered important by a number of reasons. For instance, the initiation of an action at law may be too expensive for persons with low incomes. At the same time, the protection of citizens’ interests in courts is guaranteed by the constitution; besides, in the case the potential offender is aware that the potential victim of the crime has access to the court protection, the expected benefit of the offence diminishes and the offence may be not committed at all. In such situations, it is permissible to allow a somewhat discriminatory price formation. However, it should be noted that the discriminatory price formation should be based on the characteristics of an individual pertaining to the paying capacity, and not on the potential amount of the final transaction or the direct benefit the individual receives as a result of such a transaction. However, in the cases where the amount of transaction is a good indicator of the value of this service or costs associated with its provision, it is permissible to differentiate the amount of user charges, but in such cases the basis of the difference should be not the different value of the service for users, but the different amounts of costs associated with the provision of the service.
Finally, the payment may be dispensed with in the case the economic costs associated with the payment thereof, including the administrative costs of its collection and control, are significant in comparison with the planned amount of the user charge. For instance, it has no economic sense to spend Rub. 100 in order to collect a user charge amounting to Rub. 10. At the same time, the following considerations should be taken into account. First, the costs associated with the payment of a user charge are often underestimated. Thus, sometimes it is stated that there may be collected very small amounts since the transfer of charges via the savings bank is free for the payer. However, even in the case a bank or all banks do not charge such transfers, there remain some costs. First of all, such costs are passed to the bank, and in the course of appraisal of the costs associated with the bank’s operations the cost of similar banking services related to transfer of other payments should be taken into account as lost profit. At the same time, either the bank receives certain benefits in exchange to the consent to grant the right of free transfer of charges, what is inevitably related to some costs borne by the public, or the bank has to transfer the payments free of charge, and in this case this obligation is of compulsory nature. In any case, either the budget of the shareholders of the bank suffer losses. Besides, in comparison with a situation where the said payment is not imposed, there increases the number of persons using this banking service and therefore those requesting the service should wait for a longer time. The time spent in this way, although it is difficult to measure, should be also taken into account in the course of the analysis of the costs associated with the transfer of funds free of charge. However, it does not exhaust the list of losses: the documents required to certify the payment of a charge or a fee should be checked at the institution rendering the respective services, the documents should be properly filed, and the payment should be entered in a special book. All this requires time of both the staff of the institution, and visitors waiting for the reception. The measurement of administrative costs borne by the institution should include not only the salaries received by the staff directly servicing the recipients, but the expenditures associated with the staff’s social insurance and respective benefits.
The reception of the persons requesting a service does not take all the working time of the staff, they also have other responsibilities associated with the rendering of the respective services. It should be also taken into account that as the amount of responsibilities increases, there arises the necessity to employ more personnel, equip a larger number of working places, take more spacious premises, and increase the number of senior officers and expenditures associated with their remuneration and provision. By the way, the said administrative costs include not only the costs associated with the collection of a charge: they arise in the course of rendering of a service as well and, therefore, the amount of Rub. 10 to 20 is not a realistic appraisal of the real costs. In reality, even at the current level of remuneration of labor the costs associated with the rendering of a service can not be below Rub. 50 to 60 in the case the rendering thereof takes at least 5 minutes of the working time of an official. However, even at the so low level of costs it would be feasible either to raise the charge to a reasonable level, or dispense with thereof at all. It should be noted that in the case the negligible payment for the service is not imposed, it would not result in a considerable increase in the number of persons requesting such a service, since the potential consumer thereof will bear other costs alongside with the payment of the charge.
The issue of the amount of legal expenses is especially difficult, and there are arguments for different solutions of this problem. However, even in this case it is possible to find a feasible solution answering the general principles. Thus, for instance in the majority of cases it would be unfeasible to impose either too high or too low charge for bringing of a legal action.
First, since the court proceedings are not the only way to resolve a conflict, the imposition of too high or too low legal expenses, with the exception of special cases, might be not in the public interests.
In the case the expected benefit of the court proceedings is too insignificant for the potential plaintiff, in many cases it would be unfeasible that the costs associated with the legal proceedings reflected the costs borne by other citizens in relation with the court proceedings. The expected benefit may be also too low due to a small amount of the claim or low probability of a positive ruling concerning the claim. It would help to avoid the use of an expensive court system by certain citizens in order to persecute their enemies or lodging of claims for considerable amounts in the cases where even the plaintiffs themselves do not believe in the satisfaction of such claims and the fairness of such claims is doubtful.
Even in the case the respective legal expenses per se are insignificant, the very fact of legal proceedings is associated with expenditures for both the court system and the defendant. At the same time, it should be stressed that since the expected benefit depends not only on the amount of the claim, but also on the probability of its satisfaction, there is no necessity to differentiate charges depending on the amount of the claim, even in the case the purpose is to obtain a payment corresponding to the estimate of the benefit. However, there may be stated another argument in favor of a certain differentiation in relation to costs. Although the direct costs borne by the court system in relation with the registration of claims or initiation of court proceedings do not depend on the amount of the claim, the costs of the defendant associated with the respective efforts, collection of information, costs in terms of time and so on may increase in the case the claim against the defendant is considerable. Since such costs are not compensated by the losing party, a certain increase in the charges for claims for large amounts of money as the taking into account of such expenses; however, even in the framework of such an approach there should be imposed a certain not too high ceiling of charges.
Second, there is possible an alternative solution of the problem of accessibility of the services provided by the court system for poor citizens. Thus, for instance it is possible to grant such citizens a deferment of payment of legal expenses. In the case they are sure to win their cases, they could lodge claims in spite of a shortage of money for the payment of expenses.
Third, the introduction of the institution of judges of peace may help not only to solve the problem of the load on other courts, but to solve the problem of the accessibility of the court protection. In this sense, it may be feasible to impose zero or low charges for turning to such courts.
Finally, as it has been mentioned above, the use of stamp taxes for the solution of redistribution problems is unfeasible, both since the effect of such redistribution is insignificant, and because the costs of redistribution are relatively high: in order to determine if a person has the right for privileges, it is necessary to find the required documents, file them and probably separately register and monitor different groups of persons, etc.
In this sense, the role of different privileges with regard to the payment of stamp taxes granted to persons having deserts to the state and the society. Such persons should be remunerated; however, it remains unclear why this remuneration should be in the form of free services, for the rendering of which others should pay taxes. It may be assumed that the large number of various privileges is an original compensation for the absence or a really significant remuneration, but this compensation is clearly insufficient and does not result in a really significant gain fro such persons, what in fact is an illusion of the state care for such persons. However, at the same time such privileges destroy the allocation efficiency of the system.
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