THU JAN.18,1996 PG: B13
 Why user fees beat taxes
ONE of the reasons the French showed such support for the recent national strike by state employees, we are told, is in protest at having to pay out of pocket for public services they had been accustomed to receiving for free, or at a heavily subsidized price - a tradition known as public service a la Francaise. As one account had it, the French "regard efforts to change this as a turn toward what they call an 'Anglo-Saxon society.' "

On the surface, this seems odd. It isn't as if they hadn't been paying for these services before; they were just paying in a different way, through taxes. It's possible that this seeming preference for higher taxes may represent the distinctive tastes of "Franco-Gaulish society," although it's equally possible the French really had thought until now, as people do the world over, that public services were free.

Something of the same debate is now being played out in Ontario. What use is the Tory government's promised income tax cut, critics ask, if it is replaced by a score of user fees? "You're going to give me a tax rebate and put more money into my pocket," a union leader told the government earlier this month, "and then charge my sons and daughter and myself to go to a hospital or charge user fees in case I have a fire in my house. Keep the money and keep my services." Well, no, they're not actually going to charge user fees for hospitals or firefighting, but the point remains.

But why confine ourselves to the traditional public services? Why should we have to pay for anything? Look around you. Most of the goods and services you use carry a price tag on them, or, in other words, a "user fee." Prices, far from a strange and threatening Tory invention, are the norm in our economy. Yet whenever it is suggested that a price be charged for something previously given away, the first reaction of many people is to object. Pressed, they usually mumble something about "access." Charging road tolls, for example, is said to limit "access" to driving, in a way that, say, tariffs on imported cars do not. But all they really mean is that it would be a departure from the status quo.

Any decent society should want to ensure that everyone, rich or poor, can afford to buy the essentials. But for most things, such as food, we have wisely chosen to increase the purchasing power of the poor directly, by transferring income, rather than by subsidizing or suppressing prices. Suppose we had taken the other route. What would have happened had we never charged for, say, bread - that daily stuff of life? We would be lining up to buy bread, that's what, in the same lineups that form wherever and whenever the price mechanism has been suppressed.

Left unpriced, there would be no reason for consumers to ration their use of bread; no means of signalling how much bread was demanded where; no incentive for producers to match supply to demand in a timely fashion, or to anticipate new demands for different kinds and qualities of bread. The functions we take for granted under the price system - ration, signal, incentive - would have to be performed in some other, clumsier way. Or, more likely, they would not be performed at all.

And we would never be able to change it. Once the regime of free bread was in place, it would become a sacred trust, part of the social contract, the thing that made us different from the Americans. To suggest that bread should be priced would be to propose a form of user fee. It would limit access.

Financing the provision of goods and services through taxes rather than prices amounts to providing benefits in kind, rather than in cash. The only way to avail yourself of these benefits is, in effect, by shopping at the state store. By contrast, charging prices and transferring income directly - subsidizing people rather than services - leave choices about which services to consume in the hands of beneficiaries. That's good for them, and it's good for society: one of the themes of this week's report of the task force on the Greater Toronto Area, for example, is the harm done to the city - sprawl, congestion, or other - by the failure to charge users the full cost of municipal services.

User fees, then, make sense on their own terms. But if they do make possible lower income taxes, so much the better. When you raise the price of a thing, people tend to demand less and supply more of it. When you reduce it, they demand more and supply less. A tax on income is equivalent to a reduction in the price paid to suppliers of labour or capital. Paying for services through income taxes, then, that might have been paid for through prices encourages people to consume more and work less. Sooner or later, even the French will learn this is no way to run a railroad.