Car parks and economics
In Malta we recently had the car parks issue, whereby the Government issued a tender that would eventually have allocated public land used for the parking of cars to be run on commercial principles. Up to now, these areas have been managed by attendants who have no right to ask car owners for money but still make sure that they do pay them something. Eventually, the initiative was shelved, even if the political debate carried on. Irrespective of the political aspects, this issue raised two very important elements of public policy.
One element is, should the Government apply the ability to pay principle or should the Government apply the beneficial principle. The ability to pay principle is based on the concept that persons with higher incomes pay more taxes and government services should be provided free of charge as taxation would be paying for these services. The beneficial principle is based on the concept that persons who benefit from a good or service provided by the Government should be made to pay for them. These are the two extremes and what normally happens is that in most cases, we have a hybrid.
For example, in the case of water and electricity charges, the beneficial principle is applied; in that persons are charged according to their use of these services. On the other hand, at a certain point, the ability to pay principle is applied as families with lower incomes have access to what is referred to as the energy benefit.
To add further spice to the issue, one needs to note that with the current price of fuel, what we pay for a unit of electricity does not even cover the cost of the fuel. Therefore the taxes we pay have to make up for the shortfall. This means that the beneficial principle is not applied fully even with those families that pay for their water and electricity.
In the car parks story, this would have meant the application of the beneficial principle – I am using a car park and as such should pay for the service. If I do not use the car park because I walk or cycle to wherever I have to go, or I use public transport, or am willing to take up space that does not entail a payment, then I do not pay. This would mean that the taxes that one pays would not be used to maintain such car parks and would be diverted to meet other needs. Obviously, those that have a car and need to use such public land, do not like this as they would have to start paying for a service that they previously had for free.
In establishing public policy, it is difficult to draw a line where to stop applying the ability to pay principle and to start applying the beneficial principle. This is even more so in a country like ours, where many have got accustomed to getting services for free as someone else is paying for them through taxation. We have also had a history of cross subsidisation of services, whereby no one really knew what we were paying for and what was being subsidised. Thus, we are talking of a cultural issue as well.
The second element of public policy that is raised by the car parks issue is whether we should apply the principle of equity or whether we should apply the principle of efficiency. The principle of efficiency is based on the concept that the Government allocates resources to maximise the output of public goods and services with the minimum use of resources. The principle of equity is based on the concept that the Government allocates resources on the basis of its social policies, which may not necessarily be the most economically efficient manner.
If parking zones were run for profit, then we would be applying the principle of efficiency. However, this may inhibit a person with a lower income from owning a car and therefore may run against the principle of equity. Again, in most cases, we tend to have a hybrid approach as we seek to balance the economic requirements with the social requirements. On the other hand, is it equitable that a person with a higher income has free access to parking zones like a person with a lower income? The same question may be made on the provision of health and education services.
One immediately recognises that there are no easy answers to these questions, as any answer will reflect value judgements, one’s views of what ought to be. Even though there are no easy answers, we still need to start addressing objectively the economic principles on which public policies should be based and apply to them the social dimension that reflects the type of society we want to live in.