There is a need to consider the extent to which reductions and stagnation in social expenditure can directly harm the poor and, more important, whether policy reform can correct the inequities in the allocation of government social expenditure. For example, the UNDP Human Development Report, 1991 estimates that social expenditure need 25 to 30 percent of the total development allocations to maintain a proper balance between economic and social progress. Many developing countries still fall short of this level. This is particularly serious in countries that have a legacy of neglect in the social sector. Experience also shows that, as with most other subsidies, health and education subsidies are rationed, so that a large number of potential users do not have access to them. Moreover a disproportionate share of the rationed social service subsidies tends to be allocated to urban areas and better-off households. The few budget surveys that are available show that the poor are often served by charities and privately run institutions, be it the Catholic-run health posts as in Senegal or the traditional village healers. Government-run programmes are either absent or often of such low quality as to discourage utilization.
In many cases, moving to a system of cost recovery is likely to have advantages for the poor. Such a system affords the opportunity for increasing revenues and thus enabling governments to expand services and improve their quality. Since the major barrier to the poor's use of public services is usually not the monetary cost but rather unavailability and inaccessibility, user fees might release funds to finance expenditure, for example on immunization and AIDs control, externalities that would probably be of special benefit to the poor. A caveat is that the poorest of the poor, if faced with user charges, will not seek help until the ailment is far advanced.
Brazil has created a special fund for its programmes in health, nutrition and education and for the support of small-scale farmers, financed by 0.5% surtax on sales and a 5 percent surcharge on corporate income tax. Pakistan levied a 5 percent surcharge on its imports to finance high priority projects in education.