How to reduce the regulatory burden

Ottawa recently expressed its intention to eliminate outdated regulatory requirements. While this is a welcome admission that the Canadian regulatory burden is weighing down our competitiveness compared with the United States, it would be even better to have a concrete plan to effectively reduce it.

Even when regulation does serve a seemingly reasonable purpose—as it usually does—it has a substantial negative impact on job creation and wage growth. Moreover, nearly all regulation is a barrier to entry for entrepreneurs launching businesses, who play a crucial role in lowering the price of goods and services and raising standards of living for all.

Canada imposes plenty of regulatory requirements on businesses. Federal regulations administered by Health Canada account for 15,875 of these requirements. Those administered by the Canadian Revenue Agency add another 1,808. At Finance Canada, the count is 4,519. In total, according to data compiled by the federal government, there were 136,121 such requirements imposed on businesses. And that doesn’t even include provincial requirements.

Another way to measure the regulatory burden is to look at the regulations on the books, and count how many restrictive words they include, like “shall,” “must,” “may not,” “required,” and “prohibited.” There are close to 72,000 of these expressions in federal regulations.

Ottawa’s attempts to reduce the burden

Ottawa has tried to limit the growth of the regulatory burden, but with only mitigated success.

Before a new regulation is approved, the cost of the expenses entailed by it must be evaluated, which includes buying new material, training employees, administrative costs, etc. These results are then used in applying the federal government’s One-for-One Rule, which states that regulators have two years to offset the new costs.

In theory, the regulatory burden defined in this narrow way, at least, should remain relatively stable in Canada. Has it?

From 2012 to 2018, there were 131 individual regulations eliminated by Ottawa. The net effect was to decrease the administrative burden by $30.6-million. There were, however, 76 new regulations added during this time, which were exempted from One-for-One Rule considerations, and whose costs were not calculated.

While it is reasonable that some regulations should be exempted from such administrative burden accounting and constraints—for emergency reasons, for instance—they nevertheless do add to the regulatory burden. And despite the fact that there are fewer regulations, these impose more requirements on businesses: their number increased from 129,860 to 136,121 between 2014 and 2017. In other words, we’re no further along.

Canadian successes

Ottawa should take some inspiration from recent Canadian success stories. A great example is the reduction of the regulatory burden in British Columbia after 2001, which one of us took part in. The provincial Liberal Party had been elected on a platform promising a 33 per cent reduction in the regulatory burden.

After three years, it had exceeded its target and eliminated 37 per cent of this burden. Political will was a central element of this success. Gordon Campbell, the premier at the time, and one of us, Kevin Falcon, then the cabinet minister responsible for deregulation, made sure all ministers were held accountable, through a process that could be described as cabinet peer pressure.

A similar method was also employed with great success in Ottawa by the Jean Chrétien government, with Paul Martin as its finance minister, to reduce the Canadian deficit through its program review, which was launched in 1994.

While this episode concerns public finances, this example of political leadership likewise involved a strong political commitment and personal involvement from the top executive of the government and one of his key ministers. This effort has been widely recognized at the international level as one of the great Canadian fiscal success stories.

Ottawa already has a method of account for the regulatory burden. The only thing that’s missing for Ottawa to really reduce the burden is a firm commitment to a clear reduction target, and the political leadership to make deregulation a key objective and hold all of the cabinet accountable.

Mathieu Bédard is Economist at the Montreal Economic Institute, Kevin Falcon is a Senior Fellow at the MEI. They are the authors of “How to Successfully Reduce the Regulatory Burden” and the views reflected in this op-ed are their own.

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