How to Cut the Regulatory Burden in Canada

Viewpoint proposing to hold the federal government accountable by requiring it to prove that every regulation in place serves a justifiable purpose at minimum cost

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This Viewpoint was prepared by Shal Marriott, Research Associate at the MEI, in collaboration with Renaud Brossard, Vice President, Communications at the MEI, and Krystle Wittevrongel, Director of Research at the MEI. The MEI’s Regulation Series aims to examine the often unintended consequences for individuals and businesses of various laws and rules, in contrast with their stated goals.

The regulatory burden has a negative impact on both businesses and consumers in Canada. The greater the burden, the fewer opportunities there are for businesses to grow and succeed, and for consumers to benefit from improved products and services.(1) According to a recent Statistics Canada study, the number of federal regulatory requirements increased by 37% between 2006 and 2021, which has undermined labour productivity, employment, and competition, and resulted in fewer businesses entering the marketplace.(2)

Although the federal government has stated that reducing regulation was a priority (for instance in its 2018 Fall Economic Statement(3)), it has clearly failed to make it a priority, and businesses have suffered as a result. Hence, while the regulatory burden is commonly acknowledged to have a negative impact on economic growth, and there is ostensibly a will to reduce it, it is much less clear how, or when, the government actually intends to address the issue. The successful 1995 Program Review could provide a roadmap for such an exercise.

Learning from the 1995 Program Review

In the mid-1990s, high federal government spending was a worry in Canada, which led the Chrétien government to conduct a program review.(4) A series of questions was used to determine the spending level for each program, with the aim of making cuts where possible. This approach helped the government find ways to cut spending across almost all federal departments and programs. Spending declined by nearly $12 billion in the first two years, a 9.7% nominal reduction. This led, in 1997-1998, to the first balanced federal budget since 1969-1970, nearly 30 years before.(5)

While the Program Review was focused on spending, a similar questionnaire could be used to assess existing regulations. It could help determine those that are not needed and can be removed, and thereby reduce the regulatory burden in the same way that public expenditures were reduced at the time. Table 1 provides a short list of questions that should be included in such a review.

First, the government must clearly state the purpose of each regulation and define the problem it aims to address. If it cannot provide a rationale explaining the relevance of the intervention—because the problem has faded in importance, for example, or has been resolved—then the regulatory requirement should be eliminated.

Next, the public interest and the benefit which the government expects will result from the regulation must be considered. In particular, regulations favouring only a specific group, at the expense of the general public, should be scrutinized, as they are likely unable to pass this test. If the regulation does not serve the public interest, this is another reason for it to be eliminated.

Third, the federal government must determine whether it is its role to address the issue in the first place. It must consider whether other, lower levels of government (provincial or municipal) are better placed to address the issue, or if there are non-governmental solutions to the problem, including some that may already be underway or planned. If the problem is better left to other bodies or to civil society, then the federal regulation should go.

Next, the economic impact of the regulation must be determined. This includes direct financial costs as well as other economic costs like its effect on the creation of new businesses. If the costs are deemed to be too high, again, the regulatory requirement deserves to be eliminated.

Fifth, the government must consider whether there is any viable federal policy alternative to the regulation that would represent a less costly or less intrusive solution to the problem the government has identified. It must take into consideration not only economic costs, but also the impact on economic liberty and individual rights. If there is a less costly or intrusive solution, it should replace the existing regulation.

Finally, the government must determine if any net benefit results from the regulation, taking into account not just its expected benefits, but also the costs to businesses, consumers, and the economy. This means that even if a regulation serves the public interest, falls within the scope of the federal government’s role, and all the rest, it should still be eliminated if there is no net benefit—which is to say, if the total costs, economic and other, outweigh the benefits.

Conclusion

This proposed questionnaire would be a way of holding the federal government accountable, requiring it to prove that every regulation in place serves a justifiable purpose at minimum cost. By reviewing existing regulations using these questions, negative or redundant requirements can be identified and removed. Future governments should also have to consider these questions before introducing new regulatory requirements.

Given the steady rise of regulations across economic sectors and the observed negative consequences of additional regulatory burden, it is crucial to fully assess how individual regulations impact the economy. The more regulations that can be taken off the books, especially those which are shown to have a significant negative impact, the greater the opportunity for Canadian businesses to thrive. Such house cleaning will also create space for new businesses to enter the marketplace, which will in turn foster a more competitive economy, and thus a higher standard of living for Canadian households.