Government Red Tape Costs Canadians $83 Billion

Each Canadian household stuck with $11,272 in regulatory compliance costs

Release Date: 14 October 1998

VANCOUVER, BC>>>  The cost of all federal, provincial and municipal regulations reached $83.4 billion in 1995-96, according to The Cost of Regulation in Canada (1998 Edition), the latest study by The Fraser Institute. According to the study, these regulatory compliance costs impose a burden of $11, 272 per family of four in Canada. "This dramatic rise in the costs of complying with these regulations is one of the most important, but overlooked, challenges to Canada’s economic competitiveness," said Fazil Mihlar, author of the study.

The number of regulations affecting businesses in Canada has escalated substantially over the past twenty-two years, with over 100,000 federal and provincial regulations passed between 1975 and 1997. The federal government alone passed an average of 1031 regulations per year. These figures suggest that the Canadian economy is being choked by old and new regulations coming from local, provincial and federal levels of government.

In real dollars, the cost of administering regulation at all three levels of government increased from $2.9 billion in 1973-74 to $4.2 billion in 1995-96—an increase of 49 percent. The total compliance cost to the Canadian economy (due to regulation) stood at $83.4 billion in 1995-96. Federal regulations alone cost the Canadian economy $48 billion in 1995-96. "These numbers suggest that the rhetoric of regulatory reform by successive governments at the federal and provincial levels has had limited success," commented Mr. Mihlar.

Over-regulation Partly to Blame for the Decline in Canadians’ Standard of Living

Escalating regulatory costs have contributed to Canada’s slower productivity growth. Research cited in the Institute’s report indicates that 12 to 31 percent of the slowdown in productivity growth can be attributed to regulation. Between 1960-1973, growth in total factor productivity was 2 percent on an annual basis. However, between 1979 and 1996 (a period during which there was a substantial growth of regulation), annual productivity growth was –0.1 percent. These statistics indicate that Canada has experienced a substantial slowdown in productivity growth since the mid-1970s, and this in turn has led to slower real income growth and a lower standard of living for Canadians.

Regulations are ostensibly enacted to protect the public. However, while their intent may be laudable, the government often fails to consider whether a new regulation will meet its stated goal, whether it is the most cost-effective method of protecting the public, or whether it will have unintended side-effects.

In effect, regulation represents a hidden tax. For governments, regulation is a rather painless way of advancing public policy concerns without directly spending tax dollars. The reality, however, is quite different. Since over-regulation increases the cost of doing business, "Canadians end up paying a relatively higher price for everything they consume," said Mr. Mihlar.

Canada will face increasing competition as the world becomes more economically integrated. Hence, government can no longer afford to stifle Canadian enterprises—the engines of economic growth—with costly and ineffective regulations.

If the federal and provincial governments want to increase productivity and improve the living standards of Canadians they must aim to reduce the regulatory burden faced by businesses. In summary, the study makes the following recommendations:

1. Encourage market-driven responses through initiatives such as negotiated compliance and economic incentives;
2. Review, amend or eliminate existing regulations on the recommendation of committees at the federal and provincial levels;
3. Prioritize regulations, and do not treat all risks as having equal magnitude;
4. Study the economic impact of regulations before enacting them;
5. Write regulations that are simple and easy to understand;
6. Provide a ‘sunset clause’ in all regulations for review on a three year cycle;
7. Minimize inter-jurisdictional conflicts.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.

For further information:

Suzanne Walters, Director of Communications,

The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca

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