Executive Summary

The Canadian economy is being choked by old and new regulations coming from local, provincial, and federal governments. The rise in the number of regulations is dramatic; the cost of complying with them is one of the most important, but overlooked, challenges to Canada’s economic competitiveness.

Over the 22-year period between 1975 and 1997, over 100,000 new federal and provincial regulations were passed. This is an average of 4,075 new regulations every year.¹ The federal government alone is responsible for over one-quarter of these new regulations.

As the number of regulations continues to expand, so do the costs of designing and administering them. Real expenditures incurred by provincial governments in designing and administering regulations increased from $826.4 million in 1973-74 to $1.7 billion in 1995-96, an increase of 106 percent. Federal government expenditures during the same period increased from $2 billion to $2.5 billion, an increase of 26 percent.

What does this mean for Canadian consumers? Every time a government agency attempts to safeguard the environment, foster occupational health and safety, or promote product safety through additional regulations, this imposes higher costs on firms. These additional costs affect the prices Canadians pay for the goods and services they consume. In 1973-74, regulations cost each Canadian household $10,282. By 1995-96, the yearly hidden tax of regulation had increased by almost 10 percent to $11,277.

The total compliance cost to the private sector (business and consumers) went from $58 billion in 1973-74 to $83.4 billion in 1995-96.² These figures indicate that the rhetoric of regulatory reform by successive federal and provincial governments has met with limited success to date.

In fact, studies suggest that escalating regulatory costs are responsible for between 12 and 31 percent of the substantial slow down in productivity and real income growth in the US and other OECD countries since the mid-1970s. In Canada, between 1960 and 1973, growth in productivity was 2 percent on an annual basis. However, between 1979 and 1996 (the period in which there was a substantial growth in regulation) annual productivity growth was –0.1 percent. Since productivity growth represents an increase in wealth creation without the corresponding use of additional resources, a slow down translates into lower levels of wealth creation and a lower standard of living than we would otherwise have achieved.

Government regulations are ostensibly intended to protect the public. While the intent of the proponents of more regulation may be laudable, the burden associated with increasing regulatory costs also leads to slower productivity growth, reduced competitiveness, and higher prices for consumers. Policy makers too often fail to question whether a new regulation is needed, will meet its goal, and is the most cost-effective method of protecting the public, or whether it will have unintended side-effects. Past experience suggests that policy makers either overlook or do not explore other ways to achieve the same results, ways that may cause fewer job losses and have a less adverse affect on economic growth.

As the world becomes more economically integrated, and as more countries move towards market economies, Canadian firms will face increasing competition. Canadian governments can no longer afford to stifle Canadian enterprises—the engines of economic growth—with costly regulations. If they continue to do so, they will harm the very people they are trying to protect: the Canadian public.

In light of the overwhelming evidence of the unreasonable regulatory burden imposed by government on business and consumers, this study suggests some proposals for reforming the federal and provincial regulatory process:

• encourage market-driven responses, i.e., negotiated compliance and economic incentives;
• review, amend, and/or eliminate existing regulations as recommended by committees at the provincial and federal levels;
• prioritize regulations using comparative risk assessment:
• study the economic impact of regulations;
• write regulations that are simple and easy to understand;
• provide a sunset clause in all regulations on a three year cycle; and
• minimize inter-jurisdictional conflicts.