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ARCHIVED - Recommendations Report - Cutting Red Tape…Freeing Business to Grow

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4. Weighing Today's Red Tape Burden

Although many businesses share our vision of the future, they are preoccupied with the challenges of the present. We previously set out the magnitude of the federal government's red tape issue in our “What Was Heard” Report. The key facts and findings bear repeating.

4.1 A Vast Array of Regulations—At a Cost

Almost 70 departments and agencies have regulatory authorities under law, but most of the activity is centred in roughly a dozen departments. The Government of Canada has regulatory authority in about 14 areas, from the banking sector to inter-provincial trucking. There are currently some 2,600 federal regulations, which require the involvement of 13,000 federal employees to manage. In 2007, the government began work that, ultimately, identified approximately 400,000 paper requirements and information obligations under existing regulations and programs. Over the next two years, the government reduced that inventory by 20 per cent.

People in business and their associations point out that for many firms, particularly small firms, the burden of complying with these requirements can be very significant. A 2008 study by Statistics Canada looked specifically at five sectors of the economy. It reported that the cost to comply with the information obligations of 12 of the most common federal, provincial and municipal regulations in those sectors alone worked out to $1.1 billion per year, with tax-related information obligations accounting for 71 per cent of those costs. It also found that small businesses generate more than 17 million regulatory submissions annually. In 2008, the Canada Revenue Agency calculated that the average annual time spent per establishment to comply with legislative tax requirements was 15 hours at an average annual cost of $1,724, which was a modest decline from the average in 2005. In 2010, the Canadian Federation of Independent Business estimated a $30.5-billion cost to businesses, every year, for total regulatory compliance with requirements coming from all three levels of government.

Specific attention must be paid to small business, i.e., to firms that have fewer than 100 employees and less than $5 million in revenues. They make up the vast majority of Canadian businesses. They account for almost half of all private sector employment and many of the new jobs created in the private sector. Moreover, they are disproportionately affected by regulatory requirements.

Results of the Statistics Canada survey previously mentioned showed an inverse relationship between administrative burden and number of employees. Businesses that had 1 to 4 employees, for example, spent four times as much per employee on compliance as businesses that had 20 to 99 employees and nine times as much as businesses that had 100 to 499 employees.

Numbers tell only part of the story, for small business in particular. We heard that regulations are put in place without sufficient recognition of the needs of businesses or the impacts on them. Business owners told us that regulators do not understand what entrepreneurs have to do to succeed and are actually making it harder for them to do so. They said they are drowning in administrative paper and pointless, frustrating busy work. Regulations are often seen as inflexible and lacking in common sense. For a variety of reasons, support and assistance from regulatory personnel is inadequate to meet the needs of businesses. Established standards are not always present, and when they are, they not always met. Contributors reported that, often, regulators do not listen to them—not when designing regulations, nor when implementing or enforcing them. As an online contributor pointed out, “Small business is the backbone of this country, and yet we treat them like they are too small to worry about.”

Contributors also argued that many of their problems relate to regulators' apparent inability, often, to act in concert rather than in isolation—both within the same department or agency and across organizations. They feel that the regulatory system lacks sufficient predictability, often making it difficult for them to undertake business planning with reasonable certainty. They cited, as an example, a lack of transparency when seeking the status of applications or requesting direction.

Taken together, these frustrations and related costs are an obstacle to success. Getting and keeping the right people is more difficult than necessary. Overhead costs are too high. The playing field is uneven, with a competitive advantage given to others. Research and development is curtailed, as is innovation. New markets are more difficult to reach. The bottom line is fewer economic benefits for Canada.

Worst of all, this is not a new problem. Indeed, when we look at past efforts such as the 2003–04 work of the External Advisory Committee on Smart Regulation, we see businesses describing the same issues and the same concerns. Given that reality, it is not surprising that one of our contributors stated quite bluntly, “I appreciate that the Commission is trying to make positive changes but, quite frankly, I am not holding out much hope.”

This brief summary reveals the real nature of the challenge. For all the progress made to date in reducing red tape, the federal regulatory system is complex, and it is difficult to change the management of regulatory programs. If we are to tackle these enduring problems, we must get to the root of the matter.

4.2 Getting at Root Causes

Two apparent problems drive the reality of federal government red tape.

First, in an important sense, regulatory programs need to be managed better; specifically, they need to be managed in a way that sees reducing the cost of compliance and improving the quality of service delivery as core responsibilities for managers—ones for which they should be held to account. Our focus here is not solely the “flow” of new regulations, of which there are approximately 250 each year, either new or amended. What also concerns us is the hundreds of thousands of specific requirements on business that stem from the “stock” of existing regulations—the demands associated with the 2,600 regulations that have been in effect for many years.

Second, regulatory programs need to be designed better, and more scrutiny needs to be applied in the approval process. Regulators should carry the burden of demonstrating that regulations are required and, if so, have been designed in such a way as to minimize the compliance costs for businesses while continuing to ensure the health, safety and security of Canadians, as well as the protection of the environment.

Red tape often comes into the picture, we believe, because regulators, working in dynamic environments and faced with issues that are often complex and challenging, feel that they must always err on the side of caution. As a result, they frequently manage their regulatory programs by adding more compliance requirements, more demands for paperwork, and more inspections and audits than might be fully warranted. We heard, repeatedly, that risk aversion was a key problem and that using “one-size-fits-all” requirements, where all risks are assumed to be the same, is a poor approach. There is an element of risk in everything we do, from crossing the street to running a business. It has to be recognized, accepted and dealt with. “Make it so that people will have [fewer] questions to ask,” one business owner told us. “Don't get involved with things that are not necessary. We...should have the ability to find answers ourselves, and we would if the government didn't spend [so] much time asking us questions.”

4.3 Building on Work to Date

The work of our Commission is part of a larger agenda being implemented by the government. The government made a commitment to reducing red tape in the 2011 Speech from the Throne and undertook specific actions in Budget 2011, including the following:

  • Tasking regulators with examining the effects of their regulations through a small business lens to ensure that regulatory requirements do not have unintended impacts on small businesses and are administered as fairly and efficiently as possible;
  • Posting consultations on regulations on the Consulting with Canadians Web portal; and
  • Directing the Canada Revenue Agency to provide written answers to tax questions that it receives online at My Business Account.

The government also took a number of other important, specific steps to reduce red tape, including the following:

  • The Government of Canada's decision to introduce legislation to end the Canadian Wheat Board's monopoly on marketing wheat and barley in order to reduce administrative burden and improve the competitiveness of western farmers in selling wheat and barley on the open market and to attract investment, encourage innovation and create value-added jobs;
  • Human Resources and Skills Development Canada's efforts to integrate and simplify services to employers through its Employer Contact Centre in order to improve interaction with businesses and to achieve measurable improvements in service delivery and a reduction in associated red tape;
  • Transport Canada's efforts to clarify and, where possible, eliminate onerous requirements for the registration of small vessels by developing and introducing the necessary legislative, regulatory and related program changes to allow simplified registration processes for human-powered and small vessels, along with a corresponding elimination of associated red tape;
  • Passport Canada's initiative to increase the length of passport validity by introducing a 10-year passport by Spring 2013, in order to reduce the administrative burden associated with the frequency of application requirements and the associated paperwork to obtain or renew a passport;
  • Transport Canada's efforts to simplify the regulatory framework and better harmonize with international standards by proceeding with the planned modernization of its Aviation Security Regulations and related program components through consolidation of requirements, elimination of overlap and duplication, and use of performance-based regulations where appropriate;
  • Foreign Affairs and International Trade Canada's initiative to cease requiring Tariff Preference Level permits when importing textiles, thereby eliminating custom duties on imported yarn and fabric by January 2015 and increasing the rate of compliance among importers while reducing the burden placed on them; and
  • The government's establishment and support, under the auspices of Industry Canada, of the Expert Panel for the Review of Federal Support to Research and Development, which released its report on October 17, 2011. We would support any consideration that the government might give to opportunities for reducing red tape as it reviews the Panel's advice.

In addition, the government established the Canada–US Regulatory Cooperation Council, announced on February 4, 2011, by Prime Minister Stephen Harper and President Barak Obama. The work of this Council will contribute to reducing regulatory burden and unnecessary costs on Canadian businesses. As Canada and the United States have become increasingly integrated economically, both countries have developed highly effective and successful—but independent—regulatory regimes in key industry sectors. Efforts will be undertaken to align standards, and where each domestic regulatory regime already provides a high level of confidence that the outcome is being achieved, opportunities will be sought to remove duplicative procedures, thereby reducing requirements on businesses trading across borders. The Regulatory Cooperation Council has developed a Joint Action Plan that identifies specific initiatives that will be undertaken. The Council will encourage regulators to develop mechanisms that not only address the current issue, but will also create a regulatory cooperation model that can provide ongoing alignment and be applied to a broader set of issues.