One of the Conservative Party’s key attacks of the Liberal government concerns Canada’s low GDP growth during the party’s nearly 10 years in power. A recent Statistics Canada report indicates regulations are contributing to the problem.
The report shows that regulatory requirements increased by an average of 2.1 per cent a year between 2006 and 2021, reducing Canada’s cumulative GDP growth by 1.7 per cent over this period.
Peter Copeland, the deputy director of domestic policy at the Macdonald-Laurier Institute, says the challenge with regulatory burden is regulations are often individually necessary but cumulatively problematic.
“Oftentimes, a case can be made for a regulation in an isolated circumstance,” he said. “But collectively, when everybody is turning to a regulatory approach to deal with … a big issue, the aggregate effect is what we see here with this [Statistics Canada] report; death by a thousand regulatory cuts.”
Copeland is one of several sources who say efforts to reduce regulatory burden must be thoughtful to be effective.
‘Lost decade’
Over the period 2014 to 2024, Canada experienced cumulative real per-capita GDP growth of just 1.7 per cent. This placed Canada last in the G7 and second-last in the 38-member OECD, an organization of leading developed economies.
In contrast, the OECD growth average was 13.2 per cent during the period, while the U.S. registered a towering 18.2 per cent. These results have led the National Bank of Canada and other commentators to dub this period Canada’s “lost decade.”
The Statistics Canada report, released in February, points to how red tape contributes to Canada’s GDP problem.
“Regulation is expected to reduce business start-ups as additional costs from regulatory compliance reduce the value of potential entry,” the report says.
“The decline in business entry from regulatory accumulation is expected to further lead to an overall decline in business dynamism, the process of creative destruction and firm exit,” the report says.
Anne Brodeur, a spokesperson for the Competition Bureau, notes that regulations can be especially harmful for small- and medium-sized enterprises, which account for about half of Canadian GDP.
“Administrative and regulatory burdens will tend to weigh more heavily on SMEs than large corporations, for the simple reason that large corporations tend to have more resources to dedicate to regulatory compliance,” said Brodeur, whose agency promotes competition on behalf of consumers.
In 2015, prompted by concerns from Canada’s business community, the Harper government passed the Red Tape Reduction Act. The legislation created a “one-for-one” rule that requires all new “administrative burdens on businesses” to be offset with equal reductions in other administrative burdens on businesses.
However, it is far from clear the act has had its desired effect.
A 2020 review by the Treasury Board of Canada Secretariat found the law did result in a net reduction of regulations. But 87 per cent of the eliminated regulations had no real impact on businesses’ administrative burden.
“There is therefore no direct link between the number of repealed regulations and the control or reduction in administrative burden,” the Treasury Board’s report concluded.
Regulating for competition
Sources emphasized that efforts to boost market dynamism through regulatory reform must be approached carefully.
“It is important to note that competition can be impacted by not only the quantity of regulations, but also the quality of those regulations,” said Brodeur. “Depending on how they are designed, regulations can be pro-competitive, anti-competitive or competitively neutral.”
Robin Shaban, a Toronto-based economist and co-founder of the Canadian Anti-Monopoly Project think tank, agrees.
“It’s not as simple as, ‘Oh, these business regulations prevent other businesses from entering the market, and if we only allow for foreign entry into airlines and telecom, everything would be okay.’ That’s overly simplistic,” said Shaban.
Shaban has previously cited Toronto’s ride-share industry as one example of a market that has been made less competitive by a lack of appropriate regulation.
In Toronto, drivers are only able to acquire a licence to drive for ride-sharing companies by applying through a specific ride-share platform. That licence is then tied to a specific platform, such as Uber or Lyft.
These rules make it challenging for new ride-share platforms to enter the market, Shaban says, because it is difficult for platforms to attract new drivers. The effect is to perpetuate a form of “regulatory moat” around existing players.
“ The Uber example is really interesting because it does highlight the role of businesses in actually shaping regulation to undermine competition,” said Shaban, referring to Uber’s intense efforts to lobby the city over its ride-share regulations.
“You have this interplay between regulation and competition where a lack of competition may beget more harmful regulation that further undermines competition and entrenches dominant players. So there’s a vicious cycle.”
‘Whole-of-government approach’
Copeland says he would like to see Ottawa “regulate for outcomes, rather than prescribing the means to get there.”
In a followup email to Canadian Affairs, Copeland cited several examples of what this could look like.
To enhance occupational health and safety, Copeland proposes allowing workplaces to determine how they will achieve injury reduction targets, rather than forcing them to use a specific type of safety gear or procedures.
Similarly, Copeland suggested that building codes could propose performance-based standards, rather than forcing companies to use specific equipment, materials or designs.
“[Regulating for outcomes] encourages new construction techniques [and] cost-effective materials,” he said.
On banking and financial regulation, Copeland recommended risk-management targets over compliance checklists. For example, regulators could set capital adequacy and liquidity requirements, but allow banks to choose how to manage their risks.
“[This] avoids forcing all financial institutions into the same risk model, which can amplify systemic risk, and allows firms to choose a compliance method best suited to their particular business model and circumstances,” he said.
Brodeur suggests that it could be appropriate for small- and medium-sized businesses to be subject to fewer regulations.
‘[I]t is not always necessary for small players to be subject to the same level of regulatory scrutiny as large players,” she said.
Copeland and Brodeur also supported recent efforts by the federal and provincial governments to liberalize internal trade in response to U.S. tariffs.
“Whether it occurs through regulatory harmonization, mutual recognition, eliminating exceptions in the Canada Free Trade Agreement, or other means, eliminating unnecessary barriers to interprovincial trade will enhance competition and grow the economy,” said Brodeur.
In a recent interview with Canadian Affairs, University of Calgary economist Trevor Tombe noted that, “Internal trade costs are almost entirely due to differences in rules and regulations and standards and certifications and credentials from one province to the next.”
For Tombe, this is reason for optimism, as it makes clear how to boost economic growth.
“You shouldn’t think about [interprovincial barriers] as something fundamental to the Canadian economy, but rather something that is due to the way we write rules differently in one location compared to another,” Tombe said.
“And that makes the challenge of overcoming them hopefully clear.”
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