Increased Regulations Have Reduced Growth, Employment: StatCan

The Confederation Building on Parliament Hill is reflected in the windows of the Bank of Canada, in Ottawa on May 6, 2024. The Canadian Press/Sean Kilpatrick

Canada’s growing regulatory burden has contributed to slower economic growth, lower employment, and reduced business investment, according to a new study from Statistics Canada.

From 2006 to 2021, the number of regulatory provisions in Canada’s federal legislation increased by 2.1 percent per year, resulting in a total rise of about 37 percent over that period, StatCan said in the report released Feb. 10. The report indicated that most of the regulatory requirements (95.2 percent in 2019) were imposed on industries, while a smaller share (4.8 percent in the same year) was placed on departments and other government organizations responsible for administering those requirements.

The rise in regulatory burden led to a 1.7 percentage point decline in Canada’s GDP growth during that period, StatCan said, adding that employment growth dropped by 1.3 percentage points in the business sector and labor productivity fell by an estimated 0.4 percentage points.

Regulatory accumulation also reduces business dynamism, which the report refers to as the rate at which businesses enter and exit their industries. StatCan said that if the total number of regulatory requirements had remained at the 2006 level, the entry rate for new businesses would have been about 10 percent higher in 2021, meaning more new businesses would have started in 2021. Meanwhile, the exit rate would have been about 5 percent higher, meaning more businesses might have exited in 2021.

The study also indicated that regulatory accumulation during the 2006-to-2021 period reduced overall business investment and affected small firms more than large firms.

“If the total number of regulatory requirements had remained at the 2006 level, business sector investment would have been 9.0% higher in 2021. This negative effect is bigger for small firms than for large firms,” StatCan said.

These findings are part of the national statistical agency’s “Regulatory Accumulation, Business Dynamism and Economic Growth in Canada” report. The report said that while a single regulation may seem beneficial—such as a pro-competitive regulation and a reduction in entry barriers—its cumulative effect with other regulations can negatively impact economic growth.

“Despite their good intent, regulations and their accumulation over time impose real costs to businesses and may have a negative impact on economic growth and competitiveness,” StatCan said.

Unlike previous studies focusing on specific regulations, in this report StatCan used a measure developed by KPMG in collaboration with Transport Canada to assess the impact of regulatory accumulation. It counts the number of regulatory provisions over time, including restrictions, prohibitions, permissions, administrative reporting, and enforcement costs, to measure the overall regulatory burden on industries.

In 2015, the federal government established the Red Tape Reduction Act, which requires federal departments and agencies to manage the growth of administrative burdens on businesses when creating regulations. The act builds on Ottawa’s One-for-One Rule that came into effect in 2012, which mandates that for every new or amended regulation increasing the administrative burden on businesses, the cost must be offset by an equal amount of administrative burden cost.

The rule also requires that an existing regulation be repealed each time a new regulation is enacted that imposes new administrative burden on businesses.