Red tape is regulation run amok
The Canadian economy remains “stubbornly fragile,” to borrow Finance Minister Jim Flaherty’s description. A lot of the fragility is beyond our control — aftershocks from irresponsible lending, spending and borrowing around the world. But there is one barrier to economic growth all Canadian governments should take action against: red tape.
Called a “silent killer of jobs” by Prime Minister Stephen Harper, red tape is a huge hidden tax on all Canadians, felt most acutely by small business owners.
It includes rules that are unfair, overly costly, poorly designed or contradictory. Red tape also includes unnecessary delays and poor government customer service.
Every business owner has a story: Some are garden variety such as a rude letter from the Canada Revenue Agency about the bill you already paid, some directly threaten the viability of a business like government advice that led to a $93,000 tax bill for the owner of a small fabric store.
This year, the Canadian Federation of Independent Business kicks off the fourth annual Red Tape Awareness Week by releasing groundbreaking research, made possible with the support of KPMG Enterprise, comparing regulatory costs in Canada and the United States.
In both countries, regulation is a highly regressive hidden tax with the smallest businesses paying the highest per-employee costs. Canadian businesses of every size, except those with more than 100 employees, pay more per-employee than their U.S. counterparts.
For the majority of business, that gap is significant. Businesses with fewer than five employees pay 45% more per employee in Canada ($5,942) to comply with regulation than do their U.S. counterparts ($4,084). In total, Canada’s businesses pay $31-billion a year to comply with regulation.
Business owners in both countries report about onethird of the cost of regulation could be reduced without affecting the legitimate health and safety objectives. In other words, eliminating red tape would be the equivalent of a $9-billion annual stimulus package in Canada.
More evidence that reducing red tape should be a priority: About one-third of Canadian business owners and one-quarter of U.S. busi- ness owners report they may not have gone into business at all had they known the burden of regulatory compliance; 68% of businesses in Canada and 57% in the U.S. agree red tape is having a significant impact on productivity. It is discouraging a significant number of entrepreneurs in both countries from growing their businesses. Red tape’s non-monetary costs are also far from trivial. Excessive regulations add significant stress to 81% of Canadian small business owners and 65% of U.S. owners.
We need to think differently or red tape will continue to be a drag on entrepreneurship affecting all citizens by raising prices, limiting choices and reducing job opportunities.
There is some hope for beleaguered business owners. Canada’s federal government had the good instincts several years ago to identify reducing red tape as a priority. During CFIB’s 2011 Red Tape Awareness Week, Prime Minister Harper announced a Red Tape Reduction Commission. Led by Minister of State for Small Business and Tourism Maxime Bernier, the commission produced an ambitious list of recommendations to change the culture in Ottawa and introduce more regulatory accountability. President of Treasury Board Tony Clement recently said the government would be accepting most of the commission’s recommendations as part of a Red Tape Reduction Action Plan.
Examples of the changes include the one-for-one rule, where for every new regulation introduced, a regulation must be removed; new requirements for departments to set and report on customer service standards; plans to measure and report the total regulatory burden; and an external review of how well the government is doing at implementing the plan.
CFIB is encouraging all Canadians to lend support and encourage a Red Tape Revolution by signing an online petition at cfib.ca/ redtape. The petition will be used to encourage politicians to commit to red tape reduction, or deliver on commitments that have already been made. It’s time to take a stand against the silent killer of jobs that threatens all Canadians.