The federal government’s growing regulatory burden on businesses is holding Canada back and must be urgently reviewed, argues a new publication from the Montreal Economic Institute (MEI).“Regulation creep is a real thing, and Ottawa has been fuelling it for decades,” says Krystle Wittevrongel, director of research at the MEI and coauthor of the Viewpoint. “Regulations are passed but rarely reviewed, making it burdensome to run a business, or even too costly to get started.”Between 2006 and 2021, the number of federal regulatory requirements in Canada rose by 37%, from 234,200 to 320,900. This is estimated to have reduced real GDP growth by 1.7 percentage points, employment growth by 1.3 percentage points, and labour productivity by 0.4 percentage points, according to recent Statistics Canada data.Small businesses are disproportionately impacted by the proliferation of new regulations.In 2024, firms with fewer than five employees pay over $10,200 per employee in regulatory and red tape compliance costs, compared to roughly $1,400 per employee for businesses with 100 or more employees, according to data from the Canadian Federation of Independent Business. .Overall, Canadian businesses spend 768 million hours a year on compliance, which is equivalent to almost 394,000 full-time jobs. The costs to the economy in 2024 alone were over $51.5 billion.It is hardly surprising in this context that entrepreneurship in Canada is on the decline. In the year 2000, 3 out of every 1,000 Canadians started a business. By 2022, that rate had fallen to just 1.3, representing a nearly 57% drop since 2000.The impact of regulation in particular is real: had Ottawa maintained the number of regulations at 2006 levels, Canada would have seen about 10% more business start-ups in 2021, according to Statistics Canada.The MEI researcher proposes a practical way to reevaluate the necessity of these regulations, applying a model based on the Chrétien government’s 1995 Program Review.In the 1990s, the federal government launched a review process aimed at reducing federal spending. Over the course of two years, it successfully eliminated $12 billion in federal spending, a reduction of 9.7%, and restored fiscal balance.A similar approach applied to regulations could help identify rules that are outdated, duplicative, or unjustified..The publication outlines six key questions to evaluate existing or proposed regulations:What is the purpose of the regulation?Does it serve the public interest?What is the role of the federal government and is its intervention necessary?What is the expected economic cost of the regulation?Is there a less costly or intrusive way to solve the problem the regulation seeks to address?Is there a net benefit?According to OECD projections, Canada is expected to experience the lowest GDP per capita growth among advanced economies through 2060.“Canada has just lived through a decade marked by weak growth, stagnant wages, and declining prosperity,” says Wittevrongel. “If policymakers are serious about reversing this trend, they must start by asking whether existing regulations are doing more harm than good.”The MEI is an independent public policy think tank with offices in Montreal, Ottawa, and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
