CFIB’s Dan Kelly: The cost of following thousands of regulations is a ‘hidden tax.’Tim Fraser/The Globe and Mail
This piece is one of a series of high-profile Canadians commenting on the Canadian Chamber of Commerce's Top 10 reasons Canadian competitiveness is dropping.
Talk to just about any small-business owner in this country, says Dan Kelly, president and CEO of the Canadian Federation of Independent Business, and you're bound to hear some griping about the number of hours they spend complying with rules and regulations laid down by federal, provincial and municipal governments, along with thousands of departments, agencies and authorities.
For decades, members of the CFIB, which represents 109,000 small-business owners nationwide, have named red tape as their No. 2 challenge, right behind the total tax burden.
To shed light on the problem, the CFIB holds Red Tape Awareness Week each January, which culminates with the Golden Scissors Award, bestowed on someone who has demonstrated "leadership and courage" in cutting red tape (this year's winner was Gail Shea, the federal Minister of National Revenue).
We talked to Mr. Kelly about the impact of excessive rules and regulations on Canada's productivity.
Tell me about the red-tape problem we have in this country.
Governments have two major powers: They have the power to spend and tax, and they have the power to pass laws, rules and regulations. We have pretty good measures when it comes to spending and taxing. But when it comes to red tape, there are virtually no measures to outline how significant an impact rules and regulations have on entrepreneurs. For 41 years, we've asked our members about the top issues affecting them when it comes to government. The total tax burden has historically been No. 1. But No. 2 has been regulation and paperwork, and that has been the case for forever. It is a significant holdback on business.
Who gets hit the worst?
It is smaller businesses that get hit the worst, and that's not a surprise. If you're a big company, the regulatory burden is spread across thousands of employees. If you're a small business with five employees, you may have the same regulatory burden as the larger firm, but you, as a business owner, are implementing the rules yourself, and you're spreading the burden over five employees.
So the cost of regulation is much, much more significant – in fact, it's five times more significant for the smallest firms. The burden of regulation and red tape costs the economy $31-billion per year in Canada. And that's a conservative estimate. I should say that no business in Canada is suggesting that there be no regulation. But there are tons and tons of things that are duplicative. We get that governments need to regulate and, on an ongoing basis, pass new rules and regulations. But there are tens of thousands of civil service and policy shops dreaming up new ways of regulating business, and virtually no competing forces saying this rule isn't necessary – let's scrap this one.
When you say it's costing us $31-billion in economic terms, how is that?
It's the business owners' time to implement the regulations, consultants that they have to pay, or staff they have to hire to complete the government forms or paperwork. We call it a hidden tax.
If they didn't have to spend all that time and money dealing with red tape, where would we be?
We would have a significantly more robust and productive business community.
A business owner might spend more time talking about opening a second location or a new bid they're going to make on a contract in Europe, as opposed to poring over their HST remittances at their kitchen table at two in the morning in their underwear. It's a sap on time for entrepreneurs, because every minute they're spending on regulatory excess is a minute they're not spending on growing or improving their business, hiring the right staff person, serving a customer.
Is there one red-tape tale that really sticks in your mind?
We've got loads. One is from the days when I was vice-president of Western Canada for CFIB, based in Calgary. It was a high-end men's clothing store, and they used to give their customers a cup of coffee while they browsed for a suit. The regional health authority came in and told them they had to send all their employees to a training program to ensure they knew the safest way to handle the coffee and mugs. They had to install an industrial dishwasher for $5,000 to clean the mugs. And they were required to pay an annual fee to show that the business and the employees had passed food services certification.
There was also a video store, back when those things existed, that served popcorn to customers. And the only portable piece of equipment was the scoop that was used to serve the popcorn. Again, they had to install an industrial dishwasher to wash the scoop, even though the business owner went to the restaurant next door and got a signed letter saying that they would be permitted to wash their scoop in the restaurant's industrial dishwasher every day. That wasn't good enough for the health authority. It's stuff like that that drives businesses crazy.
Who's showing some leadership in terms of cutting red tape?
There's quite a bit happening on the federal government's part. On the challenge of regulatory creep – when new regulations come into effect but old ones never go away – the federal government has passed a one-for-one policy. So for every new regulation, the department or agency has to find one to scrap. And that really does help. We're trying to effect a cultural change within the civil service, so that they're not just regulation makers, but regulation managers. B.C. has really been the leader on this front. A decade or so ago, they put into place a two-for-one ratio – so they had to scrap two regulations for every new one that came into being. Now, just in terms of clarifying the size and scope of the problem, when Gordon Campbell became Premier of B.C. in 2001, the Liberals became the first government in Canada to actually count the number of regulatory requirements they had. Guess how many they came up with, for the B.C. government alone?
How many?
Three hundred and seventy-five thousand. The line I use is that if a business owner could understand and fully implement 375 regulatory requirements, I'd be really impressed. I'd say bravo. But they don't have 375 requirements to implement. They have a good chunk of 375,000.
B.C. has reduced that by 40 per cent, and they've kept to a one-to-one ratio ever since, so it hasn't been allowed to creep back up to the bad old days.
The Ontario government has done some really intense deep dives in certain sectors.
One of the governments we've been most disappointed with is Alberta. They've done a lot of good things on the fiscal side, but not so much on the regulatory side.
It really is a tough one to get at because regulatory reform is about as unsexy as it gets. There aren't a lot of ribbons to cut.
But small business owners are such a huge constituency, you'd think there would be more interest in solving the problem.
There is, but it happens in fits and starts. You'll get a government or particular politician excited about the issue, and they'll launch a big task force and they'll invite the business community to name the problematic regulations. And the task force – all earnest, hard-working people – may work for six months or a year on six regulations and, with big fanfare, decide to scrap or change those six. But in the meantime, 600 new regulations have come up.
What needs to happen?
We need better regulation-making processes, and we need to actually legislate them. We need to regulate the regulators. So policies like a one-for-one rule can really help. Counting regulations is a huge step, tracking them over time, and putting in place a target for reduction. We're winning more battles than we're losing, but it is a sustained and often very tedious exercise.
We're starting to see it at the international level, with Canada and the U.S. negotiating efforts to harmonize the rules and regulations between Canada and the U.S. But one of the areas where not much has happened at all is interprovincial regulatory differences. If you're taking hay across the B.C.-Alberta border, the hay needs to be stacked differently on the truck depending on what side of the border you're on. I think that one has been fixed, but that's a real example.
Are there any nations that should be a model for Canada?
There's been some good work in the U.K. on this front. When they're passing a regulation, they have to think about how it applies to a small business first, as opposed to the largest operations. They also put in place sunset clauses, so regulations expire after a certain amount of time, forcing the government to keep them fresh. They also put a policy in place where all new rules and regulations come into effect at the same time. One of the challenges our members have is that, with 50 different agencies and departments, there's a new regulation every week. The U.K. policy means that all regulations go into effect on, say, July 1, and therefore entrepreneurs can pay attention on July 1 to see what's new.
They all seem like simple changes.
It doesn't have to be rocket science to fix these things, but what it needs is sustained interest and some ground rules. It's surprisingly tough.
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