Special to the Financial Post, Canada’s Red Tape Report with U.S. comparisons, by Laura Jones
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 that 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 who deal with it on a daily basis. It includes rules that are unfair, overly costly, poorly designed or contradictory. Red tape also includes unnecessary delays and poor government customer service—everything from unhelpful government agents to obtuse language on government forms. It is regulation run amok.
Every business owner has a story. Some are garden variety like a rude letter from the Canada Revenue Agency about the bill you have already paid. Some directly threaten the viability of a business like the government advice that led to a $93,000 tax bill for a small fabric store owner.
The Canadian Federation of Independent Business (CFIB) started an annual Red Tape Awareness WeekTM four years ago to raise awareness about the impact of red tape and to encourage governments to take action. This year we kick off the week by releasing groundbreaking research, made possible with the support of KPMG Enterprise, comparing regulatory costs in Canada and the U.S.
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 over 100 employees, pay more per-employee than their American counterparts. For the majority of business, the gap is significant. Businesses with fewer than five employees in Canada pay forty-five per cent more per employee in Canada ($5,942) to comply with regulation than their U.S. counterparts ($4,084). In total, Canada’s businesses pay $31 billion a year to comply with regulation.
How much of these regulatory costs are red tape? Businesses owners in both countries report that about one-third of the cost of regulation could be reduced without affecting the legitimate health and safety objectives of regulation. In other words, eliminating red tape would be the equivalent of a $9 billion annual stimulus package in Canada—significant, particularly at a time when the ability to use fiscal stimulus is constrained by budget deficits and debt.
More evidence that reducing red tape should be a priority: about one-third of Canadian business owners and one-quarter of U.S. business owners report they may not have gone into business at all had they known the burden of regulatory compliance. Sixty-eight per cent of businesses in Canada and fifty-seven per cent of businesses in the U.S. agree that 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 per cent of Canadian small business owners and 65 per cent of U.S. owners.
We need to think differently or red tape will continue to be a drag on entrepreneurship affecting all citizens negatively by raising prices, limiting choices and reducing job opportunities—something we can’t afford at the best of economic times, let alone today.
There is some hope for beleaguered Canadian 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. The Commission, led by Minister of State for Small Business and Tourism Maxime Bernier, produced an ambitious list of recommendations to change the culture in Ottawa and introduce more regulatory accountability. President of Treasury Board Tony Clement recently announced 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 Action Plan.
The Canadian government has never taken the issue so seriously. But there is a lot of work to do before business owners start noticing a difference. As part of Red Tape Awareness Week, CFIB is encouraging all Canadians to lend support and encourage a Red Tape Revolution by signing an online petition at www.cfib.ca/redtape. The petition will be used to encourage politicians from all levels of government 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.
Laura Jones is Executive-Vice President of the Canadian Federation of Independent Business and lead author of The Canadian Red Tape Report with U.S. comparisons. She can be reached at email@example.com.