By Laura Jones
Published in the Financial Post January 24, 2017
Decluttering is a common New Year’s resolution. Over the year, as we accumulate more than we get rid of, our closets begin to overflow and we have a hard time finding the things we need. Keeping the closets tidy makes our daily lives more efficient. In fact, businesses and governments can benefit from the same thinking. There is a straightforward way of ensuring the growing pile of government rules that small businesses must comply with doesn’t continue to proliferate unchecked.
To kick off its annual Red Tape Awareness Week, the Canadian Federation of Independent Businesses is challenging governments across the country to commit to getting rid of one government rule for every new one that comes into force. Several governments in Canada — provincial and federal — have already become models for this kind of action by putting regulatory caps in place.
Canada recently became the first country in the world to make it the law that for every new regulation added at least one must be eliminated (that is, an equivalent burden must be removed). Since the cap has been in place, the cost of federal regulation has decreased by $24 million. While this is a relatively small reduction, consider what it means — regulators are identifying more costs to eliminate than to add, a radical culture shift.
The federal approach was borrowed from British Columbia, which went further than capping. It followed a reduce-and-cap model. It first set a target to reduce its rules by one-third and subsequently set a target to maintain. B.C.’s successful regulatory closet-cleaning has led to an impressive 47 per cent reduction in regulatory requirements since 2001, with no evidence that it has had any adverse affects on legitimate regulatory goals.
In the U.S., the state of Kentucky was so impressed with B.C.’s reform model that the governor is following it as closely as possible, with several other states, including Virginia and Illinois, keen to learn more about B.C.’s policy and Canada’s new law.
Of course, regulatory caps are not a panacea. They don’t, for example, solve common red tape frustrations such as voice-mail jail, bureaucratese and long wait times. They can also be designed with carve-outs that make them less effective than they could be. The federal cap, for example, does not apply to Canada Revenue Agency rules. It should.
While not a cure-all, regulatory caps have advantages that make them worth championing over traditional reforms, which can involve trying to fix some rules while allowing others to proliferate, or instituting new internal committees to regulate the regulators. These old-fashioned approaches may slow the speed at which rules accumulate but have proven ineffective at stopping regulatory growth.
A one-for-one cap not only stops the growth of the number of rules to which it applies (which should be as broad as possible), it changes the mindset of the regulator from regulation maker to regulation manager by forcing a constant re-evaluation of existing rules. It also puts the question of whether a new rule is necessary front and centre rather than making it an afterthought.
The experience in B.C. suggests most governments have room to reduce and cap. Further supporting this, according to surveys done by the CFIB, most small business owners say a one-third reduction in the rules is possible without harming the legitimate reasons for having regulation in the first place.
How important is it that governments get serious about stopping the accumulation of government rules? A basement floor estimate puts the costs of regulation to Canadian businesses at $37 billion a year. Reducing these costs by one-third would free up $12 billion a year for investments in equipment and innovation that allows for wage increases and economic growth. Another sobering number: four in 10 business owners now say that, given the current burden of regulation, they would not advise their children to start a business in Canada. The overflowing closet has become a serious drag on innovation and productivity and a threat to entrepreneurship.
Fortunately, many provinces are now taking steps to clear the clutter. Quebec has a target to reduce the cost of its rules by 10 per cent between 2016 and 2018. Nova Scotia has a new policy of requiring the cost of any new regulation be offset by a reduction of the cost of an existing regulation. Saskatchewan is committed to reducing red tape by 25 per cent by 2020, and Manitoba may be following soon with its own ambitious plan.
No province, however, has taken the important step of making a one-in-one-out regulatory cap the law. It’s not enough to clean the closet once. The real challenge is to keep it clean.
Laura Jones is executive vice-president of the Canadian Federation of Independent Business. She can be reached at [email protected] or @CFIBideas.
This story was originally published in the Financial Post.