Thank you, Chair, and the committee for inviting the Canadian Chamber to take part in your study on the impacts of Canada's regulatory structure on small businesses.
Challenges with Canada’s regulatory frameworks have long been a key issue for a large portion of our network of over 200,000 members, which are small companies.
While the myriad government rules and regulations that permeate nearly all business activity in Canada exist for a reason, whether it be maintaining market integrity, environmental safety or consumer protections, they also create a costly and uncertain environment to start or grow a business. This is especially true for small companies that lack the specialized and dedicated compliance resources of larger firms. For a small business owner, every hour spent on administrative and compliance activities has huge opportunity costs. It is one less hour spent on productive work, such as acquiring new customers, improving a product or service, or training their employees.
Last May the Canadian Chamber published a report, “Death by 130,000 Cuts”, which takes its name from the over 130,000 federal requirements that impose an administrative burden on business. In it, we made several recommendations about how the government could improve Canada’s regulatory competitiveness. I believe a copy of that should have been distributed to the members beforehand.
Its message to the government is that in addition to reducing red tape, we need to tackle the root causes of our regulatory problems. The cumulative burden is one symptom of poor regulatory processes. Without changes to how departments and agencies develop regulations, any of the gains that we might see from regulatory and red tape efficiency exercises will continue to be erased.
To reduce the cumulative burden that disproportionately affects small companies, we would like to see the Treasury Board expand the one-for-one rule, so that in addition to administrative requirements resulting from regulations, it also applies to requirements from legislation, departmental guidelines and other policies. Filling in this gap would certainly help control the overall growth in red tape.
The chamber would also recommend that the government amend the current one-for-one rule and establish a temporary two-for-one rule to remove two administrative requirements for every one that is introduced. This is not a radical idea. As we know, B.C. had tremendous success with this approach in the early 2000s, which resulted in a 36% reduction in regulatory requirements between 2001 and 2004. The Government of Manitoba and our neighbours to the south in the U.S. are using their own versions of a two-for-one rule right now.
I understand that this study is also looking at how to support small companies through international regulatory alignment. Removing non-tariff trade barriers is important for small firms, and the chamber has been an active participant in the Canada-U.S. regulatory co-operation council and the nascent discussions around regulatory co-operation through CETA.
However, for most small businesses this is putting the cart way before the horse. We need to find a way to address the tyranny of small regulatory differences that exist between provinces in Canada. They are a serious deterrent for a small company considering expansion within this country, and for many of them Canadian expansion is a precursor to trying to do business internationally.
The new Canadian Free Trade Agreement is a definite improvement on the old agreement on internal trade, but still has its shortcomings, and the regulatory reconciliation mechanism is the most important one. The CFTA promises that there will future negotiation on regulatory alignment when what is needed now is big, bold commitments to mutual recognition.
While we appreciate that many of the decisions regarding these differences are within the purview of the provinces, who all have distinct interests, the federal government holds many carrots and sticks to help advance this work. It cannot be overstated how important legitimate progress on interprovincial trade and regulatory barriers is to addressing the issues being considered in this study.
In our report, we recommended that all regulators be given economic competitiveness and innovation considerations in their mandates. Protection and prosperity are not an either/or proposition, yet many regulators are not achieving a balance between the two in their decision-making, because they are not required to do so.
We were pleased when November’s fall economic statement said the government would explore making regulatory efficiency and economic growth a permanent part of regulator mandates. The chamber would very strongly encourage the House to take up and pass legislation in this regard as soon as possible. For small firms, this could be more important than the existing Treasury Board’s small business lens. If implemented correctly, it would encourage departments and agencies to be more proportionate in their regulatory actions and ensure that growth is an economic outcome that all regulators are working toward.
The fall economic statement also responded to another of our recommendations in stating that the government would establish an external advisory committee on regulatory competitiveness. In addition to ensuring that the committee has sufficient small business representation, we'd recommend building accountability into its structure. This can be done by adopting a comply or explain approach to the committee’s work. This would mean that the government would need to either implement the committee’s recommendations or at the very least publicly explain why it will not.
Last, relevant to this study, we agree with the need to make our regulatory frameworks more nimble. This is especially important for innovative small firms. The traditional command and control, regulate and forget models are not sufficient for today’s rapidly changing markets and technologies. We need more iterative, outcome- and risk-based regulatory approaches.
We are supportive of the commitment to create a centre for regulatory innovation that was in the fall economic statement. Again, implementation will be critical. This initiative cannot be designed by civil servants for civil servants. It needs to be set up with the input of small innovative firms that are currently bumping up against our antiquated regulatory frameworks.
Many of the government programs and pilot projects that are established to support innovative businesses tend to be more focused on minimizing or eliminating risk to departments than on the needs of companies. Think of SR and ED, the build in Canada innovation program and many others this committee is familiar with.
Departments do not do well with risk-based approaches. They layer in all kinds of bureaucracy as a security blanket, which can make these programs inaccessible or more trouble than they are worth for many small companies.
I’ll wrap up here with a final comment. Looking back, there have been many, many whole-of-government and regulator-specific efforts to improve the regulatory environment for small, medium-sized and large companies in Canada. Despite some of their successes, there has been a continued growth in the complexity, inconsistency and unpredictability of Canada’s regulatory environment.
This is a self-imposed barrier to growth and we—government, businesses and all other stakeholders—need to be more bold and ambitious if we want to reverse this trend. Doing so will have tremendous long-term economic benefits for all Canadians.
We want to start by thanking the committee for inviting us to present today. We appreciate the opportunity to share the perspective of small business on the impact of Canada's regulatory structure. Regulation is among the most important issues we hear about from our 110,000 small business members across Canada.
There's much about Canada's regulatory structure that works well. Important government rules are in place to allow for the exchange of goods and services, and to ensure high outcomes in the areas of health, safety and environmental protection. However, we all know that regulation is not free. It takes time and money to comply with government rules, which is why we have to guard against over-regulation, or what we call “red tape”.
Excessive regulation leads to a host of bad consequences, not just for small business but also for society. Some of these consequences include things like reduced incomes, higher prices, less entrepreneurship and fewer jobs, and there are some interesting new studies now connecting excessive regulation with increased income inequality and poverty. Any strategy to support the middle class in this country must have a strong focus on keeping government rules manageable.
How much red tape is there in Canada? Well, small businesses will tell you they think roughly 30% of the regulatory burden can be reduced without undermining the legitimate objectives of regulating. This may be a conservative estimate, if you look at what happened in the province of British Columbia. Ryan mentioned the 36% reduction between 2001 and 2004. Even more impressive, they've continued to make gains since then with their one in, one out policy, and they have currently cut their rules nearly in half—a 49% reduction—relative to 2001 levels. This is probably the most successful model of regulatory reform that exists in North America. They've done that while maintaining high levels of health, safety and environmental protection. I think that's important to say.
Our first point is that we believe there is room to reduce regulatory requirements in Canada. Our advice would be to set a reduction target of 25% to be accomplished in three years. I think this is a very conservative estimate of what can be reduced. As part of meeting this target, it will be critically important to engage and empower regulators to be part of the solution. While the private sector and business associations can help identify things to fix, regulators across the system are also in an excellent position to help with this while preserving important rules. I think that's one of the most important lessons that come from what happened in British Columbia.
This brings us to our second main point about the regulatory structure in Canada: we don't yet have enough accountability. For example, there are no comprehensive measures available on the total number of federal regulatory requirements. Ryan mentioned 130,000, but that doesn't cover all government departments and agencies. It certainly doesn't cover all of the requirements coming even from the departments and agencies that it does apply to. This means that even if we all agreed that the total regulatory burden should, as we recommend, be reduced by 25%, we would have no way of monitoring this. When it comes to other ways government affects our lives, like taxation and spending, we have lots of reporting and accountability. When it comes to regulatory measurement and accountability, we have very, very little.
I'll now turn things over to my colleague, Corinne, who will walk you through some of the data we have from small businesses that supports our recommendations.
I'll refer you to the slides that are in front of you. Slide 3 shows that the smallest businesses actually pay the largest per-employee cost of regulation. From a small business perspective, the cost of regulation is regressive and puts the smallest businesses at the biggest disadvantage because they don't benefit from the economies of scale that larger businesses would.
Slide 4 shows the same data, but now it's compared to U.S. businesses. U.S. businesses have lower per-employee costs for most business sizes. This again underscores our main point that there's probably still room to reduce the regulatory burden. The impacts really go far beyond costs. When asked, small businesses will tell you that the excessive regulations have a significant impact on their productivity, as you can see here.
Perhaps more worrying, as you can see on the slide, is that close to half of business owners report that they would discourage their kids from going into business as a result of the regulatory burden that now exists in this country. Given the demographic trends we're facing, this should not be ignored.
In terms of the types of federal irritants that are of greatest burden to small businesses, this slide here gives you a very high level overview of the top concerns of small business owners. Tax related regulations and paperwork really dominate the top three. Basically, all businesses have to deal with CRA. Also significant for many small businesses, though, is dealing with records of employment—or ROEs—and Statistics Canada.
As far as solutions go, as you can see here, small businesses are really strong supporters of just about anything the government might try to do to reduce red tape. We recommend all of the things you see listed here, some of which have already been addressed to some degree or have started to be addressed. We'd be happy to discuss any of these points further.
For example, Canada was the first country in the world to pass one-for-one legislation, and it did this with all-party support. Canada is actually now seen as a world leader in this particular area, and we think that still more can be done. For example, as Ryan also pointed out, the one-for-one legislation should be expanded to include more than just regulations, to other types of requirements found in legislation and policies and guidelines.
Furthermore, we recognize that the government recently announced some new regulatory modernization initiatives as part of the fall economic statement, including establishing an external advisory committee, which is also listed here as one of the things our members think is important. All of these are a very good start and are only the beginning. Small businesses really need governments to continue to do more.
As you can see here, what small businesses are looking for is for governments to simplify, reduce and clearly communicate regulations to help them better comply. They also want to see improvements in government customer service, which can include things like providing examples of what constitutes compliance. For these types of initiatives, it isn't always just about the regulations; it's often about how those regulations are communicated and what it is that businesses need to do in order to comply.
This is a list of comments from business owners on what they would do if they had more time and were spending less time on red tape. This actually came from a poll we did just two weeks ago during our annual red tape awareness week, and we hope some of these ideas will inspire you to continue paying attention to this important policy area.
Finally, I will leave this slide up as these are our main recommendations, which Laura went through at the beginning. We'd like to thank you for your attention, and we look forward to your questions.
Corinne may give you some more specific examples, but I want to make a different point with respect to this.
One of the challenges and reasons that I think regulatory reform initiatives fail often—and history is littered with failure, not just here but in many developed countries—is that it's very tempting to say, “Give me your list of top 10 irritants.” Don't get me wrong; I think that's an important part of the solution, and we can give you a list of a hundred irritants to address. However, the challenge for groups like ours is that we'll come forward with those irritants, and we have hard-working, dedicated people who get to work to solve those particular problems, and in the meantime, across the rest of the system, new rules continue to pile up. In fact, I ran into someone from a big business at the airport who was saying exactly the same thing as we're saying on this. I think we really need to change the architecture so that identifying those irritants is actually a winning formula for businesses to say, “Yes, we see that there is reduction”, and that requires a reduction target. The two-for-one strategy is a very good approach, followed by a one-for-one strategy. We need that in place, and then at the same time, when we identify these irritants, we'll actually make some progress and you'll see the heads nodding on our side of the table that, yes, the load is getting lighter.
First, just quickly, to echo what Laura said, think of the specific problematic regulatory measure as the symptom. It's good to treat the symptom. It's good to manage the symptom. But if you don't tackle the underlying problem, there are just going to be other symptoms to deal with in the future.
For many businesses, especially small companies, it's hard to calculate the costs—the opportunity costs. What does it cost me to spend three, four, five or six hours a week on these particular measures? I'm doing different things at the other time. These aren't large companies that can perhaps bring in an auditing firm or some other consultant to break down exactly what the cost is for them.
To your question on engaging earlier in, I think there's also some work that needs to be done around rebuilding business confidence in some of those cost-benefit analyses that happen at the front end. Too often, there's a proposal from a department, and they have a very strong idea of what they would like to do. The cost benefit seems to be built around how to justify that decision rather than trying to get honest accounting between business and other stakeholders as to what the actual cost will be, whether it's worth it, and whether the underlying assumptions around the social and other long-term benefits are worth it. One, it's difficult to calculate what those costs are, but two, there needs to be a closer relationship on the front end to actually determine what the real costs are, not just those that maybe come from some folks who haven't had experience in the industry themselves.
Anyway, thank you all for being here today. I'd like to focus on regulatory red tape from the perspective of proportionality as well as opportunity costs.
Before we go there, I'd like to ask Mr. Greer first of all about the national carbon tax that the federal Liberal government has imposed upon many provinces and territories.
I remember that Bill , the implementation act for it, was about 300 pages long, and that was just the legislation, not the regulation, saying this is who you charge tax to and who you don't charge tax to. You can't charge a farmer for purple gas, but you can charge a farmer for regular gas, and on and on it goes. Whether we're talking about flying between Ontario and a territory such as Nunavut, you would have it, but in British Columbia, obviously they don't charge a carbon tax on jet fuel.
Would you please explain what impacts that would have on many of your members, particularly the small ones that proportionately have a heavier compliance burden and and where this is the most challenging?
To set aside carbon pricing for one moment, the chamber has long advocated, and will be advocating this year, for comprehensive tax reform. Our current tax system is so incredibly complex, it is a large driver of what is causing problems for businesses of all size, including small ones.
On carbon pricing, the chamber has been on the record since 2011 in favour of carbon pricing as an effective way to reduce emissions, but the promise was always that there would be regulatory reductions associated with that. One of the things we've been watching in trying to understand where the carbon pricing debate is going is whether we, small business members particularly, see a reduction in regulatory requirements that would offset what some of those costs might be.
Right now, we're not seeing that. We're seeing carbon pricing, plus a clean fuel standard, plus a new methane regulation. It's sort of a pricing plus regulation, as opposed to pricing minus regulation. In the view of our members, the benefit of a tax is that it would be more efficient than those other regulatory approaches.
However, right now we're sort of getting the worst of both worlds, so any driver of costs for our members this year and going forward will be a challenge for them.
Could I ask you to go back to your slide 7, please?
On the questions about regulations, in this I see two types of issues. One that I think Mr. Greer talked about is the challenge that we're in a rapidly changing environment, so regulations constantly have to be updated. If we have a self-driving car, well, we just don't have the regulations for that. So we can complain if the government makes new regulations, but by gosh, it has to do it because those just don't exist.
When I look at this—and I want to have your comments on this—I tease out two things. On the number one issue, which is payroll taxes, there is no innovation there. Payroll taxes 10 years ago, five years ago or today are exactly the same.
If we say that we're in a rapidly changing environment, that's not impacting the concerns of the top ones, which are all CRA—payroll taxes, GST, income tax and any record of employment. There is no innovation going on there. But then if I drop down to sectors, I notice the first sector is environment, which has tremendous innovation going on, and then transport and agriculture.
I'd like to hear your thoughts. As I see this, there are two issues about regulations. One is just the burden, which is not changing—it's static—and one is a very dynamic environment.
How do you see that, Mr. Greer, and then we'll move on?
The Golden Scissors Award is something we started a number of years ago to recognize good work in the area of cutting red tape. It's not politically all that glamorous to cut red tape, which is one of the reasons we don't always see a lot of action in this area, so a number of years ago we thought that it's one thing to point out the problems—of course, we're good at that, and we like to do that, too—but that we also needed to start rewarding people who are doing good work.
That's really what the golden scissors is about. We're pleased with a number of elements of the regulatory modernization work that's going on, including one of the recommendations that I think everyone here is making, which is to set up an external advisory committee. That's something we've been wanting to see, as well as some of the other structural pieces that are happening under regulatory modernization, including the omnibus bill. We're very pleased with that as part of the solution, but we also believe that more needs to be done in this space.
Canada is a bit of a leader. We're really at the beginning of the beginning of the work that we need to do, but many developed countries aren't even at the beginning of the beginning. Canada has been a leader, and I think we should all be really proud, too, of the non-partisan nature of a lot of this work, the passing of the one-for-one requirement with all-party support, and committees like this looking at the issue. When I go down and talk about this in the United States, that is certainly something they are really envious of, and the Golden Scissors Award is part of that.
Our members haven't seen much. A big problem with the CFTA, compared with a traditional international trade agreement, is that the CFTA is not an end state. An international trade agreement spells out what the agreement is, whereas the CFTA is a sort of promise of new processes and new ways to help reduce the burden.
We're a little less concerned about the exemptions. They're there; they're public. We have the ability and other stakeholders have the ability to question governments and ask why a particular exemption is there and push them to try to get rid of them.
For us, it's actually all the small regulatory differences that aren't talked about in the agreement, which are supposed to be negotiated through the Regulatory Reconciliation and Cooperation Table. That table is staffed by mid-level and senior-level officials from all governments, who have a great amount of good will, but there are all kinds of loopholes built into that exact process. This was the only way, I guess, that they could reach an agreement, but there was nothing to mandate regulatory alignment when it was being negotiated. There's nothing that mandates, to go to the example of autonomous vehicles, that new areas of regulation should be aligned. Governments can thus decide at any time that it's not in their interests to do so. The level of justification needed from any jurisdiction to say that they don't want to align is just that they believe it not to be desirable for their jurisdiction. That's a pretty low threshold: “desirable” is whatever the minister or the premier thinks it may be at a given time.
In our mind, in many ways the regulatory reconciliation table has the opportunity to be the linchpin to the deal. It can be like the old agreement on internal trade, which was negotiating a slow incremental process that isn't meeting anybody's needs, or it can be an opportunity for there to be a great deal of political will between the and the premiers and senior-level officials to drive for regulatory alignment.
In our mind, the best way to do this is to commit to mutual recognition. This is what Australia did in the early 1990s when Canada decided to go the route of the AIT. There's no reason that in most areas of regulation the provinces can't say, we will agree to recognize the other standards as if they were our own. after you've done that, you can then take on the long work of trying to actually harmonize some of those standards.
There are very few instances in this country in which a regulatory standard in one province would not be sufficient in another. I recognize that a trucking standard to get through the mountains in Alberta might be different from trucking standards in Saskatchewan, and there will always be legitimate health and safety reasons to have differences. The current high degree of small differences across almost every area of regulation, however, is unnecessary.
As currently constructed, we're not confident that the CFTA is going to make sufficient progress on those differences.
Bill was the Red Tape Reduction Act in the last parliament. Obviously, I strongly supported that bill.
There is a difference, though, between what Mr. Masse was referring to, in terms of regulations, and administrative compliance. The way the Red Tape Reduction Act works, at least at the federal level, is that it actually will find out how much time and energy....
For example, if it takes x amount of time by a professional to submit paperwork, it monetizes it, rather than using a straight-up one-for one substitution, whereby we would say, “Here's one new piece of paper on the books; we need to take one piece of paper out.”
Ms. Jones, can you explain whether there's a difference between British Columbia's system and the federal system, and also the American system? I'd like to hear what your views are and which one is the most desirable and effective. I imagine that two-for-one sounds better than one-for-one, but if it's simply a case that we'll shrink the font size and say we've reduced the red tape provisions, I don't think it's what business owners are looking for.
You're absolutely right that what you measure matters. Let me give you a very high-level overview.
The American one-for-one is super-narrow. Literally, less than 1% of the regulations—actually, government rules come from many other sources—are technically eligible for it, so the American one-for-one is not a recipe to follow. I know it gets a lot of attention, but it's not a recipe to follow.
The Canadian one-for-one is significantly better than the American one-for-one, but is still in our view too narrow and needs to be expanded.
B.C.'s one-for-one is the broadest one-for-one you have, because they literally look at regulatory requirements, so that such things as having to put your name on a piece of paper counts as one; if you have to have a safety committee, that counts as one. It's any kind of regulatory requirements. It's quite comprehensive and quite broad. If you want to go to something even broader than that, look at Manitoba.
Great. Thanks. I'll be sharing my time with Mr. Sheehan, as well.
Thanks for your testimony. It's good to see the CFIB and Canadian Chamber of Commerce working on the same issue and to see a lot of commonality between the two organizations. Sometimes that isn't the case, as I know from having worked in the network as much I have. It's good to see you working together on this.
I'm really interested in the process piece. The examples you've just given us seem like examples that would be very good in a report going back to the CRA asking for tombstone data. For me, the worst part of running a business was the paperwork. The worst part of being an MP is the paperwork. I don't like paperwork, and I'm not good at paperwork. That's probably why I don't like it.
To make it simple for business to implement ideas like that, maybe we should have a testing ground because we don't want to do something that's going to make things worse. Is having some kind of a sandbox, or some kind of a test group to run new ideas past, something that your organizations have advocated for or considered, be a good idea?
First, I think and Treasury Board deserve a tremendous amount of credit for what was in the fall economic statement and their work to get that in there. Now it all comes down to implementation. These are promises, and now we'll see how these are fulfilled. We think some of these could be real game changers.
I mentioned in my remarks that I think the biggest one is giving economic growth and competitiveness mandates to all regulators. Every day our members are contending with regulators who, no matter what evidence or cost they're presented with by companies or members, will say, “Our job isn't to do that. Our job is only focused on this.” They're not trying to achieve both that protection and prosperity in their mandate. If that commitment is implemented in a way that actually adjusts proportionality, adjusts some of the ways that regulators think, and helps all regulators endeavour to promote economic growth, then that could be the biggest game changer.
That was inspired by us asking for that. The department's thinking was that the U.K. implemented something similar—a growth duty—for the same reasons that we were asking for this: that too many regulators were not being proportionate and were not considering the business impacts in their activity.
The flip side of that is if a lot of departments and regulators see it as a symbolic commitment. If it's legislated and they say they already do a cost-benefit analysis that determines why they take a certain approach, and that this won't change the way they do business, then we may not get much out of it. We think that's big, along with the CFIB's talking about a business-facing group that can propose simplifications.
I mentioned in my remarks that implementation here is key. The Danish Business Authority uses the “comply or explain” principle, which we really like. Too often governments will commission expert reports or committee reports, and then they cherry-pick the things that most closely align with their existing priorities. “Comply or explain” means either you do it, or you tell us publicly why you won't. We like that. We think those are two of the biggest....
I know was particularly fond of an annual modernization bill. That can be useful. Again, it depends on what processes feed into that, how that will interact with the one-for-one, whether departments will be incentivized to hold back regulations from that so they can account for their one-for-one, or how they will be reconciled. There are enough measures in there that could be real difference makers, if implemented correctly. For us now, it's about seeing how Treasury Board and regulators themselves will implement those commitments.
It's a foundation that they've built their digital government on. You're not allowed to double-ask.
Mr. Greer, I think you'd made another point about the concept of prosperity not being in the mandate. For example—and I've shared this with my colleagues here—look at the regulation of drugs. Canada, the United States, and Europe have in their mandates that they have to make sure that their populations are safe, but they also have to get innovative medicines through. They have that in Europe. They have the word “innovation” again in the FDA for food and drugs in the United States. When you come to Canada, it's just, “Keep us safe.” When you go there and say, “Hey, I have a way to be more prosperous, more innovative”, they say, “Well, good for you.”
Would it be a good idea to write that into the mandate? We talk about true action to change the regulators' actual mandates.
It's funny, because to prepare for this.... CFIB has a counselling service and counsellors across the country respond to inquiries from our members. We do about 36,000 calls a year, and inquiries regarding the CRA account for probably one in every four of those calls. I had my colleague put together a list of specific examples, which I have here. CRA accounts for probably two-thirds of the list.
It isn't about one or two small things. Many different areas need to be looked at. When it comes to CRA, it can start with things as simple as better customer service, plain language on the website and clarity around what constitutes compliance.
Yes, we could also potentially simplify and reduce the rules, but with the CRA, it's often about communication. It's about business owners being more able to get the answers they need. It's up to them. They'll call CRA. They may be on hold for a while, although the CRA has just improved its system there. They get an answer, but there's no guarantee it's the right answer. They apply that. They're still in trouble. It's these kinds of things. It's really about simple, plain language.
Our members send us letters that they get from CRA, and we cannot understand what they're telling the business owner to do. Plain language, easier communication, the ability to go to them beyond just a phone call—if CRA advanced in those areas, it would probably reduce some of their burden by 25% or 30%.