AccountabilityManagement
April 16, 2012

How to cut regulatory red tape

In recent months, the attention of Canadians has been focused on the March 29 federal budget and its implications for various stakeholder groups. However, the federal government has been actively pursuing its agenda to trim the size and reach of government in a number of other ways.

While regulatory reform has been on the public agenda for decades, there is little evidence that previous efforts to streamline the regulatory environment or create a smart regulatory system have been particularly successful. Canada has built an extensive regulatory regime with more than 70 departments and agencies developing over 2,600 federal regulations that require 13,000 employees to manage. In addition, on average, 250 new regulations are promulgated each year.

To appreciate the scale of regulatory requirements in Canada, the Canadian Federation of Independent Business estimates that regulatory compliance for all three levels of government costs $30.5 billion to businesses each year.

Recently, a government appointed Red Tape Reduction Commission tabled a wide-ranging report. It recommends numerous ways for the federal government to be less intrusive in the small- and medium-sized business sector (SME) by reducing red tape and transforming the regulatory system by removing “hidden taxes” which are deemed to be “silent killer of jobs.”

The report, “Cutting Red Tape: Freeing Business to Grow,” is an interesting combination of pro-small business rhetoric and anti-government sentiment, which is especially ironic given that the report directly targets the government’s own public service as the root of most of the weaknesses in the current system.

The tasks of the commission were to identify irritants to businesses, which have “clear detrimental effects on growth, competitiveness and innovation,” and to provide recommendations to address the irritants and “reduce the compliance burden on a lasting basis without harming the environment or the health and safety of Canadians.” To accomplish these goals, the government appointed a commission comprised of five Conservative Members of Parliament, the CEO of Canada’s foremost interest group for SMEs and the owners of five medium-sized enterprises.

After conducting a limited form of online consultation, inviting written submissions from interested parties, and meeting with stakeholders during a series of roundtables, the commission tabled an interim report in September 2011 that listed more than 2,300 regulatory irritants to SMEs. As a result of these data gathering events, the commission concluded there are several root causes that prevent the government from scaling down the regulatory requirements for Canadian business.

In their view, regulatory activities are not well managed and, in an effort to avoid mistakes, public servants routinely err on the side of caution by demanding more compliance, paperwork, inspections and audits from businesses.

As a consequence, the commission makes 15 general recommendations to limit the federal government’s demands for more regulation. In its view, governments need to design a more rigorous approval process that builds regulations “from the outside in,” applies common sense to all aspects of regulatory activity, holds regulators accountable for regulatory activities, and strikes a balance between compliance and service excellence.

Specifically, the commission has some interesting ideas about scaling down the regulatory agenda. Its centerpiece suggestion is for the government to adopt a “one-for-one” rule, where the government eliminates a regulation for each one that it adds. As well, they suggest annual reports on performance and service improvement, the publication of a service charter, and giving the Auditor General a mandate to review and report on progress in reducing administrative burden.

With the emphasis on performance measurement, the commission also recommends that a portion of the pay-at-risk for senior public servants should be based on the successful implementation of the one-for-one rule.

Given all of the media attention directed to the March budget, the commission’s report is a good reminder that government’s reach goes well beyond spending and taxing. Regulation is an important policy instrument and it has a significant impact on the business sector and therefore on the overall performance of the economy. While the authors are not very optimistic that any of their recommendations will be adopted, they have submitted an interesting report that challenges conventional thinking, describes what success would look like and proposes a reasonable implementation timetable. It deserves Parliament’s attention.

David Zussman holds the Jarislowsky Chair in Public Sector Management and is the director of the Graduate School of Public and International Affairs at the University of Ottawa (dzussman@uottawa.ca).

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