Canada's Red Tape Report

Executive Summary

CFIB started publishing reports on the cost of regulation in 2005.¹ At the time, there were no other data available estimating the overall cost of regulation to Canadian businesses. Somewhat surprisingly, this remains the case today.

The cost of regulation from all three levels of government to Canadian businesses totalled $38.8 billion in 2020. The total number of hours spent on regulatory compliance² by businesses of all sizes in Canada was 731 million hours - the equivalent of nearly 375,000 full-time³ jobs. The 2020 estimate excludes COVID-19 regulations to make the cost comparable to previous years.

These costs are considered too high by small business owners, who cite excessive regulation as one of their top concerns. The smallest businesses bear a disproportionately high burden of the cost, paying up to five times more per-employee than larger businesses. The smallest businesses pay $7,023 per employee annually to comply with government regulation while larger businesses pay $1,237 dollars per employee annually (see Figure 1). Being able to spread regulatory costs over more employees gives larger businesses a competitive advantage over their smaller counterparts.

Figure 1: Annual regulation cost per employee, by size of business (in 2020 dollars)

Sources: Calculations based on CFIB’s Survey on Regulation and Paperburden (conducted in 2020, n=4,603) and data from Statistics Canada.

Notes:

1. The number of employees includes the business owner.
2. The cost of red tape for each business size is determined according to the average per cent that businesses indicated the regulatory burden could be reduced by without sacrificing the public interest. The average percentage for each business size is as follows: fewer than 5 employees = 28%; 5-19 employees =28%; 20-49 employees = 28%; 50-99 employees = 29%, and; 100 or more employees = 32%.

In this report we make an important distinction between regulation that is justified, delivering valuable health, safety, and environmental outcomes, and regulation that is excessive, delivering little or no benefit. Excessive regulation is best known by its colloquial term, red tape. While it is impossible to know exactly how much of the regulatory burden is red tape, small businesses estimate the burden of regulation could be reduced by 28 per cent without sacrificing the public interest, suggesting red tape costs about $11 billion a year. In terms of time, this would give back 205 million hours, or the equivalent of 105,000 full time jobs. Reducing red tape would have a positive impact on productivity, jobs, and wages. It would also reduce stress and free up more time for family.

This report does not attempt to put a dollar figure on the extra costs borne by small businesses due to COVID-19, as the regulations are expected to be temporary. However, it is worth noting that the majority (83%) of small businesses agree these regulations substantially increased regulatory costs.

As governments turn their attention to recovery, reducing red tape is a low-cost way to stimulate the economy while making room for new regulations that are needed. To do this effectively, governments, particularly at the federal and municipal levels, need to improve regulatory accountability and pay more attention to the cumulative burden of regulation. This includes doing a better job measuring the total burden and setting constraints to control regulatory growth. Making red tape reduction a priority across government can benefit all citizens.

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