The 7th Edition of Canada’s Red Tape Report, published by the Canadian Federation of Independent Business (CFIB), highlights the increasing regulatory burden on Canadian businesses, particularly small businesses. The report identifies “red tape” (excessive or unnecessary regulation) as a major cost driver, hindering productivity and growth. In 2024, the regulatory cost reached $51.5 billion, with $17.9 billion attributed to red tape. Smaller businesses bore a disproportionate share, paying significantly more per employee than larger businesses. The report emphasizes the need for reforms to streamline regulations, improve government accountability, and foster economic competitiveness.
10 Key Points
- Red Tape’s Scale:
- Red tape accounts for 35% of all business regulations.
- Costs increased by 13.5% since 2020, with $17.9 billion in annual expenses.
- Time Drain:
- Businesses spent an average of 735 hours per year on regulatory compliance, with 256 hours on red tape.
- Disproportionate Impact:
- Small businesses (fewer than 5 employees) faced $10,208 per employee in annual regulatory costs—five times higher than businesses with 100+ employees.
- Stress and Burnout:
- 90% of small business owners report stress from excessive regulations, which affects work-life balance and deters entrepreneurship.
- Declining Productivity:
- 87% of owners believe excessive regulation harms productivity and growth, exacerbating Canada’s poor performance in global productivity rankings.
- Entrepreneurial Deterrence:
- 68% of owners would not recommend starting a business due to regulatory burdens.
- Sectoral Burdens:
- Federal burdens: Income taxes (62%), payroll taxes (59%), and GST/HST (58%).
- Provincial burdens: Workers’ compensation (52%) and PST/HST (49%).
- Municipal burdens: Property/business taxes (50%) and permits (43%).
- Confidence in Reform:
- Only 6% of business owners are confident in federal government efforts to reduce red tape.
- Benefits of Reform:
- A 35% reduction in red tape could save 268 million hours annually, equivalent to 137,000 full-time jobs.
- Priorities for Change:
- Simplify regulations, use plain language, and improve government service.
Action Steps for Small Businesses
- Advocate for Change:
- Join industry associations like CFIB to amplify voices calling for regulatory reform.
- Invest in Compliance Tools:
- Use accounting or payroll software to streamline filings and reduce time spent on paperwork.
- Seek Professional Help:
- Consider outsourcing compliance tasks (e.g., bookkeeping, tax preparation) to experts.
- Engage with Government:
- Utilize feedback mechanisms to report unclear or burdensome regulations.
- Focus on Advocacy:
- Support campaigns for simplified processes and regulatory caps (e.g., one-for-one rules).
- Streamline Internal Processes:
- Dedicate resources to automation and staff training to minimize time spent on compliance.
- Collaborate with Peers:
- Network with other small businesses to share strategies for coping with regulatory demands.
- Prepare for Audits:
- Maintain clear documentation and organize records to reduce stress during compliance checks.
- Stay Informed:
- Regularly monitor updates to laws and regulations affecting your industry.
- Push for Online Options:
- Advocate for integrated filing systems (e.g., filing HST through accounting platforms).
These steps can help alleviate the impact of red tape while contributing to broader advocacy efforts.
Here’s a comparison of regulatory burdens in Canada and the USA based on key factors like compliance costs, processes, and red tape.
Regulatory Costs
- Canada:
- Canadian businesses spent $51.5 billion on regulatory compliance in 2024.
- Smaller businesses face disproportionately higher costs (e.g., $10,208 per employee for businesses with fewer than 5 employees).
- Red tape accounts for 35% of these costs, adding $17.9 billion annually.
- USA:
- In 2022, the total cost of regulatory compliance in the USA was estimated at $2 trillion, including federal, state, and local regulations.
- On a per-employee basis, costs are lower for small businesses than in Canada due to more scalable systems and tools for compliance.
Complexity and Bureaucracy
- Canada:
- Federal, provincial, and municipal layers create overlapping and conflicting regulations.
- Businesses face lengthy delays for permits, licenses, and approvals. For example, small businesses spend an average of 735 hours annually on compliance, with red tape consuming 256 hours.
- Red tape significantly reduces productivity, and 87% of Canadian business owners cite excessive regulations as a barrier to growth.
- USA:
- The federal government dominates regulation, but states have considerable autonomy, leading to regional variability.
- While businesses navigate fewer regulatory layers than in Canada, compliance varies widely by state, creating inconsistencies.
- Regulatory processes in the U.S. are generally faster due to clearer federal guidelines and extensive digital filing systems.
Ease of Doing Business
- Canada:
- Ranked 23rd globally (2020) for ease of doing business, with regulatory inefficiency cited as a key issue.
- Tax compliance and reporting are time-consuming. GST/HST and payroll taxes are major burdens.
- USA:
- Ranked 6th globally (2020), with faster permit processes, simpler tax systems (e.g., no federal VAT), and more automation in compliance.
- Federal tax complexity remains an issue, but small businesses benefit from straightforward tools like QuickBooks and accessible SBA resources.
Approach to Reform
- Canada:
- Lacks robust enforcement of “one-in, one-out” rules, despite recommendations in reports like CFIB’s Red Tape Report.
- Low public confidence in governments’ commitment to reducing red tape (6% federally, 15% provincially).
- Heavy reliance on professional fees (e.g., accountants and lawyers) due to unclear and overlapping regulations.
- USA:
- Stronger commitment to red tape reduction at federal and state levels. For example:
- The U.S. has implemented a “two-for-one” rule, requiring two regulations to be repealed for every new one introduced.
- Agencies like the Small Business Administration (SBA) and SCORE provide compliance assistance and advocacy.
- More resources for online compliance, faster response times, and greater accessibility of government services.
- Stronger commitment to red tape reduction at federal and state levels. For example:
Business Sentiment
- Canada:
- 68% of small business owners would discourage entrepreneurship due to regulatory burdens.
- Provincial disparities (e.g., Alberta shows the highest confidence in regulatory reform, while BC and Quebec are the lowest).
- USA:
- While regulations are cited as a challenge, fewer business owners consider them a deterrent to starting a business.
- More accessible government assistance programs encourage entrepreneurship.
Key Actionable Insights for Canadian Businesses
- Advocate for reforms similar to the U.S. (e.g., stronger regulatory caps, digital compliance).
- Push for clearer, harmonized rules across federal and provincial levels.
- Invest in automation and professional advice to streamline compliance.
- Engage in industry associations to lobby for a simplified regulatory framework.