Industry Committee on Feb. 5th, 2019

[The Chair, Liberal, Dan Ruimy]

Good morning, everybody, and welcome to meeting 147 of the Standing Committee on Industry, Science and Technology. Pursuant to Standing Order 108(2), we are continuing our study of the impacts of Canada's regulatory structure on small business.

Today, from the Canadian Chamber of Commerce, we have Ryan Greer, Senior Director, Transportation and Infrastructure Policy. From the Canadian Federation of Independent Business, we have Laura Jones, Executive Vice-President, and Corinne Pohlmann, Senior Vice-President, National Affairs and Partnerships.

We're going to begin with the Canadian Chamber of Commerce. You have up to seven minutes to present to us.

[Ryan Greer, Senior Director, Transportation and Infrastructure Policy, Canadian Chamber of Commerce]

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.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We're going to move to Laura Jones, with the Canadian Federation of Independent Business.

[Laura Jones, Executive Vice-President, Canadian Federation of Independent Business]

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.

[Corinne Pohlmann, Senior Vice-President, National Affairs and Partnerships, Canadian Federation of Independent Business]

Thanks.

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.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

We didn't have enough PowerPoint slides for everybody, so they will be sent to your offices via email.

We're going to jump right into questions with Mr. Longfield.

You have seven minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Mr. Chair.

Thanks to the witnesses for coming. This is something that has been on my mind for many years, both as a small business owner and president of the Guelph Chamber of Commerce, working with the Canadian Chamber of Commerce and the Ontario Chamber of Commerce. Now that I'm on this side of the table, I'm in the position to ask, “How can we work together?”

Maybe I could start with Mr. Greer on how the government engages businesses through his network. Maybe we'll go to both witnesses. Some businesses say they're surveyed to death. On the other hand, we need to know where the worst areas are in terms of cost to business. We need regulations to protect the safety and protect consumers in Canada, but there are some regulations that cost a lot of money, and it could be argued that the climb isn't worth the slide.

Do you have any specific examples of regulations that are costing business or are the greatest irritants to business?

[Ryan Greer]

I think a good place to start, and I imagine the CFIB will echo this, is the Canada Revenue Agency. As you know, the members of chambers of commerce get together every year and propose policy resolutions and amend and debate these; that's what actually helps set the policy of the Canadian chamber. Some 400 chambers of commerce are able to submit and propose resolutions through this process, and one of the most commonly occurring is those built around CRA processes. There are multiple ones that usually come up every year. The CRA, I think, has made some efforts to continue to try to address some of those, but, nevertheless, it remains one of the biggest pain points, I think, for small companies. If you venture into almost any department, you'll find examples from companies that are the most directly affected by those regulatory regimes, including problematic regulations or maybe just regulations that haven't been reviewed, such as to modernize their compliance activities, to ask the question if regulations themselves are more relevant. I think the CRA is a good place to start, but you can go into almost any regulatory department or agency and find a host of examples from our members.

[Lloyd Longfield, Liberal, Guelph, ON]

Ms. Jones or Ms. Pohlmann.

[Laura Jones]

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.

[Lloyd Longfield, Liberal, Guelph, ON]

The Treasury Board's recently done a consultation process and is looking at, how do we streamline? How do we introduce innovation into our regulatory processes?

One of the comments I've heard from that consultation process was that getting the cost from actual businesses was a difficult thing to draw out. The businesses will always say, “We don't like red tape. We don't like the government being involved in our business. We don't want to spend our time doing government paperwork.” But getting the cost of that discussion forward is a difficult thing.

Right now we're trying to simplify what we have, but as you just said, we're also trying to engage businesses earlier in the process as regulations are coming forward. Is that something we need to consider in our report going back to government?

[Laura Jones]

Do you want to go first?

[Ryan Greer]

Sure.

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.

[Lloyd Longfield, Liberal, Guelph, ON]

I'm running out of time, but that cost-benefit analysis is one that I think we'll see throughout this study. Getting the actual numbers will be something that we'll be looking for.

[Laura Jones]

Yes, but I would caution.... I think cost benefit has a very important place in regulatory reform, particularly with respect to challenging new regulations that are coming on the books. However, with respect to the problem of death by a thousand small paper cuts, it doesn't do a great job of capturing those things.

That is why we recommend a simple, comprehensive measure that doesn't impose a lot of burden on businesses. Often, for whatever reason, that seems to be a challenge for governments to understand why it's so important to have an aggregate, comprehensive, simple count kind of measure to complement the cost benefit.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you very much.

[The Chair, Liberal, Dan Ruimy]

Before we proceed, I have the luxury of having the French version of the slide, which we haven't been able to pass out. I'm noticing the dates of a lot of your surveys. They're up to date, being dated as 2017, but on page 9, it's actually 2008.

Is that correct?

[Corinne Pohlmann]

That's correct.

[The Chair, Liberal, Dan Ruimy]

Would you have more up-to-date information that you could submit?

[Laura Jones]

Yes, we can easily ask that question again.

The reason that question is not more current is that we have asked it several times in the past—pre-2008—and the results were very, very stable. We feel confident that reflects the small business perspective, but we can easily ask that again and get you fresh data.

[The Chair, Liberal, Dan Ruimy]

Okay.

Mr. Albas, you have seven minutes.

[Dan Albas, Central Okanagan—Similkameen—Nicola, CPC]

Are we putting more red tape on the CFIB?

[The Chair, Liberal, Dan Ruimy]

I was just asking if they had a more up-to-date survey. That's all.

[Dan Albas]

More requirements....

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 C-74, 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?

[Ryan Greer]

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.