Ottawa must deregulate to innovate, but we didn’t see that in the federal budget

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Appeared in the Financial Post, March 28, 2017

Canada’s 2017 federal budget failed to offer any plans for deregulation. This is ironic because regulations are among the most important obstacles to innovation, the holy grail of the government’s plan for future growth. Planned subsidies will not prevent the death of nascent innovations in garages or on desktop computers too small or distant from Ottawa to get the attention of the new, large federal bureaucracy.

The irony is worsened by the policies of President Donald Trump and the Republican Congress, which have begun to deliver on their promise to reform the regulatory system. As they do so, they will encourage Canadian innovators to move south to escape the costly time and red-tape paperwork they face here.

The American reform plans are the response to the staggering costs of existing regulations. Large banks claim that one worker is required to make sure that four others comply with regulations. Government regulations account for 24.3 per cent of the final price of a new single-family home. The burden of compliance is symbolized by the fact that in 2014 the Federal Register for Regulations mentions 1.1 million times the words “shall,” “must,” “may not,” “required” and “prohibited.”

The total cost of U.S. regulations has been estimated to have been US$1.88 trillion in 2015, not including the effect regulations have on future rates of innovation. This figure is equal to more than half of the federal government’s spending that year and while it is on the high end of available estimates, there is no doubt that the costs of regulation are enormous.

To deal with the cost of regulation and the public complaints it has created, Trump has issued an executive order that requires all regulatory agencies to eliminate two existing regulations for every new one they adopt. To prevent the repeal of only regulations that impose little cost, the savings they bring must be at least as great as the costs resulting from the new regulation. Trump also ordered a temporary stop to the hiring of all new government employees including those in regulatory agencies. In his first budget he proposed severe spending cuts for regulatory agencies, such as the 31 per cent facing the Environmental Protection Agency, and appointed known critics as heads of regulatory agencies, such as Scott Pruitt for the EPA.

Congress has also has gotten into the act. On January 6, 2017, it passed the awkwardly named Regulations from the Executive in Need of Scrutiny Act (REINS Act), which will return to politicians the right to approve or reject any new regulations that have an economic impact on the economy greater than $100 million a year. Even before the election, in 2016 the Republican majority in the House of Representatives introduced the Agency Accountability Act, which will require all regulatory agencies to transmit to the treasury fines and fees they have collected from the public, and which reduces their financial resources and incentives to impose fees and fines.

At the core of these reforms is the desire to return the regulatory process to elected politicians and away from unelected bureaucrats in regulatory agencies who, according to Senator Mike Lee from Utah, have created the conditions where: “Today, the vast majority of federal “laws”—upwards of 95 per cent—are not passed by the House and Senate and signed by the president as the Constitution directs; they are imposed unilaterally by unelected Executive Branch bureaucrats.”

Many Canadians will be appalled by the proposed regulatory reforms in the United States, fearing that polluters will again bring skies darkened by smoke and fish killed in rivers. These concerns are not warranted. The proposed U.S. reforms will not repeal such clearly beneficial regulations favoured by the public.

They will instead focus on regulations that bring ephemeral benefits, like those coming from regulations that are highly uncertain, like those aimed at the prevention of global warming and financial instability. The assessment of the net benefits from such regulations will again be made by politicians who reflect the values of the public and not by unelected bureaucrats who have chosen to work in regulatory agencies to advance leftist ideological goals.

Even if Canadians do not like American voters’ instructions to their politicians on regulatory reform, the failure to consider its implications will affect seriously all of the economic and social programs advocated in the 2017 budget. Regulatory reform should be on Canada’s agenda for public discussion and serious political consideration.

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