Canadians spend an estimated $103 billion (12% of GDP) to comply annually with federal, provincial, and municipal regulations.

Government regulation hits our pocketbooks as surely as taxes do but there is shockingly little information available about its cost. At a time when deficit spending is out of favour and there is little appetite for tax increases, this lack of accountability makes regulation a tempting way for governments to achieve their goals without increasing their spending.

Estimating the cost of regulation is a difficult business. This study is a first step-I hope it will encourage more research and debate, says Laura Jones, author of the study and the Institute's director of environment and regulatory studies.

The Number of Regulations

Between 1975 and 1999, over 117,000 new federal and provincial regulations were enacted, an average of 4,700 every year. Over this twenty-four year period, federal and provincial governments have published over 505,000 pages of regulations contained in volumes that measure 10 stories when stacked.

Administrative Costs

In the fiscal year 1997-1998, the federal government, and provincial, territorial and local governments in Canada spent $5.2 billion administering their regulatory activities, down slightly in real terms from $5.3 billion in fiscal year 1995/1996.

Federal administrative costs increased by 50% in real terms between fiscal years 1973/74 and 1997/1998. Provincial and territorial administrative costs of regulation increased by 80% in real terms over the same period.

Administrative costs are only the tip of the regulatory iceberg, says Jones. The bulk of the cost of regulation is incurred by individuals and businesses in the private sector to implement, monitor, and demonstrate compliance.

Compliance Costs

The cost of complying with government regulation totaled an estimated $103 billion in 1997/1998 (Table 1). The cost of regulatory compliance is borne largely by consumers since business pass on much of the cost of regulatory compliance as higher prices for goods and services.

In 1997, regulatory compliance cost individual Canadians an estimated $3,425 or $13,700 per family of four. The embedded cost of regulatory compliance exceeds spending on every item except shelter in Canadian households' after tax budgets (Figure 1).

The Indirect Costs

One of the consequences of regulation not captured by measuring its direct cost (administration and compliance) is the severe limits it can impose on people's freedom to make their own choices based on their individual circumstances and tolerance for risk. Government regulation also dampens innovation, delays development of products, stifles entrepreneurship, restricts competition, and slows growth of productivity.

Recommendations

If the federal and provincial governments want to increase productivity and improve the living standards of Canadians they must aim to reduce the regulatory burden and improve accountability through comprehensive regulatory reform.

A realistic first step is for governments to document and publish:

1. The amount they spend administering regulation, and;

2. An estimate of what the private sector will spend complying with regulation.

Any government in Canada that is truly committed to being accountable will give this proposal serious consideration, says Jones. Given some of the difficulties with measuring the burden of regulation, this would be a big step.

Cataloguing data on compliance costs could lead to a more comprehensive program of reform such as regulatory budgeting. This budgeting process would limit the compliance costs that governments' regulatory activities can compel the private sector to incur. Regulatory budgeting would encourage governments to prioritize their regulatory activities on the basis of cost-effectiveness.

Requiring governments to put on record the costs that are incurred in complying with government regulation would benefit Canadians enormously. Public disclosure of the cost of regulation in Canada should be on a par with public disclosure of taxes, concludes Jones.

Methodology

Data on the costs to the public sector of administering regulation were provided by the Office of the Senior Social Scientist, Statistics Canada.

The costs to the private sector of compliance were then estimated using a 20-to-1 ratio for fiscal years 1973/74, 1980/81, 1995/1996, and 1997/1998, and a 17.5-to-1 ratio in fiscal years 1987/1988 and 1993/1994.

Government Freedom Day

The Fraser Institute will soon be announcing a new calculation - Government Freedom Day. All money earned prior to this day goes for taxes and to comply with regulation. This calculation is intended to give Canadians a better sense of the full cost of government.