
Red Tape Strangling Canadian Businesses—Is It Time for a Regulatory Reset?
Canadian businesses, especially small enterprises, are drowning in red tape. According to a new report from the Montreal Economic Institute (MEI), excessive regulation has stifled entrepreneurship, slowed GDP growth, and pushed compliance costs to unsustainable levels.
Regulatory expansion is not a new problem. Between 2006 and 2021, federal regulatory requirements ballooned by 37 percent, rising from 234,200 to 320,900. The economic impact has been significant: real GDP growth, employment growth, and labour productivity have all suffered as a result, according to Statistics Canada.
Krystle Wittevrongel, director of research at the MEI and coauthor of the report, warns that regulations often accumulate without proper review. “Regulation creep is a real thing, and Ottawa has been fuelling it for decades,” she explains. “Regulations are passed but rarely reviewed, making it burdensome to run a business, or even too costly to get started.”
Small businesses bear the brunt of these restrictions. A firm with fewer than five employees now pays over $10,200 per employee in compliance costs, while larger businesses with 100 or more employees pay just $1,400 per worker. These regulatory expenses add up—Canada’s businesses collectively spend 768 million hours annually on compliance, the equivalent of nearly 394,000 full-time jobs. In 2024 alone, regulatory costs surpassed $51.5 billion.
It’s no surprise, then, that entrepreneurship is declining. In 2000, 3 out of every 1,000 Canadians started a business. By 2022, that number had plummeted to 1.3—representing a staggering 57 percent drop. MEI’s report suggests that had Ottawa maintained 2006 regulatory levels, the country would have seen 10 percent more business startups in 2021.
Learning from the Past
So, what can be done? MEI researchers propose a solution inspired by the Chrétien-Martin Program Review, a successful 1990s initiative aimed at streamlining federal spending. During that period, the government eliminated $12 billion in expenditures over two years—nearly 10 percent of total spending—and restored fiscal balance.
A similar approach could be applied to regulatory reform. The MEI outlines six key questions policymakers should consider when evaluating existing or proposed regulations:
• What is the purpose of the regulation?
• Does it serve the public interest?
• Is federal intervention necessary?
• What is the economic cost?
• Is there a more efficient alternative?
• Does the regulation provide a net benefit?
With Canada projected to experience the weakest GDP per capita growth among advanced economies through 2060, MEI researchers argue that regulatory reform must be a priority.
“Canada has just lived through a decade marked by weak growth, stagnant wages, and declining prosperity,” says Wittevrongel. “If policymakers are serious about reversing this trend, they must start by asking whether existing regulations are doing more harm than good.”
The full MEI report is available here.