Report on the internal review of the Red Tape Reduction Act

A. Requirement to offset new administrative burden, dollar for dollar

The first part of the rule requires “that each increase in the administrative burden on businesses must be offset with a corresponding decrease, one‑for‑one….”^{Footnote 4}

Under this requirement, from April 1, 2012, to March 31, 2021, $83.6 million in annualized administrative burden was removed and $23.1 million was added, for an overall reduction of $60.5 million in annualized administrative burden. This represents an accumulated reduction in administrative burden on business of over $480 million.^{Footnote 5}

The one‑for‑one rule makes regulators more aware of the costs of administrative requirements for businesses and challenges them to find ways to limit those costs. It has some limitations in a few areas, however:

• Scope

  The rule applies only to regulations that impose burden on businesses. Many regulations, however, apply to non‑business stakeholders such as individual citizens and non‑profit organizations, and even stakeholders inside government. These stakeholders could also benefit from efforts to reduce administrative burden.

• Approach

  Practically speaking, the rule is applied once cost estimates are known, which is too late in the regulatory development process to significantly influence the design of the regulations. An outcome‑based approach in which limiting burden on business is an explicit objective from the early stages of regulatory development might yield better results.

• Informed consultation

  Certain information, such as hourly labour costs and the time required to complete a regulated activity, is fundamental in calculating administrative costs. Some industry and business stakeholders told us that regulators’ estimates of these costs don’t reflect reality.

  There are two possible reasons for this:

  • The rule applies to the costs of administrative burden only rather than to all the costs of implementing a requirement
  • There is a lack of consultation on cost estimates with industry. Under the Policy on Limiting Regulatory Burden on Business, regulators should consult impacted stakeholders to validate assumptions and to make sure estimates are accurate

B. Requirement to repeal an existing regulation for every new regulation that imposes a new burden on businesses

The second part of the rule requires that a regulation be repealed whenever a new one is added that increases administrative burden on businesses.

The criteria for ins and outs differ:

• Ins are new regulations that impose new administrative burden on businesses and that aren’t exempt from the rule
• Outs are any regulations that are repealed, not necessarily ones that imposed an administrative burden

Under this requirement, between April 1, 2012, and March 31, 2021, the Government of Canada’s regulatory stock decreased by 185:

• Ins: 63
• Outs: 248

Although this reduction is significant, 87% of the outs were regulations that had no impact on the administrative burden on businesses.

There is therefore no direct link between the number of repealed regulations and the control or reduction in administrative burden.

Regulators echoed this disconnect. They want the government to eliminate the requirement to repeal a regulation every time a new one imposing burden on businesses is created. Because it treats regulations the same no matter how much burden they impose, the requirement doesn’t help achieve the purpose of the act.

Regulators also told us that the requirement could create an incentive to develop long regulations that have a broad scope rather than shorter, focused ones. If that were to happen, the outcome would end up being perverse because one long regulation can be harder to follow, and therefore more complex and burdensome, than several short ones.

While the requirement to repeal an existing regulation may not meaningfully control administrative burden, it does encourage regulators to remove regulations that no longer apply. This “housekeeping” helps make sure regulations are relevant. This is not a stated objective of the act, but it’s a worthy goal that could be achieved directly through regulatory review.

C. Exemptions

Under the regulations, the Treasury Board can exempt a regulation from the rule if it falls into one of three categories.

As of March 31, 2021, a total of 124 regulations were exempted from the rule out of a total of 212 that imposed a new administrative burden on businesses (about 58%).

The breakdown is as follows.

• Regulations related to tax or tax administration: 31 exemptions (25%)
• Regulations where there is no discretion as to what is to be included in the regulation because of international or legal obligations: 24 exemptions (19%)
• Regulations made in response to emergency, unique or exceptional circumstances (including where compliance with the rule would compromise, public health, public safety or the Canadian economy): 69 exemptions (56%)

Of the 124 exempt regulations, 110 had low annual cost impacts^{Footnote 6} and 14 had significant annual cost impacts.^{Footnote 7} Of these 14 significant‑cost‑impact regulations that have been exempted, 8 related directly to the government’s response to COVID‑19.

Even though most exempt regulations have low estimated administrative costs, businesses say that exemptions weaken the effect of the rule. They find the exemption of regulations related to tax or tax administration particularly problematic given the heavy administrative burden of ensuring compliance with them.

Regulators, however, want TBS to create new exemptions as a way to deal with the fact that some modern regulatory design approaches, such as outcome-based design, can create more administrative burden rather than control it.

The changes made to the act in 2018 are designed in part to address this issue. These changes are not yet in force and are therefore outside the scope of this review. Implementing them, however, would involve creating an exemption for regulations made as a result of regulatory cooperation to recognize the broader economic benefits of aligning across jurisdictions, despite potential increases in administrative costs.

D. Compliance with the rule

Under the policy, the reconciliation of ins and outs for administrative burden costs and new regulations is done by ministerial portfolio.

Under the regulations, new administrative costs and new regulations must be offset within 24 months of being created.

Burden reductions that result from changes to administrative requirements based on the following don’t count as reductions under the one‑for‑one rule:

• legislation
• policies
• programs

There has been government‑wide compliance with the rule throughout the seven years it has been in effect.

Overall, regulators have reduced administrative burden and repealed regulations faster than they have added them:

• Outs have exceeded ins in every fiscal year but one since the rule was introduced, which represents a net average reduction in administrative burden costs of $16,576 a day (annualized)^{Footnote 8}
• On average, 7 regulations imposing new administrative burden have been added every year and 23 existing regulations have been repealed^{Footnote 9}

TBS looked at whether reconciliation of ins and outs by ministerial portfolio within 24 months is appropriate. Regulators would no longer be able to comply with the rule once:

• they can’t repeal any regulations or administrative requirements without compromising health, safety, security or the environment
• they have depleted their “banked” regulations and costs savings

Increased rates of non-compliance would tell us that the rule is no longer an effective way to control administrative burden, but as of March 31, 2021, only three portfolios have ever been in non-compliance with the requirement to offset administrative burden costs within 24 months:

• Transport Canada (out of compliance twice; it resolved each situation within two weeks after the deadline)
• Environment and Climate Change Canada (out of compliance once; it resolved the situation within two weeks after the deadline)
• Fisheries and Oceans (out of compliance three times; the administrative burden costs remained unreconciled in all three cases)

Because ministers are continually making regulations to respond to new health, safety, environmental and security risks, over time it could become more difficult to comply with the requirement to offset within a portfolio. However, requiring reconciliation at the portfolio-level creates some incentive to control administrative burden absent other policy measures.

E. Technical elements

TBS examined technical elements related to the act, the regulations and the policy.

Stakeholders suggested some technical changes:

• update the price year and discount base year used to calculate costs
• clarify in the act how the annual report is to be presented (for example, tabled in Parliament)

Stakeholders also suggested changing the title and preamble of the act to better reflect its objective.

Implementation of the rule

TBS will continue to:

• provide guidance to regulatory departments and agencies on the application of the one-for-one rule and on the Policy on Limiting Regulatory Burden on Business
• encourage regulators to get real‑world data from regulated parties to validate assumptions about the cost of administrative burden

Exemptions

TBS will:

• continue to monitor and report on the regulations exempted from the one‑for‑one rule
• regularly review the list of exemptions

Portfolio-level reconciliation

TBS will continue to:

• monitor and report on reconciliation at the portfolio level
• work with regulators to ensure government-wide compliance with the rule

Future policy work

TBS will:

• look at ways to hone the requirements on regulatory stock review in the Cabinet Directive on Regulation to:
  • better support the objective of maintaining a relevant stock of regulations
  • determine whether it is still necessary to legislate the requirement to repeal an existing regulation each time a new one that imposes burden on business is introduced
• continue to study issues related to cumulative regulatory burden on business and how they could be addressed through the regulatory policy and legislative framework
• look at ways to address administrative burden on individual citizens and other organizations that are not businesses