Economists estimate removing interprovincial trade barriers could add between four and seven per cent to GDP

By Erik Hertzberg

The rising number of rules and regulations shaved almost two percentage points off the growth in output from Canada’s business sector over a 15-year period, the country’s central statistics agency said.

Statistics Canada offered an estimate of how much economic activity is lost because of regulatory burden, as policymakers across the country examine ways to boost growth in the face of threats from the United States, Canada’s top trading partner.

Regulations reduced growth in gross domestic product of the business sector by 1.7 percentage points from 2006 to 2021, according to a paper released Monday by Wulong Gu, an economist with Statistics Canada. That doesn’t include the household or government sectors.

Regulations also restricted employment and labour productivity growth by 1.3 and 0.4 percentage points, respectively, over the period, and weighed on business investment.

Gu estimates the total number of regulatory requirements in the country rose 37 per cent between 2006 and 2021, bringing the total to more than 300,000. If regulatory requirements had stayed at 2006 levels, there would have been a more dynamic and competitive business sector, the study found — more businesses would have been created and more existing businesses would have closed.

The study comes as federal and provincial governments mull strategies to bolster the country’s economic prospects in light of U.S. threats to levy tariffs on imports of Canadian products, most recently on steel and aluminum.

In a speech last week in Toronto, former Bank of Canada governor Stephen Poloz said the economic effects of U.S. tariffs “could be completely offset” by getting rid of different product and licensing requirements across the various provinces, which create inefficiencies for business.

Poloz pointed to the absurdity of varying portable-washroom regulations across Canadian jurisdictions as an example. “If you’re on a construction site, there are rules about what the ring looks like in the ‘Johnny on the Spot,’” Poloz said. “It has to be a perfect ring in some provinces; it has to be a split ring in other provinces.”

Economists estimate the removal of interprovincial trade barriers could add between four and seven percentage points to gross domestic product.

Business investment as a percentage of gross domestic product in Canada has fallen since 2015, and per-capita output has declined to 2017 levels. In recent years, economic growth has been propped up by record immigration flows, boosting consumption.

Source: Financialpost.com