MEI calls for federal review as business formation drops amid rising regulation

The federal government’s expanding regulatory burden is stifling economic activity and discouraging entrepreneurship, according to a new publication released by the Montreal Economic Institute (MEI), as reported by Todayville. 

“Regulation creep is a real thing, and Ottawa has been fuelling it for decades,” said Krystle Wittevrongel, MEI’s director of research and coauthor of the report.  

She added that regulations are enacted but rarely reviewed, which makes it difficult to operate a business or even start one due to high costs. 

As per data from Statistics Canada, the number of federal regulatory requirements increased by 37 percent between 2006 and 2021, rising from 234,200 to 320,900.  

MEI cites this growth as contributing to a 1.7 percentage point reduction in real GDP growth, a 1.3 percentage point drop in employment growth, and a 0.4 percentage point decline in labour productivity. 

The Canadian Federation of Independent Business (CFIB) reported that in 2024, firms with fewer than five employees spent over $10,200 per employee on regulatory compliance, while businesses with 100 or more employees paid closer to $1,400 per employee. 

Overall, Canadian businesses devoted 768 million hours to regulatory compliance in 2024.  

This is equivalent to nearly 394,000 full-time jobs, with an economic cost exceeding $51.5bn that year, according to CFIB's 2024 Red Tape Report. 

CFIB’s 2025 report further noted that small business owners spent an average of 735 hours annually on regulatory paperwork, with over one-third of that time attributed to what was identified as unnecessary red tape. 

Entrepreneurship has fallen dramatically in this environment. In 2000, three out of every 1,000 Canadians launched a business.  

By 2022, the rate had dropped to 1.3 per 1,000 people—a decline of nearly 57 percent, according to MEI.  

As per Statistics Canada’s estimates, if the number of federal regulations had stayed at 2006 levels, Canada would have seen about 10 percent more business start-ups in 2021. 

To address this, Wittevrongel proposes a review model based on the 1995 Program Review initiated by the Chrétien government.  

That program successfully cut $12bn in federal spending over two years, reducing expenditures by 9.7 percent and restoring fiscal balance. 

MEI's proposal includes six key questions for assessing existing or proposed regulations: 

• What is the purpose of the regulation? 

• Does it serve the public interest? 

• What is the role of the federal government and is its intervention necessary? 

• What is the expected economic cost of the regulation? 

• Is there a less costly or intrusive way to solve the problem the regulation seeks to address? 

• Is there a net benefit? 

According to OECD projections, Canada is expected to post the lowest GDP per capita growth among advanced economies through 2060, with annual growth averaging just 0.78 percent. 

“Canada has just lived through a decade marked by weak growth, stagnant wages, and declining prosperity,” said Wittevrongel. “If policymakers are serious about reversing this trend, they must start by asking whether existing regulations are doing more harm than good.”