Regulatory Budgeting: Lessons from Canada

Canadian Flag in blue sky

American conservatives have not tended to look to Canada for inspiration. Canada has been derided as a land of big government, high levels of taxation and, of course, single-payer health care. Pat Buchanan famously called it ”Soviet Canuckistan” in 2002.

But Canada deserves a second look. It has been home to some interesting developments in recent decades. The size of government has fallen from historic highs (total government spending as a share of gross domestic product peaked at 53 percent in 1992), the country’s tax system has become more competitive relative to the United States (especially with respect to corporate income taxes), and successive governments have pursued pro-growth macroeconomic policies, such as trade liberalization and regulatory reform.

Canada still has a single-payer health-care system, but the nation otherwise has taken important steps to put its economic-policy framework and public finances on solid footing. As a Canadian-born economist for a U.S. think tank put it:

Canada reversed course and cut spending, balanced its budget and enacted various pro-market reforms. The economy boomed, unemployment plunged, and the formerly weak Canadian dollar soared to reach parity with the U.S. dollar.

As part of this policy transformation, Canadian governments – both at the national and subnational (provincial) levels – have experimented with regulatory budgeting. The goal has been to arrest the growth of, and even begin to shrink, the regulatory state for the sake of encouraging investment and fostering economic activity. Early evidence at the federal level suggests that regulatory reform has been a useful part of Canada’s pro-growth policy agenda. Indeed, Canada’s experimentation with regulatory budgeting has attracted attention in the United States.

This paper outlines Canada’s experience with regulatory budgeting and considers what lessons can be derived for the U.S. context. Regulatory reform, in general, and regulatory budgeting, in particular, can bring greater accountability, discipline and transparency to the policy process. This, in turn, improves conditions for investment and economic activity. The three primary lessons from the Canadian experience are:

  1. Political leadership is a critical ingredient;
  2. The initial regulatory baseline from which future changes are compared must be comprehensive; and
  3. The methodology used to estimate regulatory costs needs to be credible and inclusive.

This paper considers just the main political conditions and policy-design issues that were part of Canada’s experience with regulatory budgeting. It does not address regulatory-budgeting regimes in other jurisdictions, such as the United Kingdom. It also does not consider the extent to which regulatory reform can help to restore the role of the legislative branch with respect to law and rulemaking. These are substantive questions in their own right that have received considerable attention elsewhere and can be part of further analysis in the future. The modest goal here is to bring Canada’s lessons from regulatory budgeting to bear as the U.S. Congress considers how best to reform the federal regulatory system

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