Growing Calls for Deregulation as Report Highlights Impact of ‘Red Tape’ on Productivity

A new comprehensive report from DeepDive Research suggests that Canada’s expanding regulatory framework is a primary driver of stagnant productivity, leading to intensified calls for the federal government to adopt a "one-for-two" deregulation policy.

The report, titled The Friction Economy, identifies a significant correlation between the volume of federal and provincial regulations and the widening productivity gap between Canada and its primary trading partners. According to the findings, the cumulative cost of regulatory compliance now acts as a "hidden tax" on Canadian businesses, diverting billions of dollars away from research, development, and capital expansion.

The Scale of the Regulatory Burden

The DeepDive report estimates that the total cost of regulatory compliance for Canadian businesses reached an all-time high in 2025, with projections suggesting further increases through 2026. These costs include not only direct fees and permits but also the administrative overhead required to navigate overlapping jurisdictions. For small and medium-sized enterprises (SMEs), these hurdles are particularly acute, often requiring resources that would otherwise be used for hiring or technology adoption.

In major economic hubs like Toronto and Montreal, the report notes that the density of municipal, provincial, and federal rules creates a "compounding effect." In the financial sector, for instance, institutions must align with a shifting landscape of digital privacy laws, anti-money laundering protocols, and ESG reporting requirements. While proponents argue these regulations are essential for public safety and market integrity, the DeepDive analysis suggests that the sheer volume has reached a point of diminishing returns.

The Productivity Gap and Investment Flight

Productivity: measured as the economic output per hour worked: has been a persistent challenge for the national economy. The report highlights that while the United States has seen a surge in productivity linked to aggressive deregulation and technological investment, Canada’s growth has remained relatively flat.

The disparity is partly attributed to "capital flight." When regulatory environments become overly complex or unpredictable, capital tends to move toward jurisdictions with more streamlined processes. The DeepDive report cites several instances in the energy and manufacturing sectors where projects were either cancelled or moved across the border due to the length of the environmental and inter-provincial review processes. This mirrors earlier challenges seen in the energy sector, though some progress was noted in the Ottawa and Alberta energy review agreement.

The Proposed ‘One-for-Two’ Rule

To counter this trend, business advocacy groups and the authors of the DeepDive report are calling for the implementation of a "one-for-two" rule. Under this framework, for every new regulation introduced by the federal government, two existing regulations of equivalent administrative burden must be repealed.

This proposal is inspired by similar international models. In the United States, a more aggressive "10-for-1" rule has gained momentum, aiming to significantly reduce the federal registry. Proponents of the Canadian "one-for-two" model argue it offers a more balanced approach: ensuring that the regulatory "budget" does not grow indefinitely while still allowing for necessary new protections in emerging sectors like artificial intelligence and green energy.

Implementation of such a rule would require a central oversight body to quantify the "cost" of every regulation. This would involve measuring the hours required for compliance and the direct financial outlays for businesses. The goal is to create a "regulatory budget" that forces departments to prioritize the most effective rules while discarding those that are obsolete or redundant.

Regional Impact and Sector Specifics

The call for deregulation is not uniform across all sectors, but it is particularly loud in industries with high capital requirements.

1. Manufacturing and Tech: In the tech sector, startups often face a labyrinth of rules regarding data residency and consumer protection that differ by province. Streamlining these could accelerate the growth of home-grown "unicorns."
2. Finance: On Bay Street, the focus is on reconciling Canadian rules with international standards to ensure that Toronto remains a competitive global financial hub.
3. Natural Resources: In Western Canada and parts of Quebec, the focus remains on the "speed to permit." The report suggests that reducing the time it takes to get a project from proposal to groundbreaking by just 20% could add billions to the national GDP.

The report also touches on the impact of "red tape" on the cost of living. In the housing sector, for example, delays in municipal zoning and federal environmental assessments are cited as contributing factors to the slow pace of new home construction, an issue that continues to dominate the national discourse.

Comparative International Context

The pressure on Canadian policymakers is mounting as the United States moves toward a "discretionary compliance" model. As of early 2026, U.S. regulatory enforcement actions in certain sectors have seen a significant decline, with a focus on clearing backlogs for infrastructure projects.

If Canada does not respond with its own strategy for efficiency, the DeepDive report warns that the "productivity divergence" could lead to a long-term decline in the Canadian standard of living relative to its neighbors. The report suggests that while Canada should not necessarily mirror the U.S. "10-for-1" approach, which some critics argue poses systemic risks to financial stability and environmental protection, a "made-in-Canada" deregulation strategy is no longer optional.

Why It Matters

The debate over deregulation goes beyond bureaucratic efficiency; it is a fundamental question of economic competitiveness. For the average Canadian, "red tape" often feels like an abstract concept, but its effects are felt in higher prices for goods, slower wage growth, and a lack of innovation in public services.

A streamlined regulatory environment makes Canada a more attractive destination for foreign direct investment. In a global economy where capital is highly mobile, the ease of doing business is a primary metric for site selection. By adopting a "one-for-two" rule or similar mechanisms, the government could signal a shift toward an "open-for-business" stance that prioritizes economic growth alongside necessary public safeguards.

As the 2026-2027 fiscal year approaches, the findings of the DeepDive report are expected to influence the upcoming federal budget discussions. Whether the government will move toward a formal deregulation mandate remains to be seen, but the pressure from the business community and economic analysts is at a multi-decade high.

Portfolio: Economy/Policy
Status: DRAFT
Slug: canada-economic-productivity-red-tape-deregulation
Meta Description: A new report on Canada's regulatory environment is fueling calls for the federal government to implement a deregulation strategy to boost national productivity.