A Regulatory Balanced Budget in Canada

by on April 25, 2015 at 7:38 am in Economics, Law, Political Science | Permalink

Financial Post: Canada is now the first country in the world to require that for every new regulation introduced one of equivalent burden must be removed.

C-21, has been operating as policy for several years already, which means that the costs of new rules must be quantified and equal or greater costs removed. It essentially caps the cost of rules coming directly from regulations.

This is not quite as radical as it sounds. As I understand it, the law applies only to new bureaucratic rules and regulations not to legislation. Nevertheless, it’s reasonable to force regulatory bureaucracies to operate within a budget so that new rules are promulgated only when the new rule is expected to be an improvement over existing rules taking into account all costs.

1 Nick Miller April 25, 2015 at 8:27 am

The British government actually increased their existing “one in, one out” policy to “one in, TWO out” for regulations dealing with businesses. That’s after they did the innovative Red Tape Challenge which basically crowd-sourced the worst regulations on the books.

https://www.gov.uk/government/collections/one-in-two-out-statement-of-new-regulation

In the U.S., Senator Warner (D-VA) has a bipartisan bill that describes this policy as regulatory PAYGO. But I think the best bipartisan bill is the Regulatory Improvement Act, which basically delegates to an expert, non-partisan committee the task of eliminating/harmonizing/improving bad regulations in a certain sector – and then Congress gets a straight up-or-down vote on it. Similar to the BRAC system with obsolete military bases.

I wish this could be something both sides could see is doable – but it doesn’t seem like it’s a very appealing issue to spend energy on except as a dormant pet project for a few Senators.

2 dearieme April 25, 2015 at 4:00 pm

I dare say the next UK government will have a one-out two-in policy. Or even one-out ten-in.

3 Chip April 25, 2015 at 8:52 am

Actually, it’s far more radical than Alex makes it sound.

Because new regulations and rules dwarf new laws. To hold them at bay is a substantial blow for individual liberty.

And another example of how the former socialist punchline – Canada – is diverging from the former leader of the free market world.

4 kennyT April 25, 2015 at 10:21 am

There’s hope, but government regulatory bureaucracies are extremely resistant to change (& citizen liberty) — and there’s plenty of wiggle-room in that new Canadian policy wording to sustain the status quo.

Reforming regulatory bureaucracies requires a bulldozer, not a word-processor.

A primary conceit of modern regulators is the imposition of strict legal liability upon the regulated citizenry but not upon the regulators themselves. Unelected Regulators freely create rules (laws) without any personal/legal responsibility for their actions or practical consequences; yet citizens face jail time for the slightest ignorance or misunderstanding of the vast complexity of government regulations. Regulators must be held legally accountable for their official actions/products before any real reform is possible.

5 Canadian reader April 25, 2015 at 10:18 am

What a terrible rule. It supposes that the government is already spending sufficient money on regulation. One look at the Albertan tar sands tells me that’s likely not true.

6 derek April 25, 2015 at 10:59 am

It is quite simple. If you want to impose costs on the Alberta oil industry you have to find equivalent costs to remove elsewhere.

7 mulp April 25, 2015 at 1:33 pm

Define “cost”?

The multi-acre pits with liquid toxic waste must be covered to cut the cost to migrating birds of death.

The water must outside the mining site must have zero pollution to prevent the cost to all life that depends on water in the natural state prior to the mining start.

The argument seems to be that a regulation restricting the heavy metals in fruits and veggies must be offset by eliminating the restrictions on heavy metals in baby formula – businesses must be free to harm and kill consumers at a constant or increasing rate because not harming people costs profits and prevents eliminating jobs and slashing worker pay.

8 derek April 25, 2015 at 2:12 pm

Costs? Decrease in government revenues forcing cuts in health care services. Increased borrowing costs for all levels of government meaning less infrastructure. More inequality as a major employer stops employing.

There are items on the other side of the ledger as well. But requiring a cost analysis and requiring that the costs be offset elsewhere forces a recognition of the reality.

9 Aaron Luchko April 25, 2015 at 2:41 pm

The question is if the benefits of the bill are properly being taken into account, or if not if there are enough low quality regulations that we can generally find one that can be eliminated with few negative side effects.

I’m generally quite skeptical of the Conservatives but the bill passed 245-1 meaning both the NDP and Liberals voted for it.

That suggests to me that it’s actually a decent bill.

10 Jonathan April 25, 2015 at 4:28 pm

The only thing more useless than a bill that passes 245-1 is one that passes 246-0. With that degree of unanimity it shouldn’t require legislation at all.

11 Komori April 26, 2015 at 11:31 am

Just because the legislature is (almost) completely in favor of it, doesn’t mean the bureaucracy is. This is meant to reign in the latter.

12 Tom April 25, 2015 at 4:13 pm

In what sense is this better than a requirement that each individual regulation must pass a cost-benefit test?

13 Bob Knaus April 25, 2015 at 6:12 pm

It allows negative-benefit and positive-benefit regulatory changes to offset. As Alex notes, agencies must operate within a regulatory “budget”.
The legislature could mandate that an agency reduce its net regulatory burden by X amount. This provides the framework to measure it. My experience with cost/benefit analysis in the public sector suggests their is a fair amount of wiggle room in quantifying both sides of the ledger.

14 B Cole April 25, 2015 at 9:01 pm

Property values have soared, all through Smogtown. Because, in part, it is not Smogtown anymore. I am all for scrutinizing regulations, but there are not only costs, there are benefits.

15 TMC April 25, 2015 at 9:31 pm

Hasn’t ACA shown us these rules can be gamed? Ask the CBO about this.

16 Ray Lopez April 26, 2015 at 12:31 am

From Martin Wolf’s book: “In brief, the authorities have responded to the crisis with a bout of frenetic reform. Unfortunately, the new regulatory regime is astonishingly complex and demanding. In a brilliant paper, Andrew Haldane and Vasileios Madouros of the Bank of England note the increasing demands of regulation on many dimensions. Among the most striking is the sheer volume of rule-making: Contrast the legislative responses in the US to the two largest financial crises of the past century – the Great Depression and the Great Recession. The single most important legislative response to the Great Depression was the Glass-Steagall Act of 1933. Indeed, this may have been the single most influential piece of financial legislation of the 20th century. Yet it ran to a mere 37 pages. The legislative response to this time’s crisis,culminating in the Dodd-Frank Act of 2010, could not have been more different. On its own, the Act runs to 848 pages – more than 20 Glass-Steagalls. That is just the starting point. For implementation, Dodd-Frank requires an additional almost 400 pieces of detailed rule-making by a variety of US regulatory agencies. As of July this year, two years after the enactment of Dodd-Frank, a third of the required rules had been finalised. Those completed have added a further 8,843 pages to the rulebook. At this rate, once completed, Dodd-Frank could comprise 30,000 pages of rulemaking. That is roughly a thousand times larger than its closest legislative cousin, Glass-Steagall. Dodd-Frank makes Glass-Steagall look like throat-clearing. The situation in Europe, while different in detail, is similar in substance. Since the crisis, more than a dozen European regulatory directives or regulations have been initiated, or reviewed, covering capital requirements, crisis management, deposit guarantees, short-selling, market abuse, investment funds, alternative investments, venture capital, OTC derivatives, markets in financial instruments, insurance, auditing and credit ratings. These are at various stages of completion. So far, they cover over 2000 pages. That total is set to increase dramatically as primary legislation is translated into detailed rule-writing. For example, were that rule-making to occur on a US scale, Europe’s regulatory blanket would cover over 60,000 pages. It would make Dodd-Frank look like a warm-up Act.” Wolf, Martin (2014-09-11). The Shifts and the Shocks: What We’ve Learned-and Have Still to Learn-from the Financial Crisis (pp. 233-234). Penguin Group US. Kindle Edition.

17 ThomasH April 26, 2015 at 10:21 pm

The Canadian system seems to attempt to place some cost/benefit analysis into the system if it means that the cost of any regulation must be offset by elimination of another regulation or regulations of equal cost. If applied consistently it would lead to the elimination of regulation with the lowest benefit cost ratios. But it cannot bean optimal rule. If if it is known that a regulation has a B/C0 is ought not be eliminated.

18 ohwilleke April 28, 2015 at 1:12 pm

“it’s reasonable to force regulatory bureaucracies to operate within a budget so that new rules are promulgated only when the new rule is expected to be an improvement over existing rules taking into account all costs.”

Not really. There are all sorts of reasons that new rules are promulgated. For example, a court case may interpret an old rule to have a meaning different than the one that was previously intended, or a statute may be amended requiring a corresponding changes in regulations. Further, the margin of error in cost/benefit analysis is generally very substantial for regulatory impact (e.g. environmental regulations are routinely found to have health benefits five and ten times as great as estimated ex ante in cost-benefit analysis upon their adoption), and a new administration may decide to go a different direction within the realm of the margin of error than a previous administration did.

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