Bill Respecting Regulatory Modernization

Second Reading

April 28, 2022

Hon. Larry W. Smith [ + ]

Honourable senators, I rise in my capacity as critic to speak to Bill S-6, An Act respecting regulatory modernization.

This bill’s stated objective is to amend or repeal provisions in various acts which have “become barriers to innovation and economic growth” and to add provisions to acts that encourage economic growth and innovation. More preciously, this bill proposes to modify 29 acts, with over 40 amendments, including amending the Bankruptcy and Insolvency Act, the Electricity and Gas Inspection Act and the Fisheries Act, to name a few.

The proposed changes, seemingly minor and technical on the surface, would remove, as Senator Woo appropriately put, “legislative irritants” that increase the administrative burden not only for the government but for the private sector as well.

For example, Bill S-6 amends the Canada Lands Surveyors Act in order to streamline how the public registers complaints, as well as harmonizing the French and English versions of the act to ensure consistency of language.

Like Senator Woo, I will not have the time to captivate the chamber by addressing every single amendment, as time would not permit it. This is why I believe further and more detailed study of this bill at the various committees is warranted.

Colleagues, regulations play a critical part in protecting Canadians and the environment, acting as guidelines for businesses and consumers to ensure compliance with laws and remedying instances of non-compliance.

It may come as a surprise to many just how regulated our lives are, from the homes we live in, to the cars we drive, to the products we use, to the services we demand, to the food we consume, to the content we watch. Regulations play an important role in protecting our safety and that of our surroundings.

A quick glance at the Canada Consumer Product Safety Act, which is designed to protect the public by addressing or preventing threats associated with consumer products, will reveal nearly 40 different regulations listed. These regulations include children’s jewellery, cribs, window coverings, glass doors, kettles, mattresses, hockey helmets and even glazed ceramics and glassware. In many of these cases, regulations are crucial; without them, we are risking the health and safety of Canadians.

Nevertheless, there are bad and obsolete regulations, and they come at a cost to productivity, competitiveness and efficiency. Burdening businesses and consumers with outdated, ineffective and costly regulations creates unnecessary administrative expenses.

For example, businesses needing to comply with the Canadian Food Inspection Agency Act must, according to the act, provide communications with the agency using paper-based transactions. That is right. In 2022, the Canadian Food Inspection Agency is administering and enforcing the act using paper. Luckily, Bill S-6 amends the Canadian Food Inspection Agency Act, eliminating the need for paper-based transactions and allowing the agency to administer and enforce the act electronically.

It is precisely these types of outdated and, frankly, slow regulatory processes that decrease the competitiveness of Canadian businesses but also make it harder for foreign companies to invest here.

Making regulation a competitive advantage, a 2019 Deloitte report on the state of regulations, underscored Canada’s regulatory environment as a core weakness. This sentiment was shared by the World Bank as it ranked Canada twenty-third on its ease of doing business index in 2019, having fallen 18 spots since 2006. Additionally, the World Economic Forum ranked Canada fifty-third out of 140 countries concerning the burden of government regulation.

Finally, according to the Organisation for Economic Co‑operation and Development’s product market regulation database, in 2019 Canada demonstrated a worse performance than its OECD and non-OECD peers respecting business operations regulations.

Canada was also reported to have been half as competitive as the OECD average with respect to the administrative burdens on start-up companies. Examples of this include the length of time as well as the costs associated with licences and permit application approvals.

Colleagues, given our regulatory track record, it is not hard to imagine that Canada is not the most attractive country for foreign investment.

The Foreign Direct Investment Regulatory Restrictiveness Index is an OECD database that measures the restrictiveness of government regulations relating to foreign investment across various sectors. According to this index, Canada measured more restrictive overall to foreign investment than all OECD countries except Mexico, Iceland and New Zealand in 2020.

Subsequent data from the World Bank suggests Canada’s net inflows of foreign direct investment as a per cent of GDP remained at 1.6% in 2020 — below countries like Sweden, Germany and Spain, which rank as less restrictive to foreign investment.

However, in my conversations with officials from the Treasury Board of Canada Secretariat, and in listening to Senator Woo, I am encouraged to learn that there are supplementary regulatory revision exercises running in parallel to the legislative review in Bill S-6.

In addition to committing to tabling yearly legislative reviews like Bill S-6, there are regulatory reviews under way internally within the federal public service. According to the Treasury Board of Canada Secretariat, departments and agencies have been mandated to develop road maps for reviewing, updating and cleaning up regulations that fall within their purview.

Additionally, the government made note of collaborations with provinces and territories under the Regulatory Reconciliation and Cooperation Table to harmonize regulations between the federal government and the provinces and territories.

Finally, there are several bilateral and multilateral forums on regulatory cooperation that the government is engaged in, committing to work on the very issues which obstruct investment.

Collectively, all of these initiatives set ambitious targets for the federal government. It is our job to ensure that the government is executing on these targets. We must, as a chamber of sober second thought, continually review and hold the government to account in this regard.

Bill S-6 is a small but positive step in the right direction, which is why I believe sending it to committee for further analysis will generate positive discussions and provide senators the opportunities to collaborate in addressing some of the regulatory processes which are holding back productivity, efficiency and economic growth.

Thank you, all.

Honourable senators, I rise to speak in support of Bill S-6, An Act respecting regulatory modernization.

Bill S-6 is part of a regulatory modernization initiative to address issues raised by businesses and Canadians about overly complicated, inconsistent or outdated requirements that have become barriers to innovation and economic growth. You won’t be surprised to learn that I think this is a pretty good thing.

I want to begin by thanking Senator Woo for his exceptional job of capturing the importance of the 47 amendments to 29 pieces of legislation that are included in this bill. That is not something that I could have accomplished, I can assure you. But I especially like the fact that he suggested that this was an important start. You’ll see that I very much agree with that point in my comments.

I also like the fact that Senator Smith did a great job of reminding us of the importance of smart regulation and the burden it places on start-ups in particular. Senator Smith, thank you for that.

These individual amendments have important economic and social themes to improve the ease of doing business, increase regulatory flexibility and agility and improve the integrity of the regulatory system. These are incredibly important goals. I would, however, humbly offer that a fourth is needed: to ensure that our legislation and regulations are not anti-competitive. But more on this later.

Bill S-6 is the second iteration of a planned annual tidy-up led by Treasury Board. It is the first annual regulatory modernization bill to originate in the Senate. I think that has some real importance to it on that point.

These 47 legislative amendments clear up some non-controversial legislative irritants, as Senator Woo said, that are limiting the ability of the resulting regulations to adjust to changing science, technology and business models, among other factors. They are considered so widely accepted that I am not going to focus on them in my second-reading speech.

Instead, I am going to focus on the single point that I believe is the most pressing, most crucial and most in need of robust attention and debate. My focus is on the fact that these 47 legislative amendments do not even scratch the surface of the changes needed to begin to modernize Canada’s regulatory burden, which will improve our competitiveness, as Senator Smith said, our productivity growth and our grandchildren’s prosperity.

I am going to propose in future that this particular bill should be renamed the “Regulatory Irritation Elimination Act” because what it is doing is a very good thing — a very good thing indeed. But it doesn’t come close to getting at the size and scale of the regulatory modernization challenge in Canada.

This is because Canada’s potential growth rate — the rate of growth that can occur without triggering inflation — has been declining. I believe that is because the innovations that could make our economy more productive are too often not incorporated into how we do business in Canada — how we do business in the private sector, in the government sector, in the academic sector and beyond.

Without urgent changes in how we legislate, regulate and procure, Canadian innovations will continue to get applied elsewhere, often resulting in the company migrating to another jurisdiction, along with the high-paying jobs those innovations create.

According to the 2018 OECD data, Canada leads the OECD in “command and control” regulations. This is not a good thing. Command and control-style regulations are those that define the process that must be followed to achieve a given regulatory outcome. Simply, by design, this type of legislation and resulting regulations eliminates the opportunity to innovate.

A very real example is when we define the use of a specific technology in the legislation of regulations, like the use of fax machines, which remains the case today in many jurisdictions. That approach makes Canadian fax machine salesmen really happy but it limits our productivity growth and, as a consequence, our competitiveness and prosperity.

Even more concerning, the OECD recently predicted that Canada will be the worst-performing advanced economy through 2030, and in the three decades that follow. I know a great many of us have been long concerned about this issue, including those of us who participated in Senator Harder’s Prosperity Action Group last year.

It’s worrisome but I find it deeply, deeply frustrating. That is because Canada is home to North America’s second-largest and fastest-growing innovation cluster, the Toronto-Waterloo Corridor. We are world-leading innovators and inventors, but our governments of all stripes at all levels have been unable to do the hard work of incorporating those innovations into how we legislate, regulate and procure.

So that’s where I hope we will place some attention as seven of our committees examine Bill S-6. Let’s focus on the process behind the government’s annual regulatory modernization and find ways to significantly expand and increasingly resource this process into the future, ensuring that it has the capacity, through this and other related processes, to support the urgent need for regulatory modernization at scale in Canada.

Now, when I say “adequately resourced,” am I suggesting even more government spending? No, I’m not. Billions of dollars of intended investments in innovation were announced in the last budget. It’s my profound belief that a tiny fraction of that amount can be redirected to increasingly fuel mandatory regulatory reform and enable greater regulatory agility in Canada. A very small redirection of these resources will reliably deliver increased innovation and business growth.

Simply, when you have an economy where existing legislation and regulations force the continued use of fax machines or limit the innovative use of drones or other technologies, you are choosing to have an economy that will be in perpetual decline as we progress through the digital era. Canadians will become the disrupted when we could be the disrupters.

I believe that this challenge provides the Senate with an important opportunity to play a meaningful role in driving this process into government. I say this because the level of political will in the other place has not translated into meaningful success.

If it had, we wouldn’t need Bill S-6. To prove my point, let me read to you some past quotes from the government side of the other place.

Here’s the first quote:

The key to prosperity is to increase our productivity . . . .

We must adapt to the new world reality or fall behind in the effort to preserve and enhance our future prosperity.

But there are growing concerns from Canadians about our ability to compete. . . .

Governments have a responsibility to create an environment favourable to the growth of competitive enterprise.

Here’s another:

One of the barriers to growth — job growth in particular — for small and medium-sized business is the burden of regulatory compliance and reporting. The volume of paperwork required for compliance represents a drain on entrepreneurial energy. . . .

Reduction of the regulatory burden will require close consultation with other levels of government in order to reduce, streamline, and eliminate overlap in regulations.

And here is one final quote:

In order to promote job creation and improve the conditions for business investment, the Government has taken a range of actions to . . . improve the regulatory environment, promote business competitiveness . . . .

That document also proposed “Modernizing regulation and legislation to better protect investors and taxpayers . . .”

I bet you are seeing a bit of a repetitive nature in these comments. Interestingly, the first was from the Mulroney government’s 1991 budget. The second was taken from the Liberal platform in the 1993 election, drafted by Paul Martin and to some degree implemented by the Chrétien government. The third was from the Harper government’s 2014 budget.

Every federal government over almost 40 years has been trying to improve productivity growth. All the while, Canada’s regulatory burden continues to grow and productivity continues to decline.

But I want to stop here and be very clear. I am not talking about deregulation. I am talking about making sure that our regulations do not hamper our ability to innovate and improve, to be increasingly globally competitive and to increase the prosperity of future generations.

The fact is, either a business disrupts or is disrupted. It happens much, much faster today than a decade ago. Our regulators have an essential responsibility to embrace innovation and help to ensure that our economy ends up on the right side of the disrupter/disrupted divide. We have to get serious about regulatory modernization, now.

So I ask the seven committees studying portions of Bill S-6 to please consider Bill S-6 as an important first step, but we need so much more. Please choose a few witnesses and save a few questions for the purpose of exploring how a much larger, more robust, transparent regulatory modernization process might be established by this government.

I believe that in the Senate we may be far better positioned to examine the veracity of the process that resulted in the 47 amendments included in Bill S-6 than attempt to determine the appropriateness of each one of these highly technical legislative amendments. The better the process, the more confidence we can have in the resulting amendments.

As a result, colleagues, I would ask that you consider examining the following:

First, the selection process. Currently, amendments are proposed by departments through a call letter from the Treasury Board Secretariat. Canadians and businesses can share suggestions, but it is likely that this process could be more robust and more consultative. The risk is that lobbyists, who invariably represent more established incumbents, may saturate the process, overpowering and diminishing the less powerful voices of innovative new entrants.

Second, look at the review process itself. Here I ask you to consider three points:

One is whether the approach used is based in principle and clearly defines the risks that need to be managed rather than defining one particular way to solve the problem. We have to give Canadian businesses the flexibility to innovate.

Second, I ask you to consider where a transparent regulatory modernization process might build on publicly controlled and auditable technical standards, ultimately limiting and de-risking the process for regulators and potentially making the process more agile in future.

Third, consider the opportunity to incorporate a useful tool developed by the Competition Bureau in 2019. Their five-step checklist includes an assessment to ensure that a regulation is not anti-competitive. A similar approach could be applied in this review.

Lastly, I ask you to examine possible capacity limitations. Consider the real or possible barriers and limitations, for example, a limited number of legislative drafters, that may have appeared in the Bill S-6 process or that might create a bottleneck at the end of what we hope will become a much larger and increasingly inclusive and effective public process.

Colleagues, if we want to get serious about prioritizing enduring change on this issue, we need to integrate an inclusive, systematic principles-based approach to regulatory reform that prioritizes outcome-oriented versus process-controlling regulations.

This will require us to ensure that the processes for eliminating regulatory irritants and modernizing our regulations are not anti-competitive, meaning that it does not favour incumbents over new entrants and that it’s technology agnostic, meaning that we do not define the use of a given technology. You may find other risk factors to manage, and I hope you do.

I want to wrap up with a recent salient story. As some of you may know, SpaceX’s Starlink network has been providing satellite broadband service to Ukraine since Russia’s horrific invasion. Russia attempted to foil Starlink’s service through an aggressive electromagnetic warfare attack. As the attack unfolded, Starlink’s engineers rewrote code on the fly, which immediately stymied the jamming attack. The incredible speed of Starlink’s response amazed Dave Tremper, the Director of Electronic Warfare at the Pentagon. He explained that the Pentagon could never respond as quickly because they have to issue a contract out to fix a problem rather than being able to address it instantly in-house.

How the Pentagon regulates procurement puts them at risk of being disrupted and creates a security vulnerability. How the Pentagon regulates procurement creates risk, it doesn’t eliminate it.

That’s the opposite of its intention, I have no doubt.

Government needs to harness the private sector’s ability to innovate and act swiftly. We all need to become more nimble. That’s because the world is moving increasingly rapidly. We need to change those rules that are within our control if we are to keep up, if we are to compete and if we are to prosper.

Let’s prioritize the themes of the Annual Regulatory Modernization initiative that led to the creation of Bill S-6 so we increase the ease of doing business, improve the regulatory flexibility and agility and improve our regulatory system, and also ensure that our regulations are not anti-competitive. Competition drives innovation, productivity growth and prosperity.

This government needs to keep advancing the items I have outlined today if Canada is to achieve these important goals and protect and enhance the prosperity of our grandkids.

I support Bill S-6 and I especially support increased efforts to eliminate regulatory irritations and modernize our regulations.

Thank you, colleagues.

The Hon. the Speaker pro tempore [ + ]

Question? We have 30 seconds.

Hon. Terry M. Mercer [ + ]

It is a quick question. As you go through this process, people are going to give you all kinds of suggestions that should be added to this. If you can’t add it to this bill as you go along, can you make a commitment now that you will keep a record of all of those things and put them in a new bill that catches up with it as you learn?

I have a few more years here, Senator Mercer. I’ll see what I can do.

The Hon. the Speaker pro tempore [ + ]

Are honourable senators ready for the question?

The Hon. the Speaker pro tempore [ + ]

Is it your pleasure, honourable senators, to adopt the motion?

Hon. Senators: Agreed.

(Motion agreed to and bill read second time.)

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