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The Biggest Impediment to Canadian Entrepreneurs

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My job allows me to speak to hundreds of business owners each year and I regularly take these opportunities to ask them about their experiences in getting starting. I am always impressed to hear how they came up with the ideas for their businesses and how they managed the early struggles to get their ventures off the ground.

However, when I ask them about their biggest surprises in becoming entrepreneurs, they often tell me how huge a role government rules, paperwork and red tape play in their day-to-day lives.

In our surveys, too, small business owners tell us at the Canadian Federation of Independent Business (CFIB) that excessive regulation is their second-biggest burden, right after taxes. That's why CFIB launched Red Tape Awareness Week™ in 2010. Monday the 21 is actually the very first day of our fourth annual Red Tape Awareness Week, and boy, do we have some news.

For the first time ever, CFIB has provided politicians and policy-makers with a direct comparison of Canadian and American regulatory costs, and the results aren't pretty. Working with KPMG Enterprise, we surveyed over 10,000 small and medium-sized businesses in both countries and found that Canadian business owners pay a lot more to comply with regulations. The largest cost difference can be found among businesses with fewer than five workers: while American firms pay $4,084 per employee, their Canadian counterparts fork over $5,942.

Canadian entrepreneurs are among the best in the world, but it's tough to overcome a 45 per cent cost difference. And if anyone claims this is an apples-to-oranges comparison, consider the following: in Canada, 31 per cent of business owners -- compared to 23 per cent in the U.S. -- said had known the burden of regulation, they might not have gone into business. This raises the question: how many enterprises never get off the ground because of excessive regulations?

Interestingly, the smallest Canadian firms also pay five times as much per employee as companies in Canada with 100 or more workers, which expend $1,146 per employee. Ask yourself: does this make sense? At a time when the economic recovery is still fragile, and we want both jobs and economic growth, why in the world would we make it more expensive for small businesses to hire new employees?

Red tape costs the Canadian economy $31 billion every year, and cutting it makes sense. When we asked small businesses how much the cost of regulation could be reduced without harming the legitimate objectives of regulation, respondents in both countries set the figure at roughly 30 per cent. This would equate to a $9 billion annual stimulus package in Canada if regulation were reduced to more appropriate levels.

If you can believe it, when the BC government started its impressive red tape reduction efforts, it calculated that it had 375,000 rules on the books at the provincial level alone. And while certainly not all of these were directed at business owners, I'd be impressed if a small business could effectively implement 375 regulations -- let alone 1,000 times that number.

The good news is that more governments are beginning to get it. Two years ago, the Prime Minister called red tape the "silent killer of jobs" and the federal government has taken a number of important steps -- including some fantastic work by the Red Tape Reduction Commission -- to simplify things. This includes a mix of structural reforms to make government more accountable to taxpayers, and measures to eliminate specific red tape irritants.

The federal government is making progress, but it's important to keep the pressure on our elected politicians at every level of government. This year, CFIB is taking Red Tape Awareness Week to the next level -- from raising awareness to taking action. This year, we're working to start a Red Tape Revolution.

If you support the idea of cutting unnecessary red tape and giving our economy a $9-billion stimulus to create jobs and growth, I hope you will take a minute to show your support for the Red Tape Revolution by signing CFIB's on-line petition.

And if you want to know how the federal and provincial governments rate in terms of their red tape reduction plans, how well the Canada Revenue Agency serves small businesses, the effects of excessive regulations on the agri-business sector, or which politician or public servant has done the most to ease the regulatory burden on entrepreneurs, please visit CFIB's website each day this week for important updates. You might even see a surprise or two.

Dan Kelly is President of the Canadian Federation of Independent Business (CFIB). In this capacity, Dan is the lead spokesperson and advocate for the views of the Federation's 109,000 small and medium-sized member businesses across Canada. Follow Dan on Twitter @CFIB and learn more about CFIB at www.cfib.ca