Quebec publishes three times more pages of rules and laws per year than Ontario

ik - see also here.

Quebec entrepreneurs burdened by costly laws

PETER HADEKEL
The Gazette

Wednesday, January 04, 2006

Entrepreneurs are the lifeblood of any market economy. Their decisions to create and invest in new businesses, products or services lead to employment, economic growth and innovation.

At heart, they are risk-takers. Their bets on the future expose them to potential failure in return for the chance to earn success.

As such, they can flourish only where risk-taking is "valued, encouraged and rewarded," notes economist Valentin Petkantchin, research director at the Montreal Economic Institute.

That may explain why Quebec lags behind the rest of the country in many measures of entrepreneurship, Petkantchin says in a paper published by the institute last month .

The province's tax and regulatory burdens are simply too high to provide much incentive to entrepreneurship. The regime in place makes risk greater, achievement more difficult and reward less certain.

It certainly seems to have discouraged business formation. From 1991 to 2001, Statistics Canada figures show, the number of businesses with employees grew just 3.4 per cent in Quebec.

The comparable growth rate was 9.5 per cent in Ontario, 15.4 per cent in British Columbia and 9.4 per cent in Canada as a whole.

When it comes to the proportion of residents starting new businesses, Quebec again falls below the Canadian average. New entrepreneurs accounted for 7.3 per cent of the Quebec population in 2003 (including self-employed workers), compared to the Canadian average of eight per cent.

The comparable figure in the United States was 11.9 per cent, according to figures from Global Entrepreneurship Monitor.

Self-employment is also a relatively scarce phenomenon in this province. Statistics Canada data from 2004 showed 120 self-employed workers in Quebec per 1,000 persons in the labour force - some 18.6 per cent below the Canadian average.

"We often hear that people in Quebec are less inclined to become entrepreneurs than other Canadians or Americans," Petkantchin observes. This difference is sometimes attributed to cultural factors.

But the reason Quebec stands apart, he says, is that it penalizes those who want to create wealth, by imposing a costly and time-consuming regulatory burden on them, not to mention taxes that are among the highest in North America.

Governments don't seem aware of the issue because there is no visible or easy way to measure the cost of regulatory compliance.

One crude measure is simply the number of pages of regulations produced by governments. On that score, Quebec ranked far ahead of other provinces over the last decade, publishing three times more pages per year of rules and laws than Ontario did.

Lobby groups have advanced their own numbers. A recent study by the Canadian Federation of Independent Business pegs the cost of regulatory compliance for businesses of all sizes at $8.1 billion a year in Quebec alone - and that's probably a conservative estimate.

This burden falls disproportionately on smaller businesses, which have fewer personnel dedicated to such tasks.

The CFIB study says the regulatory cost is more than five times higher per employee in a business with five employees or less than it is in a company with 100 employees or more.

"It is easier for a company operating on a large scale to recover (such costs) than for a small company with more limited activities," Petkantchin notes.

There is, of course, a surefire way to boost entrepreneurship and that's to lower the highest marginal income tax rates applying to personal and corporate taxpayers. Economic research has established a clear link between progressive marginal tax rates and barriers to business formation.

Quebec is particularly vulnerable here. Its top marginal tax rate kicks in at a level of income far lower than in many other jurisdictions, penalizing those seeking rewards for risk-taking.

Encouraging entrepreneurship is about creating the right conditions for capital to seek opportunities. Clearly, Quebec has a lot of ground to make up.

© The Gazette (Montreal) 2006