The federal government expected Budget 2025 to reignite investment in Canada, but evidence suggests otherwise. So far, Canada is nowhere close to reaching the level of new private sector investment desired over the next few years. And the 2026 Spring Economic Update, while it offered some positive signals and glimmers of progress, fell short of addressing the real problem holding back investment.
What will it take? Well, it’s something pretty boring, but an essential part of the mechanics of investment attractiveness: fixing the regulatory system that’s holding back growth.
The Prime Minister took a first step last summer, committing to cutting red tape through the still-ongoing Red Tape Review. But so far, progress has been modest against a regulatory reputation he himself has called, “infamous”.
As the Financial Post recently reported, “Canada’s leading industry groups say Prime Minister Mark Carney’s effort to cut red tape is floundering, costing the country billions more in trade losses than U.S. President Donald Trump’s tariffs.”
We have an idea as to why. Many of the “initiatives” identified from the review amount to housekeeping rather than reform, including updated templates and improved processes. Few actual regulations have been identified for repeal or refinement, and there has been no noticeable reduction in the burden.
To fix the regulatory system, Canada must actually reduce red tape.
This requires greater accountability for results and more political will to deliver beyond what’s in place.
Prime Minister Carney created a Red Tape Reduction Office to ensure accountability, but progress is tracked internally through the Treasury Board Secretariat, and it has yet to publish its own performance measurement strategy. That needs to change. Progress should be tracked against clear, verifiable measures, such as the number and complexity of regulations, not just internal government reporting. It should also rely on feedback from businesses: if they don’t notice a difference, it’s hardly a success.
In addition, the government has no defined objective beyond vague commitments to reduce duplication and remove dated requirements. Setting a goal would help turn ambition into obligation and incentivize meaningful progress. The Netherlands aimed to cut the administrative cost of regulation for businesses by 25%, and, just a few years later, delivered on that goal. They did it by setting a precise numerical target, tracking progress publicly, and establishing an independent body to scrutinize regulations — a model Canada could follow.
There are also tools to do this faster and better than before. This need not be the same fragmented, department-by-department review of Prime Ministers’ past — one that sticks to familiar rules and processes, barely scratches the surface of the 306,000 regulatory requirements and counting, and never reaches its nooks and crannies or has a birds’ eye view of how it all connects. We have tools to do things we couldn’t have imagined back then.
In fact, this policy challenge is an excellent fit for the federal government’s own AI Strategy for the Public Service, which is meant to increase efficiency and automate complex analysis — capabilities directly relevant to the challenge of reviewing and reducing a regulatory burden of this scale.
But cutting the red tape that exists today, as essential as it is, only addresses part of the problem.
The federal government must also fix the mechanics of the system that breeds it. Or it’ll be déjà vu / Red Tape Review all over again in five years.
The solutions here are even less headline-grabbing but, importantly for Canada’s fiscal state, they’re both effective and cheap. Essentially, the issue boils down to the fact that government departments have strong incentives to introduce new regulations but limited accountability for whether those regulations actually work or whether regulation was even the right tool in the first place.
Regulation should be justifiable, and the benefit must exceed the trade-offs. But in Canada, that bar isn’t always cleared. In any given year, as many as 40% of regulations deemed “high-impact” have failed to demonstrate their value through rigorous cost-benefit analysis.
And that figure may understate the problem. The OECD has flagged oversight and quality control of regulatory analysis as weaknesses of Canada’s system, meaning existing analysis may not be reliable. More concerning, once a regulation is on the books, it tends to stay there regardless of whether it’s working. Unlike many peer countries, Canada has no systematic requirement to review regulations after they’re implemented. Out of sight, out of mind — and off no one’s agenda.
The federal government has made a lot of announcements related to attracting business investment, from new funds to new offices and new summits. But businesses and investors don’t care about fanfare. They care about results.
Canada has AI to work through a 306,000-regulation system at scale, and proven international models to learn from. The question is whether Ottawa will fix the real problems, or will it continue to tinker around the edges.
Have an idea for our next EconMinute? Email us at media@businesscouncilab.com.