Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1694242234128.pdf (Canada)
November 30, 1967 COMMONS DEBATES 4899 Mr. Nasserden moved the third reading of the bill.

He said: Mr. Speaker, may I thank hon.

members for their courtesy and kindness.

Motion agreed to and bill read the third time and passed.

The Acfing Speaker (Mr. Rinfret): Pursu- ant to the order made by the house this sitting stands suspended until eight o'clock.

SITTING SUSPENDED At 6.09 p.m. the sitting was suspended.

SITTING RESUMED The house resumed at 8 p.m.


BUDGETARY PROPOSALS FINANCIAL STATEMENT OF THE MINISTER OF FINANCE Hon.

Mitchell Sharp (Minister of Finance) moved: That Mr. Speaker do now leave the chair for the house to go into committee of ways and means.

He said: Mr. Speaker, this being St. An- drew's day, and being a Scot, I did not observe one of the customs of the Minister of Finance, who is supposed to buy a new pair of shoes when presenting the budget.
Being a Scot, and this being the second budget I have presented this year, I am wearing the same shoes that I wore when I presented the budget on June 1.

Mr. Sfarr: The minister cannot afford a new pair of shoes.

Mr. Sharp: Mr. Speaker.
The purpose of this statement is to present to the house the fiscal measures which the government con- siders necessary at this time to achieve three urgent, and closely related objectives: first, to restrain the inflationary increases in prices, costs and the cost-of-living that are under- mining our prosperity; second, to ease the disturbing strains in the capital market that threaten our continued economic growth; and third, to meet in a non-inflationary way the Costs of continuing public programs essential to social security and long-run national development.
I might recall that in my speech introduc- ing the budget of June lst, which is still before the committee of ways and means, I noted that our budget policy was to assist in rapid economic the transition from the The Budget-Mr. Sharp expansion of recent years to a steady growth in employment and production at levels near capacity.

Our budget was therefore intended to exert a moderate sustaining force upon the economy.
It provided for a deficit of about $300 million in terms of our national econom- ic accounts, excluding operations of the Canada Pension Plan.

Tax reductions pro- posed in that budget were designed to con- tribute to a decrease in certain key prices, particularly those of machinery and equip- ment in order to improve industrial efficien- cy, and in those of drugs, to relieve the group of consumers in the country most deserving of such assistance.
The budget involved over-all net cash requirements for the current fiscal year of $1,590 million, to be financed by borrowing and by the reduction of our cash balances.

These high financial requirements were due not only to the deficit in our budget accounts, which was forecast at $740 million, but also to a large volume of government loans and investments, particularly for house building.
The housing loans were intended to bring and did bring a recovery in house building from the low levels to which it fell last year as a result of the severe competition for funds from other borrowers.

On October 4th I made a second statement in the budget debate.

In it I said that the outlook for production and employment this year was much as expected at the beginning of June.

There were, however, two major problems.


The first was the continued high rates of increase in costs of production and in prices.

These increases were much too high.

The second problem was the very disturbed state of the capital markets, where high and rising interest rates continued to prevail in Canada, as in other major western countries, despite a substantial rate of expansion in the money supply.
I said that the expectation by investors of continued inflation was con- tributing to this extraordinary condition of the capital markets.

We had to find some way of bringing the inflationary movement under control.

This would require the exer- cise of restraint on increases in prices, wages, other money incomes such as rent and divi- dends, and government expenditures.
I noted that the government, in preparing next year's expenditure estimates, was making an early and extraordinary effor', to limit the growth jn its spending programs and its demands on the capital markets.

On the 10th of this month I announced in the house that our budgetary expenditure programs for next year would be held to 4900 C O M M O N S DEBATES November 30.

1967 The Budget-Mr. Slzarp The result of these recent changes in the $10,300 million.
This would be apart from medicare which would be financed by new sustaining forces in the economy has been a revenue raised for the purpose, and the writ- slowing down in the rate of growth of pro- ing off of the Expo deficit in our accounts duction, a slight downturn in total employ- which does not represent any new disburse- ment, and a rise last month in unemploy- ment.

By this action, by the reductions in our ment.


The economy has ceased to be under lending programs, and by some tax measures, the serious strain it experienced last year, we would hold our overall net cash require- and has developed a small amount of spare ments and our consequent demands on the capacity.
capital market in the next fiscal year to less developments, however, have not than $750 million, apart from unforeseen re- put a check on prices and costs; the excessive quirements for our foreign exchange reserves.

rates of increase in wages and in other costs I stated then, Mr. Speaker, that these vari- colltinue unabated.
The consumer prlce index ous measures would be a part of an integrat- has declined fractionally during the past two ed program to check the inflation of prices months, chiefly because food prices fell as and costs occurring in Canada and to reduce they normally do at this season.

Still, the the excessive pressures upon our capital mar- underlying movement remains strongly up- kets.

Tonight it is my duty to carry forward ward.

Excluding food, the consumer price index is up by 44 per cent over a year ago.
the program by reporting more fully on our situation and on the government's intentions, Costs have been rising rapidly and profits and to propose those tax measures we consid- have been squeezed.

Our most comprehensive price component of measure of prices-the er necessary.

the gross national product-showed an increase in the second quarter of this year of 5 per cent over the second quarter of 1966.

Economic Situation T - , ~ ~ ~ + (8:10 ~ .

m . )


[Translation] First, I will note briefly the economic situation and prospects, though these are not substantially different to what they were when I spoke in October.

Canada is now finding it harder to achieve price stability and full employment at the same time than earlier thinking had led us to suppose.

Even with unemployment at levels we do not regard as satisfactory, prices and wages are rising too rapidly.
They are rising more rapidly than those in the United States, more rapidly than those in most other west- ern industrialized countries.

No group in Canada can afford this erosion of our inter- national competitive position.

During 1967 there has been a deceleration in the rapid economic expansion which took place in the last few years.
Our gross nation- to al product has nevertheless continued expand, and for this year I expect the increase will turn out to be approximately 7 Moreover, and even more important, the per cent.

In terms of volume, however, the expectation that prices and costs will contin- this, as increase will be less than half of ue to rise is creating an inflationary psy- prices have continued to increase at excessive chology which is having serious effects on rates.
The expenditures of consumers, sup- both the capital market and the labour mar- ported as they are by rising wages and salar- ket.

In the labour market this psychology is ies, are at a high and increasing level.

The leading for wage expenditures of governments and municipali- increases that are clearly far in excess of any ties on goods and services continue to rise prospective in productivity, and this year although not as rapidly as hereto- therefore clearly inflationary.

Increases in fore.
Increases in fore.

In the first half of 1967, exports reached major wage settlements negotiated in Canada a record level, although in recent months over the first nine months of this year are they have been declining, both in the case of reported by the Department of Labour to wheat and, to a lesser degree, in the total have averaged 8.7 per cent a year over the excluding wheat.

This has of course reflected life of the agreements.
A roughly comparable to some extent the slowdown in expansion in average for the United States is 4.4 per cent the United States and overseas as well as the per year.

In the capital market the same special circumstances of the wheat market.

psychology is leading to an unwillingness to For the year as a whole, however, exports lend money for long terms on bonds and will reach the target set by the Minister of mortgages except at very high interest rates.

Trade and Commerce (Mr. Winters).


Business capital expenditures have also been declining Both the labour and the capital markets in recent months, both on construction and must work efficiently if w e are to continue to on machinery and equipment.

be prosperous and to develop our economy.

to continued demands increase [Mr.

Sharp.]


November 30, 1967 COMMONS DEBATES 4901 In particular we are a nation which must save and invest about one-fifth of our total national output each year, mainly through the medium of the capital market.

In addi- tion we expect to obtain a net annual inflow of capital of nearly a billion dollars or more.
We run our economy on the basis of such expectations, and this continued flow of sav- ings and investment is essential to the pro- ductive employment of our growing labour force.

I t is vital therefore that our capital market continue to work effectively and in a proper relationship to the central capital market of the world, which is in the United States.

[English] An hon.

Member: And now a little girn- mick for St. Andrew's day for the Scots.

Mr. Sharp: I should like to say to the hon.


member that this is one of the groups which has made an enormous contribution to this country, even rivalling that made by the two founding races.

Indeed, I sometimes wonder whether one of the founding peoples was not the Scots.

An hon.

Member: Where are the Scots on the front bench?


Mr. Sharp: Economic Prospects Looking ahead, in 1968 a somewhat greater increase in production than this year in real terms and a somewhat smaller increase in prices is indicated.

This appraisal anticipates a revival in economic activity in the United States and a continuation of growth in pro- duction in Europe and Japan, all important markets for us.

Consequently, I expect to see a resumption in the growth of our exports.
We can certainly expect a continuing increase in the expenditures of Canadian consumers, probably a t a greater rate than this year.

Housing expenditures can be expected to rise next year.

Mortgage funds should be more readily available as a result of the more flexible interest rates on insured mortgages as well a s a reduction in the com- petition for funds and the entry of the banks into the market this year.

Already, as hon.
Already, as hon.

members know, there has been a very sub- stantial it appears to me that capital expenditures by business will not increase next year, bearing in mind the effects of increased costs and some uncertainties regarding market condi- tions.

This is borne out by the preliminary impressions I have heard of the investment the other hand, increase.

On The Budget-Mr. Sharp intentions of large businesses.

As I have previously emphasized, this is an area where expansion rather is now than required.
restraint Taking these various changes together, I would expect total production and incomes to increase moderately next year and employ- ment to increase from the current level about in proportion to the growth of our labour fo~ce.

We expect to see a better performance in overall productivity, partly as a conse- quence of better training and deployment of our labour force and partly because there is usually an increase in productivity at this stage of the business cycle.
We must recog- nize, however, that we now have an economy where many businesses and many consumers have large liquid resources a t their disposal which they can decide to spend on short notice should there be a change in the pre- vailing psychology.

The current international situation is one in which there are potential dangers for Canada, in view of our considerable depend- ence both on world trade and on internation- al capital markets.
Never before I believe have the central capital markets of the world been in such a disturbed condition for so long a time.

There has been widespread uneasiness about the position of the major international currencies which has now been relieved by the successful revaluation of sterling and by the manifest strength of the United States dollar and other major curren- cies in the face of speculation during the past ten days.
Many countries are experiencing real difficulties in bringing their government finances into line with current necessities and in curbing the inflationary tendencies that exist so widely in the Western world.

We cannot isolate ourselves from international price pressures, particularly from the United States, but we must do what we can to con- tain the inflationary pressures operating in Canada.
In the current international circum- stances, our policies must reflect the need for strong action to protect our underlying posi- tion and for flexibility in adapting to chang- ing circumstances.

Controlling Growth in Government Expenditures I t is against this broad economic back- ground that we must decide upon our pro- grams and measures.

First, we must consider our public expenditures.


Our program will be before the house in detail in a few months in the form of the main estimates, but in the 4902 COMMONS DEBATES November 30.

1967 T h e B u d g e t - M r .

S h a r p meantime the government is having to make the basic decisions which will be reflected there, along with those expenditures arising out of statutes.

It is essential that the house and the nature and severity of the problem that confronts us and the need to cope with it.
the public recognize required Since this government took office it has been putting into place, as it stated it would, the major reforms to complete Canada's social security system.

On our recommendation, parliament has also author- ized a substantial increase in the contribu- tions to what is now Canada's first priority, higher education.

This was done both in the form of expenditures and in the form of a special fiscal transfer to the provinces for this purpose.
We have deliberately trans- ferred to the provincial governments addi- their tional municipalities could provide rapidly expanding services required of +em.

We have pressed forward with measures to pro- mote scientific research, industrial develop- ment, and the improvement of those areas in the country which have suffered from slower growth and lower incomes than elsewhere.
they and the resources so that We made no secret of the the fact-and house was aware-that all these reforms would involve substantial increases in public expenditures.

Indeed, we were urged to go even further.

I made it quite clear last year and this year that the requirements of a growing and developing Canada in which these economic and social reforms were pro- ceeding would involve increased claims by governments and the national output.
Even so, I pointed out the growth in the public sector of our economy was not going to be so rapid as to require more than a portion of the growth i n the national output as a whole, although it would and did involve higher tax rates.

their agencies on Let me illustrate.

I n the last fiscal year our total federal government expenditure on the comprehensive basis used in the national eco- nomic accounts amounted to $9,846 million, which was 16.8 per cent of the gross national product.
Five years before, in 1961-62, when the party opposite was in office, it was 19.2 per cent of the gross national product, and five years before that again, in 1956-57, the total was $5,126 million, which was 16.4 per cent of the gross national product.

Thus it will be seen that although our expenditures over the same decade had increased by 92 per cent, they were about the same share of the gross national product as they were ten years ago, and a smaller share than they [Mr.

Sharp.]

were five years ago.


Moreover, during this period we reduced our tax rates in favour of the provinces, as I mentioned a moment ago.

In addition, parliament has during this peri- od enacted the Canada Pension Plan which is not reflected in these figures.
It is a separate, fully contributory, funded plan in w h ~ c h at this early stage the contributions far exceed the payments and produce a large investment fund which is placed at the disposal of the provincial governments to help them meet their capital requirements.

Now let me look at the expenditures of provincial govern- ments and municipalities.
The expenditures of provincial govern- ments and municipalities have been rising much more rapidly over this past decade than those of the federal government.

Again using the figures as produced for the national economic accounts, provincial and municipal expenditures together show a total in the last fiscal year of $10,942 million, which was 18.6 per cent of the gross national product.
Five years before that, in 1961-62, they were 16.3 per cent of the gross national product, and flve years before that again, in 1956-57, they were $3,474 million, which was 11.1 per cent of the gross national product.

In other words, in contrast with federal government expendl- tures which have maintained a constant pro- portion over the last ten years, provincial and municipal expenditures between them have risen from 11.1 per cent to 18.6 per cent of the gross national product.
The average annual growth rate over this period of provincial plus municipal expenditures has been 12.1 per cent as compared with the average growth rate in federal expenditures of 6.7 per cent.

I should add here that the federal expenditures I have given include contributions and the muilicipalities which would have to be elimi- nated before one added the figures to get a the provincial and municipal total, since figures from monies received from federal sources.
include expenditures made provinces to While it will be noted that these rates of increase of provincial and municipal expen- ditures have been substantially greater than our own, I am not criticizing the provinces in any way for this.
It is well known that many of the increasing demands for public facili- ties and public services arising from the rapid growth of our population, our labour force, and our economy generally, as well as from the shift of population from the rural to the urban areas, fall upon provincial govern- ments and their municipalities.

This is a fact of life which musl be taken into account in November 30, I967 COMMONS DEBATES 4903 evaluating the rate of increase in government expenditures as a whole.
in the influences In appraising the situation this year, and taking into account our various commitments including medicare, the government decided it would have to impose much more severe limits on the growth of expenditure than have applied for many years in the past.

This restraint is necessary if we are to check the economy, inflationary reduce our demands upon the capital market, and minimize the increase in taxes.
Conse- quently we decided, as I stated earlier this month, that we would hold the increase in from our budgetary expenditures, apart medicare and the writing off of the Expo deficit, to some 43 per cent, a rate of increase much smaller than in the three previous years.
Once this has been achieved and medi- care has also been put into effect, then I in our public believe expenditures can be held to a level which can be met from the increasing revenues resulting from a growing economy without inflationary consequences.
There will be many important programs to be pressed for- ward by the federal government, particularly in the fields of manpower training, research and economic development, but I think they will not involve the rapid, massive increase in expenditures that we have seen in this past decade on the health and social security programs.
the future growth To make this transition we must this com- ing year make a downward adjustment in our spending programs-apart from medi- the rapid rates of increase that care-from we have had recently to more sustainable rates of growth, just as we have been endeavoring in the past 18 months to adjust our rates of economic expansion.

This will not be easy.


To some it may appear at first blush that the ceiling on budgetary expendi- tures next year of $10,300 million-which allows a n increase in the neighbourhood of $400 million over the revised forecast of this not a difficult one to Year's expenditure-is meet.

Indeed, I have seen comments like this in the press, that submit we are not setting ourselves a very difficult target.

In fact it means that over large areas of the govern- ment's operations we will be wielding the axe.
Let me illustrate.

We make a large number of substantial transfer payments to the prov- inces and municipalities, such a s equalization T h e Budget-Mr. Sharp payments, hospital insurance, aid for educa- tion and the Canada assistance social welfare plan, most of which increase automatically under statute or agreement with the prov- inces.
We have in addition (apart from old age security which is financed separately) major programs consisting of transfer pay- ments to persons, including family and youth allowances, veterans' pensions, and adult these are also training allowances.

All of mainly fixed by population factors and by statute.

Finally, there are the public debt charges which will rise if we assume that interest rates will remain at pres- ent levels.
Taken together, these expendi- expenditure tures increases of something over half of the total increase of about $400 million to which we are holding.

unavoidable inevitably require When expenditures in these categories are deducted from the total forecast for this year, it leaves about $5,640 million of other expend- itures which can increase only 3.3 per cent within the ceiling set for next year- mar- gin which will largely be required to meet the increased costs of higher pay rates and prices.
In the face of these unavoidable increases in our payments to provinces, in payments to individuals under statutory programs, and in public debt charges, and the increase in pay and prices, it is clear that our other expendi- ture programs as a whole, under our normal budgetary control, will have to be restrained severely next year.

The reductions must be large enough to make way for a number of new things that we will have to undertake, such as tlfe program in Cape Breton.
I am thinking about the Cape Breton Development Corporation, the Atlantic Development Board expenditures, and so on.

Consequently we are going to have to cut back or cut out a num- ber of things that we have been doing.

Some programs that we have been carrying on for years will be dropped, some major construc- tion projects will be postponed, some subsi- dies will be reduced, some expansion of pro- some the government has grams-including promised-will be held back.
I n planning our programs we are taking account of the great- er unemployment in the Eastern areas of Canada and the fact that expenditures there are less likely to be inflationary than they are in Canada generally.

My colleague the President of the Treasury Board, who is in charge of this expenditure control program, will speak in the budget debate next week and give the house some of 4904 COMMONS DEBATES November 30.

1967 The Budget-MT.

S h a r p the detailed decisions on these cuts.


I expect he will deal with the plans for restraining the growth of the public service, about which many people have expressed concern.

I would make only one point about that to keep the subject in perspective.
I t is that the size of the federal Public Service has for the past 15 years-whether there were ceilings on or off-remained very close to one per cent of the population of Canada and for the past half dozen years has been declining as a percentage of the Canadian labour force.

I have seen suggestions, and probably will hear some suggestions that we should be cut- ting back government expenditures.
I am sure I have the support of the Leader of the Opposition (Mr. Stanfield) in saying that this is unrealistic, because I have here a report of a n interview with the Leader of the Opposi- tion which a m e a r s in the most recent issue of Executive Magazine, in which he says: fleet of aircraft and its various ground instal- lations in order to meet the growing traffic demands on it.
The Minister of Transport and I recognize that it will be necessary to exercise restraint on what the government lends to Air Canada in future years, requir- ing that company to seek sources of capital funds other than the government.

On the other hand, two of our large lending pro- grams will come to a n end in 1968, that for Expo and that for the Municipal Develop- ment and Loan Board, and we can expect some recoveries in future of what we have lent under both these categories.
To sum up, Mr. Speaker, the government is applying rigorous restraints on its spending and lending as part of our program to check the inflation of prices and costs, to reduce excessive pressures in our capital markets, and to minimize increase in taxes.

I think anybody who suggests that you can cut Budgetary Outlook and the the last the rate of the have increase, and his Government Lending Programs Some hon.

Members: Hear, hear.

An hon.

Member: That is the point.


last savings bond campaign has succeeded Mr. Sharp: The Leader of the Opposition down on government spending or offer a substantial reduction in taxes isn't being very realistic.

But any government can control increase i n expenditure.
~i~~~ the situation I have described, we that some increases in taxes a r e essential in order to meet our growing expenditures even under the restraints we have imposed, and to to reduce our over-all cash requirements what we can reasonably e x ~ e c i to finance in the market.

Our large-cash balances of last can try to convince us that our rate increase April were down to rock bottom a t the begin- is too high, but all he was able to do was ning of this month.
Fortunately the Canada increase in raising a substantial amount of new cash increase was much greater than ours.

during November, despite the very adverse circumstances under which it had to be car- Our problem in regard to the demands we ried on.
1 wish t~ take this opportunity to make on the capital market arises, as I have express my admiration and gratitude to those indicated, not only from our spending pro- who have organized and carried out this grams but also to a large extent from our campaign this year.

We will need to come frequently to the marlcet in the next sixteen lending programs.

I n the current fiscal year for example, we are lending from the treas- months, both for refunding and for cash.
w e face a n unusually large maturity of savings ury to the Central Mortgage and Housing Corporation for housing and related purposes bonds in 1968, and will consider making a n a net amount of $608 million, after taking offer to holders of these bonds to convert them into a new issue of savings bonds in into account repayments we receive.

We are lending to the F~~~ credit corporation for advance of their maturity on November 1st.
I feel we must ensure that our over-all cash the effects of requirements, apart We are advancing to the Veterans Loan unforeseen changes in our exchange reserves, Board for housing and farm credit purposes should be kept well within our $750 million $60 million.

The size of these lending pro- grams will have to be restricted.
I am confi- To attain this objective is going to require dent we can do this without serious economic the virtual elimination of our budgetary defi- effects, when account is taken of the better cit next year.

This is because, even after the flow of mortgage funds we can now reductions proposed in our lending program, the capital market to provide.

requirements next our net non-budgetary Another demand upon our funds is Air year will be large, including as they should Canada.
I t is having to expand rapidly its some repayment of the 1966 refundable t a x mortgages a net amount bf $167 million.

limit for 1968-69. from [Mr.

Sharp.]

November 30.

1967 COMMONS DEBATES 4905 on corporate cash flows.

In addition it is important to build up our cash balances from the low levels they are likely to be at in March 1968. year-are Our budgetary expenditures in the current fiscal year-this now expected to be about $9,900 million.
Our revenues, before taking into account tax changes I am propos- ing tonight, are likely to amount to about these figures are $9,070 million.

Although different from my June budget forecast, I intend that our tax and expenditure meas- ures will hold the budgetary deficit as close as possible to what was planned a t that time.
It now appears that our over-tall cash require- ments for the year as a whole-apart from the refunding of our debt and on the basis of the current level of our exchange reserves -will be about what I expected in the budg- et speech of June.

Outlook for 1968-69 The best preliminary forecast I can make of the yield nest fiscal year of our revenues under our current tax laws-which of course at this early date is more uncertain than is usual in normal springtime budgets, is about $9,700 million.
With our expenditures at the level of $10,300 million where we have decid- ed to hold them, apart from medicare and Expo, our budget deficit would be $600 mil- lion.

I believe we can and should aim to eliminate most of this deficit.

The fiscal restraints that are essential now may limit somewhat the increase in our pro- ducticn next year but such a limitation now is far better than a seriou-s recession later.
If we czmot, as individuals and organizations, exercise the restraint that is now called for in price, cost and wage increases then there is no alternative but a collective fiscal restraint exercised by parliament.

This is a case where the proverbial ounce of preven- tion now is far preferable to a pound of cure later.
When the government and parliament have taken the action we should to hold our to meet our in check and expenditures expenditure requirements by tax revenues, then we should, as I said in October, support such action by a determined campaign to achieve by voluntary co-operation a large reduction in the unacceptably high rate at which prices and costs are increasing, in- cluding wage settlements.
18.40 p.m.) We must bring to a n end the present round of inflationary price and cost increases, and move to a situation in which all Canadians The Budget-Mr. Sharp can work and buy and bargain and invest in the expectation that their money over the years will maintain its real value.
To the extent that we can mobilize public opinion effectively in support of this objective, and against the actions of those who clearly exploit their market power to obtain infla- tionary increases, then we can have a higher level of employment, production and incomes along with price stability.

This would be, in the words of the Leader cf the Opposition, "a more civilized way to control inflation".

I think that we can do it.


The government is planning to organize a temporary program of this kind-after we have done our part here in parliament to restrain our spending and to impose the taxes necessary to finance, in a non-inflationary way, the expenditures which we in this house have judged to deserve the priority that is implied in our approval of these measures have been them.
When approved I would then propose, with several of my colleagues, to initiate discussions with leaders of labour, of management, and other main elements of the economy, as to the manner in which we could most effectively organize this program of restraint.
The Tax Reform Program forward my Before putting revenue proposals I think it is desirable to say what I can now about our plans in regard to the tax reform program on which we have been working and about the reactions we have received to the report of the Royal Commis- sion on Taxation.

In the first place i t must be recognized that our tax ;eform program must be undertaken under circumstances quite different to those contemplated in the terms of reference of the royal commission and its work.
The commis- sion was designing a system to yield a reve- nue comporable to that of 1964.

Clearly we will need a tax system in 1969 and subse- quently which will produce more revenues that that of 1964---even after allowing for the growth in our economy since then, and the consequent increase in prices and incomes and in our federal revenues.

Mr. Woolliams: What growth?

Mr. Sharp: Somebody said "What growth".

I do not think there has ever been a period in our history when there has ever been such growth.
There has never been a greater rise in the real economy, and there has never been a greater rise in employment than dur- ing this period.

4906 COMMONS DEBATES November 30, 1967 The Budget-Mr. S h a r p A n hon.

Member: There has been a tre- our own work on tax reform and the report mendous growth in taxes and unemployment.

of the commission.
of the commission.

Mr. Sharp: On the olher hand we can and will take account of the arguments the com- the relative inci- mission made regarding dence of the tax on various income and other groups.

In accordance with our invitation to all Canadians to send us their views concerning the commission's report we have received many hundreds of briefs and letters on the subject.
Many individuals and groups have talked to me, and to the Minister of National Revenue, and to other ministers and officials about the report and its proposals.

I wish to express our appreciation to all the individu- als, businesses, trade unions and associations who have given us their views on this diffi- cult and controversial subject.

I have been particularly impressed that.

four points have played a central role in.the public discussion of the report, and in the submissions made to the government.
The first is the sweeping extent of the changes recommended by the commission, and the difficulty of predicting the effects that sudden changes of this magnitude would have on the economy and ultimately on the position of various taxpayers.

We have encountered this difficulty ourselves.


The second point is that the commissioners have suggested for Canada a tax system quite different from that of otheq countries, and in particular quite dif- ferent from that of the United States with whom we have an integrated capital market.

This could give rise to economic difficulties, as well as to technical problems in drafting an effective law.

The third point is somewhat related to the seccnd, although it has conno- tations in other areas as well.
It is that Canada will need to generate and invest a large volume of savings over the next decade in order to carry out the economic growth and development we want, and we shall need to attract substantial amounts of foreign capital to supplement our own savings.

Many people feel the commission did not give ade- quate weight to this consideration in deciding on its recommendations, and I am inclined to agree.
The final point is a widespread con- cern over the regional impact of the commis- sioners' proposals, particularly those related to the mining and petroleum industries.

Many of the briefs which we have received contain suggestions for modification of the commission's proposals, or alternatives to the commission's proposals.

We are now studying these suggestions, in addition to completing [Mr.

Sharp.]
Sharp.]

The government believes that substantial reform is necessary if its revenues are to be raised as fairly as possible and with a mini- mum of interference with the proper devel- opment and functioning of the Canadian economy.

I believe that the report of the royal commission will turn out to have been of great value to the government, to parlia- ment and the people of Canada in helping us all to recognize the deficiencies in our present tax system and to devise sensible ways to reform the system.
However, the work we have done within the government, as well as the analyses we have received from others, leads us to the conclusion that while the reforms we will place before parliament and the public in the form of a White Paper and ultimately in draft be influenced by the monumental report of the royal commission, they will be more in the nature of reforms of the existing tax struc- ture rather than the adoption of a radically different approach.
They will not necessarily be limited to items which the commission has recommended.

legislation will undoubtedly In the meantime our current tax proposals must of course be made in a form that relates to our present laws.

Personal Income Surtax I come now to my tax proposals.

My first proposal relates to the personal income tax.

I am asking the house to approve a special surtax of 5 per cent of the amount of the basic tax assessed on an individual in excess of $100.
This surtax will take effect January 1st and would remain I expect until we have completed the transition to a slower rate of growth of expenditures or until economic and financial conditions call for a change in our fiscal policy.

in tax resulting from This change will be made in such a man- ner as not to affect provincial revenues.

As was done in 1965, I propose that the max- imum change this amendment be limited to $600.
The surtax is so defined that it will not apply to single persons with incomes of less than $2,000 a year nor to a married man with two chjIdren having an income of less than $3,600.

The increase in tax for a married man with two children and a typical income of, say, $100 a week would be 23 cents a week.
I would ask permission at this point to insert in Hansard tables to illustrate the effects of this change 4908 COMMOBTS DEBATES November 30, 1961 The Budget-Mr. Sharp The rate of excise duty on spirits distilled in Canada would be increased by $1.25 per proof gallon.

For most spirits this would mean an increase from $13.00 to $14.25.

The excise duty on beer would increase from 38 cents per gallon to 42 cents per gallon.
It will also be necessary to provide increases of the same amounts in the tariff on imported liq- uors and beer.

A special excise tax would be applied to wines, both imported and domestic.

The rate would be 25 cents per gallon on wines con- taining not more than 7 per cent of alcohol, and 5 cents per gallon on wines containing more than 7 per cent of alcohol.

On tobacco and tobacco products we levy both excise duties and excise taxes.
We pro- pose to use the excise taxes to obtain the increzse necessary.

The rate of excise tax on cigarettes would be increased to 3 cents on each five cigarettes from the present 24 cents, that on manufactured tobacco to 90 cents a pound from 80 cents, and that on cigars to 17; per cent from 15 per ceat.

In all, it is estimated that these changes on liquor and tobacco will increase our revenues in fiscal 1968-69 by approximately $95 mil- lion, and in the current year by approximate- ly $20 million.
Corporation T a x My third proposal concerns the corporation tax.

I t is designed to give us a substantial increase in our receipts next year, without adding in future to the costs of production or distribution of Canadian business.

I t will be of substantial help to our cash position a t a time when that is necessary, and will consti- tute a measure of continuing reform designed to produce greater equity as between corpo- rations and other taxpayers.
Corporations presently begin the payment of their tax in the fifth month of the taxation year to which it relates and complete these payments four months after the end of the year.

This timetable of payments which was advanced in 1963 and 1964 still contrasts with that of individuals who have income tax deducted from their wages each pay day.

We have decided to reduce further the difference between corporations and individuals.
I n future, corporations will be required to make their first instalment payment in the third month of their taxation year and com- plete their their payments on account of estimated tax by the second month following the year.

[Mr.

Sharp.]

Mr. Eambert: That is all windfall.

Mr. Sharp: Sicce some companies may have difficulty determining their actual tax liabili- ty w i t h ~ n two months of the end of the year.
they w ~ l l be permitted to make a final pay- ment adlustlng their estimate of tax to their actual liabil~ty a t the end of the third month following the year.

The change will not affect the date for filing corporation tax returns, which will remain six months after the end of the ycar.

The corporations will make the transition to this paytxent schedule by increasing their first ten payments for their next taxation year beginning after tonight.
Under the pres- e n t law these payments woulcl each be one- twelfth of the estimated tax for the year; d u r ~ n g the year of transition they will each be one-tenth of that amount.

We estimate that this change will increase the government by the cash receipts of approximately $290 million in the fiscal year 1968-69, of which $240 million will be non- recurrent budgetary revenues and $25 mil- lion will be old age security revenues.

Mr. Bell (Carleion): That is just a phony.


Mr. Sharp: The remainder will be credited to the provincial tax collection account from which payments are made to the provinces under our tax collection agreements.

There will be an additional $50 million of receipts in fiscal 1969-70.

Special Refundable Tax the boom to restra.n Hon.

members will recall that in 1966, as a in capital measure expenditures then in progress, we introduced a refundable tax on cash profits.
Under the law, the payments must be refunded with interest not later than 35 months after they were due, or after they were received if they were late.

They could be repaid as much as 18 months earlier if the government so decid- ed.

Consequently the amount collected-some $230 million in all-must be repaid some time between today and June, 1970.
Clearly i t would be difficult to make repayment in i n the next few months, but I believe we should not put off the repayment entirely until the last possible date for that would add seriously to the burdens to be faced during the 1969-70 fiscal year.

I believe the measure I have proposed in r e g a d to corporation taxes will provide us with enough cash receipts to permit us to repay a substantial amount of the refundable tax during 1968-69.

November 30.
November 30.

1967 COMMONS DEBATES The Budget-Mr. 4909 Sharp thereafter we will including the repayment of the refundable tax, well under the ceiling of $750 million I We now propose to begin the refunding process in June of 1968, refunding then the payments received before June 30, 1966. announced on November 10.
Six months ago, in presenting the main Every second month refund one month's receipts; in August 1968 budget, I said: "There is no one-shot econom- we will refund payments received in July, ic nostrum guaranteed to keep us healthy 1966; in October, 1968, receipts of August through the coming year".

That budget of 1966, and so on until February, 1970.
The June 1 marked a stage in the continuing final payments will be made in May of 1970 process of economic adjustment, in the proc- refunding amounts received in May 1967, as ess of managing our prosperity.

So do the measures I have placed before you tonight, the law requires, and late payments.
In order to reduce administrative costs, we made necessary by the persistence of infla- should refund with our first payments in tionary increases in prices and costs, both in June the total amount received from those Canada and abroad, that threaten to erode corporations whose aggregate refundable tax did not exceed $1,000.

We will be asking parliament for authority to do this.

The federal government cannot by itself control inflation.
What this government can the support approximately $105 million, including inter- of parliament-is to keep its own finances in est, during fiscal 1968-69.

During the follow- order, take action to steady the economy and ing fiscal year it is estimated that the pay- give leadership to the other governments in merits will be $139 million-leaving a few Canada and to the country at large.

This task million to be paid in M~~ 1970. l-hese pay- 1s difficult and involves some tough decisions.
ments are not budgetary expenditures, but But, as I remarked earlier, an ounce of pre- vention now is far preferable to a pound of repayments of debt.

cure later.

hi^ program would require payments of do and is determined to do-with the foundations of our prosperity.
Conclusion Mr. Speaker, Income Tax Act Resolution That it is expedient to introduce a measure to amend the Income Tax Act to provide the substantial proposals which I have put forward would increase our revenues in the current fiscal year by some $45 million and, together with the reductions among other things: 1.
That for the 1968 and subsequent taxa- in expenditures to be announced, will hold tion years, in addition to the income tax our budgetary deficit this year close to that forecast in the budget of June 1.
It will otherwise payable by an individual under the hold our estimated over-all cash require- Income Tax Act, a special surtax be payable ments for the current year-apart changes after today-to will leave us with a substantial amount to Act in excess of $100, or borrow from now until the 1st of April, but I regard that as manageable.

(a) 5 per,cent of the amount of the basic tax as determined under section 33 of that in our foreign exchange reserves about $1,550 million.
This from any equal to the lesser of Mr. Bell (Carleton): What amount?

Mr. Sharp: I shall be glad to answer a question in that context later.

I should like to Conclude my speech.

For next year the changes proposed will to our budgetary add about $520 million revenues-including the large non-recurrent revenue aris-ng from the change in the tim- ing of payments by corporations.
This will bring our estimated revenues for next year up to within about $80 million of the level to which we intend to hold our expenditures, apart from medicare and the Expo write-off.

These tax changes will also increase our cash receipts during the fiscal year 1968-69 by approximately $570 million.

It should enable us to hold our over-all cash requirements, (b) $600.

2, That for the taxation years commencing after November.
1968, a corporation shall during the 12 .months period ending two months after the close of each taxation year, pay to the Receiver General of Canada (a) on or before the last day of each of the 12 months in that period, an amount equal to one-twelfth of the tax as estimated by it at the rate for the taxation year (i) on its estimated taxable income for the year, or (ii) on its taxable income for the immedi- ately preceding year, (b) on or before the last day of the month ending three months after the close of each taxation year the remainder of the tax pay- able on its taxable income for the year at the rate for the year