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2404 HOUSE OF COMMONS The Budget-Han.

D. M. Fleming Mr. Pelers: The reason he was interested was that if the farmers receive a fair and income they will be able to reasonable net buy the things that the workers in the fac· tories produce.

He was interested in such things as the mechanization of agriculture and he added his brief to the other supple· Then there was a brief mentary briefs.

from a merchant.
from a merchant.

Possibly some members do not understand why a merchant would be interested in the problems of the farmers.

In his brief there is this passage: The Carmer makes up 12 per cent of the total population of Canada but at time receIves only six per cent oC the national Income.

Under circumstances we cannot maintain the CamJly farm or small business.

the present these This store.


He is interested in the matter from his to point of view and he wants the farmer have a fair and reasonable income so that to the farmer the things he has he can sell should be elementary in his enough even for western members to under stand.

There are a number of other briefs representing other poInts of view.
According the to the government, diversification is cure-all but one of these briefs points out that diversification has been tried in some areas and refers to the difficulties that have arisen not only in relation to wheat produc tion but with respect to the diversiftC!d indus.

try.
try.

He points out that it a farmer goes out of grain production in western Canada he probably goes into beef production and that brings about a lowering in the standard ot tarm income across the country because a surplus is created of that product.

May I call it six o'clock?

Mr. GraHtey: You sure can.

Progress reported.

At six o'clock the house took recess.

AFTER RECESS The house resumed at 8 p.m.

THE BUDGET ANNUAL FL"lA.

"lCIAL STATEMENT OF THE MINISTER OF FINANCE Hon.


Donald M. Fleming Finance) moved: (Minister of He SOlid: Mr. Speaker, That Mr. Speaker do now leave the chair for the house to go into committee of wan and means.

ten months have to passed since I presented my first budget twenty-fourth parliament ot Canada.

this the is my privilege to present Tonight COlnadian budget I am deeply conscious of the honour and responsi bility which once again fall the year 1959. to my lot.

for it {Mr.

Peten:.]


(Translation) : Mr. Speaker, the task ot preparing the this year has indeed been a ehat.

budget lenge.

The concurrent existence ot higher than normal unemployment and 3 disturbing in.
flationary potential have puzzled and con_ fused economic observers not only in Canada It has been but necessary to analyse, weigh and assess the strength and drive ot these opposing forces to prescribe courses ot and to endeavour fiscal policy which will assist Canada to steer a wise course through them.

in many other countries.

and issues.


In the house, In the past year, public attention has been tocused to an unusual degree on economic and financial in the press and in public discussion, questions of and inflation monetary policy, recovery and the public and private in promoting sustained growth have been keenly debated.

This is all to the good, tor the functioning of our system ot government depends upon an informed public opinion.
unemployment, functions fiscal 1958 ECONOMIC CONDITIONS arc now in a A year ago we were faced with the carry_ the effects of a slowing down in over of economic activity.

The two major factOr!

in the recession which began early in 1957 were the decline in business capi tal invest· ment and the liquidation of inventories, which resulted in serious unemployment.

There is still considerable unemployment, but look.
ing back over the past year it is clear that economic we recovery, a period in which the forces of economic growth and expansion have re· asserted themselves.

In the fourth quarter of 1958 the volume of production rose by two per cent above the preceding quarter and was two per cent above the level of the year as a whole.
Taking account of normal sea· there was a marked im-' sonal provement in the trend of employment and earnings, in the volume of retail sales, in the level of corporate proflts, and in the accumula· tion ot inventories.

influences period of The budget white paper, tabled yesterday, reviews the economic developments of 1958 I should like now to draw in some detail.
the more significant attention to some of since they these developments aspects ot provide the background against which my budget proposals are presented.

important The most forces stemming the decline in business activity during 1958 were to be found in the fiscal policy and position of the federal government-lower tax rates APRIL 9.

1959 240~ The Budget-Hen.

D. M. Fleming The loans.

incomes.


additional In addition, and revenues, higher expenditures and in creased cash disbursements particularly in housing spending power provided in this way helped to arrest the decline and underpinned both consump to a substantial degree Uon and investment retarding influences had the maior until spent themselves.

The tax reductions an nounced in December, 1957, helped to main tain the purchasing power in the hands of the public.
Personal taxes paid in the calendar year 1958 were $142 million lower than in 1957, despite an increase of $1.4 billion in personal there were increases in social security payments, such as old age pensions, veterans' benefits, ami unemployment insurance payments, and these also had the effect of maintaining personal incomes and consumer expenditure.

Almost one-third of increase in per!ional incomes consisted of increased federal pay ments of this type, which rose in 1958 from $1.5 to $1.9 billion.
There was also in creased direct government expenditure on goods and services and this too injected new demand and tended to offset declines else where in the economy.

Increased federal transfers to the provinces were equal to about one-third of the total increase in provincial .and municipal expenditwes.

The increase In provincial and municipal expenditures on goods and services in 1958 also provided sub stantial supporl the total Perhaps as important as changes in taxe.
'l and expenditures was government action t~ offset directly the decline in business capital investment by making funds available for housing.

The result was that housing in vestment attained an all-time high in 1958.

Housing starts rose to 165,000 units compared with 122,000 units in 1957 and a previous record of 138,000 units in 1955.

In terms of value, investment in residential construction rose by $353 million or 25 per cent.
Federal fiscal policy played a major role in arresting the decline and in sustaintng the economy until the balance of economic force!i again turned in the direction of the recovery which is now well under way.

The result that cash requirements on budgf'tary was account and for loans and advances were greatly in excess of cash receipts, and there was a very large cash deficit of $1,263 millio!!

in the 1958-59 fiscal year.

that capital current Han.


members are aware in our accounting system there is no separation expenditure between and except as regards loans and advances.

In re8ects other words, not only normal current expenditures but expenditures on capital works as well.
It should be pointed out the therefore that referred to deficit on budgetary account the budgetary deficit 66008-9-152 these above was to a large extent the result of resources expenditures on development of and construction, which in private business In the would be charged to capital account.

calendar year capital federal 1958 works included in current budgetary expense amounted to about $400 million.
In addi there were capital grants to the prov tion, inces, important of which was an the most expenditure of more than $50 million for it will the trans-Canada highway.

Thus three-quarters of be seen on analysis that is in fact due the 1958-59 budgetary deficit to expenditure of a capital nature.

rather than expenditure on current account.


advance The moderate but steady advance in con sumer spending during the first nine months of 1958 was also a continuing source of In the fourth quarter of the year strength.

the consumer quickened expenditure rose by three per cent, the largest quarterly increase since 1952.

This advance was an important recovery and carried consumer expenditure to a level six per cent above the same period in 1957.
The fourth quarter increase was particularly noticeable in expenditure on durable con sumer goods which rose by eight per cenl facet of and the The steady rise Consumer expenditure is much the largest and most stable element of demand in our in consumer economy.

spending during 1958 was supported by a growth in all the main components of per sonal income.
For 1958 as a whole total wage and salary payments were two per cent trend 1957 aggregate but the above throughout is more significanl the year There had been some decline in labour income between the summer of 1957 and the spring of 1958.

This trend was reversed in February, 1958 and by December the level of labour income was five per cent above the low point reached eleven months earlier.

The aggregate income of Canadian farmers farm improved substantially in 1958.
Net This was income largely the result of higher returns from livestock and animal products.

Farm cash income was only two per cent below the all Ume high reached in 1952 and on a per capita basis for all those employed in agri culture cash income was the highest ever recorded.

Government action in aid of agri culture and agricultural exports contributed directly to this improvement.

rose by 24 per cent.


last Among the forces contributing to expan sion in our economy is the rapid increase in our population.

During 1958 our popula tion increased by 381,000, and by mid-sum mer of this year our population will pass the 171 million mark.

All this indicates something of the strength imparted to the economy by the growth in 2406 HOUSE OF COMMONS The Budget-Han.

D. M. Fleming In fact, this was incomes.


As I mentioned earlier, reinforced by a reduction in tax rates and by a very considerable increase in social security payments so that personal income available for spending was markedly higher the increase in per than in 1957. sonal income after taxes was seven per cent in 1958 compared with an increase of five per cent in 1957.
About two-thirds of this large increase in personal income after taxes was used for the purchase of additional consumer goods and services; and the remaining third, an unusually high proportion, was saved.

A return to more normal saving together with the anticipated expansion in personal incomes can be expected to impart still greater strength to consumer spending in the months ahead.

levels of For Corporate profits are a sensitive indicator the year 1958 of business conditions.
as a whole corporate profits were five per cent than in 1957.

But here again the lower yearly aggregate is not indicative of what happened during the course of the year.

The downward trend in corporate profits which persisted through 1957 and early 1958 came to an end in the summer at 1958.

Cor~ porate profits began to rise in the third quarter of 1958 and increased by a further in the fourth quarter.
This eight per cent recovery in profits can be expected to impart strength to increased business capital invest ment.

of As factor of A further importance in the recovery now taking place is the changing role ot inventories.

Movements in inven tories tend to be of a short-run character, often intensifying demand in periods at expansion and inducing further declines in In the 1955 periods of lessening activity.
56 investment boom the strongly inflationary conditions associated with a high level of rapid capital investment contributed to a rate the inventory accumulation.

mood of optimism was replaced by one of caution, to run inventories were allowed.

down and to this extent current needs were met than new production.
Between the first quarter of 1957 in and the first quarter of 1958 investment inventories declined by $1.1 billion at annual rates-Crom accumulation at a rate of $500 million to liquidation at a rate of $600 million.

the latter half of 1957 and the Throughout first half of 1958 investment in inventories was declining and therefore exerting a de pressing effect on production.

By the third quarter of 1958, however, this movement had run its course and inventory investment had resumed a positive role.
from existing stocks rather I have referred to the fact that investment was in the slow-down which business capital factor (Mr. Fleming (Egllnton).J during 1957.

This decline was particularly noticeable in the export~based resource in.

dustries where expansion had been fed.

by world demand.

As the world commodity mar.

kets moved into a position of over-SUPPly in late 1956 and early 1957, capital invest.

in these industries slowed down and m7nt thiS trend spread to other areas of invest.

ment as well.
ment as well.

The decline was partiCUlarly marked in investment in machinery and equipment which feU by almost 20 per cent between the first and the fourth quarters of 1957.

For 1958 as a whole business capital excluding housing, in fell by $789 vestment, million or 13 per cent from the 1957 level.

While business capital investment was lower than in the peak year 1957, it was high by any other standard and remained an im portant source of demand in the economy.
Moreover, it should be observed that a con siderable part of the impact of the decline in capital investment and inventories did not fall on Canadian producers but was reflected instead in a decline in imports which had been swollen by the demands of the previous boom.

including housing.
including housing.

The decline in business capital investment was largely offset by expansion in social In 1958 oUUays capital, of this kind increased by $513 million or 17 two-thirds of the per cent and offset almost decline in business investment.

Investment in housing and community facilities such as schools and hospitals, amounted to roads, more than two-fifths of our total capital spending.
declines segments of A large number of Canadian workers and important the business com munity find their prosperity directly related.

to the demand for our exports.

Despite the recession in the United States market in 1958, our exports of merchandise were maintained at the record level of 1957.

There were substantial gains in exports of a number of commOdities, among them uranium, aircraft, cattle, wheat and fann implements.
beef There were products, notably petrOleum, iron ore, copper, nickel, primary and semi~finished steel, as well as pulp and newsprint.

There was during 1958 a pronounced.

in our economic major external market, the United States.
While our expectations of continuing im provement in the economic situation at home do not depend on any large increase in ex recovery ports, in the United States cannot to affect the position of some of our most important exports and has already contributed to a return of confidence.

the continuing strength of fail in other recovery declining a major emerged While exports were maintained in 1958, merchandise imports fell by eight per cent and our deficit on commodity trade declined by APRIL I.
1959 2407 more than $400 mililon,-from $579 million in 1957 10 $174 million in 1958.

These reduc tions in purchases from abroad were asso ciated with the lower level of business invest ment in Canada and affected in particular our imports from the United States.
The reduction in our deficit on merchandise trade was offset to some extent by a further rise in our deficit on non-merchandise account, and our over all current account deficit declined by $288 million,-from $1,400 million in 1957 to $1,112 million in 1958.

While the merchandise deficit was three sharply quarters of 1958, imports since then have been rising more rapidly than exports, a reflection economic recovery.
progressing reduced first our the of in The exchange value of the Canadian dollar in terms of United States dollars increased during the course of 1958, although the in· crease was confined to the first half of the year.

The premium of the Canadian dollar over the United States dollar was a little more than 3!

cents in December, 1958, compared with about l!

cents at the beginning of the year.


In our trade with the United States exports were well maintained while imports, partic ularly of capital goods and equipment, fell off quite sharply.

On the other hand, our imports from the United Kingdom showed some increase.

I am glad to say our trade and payments position with both the United Kingdom and the United States moved into better balance.
With respect to the United Kingdom the gap in our current account has narrowed for the third consecutive year, with increases in both our imports and exports.

The United Kingdom current account deficit with Canada in 1958 was $130 milUon,-the lowest in the post-war period except 1950. in any year the other members of last September.
the most The achievement of better balance in our the objec trading relationships was one of tives which prompted the government to call for a commonwealth trade and economic conference.

All the commonwealth, accepting our invitation, met with us in Montreal It proved to be one ot significant meetings in the history of the commonwealth, and owed much to the initiative of our Prime Minister (Mr. Diefenbaker).
I have no hesita tion in saying that, in the field of trade and economic development, the decisions reached at the conference will result in great benefits to the not only to the commonwealth but whole of the free world.

The results ot the conference fully justified its opening theme "An expanding commonwealth in an expand ing world."

66968-9-1.52j First, the proposal in October of The Budget-Hon.

D. M. Fleming Two subsequent decisions ot great im con portance were foreshadowed at our ference.
there was the approval at to New Delhi enlarge thc resources of the International Bank and the International Monetary Fund.

In their different spheres these two institu tions promote world prosperity and world stability.

I shall very soon be inviting the house to approve legislation enlarging Can ada's subscriptions to the resources of both these institutions.

Without going into details at this time I should, however, remind han.
members these increases in our sub scriptions do not involve new cash require ments.

that Second, there was the decision of the gov ernment of the United Kingdom in Decem ber to make sterling convertible-a decision which, I am happy to say, was taken con currently by a number of leading European governments.
We may be confident that, over the months and years ahead, convertibility will be a potent torce reducing discriminatory trade barriers against our products and en larging opportunities for our exporters.

reductions of One must admit, however, that trading ar· rangements and commercial policies on the other side of the Atlantic are in a state ot some uncertainty.
The European economic community-the European customs union as it was originally called-has come into being, and as an evidence of western European is indeed welcome.

Also to be solJdarity it that many of the first welcomed is the fact the community, which tariff came into effect last January, were made available to all members of GATT and were not confined to the members at the com munity.
On the other hand, there seem to be strong pressures within the community to increase discrimination against the outside trade quotas.

This, world in the field of together with the possibility at higher Euro pean tariffs at a later date, is seriously dis turbing to other members of the North At· lantic a divisive influence within the alliance.
In seek ing wider trade opportunities wherever we can we shall continue to employ all available facilities including those of GATT, the one organization which brings together the im portant trading countries and the chief trad ing groups.

and could community exercise Despite these difficulties and uncertainties in the commercial policies of the common market countries, world trade and payments have been moving into better balance.
The fear of "dollar shortage", which hung over these countries in the post-war years, now iCems to be dissipated.

The United Kingdom and western European countries have added 2408 HOUSE OF COMMONS The Budget-Hon.

D. M. Fleming over $3 billion to their gold and dollar re· serves last year and this trend is expected to continue.

For this reason alone we are en· titled to expect that trading opportunities in that direction should continue to improve.
it institutions, Much of the increase in European reserves came from the United States where gold re· serves have fallen by $2.3 billion during the past year.

This implies that.

broadly speaking, the United States is continuing to act as a "good creditor".

By gifts and loans, bilaterally and through international is providing other countries with more than enough dollars to pay for the excess of its exports over its Imports.
But it is to be hoped that the people and the government of the United States will become less timid regard· iog imports, particularly imports trom a country like Canada, which buys tram them far more than it sells, and is linked with them by bonds of common continental defence.

In particular the actions of the United States in imposing during the past year new import restrictions on lead and zinc and mandatory controls on petroleum have aroused strong resentment in this country.
We shall continue to press for the removal of these and other unjustiftable impediments to our export trade.

No revIew of the economic situation would be complete without some comment on price movements.

In the fourth quarter of 1958 consumer prices were 2.4 per cent higher than a year earlier.

The wholesale price index rose 1.3 per cent in the same period.

This tendency toward rising prices, particularly in a period of tor recession, concern.
Advancing technology might have been expected to reduce the cost and selling price of many products to consumers.

It is evident, however, that developments in cor· poration pricing policies, in labour organiza.

tion and even in our political democracy are producing increased rigidities which inhibit and the thereby promote inflation and price increases.
I feel constrained at this point to renew the warning I gave in my previous budget re· garding the danger to our longer term eco nomic prospects of a persistent trend toward higher costs of production.

World markets are becoming increasingly competitive, and unless we can keep our costs at production in line with those in other important trading countries we shall find it increasingly diffleult to sell our goods abroad and meet the com· petition of imports at home.

Indeed this is happening now.


free play ot is a matter competitive torces Rising costs and continuing price increases spell inftaUon.

They weaken our competitive position at home and abroad and thereby reduce the possibilities ot useful and pro· ductive employment.

They divert effort tram [Mr. nemine (Etllnton).l speculation, productive pursuits to the wasteful processes of tram which in turn ftow economic maladjustment and decline.
More than this they Impose severe burdens on those with fixed incomes and those normally least able to protect themselves.

They lead to an unequal sharing of the fruits of progress and frustrate the just expectations of toil.

I believe that the long·run growth in production and the fairness with which it is distributed are not unrelated and that both depend upon reasonably stable prices.
I of it: an exaggerated There has been much discussion about in· ftation during the past year, both here and in the United States.

Some of it, in my view, has been and over· dramatized nature.

I have always welcomed public discussion of this question.

Only good can come from a better public understanding of the varied causes of inflation, of its dit· fetent aspects, at its risks, ot the dangers and injustices it breeds, and ot the serious economic distortions it produces.
reject the doctrine ot either the desirability or the inevitability ot creepIng inflation.

As the London Economist put The proposition that Inevitable b not an acknowledgment of economic determinism.

but a political Judement to control It has l1.LPppeared.

inflation Is inevitable is a To argue that to the in· reflection upon, telligence and the moral fibre of free peoples.
I do not see any present evidence of overt inflation in the coming year; in fact the con· sumer price index has declined for the past tour consecutive months.

We must, how· ever, continue on guard against potential in· ftationary pressures.

I believe that it is well within the power of Canadians to achieve reasonable price stability without sacrificing either balanced growth.
indeed an insult immediate Inftation Is recovery the will that or improvements I have tried to draw together the main strands in the economic developments of 1958.

I have pointed to the evidence of recovery at home and abroad.

Throughout 1958 there was serious unemployment despite very sub· stantial positive action by the government.
The in economic conditions to which I have referred had not been in long enough to bring about a sub· effect in employment before stantial It has been an unusually the end of 1958. severe winter in most parts ot Canada, and this has contributed to some delay in the re covery at employment.

recent statistics available show a reduction in the numbers ot unemployed persons as compared with a year ago and a rise of 152,000 in the number at persons working.

These are very encouraging f1.gures.


and I am conftdent that improvement The most APRIL 9.

1959 2409 we can now look forward to a rapid growth in employment opportunities as the season advances, It remains to assess the strength of this recovery and to estimate the levels to which it will carry incomes in the coming year.
I estimate that a mere continuation of the reached in level of gross national product the first quarter of this year would of itself produce a 1959 gross national product about four per cent above 1958.

But recovery is still in process, and we can therefore confidently the gain in 1959 production to go expect well beyond this figure.
Assuming normal crops, stable prices and no untoward ex ternal events I shall be basing my budgetary policy and my revenue forecasts on a gross national product of about $3H billion which is about seven per cent above the average level achieved in 1958. the fiscal year COVERNMENT ACCOUNTS 1958-59 I should like now to review briefly the gov that ernment's accounts for ended on March 31.

Hon.

members will find these set forth in some detail in the white paper It will be two or tabled yesterday.
three months before our books of account for the fiscal year can be closed and audited, and the figures in the white paper and those I use tonight are approximate and subject to revision.

In my budget speech last June I budgeted for revenues of $4,652 million, expenditures of $5,300 million and a deficit of $648 million.
In August, as a result of further sales tax exemptions provided in the amendments to the Excise Tax Act, I estimated the deficit at $650 million, and shortly before the house adjoumed in September, following approval the special wheat acreage by parliament of paymenu and certain other expenditures, I revised my forecast of expenditure to $5,350 million and of the deficit to $700 million.
It now appears that our revenues were $4,770 million, our expenditures including the deficit in the old age security fund were $5,387 mil lion and the tolal budgetary deficit was $617 million, the fact The increase of $120 million in revenues is 2!

per cent over the budget forecast and refiects that economic conditions during the yenr were somewhat better than those on which my budget estimate was based.

Approximately $52 million of this increase was in tax revenues and $68 million in non-tax revenues.
reOecting mainly higher interest earnings and increased Bank of Canada profits.

Expenditures at $5,387 million were $37 million.

or two-thirds of one per cent higher than my revised budget forecast.

the latter The Budget-Han.

D. M. Fleming In addition to the expenditures for govern.

ment services that are charged to the budg etary accounts we have made many very substantial loans and advances and disbursed large sums for a variety of other authorized and essential purposes.
During the fiscal year these outlays amounted to $1,760 mil.

lion and included loans and advances of $336 million to Central Mortgage and Housing Cor poration, $207 million to the Canadian Na tional Railways, $99 million to the St. Law rence SeaWa)f Authority and $42 million to .the Northern Ontario Pipe Line Crown Corporation, as well as $212 million rep from the national resenting disbursements defence equipment account.
To meet these outlays substantial sums amounting in all to $1,114 million were available from the re payment of loans, net annuity insurance and pension receipts and from other non-bud- getary sources, The bUdgetary deficit of $617 million and the net non-budgetary requirements of $646 million have been financed by an increase of $1,429 million in the government's outstand ing unmatured debt, resulUng in an increase of $166 million in our cash balances.
During the fiscal year, in addition to the refunding of treasury bills which matured weekly, ouutanding securities amounting to the very large sum of $7,973 million were redeemed or converted, New bonds in the amount of $9,286 million were issued In ex cbange or for cash.
Arter taking into account the net reduction of $116 million in bonds held in our securities investment and sinking fund accounts Ihe unmatured debt held out side these government tlccounts increased by $1,429 million during the fiscal )'ea!".

The average interest rate on the govern ment's unmatured debt at March 31, 1959 was 3.60 per cent compared with 3.05 per cent at the end of the previous fiscal year.
This in crease was mainly due to the substantial lengthening in the average term of the debt achieved during the year.

DOMINJON-I'ROVrNCIAL RELATIONS The subject or dominion-provincial rela tions has already been debated on two occa sions in the present session.

Accordingly I do not propose to enter on that subject this eve ning.

However, the house might find it inter financial esting is contributions already making available to the prOVincial governments and to provincial institutions.
government federal record have the the on to Under the Federal-Provincial Tax-Sharing Arrangements Act we are making uncondi tional payments to the provincial governments or unconditional tax abatements amounting to $684 million in the current year, of which fiscal aid $167 million is in the form of 2410 HOUSE OF COMMONS The Budget-Hon.

D. M. Fleming through equalization and stabilization pay ments.
Other direct unconditional payments from statutory subsidies and the share of the power corporation income tax total $30 mil lion.

As additional grants to the Atlantic provinces we are paying $2~ million a year to the government of Prince Edward Island and $7 i million a year each to thc govern ments of Nova SCotia, New Brunswick and Ncwfoundland.
In addition to these very large sums we are paying or stand committed to make avail able to the provincial governments or to pro vincial institutions very large amounts of money in the fonn of conditional, matching or specific grants·in-aid.
These cover such proj ects as hospital insurance, health and hospital grants, old age and disability assistance, un employment assistance, trans-Canada high programs, way grants in aid of vocational training, university grants, grants to municipalities in lieu of taxes and in aid of winter work programs, resources roads and to and many others.

The actual disbursements under these arrangements are expected to add up to more than $460 million in UIS9-60.
I should like at this point, Mr, Speaker, to place on Hansard a table showing the cost to treasury of all our subsidies, tax the federal tax abatements, and conditional and rentals, to provincial govern_ unconditional grants inclUding institutions, ments and provincial municipalities and universities, for the past three fiscal years and for 1959-60.
There will be a number of tables that by leave of the house I will propose to place on the record of Hansard tonight, if the house were prepared to give its consent to that now I might save interrupting later.

Mr. Speaker: Has the minister leave to have printed in Hansard this table and subsequent tables as they appear in the address?

Some hon.

Members: Agreed.

Mr. Fleming (Eglinlonl: Thank you.


The table follows: TABLE 1 FeDeRAL CONTRIIlUTIONIiI TO TJlI PaovlNclll (in millionll of dollafll) 195~7 1957-58 1958-.59 (preliminary) 19.59-00 (estimated) A.

Unconditional Grants- ,.

Tax Rental and Abatements.

I. Statutory Subsidies"., ... ......... 3.

Equalization....... .......... .

..

."

... .... " .. " .... ,.

Ml% share of Income Tax on Power Utilities.

•• Stabiliztltion...... ,.

Atlantic Provincell Adjustment Grants ...... 7.

Term Z9 Award (NAd.)

..... .


.... " ... ...... " .. Sub-total,.,.

B.

Conditional PaymentB- ... " ...... ".

3.

HOlIpital In9urnnce.

",., ..... l. A/l;rieulture..... ......... .......... .

........ ,.

Health .......... ,.

Vocational Training ...... •• Welfare., ....... .

........... ,.

Highways and Tran9portatioll.

................. •• Subsidized Rental' &lid Slum Clearance .. ,.

Other ... .

.... ..... " .. .

.......... 7.

Re80u~e Development.

.

......... .,.

22.7 523'3} ,., M2.6 0.'


36.4.

38.'

'.1 26,9 ,.. 0.1 l.2 22.0 -493,6 136,0 3.'

7.3 662.3 21.6 51-4.3 JoI,1.,~ .

'1.7 '.7 25.0 13,6 736.4 0.'

34.7 ,.., .., 55.'

'.8 1.0 1.0 I., 46.5 .~7,8 72,8 .., ,., 6.~.3 16.8 9.'

280.7 25.5 22.3 2U 5t1.0 163,-4 3.3 '.0 25.0 7.3 746.-4 I.'

63.0 160.0 76.2 10.0 70.3 22.'

'.0 8.'

4.11.4 26,2 22.5 .

.... , c. Ptlymenh lor the benefit of provincial inatitutions- ,.

Grants to Municipalities ill. lieu of Taxes Oil.

federal I.
federal I.

University Grants ............................ Sub-total.

... "" .. ,... government property Sub-total.,., ... , .... ", .. " ...

,., .

TOTAL .. "" ..... "", .. ", .. 110.7 16.0 8.7 25.7 $689.0 Hi7.1 16,5 17.8 34.3 $853,7 47.8 $1.064..9 48.7 It,212.5 It will be seen from this table that the total cost to our treasury in 1956-57 was $689 million; in the year just ended it was $1,065 million; and in the year we are now entering it is estimated that it will be $1,212 million.
Thus in this new fiscal year our payments to or for the benefit of the provinces will be almost double those ot three years ago.

Finally, han, members should note that through the federal schemes of unemploy ment insurance, old age pensions and family allowance payments we disbursed in 1958-59 a total of $1,510 million.

These disbursements not only had important income sustaining effects on the entire Canadian economy, but also had a major impact on provincial and [Mr. Fleming (Egllnton),) APRIL I.
1151 2411 finances municipal in relieving them of a great part of the burden ot relief payments which in earlier decades would have fallen very heavily upon them.

DEBT MANAGEMENT I reported to the house in my budget speech last June 17 that the matter of debt manage ment, including the financing of about $1,400 million of new cash requirements, would be the major financial problems of the one of I said at that time that debt manage year.
ment cannot follow any rigid formula, but needs to be adapted to shifting economic con ditions and market sentiment.

I emphasized, however, the importance ot taking advantage ot every appropriate opportunity to sell longer term bonds in order to keep our debt maturi· ties spread out over a reasonable period of years.

Since the end of the war the average term of our debt had been steadily shorten the end of 1949 it was about 81 ing.
At years; by the end of 1954 it was just over 7 years; and early in 1958 it was down to 6 years.

Our problem of debt management in mid· 1958 had several aspects.

One was a signitl.

cant change in the attitude of the investing public toward government bonds, both in Canada and in the United States.

After some signs of strength in the earlier months of ]958 the New York bond market broke sharply in mld·June, and continued a pro nounced downward trend to the end of the year.
The Canadian market, with some varia· tions, followed this general trend.

In both countries investors were showing little interest in increasing their holdings of longer term government bonds.

These cir cumstances led us, in planning our financing, to look to the relatively short term market; but here we encountered the problem of the shortness in the average term of our existing debt.
The major factor in this situation was the impending maturities of nearly $61 billion of wartime victory bonds that had ultimate maturity dates between January 1, 1959, and September 1, 1966.

But in so far as the market this $61 and the investor were concerned, billion was not spread over eight years, be cause the first four of the issues were callable in 1959 or earlier and the 1966 issue was callable at any time after September 1, 1961.
From the investors' point of view, therefore, this $61 blllion had to be considered as being spread over, not eight years, but approxi mately three years.

It was to clear away this heavy over·hang of bonds of short term and uncertain term, and to provide a substantial lengthening out of the average term of our debt that the grbolt conversion loan of last summer was under I shall not repeat the detailed merits taken.

Tne Budget-Hon.
Tne Budget-Hon.

D. M. Fleming of this the largest financial operation in Can· ada's history.

It achieved an unprecedented success.

More than 90 per cent of the out standing Victory Loan bonds were converted by their holders into longer maturities.

It has proved to be a major anti.inflationary step; it removed a source of heavy pressure on the bond market; and by nearly doubling the average length of our debt it has made it to develop and carry forward a possible sound debt management policy.
Monetary policy and debt management are closely related.

During the first nine months of 1958 the Bank of Canada progressively increased the total money supply very sub stantially.

This increase in the money supply, which began in the third quarter of 1957, was in part a normal central banking opera tion to counter the recession in business activity and to ensure that recovery was not It was impeded by any shortage in credit.
also a necessary concomitant of the conversion loan operation which was the foundation for a sound debt management policy.

Debt management and the problems of financing the undertakings of government are too often regarded as matters remote from the interest of the average citizen.

The com plexities ot public finance and the intricacies of the bond market may seem to be removed is, however, from his experience.

The fact is the national debt and the way it that managed touch the lives of all Canadians.
The volume of government borowing, the rates, distribution and length of the national debt, affect the whole pattern of individual, corporate, municipal and provincial financing.

Good debt management to the maintenance of the purchasing power of the achievement of Canadian dollar and the sustained national development.

It is at the very heart of national thrift and is vital to the realization of the economic goals of a free and competitive rodety.
is essential An important and healthy development of recent months has been the sharp reversal ot a long continuing trend of dis·investment in Government ot Canada bonds by the general public.

This decline in the holdings of Can ada bonds by the general public-that is, holdings outside the banking system and gov ernment accounts-had been going on more or the war, but less steadily since the end of was considerably accelerated during the first part of 1958.
Ten years ago the general public's holdings were close to $10 billion; five years ago they were down to $9 billion; at the end of 1957 they were about $8.7 billion; and they reached a low point of just under $8 billion in September, 1958.

In the past six months there has been a sharp turn around.

Since last September the general holdings of Canada bonds have public's 2412 HOUSE OF COMMONS The Budget-Han.

D. M. Fleming increased week by week and -are now $1,560 million higher than on September 30.
Today the general public's investment in Dominion of Canada bonds is at a higher level than at any time in the past eight years.

If I may have consent, Mr. Speaker, I should like to insert at this point three factual tables relating to the size, the distribution, the average term, and the total interest CQst of our public debt over the past ten years.

TABLE 2A Net Debt Maroh31 1950 1951.

1952 1953 1954.

19S5.

''''.1951.

19~.

1959.

.. .. .


Funded Debt Total Debt Net Debt (S billion) (I billion) (I billion) .

1:1.2 15.0 l~.

7 14.8 14.6 14.5 15.4 1'.4 14.2 15.6 16.8 16.9 17.:1 17.9 17.9 18.0 19.1 18.3 18.4 20.'

11.6 II.

4 11.

2 11.2 I I. I 11.3 11.3 11.0 11.0 11.

7 TABLE2B IsuRUT CoeT 0' GROlI8 AND NET On...

Per capita • 8<7 81.

772 757 728 720 72' 883 847 876 Asl!f.r cent .N.P.

of 71.2 83.'

~2.9 46.7 .... 45.4 41.7 36.4 35.0 36.3 Year ending March 31 Interest paid on tot8.1 debt (millions) .
.

.

.

19SO 1951 1952.

1953.

1954.

11l55.

1956 1957.

19.'i8.

1959.

8«0 '" '" 451 <76 . "

49' ... '20 '" Revenues from Inv~tments (millions) .., 00 .,8 117 '52 '34 '" 207 169 '" Net hterest C~, (millions) Net Interest lLll p.e.

of net debt 13<8 '35 ".

,.. '34 ".

'44 31' 370 379 '.00 '.84 2."

'.98 2.92 '.04 '.04 2.85 3.36 '.34 TABLE2C llhTURrTY AND DIBTRDunoN 0' FUNDED DI:II'1' AverNle Term of Debt· Amount of Funded Debt Held ($ millioos) December 31 Years Banks Govt.

Acet!.
Acet!.

General Public P.C.

hcld by Gen. Public .. .... ..... 1949.

1950.

1951.

1952.

1953.

1954.

195.5..... 1956...... 1957.

1958.

1959 (Apr.

I)......... 8.3 8.1 7.5 6.6 6.2 7.2 6.3 6.6 6.0 10.3 10.0 5,178 5,093 5,052 5,176 5,184 5,633 5,540 4,950 5,104 6,190 6, HK ·Excluding Canada Savillgll Bonds ILIId Perpetuala.

[Mr. Flemlnc (Ea:Untonl.l 796 '471,009 1,102 1,314 1,204 1,491 1,518 I, 367 t.258... 9,845 9,952 9,273 8," 9,139 8,629 8,969 8,766 8,693 8.968 9,512 62.2 62.6 611.'

58.7 58.'
58.7 58.'

M.8".,61.5 57.3 84.6 51.4 APRIL 9.

1959 2413 These tables show that since 1949 our gross funded debt has increased by about five per cent, and our net debt is almost unchanged.

Our net debt per capita was $847 ten years ago, $725 five years ago and is reduced to $676 now.

Our net debt as a percentage of gross national product in the same years was 71.2, 44.4 and now 36.3.
While the gross interest on our public rose from S440 million in 1949-50 to debt $604 million in 1958-59, our interest and dividend returns from our public investments have risen in the same years from $92 mil lion to $225 million.

The net interest cost of the public debt was thus $348 million ten years ago and was $379 million in the year just ended.

GOVERNMENT ACCOUNTS 1959-60 I come now to the budgetary outlook for the current fiscal year.
Early in February I tabled the main estimates for 1959-60 total In addition, I must as ling $5,596 million.

sume that there will be some payments under the Agricultural Stabillzatlon Act and that we will have to make provision for a reduced Canadian National Railways deficit for 1959.

The deficit in the old age security fund will be oabout $185 million this fiscal year.
There will also be some additional statutory expenditures as well as the usual supple mentary and further supplementary estimates but offsetting these we can expeet some lapsings in appropriations.

The total amount of lapsings at the end of the year is likely to be much smaller than in past years, as a result of the arduous labours of the treasury board in revising and screening the departmental estimates for the current year.
As I said on tabling the main estimates, we have done our utmost to promote efficiency and economy in govern ment administration, and notwithstanding our growth in population and the essential serv ices that must accompany such growth, we have been able to hold both stat!

and ad ministrative costs remarkably close to the levels or the previous year.
After careful study and consideration, and taking into account our continuing efforts to achieve further economies in -administration and greater efficiency in the public service, I have concluded that our budgetary expend itures for the fiscal year ending March 31, 1960, will be approximately $5,660 million, excluding the old age security fund deficit, or $5,845 million including that deficit.

This is $458 million higher than our budget ary expenditures last year.
While this would increase I appear $235 that should million, or more than half of the total, is in for our defence expenditure, and reflects, to bea very substantial hon.

members remind 66968·9--J53 The Budget-Hon.

D. M. Fleming the most part., the decision taken last year to liquidnte the national defence equipment account in 1958-59.
ActuallY, our total cash outlay this year for defence will be approxi mately the same as last year, but because of this change in bookkeeping treatment, equipment purchases which in previous years were charged to the defence equipment ac count will now be charged to budgetary ex penditures.

As I explained last year, this change <Was made in the interests of good accounting and for the maintenance of proper parliamentary control of expenditures.
The other half of the increase is in non defence expenditures.

More than $100 million is due to the higher cost of our contributions under the Hospital Insurance and Diagnostic Services Act.
Part is due to increased debt charges retlectini the increase in our out· s.tanding debt and higher interest rates; part to the normal growth in our existing social security and welfare payments; and part to government foster policies designed and to provide in national development creased employment opportunities,--expendi tures which will in this and future years In· crease the efficiency and productive capacity of our economy and thereby add to our future national wealth and Income.
to is Forecasting revenue always difficult, much more difficult than estimating expendi tures.

On the basis I indicated earlier of a gross national product of $34i billion for 1959 and taking into account all available in.

formation, I should expect if there were no change in tax rates that our total revenues would be $5,165 million in 1959-60.

This is $395 million, or about eight per cent, more than our revenues in the year just ended.
If I may have unanimous consent, Mr. Speaker, I should like at this point to insert in Haruard a table showing my estimate of the revenues for just ended and the year what we may expect to receive in the com ing year under our existing tax laws.

Table 3 Revenue !orecllt-Before t"l( changes (In millions of dollars) Personal Corporation income tax Non-resident Estates Customs dutl6 Sales tal( Othu duties and taxes Income lax ••••..•••• .

.

.

.

•....•••.••.•••••••.•• .


tax lax Total taxes Non-tax revenue ................•... 19$8_59 $1.371 1,029 ""..,... '" $4.%'14 '96 Total revenue: $4,710 1959·60 $USO 1,OM ""'"'"610 ..,.,. '"

~,165 With projected revenues of $5,165 milllon and expenditures of $5,845 million I should expect a deficit of $680 mjllion for the current year if there were no change in our present tax structure.

2414 HOUSE OF COMMONS The Budget-Hon.


D. M. Fleming Apart from and outside the budget we shall continue to require large amounts ot cash and before I come to discuss the appropriate tax policy for our present and prospective cir cumstances I should like to draw these re quirements to the attention of the house.

As every know, hon.

members year the government lends or advances substantial sums for a wide variety of public purposes.
These are not treated in our accounts as bud getary ex-penditures, as in most cases they are interest-earning or revenue-producing and the principal amount Is eventually repaid.

On the other hand, each year we collect or receive large amounts of cash which are not treated as budgetary revenues.

These consist mainly of moneys paid for the purchase of government annuities, insurance or super annuation benefits or from the repayment of loans made in previous years.
During 1959-60 we shall probably be called upon to advance about $300 million to Cen tral Mortgage and Housing Corporation for housing loans; about $200 million for the cap investment and refunding programs of ital the Canadian National Railways and close to $150 million to the S1.

Lawrence Seaway Authority, the National Harbours Board, the Canadian Farm Loan Board ,and other crown and for other non-budgetary corporations purposes.
On the other hand, we shall have about $250 million available from the repayment ot loans and from the excess of current contribu tions over current benefit payments in our various insurance accounts.

annuity, pension and for these Our net requirements non budgetary accounts, excluding possible ex change fund requirements which cannot be forecast, will be of the order of $400 million which we must borrow.
This together with the prospective budget deficit would result in net cash requirements of between $1,050 and $1,100 million for the year.

TAX POLICY As r have said, Mr. Speaker, on the basis of our present expenditure program and our present tax structure we shall be facing a def_ icit of about $680 million in the fiscal year ending next March 31.
This is about $63 mil· lion greater than the deficit recorded (or the year just ended, notwithstanding the fact that r expect our present tax structure to yield nearly $400 million more revenue in 1959-60 than in 1958-59.

As I have already said, this is due to two principal factors.
The first is that having liquidated the former defence equipment account during the past year, the defence expenditures to be charged against the current budget in 1959·60 will be $235 million greater than last year, although the (Mr. J'lemlna (Erllnton).]

the actual cash expenditures wlIl be about same.

The second factor is that we shall now be meeting a tull year's cost of the hospital Insurance program, and this will add more than $100 million to our expenditures.
earlier Government policies relating to taxation In and expenditures should be kept flexible.

an government generation when revenues and expenditures were only a very small fraction of the gross national product the broad economic effects of government finance were not of great significance.
But in this modern age where the government expenditures constitute 18 to 20 per cent of the gross national product-and in many countries the percentage is much higher than in Canada-the financial po!Jcies of the gov ernment-the amount spent, how It is spent, how the revenues are raised, and the balance between revenue and expenditure-all exert a very direct infiuence on the health of the private sector of the economy.

As economic conditions change, the gov ernment's budget policy needs to change also.
It must be flexible; it should be adapted to There are the shifting economic climate.

times when a substantial deficit is clearly the right policy; there are times when the budget should be in balance; there are times when some provision should be made for the orderly retirement of debt; and within these ranges there is always the question of degree.

The problem of timing the adjustments in budgetary policy is not an easy one, and yet good timing is often of crucial importance.
Government financial policy can never be as flexible as policy in private business.

Changes in taxes have important, sometimes vital.

effects on business operations.

Govern· expenditures are in large measure ment analogous to the overhead expenses ot private business; they cannot be greatly changed on short notice.
Budgetary changes cannot be lightly undertaken or introduced without the most it would be very upsetting and confusing to business if changes in taxation were made too frequently or at unusual consideration.

Moreover, careful times.

The deficits we ran last year, both on budgetary account and on over-all cash ac looking back count, were very large; but over the the past year and considering all circumstances r do not think that they were excessive.
Undoubtedly they were a major factor in moderating the 1957·1958 recession, with respect to both its depth and its duration.

r think nearly all informed observers have agreed that our policy last year was right in in its degree.

its direction and about right We are now.

however, well on the road to recovery, and we can look forward to a steady expansion of economic activity, em· ployment and incomes.

APRIL 8. lIS8 2US The Budget-Han.

D, M. Fleming I all believe hon.


members recognize that we must look forward to a time when conditions of prosperity and employment will allow a balanced budget and when we can also make proper provision for an orderly retire ment of debt.

We have not yet, however, reached that stage.

Recovery is gathering momentum, but it would be unwise at this juncture to change our course so abruptly as to hamper the forces of expansion.

I believe, however, that there .


;hould be some narrowing of the budgetary gap.

If, under the greatly improved prospects of today, we were to continue to run deficits on the same Kale as last year, we would, in my judgment, run serious risk of building up an inflationary potential which could prove most difficult to keep under control a year or so hence.
Appropriate steps in the direction of balanc· ing the budget are also desirable in order to reduce the heavy pressure of new federal borrowings on the bond market.

I have already noted that our in relation to federal debt our growing population and in relation to our expanding gross national product is not exces· indeed Its relative burden is less than sive; in almost every year since the end of the war.
But the fact remains that the Canadian bond market has not been accustomed to absorbing as large a volume of new govern ment of Canada bonds as we have had to ofter during the past year.

The impact of our borrowings, which over the year as a whole have been achieved largely in a non-inda tionary manner, has exerted an upward pres there sure on interest rates.

fore, under present circumstances to move in the direction of reduced federal borrowini'.
in order to reduce pressure on the interest rate structure and to leave more room for financing.

essential provincial and munlc.ipal The two principal elements of a continuing nature in aUf increased expenditures in 1958 and in 1959 are the Increased old age pen· sions and the new proiram of hospital insurance.

These are universal benefits avail· able.

is in the same degree to all CanOl' concerned, dians, from coast to coast, and without regard to individual means.
It seems to me that, in principle, such universally available benefits should be met from a broadly based system of tax contributions.
in so far as the federal government It is desIrable, Our tax policy tor 1959-60 will therefore be based on two principles: provIde a based (ll) To broadly .ouree ot revenuu 10 meet the ne.... and addltlonal fonna ot universally aVlllable fllClal wlflflre benefita, and {bl To reduce the budletAry cap In a delree Interfere with the desired rite of the protl~ ot a that wlll not recovery.

but will hold out balanced bud,et at the Jlpproprtate time.
66968·9-1.531 by achieved the Bovernment I have already reterred to the Important results In providing increased social security.

including old age security and hospital insurance.

These programs have been well They cost money and must be paid tor.

We have also, as I have previously indicated, .spent the problem ot unem~ .large sums to meet ployment.

received.

As far as I can judge, our Canadian public has been well informed about the underlyin& facts of the situation.
Evidently most people have been expectin& some tax increases this year.

Many may be not unpleasantly sur prised that the increase'S I shall be proposing are as moderate as they are.

the community.

In formulating my proposals I have made to spread the increased burden every ef'Iort in a pattern which is fair and equitable and will not weigh too heavily on anyone section of taxes and various tax rates will therefore be af fected, each of them in moderate degree.
The measures which I propose are designed to safeguard the credit of the soundness ot our currency, the development of our resources, and the security of our economic future.

Several dif'Ierent the country, OLD ACE SECURITY The Old Age Security Act provides a pen sion without a means test to every eligible person 70 years of age or over.

The pension was $40 a month from 19S2 until July 1, 1957, when it was increased to $46 a month.
To meet our people's needs it was Increased sub stantially to $55 a month by the present gov ernment on November 1, 1957. the that Before the old age security legislation was introduced the entire subject was care first fully studied by a joint committee of the Senate and the House of Commons.

After considering various methods of financing, this con committee recommended tributory principle be applied, and that the required funds be raised annually on a plly the con as-you-go basis.
From the outset tributions to the fund have been two per cent incomes with a maximum con on personal tribution of $60, two per cent on corporate incomes, and a two per cent sales tax.

This 2-2~2 formula is now far from adequate to provide the funds required to pay the in creased pension.

In the past flscal year the contributions fell short of the required lotal If we are to continue to by $184 million.

2U6 HOUSE OF COMMONS The Budget-Han.


D. M. Fleming maintain the contributory principle and an ear-marked fund it is necessary to increase the contributions to the fund.

I propose that we continue to support the Fiscal year the same three sources ot pension out of contributions in the same proportion as in the past.

This system is well established and fully accepted by the public.
I am, therefore, proposing the following rates of contribution; incomes with a three per cent on personal maximum contribution ot $90, to take effect on July 1, 1959; three per cent on corporate incomes, to take effect from January 1, 1959; and a three per cent sales tax, to take effect tomorrow.

Under the 2-2-2 formula the two per cent levy on personal incomes reached its maximum of $60 at a level of taxable income of $3,000 a year.
The new three per cent levy on per sonal reach its maximum of $90 at han.

members For may I in Hansard a table showillg total contributions and total pension pay ments under the Old Age Security Act since its inception.

incomes will the same level of taxable income.

the insert convenience of Table 4 Old Age Security Fund Total penalon payments Total contributions (mUllons of dollars} $ $ (3 mos.
only) 1951·52 1952-53 1953-54 1954-55 1955-56 1956-51 1951-58 1958-59 26.4 223.6 293.1 290.0 316.2 311.6 371..5 (est.)

316.0 16.1 323.1 338.9 353.3 366.2 319.1 473.9 (esL) 560.0 .

.

.

.

Total $2,268.4 The rates of contribution that $2,670.6 I am pro posing will yield about $143 million in this fiscal ;year and about $196 million in a full year.
This means that the fund will show a deficit of about $42 million at the end of the current year; but since we shall have pro to bring the necessary revenues vided for two or the fund into balance over the next three years, the I do not propose to treat in th~ old age security fund as a deficit budgetary charge in the current year, but to carry it forward into 1960-6l.

Mny I insert here a table showing the effect these changes on the Old Age Security of Fund for 1959·60 and for a full year.
Table Ii Old Age Security Fund (In mUlIons 01 dollars) Revenue from present rates ......................• Revenue added b}' new rates in 19~9-50 .

Total revenue In 1959-60 .

Total revenue In a full year at new ratcs ......•.

Total pensions payable In 1959.60 .

Total pensions payable In 1950-61 .........••..... INCOME TAX I also propose some increases in the rates on personal and corporate incomes as part at the general program at reducing the deficit.
Aside from the increased contributions for old age security I do not recommend any increases in taxes on personal incomes below the level at $3,000 of taxable income.

to add two per· I am proposing, however, centage points of personal income tax to each rate in the rate schedule above $3,000 per year, to take effect on July 1, 1959.

The effect will be that taxpayers will pay an additional two per cent on all of their tax· able income in excess at $3,000.
The increased to which I old age security contributions, have already referred, will involve these same taxpayers in an additional $30 on their first $3,000 of taxable income.

It is expected [Mr. FlemlnC (Ei:lIntonl.J Income Tax Personal $'50 41 191 '" Corporate $56 20 76 ..

Sales Tax $187 "'"280 Total '36 """, '"'"'" that this increased rate on taxable Incomes in excess of S3,000 will yield $25 million this year and $45 million in a full year.
It will have no application to approximately 3,800, 000 of Canada's 4,600,000 personal income tax payers.

For 1959 the rates will refiect the fact that the Increases are not to take effect until July Therefore the increase in income tax 1. rates for this taxation year will be one per centage point on taxable income in excess of $3,000 and the additional old age security For ex contribution will not exceed $15.
ample, a married taxpayer with two young income at children who has a total annual $5,600 will pay no additional income tax, but will pay an additional $2.50 a month for old age security commencing next July.

It will be remembered that this government reduced income tax rates and increased ex· in 1957.

On the first $1,000 at emptions APRIL t. 1959 2U7 taxable income we reduced the Tate of tax by two percent;;lge points.
On the second $1,000 taxable income we reduced the rate of of tax by one percentage point.

At the same time we increased the exemption for each dependent child by $100.

is their find that Taxpayers in the lower and middle income tax increases brackets will this year will cost them less than the relief granted to them by the reductions of 1957.
The best wa~' to illustrate the e!Tect on the to compare the taxes which individual this will be payable in a full year after ~'ear's changes with the taxes payable in 1957 prior to the reductions we introduced in that year.
let us For purposes of comparison, typical married consider 11 two children of man who is the father of family allowance age, the position of At an income level of $3,000 a year, under the new rates, this man will pay a total of income tax and social security contribution of $56, an increase of $4 from the 1958 level.

He wJll, however, be paying $34 less than he paid before the reductions we Jntroduced in 1957.

The Budget-Hon.
The Budget-Hon.

D. M, Fleming At an income lcvel of $4,000 a year, under the new rates, he will pay a total of $208, an increase of $14 from the 1958 level but $44 less than before the reductions we introduced in 1957.

At an income level of $5,000 a year, he will pay a total or $390, <In increase of $2~ from the 195E level but $44 less than before the reductions we introduced in 1957.
At an i!lcomc level of $7,500 a year, he will total of $898, an increase of $68 pay a from the 1958 level but still $2 less than before the reductions we introduccd in 1957.

It is clear from these examples that even aIter the increases now being proposed the vast majority of taxpayers will be paying It:ss in income tax and old ase security contribu tions than they paid prior to the reductiuns we introduced in 1957.
At the same time they are receiving the protection of a social security system which has been greatly improved and extended.

For the convenience of hon.

members may insert in Hansard at this point fIVe tables I indicating the effect of the proposed changes in personal income taxes, nlong with the increased contribution to old age security.
TADLE6a EnACT or PROPOeBD PERSO:;AL INCO~IB TAX CflA"GDI Single Taxpayer with No Dependante In 19S8 In 19,)9 In II Full Year 1'l<:N'I<lle In a.l,'uJ1 Yellr In~ome T~ OAS COD- tribution Income Tax OAS Con- tributiOll Income T~ OA8Con- lribution ln~ome T,u OAS Con- tribution I .. " " 51' .03 573 1,088 '00 236 1,722 3,412 5,507 10,002 20.747 35,G92 51,M7 122,332 I , • 18 28 38 • 22 .. " 166 '36 " " 60 60 00 60 60 00 60 60 60 60 31' '03 '" 1,120 1,781 3,521 5,666 10,261 21.2Oti 3(>.401 52,596 124,291 60 73 5 10 23 35 • .. " " " " " " " " " " • 22 .. " 100 236 31' .03 591 1,1504 1,'" 3, "" ,),sn.
10,:120 21,00.5 37,110 53.55!i 126,250 I 6 " " " 57 " 87 OJ OJ OJ OJ OJ 00 OJ OJ OJ " I I 2 , • 14 19 .. " 118 218 318 518 918 1,418 1,\118 3,918 " 29 3i1 3i1 30 30 30 30 30 30 30 30 Income • 1.300 1,500 2,11011 2,500 3,11011 3,500 ',1100 5,11011 7,500 10,000 15,000 20.000 30,000 60,11011 7:1,000 100,000 500,1100 NO'rEll: I.

In calculating the /lOOve ta.xes it IHIIl been 1l9llumcd that everyone lake~ the optionnl ~tantl"rd tledu.,..
tion of $100 in lieu o( claiming dedU~tjOll~ lor charitabl" donutions, IInusual Incdicu.l e.pcnlleS and union du~",.

2.

In calculating the above taxes it hWlIlI80 hecnlUlSumed that where incomea ...re in e'ee!l8 01 $J(),OOO thal part of income which is in ex~esa of $30,0Ci0 ia subject to the 4 per toeat inv~9tmant surtlH.

2418 HOUSE OF COMMONS The Bu.dget-Hon.


D. M. Fleming TABLE 6b Erru:or or PRoPQIu:n PJ;R80NAL INCOJolI TAX CBANGES Married Taxpayer with No Dependants In 1958 In 1959 In a Full Vear Income T.. DASCon- tributioo Iocome T.. Income T.. OASCon- tributiOIl [ncome • 2,300 2,400 2,500 3.000 3.... '.000 '.000 7.... 10.000 15,000 20.000 20.000 SO.OOO • 22 33 .. " ".

23.

<OJ 870 1.446 3,032 6,(117 11,522 20.217 75.000 100,000 200.000 35.112 51.007 121,652 Note: See Notes for Table 6a.
38 8 18 • • • " " " " " " " " " " 60 • 22 33 .. " 16' 23.

<OJ ,9< 1,495 3,131 5,226 11,771 20,686 35,811 M,956 123,601 DASColl- tribution 73 8 19 22 • • " .. " " " " " " " " " • 22 33 .. " 166 23.

<OJ '18 1.544 3,230 5,375 10.020 21,115 30.510 52,905 125.550 • , • 12 27 " " 87 90 90 90 90 90 90 90 90 90 Increase in a Full Yoar Income Tal • OASCon.

tributioo •,, •, 1.
tributioo •,, •, 1.

48 98 198 Z98 498 898 1,398 1,898 3,898 I' 29 30 30 30 30 30 30 30 30 30 TABLE Oc Erncr or PRorOUl) PIR80NAL INcolu TAX CUANGJ;II Married T~pa.yer with Two Children Eligible ror Family AllowanCOll In 1958 In 1959 In a Full Year Increase I' a Full Year Income • 2.800 '.900 3.000 3.... '.000 Income T.. • 22 33 .. 99 166 5.000 7.... 10.000 15,000 90.000 30.000 SO.OOO 75,000 100,000 200.000 318 770 1.326 2,842 4,862 9,282 19,948 34,818 SO.'"
121,308 DASCon- tributiOIl • • • .. " 8 18 60 60 60 60 60 60 60 60 60 Note: See NOt03 for Tabla 68.

[Mr. neming (EgUnton).J OASCon- tribution • 5 8 19 23 35 Income T.. • 22 33 .. " '" 31' 769 1,370 2,1136 5.000 9,526 20,392 35,512 51,632 123,252 60 " 7S 7S 7S 7S 7S 7S " " Income T.. • 22 33 .. '" 99 Illcome T.. • OASColl- tributiou • • • " 12 27 318 80S 1,414 3,030 :i,I50 9.770 20,&36 36.206 52,576 125,196 72 90 90 90 90 90 90 90 90 90 3S 88 188 '88 .88 ... 1,388 1,388 3.'"
OASColl- tributioD 3 • , • • " ,.

39 30 30 30 30 30 39 39 39 APRIL 9.

1959 2411 The Budget-Hon.

D. M. Fleming TABLE 6d Err&Cl' or PlI.OPOeID PIRItONA" INCOIllII TAx CHAN018 Married Tupayer with Four Children Eligible for Family Allowancea h.l9.

'>8 In 1969 In a Full year Illcrease ilia Full Year Income T.. • .. " " '" 67' 1.206 2,657 4,647 9,042 19,663 34, .
'i08 .50,36.1 120,~ OAS Coo- tributiOll • • • " 18 00 00 00 00 00 00 00 00 00 Income T.. • 22 .. " 23' '84 1,245 2,746 4,78ll 9,281 20,102 35,197 51,292 m,887 OAS Con- tributiofl • .. 5 10 23 75 75 75 75 75 75 75 75 75 Income T.. • .. " " 23' '08 1,284 2,835 4,925 9,520 ZO,541 35,886 52,231 t:U,826 OAS COli- tributiofl • , " " 12 00 00 00 00 00 00 00 00 00 Income T.. • 28 78 178 278 ".

67.
67.

1,378 1,878 3,878 OAS Cou- tribution 2 • • .. • 30 30 30 30 30 30 30 30 30 Income • 3,300 2,500 ',000 5,000 7,500 10,000 15,000 20,000 30,000 50,000 75,000 100,000 200,000 Non:-See Nom for Table 6a.

TABLE 6e ErrICT or PlI.Orol5ll) PIRSONAL INCOIllr.

:TAX CSUWRI )la",iOO Talpayer with Two Children EHeible lor Family AllowallCllll alld Two Other DependllJlts In 1958 In UISll In a Full Year Increase ill a Full Year IAcome Ta.
OAS Con- tribution IAcome T.. Income • 3,800 3,000 ',000 ',500 5,000 ',000 7,500 10,000 15,000 20,000 30,000 50,000 75,000 100,000 200,000 Income T.. • 22 33 .. " 168 318 573 1,086 2,492 4,432 ',802 19,378 &4,198 50,018 120,588 OAS COli- tributioD • , • • .. 18 28 00 50 60 00 50 50 50 50 50 • 22 33 .. " 168 31• 682 1,120 2,576 ',566 9,036 19,812 34,882 60,952 122,422 5 • • I' 23 35 50 75 75 75 75 75 75 75 75 75 OAS Con- tribution 12 • , • " " " 00 00 00 00 00 00 00 00 00 • 22 33 .. " 168 31' 591 l,1M 2,660 ",700 9,270 20,246 35,566 .51,886 124,456 Income ,.. • 68 168 268 I' ."
."

1,368 1,868 3,868 OAS Om- tributiOll 2 3 • • • " " 30 30 30 30 30 30 30 30 30 Non:-8ee Notes for Table 6a.

to take effect I am also proposing to add 2 percentage points to the rate of tax on corporate income trom in excess of $25,000, January I, 1959.

This increase will have no application to approximately 42,000 of Can ada's 50,000 corporate income taxpayers.

It is estimated that tax will this increase revenues $56 million on a full year's basis and $32 million this fiscal year.
The applicable rate will now be 47 per cent.

Together with the old age security contribu tion, the levy on corporate profits up to $25,000 additional will be 21 per cent, and on the excess over $25,000 will be 50 per cent.
corporations should pay the old Although it is only fair and equitable that all age security contributions in full, my proposal that corporate incomes up to $25,000 should be exempt from the additional two per cent levy is in line with the government's policy of giving special encouragement to the ex pansion of smaller business firms.

May I insert here, Mr. Speaker, a table this tax increase at showing the effect of various levels of corporate profits?

2420 HOUSE OF COMMONS The Budget-Hon.


D. M. Fleming EvrECT or PaopnSEO CORPORATION INCOMF, TAX CHANQ!~ TABLE 7 Incnme of Corpomtion Im:nmo T:n III J(}58 OAS Con- tribu~ion 100 • .., ."

3m 500 000 700 "" 1.000 1,.

'>00 2,000 4,000 6.000 10,000 20.000 40,000 100,000 Total • 1.000 2.llOO 3,(XIO 4,000 5.llOO 7,3.

',0 9,700 12,050 16,7,'iO 28,500 40.2.50 87,250 134,250 228,250 4().1.25O 933,250 2,343,250 Income Tax • "'" 1,800 2,700 3.600 4,.soo G,1l50 9,200 II ,.~.~O 16,2.

'iO 28.000 3(1.750 SG.


no 133,150 227,750 462,750 932,7.50 2,342,7ao III 1959 OAS Con- tribution • "" ,," '00 4r,Q 750 000 1,0,,0 1,200 1,500 2,250 3.000 6.000 9.000 15,000 30,000 6<1.000 150.000 Total • l. or,o 2.100 3.

1.

'>0 4.200 ~,250 7,7.

'iO 10,2.

'>0 12. no 17,750 30,250 42,750 (12,750 142,750 242.750 492.7'1l) !l92,750 2.

41n, 750 Inerense 00 100 • "" "" ,'" .

'.

400 700 1.000 1,7;j() 2.500 5,500 8.500 14,500 29,1,00 5\1,500 149.500 % 5.0 5. "
,~.O 5.0 5.0 1i.4 5.7 5.8 6.0 6.1 6.2 6.3 6.3 6.'

6.'

6.'

6.'

• "'" 1,1100 2,700 3,600 4,.;00 6,750 9.000 1!.250 15,750 27.000 38,2.

'>0 8.l.25O 128.250 218,2.

'>0 443,2;;0 8\13,250 2,243,250 • 5,000 tO,OIlO 1:',000 20.000 25,000 3IJ.llOO 35,000 40,(0) 50.000 75,000 .

too.noo 200.000 300,000 500,000 1\000,000 2, 000, 000 5,000,000 In connection with personal income taxes, I have reviewed the whole subject of income tax deductions for medical expenses.
It be~ the came necessary to do this because of greatly increased federal to contributions health costs under the hospital plans financed studying jointly with the provinces.

After various solutions to the problems at issue, I have come to the conclusion that a change should be made.
My proposal is to exclude from medical expenses, as now defined in the Income Tax Act, all such expenses from which the tax~ payer is relieved to the extent that they are paid wi th the assistance of the federal govern and ment Diagnostic Services Act.

This amendment will take effect as from January I, 1959, to coin cide with the taxation year for individuals.
the Hospital Insurance under The exemptions granted under the Income for medical expenses are clearly Tax Act intended to relieve the individual taxpayer who has a burden of unusual medical expenses.

It would be quite anomalous to allow income tax deductions to individuals for hospital care received at government expense now that the is financing a very sub federal government stantial proportion of hospital costs.
The federal treasury should not be in the position of paying twice, once in terms of expenditure and again in terms of taxes forgone.

A further reason for making this change arises out of the differences in form amongst the provincial schemes.

Because of these dif ferences it is becoming increasingly difficult to the to give equal residents of the various provinces which have instituted hospital insurance plans.
Under some of these it appears that the taxpayer income tax treatment [Mr, Flemlni (EiUnton).l incurs expenses which he has, in effect, pre paid by insurance premiums.

Under others he does not incur expenses but merely receives free care paid for out of general taxation.
Under this proposal a taxpayer will still be able to claim expenses which he himself has paid, including an)' co-insurance or deterrent charges paid under a provincial hospital in surance plan, or which an' insurance company or health insurance association has paid for there will be no change him.

Consequently, in the present to the costs of health care.
Im insure against plementation of this proposal will have no effect on a taxpayer in any province that is not receiving federal funds in support of a hospital insurance plan.

incentive for taxpayers This change in the definition of medical expenses will reduce the total of medical ex penses deductible on income tax returns, and increase our tax it is estimated that revenues by $3 million this year, and $9 mil lion in a full year.
it will Before I leave the subject of medical ex income tax, penses in relation to personal may I say that I have carefully reviewed a number of requests for additions to the list of items that may be included as medical expenses for income tax purposes.
I am pro posing to add a few more items to the list in cluding iliostomy and colostomy pads, crutches, trusses, and rocking beds for polio patients, In addition to these tax changes I have just to amend the outlined, Mr. Speaker, the bill Income Tax Act will contain a number of amendments of a more technical nature.

Some of these are designed to alleviate hardship, APRIL 9, 1959 2421 others to improve the effI.ciency of the tax system and keep it up to date.
It is not ex these changes will have any pected that significant effect on revenues.

'One of these amendments will provide for more generous tax treatment of payments made by an employer to the widow or depend ent children of a deceased employee by pro viding that such death benefits shall be free of tax up to an amount equal to 12 months' salary of the employee or $10,000 whichever is the lesser.
There has been an increasing use of group life insurance plans as a means whereby cor porations provide substantial re.

'l'luneration to their senior officers in a tax-fre~ some of form.

This is unfair to other taxpayers.

Ac cordingly an amendment will be proposed to subject to tax a portion of the benefit which an employee derives through the payment of group life insurance premiums on his behalf by his employer.
It is not intended to disturb the present tax treatment of the many plans where the benefit provided by the employer does not exceed $25,000 of insurance for an individual employee.

Another proposed amendment that will be of some general interest will provide for tax reliet on lump sum withdrawals from em ployee pension plans where the amount with drawn is transferred to another pension plan or used as a premium under a registered retirement savings plan.
It is believed that this step will help an individual who is mov from tht,l ing from one job to another or status of employee to that of self-employed person to do so without seriously disturbing his provision for a retirement income.

!

:STATE TAX The Estate Tax Act has been in force since January 1, 1959, a period of about three months, and has received general public ap I am not proposing any amendments proval.

to this act it would this year.


In my view, be wise to allow for another year of testing, study and experience.

The Budget-Han.

D. M. Fleming the excise duty on cigars which is now $1 thousand will be increased to $2 per per .

thousand.

These three tax increases will yield about $42 million in this fiscal year and $46 million in a full year, including the parallel increases in in customs duties and the consequential creases in the sales tax.
I am proposing some technical amendments which will affect the application of the Excise Tax Act to toilet goods and pharmaceuticals.
These amendments will go some way toward implementing one ot the recommendations contained in the report of lax committee of 1956. the sales and Briefly, pharmaceuticals they will extend the definition of toilet manufacturing to the packaging of preparations except where this is done in a retail store for sale directly to consumers and will also extend the definition of manufacturer to any person who markets private ,brand toilet preparations and pharmaceuticals except a retailer who sells directly and exclusively to consumers.
This amendment will apply to both the sales tax and the special 10 per cent excise tax.

After careful consideration, I am convinced that a serious degree of inequity exists at present in the application of the Excise Tax to toilet goods and pharmaceuticals.

This is why I am proposing these amendments.


In some instances, one domestic manufacturer is being treated unfairly in comparison with another, merely because of the way his busi ness in stances products of domestic manufacture are being taxed more stringently than compa· rable imported products.

The amendments 1 am bringing forwards are designed to rectify these situations.

is organized.
is organized.

important In other These present recommendations may be re the continuing pro garded as portions of the gram of Excise Tax Act and of implementing, where appropriate, certain parts ot the report of the sales tax committee of 1956. reviewing operation the of tomorrow, SALES AND EXciSE TAXES In a budget of this kind, where it is neces sary to find increased revenues, no one will be surprised that I am including some changes affecting cigars, cigarettes and spirits.
Taking the excise duty on spirits effect will be increased by $1 per proof gallon, from $12 to $l3 per proof gallon.

This change is equivalent to about 12 cents on a 25-ounce boltie of whisky.

Also taking effect the excise tax on cigarettes will tomorrow, be increased by $1 per This latter is equivalent to two cents per package of 20 cigarettes.

Also taking effect tomorrow, thousand.

I have received a number of requests for the exemption of particular products from sales or excise taxes.
Because of the need for revenues 1 find myself unable to comply with any of these requests this year, apart from minor technical exceptions.

The bill to amend the Excise Tax Act will also contain a number of amendments pro viding technical and administrative changes.

None of these latter amendments is expected to have any significant effect on revenue.

CUSTOMS TARIFF I now turn to the Customs Tariff.

I have a substantial number of changes to propose to the house tonight.
The main group relates 2422 HOUSE OF COMMONS changes, eighty-one The Budget--flon.

D. M. Fleming to fruits and vegetables.

For the convenience of honourable members, I have consolidated tariff aff'ecting these items and sub~items, into a single resolution.

Another resolution contains the nine changes that we are making as a result of renegotiat ing the most-favoured-nation rates on wool lens resolution the interpretation to be given to clarifies the tariff.
the word "machinery" throughout And still another embraces all changes of a miscellaneous character.

and worsteds.

Another It might be of interest to note that 142 tariff items and sub-items are affected by the resolutions.

In the case of 32 items the rates of duty are being increased.

In the case of 40 items rates are being reduced.

In the case of nine items, all involVing fruits and rates are being both increased vegetables, season.
and decreased depending on the Finally, there are 61 items for which rates of duty are left unchanged and for which the changes proposed are, the most part, purely formal.

for In every case where an increase is proposed in a rate that was bound In one way or an other under our trade agreements, the ap propriate negotiations or consultations have been undertaken and are either concluded or virtually concluded.
The house will recall that, on November 17, 1957, I tabled an extensive report by the tariff board on fruits and vegtables.

Broadly speaking, the changes in the tariff items on I am submitting fruits and vegetables that tonight f1.ow from that report.
the terms of our The government undertook to negotiate the tariff changes proposed by the board, trade agreements, under with the countries concerned-that is to say, chiefly with the United States, but also with other countries supplying us with small quan tities of fruits or vegetables.
We recognized that, as in all such negotiations, we would either have to "compensate" for the increase in some tariff rates by reductions in others, or else face retaliatory tariff increases against our fruits, vegetables or other products enter ing the United States and other countries.

Accordingly, before negotiations began, we consulted the Canadian horticultural council about possible supplementary changes in our tariffs on fruits and vegetables which might be used by way ot compensation.
In the end, the negotiations ranged over almost the whole of our tariff schedule on fruits and vegetables, While the negotiations have been friendly, they have not been easy.

The results, however, can be regarded as satisfactory.

Details are to be found in the resolution on the truit and vegetable tariff schedule that I am tabling tonight.

For the have convenience hon.

members of I (Mr. Fleming (E,llnton).]


divided this resolution into three sections: one sets out changes of substance, both increases and decreases in rates; another contains other changes of a purely formal nature, such as the renumbering ot tariff' items; a thIrd was required to make a minor change in our trade agreement with New Zealand.

throughout the year.


Thus, at Three of the most important changes are as follows: The duty on potatoes, table and seed, new and old, will hereafter, as recom_ mended by the tariff board, be 37; cents per cwt.

last, we regain substantial reciprocity with the rates applied to our potatoes by the United reciprocity with the States-that is to say, rates applied to the bulk ot our shipments to that country.
Our seasonal duty applying to imported peaches cents a pound, but it will hereafter be in force for 14 instead ot 9 weeks each year.

In respect ot apples we are moving to complete reci_ procity with the United States; the duty on imported apples will hereafter be t cent a pound all the year round, instead of tree tor 10 weeks and i cent a pound for the rest ot the year.

remains at 1; fOr The li~t of products is lengthy.


I can sum marize the changes broadly, indicating first what is happening to the "in-season" duties is happening to the "out~ and second what of-season" duties.
As the "in-season" situation, the special seasonal duties will be increased or the seasonal period improved, or both, for the following products: asparagus, Brussels sprouts, cabbage, carrots, cauliflower, celery, corn-on-the-cob, cucumbers, lettuce, onions, peppers, parsnips, apricots, sour cher ries, pears and prunes.
Further, an additional duty of 5 per cent will be charged on green beans, Brussels sprouts, carrots, beets, cauli t1.ower, lettuce, peas, parsnips and corn-on the-cob when imported in season in consumer type packages.

tor Turning to the out-of-season situation, most products the duty continues to be 10 per cent as at present; but for a number of impor tant products a period of free-entry will now be permitted during part or all at the "off season".

These off-season arrangements.


which will benefit Canadian consumers without, we believe, damaging Canadian producers, will apply to the following products: beans, cab lettuce, bage, caulitl.ower.

,plums pepperS, and strawberries.

tomatoes, cantaloups, pears, carrots, celery, Turning to the canned and frozen products there are modest increases of duty conse quential upon the increased protection re ceived by the fresh products.
These increases apply to asparagus, Brussels sprouts, apricots, cherries, peaches and prunes.

Certain com monwealth countries send us some canned following discussions with them, fruits and, APRIL S, 1959 2423 we are adjusting preferential rates on these prodo.cts so as to maintain existing preferen tial margins.

I now turn to textiles.

In September 1957 I referred to the tariff board the whole of the textile schedule.
including yarns, fabrics and made-up goods, and at that time I invited the board's recommendations.

The board has, up to the present, submitted reports on woollen and worsted fabrics, on woollen yarns, on cotton yarns and fabrics, and on textile It has also held hearings on synthetic wastes.

fibres and fabrics, and I expect to receive that report shortly.

Thus, most of the more important items have now been considered.
The board has yet to hold hearings, however, on a substantial number of items, many of them of no wide significance but some of con siderable importance to the groups directly affected.

It would have been unfair and undesirable to delay action on any of these numerous tex tile items until the board had reported on all I am sure the house would wish the of them.
government to take or to initiate adion on individual groups 01 items as soon as prar=tl cable alter receiving the board's recommenda~ tions, and tbis is the pollcy that the govern ment is following.

However, we are bound to act within the framework of our trade agree ments; these may involve preparatory proce dures in addition to the negotiations them selves which usuaIly occupy many months.
Moreover, since some groups 01 textile tariff items are closely linked to others, it may be contrary to our commercial interests to try to negotiate one group before we are in a posi tion also to negotiate another.

In my last budget I took the first step to wards our general the textile schedule by introducing modest increases in the British pre1erentlal rates on woollens and worsteds under tariff item 5Mb.
revision of intention to renegotiate At the same time I announced the govern the most ment's 1avourcd·natlon rates on that item with a view to restoring the margin 01 British prefer tonight I am announcing ence.
Accordingly, new most-favoured-nation Irates under that item as follows: for fllbrics weighing 12 ounces or more per square yard a rate of 27i per cent plus 33 cents per pound; fabrics weighing less than 12 ounces a rate oC 274 per cent plus 38 cents; and Cor fabrics weighing not more than 9 ounces a maximum duty of $1.10 per pound.
The increases in these rates correspond with the modest increases in the preferential orates introduced last year, so that the margin of preference previously in effect is now being restored.

for Our negotiations regarding increases in our M.F.N.

duties on woollens and worsteds have The Budget-Hon.

D. M. Flemtng been conducted with Italy and France.
By way of compensation we are granting reduced rates on a special type ot wool fabric-fabrics for neckties and scarves-and also on per fumes, and manufactures ot marble.

aperitif wines, ports, sherries We have taken steps under our trade agree ments to initiate negotiations on other textile items, including cotton yarns and fabrics.

The house may be assured that we shall move 10rward as quickly as may be practicable.
A brief reference should, perhaps, be made to other reports ot the tariff board that have and tabled since my last been received budget: Those relating to rubber footwear and to fluorspar.

In neither case did the board recommend any change in the tariff structure, and no change is proposed.

the amendment of This concludes what needs to be said about the disposition of from the tariff reports board.

However, the resolutions I am tabling for the Customs Tariff cover other matters as well.
For the most the changes that are put forward are part of miscellaneous character, of considerable to those directly concerned but of interest no very general interest.

There is, however.

one group of changes to which I should call attention.
that I have been giving thought to various representations that have been made to the government regarding a very important con cept which runs through our Customs Tariff: the protection afforded to the concept goods which are ruled by the Department of National Revenue or the courts to be of a "class or kind" made In Canada should re ceive greater protection than similar goods of a "class or kind" not made In Canada.
This differentiation, based on "class or kind", is to be found in many individual tariff items and also in our anti-dumping and countervailing duties.

Some of the representations have suggested legislation which would define or re-deflne the words "class or kind" in such a way as to enlarge the range 01 goods that are now deemed to be made in this country and thus given the greater protection.
It is question able, however, whether an over-riding meas· ure, involving a departure from present prac tices and present is in the I am not prepared, at this national interest.

stage, to propose a general measure to broaden the range of goods that receive protection on a made-in-Canada basis.

On the other hand, I am prepared to propose particular measures to prevent this range of goods from beeom In this connection important ing narrower.
representations from Canadian manufacturers of machinery, and that will I am proposing two steps tonight be of interest to them.

interpretations, received have been 2424 HOUSE OF COMMONS The Budget-Han.

D. M. Fleming One of the problems to be met is this.

Most machines now enter Canada, not under taritr Hems naming particular types of machine, but under items providing for machinery in general.
These items provide for relatively high rates of duty on machines of a class or kind made in Canada and relatively low rates on those of a class or kind not made here.

Experience has shown that, with the increasing complexity and variety of modern machines, these "class or kind" provisiuns create uncertainties.

Much time and expense are involved in trying to clarify "class or kind" questions belore the courts.
I propose to resolve these issues in six important fields by introducing six new tariff items tonight.

Each of these items will specifically name one class or kind of ma chine, which has been ruled to be made in Canada, and will apply the tariffs rate that is now applicable to it.

Thus, there wilt be no change whatever in the immediate situa tion.
But aU concerned, and particularly the Canadian manufacturers and users of these machines, will be able to make plans and contracts on a firm basis and without fear of protracted and costly litigation.

The six arc: trucks, paper-mill machines, power fork-lift cranes, power shovels, machines for gener ating electricity, and vending machines.

The second problem to be met stems from modern automation.
Machines are becoming not only more complex but also more closely interwoven and intertwined-linked together, In many cases, under complicated control systems.

This has raised a question: What is the difference, if any, between "machinery" and "a machine"?

Let me illustrate the problem.

The word "machinery" might be interpreted to cover a series of machineS, interlinked with each other and under a com mon control system.
If so, and if one or more of this series of interlinked machines was not made in Canada, then our customs depart ment and our courts might feel bound to rule that the machinery, the assembly taken as a whole, was ot" a class or kind not made here.

As such, the whole assembly would be en titled to low rates of duty even though some of the individual machines were of a class or kind made in this country and would thus have been entitled to substantially higher protection.
To avert this risk of loss of protection I am tonight inviting the house to insert a new definition or interpretation in the Customs Tariff.

Under this, wherever the 'Word "ma chinery" appears it will be defined to have the same meaning as the word "machines".
Here, again, there will be no change whatever in any rates of duty that I hope are being applied at present; but in the tariff [Mr. Flemlnl[ (El[lInton).1 proposals concluding my we shall be avoiding serious difficulties and uncertainties that might have arisen in the future.

In regarding changes in the Customs Tariff, I should say their effect on the revenues.

a word about Hon.

members will have observed that, while some of the changes in rates are upwards, others are downwards.
Only one of the changes afTects a tariff item which yields us substantial revenue-an increase of $1 per gallon on imported spirits bringing this rate into line with the higher domestic excise duty to which I have already referred.

Apart from this change, it is reasonable to assume that the tariff changes I am proposing tonight will not appreciably influence the balance of ways and means in the coming year.
SUMMARY AND CONCLUSION That, Mr. Speaker, concludes my budgetary proposals for the year upon which we are remind just entering.

In summary may I you that our budgetary expenditures, which exclude the old age security fund, are ex_ pected to be $5,660 million; our budgo.

:!tary revenues alter giving effect to the tax changes I have proposed are estimated at $5,267 mil lion; for 1959-60 is $393 million.
lind the indicated deficit In round figures, In reviewing our cash requirements earlier this evening I estimated our extra-budgetary cash needs at about $400 million.

To this sum I must now add the expected deficit of $42 million in the old age security fund which is not being charged against the current budget.
therefore, our net cash requirements outside the budget will be about $450 million, and this added to the budgetary deficit, means that our net borrow ing requirements this year will be of the order of $850 million, or some $400 million less than in the year just ended.

With a good response to our Canada savings bond campaign this year, our net market borrowings in 1959-60 should be less than one half of the $1,220 million borrowed in the market in 1958-59.
Since our revenues will be at a rising rate throughout the year, partly because of expanding prosperity and partly because some of the increased taxes do not come into full effect until later in the year, our new borrowing needs are likely to tall more heavily in the first half of the fiscal year than in the second halt.
flow of May I now inse-rt here, Mr. Speaker, my table which shows the effect ot final the proposed tax increases on the budgetary levies, on the old age security fund contribu tions, and the combined increases.

APRIL 8.

1959 24.25 Table 8 Revenue forec~n-Alter taz (In mUlions at dollars) change.

ToW revenue Full year In 1115i·60 10.

19$'·60 Revenue added lox Personal lox 'x) Budgetary Levie.

Income .............


Corporation Income ............. Non.resldent <ox .. Estates <ox Customs dutlel .... Saler "x x.d Other dutle.

............ tlzes Total taxel Non-tax revenue .. .... ToUI revenue ,S< .. , 1 42 '"~ Personal Income ..

Corporation Income Salel tax $ 15 28 93 <Ox Total Personal Income ,\9, ,., Combined increases ............. .. ............ ............ Corporatlon Income Sales ,OX .......... .. ...... Ci,ars.
clClrettn x.d Iplrlts $I" <Ox 93 '38 " , 1 38 \02 $ 41 20 82 $143 ... .. " 42 $156 $102 {bl Old age $ecurlty fund contrlbutlOIll $1..51' \,"" " " '38 ".

... 4,1S1 .10 $:1.261 $191 76 269 .

".

Tolal ...... ..•..•.

$3S2 ~ It will be seen that the total tax increases to $352 million in a full proposed amount fiscal year.

year and $24.5 million in this This in a full year, balance the increased cost of old age pensions and the enlarged social security program.

(Translation); increase will.


and its share of Mr. Speaker.

Canada has problems, some arising out of international disagreements others and tensions, resulting from the process ot growth of our nation.

With courage and firmness, none of those difficulties are insuperable.

So long as our problems are only in the nature of growing pains, we can look to the future with confidence and assurance.
We have withstood the disturbing calm of recession, and the winds of prosperi ty again fill our sails, as the basic strength and firmness ot the Canadian economy again themselves.

With a united, deter· assert mined population, Canada and confident marches on unOinchingly towards its bright destiny.

(Terl): Just as last year's budget was designed to meet 1958 economic conditions and needs, so this year's budget is designed to meet the changed conditions and needs of 1959.
In a period when economic conditions are undergoing rapid change, our approach to The Budget-Resolutions fiscal problems must be flexible and our adaptable.

employment, development of This budget has been designed to foster and promote recovery.

Our aim is to maln· lain a sustainable rate of growth in terms of resources and a sound dollar, so that Canadians every where may find full their enterprise, industry and aspirations as free men and women.

expression for Canada has no reason for fear.


Blessed as she has been by a benign Providence above all other lands, she can face her shin ing future with utmost confidence.

INCOME TAX ACT Resolved that it is expedient to introduce a measure to amend the Income Tax Act and to provide among other things: 1.
That for the 1960 and subsequent taxa tion years each of the graduated rates of tax at present applicable to individuals on tax able income in excess ot $3,000 be increased by two percentage points and that thE 1959 taxation year each of the graduatee rates of tax appllcable to individuals or.

taxable income in excess of $3,000 be in creased by one percentage point.

for 2.
for 2.

That with respect to income of corpora tions earned on and after January 1, 1959 the 45 per cent rate of tax on taxable income in excess of $25,000 be increased to 47 per cent and the 4.3 per cent rate of tax on taxable income in excess of $25,000 applicable to corporations deriving more than half their gross revenue from the sale for delivery in Canada of electrical energy, gas or steam be increased to 45 per cent.

3.
3.

That commencing January I, 1959 the definition of medical expenses exclude those amounts which the taxpayer is not required to pay because they are paid with the as sistance of the government of Canada under the Hospital Insurance and Diagnostic Ser vices Act.

4.

That amounts paid on or after January I, 1959 for illostomy and colostomy pads, crutches.

trusses for hernia and rocking beds for poliomyelitis patients be included in the medical expenses that are deductible in com puting taxable income.
5.
That for the 1959 and subsequent t3xa tion years an individual be allowed to deduct in addition to the in computing income, amounts now permitted by the Act, any amount received by him out of a pension fund or plan upon withdrawal or retirement from employment or upon the winding up of the fund, not exceeding the portion thereof that is paid in the year, or within 60 days after the end of the year, as a contribution to a registered pension fund or plan or as a premium under a registered retirement sav· ings plan.