Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697723823735.pdf (Canada)
June 1, 1967 COMMONS DEBATES 855 The member for Edmonton West (Mr. Lambert) and I really picked up my ears once or twice.

I thought he was beginning to sound danger- ously like a socialist, but he soon veered away from that approach.

I do not have much hope of converting him in the time that remains before seven o'clock, but I do wish to say that he did point out the wide ranging implications involved in the bill before us.
He indicated it is a subject matter that should moved: members in be Of parts Of the house, and one that should not be rushed through lightly.

'Oncern T h e Budget-Mr. Sharp AFTERRECESS - - resumed at eight o'clock- THE BUDGET ANNUAL FINANCIAL OF THE MINISTER OF FINANCE H o ~ .

Mitchell Sharp (Minister of Finance) That Mr. Speaker do now leave the chalr for the house to go into committee of ways and means.
the end of our He said: Mr. Speaker, through the courtesy As I listened to the bill being introduced it of the Parliamentary Librarian I spent a few me that in this, our centennial hours today browsing through the first budget year, one might say that the last decades of speech presented to the House of Commons our first century have been characterized in almost years ago by Hen.

John Rose, this parliament by many debates on the ques- tion of pipe lines.

A historian in the future minister of finance.


It gave me some consola- tion and encouragement to observe that Mr. may be inclined to first century with the debates at the begin- Rose took a full afternoon and part of the ning of that century, which revolved around evening to deliver his speech dealing with the development of railway transportation in revenues and expenditures of less than $20 Canada.

As suggested by the hen.


member for million, and that from time to time when he expressed his fear of wearying the house he I promise not to repeat that performance this evening.
I Vancouver Quadra (Mr. Deachman), this is an was met with cries of indication that in a country of our large size the question of transportation, what its form should be, and under what auspices it should hope be built and managed, is one of fundamental that can be debated in the Mr. Rose was an eloquent speaker and, on Canadian parliament.

this centennial budget, I The hon.

member for Vancouver Quadra should like to recall a few sentences from this West and the hen.
member the occasion of for the same hen.

members.

the most -I In the facts- indicated that he was substituting for the hon.

first budget after confederation.

member for Vancouver-Burrard (Mr. Bas- ford), and I would like to join in the passing reference he made to the hon.

member's ab- Mr. Rose said: sence, and in extending good wishes to him.

The hon.
The hon.

member is now Out in beautiful good Providence, British Columbia, and before leaving in- formed me that he would be spending part of his time on beautiful Vancouver Island.

seconds before seven o'clock, whether the hen.

member would be disposed to send this bill to dustrious, and attached to the soil-not the committee on transport and communica- tions, as a wedding gift to the hon.

member for Vancouver-Burrard?


think they point, under the blessing of a to a certain and prosperous future before us.

If we work together in harmony, if we endeavour to cement if we develop the varied and rich resources of the several to provinces, we have Mr. Deachman: I wonder, in the remaining build up a prosperous and powerful community.

I, Lower Canada we have a people frugal, in- a nomadic.
but a steady, contented people, well adapted for .the West we manufacturing pursuits; while have immense agricultural, and in the East equally important maritime resources.

I am not an enthu- siast, but I say that although we have a rigorous climate and many difficulties to combat, we have correspondingly hardy, energetic and thrifty popula- tion, and in the extent and variety of our resources we have as certain a promise of a good future as any country ever before enjoyed.
Mr. Barneff: That is a very interesting suggestion but I think the hon.

member for Vancouver Quadra used up those remaining seconds by his question.

May I call it seven o'clock?

the elements within us the Union, in Mr. Speaker: It being seven o'clock the hour appointed for the consideration of private members business has now expired.

It being seven o'clock I do now leave the chair.

At seven o'clock the house took recess.

Some hon.

Members: Hear, hear.


Mr. Sharp: Some of the members of the house are cheering, just as the members cheered in 1868.

Then Mr. Rose said, as all subsequent 856 COMMONS DEBATES June 1.

1967 The Budget-MI.
1967 The Budget-MI.

Sharp ministers of finance have said and as all fu- can act promptly enough to enact the meas- ures necessary to implement a flexible fiscal ture ministers of finance will say: NOW, Sir, I would not wish it to be supposed policy without having to delegate extraordi- that, in calling attention to these indications of nary stand-by powers to the government, as a e future prosperity of the country, I am desirous has sometimes been suggested.
we need not that we should rush into undue expenditure.

On by action in our a.nnual budgets to antici- the contrary.

I say that we ought to be most careful in our outlay, and consider well every shilling we pate economic possibilities during the ensuing expend.

twelve months that could be dealt with later To which there were loud cheers on that when was known about day.
Federal-Provincial Relations programs arrangements Anyone who looks at the population of I trust that whatever government may be in power, the people will demand at its hands a thrifty and economical administration of public affairs.

I benchee have shown a desire to follow that course.

Then came this memorable sentence: Reproduction is steadier and more continuous.
There is no indication as to whether that In this past 18 months there have also been that we who now occupy these major developments in our fiscal and econom- ic relatior= with the provinces.

In the Tax Structure Committee we had important dis- I repeat that claim.

Finally, may I be Per- cussions on the fiscal arrangements which mitted one more quotation from this budget should be developed in the future between the speech of a century ago which caught my federal and provincial governments.
fancy: These arrangements have a significant effect this both upon the use of tax fields by the two levels of government, and upon the expendi- Dominion-of Nova Scotia.

New Brunswick.

Que- bec and Ontario-must see that while they differ in provincial and very important characteristics, they agree in this, that they are not extravagant or ostentatious in municipal governments.
On behalf of the their habits, they are hardy, persevering, industrious federal government I proposed that we should and energetic, and possess all the qualities fltted for developing the resources of a new country.

seek through Our define Though our wealth may not increase as rapidly as I'TKn'e clearly the respective responsibilities of the two levels of government, with the objec- in some other climes, we spend little in ostentation and extravagance.
tive of strengthening within their respective jurisdictions, the roles of both the federal and provincial governments.

I suggested a new and comprehensive approach to the equaliza- tion of provincial l-his new particular statement was met with en- equalization plan was incorporated in a major thusiasm or otherwise.

1 now turn to the revision Fiscal Arrangements Act which Parliament approved budget of 1967, our centennial year.

in arch of this year.


With equalization payments rising automatically as provincial revenue requirements increase, the poorer provinces as well as the richer ones will now be in a better position to finance their growing responsibilities through provincial rather than federal tax measures.
In the discussions we have recognized the federal and provincial harmonization of priorities, both in respect of revenues and expenditures, should be the product of regular and comprehensive federal-provincial discus- sions, not just meetings every five years confined to tax sharing negotiations.
Mr. Speaker, The past 18 months have been budget eventful ones in our fiscal affairs-a and a mini-budget, three bills to amend the Income Tax Act, one to amend the tax provi- sions of the Old Age Security Act, two to amend the sales tax, two temporary restraints the com- on business capital mencement of the Canada Pension Plan which had major fiscal effects, several re- views of government expenditure policy, a major debate on inflation last September and a long series of hearings by a Joint Com- mittee into the increases in consumer prices.
the ~ ~ d ~ ~ ~ l investment, revenues.

that in Fiscal Flexibility indicates This experience that we can achieve flexibility in the content and timing of our tax measures and other instruments of fiscal policy.

Now that Parliament is normally sitting more or less continuously throughout the year and is modernizing its procedures, it [Mr.

Sharp.]

These new fiscal arrangements include im- portant fiscal transfers relating to education.
Federal personal and corporate income taxes have been abated in order to make it easier for the provinces to increase their taxes by a corresponding amount for the support of higher education.

These tax transfers in com- bination with the adjustment grants and spe- cial equalization grants that Parliament has - p ~ ~ ~ i ~ ~ i ~ l June 1.
1967 COMMONS DEBATES 857 The Budget-Mr. Sharp authorized will ensure that the total fiscal The rate of growth in revenues, a t the tax transfer to the provincial treasuries will equal rates current last year, was projected at about at least 50 Per cent of the operating cost of 74 per cent a year both for the federal and post-secondary education, broadly defined.
for the provincial and municipal governments the economic conditions This new measure, which replaces the f ~ r m e r combined, under system of assistance to universities and other which were then assumed.
Federal tax rates post-secondary educational institutions, is a were raised moderately in December after most important step in strengthening financial this study was finished and some provincial tax rates have been raised this spring, but support to higher education, without impair- ing in any way whatever the authority and these do not substantially change the trends responsibility of the provincial governments shown in the study.

Confronted with our and legislatures in respect of education.
This common need for increased revenues, and the increased support for higher education com- house will observe that expenditures are pro- menced at the same time as our technical and jected to grow faster than revenues from ex- vocational construction grants were being isting taxes, it is natural that we and the phased out and our contributions under other provinces will find it hard to agree on the use technical and vocational training programs of the different tax fields.
were being replaced by the new post-second- ary education arrangements and our new adult training program.

Because of this, the since our major discussions with the prov- full extent of the financial burden that Par- inces we have received and begun studying on the report of liament has undertaken in these new arrange- the ~~~~l ~ ments has not been entirely understood.

I Taxation.
I Taxation.

We have found it a thoughtful, estimate that by our action in regard to Post- radical and stimulating report, but one that secondary education and manpower training, bristles with both technical and policy prob- after allowing for the phasing out of voca- lems and, need I add, political problems.
It tional training grants, Parliament will be proposes major r e f o m s in our income tax, providing in one way or another an additional including the incorporation into a comprehen- $300 million this year as compared with last sive tax base of many receipts now exempt from tax or taxed under other statutes such year for these essential purposes.

On ~ It became evident during last year's fed- as the Estate Tax Act.
the objectives we have set eral-provincial meetings that Canadian gOV- q-he Commission, which I might add was ernments ~ ~ l l e ~ t i ~ e l y , responding to the needs appointed by the government which preceded and demands of Canadians generally, have us in office, and I have no criticism of this been expanding their activities to the point because I do believe that our tax system does where each level of authority is most reluc- urgently need reviewing, recommends to us a tant to impose the higher taxes necessary to broad policy which places first emphasis upon achieve equity, pursued with greater seriousness and ourselves.
Last October some quantitative logic than ever before.

~t would combine expression was given to these combined re- equity with the greatest possible degree 01 quirements in the projections of public ex- economic neutrality in tax law in order to penditures and revenues prepared the give the market and the private sector of the federal-provincial Tax Structure Committee.
Economy maximum freedom to make its deci- Summary figures which were published show sions free from any distorting influence by that provincial and municipal expenditures the tax system.

The Commission would have together might be expected to grow over the us rely mainly on expenditure programs to five years from last year until 1971 at a rate of implement those policies where we seek by about 8: per cent a year.
Federal expenditures, financial means to attain specific economic in early 1966, would grow purposes such as the stimulation of research as programmed about 61 per cent per annuma Since that time or other particular form of activity, such as both the federal and the provincial govern- mining' There is one aspect of the Commission's merits have undertaken some new expendi- report that deservw more public discussion ture programs.

For example, in our, case than I have yet observed.
I t is that the corn- the Guaranteed Income for Old prehensive personal income tax proposed by age pensioners will add to the total that was the the Commission must, according projected.

Subsequent additions, however, Commission itself, be used with restraint.

As have not changed the general trends revealed suggested by the Commission, this particular tax would produce revenues that were much in the Tax Structure Committee projections.

to ~ i ~ ~ i ~ ~ (158 COMMONS DEBATES June 1.

1867 The BudgeGMr.
1867 The BudgeGMr.

Sharp less than half of the total public revenues Boyd Commission's proposals about the sales required by all levels of government in tax involve many less complications and we shall not need as much advance work on Canada.

Consequently this would leave governments them.

I am therefore not inviting comments that I have already ~ ~ ~ n o u n c e d Tax Reform Schedule ..

I believe we can properly aim at a white to continue to rely upon other tax instru- on them at this early stage.
The need to take time for proper study and ments, at all levels, federal, provincial and municipal, to raise the majority of the reve- discussion of the report before reaching deci- nues required.

It is evident, therefore, f&at sions on it will Lnevitably leave some uncer- there is no easy answer either to the problem tainty for taxpayers who are making future of taxation or to the federal-provincial issues plans.

Some such uncertainty cannot be avoided once the report is published.
This is a with which we must deal.

reason for pressing ahead as quickly as we reasonably and properly can but it is not a justification for haste or for not taking into that the govern- account what people wish to express upon a merit not proPsing to reach decisions on matter that concerm them so deeply.
On May the main features of the reform of our 11th I endeavoured to remove some of the system until others have had an opport~nity ~ c e r t a i n t y concerning the possible timing of to study the Royal Commission report and any termination of the inducement offered in comment Won it- I have emphasized, h0wev- the present law for the opening of new mines, er, that we cannot leave to0 long an interval should the government decide the for such study and comment.
Commission's recommendations on this mat- ter be accepted.

This is the principal subject paper late this year ip which the govern- on which the present Act contains a major ment's main proposals can be expressed clear- inducement about which uncertainty arises ly without all the details of a bill.

We would because of the Commission's report.


I cannot also plan to produce a draft bill to illustrate undertake to offer assurances about all the how the government's proposals could be various changes that might be made without enacted.

I would welcome Parliamentary dis- anticipating decisions that the government cussion of these.

After receiving the views of has not yet reached m d prejudicing the prop- Honourable Members and others, we would er consideration of the subject.
review our draft bill and then bring forward the legislation that we would propose Par- Kennedy Round Tariff Changes litxment enact.

Obviously, our reforms will It is not orYly in tax policy that major the ohanges have beeh in progress.

For nearly four quire the years representatives of the government have part both lge8' I do not expect that this been engaged in the greatest series of trade merit d*g revision of the income tax will be part of the and tariff negotiations ever undertaken.
As is buw but a mparak series well known, these negotiations of the Ken- of steps.

nedy Round have now been concluded sue- cessfully and the broad agreements reached are being worked out in detail.

By agreement merit in wriw by the end of september on among all the negotiating coun,tries the re- of the Royal sults will be XrIade pubuc about the 1st of the major reco-endations I have already indicated else- July.
I regret that I caI'lIl0t indicate to the Commissioa where the list of major matters upon which I House at this time the important conclusions have invited comment and I shall not take the reached in these negotiations nor lay before you the tariff resdutiom that will be neces- time of the house now to repeat them.
On these matters, which are the central sary to implement some of the undertakings core of the report of the Royd Commission, I that Canada has made in order to secure will welcome of course hearing the views of concessions from others.

~t is my intention that we should keep the tariff resolutions hon.

members of this house and of the other place, as well as views from taxpayem, ex- which I am introduhg tonight before the perta and associations of one kind or another.
after the From those outside Parliament, I would pre- fer to receive views and suggestions in writ- a"n0~txement of the results of the negotia- tions, when we will make a full presentation ing in the flrst instance.

to hon.

members of the results both in have referred only to the income tax.

The our tariff and in foreign tariffs and introduce (8:20 p.m.) I have already invited taxpayers to I n speaking of our tax refom program, I and effort On and of Of Ways &Ieans procedure IIYLr.

Sharp.1 June 1.
Sharp.1 June 1.

1967 COMMONS DEBATES 859 The Budget-Mr. Sharp changes mid-1968 make.

It to amend to imp1ement provincially guaranteed inces or their agencies.
The basis of Canada's participation in the in the committee the further tariff resolutions of these con- involved in the that tributions had been taken into account by my needed be predecessor in his budget in April 1965 al- Canada has the necessary though, as he made evident, it was necessary ~rovisions of the Customs Tariff that govern also to take into account the effect that such the application of anti-dumping duties, which funds would have upon spending by the prov- will be done after we have heard the views of the event, it may those concerned, and I have invited publicly be noted the total net new issues of provincial securities, in the views of all those who will be affected because there will be an interval before the canadian dollars, in 1966 increased by more time of the publication of the international than the total amount made available for in- convention and the necessity for us to imple- vestment in them in these two pension plans.
ment it in our own legislation by the middle of 1968.

No doubt there would have been a substan- tial increase in such borrowing without the inception of the pension plan contributions, Kennedy Round was described in some detail but the restraining of these contri- by my predecessor who is now the President of the Privy Council in his budget speech on butions upon the economy would appear in March 16, 1964.
He explained that Canada retrospect to have been substantially offset by the greater disbursements of borrowed funds would be offering to exchange tariff conces- sions of equivalent value rather than offering by provinces and their agencies' A second element of fiscal policy last year uniform percentage cuts across the board.

He then outlined the following four basic consid- was the efforts made to restrain the growth in erations that would govern our participation: public expenditures.
This applied primarily to first, the principle of reciprocity in trade c0nStrUction programs, since the strain of terms; second, the need to promote through excessive demand upon the construction in- these negotiations the balanced growth of the dustry Was particularly evident in the latter Canadian economy particularly through seek- part of 1965 and the early part of 1966.
Some ing new export markets for our secondary success was achieved in deferring construction industries: third, the need to achieve a rea- expenditure, though of course it was limited sonable balance of concessions given and in many cases by the need to continue major concessions gained for the various sectors and projects already under way including the regions of the Canadian economy; fourth, the large complex of projects associated with need to avoid the kind of tariff bargain that Expo and the Centennial.
Other public ex- might worsen our balance of payments.

I can penditures, particularly transfer payments to now say without hesitation that all these bas- individuals under our social security pro- ic considerations have been satisfied.

This will grams, increased substantially.

There were be readily apparent when we are able to also substantial increases in public payrolls arising from the rapid rise in wage rates publish the results.

which confronted public employers as well as Economic Review others.
[Translation] I turn now to a consideration of the eco- nomic situation and its implications for the budget.

(8:30 p.m.) [English] The 1966 Budget At the time I was preparing my budget last At the time of the budget last March it was year it appeared that 1966 would be, as in- deed it turned out to be, a year in which evident that further fiscal restraint would be restraint was necessary-first monetary re- necessary.
Two temporary measures were in- straint, then fiscal restraint, and self-restraint troduced directly affecting business capital on the part of those making demands upon expenditures, for which the usual winter sur- the economy.

vey indicated a quite substantial further rise Some fiscal restraint occurred early in the was in prospect.
One of these measures was a temporary reduction in capital cost allow- year with the commencement of the payment of contributions to the Canada Pension Plan ances on new investments, to extend for a and Quebec Pension Plans.

These were very period of 18 months unless changed, and a substantial payments, amounting to nearly second was a refundable tax on the "cash three quarters of a billion dollars a year.

The profits" of businesses.


With the same purpose, funds were loaned to the provincial govern- it was proposed that advance provision be ments and their agencies.

The fiscal restraint made for the removal of the sales tax on 860 COMMONS DEBATES June 1, 1967 The Budget-Mr. Sharp production machinery and equipment in two the position of delicate balance which the steps on April lst, 1967 and April lst, 1968, economy appeared to have achieved.

offering a further inducement to defer capital expenditures.
The Easing of Restraints was reversed ~~~i~~ the first It was also evident in March last year that ten weeks of 1967 it some mild restraint should be imposed on the became evident that the rapid rise of business rising level of consumer expenditure.

For that capital expenditures had slackened off and purpose the special tax cut which had been that we could and should remove the re- introduced in 1965 as an expansionary meas- straint provided by the refundable tax on lst> with business profits.
On March 10th I announced those the government's intention to introduce legis- lation to terminate the collection of this tax I forecast that these various actions taken at the end of that month.

Shortly thereafter would reduce moderately the excessive rates on March 22nd, for the same reason, we took of increase in the demands upon the economy action to terminate a t the end of March the in 1966.
In concluding my budget statement I period during which new capital expend- itures would incur reduced rates of capital said: modifications to lighten the load On with the lowest incomes.

as of July I ing of mo?etary and in the budget Of a House By September the force of the expansion "Our situation calls for some restraint in expan- sion; it does not call for deflation.

As a nation ~~~i~~ this past winter and spring, as the we should ease up our foot on the gas pedal, not slam on the brakes.
We want growth.

but sustained excessive demands on our economy moderat- growth, not erratic fluctuations.

The keynote of ed, it has been possible to encourage an eas- conditions and to this budget is moderation.

This is what is needed today if we are to guide our economy towards suc- of cessive years of expansion and continued pros- permit a more rapid growth in the money and i n bank lending.

This was in ac- perity."

cordance with the views I expressed in the These are the last September.
Long-term interest year ago.

rates however have as usual been substantial- ly influenced by rates in the United States was in fact beginning to moderate but we and by the need to maintain a flow of long- were all concerned over the inflationary tend- term Canadian borrowings from the U.S. encies that had become so widespread in the capital market.
I am glad to take this oppor- tunity to record my full support for the man- first half of that year, as well as with the growing number of serious labour disputes agement and policy of the Bank of Canada and with the large wage increases being during the recent period of difficult and rap- made.

In reviewing the situation in the house idly changing conditions in our money and on September 8th, I announced on behalf of capital markets.
the government the deferral of some planned During the winter the government relaxed increases in expenditures and a continuation of restriction on our capital expenditure pro- the special restraint that it had been imposing grams.

These announcements, and the obvious since August, 1965 on its own capital expendi- concern shown by parliament over inflationary ture Programs.

The result of this change has tendencies a t that time.
and the h e l ~ f u l re- not been visible as yet in any large increase in our planned construction expenditures this sponse in certain quarters to the situation and year, but I would expect that it will give rise to the appeal of the government, all con- tributed I think to cooling down the overheat- to a larger increase next year.

ed condition of the economy.


Broad Economic Objectives By December the economic situation had improved, the rate of expansion in demand had clearly moderated and it did not appear necessary to introduce further measures of fiscal restraint.

In the mini-budget on De- cember 19th measures were introduced to in- crease revenue only by enough to counteract the effects then anticipated on our fiscal posi- tion and on the economy of the expenditures being authorized for the guaranteed income supplement.
This was intended to preserve [Mr.

Sharp.]

I n our general economic policies over these last few years the government has had as its broad objectives those which have been set forth by the Economic Council.

as being in- dicated in the terms of reference given the Council by Parliament.

These are, as defined by the Economic Council itself: -full employment -a -reasonable high rate of economic growth stability of prices June 1.

1967 COMMONS DEBATES 88 1 -a viable balance of payments, and -an comes.
equitable distribution of rising in- In retrospect it is clear that during last year we have attained some of these goals but not all.

In particular our unemployment rate, which had been nearly 8 per cent in early 1961, when the long period of expansion started, had been reduced to about 31 per cent for the country as a whole, and to 21 per cent in Ontario and to 2.1 per cent in the Prairie provinces.

Our rate of growth in the working force, and in capital, was high-but not in productivity.
Our balance of payments was viable, thanks to a continued large inflow of capital obtained despite the problems in the U.S. capital markets.

On the other hand, we had much too rapid an increase in costs of production and prices.

The rates of growth in business investment and public expenditures were clearly abnormal and could not go on.
There were, of course, special influences at work during 1965 and 1966 which undoubted- ly contributed to the excessive rises in prices and wages though it is hard to appraise their importance.

The in food prices increase was due in considerable part to temporary shortages in the supply of meats.

The regional distribution of our unemployment, and limita- tions on the skill and mobility of our labour force, of course had something to do with the rapid rise in wage rates.
Some of the rapid changes reflected the efforts of workers in some areas of the country to catch up in wage rates with those who had been getting more.

The extension of collective bargaining to new categories of workers--some of whom had suffered from relatively depressed salaries -had something to do with it.

There were many institutional and historical factors at work in addition to the economic forces re- vealed in the labour market statistics.
Demands, Prices and Productivity Whatever the complex causes, it is evident that we in Canada had not learned to pace ourselves; too many Canadians were anxious to exploit the situation quickly-to get while the getting was good-and in doing so they overloaded the economy with excessive de- mands.

Higher prices were the result.


We Canadians have not taken to heart the obvi- ous point that increases in our incomes must be founded upon increases in our productivity if we are to avoid sell defeating and inflation- ary efforts to proflt at one-another's expense.
in industry and In 1966 our productivity 27053-45 The Budget-Mr. Sharp trade increased very little, apart from the phenomenal grain crop and consequently there was little indeed to support an increase of the magnitude that occurred in average money incomes.

As time goes on we can expect to improve the skill and mobility of our labour force, the state of our technology, the efficiency of our management and the competitiveness of our industry.
Such improvements should enable us to increase our productivity and get more real return for our work.

In addition these improvements should enable the economy to operate with a lower proportion of unemploy- ment without running into inflationary and unstable conditions, and thus should enable us to achieve the 3 per cent unemployment rate which the Economic Council proposed several years ago as a goal for 1970.

If this is to come about, our immediate objective must be to combine growth with stability.
The Economic Prospect In the light of this review of our recent experience let me now try to assess our posi- tion and prospects.

The current employment situation is rea- sonably satisfactory.

Our labour force contin- ues to grow rapidly.

The overall rate of unemployment, seasonally adjusted, was 3.9 per cent last month.

Production has of course increased over last year, but reflects the disappointingly small increase in productivity.
Moreover, we cannot count on crops this year as good as the bumper crops of last year.

Our current account balance of payments is showing an improvement over last year, both in merchandise trade and in invisibles.

Our export performance this year has again been gratifying.

The rise in imports has been rela- tively moderate.

We expect to receive very much more than usual from our tourist trade this year because of Expo and the Centennial.
So far this year we are managing to flnance our current account deficit in what is for us the normal way, by large scale long-term bor- rowing and by direct investment of foreign capital in businesses in Canada.

Our arrange- ments with the United States concerning the balance of payments are working smoothly.

We still have a larger current account deflcft than I would regard as desirable as a long term objective.
At present, however, this cur- rent account deficit and the related inflow d capital are powerful aids in meeting the large capital expenditures being made in Canada.

Without them we would require a much higher volume of domestic savings.

862 COMMONS DEBATES June 1.


1967 The Budget-Mr. Sharp I expect the demand both for exports and Pressures on Prices for consumer goods to continue fairly strong The most unsatisfactory aspect of the 1967 during 1967, though not at the same rate of increase as last year, especially i n consumers' situation in Canada, as in many other coun- tries, is the continuing upward movements in demands for durable goods.

The rate of in- crease in government expenditures on goods costs and prices.
Consumer prices for all and services has been slowing down, though categories, other than for foods, continue to social security payments are expanding more advance a t a troublesome rate.

It is possible to recognize many special influences from rapidly.
for them* and We are all aware of the survey that shows month month and when Outlook for Housing f u l i l ~ take into account "Ot the quality of the goods and services recognize as well that the price index does in that capital expenditures planned by busi- nesses are down slightly this year, particularly when account is taken of higher costs, whereas allowance is made for in past years such expenditures were increas- such factors, the rate of increase of consumer ing very rapidly.
The removal of the than we Oan On a porary restraints imposed last year may well prices is lead to some upward revision in such plans.

continuing basis.

The increase that has taken place in food prices over the past two years reflects overseas needs and North American affluence pressing against North American re- House building is a key element in this sources.

In other sectors, price increases are too often the result of demands for increased year's situation.
I t was the chief victim of the incomes and profib by those with strong mar- boom in capital expenditures in 1965 and '66.

The demands of business and governments ket or bargaining power, or attempts by oth- for savings for other purposes left a shortage ers to keep up with the leaders.

It is evident from the decline in profits that of funds available for housing.

The continued in general costs of production have been ris- growth in savings this year, a relatively small ing more rapidly than prices.
Costs of many growth in business capital spending and a smaller requirement to finance increased in- things purchased by business have increased ventories, taken together, shodd leave more -materials, components, capital equipment and buildings.

Some of these are imports and funds available for mortgage financing.

~h~ government is taking action to reflect increased world prices, others are that substantial funds are made available to domestic products.

The statistics of hourly finance housing.


The capital budget of our earnings in such broad industrial groups as Central Mortgage and Housing Corporation, manufacturing and construction show a large increase over the past year, and are reflected tabled in January provides for disbursements in labour costs per unit of output in manufac- of $788 million to finance housing in various turing.
New wage settlements resulting from forms, including direct mortgage lending pro- gram this spring of twenty thousand units, to Collective bargaining this year show increase3 ensure a revival of activity after last year's as large as those of last year.

Most of the recession in house building.


In the financial increases now occurring in wage and salary requirements for this year to which I shall rates, including executive salaries are sub- for housing stantially in excess of the general increases in refer taking place.

finance, and for together, an amount that is equal to more They clearly imply that further increases in than half the large total net borrowing of provinces 'and their agencies last year.
This is Short-term Prospects a vivid illustration of our very substantial efforts in this this places upon government in raising funds.

e x ~ e c t a total increase in our a (8:40 p.m.) including mortgage finance taken productivity that have been the various factors into account, and Of the burden that before allowing for any tax changes, I would national product this year less than the abnormally high increase last year.
We expect to see this accompanied by a more moderate increase in employment than we had in the tight kbour market of last year.

When the expected large growth in the labour force is taken into ac- count we could see a modest temporary in- crease in unemployment.

I would also expect I feel confident that the increase of funds and resources available for housing this year will bring an increasing volume of building this summer and fall.
I share the view of my colleague the Minister of Labour that we should reach this year a total of 160,000 hous- ing starts.

are likely to occur' Taking I am later, [Mr.

Sharp.]

June 1.

1967 COMMONS DEBATES 889 I venture to present these implications, un- The Budget-Mr. Sharp the important trade agreements which are a somewhat smaller increase in prices than last year, with some further squeeze on now being completed in Geneva.

There will profits.
There will profits.

also be increased competition in our interna- tional trade.

Our industry and our labour will palatable as they may be, because they are have to compete vigorously with their coun- terparts in the United States and overseas.

essential to an understanding of the uncom- fortable short-term position that confronts us Costs will be important.
The opportunities for during the period of transition following the trade, for production, for employment and for investment will be there-but we must seek very rapid rate of expansion of the last sev- them and hold them, not merely demand era1 years.

them.

I Longer-term Prcrspects and Let me increase t~ require a stock of fixed capital equal look beyond lg6'.

expect to see a greater increase in our gross capacity.

canadian national product in 1968 than this year.


The pea, increase in housing expenditures should be In regard to future business investment it is encouraging to note that we do not appear now to have accumulated any general excess industry as a whole ap- in value to about 2t times the value of its in annual production.

To keep this capital stock the business capital expenditures.
Government ex- modernized and at a rate in line with the growth in output appears to require on penditures on goods and services will proba- bly continue to rise, particularly at the pro- average that about per cent of our GNP be vincial and municipal level.

While we cannot spent on business capital investment.
The count on the good fortune we have recently proportion of G~~ used for this purpose rose enjoyed in respect of grain crops, I would as high as per cent in 1957, fell to think our exports will respond to the upturn about 124 per cent in 1962, and rose in that is now widely expected in the United 1966 to 164 per cent, which was probably States later this year, as well as to the im- an unsustainably high rate.
Business invest- proved trade opportunities arising from the ment has probably receded kom that rate new trade agreements.

Forecasting beyond the now, but it should be sustainable at around the 15 per cent level in the next few years if current year is chancy of course and a country international trade and we manage our afPairs properly.
Business In- so dependent on finance as Canada must always recognize its vestment can and should remain the principal position is riskier than those of more self- dynamic factor in our economy, in addition to contained economies.

Taking account of the exports.

uncertainties I think we can reasonably ex- pect a more buoyant economy next year, with * very large market for housing '' certain- ly in prospect for the next few years.

The growth and movement of the population will years we can ensure this.
But the costs of houses, and to a expect a further growth in the lesser extent of apartments, have been rising.

labour force, as the large numbers born dm- so has the cost of serviced land, particularly ing the post-war bulge in the birth rate con- in metropolitan areas.

me heavy reliance on tinue to move into the labour force.
The pro- real estate taxation to hance local govern- portion of married women wishing to take ment and much of education is also adding to jobs may also be expected to increase further.

the cost of owning houses.

Our immigration policy will lead to further I expect to see a growth in housing con- growth in the working force.

We can expect struction over the next few years, but we our labour force to be better trained and cannot expect to see it rise to satisfactory more mobile.
We shall have the manpower base for substantial growth.

levels nor to see it result in the most ble pattern of urban development until there There should be a growing rate of family is better planning, better control and better in formation, and a continuing migration within financing of urban development Canada.

These will mean an increasing de- Canada.

That is one of the chief reasons why mand for housing and social capital.
There the throne the govern- should also be growing demands for durable goods and for the industrial pro- ment has proposed that a special study of cons-er duction and investment to support the ex- urban development be undertaken in co- panding requirements of Canadian consumers.

operation with the provincial governments.

declining unemployment.


In the two Or three in the speech In international trade Canada will have In the fleld of government the Canadian new opportunities because of the results of people can be expected to want and demand 27053651 864 COMMONS DEBATES June 1, 1867 The Budget-Mr. Sharp increasing public facilities and services re- quiring expenditures by all levels of govern- ment.
The problems of course will be to finance these expenditures, to determine pri- orities among them, and priorities between these government expenditures and business and consumer expenditures, in order that the total of all expenditures in the Canadian economy can be kept in balance with our ability to produce.
When one reflects upon these prospects for the next few years, I am sure the house will agree with me when I say that I believe our main problem is not likely to be maintaining a sufficiently high level of demand, as it was during the late '50's and early '60's.

Instead I see two more difficult problems.

The first is to achieve a better rate of growth in our produc- has been too low in recent tivity-which years.

The second is to restore some stability to our prices and costs of production.
The problems are, of course, inter-related, and their solution is essential to the maintenance of a high level of employment.

Programs for Productivity We are now pressing ahead vigorously with measures to improve our productivity.

Firstly, we are, at all levels of government, giving first priority to the education of our young people-both basic education and voca- tional, technical and professional education.
I n view of the high growth rate of the age groups from about 15 to 25 this priority for education is putting a very heavy burden on public expenditure.

I t is a good investment for the future but we should understand, and most of all members of parliament should understand, that it diminishes the immediate return that we can get as individuals in hizh- er living standards now.

Secondly, we are now working urgently on a major program of training and retraining of adults in our labour force.
Last year the gov- ernment accepted this as a federal responsi- bility and decided to deal vigorously with it.

Success in it will improve both the opportuni- ties for work and the productivity of our work in future.

To promote labour mobility we have now a realistic system of relocation grants and arrangements for workers, operat- ed by a manpower service, which is being expanded and improved, as it must be if such a system is to be effective.
Thirdly, we are devoting more men and money to scientific and technical research and development, particularly in industry, in a [Mr.

Sham.]

wide range of programs designed to make our industry and our economy generally more productive.

Both the federal government and the provincia~l governments are making better regional plans and offering better assistance to get industry to locate where it can utilize available labour which would otherwise be unemployed or poorly employed.
These major positive measures will im- prove our productivity as time goes on and also permit us to aim at progressively higher rates of employment without inflation.

They will permit us to grow faster and further.

We are also planning to improve the oppor- tunities for those now working in less produc- industries and occupations.

We are tive through ARDA and related programs promot- ing the radical improvement of the economies and societies of rural areas where productivi- ty has been deplorably low.
In other rural areas our regular farm credit programs and other farm programs are assisting and pro- moting the consolidation and improvement of farms so that our farmers can continue to improve their productivity and thus share constructively in our rising living standards.

In the Atlantic provinces much is being done to improve the basic facilities for a produc- tive economy and much success attained in enabling new industries to establish there.
In Cape Breton special efforts are being made to re-orient and develop the economy on con- the gradual structive lines phasing out of the unproductive coal mining operations.

to accompany Our trade and tariff policies will also help over time to promote the more productive and diminish the less productive units in in- dustry.
To help achieve this purpose it is our intention, should any industries be seriously affected by the trade agreements emerging from the Kennedy Round, to make available to them suitable measures to assist in making the necessary adjustments.

Essentially however productivity is not something that the government can achieve.

It is a task for all of us.

It is particularly a job for management and labour.
It must be that are al- sought in all industries-those ready productive as well as those that have lagged.

Higher productivity should be sought not only where it can readily be measured, as in manufacturing industries, but also in many the service industries and government of where it cannot be measured.

It is the real results in which we are interested.

I t is this and almosrt this alone which will enable Canadians to get higher living standards.

June 1.
June 1.

1867 COMMONS DEBATES 865 and the representatives Of its em- the recent Prices and Costs the adeposts but others must on whom the costs my can reasonably sustain.

If unchecked, such increases in costs and The Budget-Mr. S h a w provided to so many now.

I do so again here and now.

Only by some care and restraint on The chief obstacle I see to our attaining a wide scale this year can we slow down the stable growth in the next few years is the rate of increase in costs and prices.
~f we all danger of excessive incremes in prica and endeavour to exploit the full measure of our costs.

Our record in the past two years in this bargaining power in the present situation we respect has deteriorated.

Between April 1965 can certainly ham one another.

Some and this April the consumers price index has the rate has we in Parliament have just undertaken to gone UP by 7.3 per cent-and been accelerating recently for categories other put collective bargaining into eflect in our than food.
Wages and salaries have been ris- public service.

We have recognized and ing at rates several times the overall increase accepted the responsibilities which that in- in our productivity per man.

Unit labour costs volves for the government as an employer.

in manufacturing have increased by nearly 6 We also have responsibilities to the taxpayers, fall, as well as respon- per cent Over for which I have figures.
Personal income per sibilities in managing the economy as a capita, which includes all kinds of income whole.

In the light of all these obligations the whether from wages, profits or government payments, has gone u p by 17.6 per cent in the two years following the last quarter of 1964. ployees should 'hive to This is the broadest indication of the upward movement in incomes, as that are consistent with a pattern of settle- to prices.
ments in the business sector which the econo- From time to time during the past year I prices must lead to increasing inequity and have spoken about the possibility of a n a d a dissension in the country and to a worsening adopting some sort of incomes policy or of increases.

of our competitive position vis-A-vis United States.
This would impose a serious Other have made attempts in this restraint on the growth of Canadian industry area, with varying degrees of severity and and frustrate our efforts to maintain a steady various degrees of failure.

Like rate of expansion in the jobs available for our of the Bank of Canada I wodd the growing labour force.
see great value in some means to support These price and cost increases arise in part Bcal and monetary policies by mobilizing the from the pressure of excessive demand on the force of public opinion behind non-inflation- economy or on important sectors of it.

This ary behaviour on the part of those who are has diminished somewhat in the past twelve a position to exercise strong market power.

months and should be noticeably less in 1967 Like the Economic Council, however, 1 recog- as a whole than in 1966.
We should and I nize the great dimculty of doing this in believe we can manage our economy to avoid Canada by formal acticxl that would flnd its excessive demand pressures that must result expression in quantitative guideposts or spe- cific patterns of behaviour.

As I said last in price increases.

eighth in the House, an effective require active coop- cise of market power by business and collec- policy Of this kind eration between federal and provincial au- tive bargaining Power by unions.
We are thorities and a willingness in the business familiar with many examples of this in the world as well as in unions and the ranks of past two years.

It is more difficult to deal labour to follow a central lead that commands with this source of the inflationary tendency a wide consensus of agreement and respect.

in our economy.

Its roots are deep in the Clearly we do not now have these necessary nature of our free society.

Most of us are conditions.


better organized and more active in promot- Mr. R. A. ing our own particular interests than we ere in safeguarding the public interest-the ~f all of US' collectively.

(Carleton): Mr. Speaker, I ,is, on a point of order, though in a most good kindly way, in an endeavour to assist the minister to make his speech.
The minister is Several times during the past year I have delivering his speech with the greatest rapidi- urged restraint upon those able to exercise ty and it is dimcult for those in the chamber market or bargaining power, asking that they and galleries to follow what he is saying.
If take account of the public interest and do not the minister could reduce his speed by about take unreasonable advantage of the oppor- 20 per cent only, I am sure his speech would tunities that our prosperous conditions have be greatly improved.
Let me say that in inter- But the trouble also arises from the exer- for wage and price 886 COMMONS DEBATES The Budget-Mr. Sharp June 1, 1867 rupting the minister, and I hope that this fact Is appreciated, I did so with the kindest Government Accounts of eentiments.

(Q:OO p.m.) Mr. Speaker, I should at this point note Mr. Sharp: I thank the hon.

gentleman and briefly the government's accounts for the past fiscal year.

of just over there was a dosely and carefully.

hon.

gentleman's words.


members and that it was being Although guideposts, as such, may not be I shall do as he asks.

I was very conscious of the length of my speech and that I should get through it in good time.

1 thought the argument I was making was familiar to Budgetary revenues for 1966-67 are es- timated to have been $8,366 million, which is from the revised forecast of my supplementary budget last December Nth.

Budgetary expenditures Mr. Douglas: Hear, hear.


amounted to an estimated $8,794 million com- Mr. Sharp: I shall endeavour to observe the pared with the December forecast of $8,580 million.
The deficit on this traditional public As I said last September in the house, .a accounts basis was $428 million, as against the forecast of $320 m m o n in the mini-budg- effective policy of this kind would require gffective cooperation between federal and pro- vincial authorities and a willingness in the business world as well as in unions and the ranks of labour to fallow a central lead that commands a wide and respect.

Clearly we do not now have with 576 million the previous year.
these necessary conditions.

In terms of the national economic accounts Of some On of aneement government operatiom for 1966-67 compared Our total cash requirements for the last fbcal year, taking account of non-budgetary transactions, were $719 million of which $711 practicable for Canada now, I intend to con- million was obtained from the increase in our t h u e to state what the facts indicate to be urnnatured debt outstanding and the remain- possible and what they show to be illusory.
I ing $8 million from reducing our bank bal- believe that by this means we can develop a ances.

better and more widespread understanding of what is physically possible so that public The Budgetary Outlook ppinion can be mobilized in opposition to ac- present tax laws, given the economic tions of a inflationary nabre.
such an opinion can help persuade management, la- prospects I have outlined, shoudd produce bow and government to follow practices that budgetary revenues of about $9,000 million in will lead to a dampening down of the upward the current fiscal year 1967-68.

If the House sweep in consumer prices that has been tak- agrees I would include in Hansard at this ing place in the past twelve months.
This point, for easy reference, a table showing budget statement and the other ec~nomic these forecast revenues by major categories statements that may fOUow should serve at least as contributions to the discussion of our possibilities and Ifmitation% that will help develop not only more under- standing but some form of that consensus so necessary for success.

so, hpn.

Members: Agreed.

[Editor's note: The table above referred to time to time and also the old age security revenues.
is as follows: ] [Mr. Bell (Carleton).]

3uag k, 1089 COMMONS DEBATES TABLE I The Budget-Mr. Sharp B ~ G ~ T A B Y AND OLD Aor Smarry Fnrm R a ~ ~ ~ a w s UW 1 190507 Preliminary T~ Chgne.

1967-88 Before - (I million) Budgetag Reventtea (I million) Personal income tax.. ....................................................... 9,472' Corporation income tax.. .................................................... 1,593 Non-resident withholding tax.. .............................................. 2W.
Estate tar.. ................................................................ 101 Cuetoms duties.. ........................................................... 777 Sales tax.. ................................................................... 1,513 Other duties and taxes.. .................................................... 776 Total t a m .

.
................................................ : .......... Non-tar revenues.. .......................................................... Total budgetary revenues.. ............................................. 7,436 930 8,388 old' Age Security Revenues Personal income tax.. ....................................................... 676 Corporation income tax.. .................................................... 150 SaLes.tru.. .................................................................. 560 Total old age security revenues.. ........................................ 1,286 '2,818 ' 1, 6aQ If0 816 ,1,69S .
8 % .

.

, 8,090 970 9,000 78a 16l' 587 1,544 Mr. Sharp: Our revenues calcuXated on the million.

On the national economic accounb basis used by the statisticians for our national basis they would be $11,220 million.

These economic accounts may be expected to total flgures, taken with the revenue ioreaasts, & about $10,990 million.

Details are @ven in ply a o m budgetar~r a c e o m , tax changes, of $700 million, and on tables showing our revenues and expenditures before on this basis.
I would ask permission that the national e c o n o ~ c accounb ba a deficit these tables appear in Hansavd, following the of $230 million.

None of these ways and means resolutions, as has been usual in recent years.

into account the revenues from the ~ a n e d d Pension Rlan, to be invested in provincial securities, which we forecast at about $640 million.

Some hon.

Memben: Agreed.

Mr. Sharp!


Forecasting expenditwes this which the h g our total ffnancial r e q ~ i r m e n t a Our re- for adult training will corded assets and liabilities, when determin- larg- year I flnd more diftlcult than forecasting our Overall Financial Requirements revenues, because we have so many new pro- I, addition to our budgetarg acsounb,d grams whose cost is diWcult to estimate until revenue and expenditura we must taae note we have more experience with them.
For ex- ample, I have just been advised last week Of many bat our new cost $50 million more this year than amounts requested in the Estimates.

It will be est of t h e e other requirements for cash ese noted in the white Daper that our accounts from the loans, investments and ~ a substantially for last year-1966-67-how larger t o w expenditure than was forecast in the budget, while revenues turned out to be within one per cent of the forecast.
In fore- casting this year, I have tried to take into account this experience, as well as the en- thusiasm and persistence of my colleaOues and other hon.

members in support of worthy but expensive ideas.

d that we make to government corporate agen- cies to enable them to carry out their opera- tions, including notably the large mortgage lending by the Central Montgage and Housing Corporation and the Farm Credit Corpora- t i ~ n .
There are also loans we make Co other8 including both domestic programs and aid t o underi3eveloped countries.
The t d a l net re- quirements for these loans and investments thin year I foreeast st about $1550 ~ U O X L Offsetting these are net cash receipts o# I am putting the forecast total of our budgetary expenditures this year at $9,700 v ~ ~ ~ 888 COMMONS The Budget-Mr. Sham about $620 million from government em- ployee pension funds, annuities sold, insur- ance, etc., and from the surplus building up, for the present, in the Old Age Security fund, and miscellaneous net receipts of about $110 million.
Taking these and various other smaller transactions into account, but without trying to forecast requirements for the exchange fund arising from the future balance of inter- national payments, I estimate our total re- quirements for cash-to be met from public debt operations or by reduction of our bank balances---at $1520 million, compared with $719 million in the past fiscal year.
Our bal- ances of Canadian cash at March 31st were $796 million, including $188 million arising from the refundable corporation tax, whjch have been segregated in our accounts but which I now intend to treat like any other part of our balances pending their repayment.

That net repayment this year will amount to $52 million, over and above the other require- ments I have mentioned.

issues We may with prudence use some of these high cash balances to meet our requirements during the year.
However, it is evident that we face a major task in borrowing cash this year.

In the flscal year to date our net sale of market including Treasury Bills amounts to $245 million and I hope to make further progress in this area during the sum- mer.

We shall probably be able to sell about $100 million of non-marketable issues to the Unemployment Insurance Fund.
We shall sell Canada Savings Bonds vigorously again this year as they enable us to reach sources of saving that few other borrowers are able to attract on such a scale.

Because the t d a l flow of savings in the economy has remained high, I am' confident that the Canadian govern- ment's large requirements in this flscal year will be met successfully.
Budget Policy and Tax Changes The economic conditions and budget posi- tion which I have outlined for this year pose an important and difficult problem in fiscal policy for us.

The pressure of demands upon the economy has relaxed moderately since last year, and it appears that the expansion of production this year may not carry the econo- my to what had formerly been regarded as its full potential capacity.

On the other hand, the problem of abnormal price and cost increases remains with us.
I t is important that these inflationary forces be checked in the interests $i long-term growth and stability.

[Mr.

Sharp.]

The economy is in a state of approximate balance during a period of readjustment, cooling off somewhat from the overheated condition of last year.

The modest prospective deficit in the fed- eral budget in terms of our national economic accounts will be a moderate sustaining force this year.
Our lending operations are a more important force both in sustaining activity, notably in house building.

and in setting the stage for further improvement next year and subsequently.

Consequently, our prospective budgetary and borrowing position is a necessary and desirable one this year.

It will be a construc- tive element in the economy.
Moreover, I be- lieve that we can safely and properly make some tax changes for the purpose of reducing prices and costs, which I will set forth in a moment, even though they reduce modestly our prospective tax revenues.

Given this background and policy I would expect to see a gross national product for Canada bhis year higher than last year's by between 64 and 7 per cent-say 63 per cent, which I have used in estimating our revenues.
The increase could be more, but if so it would probably be accompanied by a further un- desirable increase in prices.

In the light of my earlier remarks I believe we cannot expect the price element in the increase of the gross national product to be less than 3 per cent.

Should prices and the gross national product rise more than I have assumed, there would be some automatic increase in our revenues.

with a stabilizing effect.


I would emphasize that the forecasting problem this year, like the policy problem, is more than usually dim- cult because of the process of readjustment we are going through.

Some persons, this house, might well prefer that we should have reached the present position, in the budget and in the economy, with a lower level both of expenditures and taxes.
This is a consistent position in economic terms, but it is not con- sistent with the views of this parliament, either of the opposition or of this government, as to the importance of our public expendi- ture programs.

In any event this alternative is not open to us tonight.
including some in In these circumstances, and in accordance with this general policy, I am proposing to- night a few reductions in sales taxes and tariffs which tariff changes to be announced in July, should help to reduce costs and prices, and promote together with major June 1.

1967 COMMONS DEBATES 869 efficiency.


The modest increases in aggregate demand that result from these changes will be of a size and nature that will help in sustaining production in this year of transi- tion without adding to the general pressures upon prices and costs.
After reviewing the various requests and suggestions I have received for changes of detail in the income tax, pending the major reform scheduled for next year, I have decid- ed not to propose any amendments to the Income Tax Act in this Budget.

This should be welcome to a Parliament that has already dealt with many income tax matters in the past year and must look forward to much important and difficult work on the Income Tax in 1968.
As a result the tax changes being proposed are relatively simple and will I believe be generally welcome and beneficial.

Drugs - The first change I am proposing is the removal of the sales tax on drugs as part of a major government attack on high drug prices.

The purpose is to benefit the consumer, par- ticularly the unfortunate consumer who has to pay large amounts for medicine for himself or his family.
The Special Committee of the House on Drug Costs and Prices has made a comprehensive report in which this step is recommended along with others.

My col- leagues who have particular responsibilities relating to drugs will be announcing shortly the government's policy relating to some of the other recommendations of the Committee.

The removal of the sales tax must be part of an effective program to reduce drug prices, which requires competition within the indus- try in Canada and from abroad.
I am accepting the Committee's recommen- dation that action be taken to confine the application of dumping duties to drugs of a kind made in Canada, rather than to those of a class or kind made in Canada.

The necessary Order in Council has been made today under the authority of Section 6 of the Customs Tariff.

This change will narrow considerably the scope of application of the dumping duty and shoulcl encourage greater price competi- tion.
It is not necessary now in my view to ask the Tariff Board to review the tariff structure in drugs as the Committee recommended.

I have had my department do so already and I am proposing in the Tariff Resolutions tabled tonight a new schedule of rates to go into effect immediately.

These proposals have 27053-46 The Budget-Mr. Sharp been taken into account in our negotiations in Geneva, but our chief objective inmaking the changes is to benefit the Canadian consumer.
With regard to the sale tax, I am proposing an exemption of a general character covering all drugs, whether prescribed or not, or whether for human or animal use.

I consid- ered the narrower exemption covering only prescribed drugs which the Committee recom- mended but this is difficult to define for a manufacturers' tax unless one lists the par- ticular drugs to which it applies, presumably those saleable only by prescription.
This would omit many common drugs that are extensively used and the government there- fore favours the broader, more understand- able exemption.

A serious problem arises in regard to the timing of the sales tax exemption for drugs, and its relation to the inventories of wholesal- ers and retailers acquired before the exemp- tion.

It is quite impractical to refund the tax that has been paid on such goods in stock, and it would be contrary to our general prac- tice.
It is most desirable that the reduction in the cost represented by the tax should be passed on to the consumer as soon as possible after it occurs.

It is also desirable that the trade should be aware of the related changes in policy.

I am therefore proposing that the sales tax exemption should take effect three months from now, on September 1st.

Con- sumers should not expect the removal of the sales tax to be fully reflected in drug prices before that time.
The loss in revenue resulting from the sales tax exemption for drugs, as proposed, is es- timated at $22 million per year-and perhaps half that figure for the current fiscal year.

Three quarters of the reduction is in budget- ary revenue, and one quarter in the Old Age Security Tax.
These changes in the sales tax, the tariff and the dumping duties taken together, along with the proposals to be announced by my colleagues, should bring about increased com- petition in the sale of drugs in Canada and in due course savings to the consumer greater than the amount of sales tax removed.

Production Machinery [Translation] My second major tax change relates to pro- duction machinery and apparatus.
When we proposed that 6 percentage points of sales tax apply to production machinery and apparatus until next April lst, we wished to induce the postponement of some capital expenditures.

870 COMMONS DEBATES J w 1, 1887 The Budget-Mr. Sharp In the present economic circumstances we no lmger wish to restrain capital expenditures and I am proposing that this remaining 6 per cent tax be removed immediately.
This action will provide an additional beneflt in reducing somewhat the costs of production in future arising from the acquisition of such machin- ery and equipment this year, thereby ena- bling Canadian producers to compete more effectively in future with producers outside of Canada.

I estimate this change will reduce revenues by about $60 million in this fiscal year, half of it in budgetary revenues and half of it in receipts of the Old Age Security fund.
I have considered numerous suggestions that I should remove the special excise taxes applicable to television sets, radios, phono- graphs, electronic tubes, jewelry and certain other goods.

I have decided to consider these in connection with our program for tax re- form but not to act on them at this time.

I see no economic or social reasons that would jus- tify the fairly substantial loss of the revenue this year and we would only be able to re- place the revenue in the context of more general changes.
I have also received suggestions that the tax should be removed from television sets capable of receiving Ultra High Frequency telecasts, as a means of promoting the sale of such sets and thereby encouraging the use of many more television broadcasting channels.

While I am sympathetic to the purpose for which this suggestion is made, I think it can better be achieved in another way.

(9:ZO p m . )

[ h g l t s h ] Tariffs I would like to mention three of the tariff changes I am proposing this evening.
The first relates to the tariff item which provides duty free entry for "internal com- bustion tractors".

The proposed amendment is designed to restore the scope of this item to what it was prior to a declaration of the Tariff Board last September.

When this item was first introduced into the Tariff there was tittle doubt as to the meaning of the term "tractor".
However, over the years, advances in technology and changes in design brought about a gradual evolution of various kinds of self-propelled machines such as front-end loaders, dozers and log skidders.

Faced with the growing difRculty of draw- ing a distinction between tractors and other ma-chines, the Department of National Revenue asked the Tariff Board to clarify the legal [Mr.

Sharp.]
Sharp.]

position and state what criteria should govern the classification of goods under the tractor item as opposed to other tariff items.

The Tariff Board on September 20, 1966, made a declaration in which it set forth a number of criteria.

These criteria brought the item a number of within the scope of classes of machines which had not previously been admitted duty free under the Most- Favoured-Nation Tariff, namely front-end loaders or tractor shovels, tractor dozers, log skidders and log loaders.
The Board made it clear it was ruling on the legal meaning of the tariff item and point- ed out that in making such a legal ruling it could not take into account the effects on Canadian production.

The proposed amendment to the item will exclude from it the integrated self-propelled special purpose machines I have mentioned, and for greater certainty, a number of others that are not now being admitted under this tariff item.
Production facilities for many of these machines had been established in Canada over the years, on the understanding that the equipment was properly dutiable un- der the machinery items in the Tariff.

Tractor dozers, log skidders and log loaders will revert to the tariff classification that pre- vailed before the T a r 3 Board decision.

I pro- pose that the duty on integrated front-end loaders or tractor shovels be 15 per cent most favoured nation instead of 224 per cent.
For this purpose I shall recommend a new tariff item.

Farm tractors and other tractors will of course remain duty-free.

To explain the second tariff change I should recall that there has been a prohibi- tion on the importation of margarine and similar substitutes for butter for many years.

This rigid prohibition has been a source of hardship to people who suffer from certain allergies and have been denied access to spe- cial kinds of margarine not made in Canada.
I have had many letters and I am sure many members of the house have had s h i l a r representations.

I am proposing that in Council be given power to make exemptions from this prohibition by regulation in special cases.

the Governor The third proposed tariff change relates to the automotive program.
There is now a tarif7 provision for a 99 per cent drawback of the duty payable on machinery and certain ap- paratus and precision instruments of a class or kind not made in Canada when used in the manufacture of motor vehicles and vehicle June 1, 1967 COMMONS DEBATES 871 The Budget-Mr. Sharp it would be unwise and unnecessary to try to parts.

This provision is being broadened and is also being extended to cover manufacturers anticipate them here.

of motor vehicle accessories.


This should be of particular benefit to the smaller Canadian Adjusted Budgetary Outlook firms producing automobile accessories.
The tax changes I have proposed would Apart from those arising out of the Ken- reduce our budgetary revenues by an estimat- nedy round which I will be introducing, the ed $40 million in all this current fiscal year, other tariff changes I am proposing either and increase our forecast deficit by that continue existing provisions for a further amount-to $740 million.

They will also reduce our Old Age Security fund revenues period or are of a relieving nature.
The tariff resolutions I am putting forward an estimated $33 million.

This will leave a tonight would involve a small reduction in deficit of revenues, in our national economic customs revenue but this should be fully accounts of about $300 million.

Our overall offset by the increase in customs revenue to cash requirements will also be increased by be expected as a result of the increased im- $73 m i l l i o n t o about $1590 million in all.
1f ports of production machinery resulting from the House agrees Mr. Speaker, I would in- the removal of the remaining portion of the clude in Hansard at this point a table showing sales tax on it.

Customs rwenues will of forecast tax course be affected by the tariff changes re- changes.

sulting from the Kennedy Round agreements but these will not go into effect immediately and the revenue changes will occur only in the last months of the fiscal year.
I have decided [Editor's note: The table above referred to revenues before and after hen.

Members: Agreed.

is as follows:] 1967-68 BUDGETARY AND OLD AGE SECURITY FUND REVENUES TABLE I1 Before Alter Tax Changes Tax Changes Budgetary Revenuea Personal income tax.. .

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Corporation income tax.. .................................................... Non-resident withholding tax.. .............................................. Estate tax.. ................................................................ Customs duties.. ...........................................................
Sales tax.. .................................................................. .................................................... Other duties and taxes.. Total taxes.. ........................................................... .......................................................... Total budgetary revenues.. ............................................. Non-tax revenues.. Old Age Security Revenuea Personal income tax.. ....................................................... .....................................................
Corporation income tax.

Sales tax.. .................................................................. Total old age security revenues.. ........................................ (t million) ($ million) 2,815 1,570 190 110 815 1,695 835 8,030 970 9,000 785 161 597 2,815 1,570 190 110 815 1,055 835 7,990 970 8,900 785 161 564 1,543 1,510 Mr. Sharp: Conclusion This year, just as in 1966, there is no one- shot economic nostrum guaranteed to keep uu healthy through the coming year.
During the Mr. Speaker, this is a budget for further past 18 months our flexible approach was the progress, both in terms of our economic well- most effective approach possible.

This budget being and in terms of our continuing effort to should be seen as a further stage in the con- pace our prosperity.

tinuing process of economic adjustment.


27053--561 872 COMMONS DEBATES June 1, 1967 The Budget-Resolutions The decision against an increase in income tax rates is a positive step allowing our budg- et to exert the degree of support our economy requires this year.

Meanwhile we have launched a major program to bring down drug prices.
We have gained in the Kennedy Round tariff agreements a further measure to add to the wide array of programs by which we are seeking to modernize our economic structure and increase our productivity.

We must continue to pursue vigorously these long-range reforms.

At the same time our immediate goal is clear: to achieve a steady, balanced economic advance, avoiding the reefs of inflation and other economic dangers that could wreck our hopes for continued growth.
RESOLUTIONS EXCISE TAX ACT RESOLUTION That it is expedient to introduce a measure to amend the Excise Tax Act and to provide among other things: 1.

That effective June 2, 1967, all goods listed in Schedule V to the said Act be ex- empt from sales tax.

2.

That effective September 1.
1967, any material, substance, mixture, compound or preparation, of whatever composition or in whatever form, including materials for use exclusively in the manufacture thereof, sold or represented for use in the diagnosis, treat- ment, mitigation or prevention of a disease, disorder, abnormal physical state, or the symptoms thereof, in humans or animals, or for restoring, correcting or modifying organic functions in humans or animals be exempt from sales tax but that this exemption shall not apply to cosmetics or confectionery prod- ucts.
3.

That effective June 2, 1967, goods enu- merated in tariff item 48100-1, namely "spe- cially constructed boot or appliance made to order for a person having a crippled or de- formed foot or ankle", and in tariff item 48105-1, namely "individual pairs of boots or shoes for defective or abnormal feet, when purchased on the written order of a registered medical practitioner", and articles and mate- rials for use exclusively in the manufacture thereof be exempt from sales tax.

4.
4.

That effective June 2, 1967, artificial breathing apparatuses purchased or leased on the written order of a registered medical practitioner by an individual afflicted by a respiratory disorder for his own use be ex- empt from sales tax.

5.
5.

That effective June 2, 1967, plans, draw- ings, related specifications and substitutes therefor, and reproductions of the foregoing sold to or imposed by manufacturers or-pro- ducers for use by them directly in the manu- facture or production of goods be exempt from sales tax.

6.
That where materials for use exclusively in the construction of residences for students have been purchased by or on behalf of a company wholly-owned and controlled by Her Majesty in right of a province and established for the sole purpose of providing residences for students of universities or other similar educational institutions, the Minister of Na- tional Revenue may, upon application by the company made in such form as the Minister prescribes within two years from the time of the purchase of the materials, pay to the company an amount equal to the tax imposed by Part VI of the said Act that has been paid in respect thereof.
[Mr.

Sharp.]