Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697646114442.pdf (Canada)
JUNE 20, 1961 6&39 cereals, utensils in boxes of oatmeal, and cutouts in corn flakes.

towels and dishes in soaps, lapel kitchen buttons The han.

member for Hastings·Frontenac (Mr. Webb) mentioned the order in council which was passed in the province ot Alberta.

For his information I should like to mention that this was not particularly popular with the buying public for the simple reason that it again was a piecemeal attack on what is after all a larger problem.
When we contemplate this type of legisla tion, Mr. Speaker, perhaps it might be well to have in mind the feeling and the thinking of I the women who do the buying and, might say, thinking of my own wife, doing it extremely well.

They get value for their dollar; otherwise they do not spend it.

In speaking on a similar bill last year the hon.


member for York-Humber (Miss Aitken) said, as reported at page 744 of Hansard of February 4, 1960: I can only assume that nobodY likes tradln, and the women who do the dlseount atamps except in thla country.

buylna: I suggest that he would be a heroic hus· band who would endeavour to tell his wife that she must not buy at this store or at that establishment because they give trading stamps.
He would probably end up by sleep ing on the chesterfield or putting himself out at night and keeping the cat in.

or course, if you let the hon.

member wbo intro duced the bill made no mention of the fact that on television last nigbt a gas installation firm in Ottawa offered a free portable 19 inch television set them put a natural gas installation in your bouse.

I pre· IUtne the hon.

member would approve of this because after all it is a rather substan tial gimmick to get business.
That is what trading stamps are; they are a gimmick to attract business.

As has been said by hon.

these members who things time and they die a natural death, as have other similar forms ot advertisements Over many years.

preceded me, give Will you call it six o'clock, Mr. Speaker?

At six o'clock the house took recess.

The house AFTER RECESS resumed at 7.30 p.m.

THE BUDGET ANNUAL FINANCIAL STATEMENT 0,.

THE MlNlSTER Of' f'INA..~CZ Hon.


Donald M. neming (Minister of Finance' moved: That M..r. Speaker do DOW leave lhe ehalr for the hOUR to '0 hito eommlttee 01 way.

and muna.

The Budget-Hon.

D. M. Fleming He said: Mr. Speaker, normally 12 months transpire between budgets.

Exactly six months I was delivering my last ago this evening, It was in this chamber.

previous budget a supplementary to the 1960 budget.

Tonight's is the second budget of the present session.
Four years ago tomorrow morning the pres ent government was sworn into office.

This is I have had the honour to the fifth budget submit to the house in these four years, not inclUding the financial proposals introduced on December 6, 1957.

The circumstances attending each budget have differed from those associated with the others.

Each was aimed to meet the financial and fiscal problems ot time.

Tonight's budget is designed to meet Canada's present needs and difficulties.
Flexibility has been the keynote of our financial policy in these tour years.

also characterize the approach revealed in tonight's budget.

It will its (TTanslation) : Normally 12 months transpire between budgets.

Exactly six months ago this eve ning I was delivering my last previous bud· get in this chamber.

It was supplementary to the 1960 budget.

Tonight's is the second budget of the present session.

Four years ago tomorrow morning the present government was sworn into office.
This is the fifth bUdget I have had the honour to submit to the house in these fours years, including the financial proposals intro not duced on December 6, 1957.

The circumstances attending each budget have differed from those associated with the others.

Each was aimed to meet the financial and fiscal problems of its time.

Tonight's bud.

get is designed to meet Canada's present needs and difficulties.

Flexibility has been the key note of our financial policy in these four years.
It will also characterize the approach revealed in tonight's budget.

(Text) : GOVERNMENT ACCOUNTS 1960-61 In structure my budget speech this evenina: will depart somewhat from past precedents.

I shall begin by placing on the record a brief summary of the government's accounts for the year that ended last March 31.

I shall not embark upon any detailed analysis be cause all the essential facts and figures have been included in the white paper whidt wu tabled and published last Friday.
In my March, 1960 budget statement I recorded my expectation that our revenues the 1960-61 fiscal year would be $5,892 for million, our expenditures $5.880 million, and that the resulting surplus would be $12 mO in presenting to the lion.

Last December, I explained house a supplementary budget, 6640 HOUSE OF COMMONS The Budget-Hon.
D. M. Fleming that the rate of economic expansion in Europe had shown some hesitation and that the eco~ nomic outlook in the United States and Can ada, which had been most encouraging at the beginning of 1960, had rather unexpectedly resulting in a disappointing reversed Itself, slow down during tbe last three quarters of 1960.

Tbis inevitably affected.


our budgetary position and my revised estimates, after mak ing provision for certain tax changes, were that revenues would be $5,694 million, ex penditures $5,980 million and the deficit $286 million.

environment.

In these circumstances the year 1960 might have been one of serious eeonomlc maladjustment and recession.

In the event, however, we achieved increases and reached new records in production, incomes, employ_ ment and trade, botb domestic and toreign.
At the same time price levels were more stable than they have been in the last five years.

By now, factors which, improvement.

Capital to government measures Our books of accounts for 1960-61 have not in mid·1961, we are coming to the end of those adjustments related to special and cyclical in 1960, were exercising a restraining influence on expan· sian.
Those areas of the Canadian economy yet been closed, but subject to some minor where declines took place last year are today adjustments our revenues for the past year· showing sIgns of in· were $5,616 million, our expenditures $5,961 vestment, whIch declined in 1960, is expected million and our deficit $345 million.

In other to rise this year.


Activity in housing, which words our revenues were $78 million and our fell off in the early part of 1960, responded and other expenditures $19 million below my December well forecast, and the deficit was therefore $59 market forces in the latter halt of the year million greater.

As explained in the white and has been moving ahead this year.
We the main factor causing the rather may expect not only the housing industry, but paper, to benefit large drop in revenues was the timing of other associated activities as well, the IanI' Easter week end.

This year Good from this improvement.


The level at economic activity showed litUe change in the Friday fell on March 31 and a considerable first proportion of the tax payments due at the quarter of this year, but increasing evidence month end were in fact not put in the mail of expansion is now appearing.

Latest figures until April 3 or 4 and therefore could not total employment has risen ma show that terially and the numbers at unemployed have be credited to our 1960-61 fiscal year revenues.
Our March tax reeeipts showed an unex- begun to decline even alter allowing tor the sectors normal pected short-tall of nearly $40 million.

seasonal movemenl Other :here th~re was continued gro.wth last year reo shOWing tur~er strength this year.

In.

the 1960-61, well as budgetary cash receipts and disburse~ United States In~ormed observers conSider ments, resulted in a toW cash deficit of $294 that .the ~covery 15 now well.

unde~ way.
unde~ way.

Ex million, since our non-budgetary cash receipts panSlon IS e~pected to co:ntinue In western exceeded disbursements by $51 million.

Thus Europe and In our other unportant overseu our budget deficit of $345 million was financed markets.

~hese welcom.e develop~ents will by a net non-budgetary cash surplus of $51 make poSSIble.

turther lDcreases In our ex ports, production, employment and incomes.

million a net in t .


, u1d us, an Improvemen 10 .our Sl ua on co outstanding unmatured debt, and a reduction be expected to occur even If no further efforts of $71 million in our cash bIn were taken to stimulate our economy.

The government's over-all cash position for including non·budgetary as m on n our Th ' crease a that is, a a ces.

t $223 Illl ·t II I ECONOMIC REVIEW study of han.

members.

Tonight The white paper also contains: a full ac count of the economic events of 1960.
It in~ ciudes an analysis of the more significant longer term developments in Canada and in the world as a whole as related to the Cana dian situation.

I commend this analysis: to the caretul I shall not cover the ground in the same detail as in the white paper, but 1 should like to reter briefly to some of the principal features.

Last year we experienced a number of adjustments in our economy includine some related to normal cyclical movements, and others of a temporary, special nature.
These took place at a time when other longer term influences were also compelling the Canadian to a new world itself economy to adapt (Mr. FIemln« (E,linton).)

But this improvement, which could be ex- pected in the ordinary course of events and without further stimulus, would, I believe, be modest, an increase of about 3 per cent in the G.N.P.
It would be unlikely to induce the tull utilization of our productive resources or to provide substantial improvement in the standard of living of our growing population.

It would be unlikely to reduce the scale of unemployment to a mote tolerable level.

What are the reasons tor this apparent lack of resilience in our economy?
Have there been new and abrupt changes in our en· vironment which would explain our situation, or has there been a slow emergence of un· derlying torees which had their birth in an earlier period?

Can we trace these influences to some indigenous development, or must we JUNE 20.

1961.

66U look beyond our own borders?

The answers to each of these Questions must, I believe, be a qualil1ed affirmative.
longer The important term developments which are at the root of our present day economic difficulties have been taking place slowly since the end of world war II and to some extent were hidden dunng the extended period.

of post-war shortages of Soods and capital equipment, a period when in8ationary ascendant.
forces were constantly in the During this period of shortages and rising prices the economies of western Europe and Japan have been rebuilt with the newest plant and equipment and with a highly skilled labour force, and the underdeveloped coun tries of the world have tried strenuously to achieve selt-sustaining economic growth.

of scientific Within the past two or three years direct controls on the movement of goods and capital in the free world have, to a large extent, been dismantled.
The and pace technological development has been rapidly accelerated.

The western world has grown more interdependent and the policies of gov ernments and business groups have become these more closely linked.

In the face of all changes, the competition in world markets has become much more intense and the need for greater efficiency has been forcefully un derlined.

foreign market, These chanaes have affected all western countries.

But Canada has faced additional im special problems.
OUr largest and most portant the United States, has experienced an inadequate rate of growth in recent years.

This has affected not only our exports but also our general business psychololY.

Meanwhile, the growth of our own labour force has been unusually rapid and much higher than in other western countries.
Our growth in employment has been higher-and I wish to stress th~ur growth of employment has actually been higher than in other countries, including the United States; nevertheless we have been un able to absorb into employment all the en the same trants Into our time.

many of those seeking employment have Dot had the benefit of adequate training to meet the needs of our increasingly specialized and technical industries.

force.
force.

At labour feature of Another special the Canadian situation Is that many of our industries have surplus capacity.

To some degree this re8~ts the inadequate rate of growth in the United States market to which I have already re ferred.

In part it also reflects the "lumpy" nature of much of our investment, which for physical and economic reasons must be in stalled In large units, sufficient to meet pros Pective as well as current needs.

A great deal The Budget-Hon.


D. M. Fleming to some extent in the resource industries of the investment was of this type.

But surplus capacity in our economy also re8ects the unsustainably high levels of investment which were encourased by the in8alionary atmos- phere of the mid-1950's.

During this period of excessive pressure on our resources it was inevitable that some speculative investment was undertaken, not only in Canada but all over the world, with expectations of con tinued rising prices.
These expectations proved wrong.

The Donnal growth ot real demand can be expected to overtake capacity in the not too distant future.

MeanWhile, the exis tence of surplus capacity acts as a drag on private investment.

It necessitates some trans· fer of resources out of temporarily overex panded industries; unfortunately, it also con tributes to attitudes and conditions which make such transfers more difficult.
In some quarter the conclusion has been drawn that the disappointing levels of pro duction, unemployment, and our balance ot payments deficits, are the re8ections of major structural maladjustments and ineft\ciency pervading our whole economy.

We are told that Canada has relied too heavily on the development of her natural resourees and that she is lagainl in the field of industrial development.
It is suggested that efforts be made to force our economy into different channels less dependent on world demand.

We are urged to balance our external ac counts not by expanding exports but by erect ing barriers against imports.

The analysis which supports these pro posals is in my judgment basically wrong; consequently the conclusions are also erTone.

ous.

Canadian economic development since the second world war has on the whole been sound.
Investment has 80wed into sec tors where an abundance of natural resources gave us a decided natural advantage.

It also has flowed Into a great variety of manufac_ turing industries, especially into those re lated to the fast growing resource industries, It is sometimes suggested that the resource industries have been stimulated in Canada to such an extent they have expanded that at the expense of manufacturing.
In this con nection, lbat employment in manUfacturing industries In Canada, while less than we would like, has been better sustained than in the United States over the past seven years.

should remember the bouse This is not to say that we would be com placent about the present state of our econ omy.

Far trom it.

There is more unemploy_ ment and unused capacity in our industries 6642 HOUSE OF COMMONS The Budget-Han.

D. M. Fteming than we can possIbly 'accept.


Recent rates of economic growth have been lower than we need to absorb our rapidly growing labour force and the output of our expanding in dustrial capacity.

Some of our industries have been stagnant in the face of strong world competition.

Our technological development, the enterprise of our business community, and the skills and training of our people, great as they are, have not kept pace with the needs of a rapidly changing world.
The deficit in our balance of payments, while declining, is stU!

too high for our present economic circum stances.

These are hard facts which must be faced squarely.

This we propose to do.

We do not intend to let events take an unguided course in the hope that these prob lems will solve themselves.

The government has introduced numerous measures during the past four years designed to overcome these and other difficulties.
As a consequence our economic situation is very much better than it would otherwise have been.

We will pursue this course with energy and determi nation until these difficulties are fully over· come.

Our objective will be, first and foremost, to provide tuller opportunities for the useful and profitable employment of all CanadIans willing and able to work.

We shall strive to attain a more rapid rate of stable and balanced growth for all sectors of our eco regions of our country.
We nomy and all shall seek to improve the technological effi ciency of our industry, to heighten skills and capacities of our workers, and to stimulate the talents and initiative of our entrepre neurs.

We shall endeavour to raise the levels of savings and investment by Canadians and reduce the balance of payments deficit.

These, sir, are the purposes of this budget.


(Translation) : Our objective will be, first and foremost, to provide fuller opportunities for the useful and profitable employment of all CanadIans willing to work.

We shall strIve to attaIn a more rapid rate of balanced growth for all sectors of our economy and all regions of our country.
We shall seek to improve the tech· nological efficiency of our industry, to heighten skills and capacities at our workers, and to stimulate the talents and lnitiative of our entrepreneurs.

We shall endeavour to raise the levels of savings and investment by Cana dians and reduce the balance of payments deficit.

These are the purposes of this budget.


We shall endeavour, through an appropriate financ1al and commercIal mixture of fucal, policies, to create more jobs, to stimulate pro duction, and to lmprove the general state ot our economy.

(Mr. Fleming (Eillntonl.l (Text): remInd hon.

members that I nccd not road, no magic which a there is no royal minister of finance may invoke to achieve these goals.

If there were easy solutions they would have been adopted long ago.
Nor can these objectives be attained by federal gov.

ernment measures alone.

In our free enter.

prise system we shall need sell·discipline and the full co-operation of business, labour and all levels of government-indeed of all our people-if we are to succeed.

I shall have more to say about this subject later.

The budget which I bring down this eve· ning is not an ordinary budget.

In more than usual measure it is an economic budget.
We shall endeavour, through an appropriate mIx commercial ture financial of policies to stimulate production, and to improve the general state at our ~onomy.

I should like now to discuss the policies and measures which I propose that this house should endorse.

and to create more jobs, fiscal, FISCAL POLICY While budget policy can play an impor tant role in attaining the objectives that I have set out, it cannot accomplish the whole task.
What we need, and what I shall be put· ting before the house this evening, 15 a bal anced combination at both broad and specIfl.c economic and fiscal proposals.

The govern ment has already initiated during th15 sessIon a number of constructive programs to en courage economic expansionj small business loans, housing development, urban renewal and rural development, greatly Increased aids to technical education and training, measures to promote the expansion of exports, and in other ways.
These are all parts of an inte grated econorn1c policy.

When there 15 a substantial degree at slack ness in the economy, in the form of excess Idle manpower, and productive capacity budget deficits can provide an important stimulus.

By means at such a deficit the gov ernment, through its expenditures, places in the hands of the pubUc substantially more purchasing pOwer than it withdraws through taxation.
If appropriately planned and timed, a substantial deficit can encourage higher levels of output, employment income and savings, without incurring risks at infiation.

When employment and incomes have reached.

satisfactorily high levels and the rate of economic growth 15 strong.

a sound budget and tax structure should generate sufficient revenues not only to cover current expendi tures but the orderly reUrement of debt.
also to provide funds for The present general pattern ot our tax in my judgment, sound.

While rates and particular applications structure is, particular JUNE 20, 1961 66{3 of tax legislation need to be adjusted from tax structure is time to time, our present such that, provided.

we do not embark upon large new types of spending, it will provide a balanced budget and some provision for debt repayments as soon as we re-enter the area of high employment and a renewed pe riod of progressive growth.
There is, however, as hon.

members know, a time lag of quite a few months between increases in the rate of growth of output and employment and the increased.

inftow of tax revenues.

While I expect to see a signiftcant and accelerating improvement in output, em ployment and incomes during the balance of this fiscal year, I cannot anticipate an equiva increase in tax revenues in the same lent period.
Much of the revenue benefits of eco nomic expansion will not reach the treasury until after the end of this fiscal year.

it Is appropriate, In the circumstances confronting Canada indeed desirable, today, that the federal government should, by incur_ ring a sizeable deficit, help to stimulate the economy.

This we propose to do.

Accordingly, I shall not be introducing any increase in our general level of taxation.
Indeed, I shall be proposina: some significant tax reductions to accomplish certain specific economic objec tives.

This contribution in the field of fiscal policy taken together with the financial and other policy measures which have already been introduced or which I sball be announc ing tonight, will bring about higber levels of production and employment, and a more satisfactory rate at growth.
CAPITAL, SAVINGS, THE BALANCE OF PAYMENTS AND THE EXCHANGE RATE be implementing In addition to this fiscal contribution the government will other broad financial measures that will encourage general economic growth, as well as specific measures designed to encourage particular sectors or industries.

These general measures are in the interrelated fields at capital flows, the deficit on international account, and the external value of the Canadian dollar.
Over the past five years we have experi enced net inflows of foreign capital ranging from $1.1 billion up to $1.5 billion annually.

These capital inflows have been matched by deficits on current international account, that is to say, by an excess of imports of goods and services over exports.

When the economy was fully employed and expanding rapidly, and when inflationary pressures were active, such capital inflows, and the matching Import surpluses of goods and serviees, were appro priate and beneficial.
Under today's condi tions they are not only unnecessary, but in some forms they can be harmful.

Our excess The Budget-Hon.

D. M. Fl.eming imports of goods and services must be sub· exports must be our stantially reduced; expanded.

There are large quantities of goods and services that we are buying abroad that we can and should be producing at home at eeonomic prices.

It was for these reasons that in my budget of March, 1960 I issued.
a serious warning to those Canadians, including provincial and municipal governments and business, who, it seemed to me, were over-ready to raise funds abroad, apparently regardless of the exchange risks they were running.

In the December budget, as the howe will recall, I took action taxation to remove certain in the field of special to borrow abroad which had been buill into our tax system in earlier years when there was an obvious need tor foreign funds.
incentives The public reactions to these wamin~s and measures have clearly been in the right direction.

The capital inflow has been reduced, the exchange rate on our dollar has been reduced, the surplus imports of goods and services has been reduced; but they have not been reduced enough.

Further measures must now be taken.


Accordingly, the government has reached certain policy conclusions relating to the flows ot capital and tenns of lending within Can ada, the the import of capital from abroad, level of the Canadian dollar, and the deficit in our current transactioDS.
These conclusions may be set out as follows: in our balance of payments is in large measure inappropriate; with so much unused capacity in Canada, we should be exporting substantially more goods and services and importing much less.
(a) The current deficit international <b) An expansion in exports and a reduc tion in imports should not be brought about by export subsidies, or by higher tarift rates, or quc.tas, or other forms of ·government in tervention or protection, but rather by en~ couraging our exchange rate to tall into a more appropriate relationship with our eco- nomic situation.
Cd The appropriate method for relieving the exchange rate of undue and unwanted upward pressures is to take every practicable step to ensure that Canadians who might in otherwise be raising funds abroad are, future, from Canadian financial sources.

satisfied tor funds (d) Since it will take time to divert de to from foreign sources mands to is urgent Canadian sources, and since it from the resulting excess ot obtain relief imports ot goods and services, the govern· ment has decided to use thl!
exchange fund to neutralize, at the ef~ least in some degree, fects of the continuing capital inftows.

6644 HOUSE OF COMMONS The Budget-Hon.

D. M. Fleming The house will no doubt wish me to elab orate on these far-reachin£ decisions.

improvement First, and of most immediate interest, is the decision relating to the adverse balance on goods and services account which has been running well in excess of $1 billion annually.
It is the government's aim to reduce this def icit substantially in the near future and ultimately to achieve a position much closer to balance.

The be brought about partly by increased exports and partly by diminished imports.

Our pur pose is to put Canadian producers in a posi tion where, as a result of these policies, they will soon be selling, at home and abroad, many hundreds of millions of dollars worth of additional Canadian goods and services.
This will yield substantial benefits, direct and indirect, in the form of more jobs, more production and more business opportunities for our industries.

should These results will be achieved by encour aging our exchange rate to find a level In keeping with our economic circumstances.

They are not to be achieved by subsidies, by government controls or restrictions.

It has been urged on me from some quarters that there Is a need for direct government Inter vention to deal with our economic problems.
J reject this argument.

The policy which I am placing before the house tonight is, in terms of real economic incentives, more significant, more powerful, and more pervasive than any thing that could be implemented in the way of subsidies and controls.

Moreover, it ill free from the arbitrary decisions and the bureau cratic delays that always attend incursions by the government into the affairs of private industry.
The high level of our exchange rate has been impairing the competitive position of Canadian suppliers of goods and services in the home market and in foreign markets alike.

An appropriate downward adjustment in the value of our dollar will bring them immediate relief and encouragement.
On the export side one thinks of wheat and livestock, of pe· troleum, metals and minerals, of pulp and paper and lumber, and of the growing range of manufactures for which, since currency convertibility was restored, we are finding in creasing markets abroad.
On the import side our to Industries whose growth rates have been less than satisfactory because of the imports that have, in effect, been carried into Canada as a result of a tide at unduly large capital inflows and a conse quently unduly high value for our currency; household appliances, motor cars, a variety of consumer goods, and many types of indus trial machinery.
The exchange rate also affects service industries such as the tourist indus try where we have been incurring heavy thoughts run first [Mr. Flemln, IE,llnton).]

deficits because Canadians, at the current exchange rate, spend far more abroad than foreign visitors spend In Canada.

In all these situations a further reduction in the exchange rate will exercise a positive infiuence.
And, as I have said, it is the gov_ ernment's intention so to redress our balance of payments that many more Canadians will be employed producing substantially more goods and services for the domestic market and to serve our markets abroad.

While decisions regarding the balance of payments and the exchange rate are of im portance, there is a further decision which is, in a sense, basic to the others.
This decision is a positive one; to encourage the supply of capital from Canadian sources, that is from Canadian savings, to meet Canadian require ments for expansion and modernization.

The rate of Canadian savings has not been low.

In fact it has been reasonably good.

B'lt it could be better.

The /low of savings varies in re sponse to other changes in the economic and financial system.

And by far the most impor tant infiuence on the flow of savings is the flow of incomes.
Normally the more people earn, the more they save.

By increasing the level of employment and the flow of incomes and profits, we shall automatically increase the flow at Canadian savings.

The measures which I am proposing tonight will help to achieve these goals.

The ohjective that Canadian capital require ments be met as far as possible tram within Canada, rather than from abroad, Is based on economic grounds and with particular concern for our international deficit and the level of the exchange rate.
At the same time the gov ernment welcomes, as the Canadian people will welcome, the fact that, over a period of time, this decision will result in greater Cana· dian ownership and control over Canadian industry and Canadian assets.

For this pur pose, Canadian savings must not only be in they must be mobilized and put to creased, work in the most productive directions.
I wish to make it quite clear that we do intend to penalize or discourage forelgn not capital that seeks constructive employment in this country.

J am not proposing, in respect of capital inflows, any substantive further taxation measures.

The interim budget of lallt December removed the unnecessary tax in centives.

Nor am I proposing any restricUons on the movement of capital which have been advocated in certain quarters.
Canada, even in present circumstances, derives great benefit from certain kinds of capital from abroad.

This government remains firmly committed against direct controls on capital JUNE 20.

1961 6645 CAPITAL INFLOW AND INTEREST RATES it Since our aim is to reduce substantially and fairly qUickly our excess of imports, visible and invisible, over our exports.

follows that we must aim at replacing, from Canadian sources, an equivalent amount of funds that would otherwise have been raised abroad.
We have been giving most careful thought to ways and means of supplying these funds from Canadian sources.

This is a field in which there are no quick or easy answers.

The degree of success we can achieve will depend in part on the co-operation of our financial institutions.

Capital is not a homogeneous commodity; each borrower has his own peculiar needs and each lender his own preferences.
However, despite the infinite variety of capital trans actions, we can see our way toward certain broad measures that must be taken.

of the European To begin with, interest rates in Canada are out of line with those in the United States and capital·exporting some countries.

We should like to see these spreads narrowed.


When Canada was in need of large and increasing suppHes of capital from abroad, and when we could welcome the net inflow of goods and services that these capital im 'Ports generated, that our it was natural interest rates should be appreciably higher than those in the main capital markets from which we were attracting funds.
in present circumstances, rates in order But today the situation is very different We to have no reason, be offering high interest to attract capital from abroad.

On the contrary, the capital that is thus attracted simply pushes up our exchange rate and pushes up our trade deficit.

High interest rates are a double drag, at times like these, on our economic activity and expansion.
Such rates traditionally are recognized as having some effect in restrict ing or postponing decisions to borrow and ex pand industrial operations and also the activ· iUes of governments and public bodies.

And, much more important, with our floating rate of exchange, rates actually cause us to develop an import surplus of goods and services with adverse effects on employment.
relatively high interest Statistics indicating trends of interest rates in recent years in Canada and abroad are to be found in the white paper.

These support the \tiew that Canadian interest rates have grown out of harmony with those abroad and with our changing economic circumstances.

An im portant step in the right direction was taken earlier this month; I refer to the reduction by the chartered banks of their prime rate 90205·6-419 The Budget-Hon.

D. M. Fleming on commercial loans.


Further moves of this sort will be welcomed and encouraged by the government.

that some that simple I am confident to expect by or for example, the spreads between interest rates of various types in Canada and abroad can be reduced and brought into proper relationships, but I would not wish this can be hon.

members quick accomplished formula.


It would be folly, to attempt drastically and artificially to force interest rates down by irresponsible increases in the money supply.

Such a device would be not only unsound but before long would prove to be self-defeating.

We attach high importance to a climate of confidence and understanding in our financial markets.
What is co ordinated combination of fiscal, monetary and general economic measures, the elements of which vary in accordance with the needs of the times.

judicious and well required is a While the level and structure of Canadian interest rates is an important infiuence on our balance of payments and our exchange rate, it is clear that much of the capital that comes in from abroad is not directly respon last year sive to interest rates.

For instance.
For instance.

more than $600 million of capital flowed in under the broad heading of "direct invest ment".

Part of this inflow can contribute immediately and directly to the Canadian economy; not only does it create new jobs and new industrial opportunities in this country but it often carries with it new in dustrial to markets abroad.

On the other hand.
On the other hand.

another part of this very large total constitutes the least desirable type of inflow; it involves the purchase by people abroad of established Canadian businesses.

Many of these take overs of Canadian firms do little or nothing the time of pur for our economy and, at chase, they involve an upward pressure on the Canadian exchange rate and a consequent drag on Canadian production and employ ment.
I shall have more to say on this subject in connection with an important ex· later pansion in the activities and th·e role of the industrial development bank.

technology and assured access the capital infiow originates in Some of Canada with seek funds borrowers who abroad, not only in response to lower interest reasons.
costs but for purely institutional Access to the New York capital market is almost a matter of habit; it is often simpler to raise money there than to search out equiv alent possibilities in Canada.

Certain aspects of our capital markets have not been ade quately developed in Canada.

This does not reflect in any way upon the sound and pro gressive financial institutions in our country, 6646 HOUSE OF COMMONS The Budget-Hon.
D. M. Fleming which have been rendering an excellent serv ice under present arrangements, But it d<les suggest impr<lve our institu tional framework, that we must I have already -held fruitful discussi<lns with certain Canadian financial institutions looking toward a decline in interest rates and a reduction of the inflow of types of capital I that can be met intend to have further discussions along these lines in the near future.

from Canadian sources.


DEBT MANAGEMENT While the government will be calling for the co-operation of Canadian financial insti tutions in achieving our objectives regarding the supply and application of Canadian sav ings, we shall at the same time be taking certain positive steps ourselves.

In this con nection I have three important announce ments to make relating to debt management.
I need not remind the house that the fed eral government and its agencies are by far in the financial markets the largest of influence is particu larly great in times such as these, when the private sector reduces its demand for capital and the federal government incurs substan tial deflcits as a measure to stimulate pro duction and employment.
The proper man agement of its financial affairs is therefore one of the most constructive contributions the federal government can make to the smooth functioninc of Canadian capital mar kets.

this country.
this country.

Their factor Accordingly I wish to announce that in order to avoid congestion in the "long end" of the capital market, which is the part of the flnancial market upon which the prov and: private business inces, municipalities depend for much of I their capital needs, intend to confine new federal market issues for at least the next several months to the "short end" of the market.
The sale of new issues is not the only channel by which the impact of government financing is transmitted to the market.

There are sizeable holdings of outstanding securi ties in government accounts; sales and pur chases by these accounts have the same market effect as the issue of new securities or the redemption of old.

One ot the most impor tant ot these aceounts, both in terms of size and in terms ot volume ot purchases and sales, insurance fund.
The holdings ot this tund have come to be re garded in some quarters as a threat to stabU tty in the long end ot the market.

The government has therefore decided to remove any such threat.

is the unemployment The entire portfolio of the unemployment in due courSe be taken insurance fund will [IoIr.

Flemlnl (Elllntonl,1 the acquire fund will over by the treasury at book values, and in exchange interest bearing but non-marketable bonds which may be redeemed by the government as required on 30 days' notice.
The direct government of Canada bonds presently held by the tund will then be cancelled, and the government guaranteed bonds will in due course be traded to the Bank of Canada in exchange for bonds which will equivalent government thereupon be cancelled.

This will remove the overhang of about $245 million mid and long term bonds which, as I have said, has had a psychologically disturbing effect on the market.
the securities The third announcement I wish to make in the field of debt management concerns the establishment of a purchase fund tor the orderly retirement of government debt.

As there is at present a hon.

members know, fund known as investment account, which is used from time to time to purchase government ot Canada securities, particularly those close to maturity.
ThIs tund has served a useful purpose in our manage ment of the public debt We have not, how_ ever, had at our disposal the regular flow of funds which is necessary for any steady retirement of debt.

The experience ot other corporations and of private governments suggests that the existence of such a fund through which purchases of securities are made can have a steadying effect on the market.

Over a period of time it should con.

tribute to a reduction of interest costs.


It has theretore been decided to establish a purchase fund to assist in the management of the public debt.

Its initial size will be $100 million, to be used.

over the next twelve months tor the purchase in the market of government of Canada mid and long term securities.

Details, concerning the operation of the fund will be announced later.
the policies The combination of I have to be just outlined combined with others described later this evening and the indica tions I gave earlier concerning budget balance will have, I am confldent, a salutary effect on the financial markets of this country.
They represent a determined effort on our part to exert strong pressure on the level of interest rates and the exchange rate, in order to bring them more in line with our own requirements and with conditions prevailing in the world in our capital about us.

The improvement markets which will flow from these measures will be of direct benefit to the provinces, municipalities, business and other borrowers.
THE INDUSTRIAL DEVELOPMENT BANK The next link in the flnancial chain that to the the government forging relates Industrial development bank.

The scale of is JUKE 20, 1961 16fo?

The Budget-Hon.

D. M. Fleming fisc::al year lending to small and medium the bank's sized businesses has been expanding rapidly.

In its last the hank made HO loans amounting to $38 million, as compared with 221 totalling $17 million Ave years earlier.
In its current fiscal year which began last October loan approvals have been more than 60 per cent greater than the record rate achieved in the same period a year ago.

The number of branch offices has been increased from four to 13 over the past Ave yurs, and further branches will be opened in the near future as suitable staff can be recruited and trained.

This expansion has been very desirable and bas bad the full support of the government.
The predominant business of the bank has been, and will continue to be, the making of term loans to small and medium sized enter prises.

However, the bank also has authority to purchase a portion of the equity In an enterprise wlth a view to resale to the owner or to others at a later date, and to enter into und'erwritlng agreements.

These powers will be put to increasingly active use.
for In order to encoura/ie continuing trowth of the bank's operations, the government has decided to provide it with additional financing capacity, and wider responsibilities.

For these purposes I shall be placin&" a bill before the house in the very near future.

Without going the into detail at this time, I may say that bill will make important provision changes.

The types of businesses which the bank may assist will be enlar,ed.

At present it is permitted to provide accommodation to industry.
These certain specified classes of include manufacturing and processln" lonin, and COnlltructlon, air transport some service activities.

In the future it is Intended that all business enterprises In Canada shall be eligible.

The bank would, of course, not expect to make loans where funds are avaIl able on reasonable tenns from other sources and, in particular, where special provision has already been made by parliament, as in the Small Businesses Loans Act and the Farm Improvement Loans Act.
It is intended that the financial resources available to the bank should be wbstantially increased.

These re SOUrces are now $160 million; It is intended that they should be increased to about $400 million.

and In facUitating the growth ot the industrial development bank, the government has In tnind several important objeeUves.

The ex panded operations of the bank will provide for greater employment.
They will also assist in the development of a stronger, more Productive and more ll.exible economy in the future.

The bank was tormed in order to meet a special need in the Canadian financial D020H-41Vi instituUons, trom other lap exists because, while structure.

This smaller and medium sized businesses have usually had ateess to short tenn credit from the chartered banks, and to long tenn mort gage credit their operations have not been of a size to enable them to sell securities in the market.
To fiU this gap the bank has supplied term loans for plant and equipment and also provides technical engineering, accounting and man agerial advice where needed.

Financ1al and other assistance of this ldnd will now be available for many businesses not previously Included under the bank's operaUons.

While the primary purpose of the I.D.B.


Is to help in 1lnancing the establishment of new and the expansion of existing small and medium sized businesses, It has become in creasingly apparent that it can also play a useful part in assisting with the problems arising and changes in ownership.

from financial consolidation In these days there are often pressures on the smaller firms from both domestic and foreign sources.

If our economy is to grow and prosper we must help them to withstand these pressures.
I have in mind, for example, the problems that face Canadian family firms.

Often such a finn plays a central role in one of our smaller Canadian towns.

In the life of such a firm, oceasions sometimes arise when together with Infusion of new management new capital becomes desirable.
In the past this i.ntusion has not Infrequently come from abroadj and while foreign capital may be beth desirable and helpful, I am sure that we would all be happier if such a firm had the opportunity to obtain the necessary capital and management in Canada.

The I.D.B.

has already assisted in situations of this sort, and it is the lovernment's desire that activity in this field be expanded.
Similarly, problems sometimes arise where the owner of a finn is facing or anticipating difficulties in connection with estate taxes.

In such a situation the owner may feel driven to dispose of a firm, or a controlling interest in it, and otten the most ready purchaser may be located outside of Canada.

On such oc casions the I.D.B.

may have a constructive role to play.

The I.D.B.


has the power, 8S I have explained, not only to make term loans but also to purchase shares with a view to resale and to enter Into underwriting agr~­ ments.

The existence of these powers, and of the willingness of the bank to use them, should be made more widely known.

It must, of course, always operate with a:ood business judgment.

But within this framework I am confident that the industrial development bank.
an increas.ing contribution to will make 6648 HOUSE OF COMMONS The Budget-Hon.

D. M. Fleming the types I have de solving problems of scribed, to Increasing Canadian productivity and improvini our competitive position, and to helping retaIn in Canada the ownership and control of Canadian businesses.
OTHER FINANCtAL MEASURES: A ROYAL COMMISSION I should like at this point to comment on other important steps in the financial field which the government has announced in the recent past or will take in the near future.

I should like to remInd the house of cer field tain recent measures in the financial that are designedly in hannony with the objectives r have announced tonight and in particular, the objectives of lowering inte~est rates and ensuring that.
as far as practicable Canadian demands for capital should be met from Canadian sources.

First.

I am &Iad to say that after a naturally slow beginning, the Small Businesses Loans Act is being put to increasingly good use.

The show that guaranteed bank latest this le&islation are now being loans under made at an annual rate of approximately $100 million to a wide variety of Canadian business enterprises.
figures Second, I should like to refer briefty to the arrangements which we are making for a secondary market in mortgages.

As my col league the Minister of Public Works has ex plained, there I.s no intention of dumping on the market la,ge quantities of mortgages now held by the Central Mortgage and Housing Corporation.

If and when the gov ernment is in need of funds there are more effective and cheaper means of meeting our requirements.
On the contrary, it is our in tention to feed out fairly limited quantities, 1n a manner designed to encourage an active market 1n insured mort gages.

Such a market wUl give an element of liquidity to these instruments, and as such will harmonize with our general program 01 broadening and deepenIng Canadian capital markets and of bringing interest rates in Canada more 1n Hne with those abroad.

to the market I now turn to the future.


It has become almost trite to say that the "economic environ· ment 01 the sixties will be different trom that 01 the fifties.

In no field., as far as Canada is concerned, is this statement more true than in the field of financial relationships, domestic In tonight's budget, as and international.

on other occasions, the government has reached decisions on certain refonns and cer tain improvements that should be introduced.
the We have, however, become aware of need for a broader, tuller survey than is possible under the pressures 01 day to day &ov@mment decisions.

[Mr. nernm.

IEcllnton).J Major Canadian financial institutions have developed over the years an enviable reputa.

tion for soundness, prudence and adaptabll1ty Canada has been well served by them.

I~ recent years there have been important changes in the institutions themselves and in the markets in which they function.
Even greater changes may be in store as the Cana dian economy matures and becomes more complex.

So important are these institutions and markets to the smooth functioning of business and government that a careful re view of them is necessary from time to time.

The last major study was made by the MacMillan commission in 1933.
The Canada 01 that day was a much less mature country than the Canada 01 today, and the world in which she found herseU was vastly dllrerenl Having in mind the lenith of time which has elapsed since this last review of our financial tramework, and havin.

in mind also the fact that the Bank Act must undergo its regular decennial "review in 1964, the government has decided to appoint a royal commission to financial StruCture and examine Canada's institutions.
The tenos of reference and the commission will be an· membership at nounted in due course.

included in the Meanwhile, I say that the terms of rd· erence will be broad, covering all aspects of money, banking, credit and .llnance.

The financing 01 the Canadian economy will be one of the major areas 01 study.

Such broad topics as the pattern and behaviour 01 in terest rates, consumer crOO11 and Instalment financing, and the management 01 the public debt, will be tenns 01 reference.
The commission will be asked to institutions, such as study existing financial the chartered bankS, the Bank 01 Canada, and other instituUons that perform banklng and credit functions, and the various acts of parliament which govern their activities.

The commission will also be asked to consider ways and means 01 encouragln.

the develop ment of savings institutions.

'It would be our intention that the report 01 the commission should be available well in advance 01 the decennial review of the Bank Act.
VCCHANGE OPERATIONS I now return to the exchange rate.

As I have said it is the government's intention that our import surplus of goods and services, which has been running in recent years well over a billion dollars annually, should be reduced substantially, and that this should be brought about through an appropriate adjust.

ment of the exchange rate rather than by direct subsidies, quotas or taril'b.

government controls or JUNE 20.


1961 66n No one can say today what the appropriate level of our exchange rate would be when our balance of payments is in a position better suited to our present economic circumstances.

But the rate will certainly be lower than It has been of late, and ib may well be appropriate for it to move to a significant discount.

It will be government policy to facilitate such a movement.
exchange the foreign Accordingly the exchange fund will be pre pared, as and when necessary, to add sub stantial amounts to its holdings of United States dollars through purchases in the ex change market.

This would have the effect of increasing reserves available to Canada to be used in case of need.

As many competent observers have pointed out, these reserves have not grown over the past decade in line with Canada's inter national transactions.
Once an exchange rate more closely in line with Canada's economic pasition is achieved, the government will use the resources of the exchange fund to ensure that the rate is kept within a range appro priate to Canada's changing economic situa tion.

The value of our currency must, of course, ultimately depend upon our pursuit of appropriate economic policies.

that It has been suggested in certain quarters in this country that any reduction in our ex change rate is inflationary.
I do not think that we are in any serious danger of inflation under present circumstances, with so much unused capacity in our economy.

A decline in the exchange rate will mean modest price ad vances for some of the goods we obtain from abroad as well as some of our export com I am confident, however, modities.

if under present conditions of unused economic capacity there is any effect on consumer prices and the cost of living, these will be minimal.
At this point I should like to issue a word in the of warning.

A downward adjustment value of our doUar will open up new op portunities for Canadian industry both in Our home market and abroad.

The fiscal and financial measures which 1 have proposed or shall be proposing later in this speech should place Canadian industry in a better position to take advantage of these opportunities.

But it would be a sad mistake if Canadians should thereby assume that nothing else needs to be done.
Goods and services do not sell them· selves.

The world has become highly com· petitive for every type of goods and services Which we produce.

We must be prepared to intensify our efforts to compete in this new situation.

We must work hard; all of us, not only the worker, but the entrepreneur and the business manager as well, It is well known that adjustments in the exchange rale do not yield advantages that last forever, Recent history Is fuJI of examples The BUdget-Hon.
D. M. Fleming where such adjusbnents have proven to be an asset which has been dissipated before the fruits have been harvested.

If industry should seek to obtain unwarranted price in creases, or labour should seek wage adjust ments not justified by improvements in prod the opportunity will certainly be uctivity, lost.
It would surely be the height of folly these new opportunities were to be lost 1f because of lack of self-discipline or failure to achieve effective co-operation between in management and labour were to result higher costs and prices and a deterioration in our competitive position.

1 have in mInd that our competitors abroad, particularly in western Europe, have succeeded in achiev· ing a degree of labour-management co-opera tion which we in North America have yet to attain.
We will need a much fuller measure of such co-operation and self-discipline in respect of profits, prices and wages if we are to take full advantage of the new opportuni ties which will become available.

International financial policy has been the subject of recent consideration both in the international monetary fund and also in the new balance of payments subcommittee of the organization for economic co-operation and development.
J believe J can say that, in both bodies, there is a good degree of under· standing of the Canadian situation.

short term international These two groups have been paying close attention to the problems associated with massive capital movements; as the house will recall, both the President of the United States and the Prime Minister of the United Kingdom have re cently called public attention to the problems that are involved.
Over the years Canada's difficulties in deciding upon and pursuing an effective exchange rate policy have been en tirely bound up with the problems of capital movements.

If we can achieve a better inter national understanding of these problems, and devise new international technIques for deal ing with them, we shall all benefit.
In summary, therefore, our objective is to achieve an exchange rate for the Canadian dollar which will contribute to a better bal ance In our current account position and to substantially higher rates of domestic pro duction and employment.

We will strive to through a combination of attain this goal financial and general economic policies which will encourage Canadians to meet their capi tal requirements more fully from domestic sources.
Experience over the past few years suggests that there is sufficient resillency in Canadian industry, whether producing for export mar· kets or to bring about the necessary adjustments in our foreign the domestic market, for IS50 HOUSE OF COMMONS The Budget-Hon.

D. M. Fleming trade balance.


This judgment is, I think, sup ported by the fact that although we are run· ning a very heavy deficit in invisible transac tions, we have been able, with variations from year to year, to move from a peak commodity deficit of $728 million in 1956 to less than $150 million in 1960.

For the coming year we can foresee a possible surplus on external com modity account which, we believe, should be substantially enlarged through the policies we are pursuing.
the Canadian community, We have the material means-the man power, the resources and the industrial ca pacity-to obtain these results within a reason able period of time.

But the responsibility for attaining them does not rest with government Indeed, they can only be reached if alone.

there is a maximum effort on the part of every segment of from business and labour.

We will have to produce the right goods at the right prices in com· petition with energetic and competent sup pliers from every continent.
I urge Canadian producers, encouraged and assisted by the policy measures which I am proposing in this budget, to respond fully to this compelling challenge.

In this way we will attain expanded levels of efficient production and create new opportunities for the profitable employment of our growing labour force.

INTERNATIONAL TRADE AND COMMERCIAL POLlCY I now turn to consider the main develop ments in our external trade relations.
In per haps no other ll.eld of our economic Ufe are events moving more quickly or dramatically.

trade groupings either With new regional established or in the process of being created, Canada is confronted with fresh challenges and the need to adjust to them.

In the face of these developments, and against the back ground of the recent slow down In our rate of economic growth, the government has been urged from various quarters to alter radically and immediately our traditional commercial policy.
In some quarters it has been advocated that we should move toward economic self sufficiency supported by a highly restrictive trade policy.

Others would have us alter our course sharply in the opposite direction by merging Canadian industry and agriculture in some regional economic grouping.

In these cir· cumstances it would seem timely to examine afresh the major tenets of our commercial policy objectives.

Let me say at reject categorically these extreme positions which are being urged upon us.
These are counsels of fear and even despair.

Attempts to isolate ourselves from the trading world through the imposition of trade barriers would do Irreparable damage to the Canadian economy.

the outset that I [Mr. P'lemtna' lEt;Unton).)

living of It would mean a loss of markets and the stagnation of our most efficient export indus_ tries.

Standards of the Canadian people would decline and our economy would atrophy.
It would mean running counter to International economic the whole trend of policy in the major trading countries.

It would lead to regional disunity at home and a weakened voice at international council tables.

Nor can I see any gain for Canada In aban doning our present broad trade relationships In favour of joining a regional trade grouping.

We shall, of course, have to adapt to changes in the world around us and be alert and fiex ible In meeting new challenges and oppor.

tunities as they arise.


For the present at least the situation Is much too unsettled to con_ sider seriously a sharp reorientation in our policies along these lines.

Today our :foreign trade and other economic ties link us to all parts of the world.

With the attainment of convertibility and the re.

moval of quota discrimination against our goods, there are Increasing opportunities to extend our markets in many directions.

I find it hard to see how, in our particular circum.
stances, a discriminatory alignment with in dividual countries or regional groups can help us to diversify and expand our foreign com merce, or trade relations with countries against whom we would be turning our backs.

Nor have I been convinced that a sweeping elimination of our tariffs in relation to any existing trade group.

ing can be reconciled wIth a healthy second ary industry or the balanced growth of the Canadian economy.
to do damage to our fail I do not believe that the economic problems which confront Canada today require a dras.

tic redirection of our trading relationships; or that these problems cannot be overcome by trading a vigorous pursuit of our present policies jUdiciously adjusted to meet changing world conditions.

What then are the commercial poUcies we intend to pursue?

Our broad objectives in the trade field have been stated in unequivocal terms on earlier occasions.

They are clear.

1.
They are clear.

1.

To achieve expansion, diversification, better balance and greater stability in our over-all trade and in our trade with common· wealth and other countries.

2.

To support and promote a regime of law and order in international to respect our international commitments; and to stand ready to defend our rights and interest.

trade; producers; 3.

To recognize the legitimate needs of Canadian them against unfair trading practices; and to pro mote the baianced.
growth of all sectors of Canadian industry and agriculture.

safeguard to JUNE 20, 1961 6851 These have been the guldin, princIples and objectives In our foreign trade relations since this government took office four years ago.

I believe that they are the right policies to pursue today.

Looking back I believe that we can derive considerable encouragement from the success we have had In moving townd these alms.

OUr exports in 1960 were the highest in our history.
The deftcit In our external commodity trade for the year 1980 was less than one quarter of the peak level of 1956.

Imports are no higher than four years ago and, speaking broadly, our domestic industries are supplying a blgher proportion of a growing domestic marteL Our trade with Individual countries is in better balance and we have enjoyed a gratifying measure of dIveraiflution in our ex port trade both in ternu of products and destination.

lead to further important areas of world trade.


& Looking ahead I am confldent that a con· tinued and vi&,oroWi pursuit of these objedives successes despite the will diffleulties and uncertalntin that exist in several the very high levels of business investment of recent years bear Increasing fruit In the form of increased export and imp.rt·displac.

ing production, we can look to increasin&, surpluses in our external commocUty trade ac counb and reduced deficits in our current account balance of payments.
The movement to a better trade and pay.

ments balance will be substantially enhanced as we achieve an external value of the appropriate to our Canadian dollar more present economic situation.

We live In 8 country rich In many resources, natural and indWltrlal, a country capable of producing many products in great quantity and at competitive prices.
Our high standard of living has always depended in large meas ure upon our ability to sell In world markets the products in which we excel in exchange for those in which other nations have special advantages.
It Is self-evident that a country which depends on forelcn trade for one quarter of Its national income must seek to maintain the widest possible system of world trade and payments, a code of International practice to govern that system, and a reason· ably diverse balance of interest among ex ternal markets.

For very good reasons, therefore, we have consistently supported the ,enera!

agreement on tariffs and trade and the international monetary fund, and we shall continue to do so.
This, of course, is not to say that we shall Pursue a blind or Inflexible adherence to the specific tariff bindings incorporated in the GATT agreements where the circumstances COnfronting particular Canadian industries The Budget-Hon.

D. M. Fleming require that they should be modl.t\ed.

The GATT makes provision for the renegotiation and modiflcation of bound rates of duty and we have found it convenient from time to time to make use of this .t\ex1blllty.
In most cases these changes to brin&, our tariff up to date and adjust it to the chancJn, needs 01 Canadian industry have followed compre- hensive investigations and reports by the tariff board.

In the past several years we have introduced modemh:.ed tariffs for basic Iron and steel, pipes and tubes, fresh fruit and vegetables, a large part of the texWe schedule, as well as for other products.

This evetUn' I shall be proposing further c:hana:es affecting textile products, nails and several other items.
We regard this task of modemWn, the tarUf as a continuing process and we have recently enlarged the tariff board to permit It to under.

take more tasks and to handle Its work more expeditiously.

In every case wbere the tartl!

items in question were bound under the GATT agreements we have entered into negotiations with the interested countries and reached agreements satisfactory to both sides.
We have en.deavoured through thls system of selective tariff' adjustments to allocate the available protection to those products and industries which would improve the over-all e1ftclency of the economy and maximize production and employment in Canada.

This, of course, has meant tarilf decreases for some Items to otfset increases for others with no over·all increase in the incidence of protection.
We have pursued Canada's trade interests in the commonwealth through the common wealth trade and economic conference and other commonwealth meetings, as well as through direct discussions with the United Kingdom and other commonwealth countries.

We maintained a close contact with the In previous UnJted States economic affairs and have already established an intimate and friendly working relationship with the new administration.
We had 8 partic ularly valuable meeting of the joint min Isterial committee on trade and economIc affairs in March in Washington followed by visits to Ottawa of the United States secre taries of agriculture and the interior and then the visit of President Kennedy.
administration An Important part of our success In achiev ing greater diversity and a better geographical distribution of our export trade has been associated with a substantial increase in our exports to the United Kingdom and c:ontinen tal Europe in recent years.

Naturally we are Intensely interested In the nature and direc tion of the regional trading arrangements in which these countries are participating.
The six continental countries comprising community have the European economic 8852 HOUSE OF COMMONS The Budget-Han.

D. M. Fleming agreed upon a common external tariff to be established in stages over the next ten years or so.

In accordance with the GATT rules these countries governing customs unions, have had to renegotiate their previously bound tariff rates in order to maintain the balance of their trading arrangements with other members of the GATT.
This renegotia tion has now been substantially completed in the current tariff conference at Geneva.

I can now report that as far as Canada is con cerned good progress has been made in these renegotiations although discussions on certain important agricultural and other products are still continuing.
In mid·May the countries participating in the tariff conference decided that the re negotiations with the Six had proceeded far enough thnt a date could be set for the open ing of the fresh round of general tariff nego tiations in Geneva which were first proposed by the present secretary of the United States treasury and have thus become known as the Dillon negotiations.

The general negotiations began on May 29th, Canada is participating in these negotiations.
It is our hope that they will result in the further reduction of tariff barriers against Canadian exports.

In par ticular, one would like to see the reduction of the tariffs of such powerful industrial areas as the United States and the European eco nomic community where present levels of pro tection on many products are still, in our view, inappropriately high.
these applying countries were In earlier years when the countries of west ern Europe were reconstructing their war· torn economies, Canada extended to them the full benefits of tariff concessions and gener ous access to our markets despite the fact that dis criminatory trade restrictions against our ex ports in order to conserve their limited ex change reserve.
Restrictions and discrimina tions have now largely disappeared, at least in the industrial these countries have regained their economic and financial strength we would like to see the remaining restrictions removed, including the restraints in the agricultural sector, We would also regard it as especially appropriate lor those countries which are in a strong com petitive position to take advantage of their favourable trade and payments position to reduce their tariffs and provide fuller oppor tumties for an expansion of world trade.
sector.

Now that The United Kingdom government is increas ingly concerned about the dangers it sees in remaining outside the European economic community of the Six, and is actively engaged in seeking a basis upon which it could join this grouping.

The United Kingdom has not taken a decision but has indicated that yet [Mr. Fleming CE,linton).l should a decision be taken to negotiate with the Six there would have to be arrangements to take into account trading Interests of commonwealth countries.
For our part we have made it very clear that vital Canadian trade interests would be affected by such a move.

Other commonwealth coun tries have expressed similar concern.

the essential on the level state for secretary of a ministerial The Canadian government has kept in con tinuous contact with these developments in Europe.

The time has now come when full consultations are required.
The United Kingdom has proposed common_ that wealth relations should come to Canada for this purpose and arrangements are being made for such a visit in the near future.

The effectiveness of this consultation will depend, of course, on the extent to which the United to provide us Kingdom is able, with specific information.
While such con_ sultations on a bilateral basis are clearly the Canadian government is urging essential that there should also be full opportunity for joint consultations among all commonwealth countries.

in advance, A very high proportion of Canadian exports to the United Kingdom enters that market free of duty, many with the benefit of tariff preferences, some without.

Free entry is accorded not only to industrial materials but to agricultural products and nearly all manu· factured goods as well.
This is of great the volume, diversity, and importance for geographical distribution of our exports.

Moreover, for agricultural products, this historic right of common wealth free access to the United Kingdom market industrial material and most manufactured goods is the keYstone of the commonwealth trading sys tem.

Not only for economic reasons, but for political reasons as well, we would not wish to see this system abandoned.
We shall take every opportunity to ensure that the Canadian position is fully under stood and our interests protected.

We shall follow vigilantly the course of any discus sions between the United Kingdom and the Six.
Whatever may be the outcome we shall seek to preserve the most favourable terms of access to both these markets, and will pursue whatever policies may be required to achieve this end, The new organization for economic co operation and development may well have an important role to play at an appropriate stage in the further consideration of arrange ments between the two trading groups in the Europe.
The house Is well aware that Canadian government has played a lull and constructive part the O.E.C.D., and we were pleased that Canada in the creation of JUNE 20.

1961 66$3 was the first country to ratify the new COD vention.

We look to it for mereasinilY close co-operation in all aspects of economic policy.

We do not believe the OoE.C.D.


should detract from the strength and importance of the more broadly based organizations in world the general trade and international finance; agreement on tariffs and trade, the interna tional monetary fund and the international reconstruction and development.

bank for Moreover we do Dot forget that many im trading countries are not members portant of the O.E.C.D.. for example Australia, India and Japan.
Canada's trade with Japan last year reached record heights in both directions.

Japan is thIrd largest market, and our second our largest for wheat.

Japan is a very efficient producer of a wide range of manufactured products and can make these available in our market at very low prices.

The Japanese, however, accept the principle that the growth of their exports of products which compete with our own production should be orderly and that they should avoid market disrup tion.
Their method of applyinl this principle is through the maintenance of voluntary ex this system port restraints.

We believe that is working reasonably well to permit an orderly expan.sion of two-way trade with Japan, while at the same time avoiding excessive penetration in sensitive sectors of the our markets.

Hon.

members will recall I made to the house on May 19 statement outlining the Japanese voluntary controls for 1961.
Other Jow cost producers, notably Hong Kong, have thus far not been willing or abJe to apply a similar system, and there have been some rapid increases in imports of a number of texUle products.

As I reported to the house on May 23, we are urgently seeking an equitable solution to this problem In co operation with the United Kingdom and the United States.

Failing this we shall, of course, have to adopt other methods in defence of the legitimate interests ot Canadian produ cers.
The problem ot market disruption or fear of market disruption, particularly in the field of textiles, is widespread throughout the in dustrial countries.

The real difficulties for countries such as Canada and the United States which do not impose import restric tions are unduly aggravated by the main tenance of severe restrictions by many other countries, particularly in western Europe.
We are now engaled with the United States and other countril!S in a co-operative international etfort to achieve a more equitable sharlnl of the impact of the international movement of texWes.

90205·&---420 The Budget-Hon.

D. M. Fleming TARlTF BOARD .£PORTS AND OTllEfl TAIID'F CH.UlGIS The rates of duty on most items of signll.

Icance in the Canadian tariff are, as bon.

members well know, bound alainst increase under our GATT agreements, and have been remove all pos since 1947.
This does not sibility of change, but it does make upward adjusunents diflicult.

A necessary preliminary is to renegotiate under GATT any btndlngs which are atfected by tbe proposed changes.

it 'becomes U taritf necessary to find acceptable compensation to offer in exchange.

This is no longer easy, as the Canadian tarifl bas been combed re· peatedly for concessions to offer during the successive rounds of negotiations in which Canada has participated.
increases are proposed, shall The details of all in the resolutions which I For that reason I am particularly glad to be able to announce tonight that we have substantially concluded renegotiations which will permit us to implement in this budget the rt'commendations which were made by the tariff board in the three reports on texWes which it submitted last year.

These three reports covered: hosiery and knitted goods; narrow fabrics and lace; and wool clothing and manufactures.
We are also implementing the recommendations made by the board in report on record changers, and its earlier to a modification to which I shall subject refer Jater, the recommendations contained in the board's most recent report on nalls.

the proposed cbanae!

arising from these tari1f board reports are set out table In regard to them there are only tonight.
two comments of a general nature which I wish to make at Is that il parliament approves these resolutions, the government wUl be in the position of having implemented, without major change, every tariff board report submitted from the day we assumed otftce right up to date.
My second comment Is that such departures from the taritT board's recommendations as have been made or are now proposed will provide, on balance, somewhat more protection for struggling sectors of the Canadian textile industry than they would otherwise have had.

When hon.

members examine tonight's res· olutions in detail, four departures from the recommendations made by the tariff board In the various reports on textiles to which I have referred.
Two of these departures relate to the items coverlnl' hosiery and knitted aoods.

The tariff board recommended that the most favoured nation tariJ'f on the main knitted goods Item be reduced from 35 per cent to 321 per cent ad valorem, and that the specific component of the compound duty on non·woollen hoslet,.

this time.

The !irst they will discover 6654 HOUSE OF COMMONS The Budget-Han.

D. M. Fleming be reduced from 75 cents per dozen pairs to 60 cents per dozen pairs.
However, after re viewing the position of the Canadian hosiery and knit goods the government industry, decided that it would not be desirable to in troduce these tariff reductions at this time.

The third departure relates to tapes, rib bons and other narrow fabrics of man-made fibres, which are now classified under several different items at various rates of duty.

The board suggested a new item to cover them at rates of B.P.

221 per cent and M.F.N.

25 per cent.


As a concession to the industry, particularly that sector engaged in the pro duction of synthetic tapes and other narrow fabrics now classified under item 5628 at higher rates of duty, I propose rates of B.P.

25 per cent and M.F.N.

211 per cent.

The fourth departure involves a downward modification in a rate recommended by the board.

This was introduced.

in the course of negotiations in order to meet a special prob lem in our trade with Italy.
It involves ap plying a ceiling of 31' per cent to the com pound duty which the board proposed in respect of rugs, so as to avoid an unduly high rate on certain low priced rugs imported from Italy.

travel The next rate.

Thus the board's to be con tariff board report sidered relates to nails.

The board recom· mended changes the three nail in two of items.

These involved a reduction in the ad valorem M.F.N.

duty applicable to tacks and small nails, and an increase in the specific M.F.N.
duty on large nalls, accompanied in the latter case by a smaller increase in the B.P.

recommenda tions, If adopted without change, would result in a small increase in the margin of preter· ence in the one case, and a reduction in the other.

The former would constitute a breach of the "no new preference rule" ot the GA'IT.

the Accordingly we have decided to adopt board's the rates of duty, and in each case to M.F.N.

introduce a corresponding alteration in the B.P.


the so as rate, present margins preference without change.

to maintain each of recommendations regarding of Thus far I have referred only to amend ments arising from tariff board reports.

These comprise the bulk of the tariff changes to be proposed at this time.

There are others, and in most cases these too have been the subject of negotiations.
They involve nego tiated upward adjustments in the rates of duty on eviscerated chicken, paper twine, lawn rollers, hoes, forks and rakes, power lawn mowers, and filmed T.V.

commercials.

At the same time balance has been main tained in the over-all level of our GATT com the mitments and in the over·all level of (Mr. Flemln.

(ElUtltoo).J Canadian tariff by offering equivalent con cessions on certain other items.
These in· c1ude pineapple juice, parts and engines for power lawn mowers, parts for cement block making machinery.

and motorcycles.

The rate on live poultry is being equalized with that of the United States.

It is expected that the effect of the proposed changes, both the in· creases and the decreases, will be to promote additional production and more jobs in Can ada.

It is hoped also that the proposed In· troduction of a minimum duty of five cents per pound on eviscerated.
chicken will mate rially assist Industry, which has long complained ot inequities be tween the Canadian and United States tari1f.s on its products.

the Canadian broiler There is also a miscellaneous group of other tariff changes to be found in the resolu· tions.

These involve adjustments and clarifica interest but tions which are not of general nevertheless are important to those directly concerned.

They include cabs on combines.


I shall, of course, be glad to provide the house with a full explanation of these changes in the committee ot ways and means.

I might add that at the committee stage I hope to be in a position to introduce a sup plementary resolution reiating to sodium laundry bleach.

This product hypochlorite was reclassified in consequence of a recent supreme court decision.
However it would seem appropriate to restore and maintain the former rates of duty pending a report by the tariff board on this and other products included in the chemical reference.

Accord ingly we have initiated negotiations on the matter under circumstances" clause of the GATT, and I expect that these negotiations will be completed in the very near future.
"special the the auspices of is now in progress As I mentioned earlier, a general round of tariff negotiations in Geneva under the general and trades and is agreements on tariffs expected to continue for several months.

A number of the requests that I have received reductions in Canadian tariffs are still for under consideration in connection with these negotiations.
FEDERAL-PROVINCiAL RELATIONS for conferences During the past year we have held three dominion-provincial the purpose of reaching agreement with the prov inces on the form at the financial arrange ments which should exist after the expiry of the present tax-sharin, federal-provincial arrangements on March 31, 1962.

At the first of these conferences held July 2S-21, 1960, the provincial premiers presented their views.
I might add that the financial substance of their proposals could hardly be described as JUNE 20.

1961 6655 modest since in aggregate they would have resulted in additional federal costs in excess of $2 billion per annum.

Despite their rather startling character, these provincial financial proposals were carefully studied and at the conference held October 26-28, the Prime Minister made certain suggestions.
1960, and demands provincial It had become evident that the tax rental system had certain major defects.

It placed levying these the whole responsibility for taxes on the federal government.

The prov inces took no responsibility for imposing the taxes upon which they depend for revenues nor had they any freedom whatever to amend tax rates in accordance with their current needs.
Defects such as these are undesirable at any time, but in a period of rapidly in~ creasing heavy federal responsibilities their effects have been suggestion particularly serious.

The federal made at the October conference was that the provinces might consider again imposing their own taxes in the fields of personal income tax, corporation income tax, and succession duties.
To facilitate this, the federal government was prepared to recommend to parliament that tax rates in the three shared tax federal fields be reduced at the termination of the present agreements by the existing standard rates.
Under the present arrangements which the provinces refer to three standard taxes, receive 13 per cent of personal income tax collections, 9 per cent of the taxable income of corporations, and 50 per cent of succes· sion duties or estate tax, and these standard rates are referred to in abbreviated form as the 13-9-50 formula.

Coupled with this sug gestion was provision for the continuation of equalization payments to the provinces.
On the basLs of the discussion of these sug gestions and further intensive consideration, the federal government advanced certain pro posals at the dominion-provincial conference of February 23-24 this year: The Prime Min ister's statement to the conference was tabled as an appendix to Hansa,.d of February 28.

It is not my intention therefore to review these proposals in detail at this time except in so far as they have immediate budgetary implications.
The main proposals were that the tax rental system be discontinued, that the provinces should impos_e their own taxes, and that a fairer and more realistic system of equalization be introduced.

At the same time the federal government undertook to reduce its income tax rates to a larger extent than was suggested at the October confer ence.

In addition, the federal government is prepared to collect income taxes for any province which wishes to enter into an agree it was proposed tnent to this end.
In short, Cl0205·6--420~ The Budget-Hon.

D. M. Fleming that the provinces would reassume their con stitutional rights and responsibilities to im pose and vary their tax levies as they saw fit.

I have mentioned that the proposal made was that a fairer and more realistic system of equalization be introduced.
It has always been the contention of this government that equalization payments to the provinces are absolutely essentiaL Without such payments it would be quite impossible for some of the less wealthy provinces to provide a reasonable standard of resorting to services without taxation far in excess of the national average.

There is no question that to preserve reason able equality in the provision of services across this country we must provide for some equalization of revenues.
The proposed new arrangements have therefore been buttressed by an improved system of equalization and special payments which is more realistic and gives greater weight to fiscal need.

In the first place, the special fiscal circum stances of the Atlantic provinces have been recognized anew by the proposal to increase the Atlantic provinces adjustment grants by 40 per cent or from $25 million to $35 million for each of the five years of the new period.
Second, it is proposed that the additional grant of $8 million per annum to Newfoundland be continued for a further five years.

Third, it is proposed that the equalization formula be broadened to include, in addition to the yield of the three standard taxes, 50 per cent of the three year average of natural resource revenue and that the basis of equalization be changed from the average yield in the two provinces with the highest per capita yield to the national average.
Variations as be tween provinces in resource revenues are a major factor in the financial position of the provinces and the inclusion of this factor in the equalization formula greatly improves the position of the less wealthy provinces.

Equali zation based on standard tax yields in the top two provinces led in some instances to larger payments than could be defended on the basis of fiscal need.
The use of a national average formula as a basis for equalization payments will give adequate recognition to the principle of fiscal need without placing unnecessary demands on the federal treasury.

the federal pro posals merits special reference at this time.
From 1947 to 1957 under agreements, and since then from year to year without an agree· ment, the federal government has paid to the provinces half of income tax collected in respect of income derived form the distribution to or generation for distribu· tion to the public of electrical energy I gas or steam by corporations whose main business One further aspect of the federal 6658 HOUSE OF COMMONS The proposal to return to the provinces the respon.sibUity of levying taxes on the income of individuals and corporatiolU was accompanied by a promise that the federal government wOl.<ld ask parliament to provide for reductions in the federal rates at tax.
In the case of the corporation tax, the federal reduction is to equal the abatement of 9 per cent of taxable income now granted.

In the case of the personal income tax, the reduction is to increase by one percentage point each year from 16 per cent of the level of federal tax which would otherwise prevail in the in the last year.
to 20 per cent first year, The provincial share of the yield from the personal thus rise by the final year of the agreement to exactly double the level of 10 per cent in effect when the present government came into office in 1957.

The provinces will of course be quite tree under this system to reap higher yields by imposing higher rates of tax if they choose to do so.

income tax will I have spoken of the advantages to the provinces of the freedom and flexibility wb1ch the new arrangements can bring.
From the federal standpoint ·there are also great ad~ vantages.

It will mean that the federal gov ernment will no longer have to impose rates of the demands of provincial expenditure.

The federal budget will no longer be inflated by what are es~ seotially taxu for provincial purposes.

It will mean very substantial reductions in the rates of federal tax.

tax high enough to meet I should like at this poInt, if I have the permission of the house.
to insert tn Hafl30rd a table showing the amount of the federal the for contributiolU to or provinces for together the last the year with the estimated amount 1961-62. the benefit of five years for Mr. Speaker: As the minister advised, he has three tables which he wishes to have i.nserted.

Perhaps the house will give Its con· sent to the inclusion of all three without his having to mention the other two.

Some bon.

MemMrI: Agreed.

[Editor's note: The table 1'eferred to obO\le.

follows:) The Budget-Hem.


D. M. Fleming is such distribution or generation.

At the conference we proposed to continue these ar nangements for another year.

In compliance with the representations of the provinces It is now proposed that this sharing be continued that is, sir, throughout the next five years, during the period.

of the proposed arrange ments.

From a federal revenue standpoint.


to continue sharing with the this proposal provinces on an equal basis the corporation tax from this source is equivalent to a re tax.

Under the arran,e duction in federal the provinces will be ments now proposed, federal in a position to complement this action by policies which could benefit the industry and the consumers.
The government wishes to spare the prov~ inces the expense at setting up separate tax collection machinery and to contribute as much as possible to simplicity, convenience and uniformity in the tax system.

It therefore offered to collect on behalf of the provinces the provincially imposed personal income taxes and corporation income taxes free of charge provided the prOVincial tax base was identical with the federal tax.

base at all times.
base at all times.

This offer could not be extended to the estate tax since the provinces do not have the cOlUtltutlonal power to levy an es tate tax on the federal basis.

The federal offer in this instance there!ore was that any province not levying succession duties would receive halt the yield of the federal estate tax: while an abatement of 50 per cent of the federal estate tax would be aranted as at present to provinces levying their own suc cession duties.
The federal offer to collect the provincial taxes free of charge obviously leaves the provinces with freedom and flexibility to im pose their own rates of tax, a freedom they were denied under the rental system.

At the same time it encourages them not to compli cate the task of the taxpayer.

At a later date.
At a later date.

alter the necessary legislation has been put before parliament and approved, it will be possible to work out the precise terms of tax collection agreements with those provinces which wish to avail themselves of the federal offer.

(Mr. nemln, (E,l1Dton).]

JUNE 20.

1961 6651 The Budget-Hem.


D. M. Fleming TABLE I FEDERAL CONTRIBUTIONS TO OR FOR THE BENEFIT OF THE PROVINCES (in milliOM of dollate) 1956-57 J957-58 J958-511 1959-60 1900-&1 (preliminary) 19111-62 (eatimated) A. Uaconditional payment&- I. Statutory sub!lidies...... 2.

Ta~ abatements (e3timated).

liiation.. t ~~~ii~~li~~ (i~~i~di~g ~'t~bi~l ,.

50 per cent ahare of income ta~ ,.

Atlantic provinces adj ustment on power utilities .......... .

.......... ) grantll...... 7.


Term zg award (Newfound- ............... land) Sub total.. B.

Conditional paymenta- 8.

Agriculture ........... 9.

Health ......................

I'.

HO£pital illsurBJIce ... 11.

Wellare ..................... , 12.

Vocational training, etc.. 13.

Highwaysaad transportation.

14.

Re80urce development U.

Municipal whiter works 16.

Other ... ............. Sub totsl .......... C. Payments for the benefit of Pro- villelallnstitution.s- 11.
University gr&nlll.......... , 18.

Grsnts to municipalities in lieu of tues 011 federal &ov- crowent property .......... Bub totaL ............. 22.8 157.3 365.11 ,, 552.6 .., 36.4 38.'

'.7 26.9 '.7 I.'

111.0 16.0 '.7 25.7 22.0 275.6 9 r3 .

139.5 7.'

"'..

I., ,.., .... .., I.'

48.2 '.8 144.8 16.6 17.5 ".1 21.6 275.1 249.0 1411.1 8.7 25.0 13.6 21.4 313.8 2711.7 180.7 '.8 25.0 7.3 742.1 832.7 I., 45.9 ".7 74.1 8.1 OJ.7 8.7 •., 1.1 248.4 '''' 21.

9 47.4 5.7 46.0 160.6 90.'

8.'

56.7 ,., 15.3 I.'


382.8 26.1 22.6 ".7 21.0 303.7 288.7 191.2 .., 26.'

7.7 841.5 3.7 48.0 189.4 103.1 8.8 ".7 17.9 8.'

3.'

431.5 111.0 ,.., 43.6 23.1 323.5 2!18:8 19l.6 ,.. 25.0 8.'

876.0 ,.. 45.4 274.5 96.'

27.3 ".1 21.2 ,., 26.'

S5ll.'


19.4 24.7 ".1 TOT~L.............. 689.3 837.3 1,037.9 1,264.2 1,316.6 1,470.1 1s in total amount Mr. Fleming IEgUntonl: The of these payments and abatements has risen from $689.3 million in 195£-57 to $1,470,1 million in 1961-62, or more than double.
total an estimated Included this amount 01 $298.8 million for tax rentals includes $13,5 This in 1961-62. million for rental or succession duties which wm not be eliminated under the proposed collection agreements, but even allowing for this and assuming a modest growth in tax Yields, the change to a tax collection system will remove more than $300 million from the federal budget next year which will be the first year of the new five year period, I am accordingly SUbmitting proposals tonight to reduce federal taxes effective January 1, 1962, by $300 million per annum.
INCOME TAX I shaH proceed now with tax changes.

I have already referred to the principal con- this time, siderations of pOlicy which motivate this budget.

The general levels of taxes are not I am bringing being altered at forward some important amendments, how ever.

Aside trom the reductions of income taxes connected with our undertakings to the provinces, with which I have already tax reductions to dealt, I am providing for the extent of about $100 million in a full year.
I am also proposing several new meas· ures pertaining to the structure of the tax laws.

The various amendments are intended to to improve the conditions of provide additional employment and to con tribute to the general welfare.

Some of them will further the efficiency and the equity of the tax system, industry.
Reduction of the exchange rate will pro vide new and significant price advantages to goods made in Canada in comparison with those made in other countries, More than any other policy that could be adopted, a 6658 HOUSE OF COMMONS It is The Budget-Han.

D. M. Fleming lower exchange rate will be of signal as sistance to all at our producers, both in primary and in secondary industries, to those who export as well as to those who sell at home.
for Canadian industry now to make the most at the new opportunity which is theirs.

As I have already explained, the benefits of a lower exchange rate take the form of price differentials and they tend in time to disappear.

Thus these benefits are at a maximum during a limited period of time.

Many of our industries are at present com peting in fields in which large portions of domestic needs are being supplied by im ported goods.
Frequently the Canadian manu facturer is capable of extending his market greatly with improved efficiency, with lower costs of production and with more competitive prices.

This is as true of markets abroad as of those at home.

I is desirable, should say essential, It is of the utmost importance that Cana dian manufacturers should extend their mar kets.
Mo~ than anything else, the govern ment is concerned about employment To secure a maximum increase in employment it that every industry, every business and every renewed labour organization should thought the improvement of efficiency and the competi tiveness of costs and prices.

This is the con structive and et!ective way to deal with the in our free enter problem of employment prise economy.
to the increase of productivity, give Many of our major industries are well equipped, up to date and fully competitive with those of other countries.

Huge capital investments have 'been directed to this end.

Other industries are not at present as well able to compete for business at home and abroad.

Probably every enterprise in the country is capable of doing more than at present and of doing it better.
Frequently, the most difficult aspect for an individual business to undertake unaided is the financing of expensive new capital installations, includIng machinery, equipment and buildings.

The government has decided to give help at this point by Introducing an allowance for re-equipment and moderniza tion.
This special take the fonn incentive will of a 50 per cent increase in the Ilrst year in the rates of capital cost allowance applicable to new assets acquired for use in Canada from tonight until March 31, 1963.

This spe cial allowance will be available in respect of all depreciable -assets which are eligible for depreciation by balance method.

A business win be permitted at its own option to take advantage of this sub stantial tax concession to the extent that its diminishing the [Mr. nemine (£Clinton).}
investment during a taxation year on new depreciable assets for use in Canada is in excess of its expenditure on such assets In last complete fiscal period that ended its before tonight, or in excess ot the average of its expenditures in that period and its two immediately preceding fiscal periods.

The purpose of this latter limitation is to provide the desirable incentive at a mini mum cost.

As any businessman would do, I am trying in this case to obtain a maximum result in return tor treasury dollars.
By a~ plying the re-equipment and modernization allowance only to expenditures in excess ot those in a recent base period, I am attempt ing to establish a rule by which to make this valuable concession available to those who are genuinely increasing the level ot in new depreciable assets their but not large total of depreciable assets most of which would have been ac· quired in any event investment to that Its investment to the whole of As far as new companies and new opera tions are concerned, it has been decided that the same formula should apply as in other cases.
A new company, for example, will be able to claim the special allowance with respect in new depreciable assets tor use in Canada since it has made no comparable investments in tormer years.

On the other hand, the Department of National Revenue will be empowered to withhold the re-equipment and ,modernization allowance in cases where existing operations are split up Into new purposes.

ones merely for Capital as before to be limited in total by the cost of to exceed 100 per acquisition.

They are not cent.
They are not cent.

cost allowances will tax-defeating continue to capital Hon.

members are familiar with the new program which was inaugurated in the sup· plementary budget of December 20, 1960.

Double depreciation for the first year or its equivalent in a later year was offered with respect investments tor products which are new to Canada' as a whole or to designated areas of surplus manpower.
As is usual with such matters, interested persons took some time to consider the possibilities in relation to their own affairs and their own plans.

Following a time lag that was not unexpected, an increasing display of interest is being shown on the part of potential manu facturers of new products.

Since the an nouncement of the regulations covering the plan, close to 300 inquiries had been receIved by the Department of Trade and Commerce by the end ot May.
Furthermore, interest in the program has increased In recent weeks as reflected by the tact that the number of applications received by the Department of JUNE 20.

1961 6659 Trade and Commerce doubled in May, com pared with March and April combined.

for Applications accelerated depreciation have been made by firms producing a wide variety of products.

These include chemicals, steel, textiles, electronics, plastics, foods and other products.
Thus, a representative cross section of Canadian secondary industry is seeking to take advantage of accelerated capital cost allowances under the December program.

Some firms are establishing new plants, while others are enlarging their pres· ent facilities in order to make new products and thus diversify their output.

These en quiries and applications have been made by loca ted in many regions of Canada.

firms The value of the assets covered by these applications exceeds $27 million.
We antic in ipate that a steady increase will occur the number of applications as businessmen develop a better understanding of the program.

Considering the fact that this program has the been in effect a limited period of time, government is pleased with its acceptance to date.

The new projects resulting from the program will create additional employment in the industries supplying the new plants there will also be and facilities.

Further, additional jobs for those working in the new plants.
Another benefit is that new products are likely to be introduced which should make a useful contribution to further diversification of our secondary industries.

that It is not intended to modify or amend this is double depreciation program.

Rather intended and the new re-equipment modernization allowance can be claimed in addition by those who quality for double depreciation in either the new product or the new designated area categories.
it In addition, In the conditions that exist today, scientific research is to be assigned a top priority of urgency and importance.

It must play an in creasing and indispensable part in all sections of industry and in many aspects of every day life.

Much has been done in the labora tories maintained by the government, both in basic and applied research and· in develop -ment.
the federal government has given greatly enlarged assistance to uni versities and private industry to stimulate scientific research and it will be giving more, It Canada is to maintain its due place in the world, advances must be made in these fields of science.

I am proposing to extend the d~ductions now allowed to taxpayers in respect of expenditures on scientific research undertaken in Canada.
These are already extensive but it now seems appropriate to take further steps in this direction as part of the government's program to assist Canadian business to be efficient and up to date, The Budget-Hon, D, M, Fleming Canadian industries, particularly the sub sidiaries of foreign companies, are too depend ent on research done abroad.

The government believes that more industrial research should be done right here in Canada.
The measures being inlroduced tonight are designed to stim ulate industrial research in our own country.

The Income Tax Act now provides that expenditures of a capital nature made on scientific research in Canada may he fully written off in three years.
I am proposing that henceforth taxpayers be allowed if they wish to deduct such expenditures in full in the year incurred, The act now provides that amounts deducted under the provision dealing with scientific research shall he limited to 5 per cent of the taxpayer's previous year's taxable income unless the research program has been ap proved by the Minister of National Revenue with the advice of the national research coun cil, Although in practice approval is normally I believe that a modification of this given, requirement will give encouragement and cer tainty to taxpayers who are planning to in crease their scientific research programs.
I am accordingly recommending removal of this limitation with respect to expenditures so far as it affects current expenditures.

Finally, I am proposing that taxpayers be permitted a deduction from income in respect of expenditures on scientific research made in respect of at one stage removed, that is, amounts paid to a foundation established for the purpose of expending all its resources on scientific research in Canada.
I turn now to some rather different problems that have attracted an increasing amount of interest and concern.

It has been concluded that the next major step in the private pension field should be to use the resources of gov ernment the more to encourage and assist widespread expansion of private pension plans on a secure basis.

It is desirable that those who have been employed throughout their working years should be able to retire with out fear of want.
Having in mind the exten these sive provision now available to meet needs through private pension plans it is im portant to ensure that such plans are gener ally available and adequate.

To these ends, action is required at the appropriate govern two objectives, namely ment to protect the solvency of private pension plans and to help promote the portability of pensions.
The house will recall that on May 9 and on May 24, 1960, I drew attention to the fact that federal jurisdiction in this field is limited, While there is a confined area within which the federal government has powers there are wider areas of provincial jurisdiction.

levels to fulfil 6660 HOUSE OF COMMONS The Budget-Hon.
D. M. Fleming By the portability of a pension is meant the ability of a worker to accumulate a pension throughout his working lifetime even though he may change from one pensionable employ to another, perhaps on successive oc ment casions.

The government is concerned about persons who have worked with more than one employer but who on retirement can re ceive pensions based only on their service under the pension plan of their last employer.
The income after retirement of those affected is a matter of great importance.

In addition, the inability to carry pension rights away from a job, that is to say the absence of port ability, may deter workers from transferring to more productive jobs.

The portability of pensions may serve in a very constructive way as a stimulus to the productivity of the whole economy, by providing the individual worker with a wider range ot free choice in seeking employment.
In due course a con tribution will be made by this means to in creased employment.

in recent years, namely In addition to these problems there is an fortunately, has seldom con other which, fronted us the solvency of pension funds.

The most important sinile requirement of a private pension plan is quite obviously that the requisite funds should be on hand when needed to pay the pensions.
The Insolvency of a pension fund could just as well prove to be disastrous to an employee who had spent all his working lite with one employer as to another who changed his employment frequently.

the annuities branch of The expansion of pension plans in the last 25 years has been phenomenal.

In 1959 there were over 10,000 such plans in Canada of which 90 per cent were handled by insurance companies or the Department of Labour.
The remainder were trusteed plans where the contributions are deposited with a selected trustee for invest ment.

Although constituting only 10 per cent of the number of plans, the trusteed plans in 1959 covered almost 1 million employees or 61 per cent of all employees under pension plans and their assets represented 64 per cent of the total.

As hon.
As hon.

members are aware, these pension plans are accorded valuable income tax con cessions provided they are registered for this purpose with the Department of National is granted Revenue.

In general, tax deferral during the period of a~umulation and the pension benefits are taxed as personal income as and when they are received.
I doubt very much whether it is as well known as it should be that the federal gov ernment does not supervise or control the solvency of private pension funds; neither do the province, aside from establishing cer tain statutory responsibilfties of trustees which [Mr. Fleminl' (EgUnton).]

I pertain to only a small portion of this prob lem.
These observations do not, of course, apply to pension plans whose detailed benefits are covered by a contract with an insurance company which guarantees the amount of pension to be paid in return tor the contribu~ tions made by the employer and employees, There is, however, no governmental super vision to ensure that -the assets of other plans are being accumulated at an appropriate rate to meet the future liabilities of those plans.
include both Among these other plans trusteed plans and those plans where an insurance company enters into a deposit ad ministration contract and simply receives con tributions on deposit without enteriDg into a contract to pay specific amounts of annuity.

I should make clear at once that there is no necessity and no intention to cast doubts upon the vast majority of private pensIon plans which are efficlently and conscientiously administered by insurance companies and by personal or ctlrporate trustees.
What hi pro jected is a degree of supervision of trusteed pension plans, in the public interest, com parable in some respects with the supervision traditionally exercised over Insurance com panies.

Many people may be surprised to learn that no such supervision has existed in the past.

I warmly welcome the growing indications interest in thhl fteld, The gov of provincial ernments of both Ontario and Saskatchewan have recently given evidence of their concern.
The government ot Ontario has indicated its desire to discuss this question with the other provincial governments and the federal IOv emment during the coming months, This In terest of these provinces is particularly im portant because ot the constitutional aspect of the problems.

.This government shares the view that a joint federal~provincial approach should be made.
To this end the government intends to arrange consultations with any interested provinces to give further definition to such a program and thus to provide encourage ment for the more widespread establishment of pension plans.

Accordingly, I am announc ing at this time that -the federal government has decided to seek the co-operation of the provinces in a program to deal with the sol vency and portability of private pension plans.

MI'.

Marlin (Es..x Eastl: Two years too late.


two than Mr. Fleming IEg-linlon): Better 22.

In the March, 1960 budget I announced the to Introduce the government intention of legislation to incorporate a new approach to the taxation of employees' profit sharing plans.

Hon.

members will recall that a bill dealing with the taxation of deterred profl.t JUNE 20.

1961 6661 sharing plans was given first reading only.
This course was followed in order to give full opportunity to all interested citizens and organizations to study this complex issue.

The interest shown in the proposals intro duced tor study last year has been most gratifying.

The briefs, letters and comments I have received have been of great assistance In preparing the legislation which I am now proposing.
The substance of last year's draft biB will be brought forward, with several alterations and improvements, into this year's bill to amend the Income Tax Act.

The legisla tion will provide that an employee will not be subject to income tax on amounts contributed to a profit sharing plan on his behalf by his employer until actually received as proceeds from the plan.
As I stated last year, the im~ proved facilities provided for employees' profit sharing plans will constitute an important piece of social legislation and provide fresh opportunities for labour and management to work out new forms of co--operatlon amongst themselves.

cases where the number of If parliament approves the recommendation for deferred profit sharing plans it will greatly an increase employee may receive a lump sum payment representing accumulated earnings which have not borne tax.
If a taxpayer becomes a non resident before receiving these payments there is at present no provision for levying a tax.

This incentive to become a non-resident for a short time In order to gain a tax advantage should be removed.

I am proposing that lump sum payments which represent deferred re muneration earned in Canada be regarded as income earned in Canada.

This will apply only to lump sum payments.


On the other hand, pensions paid to fonner Canadians who have become residents of other countries will con tinue to be free of Canadian tax.

I believe that There will be several amendments to the personal income tax desIgned to give relief.

Last year this house approved a proposal to increase substantially the maximum amount of medical expenses for which a deduction taxable in may be claimed in arriving at come.
the amounts now de ductible are sufficiently high to give full relief to most taxpayers who have incurred extra ordinary medical expenses, but I am impressed with the intolerably heavy burden being borne by a small number of taxpayers whose ex penses are in excess of the present limits.

A single motor accident, for example, may cause a taxpayer more extraordinary medical ex taxpayer pense in one year would incur in a lifetime.
Since the whole the deduction for medical ex purpose of penses is to give relief to those taxpayers Whose ability to pay income tax has been reduced by extraordinary expenses, it seems than another The Budget-Hon.

D. M. Fleming to remove the limits both logical and fair entirely, and I am so recommending.

I am also proposing that the cost of an instrument which assists those who have suffered from cancer of the throat, an electronic larynx, be classed as a medical expense.
An intensive review is being made by the United States tax authorities of the treatment for tax purposes of contributions by residents of the United States to charitable institutions in other countries.

During the past year there have been expressions of concern by Canadian universities and by their graduates and other supporters in the United States that the exist ing system might be changed to their detri ment as a result of this review.
In the past donations made through a United States corporation to a charitable institution in an other country have been treated as deductible for purposes of taxes in the United States.

There has never been a corresponding privi~ lege in our income tax law, although there are, of course, residents of Canada who make contributions to universities and other chari table organizations in the United States.
Be~ cause of the particularly close relations be is tween Canada and the United States it desirable and feasible to permit some excep tions to the general rule which denies a deduc.

tion in respect of donations to charitable organizations located outside Canada.
Thus our income tax convention with the United States provides some limited exceptions and our estate tax convention with the United States recently approved by the house, contains a more general provision for ignoring the border as far as charitable organizations are con cerned.
We have -accordingly notified the United States authorities that whenever they are ready, Canada is prepared to enter into negotiations to amend the provision of the in come tax convention that deals with charitable it is understood donations.

In the meantime, that the United States authorities are aware of the close relations between universities in one country and their graduates and friends residing in the other and are anxious to main tain and foster these traditional relationships.
In the 1960 budget speech I drew attention to another matter which was marked for spe~ cial study during the year.

This was the prob lem of the taxation of corporation surpluses and the designation of surplus under section 28(2) of the act.

I appreciate the many care fully considered observations and suggestions that ha'\,e been submitted in answer to my request.
With the assistance of these submis sions members of the Department of Finance and the Department of National Revenue have been engaged in a comprehensive study of these provisions of the income tax law.

This study has not yet advanced to the stage where &662 HOUSE OF COMMONS The Budget----Hon.

D. M. Fleming I can place specific proposals before parlia ment.

This subject will continue to receive close attention during the coming year.
that I am proposing a comprehensive overhaul ot the definition of a personal c()rporation and the rules tor taxing shareholders of such cor porations.

A personal corporation is one used to hold the investments of the individual and persons related to him.

All the income of such a corporation is deemed to be distributed to its shareholders each year.

It has become this legislation contains some apparent anomalies and some provisions which are lacking in clarity.
I have reached the conclu sion that the time has come for a revision of this complicated piece of legislation.

Some ot the proposed changes will be relieving.

For example, I am proposing amendments con cerning the right to carry forward losses and the option to compute tax in a special way on the recapture of capital cost allowances.

These are introduced in response to requests that income received through a personal corpora tion should be granted the same tax treatment as income received directly.
other changes will be designed to prevent personal corpora tions being used to split income with members of a taxpayer's family and to thwart devices for postponing tax on income trom invest ments.

Hon.

members are aware ot the many ways in which the income tax law provides incen tives to taxpayers to develop our natural re sources.
At present, in addition to corporations whose principal business is mining or produc_ ing petroleum or natural gas, corporations whose principal business is processing mineral ores and metals recovered therefrom are al lowed to deduct expenses incurred in explor ing and drilling for minerals, oil and gas.

I am proposing to extend these incentives by permitting companies whose principal business is fabricating metals to deduct such explora tion expenses.
In future, therefore, these com panies will have a greater incentive to search for their own supplies of raw materials.

Other amendments proposed for natural resource industries will permit a mining, petroleum or natural gas company to deduct preproduction expenses incurred by a former sUbsidiary.

Our income tax law must be continually reviewed and adjusted not only to provide to the legitimate appropriate encouragement needs of taxpayers but also to achieve equity among them.
The government has become increasingly concerned over the evidence of abuse by some taxpayers of the provisions for the deduction of amounts expended for the purpose of gaining income from a business.

The question is to what extent amounts spent by a firm for the entertainment ot its cus its tomers and the travelling expenses of [Mr. Flemine (Egllnton).)

employees are really required in order to gain income.
Since ours is a free enterprise economy, our income tax law assumes that the businessman is the best judge of the ex to which he should incur expenses ot tent this nature, and naturally the government to recommend, and par has been reluctant to Impose, rules that would restrict liament him unduly in this the government has no intention ot allowing so called "expense account living" to thrive and in I am consequently serving notice that future the allowance ot expenses of this to more intensive nature will be subject scrutiny.
that more stringent I am hopeful legislation will not prove to be necessary.

respect.

However, One of the most important :factors affecting the income tax status of a person, either individual or corporate, is the determination of his country of residence.

I am proposing that a corporation incorporated In Canada which is carrying on business in this country I am also be deemed to be resident here.
the provision deeming an in proposing that dividual who is a member of the military or public services on duty outside of Canada to be a resident shall extend to his wife and they will have dependent children so that the same tax status.

Finally, I am proposing that volunteer tire men be relieved of income tax on amounts up to $300 per year paid to them to cover expenses they incur while engaged in fire fighting duties.

SALES AND EXCISE TAXES I am proposing a number of changes in commodity taxes.
The first of these concerns· the structure of the tax on cigarettes imposed under the Excise Act.

This tax is levied at thousand tor cigarettes the rate of $4 per weighing not more than 2l pounds per thousand.

If cigarettes weigh more than this limit the tax is $5 per thousand.
I am recom mending that this dividing point where the higher rate of tax commences to apply be raised so that in future cigarettes may be three manufactured weighing as much as pounds per thousand before becoming subject to the higher rate of tax.

This will permit manufacturers to increase the amount of tobacco in each cigarette without becoming liable for a higher tax.

I am assured that this will lead to a signifiant increase in the amount of tobacco used in the cigarette industry.
This will bring substantial benefits to Canadian tobacco growers.

In order to give all cigarette manufacturers time to make any necessary modifications in their equipment to take ad vantage of this change the amendment will not become effective until January 1, 1962.

JUNE 20.

1961 6663 With the exception of the taxes on tobacco products and wines, most of the taxes im posed under the Excise Tax Act are on an ad valorem basis.
A tax in this form at the rate of 10 per cent or 15 per cent amounts to a very small amount per article where the taxable items are manufactured or imported at a very low price per unit.

I have reached the conclusion that greater uniformity in the amount of tax on a number of items is de sirable, especially as between imported and Canadian manufactured commodities.
For this reason I am proposing that the present 15 per cent ad valorem excise tax on electronic tubes for television sets and record playing devices be modified to provide that the tax shall in no case be less than 10 cents per tube.

Similarly I am proposing that the 15 per cent ad valorem tax on radios shall bear a minimum of $2 per radio and the 10 per cent ad valorem tax on mechanical lighters shall be not less than 10 cents.

radios.

Turning to the sales tax.


I am proposing several technical changes for clarification and also a number of exemptions from tax.

These are new exemptions.

which intended to recognize new products and technological changes.

include laminated timber for bridges purchased by municipalities, sell-propelled forage wagons for farm use, a new kind of casing used for seismic tests in aU and gas exploration and propane tanks for use with furnaces.
In addition to taxes on commodities, the Excise Tax .Act contains a provision for im~ posing a 10 per cent tax on insurance pre~ miums when insurance is placed with non~ authorized insurers.

There appears to be an increasing tendency on the part of non resident corporations carrying on business in Canada, and also Canadian corporations which are controlled outside of Canada.
to arrange their fire and casualty insurance in respect of risks in Canada either with insurers which are not authorized to transact the business 01 insurance in Canada or with insurers that are so authorized but through agents or brokers located outside Canada.

Undoubtedly these practices stem from a desire to make all insurance arrangements at the head office at the corporation or at the head office of the parent corporation.
the case may be, as rather than from any lack of adequate in surance facilities in Canada.

Since the practices referred to result in loss of insurance business that would otherwise be transacted in Canada and some loss in tax revenue otherwise payable to Canada.

it step to amend the is proposed as a first the Excise Tax Act which at provision of present tax of 10 per cent of premiums paid by Canadian residents to un insurance authorized insurers in respect of imposes a The Budget-Hon.
D. M. Fleming of property in Canada.

The amendment wlll extend the tax to make it apply to all classes of insurance, whether of property or not, subject to certain exceptions.

The ex ceptions proposed will be marine risks, as at present, life insurance, personal accident and sickness insurance and.

that such insurance is not available in Canada.

insurance against nuclear risks.


The practice of arranging insurance of risks in Canada through non-resident agents and brokers is currently being studied and further steps.

if found necessary.

may be taken to curb this undesirable practtce.

to the extent ESTATE TAX I am not proposing any amendments to the Estate Tax Act this year.

This act, originally passed in 1958 and amended last Year.

ap pears on the whole to be working satisfac· torily.

There have been a few representations suggesting changes.
and these have been given careful study.

but I believe that more experience with the law as it stands would be desirable before further amendments are made.

THE ROYAL COMMISSION ON THE AUTOMOTIVE INDUSTRY Last August the government appointed Professor V. W. Bladen as a commissioner to inquire into the problems of the Canadian automotive industry.

May [ now.

on behalf of the Prime Minister.

and with the consent of in French and English.

table copies of his report the house.


and those parts and components The most complex of the recommendations are rates on relating to the tariff for vehicles, assembly into vehicles.

Hon.

members will recaH that the structure of our present auto motive tariff schedule.

which took shape a quarter of a century ago when Canada was large exporter of vehicles, presents the a foHowing features.
The rate against com· plete vehicles is 17i per cent when imported from countries eligible for most favoured na tion tariff rates.

but free when imported trom British countries.

Most parts may also be imported free from British countries, al though little use has been made of this pro vision.

When parts are imported from M.F.N.

countries they are subject to duties ranging from 17j per cent to 25 per cent; but many of these parts may nevertheless be imported duty free, even from M.F.N.
countries, if they are not made in Canada and if the Cana them in producing dian manufacturer uses vehicles that attain specified levels of com monwealth content.

Professor Bladen proposes that we should build upon, but substantially develop and 6664 HOUSE OF COMMONS this ranging from 17l per cent The Budget-Han.

D. M. Fleming modify, this system.

The essential features of his proposals in the tariff field are as follows.
A tariff of 10 per cent should be imposed imports of both parts and vehicles against tan!!

from British sources, while present rates against vehicles and parts from M.F.N.

countries, to 25 per cent, would remain in effect However, a manufacturer could, under system, "earn" free entry not only of parts but also at vehicles by achieving or arranging a sufficiently high volume of production In Can ada; this production, which could be of com pleted vehicles or of parts, might be sold in Canada or abroad.
For example, exports of particular parts or vehicles from Canada to other countries would earn, for a manu facturer, free entry for other parts or vehicles.

the Canadian lndustry Thus, would be more effectively integrated with industry abroad, and the economies of longer runs and greater output would be available here.

The objectives would be higher pro duction and more jobs in the Canadian auto motive industry, combined with iower prices for Canadian consumers.
These goals involve the general expansion, not restriction, of trade in motor vehicles and parts.

is argued, it that is grateful The government wannly approves these to Professor objectives, and it Bladen for the constructive and lmaa:1naUve sugeestlons that are embodied in his report.

Nevertheless, his recommendations relating to tariffs are complex and sweeping, and would require extensive readjustments in the in dustry.
It is essential those concerned, both management and unions, should have an opportunity to assess not merely the objec~ the desirability and practicability tives but of the means by which these objectives are to be obtained.

Accordingly the government, in releasing this report tonight, urges careful those study of vehicle Canadian manufacturers, the labour unions, the municipalities, others who gave evidence berore the Bladen cOmnUssion, and the general public.
the tariff proposals by all concerned: groups the parts manufacturers, the It, when the views of such groups have been received and analysed, it was decided to take action in the field of tariffs along the lines of the Bladen report, or along some similar lines, the government would fully re spect Canada's commercial obUgations and would thus protect Canada's trading interests.

The government is fully aware ot its various [Mr. Flemlne (Erllntonl.]
including the obligations under the GATT, undertakings most recently given to the United Kingdom at the time of the common_ wealth trade and economic conference in 1953 to bind tree entry for these items under the GATT.

However, as I have already indicated, the consultations or renegotiations with gov~ ernments abroad would not be undertaken unless and until the government had reached decisions to proceed in the national Interest, taking into account the views of Interested parties in Canada.
law, I proceed now to the recommendation that relates to valuation for purposes of the sales sales tax.

According to the present tax on imported vehicles is levied on the price in tbe country o!

export plus canadian tariff, it any.

On the other band, on vehicles ot domestic manufacture it is levied on the price paid by dealers.

A3 a result of bl.s studies Professor Bladen bas concluded that im· this system discrlminates In favour of ported vehicles.
In ef!ect he recommends that imported vehicles should be valued on the basis of the selling l)rice to the dealer.

Along with the t-ariff the gov ernment proposes to give careful study to this recommendation whlcb touches upon a basic principle of the Excise Tax Act.

recommendations, Professor Bladen's report contains a sec ondary and much less Important recommenda tion which also relates to valuation.
It is proposed that a "notional" valuation sbould be established, for tax purposes, as it there were a wholesale intermediary between <the manufacturer and retailer.

This recommen dation also will be carefully studied.

Finally I come to the recommendation of far-reaching importance relating to the ex cise tax on passenger cars.

This tax, whicb is now'll per cent, constitutes according to Professor Bladen, a serious drag on sales of automobiles in Canada.
He anticipates that increase sales the abolition of this tax will and enlarge of sUbstantially, employment and production in the Canadian industry.

Accordingly he recommends that this tax be abolisbed.

automobiles Mr. Martin (Euex Eaat): Hear, hear.

We have been l)usbing this for years.

Mr. Fleming (Eglinionl: I am glad to an nounce that the government has decided to implement tax will be repealed effective midnight tonight.

recommendation.

This this Some hoD.

Memben: Hear, hear.

ruNE 20.


1961 6665 Mr. Martin (Enex East): A victory for the be some Mr. Piekeragill: At last.

Mr. Fleming (Eglinionl: A refund of.

the 7. per cent excise tax will be given to author ized dealers and distributors in respect ot tax already paid on stocks of new cars on hand.

opposition.

Mr. Fleming lEgUntonl: Mr. Speaker, I seem to hear a voice that says, "A victory lor the opposition".

Mr. Martin lEllex Ealll: Hear, hear.


Mr. Fleming IEglinlonl: I recognize a voice which belonged to a former government that raised this tax, not lowered It.

Mr. Martin IEIlex Ealtl: The former gov· ernment cut it 15 per cent.

Mr. Fleming IEglintonl: This will relieve them of any loss resulting from the tax decrease.

Dealers will apply for the refund through the automobile manufacturer.

I ex pect, of course, that automobile producers and dealers will pass on to the consumers this tax saving in full.
After taking into account the increase in production which is expected to result, I the elimination of the 7l per estimate that cent excise tax will result in a net loss in revenue for a full year in the order of $66 million.

For the current fl.scal year the loss in revenue, including refunds to dealers, will be about $55 mlllion.
THE 1961-62 8ALANCE OF WAYS AND MEANS I return now to a reassessment of our budg etary prospects lor the current year in the light of the fiscal proposals and economic policies which I have put before the house.

In the opening sections of my speech this evening I said that in the absence of any changes in the current economic outlook or of any additional stimulus we might an ticipate this year an increase of about 3 per cent in our 'levels of economic activity.
As a result of the policy statements and legislative proposals I have now made I would expect a significant improvement in our eco nomic prospects.

It is difficult, however, to be precise in forecasting the exact degree or timing at this acceleration, since it depends to a considerable extent on the co-operation and vigour ot business and labour and of the financial markets and investment Institutions.

The Budpet-Hon.
The Budpet-Hon.

D. M. F1eminp To the extent that our expansion is accel erated there will be an increase In revenues.

although, as I said earlier, the time lag in revenue receipts means that a considerable amount of the benefl.ts of economic accelera tion will Dot reach the treasury until after the end of this fiscal year.

There will also reductions in expenditures as.

for example, in unemployment assistance and un employment insurance expenditures, and per haps in the defl.cits of the C.N.R.
and other crown companies.

& the expansion of output, employment taxation revenues and incomes accelerates.

will in due course increase still more rapidly.

the present situation and On the basis of anticipated trends it is not unreasonable to expect that the current fl.ows of revenue and expenditures will be approaching a balance by the end of 1962.

Indeed, as our economy reaches high levels of employment, it is essen tial that the budget should achieve a balance.
and that provision should be made for an orderly retirement of debt.

I estimate that the effect of the income tax changes proposed, not inclUding the reduction in personal and corporation income taxes which are part of the proposed fl.scal arrange ments with the provinces, will be about $35 million in a full year and $10 million in 1961-62.

The effect of the proposed changes in sales and excise taxes will be $66 million In a full year and $55 million in 1961-62.
The total tax reductions therefore will be about $100 million in a full year and $65 million in this fiscal year.

AJ; I have already indicated, the other tax reductions effective January I, 1962 will amount to $300 million per annum.

federal With the stimulus imparted by -these budget proposals to the levels of economic activity I would expect a general rise in our tax reve nues between now and next March 31 to offset the particular tax reductions I have proposed.
&suming some consequential reductions in expenditures I would anticipate a budgetary defl.cit of the order of $650 million.

May I remind hon.

members that in as large and as complex an operation as our national govern· ment any forecast of revenues or expenditures Is inevitably subject to variations.

One per cent of our revenues or expenditures is ap proximately $60 million.

Hence it would be more realistic to say that our prospective deficit is in the $600 million to $700 million range.
I estimate that our non·budgetary cash 6668 HOUSE OF COMMONS The Budget-Hon.

D. M. Fleming requirements, excluding the exchange fund, will be about $330 million.

Thus our over-all cash requirements will be of the order of $1,000 million.

For the record, Mr. Speaker, may I have the consent of the house to insert here two tables indicating our revenues, expenditures and cash requirements for the past year and tor the current year.
TABLE n Budretary (In Revenues and hpendlturn mUllons of dolla") 1960--61 (PrellmJnary) lllel-1S2 (EItim.te) Revenues Income taxes Peuon.)

Corporate Non-resident .

.

.

Estate taxn .

CustoRUI duUes •••••••••• .

Salta taxes All other taxes .

Total taxu .

Non-tax revenues .••..... Total ,.venues .••• .

ExpenditlU"u Deflclt .

1.711 1.277.. ".W,,, '" UIIS 000 1.618 ..,,, '" 1,815 1,2<1.
m..... ".... ..... '" U15... 1,711S TABU m Non-Budretary Transaet10ns and Net Cash Requirements (In nrlWons of dollan) llIeO-tIl (Prellmln.ry) 1.M1-G (Z.um.te) Net Receipts Annuity, Insurance and pension .ccounts Other ......•......•...... Total .

Net Loans.

Invntmentll and Advances .

C.NA Bousin .

Unemployment Insurance Tann credit .

Ex:chanI.

fund ....•...•• .

Other Total .

Net non-budietaIT ttansacUons ..••..•...... Bud.et&ry dell.clt •.....•..• Net cuh requlrementa ••.• {Mr. Flemln.
IEtllntDn).)

'".. _116 U.

17....50 "" ...

.

"->l ... n....n. 50 '" -=... ... = RELATIONS WITH THE BANK OF CANADA It is necessary, in the light ot recent events., that I say something tonight about relations between the government and the Bank ot Canada.

What I have to say relates In part to the past and in part to the future.

Let me begin with the past.

On June 14, to the house the reasons when I explained.
why the government had been compelled to ask for the resignation of the governor of the bank, I said that Mr. Coyne's cont1ouaUon in office "would stand in the way ot the implementation ot a comprehensive, sound and responsible economic program designed to raise the levels ot employment and produc tion in Canada".

Such a program is con~ tained in the budget I have presented tonight.

that No doubt there are some propOsals in this budget with which Mr. Coyne may lind it possible to agree.
It is in the basic elements the differences lie.

This budget is built, that as hon.

members will have observed, on fOUf foundation stones.

Mr. Pickeragil1: Roll1og stones.

Mr. FI.ming IEglin.toal: The hon.

member look for Bonavista-Twillingate had better out that they do not roll over him.

Each sustains an element of economic potiey which is central and indispensable.

Yet not one of the four is compatible with statements, many times reiterated in various and some times extreme fonns, by Mr. Coyne.
and international First, the government believes that Canada remain, a is, and for her prosperity must law-abiding member of the International fi nancial community.

The commercial financial and commercial proposals that I am laying before the house tonight accord not only with Canadian interests, but also with Canadian obligations.

Mr. Coyne's speeches, on the other hand, exude ultra-protectionism and isolationism.
The purposes and policies which they represent could not be carried out within the frame~ work at of international which Canada is and must be a member.

When he speaks ot "living within our means" he really invites us to "live unto oursel ves", 10 a private restrictionist world at our own.
As a member of the government ot one ot the great I eate~ trading nations of the world, gorically reject any such invitation; the poli cies involved would be as damaging to our domestic prosperity as they would be to our international institutions influence.

the JUNE 20.

1161 6667 Mr. Pickengill: Poor old RB.

M:r. Fleming (Eglinlonl: Poor old Bonavista Twillingate.
Second, the &overnment believes that flexi bilIty in our structure of interest rates can often be, and is indeed in times like the present, of importance to the pace of eco nomic expansion, and the level of employ~ ment, particularly through its influence On the balance of international payments; and the government also believes that the Bank of Canada has an important role to play in this connection.
Mr. Coyne, on the other hand, in his last annual report and in many other statements, argues that interest rates have little influence on economic develop.

ment and that the central bank has, in any case, little influence on interest rates and the balance of payments.

The Budget-Hon.
The Budget-Hon.

D. M. Fleming 30, after I had told him of the harm done by his public speeches, he asserted firmly and emphatically that he took back nothing he had said in those speeches, that he had been right in what he had said, and withdrew noth ing.

How then could the government invite him to consider and support it?

How could the government ask him to co-operate in its im plementation?

I can think of nothing more cynical or more insultIna:.
than to approach the governor of the Bank of Canada with a request that he should approve and implement policies with which he is known to be in fundamental Aceordingly, disagreement.

rather than aUow Mr. Coyne to continue to stand in the way of constructive and ex pansionist measures of a kind which he had publicly opposed, the government asked him to resign.

This budget and Mr. Coyne were simply not compatible.
Third, to agriculture and fisheries, the government believes that the like rates of interest, should exchange rate, be flexible and should move with the times' while a premium over the U.S. dollar rna; to well have been appropriate and helpful Canada's economic position some years ago, today a discount will be appropriate and help ful to primary and secondary industry, to our exporters, our industry, aDd to the community at tourist large.
Further, the government believes that monetary policy and interest rates in Canada have an important role to play In relation to a flexible exchange rate.

Mr. Coyne, on the other hand, in frequent speecl1es and most recently before the Senate committee on man.

power and employment on April 28, reserved his most extreme strictures for proposal!

for "depreciation of the international exchange value of the Canadian dollar" and for use of monetary policy in this connection.
Fourth, the government believes that, in times like the present, a substantial budget deficit can promote economic expansion, with more jobs and better living standards for many thousands of Canadians; and such a fiscal policy will be the more effective if it is accompanied by appropriate ftexibiUty rates and exchange rates.

Mr. of Coyne, on the other hand, has been preaching aU across the country a far more austere and rigid doctrine.
Government fiscal policies in general, and government deficits in partic Ular, have ~ived more of his broadside attacks than any other element in our econ omy.

interest Mr. Coyne bas publicly and repeatedly re jected all the four foundation stones of this budget.
Moreover, at -both my meetings with the governor on March 18 and again on May Let it not be thought that this incompati_ bility was just another instance of the age old battIe Which, so the historians tell us, has from time to time been waged between the bankers and the politicians, with the bankers attempting to "uucify mankind upon a cross of gold" and the politicians seekinl to remedy every economic malady with a dose of inflation.

It is nothing of the kind.


Long before the government decided that it would have to ask for Mr. Coyne's resilna leading Canadian bankers, were crl.

tlon, Ucizlng the policies and activities of the governor of the bank.

These criticisms by presidents or general managers of the follow Ing chartered banks were made in prepared their annual mccUnes public speeches at the Canadian last winter or subsequently: Bank of Commerce, the Bank of Montreal, the Bank.
of Nova Scotia, the Royal Bank of Canada, and the Toronto Dominion Bank.

The policies and activities about which the senior otRcers of these banks expressed their concern related to the level of Canadian interest rates, the level of the Canadian exchange rate, or to the manner in which central banking operations had been carried on.
How could the government ask Mr. Coyne to share in the implementation of programs and policies in fields where he had already provoked an unprecedented round ot protests from so many of our leadine financial the Imperial Bank, instituUons?

When Speakin, in the house on June 14 I indicated that Mr. Coyne did not command the confidence ot his board of directors or of the government It is also clear that he has not been able to enlist the confldenCi!

of the financial community.


This has emerged tram their public statements.

It has also eDlerled from their inability to interpret his activities 6668 HOUSE OF COMMONS The Budget-Hon.

D. M. Fleming in the purely monetary sphere.


To my deep regret he has been unable to achieve any real meeting of minds with those with whom he should be in constant and confident con~ In these circumstances It became im tacl possible for the government to rely on him to give the type of leadership which is ex times from the governor ot a pected at all central bank and which will be particularly needed in the months ahead.
I am quite awa~ that without consulting the governor I am tomght proposing policies, including those affecting interest rates, which extend into the area of influence and au thority of the central bank.

It was necessary to do so on this occasion only because Mr. Coyne refused to make way for a suceessor with whom, had he been appointed in time, I could and would have consulted.
I make the this explanation tonight, not only for benefit of the many people, at home and abroad, who are naturally and properly con the status and stature ot our cerned about central bank, but also for the benefit of those who are naturally and properly concerned about the status and stature of the new 10v emor.

It is the intention at the government that the position and prestige of the Bank of Canada should be restored.
Let it be recalled that the first governor, who graced that of· flce for 20 years, was appointed by a gov ernment headed by the late Right Hon.

R. B. Bennett.

It is the intention of U1ls govern ment to restore the active and inUmale co operation between the bank and the govern ment, the bank and the pUbllc, which was maintained so effectively and continuously in earHer years.
It will remain the duty of successive gov ernments and successive ministers of finance to protect the bank and its governor from the transient and Irresponsible pressures to which those who manage our money supply in the nature of things, be subjected will, from time to time.
But this does not and can not mean that any government can continue to stand Idly by when a governor is espous ing policies which, in its best judgment, are in conformity with the public interest not and when he Is also stating opinions that are in fundamental conllict with government policies outside the field ot central banking.
In such a situation it would always be the duty of the government to ask the governor to resign and, in the almost incredible event to submit the matter that he should refuse, to the ultimate high court of parliamenl CONCLUStON to stimulate growth, to the supplementary budget of last Decem.

through an appropriate It proposes ber.

blending of flscal, ftnancial and commercial policies to impart an impetus to the economy, to enlarge production, to employ unused pro to in.

ductive capadty, to expand employ.


crease trade, and thus ment opportunities for our people.

It seeks to raise the levels ot savings and Investment by Canadians and to make better use of Cans.

dian capital in the development of our re- sources.

It aims to achieve a more dynamic p.ace of growth and a balanced development for all regions of our country and all secton: incentives of our economy.
It offers credit, and research aid to assist industry to gird It sell to meet the challenge ot new and vigor ous competition.

It brings a flexible progrJrn of action to bear upon the needs of this time and to serve the nation's long tenn interest.

It challenges all people to hard work and self-discipline.

It appeals for co-operation be tween business and labour.

It contemplates a large de.8dt and proposes to use that de.8dt as a means of stimulating the economy.
It offers, notwithstanding, a reduction of $100 million in taxation where the reduction is most needed and can be fruitful in stimulating productive effort.

It three years ago reminds the country that we faced the prospect of an even larger deficit during a recession when inflation also threatened, and that the country achieved re covery in that year.

(TrBnslation) : Canada becomes an ever more mature nation, both politically and economically.
Her growth in this past year has experienced a slackening and a pause, but there has been growth.

From that experience she can draw renewed confidence, strength and fitness for the tasks and challenges ahead.

These recent toils and trials Canada will transform to new triumphs.

(Text): Canada becomes an ever more mature Da· tion, both politically and economically.

Her growth in this past year has experienced a slackening and a pause, but thel'i!

has been growth.
has been growth.

From that experience she can draw renewed confidence, strength and fitness for the tasks and challenees ahead.

These recent tolls and trials Canada will transform to new triumphs.

RESOLUTIONS INCOM& 1'AX An Mr. Speaker, I said at the outset that in more than usual measure this is an economic budget.

In that respect it is a lolical sequel Resolved that it is expedient to introduce a measure to amend the Income Tax Act and to provide among other things: [Mr. Flemtn, (!:IUntoll.).]