1941-05-15

[Stage Direction]
First report of standing committee on miscellaneous private bills-Mr. Donnelly.

[Stage Direction]
(Questions answered orally are indicated by an asterisk.)

Mr. PURDY:: 1.	Is E. S. Dixon employed by the Department of Munitions and Supply?	[DOT]
2.	If so, (a) on what date was he employed;
(b)	what are the terms of his employment;
(c) what is his salary; (d) what are his duties; (e) what are his special qualifications for such duties; (f) who recommended his employment; (g) what occupation did he follow for the ten years prior to his present employment?


Mr. HOWE:: 1.	Yes.
2.	(a) June 13,	1940;	(b) Temporary;
(c) $2,820 per annum; (d) In charge of the

Questions
2S33
organization, personnel, procedure, and operations in the Purchasing Division, Aircraft Production Branch, and the supervision of the purchase of materials, supplies, and equipment; (e) Thorough knowledge of the activities of the Aircraft Purchasing Division, and by virtue of his previous experience. (See answer to "g"); (f) Appointed through the Civil Service Commission; (g) 1923 to 1940 President and Manager, Automobile Legal Association (Maritime) Limited, Head Office, Halifax, N.S.; 1921 to 1923 employed by the Canadian Air Board, latterly the Royal Canadian Air Force, as an Air Engine Fitter and Storekeeper. Prior to this Mr. Dixon served in the R.A.F. and Royal Flying Corps in Canada and the United States as Clerk and Assistant in the Stores.



QUESTIONS PASSED AS ORDERS FOR RETURNS


Mr. HAZEN:: 1.	What was the total cost of the meetings of the chairmen and divisional registrars of the administrative division of the Department of War Services, held in Ottawa on February 17. 18 and 19 last?
2.	How much of this cost was for (a) travelling expenses; (b) allowances or fees to those who attended; (c) printing and stenographer's fees; (d) other incidental expenses?
3.	As a result of these meetings were any substantial alterations made in the regulations and, if so, what were they?


DEBERT, N.S., AIRPORT-COAL
Mr. PURDY:: 1.	By what companies, firms or individuals was coal delivered to military projects at Debert during the present season, up to and including March 31?
2.	What was the tonnage delivered by each company, firm or individual and the amount paid or payable to same?


SAINT JOHN, N.B., DRYDOCK
Mr. GILLIS:: 1.	Who built the drydock at Saint John, New' Brunswick?
2.	What government assistance, if any, was given in this connection?
3.	Who owms the drydock at the present
time?
4.	Is the dock ivorking full time at present?
5.	What fees were paid for time in which the corvette, launched in December, 1940, was in
drydock?
6.	Has this corvette been commissioned? If not, why?
7.	Was the United States destroyer 124 repaired on arrival at this drydock? If not, why ?
8.	What was the cost of towing this vessel in and out of berth?
9.	To whom was this towing charge paid?
10.	What sums were paid to the Dry Dock
Company of Saint John during 1940, and for what services?


CANADIAN BROADCASTING CORPORATION-ASSISTANT GENERAL MANAGER
Mr. COLD WELL:: 1.	What is the reason for the transfer of the assistant general manager of the Canadian Broadcasting Corporation from Montreal to Ottawa ?
2.	What are his present functions?
3.	To whom is he directly responsible?
4. What are the functions of the general manager?
5.	Have any amendments been made to the by-laws of the Canadian Broadcasting Corporation or are any contemplated?
6.	What changes in the constitution of the C.B.C. do such amendments, if any, make?
7.	Has any new member been appointed to the board of governors? If so, who?
8. What was the salary paid to, (a) the general manager; (b) the assistant general manager of the C.B.C. last year?
9.	Has any change in their salaries been made recently, or is one contemplated? If so, what is the nature of such change?
10.	Were either or both of these officials entitled to a stipulated expense allowance last year, in addition to salary? If so, how much for each allowance?
11.	To what extent were these expense allowances used?
12.	Were both or either exceeded? If so, by how much?
13.	Was the attention of the Minister of Munitions and Supply or the deputy minister of transport, or any other officials of either department drawn by the auditor general or any other officer of his department or by any officer of the C.B.C. to any expense accounts having been overdrawn?
14.	If so, what action was taken or is to be taken in this regard?



CANADIAN ARMY


[Stage Direction]
On the orders of the day:
Hon. GROTE STIRLING (Yale):: Mr. Speaker, I should like to ask a question of the Associate Minister of National Defence. I sent the Minister for Air a note of it this morning.
In making his appeal last Sunday night for 32,000 recruits, the Minister of National Defence did not make it clear whether these recruits would be required for overseas service. In order to clarify the position, I should like to ask the minister;
1.	If the 32,000 will be attested at once for overseas service or will they be attested for service in Canada and at a later date be asked to reattest for service overseas?
2.	If it is anticipated that all these 32,000 recruits will be dispatched overseas as soon as their training is completed?
Dartmouth, NS. Airport


Hon. C. G. POWER (Minister of National Defence for Air):: My hon. friend was good enough to let me have a copy of the question.
The answer to the first one is that the
32,000	odd men that are being asked for will be attested and enrolled for service overseas anywhere, at any time.
With respect to question No. 2, as to whether they will be dispatched overseas as soon as their training is completed, the reply I believe will be found in the address of my colleague the Minister of National Defence (Mr. Ralston), in which he says that these men will be enlisted to complete the third division, which, as the house knows, is to be dispatched overseas this year; to complete the armoured division and the tank brigade; to complete the fourth division, and for reinforcements for already existing formations overseas, which will go forward whenever required.



STATUS OP VETERAN GUARDS, INSTRUCTIONAL STAFFS AND COASTAL DEFENCE UNITS

[Stage Direction]
On the orders of the day:
Grote Stirling: Mr. Speaker, I have another question I should like to ask of the Minister of National Defence (Mr. Ralston), but I notice he is not in the bouse to-day. Perhaps I might be permitted to put the question, so that he may answer it when he returns.
Are the veteran guards of Canada, instructional staffs at the training camps and the coastal defence units, all of which contain men in the category below that which is required for overseas service, included in the
120,000	men in the active army in Canada to which he referred in his recruiting broadcast speech? Will he give to the house a statement showing how the 120,000 is arrived at?


Charles Gavan Power: Mr. Speaker, I shall get that answer for the hon. member.



DARTMOUTH, N.S., AIRPORT EASTERN PASSAGE AERODROME CONTRACTS- TILLEY REPORT

[Stage Direction]
On the orders of the day:
Mr. P. C. BLACK (Cumberland):: Mr. Speaker, I should like to ask the Minister of National Defence for Air if he is yet in a position to tell the house anything respecting the special inquiry concerning the eastern passage aerodrome. I believe the inquiry was made about six months ago.


Charles Gavan Power: Mr. Speaker, I am not in a position to submit a report to the house, because I have not yet received any. However, in view of the numerous questions which have been addressed to me with respect to this matter, perhaps I had better tell the house what it is all about, without going into any discussion of questions which might be controversial.
There were two main contracts for the development of an aerodrome at Dartmouth, N.S., known as the eastern passage aerodrome. The first of these, for excavation and grading, was dated June 22, 1938, and the second for shaping, surfacing and drainage of runways and gravelling of shoulders was dated, originally, October 6, 1939, but was later rescinded by a revised contract dated January 25, 1940.
The former of these contracts, namely, the one for excavation and grading, was a unit price contract awarded to the lowest bidder after a call for tenders, but the second, for shaping and surfacing, is a cost plus a fixed fee contract awarded to the contractor who had made the lowest bid for grading and was already on the job.
In both cases the requirements of service operations necessitated a great deal more work being done under these contracts than it was contemplated would be necessary when they were made. In other words, the whole development has had to be on a much larger scale.
I believe it is fair to say that there has been no criticism of the quality of the work performed under these contracts or any suggestion that it was not done as expeditiously as possible. At the same time, it has been suggested-at least informally-that the contracts themselves were not all they should have been and that there had been irregularities in connection with them. I believe it has been stated in the press that there are affidavits of a sensational nature made by a former engineer, although I have never seen them.
At all events, it did appear that a full inquiry should be made and, as a number of departments are involved-the departments of Munitions and Supply, National Defence, National Defence for Air and, to some extent, the Department of Finance-I determined last October to ask one of the leading members of the Canadian bar to make such an inquiry. He is doing so now. The fact that a man of Mr. Tilley's experience has taken several months to complete his inquiry indicates, I believe, that the questions involved were of a nature not to have been dealt with as a matter of routine by departmental officials already overburdened. Mr. Tilley advised us a short time ago that he wished to make a personal

Royal Canadian Navy
visit to the aerodrome. I have since been advised he has made such a visit to the aerodrome at Halifax. And I have been advised by telephone that there is every expectation that he will make his report within a few days.


Mr. HOMUTH:: Did the minister say
"within a few days" or "within a few weeks"?


Charles Gavan Power: Within a few days.
Mr. POULIOT; The answer is: Sit down.



UNEMPLOYMENT INSURANCE


[Stage Direction]
On the orders of the day:
Hon. N. A. McLARTY (Minister of Labour):: Mr. Speaker, many requests have
been made from various parts of the house as to when unemployment insurance will be placed in operation and start to function. I promised the house that at the earliest possible moment I would adivse it as to when that would be done. I am now in a position to say that the act will be placed in operation and will start to function on July 1 next.



ROYAL CANADIAN NAVY


[Stage Direction]
On the orders of the day:
Hon. ANGUS L. MACDONALD (Minister of National Defence for Naval Services): Mr. Speaker, I should like to refer to an editorial appearing in to-day's issue of the Globe and Mail of Toronto, entitled "Ridiculous Pomposity." The editorial is rather lengthy, and I shall not endeavour to read all of it. However, I shall place before the house the more important parts. It begins thus:
There is a far Canadian city which has been deprived of its name. It is now known as "An eastern Canadian port." The population of this city knows that Canada is at war. Its harbour is full of ships one day and almost deserted the next. It is the seat of Canada's naval power, and it is in this port that the Rear-Admiral commanding the Canadian navy flies his flag.
There is another admiral in that port. He is there actually, not theoretically. He commands a British battle squadron, which includes some very powerful units of the Royal Navy operating in the north Atlantic. Because he may not infringe upon the dignities and prerogatives of the newly created Rear-Admiral commanding the newly expanded Canadian navy, the British admiral may not establish a suitable headquarters ashore. Instead, he is obliged to operate from a small vessel which is just removed from the wharf by the interposition of a hulk with gangplanks stretched across it.
Thus propriety, etiquette and prerogative are preserved, and no challenge is made to the authority of the Canadian Rear-Admiral.
Rear-Admiral Bonham Carter, C.V.O., D.S.O., R.N., is the man who is primarily responsible for keeping open the sea lanes of the Atlantic. Canada owes it to him and the men under his command that two divisions of Canadian troops were transported to the British isles without casualty. The admiral himself is not the sort of man who cares very much whether he flies his flag in the eastern Canadian port or whether he is comfortably billeted. But it does seem a little unfortunate that the commander of a British battle squadron should in any way be inconvenienced or circumscribed by reason of the presence of an equal width of new gold braid around another pair of sleeves.
Then-I omit some paragraphs which are not relevant-it continues:
But, because two admirals cannot fly their flags in the same port, the commander-in-chief of the British battle squadron must stay at sea, so that the authority of the Canadian admiral shall be unchallenged.
I would like to say in the first place that the editorial is basically inaccurate, because the Rear Admiral of the Royal Canadian Navy does not fly his flag in Halifax. The Royal Canadian Naval establishment in Halifax is commanded by a commodore of the Royal Canadian Navy, who flies his broad pendant ait his majesty's dockyard there. In the second place, with reference to the 'newly created Rear Admiral commanding the newly expanded Canadian navy" the Canadian Rear Admiral is senior in date of appointment to the British Rear Admiral at Halifax. In the third place, it is a traditional principle of the admiralty that an officer in command of a seagoing force should fly his flag afloat, and there is no case known to me or to my staff of an exception to that rule, apart from a short period at the beginning of the war when the British Rear Admiral at Halifax flew his flag ashore until it was possible to acquire a floating headquarters, now known as His Majesty's Ship Seaborne.
Furthermore, the present position is perfectly well understood by all concerned. The British Rear Admiral at Halifax, the commanding officer on the Atlantic coast, the naval staff here, have all maintained continuously the closest cooperation and harmony. Rear Admiral Bonham Carter has his headquarters on a ship, which it is true is moored to a dock in Halifax, but he has a house in the city where he lives with his wife and children when off duty.
Rear Admiral Bonham Carter is a most gallant and genial gentleman, universally esteemed and liked, and I am sure that no one will be more annoyed and displeased than he at this inaccurate and unnecessary publicity.
[Stage Direction]
Income War Tax Act

[Stage Direction]
The house in committee of ways and means, Mr. Fournier (Hull) in the chair.

[Stage Direction]
Resolution 1 agreed to.
2.	That paragraph AA of the first schedule to the act be repealed and in lieu thereof there be imposed a tax of 4 per centum on the investment income defined to include dividends, interest, rents, royalties and other like income and not to include salary, wages, fees or other like income from any office or employment of profit or income derived from the carrying on of a trade, vocation or calling.
Grote Stirling: The minister has received a considerable number of resolutions from cooperative associations with regard to a possible amendment to the clause which affects them. So far as I can see, the amendments now before the house do not affect the clause in the Income War Tax Act, subsection (p). Can he assure me that is the case?


Mr. ILSLEY:: That is the case, yes.


Mr. HANSON (York-Sunbury):: What is the position with respect to quasi-cooperatives? I understand there are substantial numbers of very large cooperatives in some provinces operating on the alleged theory that they are cooperative, but as a matter of fact they are operating exactly the same as any corporation, declaring dividends, never distributing their total profits among their shareholders or members, and they do not pay income tax. What is the position? Are they true cooperatives? The law, as I understand it, is that true cooperatives do not pay income tax. What is the position with regard to those which are in the in-between class, such as I suggest, and is there any reason why they should not pay income tax?


James Lorimer Ilsley: One would have to take
individual instances and determine whether any particular cooperative or alleged cooperative was within the section exempting cooperatives. That is sometimes pretty difficult. I do not think there is very much more to be said about it than that. Apparently the section is fairly clear, but, like many clear sections, when it comes to applying it to a particular group of individuals and the business they are transacting it is often very difficult to know whether a concern is a cooperative within the meaning of the act, and important disputes have arisen as to whether certain business organizations are or are not within the exemption.


Richard Burpee Hanson: The definition is found in part II, section 4, of the

Income War Tax Act dealing with exemptions and deductions. Subsection (p) of section 4, part II, of course, is well known:
(p) The income of farmers', dairymen's, live-stockmen's, fruit growers', poultrymen's, fishermen's and other like cooperative companies and associations, whether with or without share capital, organized and operated on a cooperative basis, . . .
Such companies and associations may market the produce of, or purchase supplies and equipment for non-members of the company or association provided the value thereof does not exceed twenty per centum of the value of produce, supplies or equipment marketed or purchased for the members or shareholders.
This exemption shall extend to companies and associations o-wned or controlled by such cooperative companies and associations and organized for the purpose of financing their operations.
I had in mind the pools and grain growers of the west. Has an investigation been made into their status, and has it been legally determined that they come within the exemption?


James Lorimer Ilsley: The business affairs of the pools are under active investigation at the present time. It has not been definitely determined whether they are subject to income tax or not.


Richard Burpee Hanson: If the
matter is under investigation, that is enough for me.


Mr. GREEN:: Paragraph 2 of the resolution deals with investment income. Will the minister explain what changes it is intended to make in the law relating to taxation on investment income, in relation to personal income tax and corporation income tax and also with regard to the tax on non-residents? I think that these points might very well be cleared up at this stage.


James Lorimer Ilsley: It is a difficult matter to explain.


Karl Kenneth Homuth: I do not know what hon. members have to talk about, but we simply cannot hear what is going on.


James Lorimer Ilsley: At the present time there is what is called a tax on investment income, but it is not a true tax on investment income except within a very small range, because all income over $14,000 is deemed to be investment income. For instance if a $50,000 salary is the only income of an individual, the part of it over $14,000 is deemed to be investment income. The so-called investment income tax, therefore, is not a true investment income tax. Now there has been an alteration in the rates and schedules, so that there will be on all investment income, over a small exemption at the lower end, a surtax, and the schedules and

Income War Tax Act
rates of taxation in reference to non-investment income have been so framed as virtually to absorb the old graduated so-called investment income tax rates. There is also a flat four per cent tax on investment income in addition to the ordinary graduated income tax.


Howard Charles Green: Does that mean that a person with a taxable income of say $1,000 would pay the income tax rate on that and in addition would pay four per cent on any portion of that income of $1,000 which is derived from dividends, interest, rents or royalties?


James Lorimer Ilsley: If the $1,000 is over the
exemption. There is an exemption at the lower
bracket.


Howard Charles Green: Will the same provision apply
to corporations?


James Lorimer Ilsley: No, this is individual income tax. The corporation tax is a flat rate.


Richard Burpee Hanson: They have no investment income tax?


James Lorimer Ilsley: No.


Howard Charles Green: What about the Canadian who lives, for example, in Great Britain, and who has property in Canada from which he derives rents? Under another paragraph in this resolution he is to be charged fifteen per cent on his gross rentals. Is he in addition to be charged four per cent under the investment income tax provision, making the total nineteen per cent?


James Lorimer Ilsley: No; the withholding tax of fifteen per cent is a tax on gross income, not net income. That is on that part of the gross income of the non-resident, the gross remittance. It would be possible for example for a non-resident to have no net income; nevertheless he would have deducted at the source here in Canada fifteen per cent of the gross amount received. There is no addition against him there, for investment income.


Mr. GRAYDON:: What about collection charges with respect to interest on investments here remitted to the old land? Is it simply on the gross, or on the net after collection charges have been deducted?


James Lorimer Ilsley: I do not know just what the "collection charges" would be.


Gordon Graydon: Suppose the man has an agent here collecting his rents; will he pay fifteen per cent on the total rents collected by the agent, or on the total amount sent to him after commission, and so forth, has been deducted?


James Lorimer Ilsley: It is on the gross. There is no deduction for the agents' charges.
14873-179i


Richard Burpee Hanson: The total amount.


Howard Charles Green: In paragraph 2 we find the word "rents". Is the individual to be allowed to deduct, for example, the taxes he pays on the property from which he derives the rent, also insurance and repairs, or is this investment income deduction to be on the gross rent?


James Lorimer Ilsley: This four per cent is a tax on the net income. It is a true income tax, a tax on the net taxable income. Therefore dividends, interest, rents, royalties and other
like income, after pi-oper deductible expenses are taken off, leave a certain amount of net income.


Howard Charles Green: It is to be only on the net rental?


James Lorimer Ilsley: Yes.


Mr. EDWARDS:: In the event of taxes and expenses of the property exceeding the income, then the man would pay income tax although having no net income whatever? That is not an uncommon thing in Canada at the present time.


James Lorimer Ilsley: We are back to the tax on non-residents now?


Manley Justin Edwards: Yes.


Howard Charles Green: It is in paragraph 10.


James Lorimer Ilsley: If we are back to nonresidents, it is true that there may be a tax collected when there is no net income.


Mr. GRAHAM:: If a corporation has an investment income, has invested some of its cash surplus in other corporations, would that income be subject to investment income tax?


James Lorimer Ilsley: No, there is no distinction between the classes of income of a corporation. A corporation does not earn income in the sense that a salaried official earns his salary. A corporation is in business; all its income is business income, and it is all taxed at the same rate, whether it be interest on investments or dividends or profits on its sales.


Mr. CASTLEDEN:: This has reference only to individuals; it has not to do with organizations?


James Lorimer Ilsley: That is true.


Richard Burpee Hanson: Did the minister state in his budget speech what increased revenue is anticipated as a result of this change, the flat rate of four per cent?


James Lorimer Ilsley: I did not suggest that.


Richard Burpee Hanson: Was
there an estimate made?
2S38
Income War Tax Act


James Lorimer Ilsley: I cannot remember any.
I will make inquiry.


Richard Burpee Hanson: What is
the theory of this change? Is it that it will produce more revenue?


James Lorimer Ilsley: The theory is that a person who is dependent on earned income is not in as stable or solid a position as a person who is dependent to some or to the full extent upon investment income. When he has capital upon which he is deriving an investment income, his future is provided for, so long as he can hold on to his capital. A person who is dependent upon earned income is not in that position, so that it is considered fair to tax investment income at a slightly higher rate than non-investment income.


Gordon Graydon: There has always been
a surtax on that, anyway.


James Lorimer Ilsley: That is what I explained a few minutes ago. Under the existing law it has been largely nominal. There has been a surtax which has been called an investment income surtax, but it was applied on salaries as well as on investment income over and above $14,000. In a very large range there was no distinction whatever; it has been a so-called, an alleged, investment income surtax. I am told that $200 or thereabouts is the largest amount by which one person's income tax can exceed another's on the same income by virtue of that surtax.


Richard Burpee Hanson: That is
a remarkable statement. I refer hon. members to page 52 of the office consolidation of the Income War Tax Act, September, 1940, wherein is set forth "Rates of tax applicable to all persons other than corporations and joint stock companies, in respect of 'investment income'." On an income exceeding $100,000, but not exceeding $150,000, they pay a rate of eight per cent. That does not jibe with what the minister said.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: I should
like it demonstrated.


James Lorimer Ilsley: Let us say an able professional man, perhaps a barrister, had a professional income of $150,000. The tax of eight per cent would apply on nearly the whole of that income, and he would be paying within $220 of the income tax being paid by his next door neighbour with an investment income of $150,000.


Richard Burpee Hanson: Because
of the ruling that all income over a certain amount is considered investment income?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: It may work out that way; I don't know.


Howard Charles Green: As I understand it, before this change was made investment income was taxed only if the amount was $5,000 or over. Now, by this change, you are taxing any sum that is liable to ordinary income tax. In other words if a man dies leaving his widow assets from which she will have an income of $1,750 per year, when she comes to pay income tax she will receive an exemption of $750. On the remaining $1,000 she will pay $150 under the new scale, plus an additional $40 under this investment income tax. Is that the situation? If it is I suggest to the minister that he is starting far too low, that he should not start to impose the four per cent investment income tax immediately after the personal exemption has been allowed, because this becomes really a double tax.


James Lorimer Ilsley: I do not think that is quite correct, but I shall answer more fully in a moment.


Howard Charles Green: I hope it is not, but I should like to know.


Richard Burpee Hanson: Under this resolution there is no exemption at all corresponding to the present provision of $5,000. Under this resolution investment income bears the four per cent tax, in addition to the ordinary income tax, from the first dollar.


James Lorimer Ilsley: I am inclined to think the hon. member is right. I do not want to answer finally, however, because I am under the impression that there is an exemption of a little more than the $750 for investment income. If the hon. gentleman will just let this stand for a while I will get an accurate answer.


Richard Burpee Hanson: And will the minister look into the suggestion which I now make, that if such exemption is not there he give consideration to providing an exemption of say $1,000? I am satisfied that under this resolution all investment income will have to pay four per cent, without exception, and irrespective of the other tax. There should be some exemption, at least a thousand dollars. I am not going to limit it to that; it is $5,000 to-day, and this is a radical change.


James Lorimer Ilsley: Yes, consideration will be given to that point. I was under the impression that there was an exemption greater than $750, but certainly it is not in the resolution.
Resolution stands.

Income War Tax Act
3.	That the schedule of taxes payable under section 88 of the act on gifts made after April 29, 1941, be repealed and in lieu thereof there be substituted the following schedule:-
On gifts up to and including $5,000-7 per cent.
On gifts exceeding:-
$5,000 but not exceeding $10,000-8 per cent. $10,000 but not exceeding $20,000-9 per cent.
$20,000 cent.	but	not	exceeding	$30,000-10	per$30,000 cent.	but	not	exceeding	$40,000-11	per$40,000 cent.	but	not	exceeding	$50,000-12	per$50,000 cent.	but	not	exceeding	$75,000-13	per$75,000 cent.	but	not	exceeding	$100,000-14	per$100,000 cent.	but	not	exceeding	$150,000-15	per$150,000 cent.	but	not	exceeding	$200,000-16	per$200,000 cent.	but	not	exceeding	$250,000-17	per$250,000 cent.	but	not	exceeding	$300,000-18	per$300,000 cent.	but	not	exceeding	$400,000-19	per$400,000 cent.	but	not	exceeding	$500,000-20	per$500,000 cent.	but	not	exceeding	$600,000-21	per$000,000 cent.	but	not	exceeding	$700,000-22	per$700,000 cent.	but	not	exceeding	$800,000-23	per$800,000 but not exceeding $1,000,000-24 cent. $1,000,000-25 per cent.	perand that repealed.	section	88 (8) (e)	of the act	be


Richard Burpee Hanson: This is a very sharp increase.


Howard Charles Green: Will the minister explain the changes that are being made here; and will he also tell us whether or not the present exemptions are to be continued?


James Lorimer Ilsley: These increases are proposed in view of the provisions of the succession duties resolution. Gifts made within three years before the decease of the decedent are considered as property passing on the death; but gifts made before that time, if they are not made in contemplation of death-that is, if they are not in the category of donatio mortis causa-are not taxable. These gift rates are imposed with a view to discouraging the making of such gifts, having in mind the succession duties.


Howard Charles Green: The rate has been increased considerably.


James Lorimer Ilsley: Yes.


Howard Charles Green: Are the exemptions to be changed? As I understand it, there is an exemption of $4,000.


James Lorimer Ilsley: The exemptions are not to be changed. There is one change in connection with the exemptions, but it has no relation to the amount.


Howard Charles Green: That is, the recognized
exemptions are not to be changed?


James Lorimer Ilsley: No.


Howard Charles Green: Then what is the change referred to in the resolution, that section 88(8) (e) be repealed? Why is that paragraph being repealed?


James Lorimer Ilsley: The explanation is that
in the case of a gift by a husband to a wife, the husband had been taxed on his income just as though the gift had not been made, and for that reason the gift tax did not apply in such cases. But now, in view of the fact that we are passing a succession duty act, the gift may be made for another purpose. It may be an advantage for a husband to make a gift to his wife for the purpose of avoidance of succession duty.


Howard Charles Green: Can you not get it, then, under your succession duty provisions?


James Lorimer Ilsley: No, it might be made at a time when it would not be subject to succession duty, that is, more than three years before the death of the decedent; and for that reason it is proposed to impose a gift tax on that gift.


Howard Charles Green: This really means that you are going to tax by way of income tax the person making this gift; he is to continue paying income tax on that transfer- in other words, it is not to be recognized under the income tax law, but at the same time you are going to tax him under the gift tax provision. You tax him twice.


Richard Burpee Hanson: And if
he dies within three years you hook him a third time. It is most unfair.


Gordon Graydon: Of course he is not there to hook, then.


Richard Burpee Hanson: Well, the money is. Perhaps his wife is.


James Lorimer Ilsley: The gift tax is credited
against the succession duty. That will be a provision of the succession duty act.


Howard Charles Green: I suggest it is hardly fair to repeal that clause. You are already taxing that same amount, the amount of the gift, under section 32 of the Income War Tax Act. You can get that tax now; and in addition, under this proposed amendment, you are going to make him pay a gift tax; if the amount is up to 85,000, you make him pay a gift tax of seven per cent. It is double taxation. I submit that it is not fair.
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James Lorimer Ilsley: No, not if the gift tax is credited on the succession duties. All that we are doing there is to see that we get our succession duties in the case of gifts from a husband to a wife.


Howard Charles Green: Why should you try to get succession duty on a transfer of that type, if it is made more than three years before the death?


James Lorimer Ilsley: I should think there would be a disposition to give a lot away if there were not some safeguard there.


Howard Charles Green: Well, if the wife gets the gift, when she dies you would have it by way of succession duty. It does seem unreasonable to try to extend the succession duty provisions back for a period further than three years, by a subterfuge of this kind.


James Lorimer Ilsley: I think I shall have to let this stand, and see what the answer is.


Richard Burpee Hanson: I think
the minister is wise. It is an obscure provision, and those of us who have not the benefit of the trained group of tax experts and of "brain trusters," if I may use that word without disrespect, may be pardoned if we too do not understand it. The intent of this proposal is to catch people going and coming, fore and aft, perhaps two, perhaps three times. It is unfair.


Howard Charles Green: It seems to me that this principle is at stake, whether the dominion is to go back for a period of more than three years in collecting succession duty tax. Some provinces, apparently, can go back to Adam. In our province and in some others they cannot do that. If- the government is to go back only three years, why not stick at three years and not try to extend the period by a round-the-corner method such as this appears to be?
Resolution stands.
4.	That the rates of national defence tax be increased from 2 per centum to 5 per centum wherever 2 per centum is mentioned and from 3 per centum to 7 per centum wherever 3 per centum is mentioned, and that these rates be effective from the first day of July, 1941.


Richard Burpee Hanson: I tell the minister right now that I am going to oppose this provision for an increase. It is not fair to those in the lower income brackets. The national defence tax is being more than doubled; and in addition to that, you have taken from the wage earner, voluntarily if you will, though in many cases questionably, substantial contributions to war savings certificates. There are other taxes exigible under

the lower income tax range. On top of that, there is the increase in the cost of living which people who are in receipt of wages and income have to pay. Many of those now in receipt of wages or low-rate salaries for a long time did not have steady jobs; they find themselves in the position, perhaps for the first time in many years, of receiving a pay envelope every Saturday night. I suggest that the national defence tax at the old rate is a proper contribution for anybody to make, but to seek to raise the large sum of money which this impost will produce at the increased rates is not fair to people who can least afford to pay. I know the argument is that it is to take their surplus earnings so that they will not squander them on luxuries. Theoretically that is very good; it sounds very well; it will help to prevent inflation. But the tax attaches to people who for the first time in a long period of years are in receipt of a living wage and an assured income. They must have accumulations of debt, unpaid rent, and what not, and the tax should not be raised, at all events for this year. I never objected to the old tax. What I thought was that there would be a large sum of money raised, and that it was a tax which had come to stay in our lifetime. But to increase it to this high level is, in my view, unjust to those in the lower income brackets and I am opposed to it.


James Lorimer Ilsley: We are confronted with a problem here, and we all have a certain amount of responsibility. The hon. gentleman attacked us last year because the tax was too heavy.


Richard Burpee Hanson: Not this one.


James Lorimer Ilsley: No, not this one, but the income tax on the medium incomes. He said this year that he regarded it as very heavy last year and very heavy this year. Now I suppose he would not suggest a higher income tax on medium incomes.


Richard Burpee Hanson: I am not under cross-examination. The minister is.


James Lorimer Ilsley: All right; I will not ask for any answers to my questions, but just the same, I am going to ask the questions and then proceed, so that other hon. members can search their own hearts and say what their answers would be were they in the government's position.
This increase will yield about $80,000,000. It does not apply only to the small income people; it applies to all the taxpayers in Canada, everybody who is receiving an income

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of any kind. It is an additional income tax, and it has been taken into account in the fixing of the graduated income tax. It is more or less assimilated to the income tax system of the country. If the suggestion of the hon. gentleman, that we should drop that
S80,000,000, were adopted, our proposed receipts in the year would be reduced from $300,000,000 to about $220,000,000. That would make a tremendous difference; and under these circumstances it is not good enough for an hon. member, whether he be a member of the opposition or not, simply to say that he opposes a particular tax. He must face up to the situation and decide whether he is in favour of getting the amount of taxation we have set out to get, and if he proposes to throw out $80,000,000 of taxes he should suggest some other way of raising the money. There are other ways in which we can raise this amount. We could raise the sales tax from eight to ten per cent and pick up something like $50,000,000-$47,000,000. That was all considered.


Mr. ROWE:: It would fall on the same
people.


James Lorimer Ilsley: Not exactly. But this is a
fairer tax than the sales tax, because it applies to income. Nobody pays anything under the national defence tax unless he is in receipt of an income, and then he pays five or seven per cent. If we increased the sales tax and took in about $50,000,000 in that way, to begin with the consumer would be paying considerably more than that. I cannot make an estimate of just what it would be, but I should say at least $60,000,000 or $70,000,000; some people estimate that the loss in pyramiding would be very much greater, and the tax would be paid by a great many people in this country who have not much income at all. It would also fall very heavily on agriculture, which generally speaking should not be taxed at the present time. We cannot altogether escape from taxing people engaged in agriculture, but we do not aim to tax them, if we can help it, until conditions in agriculture are much better than they are now. We deliberately decided that it would be better to increase the national defence tax, a tax which we will take in from week to week and month to month. We do not have to wait for it as we do for income tax until some time next spring, April or May, or perhaps later, depending on whether or not the tax is paid by instalments, and as we would have to wait for an increased sales tax. Rightly or wrongly we have decided that this is a fairer and a better tax because it will tax the persons who are actually in receipt of increased incomes. We think that is better than a
tax that is spread unscientifically, wastefully and uneeonomically over a lot of people irrespective of whether or not they have any net income.
I may be asked: Then why do you not take off the eight per cent sales tax? We cannot do that because our requirements are too great. The time may come when we shall have to increase it. We may have to impose taxation where we can get the money regardless of the effects. But certainly I would not be disposed to favour increasing the sales tax until we had increased the national defence tax.


Richard Burpee Hanson: The minister's whole argument is based on the necessity for increasing the revenue. We will not dispute that: he has to have so much money. But my argument looked to alleviation for those in the very low income brackets, and a complete answer to my plea would be to raise the exemption. You will get the man higher up all right. You will get the minister and you will get me. But raise the non-taxable amount, which in the case of single persons has now been increased to $660, a little higher. Many of these people are in receipt of income for the first time, and they will have to pay perhaps twenty per cent or more of their total income in taxation, direct and indirect.


Mr. MacNICOL:: I want to give an example to the minister to show how unfair the tax can be in its application. When I was home a commercial traveller came to see me. He draws a salary of something like $2,500 a year. Some two years ago he had the misfortune to lose his wife. He has a family of three, all over twenty-one years of age, therefore he receives no exemption for them. Naturally he wants to keep his family together and he is compelled to keep a housekeeper. He told me that this tax, if raised to seven per cent, would be a severe hardship on him. He finds it difficult enough to pay the tax when it is three per cent. He has a brother who lives not far away from him. The brother has a wife and family, and the question this commercial traveller asked me was this:	"Why
should I, who now .have to keep a stranger in my home to look after my family while I am on the road travelling, have to pay over 100 per cent more taxation than my brother, under this schedule?"
I realize that the minister has quite a problem. There will be those who will try to chisel and to escape paying their just taxation, but on the other hand there are a large number of people like the gentleman to whom I have just referred who have been living in the one home for many years. I do not know just what the minister can do about it. He has to get the money, I know, and I am not
Income War Tax Act

rising to tell him what to do. I can see that his problem is great. On the other hand I can see injustice and unfairness in the way the tax works out in the case of these two brothers, and it is just an example of perhaps thousands of other cases.
Mr. O'NEILL: I quite appreciate that it is difficult for the minister to arrange taxes that will meet with the approval of everybody, but certain well-defined principles were laid down by the Minister of Finance in discussing the national defence tax. In respect of income tax the principle is laid down that a married man shall be exempt up to $1,500. If he makes $1,600 he pays income tax on the extra $100 over $1,500. But when you come to the national defence tax, his exemption is $1,200. That is too low, and I think it was too low last year. I offer as a solution that you tax those who have an income in excess of $3,000 *the amount necessary to make up the $80,000,000-in short, tax the people who are able to pay. A married man with an income of $1,200, that is $100 a month, pays no national defence tax, but a man making $105 a month, or $1,260, a year is taxed five per cent, not on the $60 by which his income exceeds $1,200, but on the whole $1,260, thus reducing his salary to $100 a month.
Here are the principles which were laid down by the Minister of Finance with regard to the national defence tax. I quote his own words:
In fact, I am sure that a sudden inroad upon established arrangements of society would create so much dislocation that it would do more harm than good to our war effort. In imposing taxation of this kind some regard must be had to the manner of life in the country.
It would seem that we have to have regard for the manner of life of the rich people, but we do not have regard for the poor people who are trying to raise families on $100 a month. The government taxes everything they make over $100.
Then, again quoting the minister, and referring particularly to the argument he used to substantiate his position respecting income tax, we find this:
_ If you have a ten per cent rate on a lower income and a sixty per cent rate on a higher income, when you double the ten per cent rate you cannot double the sixty per cent rate.
Quite obviously you cannot do that; but in changing from the income tax to the national defence tax the minister has done just that. It has been increased, not twice, but by a thousand per cent. The minister takes it all; he leaves nothing to the chap making $105 a month. We see abundant evidence that our past system has been very faulty.

We start taxing people at a point in their income when they cannot provide themselves with the necessities of life. I do not believe any reasonable argument can be advanced to show that- the government is doing anything other than that very thing. The number of young men who go up for examination to the army and who are found to be unfit for army service is deplorable. In a great many instances their, condition is due to bad teeth. Those people have never had a chance. On an income of only $100 a month a man with a wife and two children cannot possibly provide the necessities of life and pay for dental and medical attention. It is an impossibility. All those things have to go by the board. But now, when the minister requires $80,000,000-and I agree that we do require $80,000,000-he is putting the tax in the wrong place. He is putting it where it will injure the young men and women of the country by reducing their incomes to the point where they cannot provide the necessities of life.
The national defence tax should not be imposed on married persons with incomes of less than $1,500. Even then it should be imposed only on the amount of income beyond the exempted sum, not on the whole income. It has been said that we must give consideration to the standard of living which has prevailed in Canada. If that consideration must be applied to persons receiving incomes of $40,000, $50,000 or $60,000, why should it not also apply to those who receive only $1,000, $1,200 or $1,500? The same yardstick should be used all the way through. I appeal to the minister to give further consideration to the national defence tax. It is the only point in the budget on which I have any serious disagreement with the minister.
There are some other things I should like to see done, but in this one instance we are not only injuring the people; we are injuring the war effort, we are injuring the nation, we are injuring the whole cause, because we are reducing the standard of living of our people.


Mr. JAQUES:: Mr. Chairman, I agree with what has been said by the hon. member for Kamloops. Is it intended by this tax to raise money or to reduce purchasing power? I agree that it may have the effect of reducing purchasing power to a point where the morale of the people will suffer. If the purpose of the tax is only that of obtaining $80,000,000, there are other ways of getting that amount of money.


James Lorimer Ilsley: We think it is desirable to prevent the possibility of too abundant purchasing. The condition seems to be that

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retail sales have gone up very rapidly, and are still running away above what they were a year ago.


Richard Burpee Hanson: Of beer, increase of from 25 to 33^ per cent.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: And automobiles.


James Lorimer Ilsley: Well, one could name a
large number of expansions in expenditures on the part of our people. If that were not curbed to some extent by taxation we would rapidly drift into a state of inflation. I believe all hon. members, including the hon. member who has just spoken and the group to which he belongs, agree that that would be extremely serious, and that it should not happen. There are two objectives, the first to get money, and the second to prevent such a heavy demand upon material and labour resources which might in this way be diverted from the war effort. I think all hon. members agree that this is an end to which government policy should be directed. To achieve this end we have to tax heavily.


Mr. DOUGLAS (Weyburn):: Is the increase the minister has mentioned an increase in the aggregate, or on a per capita basis? It is understandable that there would be an increase in the aggregate, because of the number of people who are now employed and who were formerly out of work. I am asking, however, if there is also a per capita increase, and to what extent?


James Lorimer Ilsley: I should think so, yes. It seems to me the conclusion is inescapable.


Karl Kenneth Homuth: I feel very much as does the leader of the opposition with respect to this national defence tax. I realize of course that the minister must have money. At the same time we are imposing tax after tax. The minister says we must in every possible way avoid inflation.
I said the other day I hoped we would have an opportunity to discuss some of the regulations put into effect by order in council and under the control of the Minister of Labour. We have not yet had that opportunity. These regulations predicate the whole cost of living upon five different items. The fact is that there are a dozen items not mentioned at all. There is no mention of dental care, medical care, drugs, and many other things one could mention. All these services are a crying necessity for any family or individual.
The minister states that we must avoid inflation. If there is one thing which will cause inflation, surely it is the act of continually reaching into a man's pay envelope 14873-180
and taking something out of it. He must of necessity demand more wages. He must have enough money to live on. He must have enough money to keep his family comfortable. The result is that we will hear demands for higher wages, and the beginning of the spiral of inflation. We know it has already started. More than that, appeals have been made to people working in industry to contribute to war service funds. I do not think there has ever been a finer response by industrial office workers than there was in the last six months.


James Lorimer Ilsley: Is the hon. member referring to the purchases of war savings certificates?


Karl Kenneth Homuth: I am referring to the donations to the war services. We know of factory after factory where one hundred per cent of the employees contributed to the united war services appeal and to the Red Cross.


John Ritchie MacNicol: And the contributions are deducted weekly.


Karl Kenneth Homuth: Besides that, most industries have reached eighty per cent, some of them one hundred per cent, in their purchases of war savings certificates. True, it is a saving; but that much money is being taken out of pay envelopes.


John Ritchie MacNicol: Weekly.


Karl Kenneth Homuth: These subscriptions reduce the amount of money left to a man to maintain his family. It makes it more difficult for him to do things for his family which he has not been able to do for many years. It makes it more difficult for him to pay some of his old debts. I know this to be true, from experience in our own industry, where we have employed people who had been .'unemployed for years. As the Minister of Labour has pointed out, unemployment insurance will begin to operate on July 1. Once more we are going to invade the pay envelope of industrial and office workers. I realize that the minister must have money, but if he is not prepared to extend the amount of exemption, levying the tax on all sums above that, why not do as some members in this party suggested in the budget debate? Why not pay back to the employees, in the form of a certificate, which does not have to be interestbearing, a certain percentage of the increase in national defence tax, so that at the end of the war they will receive a part of that money as a saving? Surely we have to do something. You cannot stop inflation. The war-time prices and trade board, according to a statement in this morning's press, say that they cannot control the rising price of meat.

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The Department of Labour declares that the cost of living has gone up five or six per cent. That is ridiculous; we know it has gone up much more than that.


An hon. MEMBER:: Eight per cent.


Karl Kenneth Homuth: More than eight per cent.


Richard Burpee Hanson: Ten per cent.


Karl Kenneth Homuth: Yes, and it has gone up more than ten per cent. The cost of living has gone away up. Clothing, shoes, meat and all the various things that enter into the family budget have risen in price. People are paying these increased prices. The Department of Labour has said to the industrial workers of the country: Your wages are pegged at a certain figure until such time as we think the cost of living has risen above that figure. But the department's method of figuring the cost of living is ridiculous. It is not practical, and certainly it does not give a clear picture of rising prices throughout the country. The minister ought to reconsider section 4 and do something to remove the tremendous burden that is being placed on the wage earners of Canada. We are asking them to bear too heavy a burden in proportion to what they are receiving, having regard to the cost of maintaining their homes and families.
i Mr. GRAYDON: May I follow up what was said by the hon. member for Kamloops? There is a good deal in what he says, and I have heard working men in various industries make the statement on different occasions that there should be a different arrangement in the levying of the tax, so that when a man reaches, say, $660 or more than that, he should not suddenly find himself with his whole income subject to national defence tax. The principle followed for so many years in connection with income tax is entirely different. The exemption is there, but with the national defence tax many people are confused; they do not know why the principle followed in the income tax was departed from. I know that what the hon. member for Kamloops has said is only too true so far as working people are concerned. The committee should carefully review the whole situation with regard to the application of this tax.
In one of the Toronto newspapers in March of this year there appeared a letter from an accountant of that city. I am not going to put the letter on Hansard, because it is lengthy, but there is one paragraph which I think the minister should carefully consider if it is the sort of representation that can be heeded at the moment. In dealing with the question of the national defence tax, from the point of [Mr. Homuth.l
view of an auditor, the writer makes an interesting statement. I happen to have some knowledge of this man which leads me to believe that he is quite reputable, and he has had so much experience that perhaps his suggestions might be considered. He says:
The returns should not be made monthly, as is required at present, but each employer should be required to furnish an estimate payroll and pay tax thereon in advance, similar to the workmen's compensation board. This method would eliminate at least ten returns and acknowledgments during the course of the year and the government would get all the tax during the first seven months. As wages were paid, the employer would deduct the tax payable and make one final return for the year along with an estimate for the following year.
I must plead a good deal of ignorance about accountancy, but knowing the reputation of the man who wrote this letter I felt that in all fairness I should bring his views to the attention of the committee so that the minister, if he desires to do so, might comment on the suggestion. So far as possible we should simplify these things for employer and employee. This is getting now to be a world full of forms, and if we can simplify procedure so much the better. I should like the minister to consider the point raised.


James Lorimer Ilsley: I will give it consideration, but I should not care to comment on it at the moment without studying it and thinking about it. Many suggestions have been made for simplifying the administration of the national defence tax, but in some cases the simplicity could be attained only at the expense of fairness. Whether that is so in regard to the suggestion the hon. gentleman has quoted, I do not know.


Gordon Graydon: With reference to the national defence tax, what was the motive behind the change from the principle governing income tax? Under the income tax a definite exemption is allowed and the tax is paid only above the sum exempted. Under the national defence tax you pay the tax on the whole income once you have gone over the exempted amount.
Mr. ILSLEY": If the deduction is to be made at the source, the employer cannot deduct the proper amount if he does not know the sum by which the total earnings in the year will exceed the weekly earnings multiplied by fifty-two, if it is on a weekly basis. Let the hon. gentleman put himself in the position of the employer; would he know, what to deduct? It would be easy enough to deduct two per cent or five per cent from the total amount of the wage if the wage were beyond a certain amount, and send that in, and then have a big refund at the end of the year.

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There would then be a refund in every case. But the refund system is a very difficult one to operate, and at any rate it would not be desirable to have a refund in every case. I cannot think at the moment how it could be done without a refund in every case on the principle that has been suggested. Apart from that, if the amount of the tax is small and if the exemption is a proper one, the amount by which the pay is cut down is limited. It cannot go beyond the exemption.
The hon. member for Kamloops cited a case in which the earnings were just over the amount of the exemption, that of a married man earning 8105 a month. There the tax would be such, if he had no children, as to bring him down from around $1,260 to around $1,200, but as soon as he got over the $1,260 he would be keeping nearly all of it. If he earned $1,300 he would not be brought down to $1,200. Then there is the deduction for children as well, so much a child. It would make a tremendous difference in the yield if we changed this system, and it would mean, I think, the filing of returns in all cases and refunds in all cases.


Richard Burpee Hanson: It would mean that the man in the low bracket would not be paying much tax.


Thomas Clement (Tommy) Douglas: I think the
minister is right when he suggests that any minister preparing a budget must keep in mind the fact that during the war we are increasing the amount of money going into circulation in the form of wages without proportionately increasing the amount of consumers' goods available; consequently unless we can restrict the amount spent on consumers' goods we shall have inflation. There is no doubt about that. A very large proportion, something like forty-four per cent, of the goods we are now producing are not consumers' goods but war goods. The question arises whether the national defence tax is the best way to restrict that consumption.
It seems to me there are two things to keep in mind, and the first is whether or not at the present time we are producing the maximum of consumers' goods of which we are capable, having in mind the fact that certain commodities are necessary for war purposes. It seems to me that we have not yet begun really to tap the productive capacity of the Canadian economy with reference to consumers' goods, because we have, or had this winter, in the neighbourhood of 300,000 people on relief. Assuming one employable person to a family of five, this means there are 50,000 to
60,000	people who could still go into production. Isn't it something we ought to investigate? Before we talk about restricting consumption we should find out whether or not we are really using our productive machinery to its full capacity, having in mind always that you cannot take commodities required for war purposes, such as steel.
The second question is this: what class of people can best afford to endure a restriction of consumption? I agree with the hon. member for Kamloops that the group which will be immediately affected by this national defence tax, those just above the border-line, consists of those who can least afford to have their consumption restricted. Everyone knows that large numbers of them have only come into employment during the last year or two, and there is a tremendous back-log, as has already been mentioned, in the matter of medical and dental care. There are also house furnishings, clothing, dishes, a score of things left practically untouched through the depression. To restrict the consuming power of this group i3 a very serious matter.
The minister is right in saying that it is not enough merely to object; some alternative must be offered. I am not suggesting that this can be a complete answer, but the other day the minister placed on Hansard at page 2771, a table showing the distribution of wealth in Canada. From that it appears that the maldistribution of wealth is even worse than most of us imagined. The table shows that 42-3 per cent of the people of Canada get only 16-73 per cent of the wealth that comes within this category. Or if you add the first two lines together you find that 65-7 per cent of the people receive 33-6 per cent of the wealth. In other words about two-thirds of the people live on about one-third of the income that comes within this category. Whereas if you take the last group, all incomes above $25,000, you find that -654 per cent of the people get 9-62 per cent of the income here outlined.


Mr. JACKMAN:: Would the hon. member allow me to make a suggestion, perhaps by way of correction? This whole table is likely to give rise to misleading deductions. Yesterday afternoon the minister noted in the first place that it refers only to dominion taxation. Secondly, the total income dealt with is only $1,000,290,278 for the fiscal year 1939-40. I have not before me the comparable figures, but the total national income for the year 1940 is estimated at some $4,500,000,000. So that this figure of a billion is less than twenty per cent of the total national income; therefore it must be borne in mind that the
2846
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deductions the hon. member has just been making refer to only a small portion of the total income.


Thomas Clement (Tommy) Douglas: I am not disputing that. I recognize that this table deals only with taxable income, not with agricultural income or the income of primary producers. But the income that is being taxed is shown here, and the maldistribution it indicates is remarkable. Take even the last figure I was dealing with-that -654 per cent of the people paying this tax receive 9-62 per cent of the income. In the case of the last group of over $50,000, you find that '166 per cent receive 4-72 per cent of the income, or, on an average, something close to $100,000 each.
It seems to me that if there is any group of people who can afford to restrict their consumption, this is the group. The hon. member for Rosedale says that the rich cannot eat any more than a certain amount; that is exactly the point I make. But they can own two or three cars or have more than one home. Those are the people who are in a position to restrict their consumption. The fact that during the first three months of this year there were such abnormally large sales of automobiles indicates the type of consumption that is being supplied. The day will come when the minister will have to deal with that problem on a priority basis. Moves are being made in that direction now, and it will have to be extended to other things. It may be that this group in the higher income brackets can restrict their consumption by deferred payments and spend the money later when the kind of consumers' goods that they want in excess of the necessities of life will be available.


James Lorimer Ilsley: As to this matter of automobile sales, I do not know who has been buying the automobiles but I understand they are being bought on a very large scale by people of rather low incomes. They want automobiles just as anyone else does.


Thomas Clement (Tommy) Douglas: Not the group I am talking about, those getting $600, $800 or $1,200 a year; in the main they are not buying automobiles. The people who can afford to buy cars are those who can afford to restrict their consumption. If we must restrict consumption we ought to restrict it on the basis of luxuries, if you choose to call them that; or if cars are to be considered a necessity, it should be on the basis of necessity to people in their occupations.
We shall make a very serious mistake if we set this figure so low that we restrict the consumption of people who buy only the sheer necessities of life, such as butter and clothing

and the things most necessary for existence. The place to impose restrictions is not on the people who buy butter and eggs. In the province from which I come eggs are selling at the ridiculous figure of ten and twelve cents a dozen. These are not the things that should be restricted. If there is to be a restriction of consumption-and I agree with the minister that there will have to be such a restriction as the war economy progresses- it ought to be imposed on those who buy luxury goods, and even other articles which now have come to be considered not luxuries but almost necessities, such as frigidaires, washing machines, and so on, which we can get along without and not impair our standard of health.
I wanted to ask the minister what amount he would have to make up if these deductions, or minimum figures, were increased to perhaps $750 for a single person and $1,400 for a married man. Under the $660 minimum a girl working in an office getting $13 a week, or a monthly salary of $55 or $56, will have to pay between $45 and $49 yearly under this tax, which is a large figure.


James Lorimer Ilsley: No, the girl getting $55 a
month does not pay anything. A salary of $55 a month amounts to $660 a year, and that girl would pay nothing.


Thomas Clement (Tommy) Douglas: Well, a girl
making $60 a month would be receiving $720 a year. Out of that salary she will have to pay a little more than $49, or about a dollar a week, which is a large tax on an income of that amount.


James Lorimer Ilsley: No, she would pay $36. I
do not like getting into these small amounts, but neither do I like to see any argument based on an inaccurate figure. That girl would pay five per cent, because she received less than $1,200 a year, so that her tax would be $36.


Mr. GRANT:: Just like eggs at ten cents
a dozen.


Thomas Clement (Tommy) Douglas: Does the
hon. gentleman not believe eggs are being sold in the west at ten and twelve cents a dozen?


Thomas Vincent Grant: Not unless they are cracked.


Thomas Clement (Tommy) Douglas: They are no
more cracked than the hon. gentleman is.


Mr. RYAN:: Do I understand that in
future there will be an exemption of $660?


James Lorimer Ilsley: No. That is the amount
below which salaries are not taxed. I do

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not want any ambiguity about it; I do not know whether I understand the hon. gentleman. If a person receives more than $660-


Robert Ryan: If he receives $661 he must
pay a tax on the whole amount?


James Lorimer Ilsley: Yes, but in that case his tax would be only $1.


Robert Ryan: The tax will be levied on
the $1?


James Lorimer Ilsley: No, the tax will be on the
$661, but the maximum tax will be $1.


Robert Ryan: And does that go on up?
Would there be a maximum of $2 on an income of $662?


James Lorimer Ilsley: Yes; but still I do not
know whether the hon. gentleman understands. The tax is on this basis: the whole salary is taxed if it is over $660, but after the amount of the tax is deducted the person must receive at least $660.


Robert Ryan: Then it comes to the same thing. The increased rate is certainly high, but if there is an adjustment which will mean that a man earning more than $660 will have that amount exempted I think perhaps there should be no objection. As a result of these increased rates employers of labour may be inclined to increase wages; that has already taken place in my town. The increases may not be very great, but they may be sufficient to take care of the increase in taxation. If this has not been done as yet I think in a short time employers will be compelled to do it. The only thing I did not think fair was that a person earning $660 would be exempted from the payment of this tax, while a person earning $661 would have to pay over $30; but if there is an adjustment at the end of the year, or some time during the year, under which the $600 exemption is allowed no matter what a man may earn, I think the tax is all right. I hope I am right in that.


James Lorimer Ilsley: I am not sure whether the hon. gentleman is correct. He keeps talking about an exemption of $660. There is no exemption in the sense that there is an exemption under the graduated income tax provisions, under which the surplus only is taxed after the exemption is allowed. Here the whole salary is taxed; but the deduction of the tax is not permitted to bring the salary below $660 or $1,200, as the case may be.


Mr. TUSTIN:: No doubt the minister will remember that when this matter was before the house last year I brought to his attention several times the plight of the part-time or seasonal worker. I suggested then that he
should work out a system something similar to that followed by the workmen's compensation board, under which the Department of National Revenue would audit the books of an employer and collect a certain portion of the tax. I pointed out then the difficulty there would be in making refunds, and that it would cost a considerable amount of money. This afternoon I was interested to hear the minister say that it was a terrible job making refunds.
How many applications for refunds have been made to the department in the past few months? What has it cost the country to make these refunds, and how many persons who have paid the national defence tax have not made application for refunds? I would also urge upon the minister, as I did last year, that full consideration be given seasonal workers, because in very many instances the firms employing them know that there is no possible chance of their earning $660. In such cases the payment of this tax creates a great deal of work for the firm and for the department; and, as the minister said to-day, it is a terrible job making these refunds.


James Lorimer Ilsley: I do not think any of the information requested is available. Refunds are applied for at the end of the year, but the year began on July 1, and the first year is not up yet. The taxpayer is not in a position to say whether or not he has earned the required amount until the year is up. The commissioner of income tax tells me there have been very few applications so far; I do not know how many. All the other information as to cost, and so on, is not available, because there have been no refunds. I am free to admit that it is going to be a very difficult task to make these refunds. Extended consideration was given to plans for eliminating the necessity of making refunds, but always we returned to the point to which we came back last year, that the outcry based on considerations of justice would be so great that we could not discontinue the system of refunds.


Thomas Clement (Tommy) Douglas: Will the taxpayer have to apply for the refund, or can the employer send in the names of those who should have refunds coming to them, as shown on his payroll? Does each taxpayer apply individually for refund?


James Lorimer Ilsley: I do not think there is any rule about that. The applications can come in through the employer. There will be no excessive formality or technicality about the applications.


Thomas Clement (Tommy) Douglas: No forms?


James Lorimer Ilsley: I think there will be forms, yes.
2S4S
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Karl Kenneth Homuth: Is it not a fact that, before any employee who believes he has overpaid his national defence tax can make a claim for rebate, he must fill out a form which the department provides, which also is an income tax return, because he cannot ask for a refund on his national defence tax until he has shown the department what income he earned? From what I know of our local district, I fear that the department will be inundated with the number of applications for refund of tax, ranging all the way from a few cents up to several dollars.
I feel that employers should be given some leeway in this matter. At present they are allowed none. If to-day an employee earns during two or three weeks an amount which, if earned throughout the year, would make him subject to tax, that tax must be paid; under the act the employer has no alternative. The employer has been made more or less responsible for the collection of that tax; and if he were given some leeway in the matter he would be in a position to say, "Well, now, I doubt if this man or this woman is going to be subject to the tax. I will let it go until toward the end of November; I will not take it off merely for the two or three weeks in which they may have earned that amount". Then, in November, if the employee's earnings are sufficient to subject him to the tax, the amount could be deducted from his pay from then until the end of the year. Such an arrangement would save the department a tremendous amount of work. Under the act as it stands the employer has no leeway at all; it says that he must deduct the tax from the wage of the employee.


Mr. SLAGHT:: The difficulty I find with ny hon. friend's suggestion is this. Suppose the employee worked three weeks at one place, then departed to another city, remained idle for two weeks, got a steady job for six months, and then changed his job again, the department would have no control at all as regards the tax due from him.
Mr. O'BRIEN: I suggest that the workman might be given some sort of small book; a standardized form in the nature of a savings bank-book might be prepared and sold for not more than five or ten cents, which the employee could retain, because, as an employee travels from Halifax to Vancouver, working in the course of a year for eight or ten or a dozen employers, it is going to be a fantastic task for the department to check any statements he makes, and some of the statements might be based on pure fiction.


Mr. JOHNSTON (Bow River):: I intended to make a suggestion along the same lines as the one mentioned by the hon. member who

has just spoken. I understand that when restaurant employees and various casual workers receive their pay at the end of the month, the employers simply take this tax money away from them and give them no receipt or anything to show that they have paid the defence tax.


John Ritchie MacNicol: It is deducted from their pay.


Charles Edward Johnston: But they have no receipt as evidence that they have paid the defence tax. I believe it would be a good thing to have, as has been suggested, some sort of pass-book to enable these labourers or other employees properly to keep track of the amounts which are deducted from their wages for defence tax, and at the end of the year they would be in a position to ask for a refund if necessary. There are a great many people employed on small wages who do not understand the principle of this refund. I have spoken to some of them in the last week. They were discussing the payment of this defence tax, and I explained to them that they would be entitled at the end of the year to a refund if their wages had not amounted to $600. This information was absolute news to them. I asked some of them how much they had paid, and they had no idea; all they knew was that deductions had been made from their pay envelopes. If something of the kind suggested by the hon. member were done, it would be of great assistance to the government.
Speaking generally, I believe that to levy the tax on so small an income is wrong in principle. I do not agree that anyone whose income is no greater than the insignificant amount of $600 should be required to pay the tax. I believe that the minimum should stand, at the very least, at the income tax figure of $750, because for the life of me I cannot understand how people who are in receipt of $600 a year or less can pay their expenses after having this tax deducted from their pay envelopes monthly or bi-monthly. When one remembers that they must buy their meals, pay for their lodgings and clothe themselves, it seems to me an unnecessary hardship to tax them. I think the minimum should be 81,000, and certainly not less than 8750. I admit that, if the government intend to tax people in this fashion, they will have to do so in accordance with the plan they are following now, but it would be much fairer to increase the tax on the higher brackets sufficiently to make up the amount they would lose by leaving these people $600 to maintain themselves for a year. To reduce their income any more seems to me little short of criminal. They cannot hope to maintain a decent standard of living. I suggest that the minister

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should take into consideration the advisability of raising the minimum a little, and of adopting the suggestion made by the hon. member for Northumberland (Mr. O'Brien) that a pass-book or something of the sort be provided in which the employer would be required to enter the deductions for the tax, so that these people would know how much they had paid. I can quite conceive that under present circumstances he could deduct this amount from people who are working in restaurants or on farms, and stick it in his pocket. If he did that, what check have they?


Karl Kenneth Homuth: Oh, yes, that is checked.


Charles Edward Johnston: I know of instances where the employer has not deducted the tax.


Arthur Graeme Slaght: He is liable in that event.


Charles Edward Johnston: Yes, he
is liable, but up to the present he has not been checked up, and I know that it is not always being paid in to the department. I am 'convinced that there are employers who are deducting this defence tax from the workers and are not showing it on their tax returns.


Thomas Vincent Grant: Give us the names.


Charles Edward Johnston: Oh, do not be so ridiculous. I think the minister knows that what I say is quite true. If he goes round and inquires among the workers who are getting these small wages, lie will find that what I have said is true. I have made it my business to talk to people all over the country, especially to people travelling on the trains, and that is my information. The minister should make some endeavour to to check up on it. My hon. friend suggests that I am wrong, but I will wager that he knows of such instances himself.


Mr. MARTIN:: Referring to me?


Charles Edward Johnston: Referring to you, yes.


Paul Joseph James Martin: I was not even looking
at you.


Karl Kenneth Homuth: Just whom were you looking at?


Paul Joseph James Martin: I was carrying on a
pantomime with the hon. member for Weyburn.


Charles Edward Johnston: I know
that what I have said is true. I believe the minister wishes to be fair to the people in the low-salaried groups. If that is so, some assurance should be given to them that when the tax is deducted it will be turned in to the government and that the employer will
not simply stick it in his own pocket. I would ask the minister to consider raising the exemption from $660 to $750 or more.
Mr. O'NEILL: Reference has been made to border-line cases, but I do not wish to be placed in the position of referring to such cases. My remarks did not refer to borderline cases at all. I said that a married man was exempt from income tax up to $1,500, and that if he made $1,600 he paid income tax on the $100 over the $1,500. When, however, it comes to paying national defence tax, he is not taxed up to $1,200 if he is a married man, but if he makes $1,260 a year, which is $105 a month, he is charged* five per cent, not on the excess over $1,200, but on the whole $1,260, or $63, but pays a tax of six per cent.
In British Columbia we -have a tax known as the one per cent wage tax. I see the hon. member for Yale looking at me and perhaps wondering what I am going to say in that connection. Later, that tax was modified in this way: The one per cent tax on wages is still collected, but at the end of the year everybody in British Columbia is supposed to show in their income tax returns whether they made sufficient money to pay income tax. Then the finance department of the province, if they find that sufficient wages were not earned to pay income tax, refund what -has been paid in the one per cent wage tax. If the employee has made sufficient in wages to pay income tax, then what he has paid in the one per -cent wage tax is credited to his income tax payments, and if he has paid more in the wage tax than he is called upon to pay in income tax, the province refunds the difference to him. The national defence tax could be handled in exactly the same way. It has not been found impossible or too expensive to handle the wage tax in British Columbia in that way, or it would have been done away with. They still retain that system and refund whatever amount is shown to have been overpaid.
Reference has been made to inflation; but if .you permit these people, many of whom have been out of work for long periods of time, to spend money that they are now earning, you are not going to have inflation. For a number of years many people who are now working in British Columbia have not been in possession of any income at all. That is not true of the majority of the people in my riding by any means, nevertheless I know that there are in my constituency many homes where as soon as the weather gets cold the children cannot go to school because they have no boots. I am not saying that in order to lead people to believe that that applies geenerally ',o the people of my constituency because it
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certainly does not. There are, however, a great many homes where the children have only one suit of clothes, and the washing has to be done at night so that the clothing will be ready to put on again in the morning. When the earning power of these people is increased, naturally the first thing they do is to buy an extra suit of clothes, or a pair of boots for the children, or something for the wife or husband. That is going to increase sales in this country.
If the minister feels that he must keep down incomes in order to avoid inflation, I suggest that the money which the department takes away from these people by way of national defence tax on income over $1,200 be invested in war savings certificates and that, when the war is over, it * be paid back to these people. There will be no inflation if that is done, and it would hold out some hope to these people. What hope have they now, after having been out of a job for six or ten years? I know men working on the two transcontinental roads who, with the exception of two or three weeks' work in rush seasons, have not had a job in ten years. Now they get a job. Naturally they are going to start to build up their run-down household, which is the proper thing for them to do, and when the government starts in and takes this tax away from them just when they have at last got a job, it discourages them and they can see no daylight' at all. I strongly suggest that the Minister of Finance, if he wishes to prevent inflation, should say to these people who are paying national defence tax: "We are not letting you spend this money, but we are going to set it aside, and every time you pay in $5 in national defence tax, we shall set it aside for you in war savings certificates which will be given back to you when the war is over." I am sure that would be a gesture which would be well received by the people of this country.
Mr. O'BRIEN: Following up my suggestion to the minister, I think it might be worth while to have incorporated in that little book a page or small pocket in which the national registration certificate might be kept. Many men in the lumber business, because of the nature of their work, must wear rough clothes and live in circumstances that are not any too ideal, and many of their certificates must become lost or badly soiled.
Referring to the suggestion of the hon. member for Bow River, I cannot believe that many employers would deliberately retain the tax which they had deducted from their workmen. I am afraid, however, that with the enormous

development in the number of forms of different types to be filled out and the so-called efficiency along statistical lines-in my opinion it is fantastic-while the big employer and perhaps the moderate sized business may be able to cope with that situation by engaging more clerks, the smaller employer, who, after all, is an important factor in the industrial life of the dominion, finds it entirely beyond his means to cope with, and in many instances he simply cannot keep records that can be checked.
Now that we are pondering the problems of those in the lower income brackets, it seems to me that we should attempt to unscramble 'our own positions as members of parliament. We, of course, have to pay the national defence tax, and I wish it to be clearly understood that I am not objecting to paying that tax, but I am objecting to the method by which the tax is collected. I seriously doubt whether it is constitutional. When the form was given to me last July I called on several officials until I finally got in touch with a well known and most efficient official in the national revenue department, and I asked him by whom I was employed. His reply was that I was employed by the crown. If we as members of parliament elected in a democracy are considered, even technically, as being employed by the crown and the indemnity we receive is in any way construed to be a salary, this parliament is perhaps sitting unconstitutionally. That may be a highly technical point, but, after all, in the days of Cromwell this very question became a national issue. We should be consistent in this house. The so-called indemnity which we receive is really only to indemnify the member for the loss of his time in coming here to serve his majesty in the running of the country, and if that indemnity is construed as salary, the very basis of the democracy for which we are fighting to-day goes down to the graveyard.


Thomas Clement (Tommy) Douglas: What would
have been the cost to the treasury had the exemption been raised to $750 for a single man and $1,400 for a married man? The chances are that prior to deciding on the figure of $660, the minister made a number of computations. What would have been the loss if the higher exemption had been worked out?


James Lorimer Ilsley: I do not believe an estimate of that kind was made.


George Hugh Castleden: What is the fiscal
year for persons employed in which they have to make their application for refunds?


Karl Kenneth Homuth: The end of the year.

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2S51


James Lorimer Ilsley: The individual year is the
calendar year. I had the point clearly iD my mind last summer when I was explaining the national defence tax to the house. My recollection is that there is something in the neighbourhood of half the yearly rate for the period from July 1 to January 1. Applications for refunds cannot be considered until after July 1, because the yearly earnings from July 1 must be considered.
My officers tell me that I am wrong about that. They say that one must take the earnings of the calendar year into account, and then divide by two. It would appear, therefore, that applications can be made after December 31. That is at variance with what I said a little while ago.


George Hugh Castleden: There must be hundreds of thousands of workers who do not know anything about this situation. It seems to me that there will be a tremendous amount of clerical work, and it will be an endless job. I was going to urge the department to let the earner make his return at the end of the fiscal year, just the same as in connection with any other income tax form. It would appear to me that the cost of administration under this regulation will be so great that it will mean a loss to the department. I am quite sure that a great number of people in Canada east and west who are employing farm labour do not know that this tax exists. I am sure, too, that many who are employed in seasonal labour do not know anything about making the refund. For these reasons I believe the department would do well to have a plan whereby all wage-earners whose incomes in the year exceed $660 would place their records in the department, rather than follow this somewhat cumbersome system.
When referring to the table at page 2771 of Hansard the hon. member for Parkdale said that the national income is only about a billion dollars. The fact is that it is about five and a half billion. I would add that those people who are not paying any income tax comprise about eighty-seven per cent of the heads of families.


Mr. WOOD:: I must point out that I cannot agree with what has been said by the hon. member for Peel and the hon. member for Kamloops to the effect that in connection with the application of the defence tax we have deviated from established methods of taxation. We must bear in mind that there is no exemption from the real estate tax, the most important levy found in the municipality. All the property is taxed, and I suggest the minister has not departed from that principle.


Karl Kenneth Homuth: That is quite different.


George Ernest Wood: Be that as it may, it might be interesting to know what our enemies would have to pay. I have before me the financial page of the Globe and Mail edited, I believe, by Mr. Jeffers. I may say that is one part of the Globe I read.


An hon. MEMBER:: Does the hon. member not believe the editorials?


George Ernest Wood: I have confidence in this particular page. However, I shall not pass any further remarks about the newspaper from which I have gained the information now before me. The hon. member for Kamloops has pointed out that if a married man had an income of $1,260 he would pay a tax of $63 to the government. If that same man lived in Germany and received $1,250 he would pay $220. Maybe comparisons are odious-
Mr. O'NEILL: They are, if the hon. member is comparing us with Germans.


George Ernest Wood: Nevertheless they are the people with whom we have to match our wits; they are the ones we have to lick.


Thomas Clement (Tommy) Douglas: Does the hon. member wish to use German methods?


George Ernest Wood: We may have to follow German methods yet. We have to match wits with them. Sometimes it is necessary to use poison as an antidote to poison. Whether you accept their methods or not, they are not concerned with our methods. We have to get the money to win this war. I believe it would be to the advantage of the committee to have the information appearing in this article. I am prepared to admit that it was published on June 30, 1939, and there is no doubt there have been vast increases in taxation, even in Germany, since that time. The amounts might even be doubled to-day.
Some hon. members opposite have taken exception to the distribution of wealth. In the practical application of any kind of tax there is always that something which cannot be put down in an account book. For instance, in the occupational groups I find the largest group paying income tax in 1939 and 1940 was that known as the middle-class, and they are classified as employees. They numbered 227,261, and comprised seventy-seven per cent of the total number of individuals paying income taxes. We would not expect many millionaires in that class. I know it is considered good sport nowadays to take a potshot at a millionaire. It seems to be a rather popular amusement. I do not happen to be in that class, and I believe I can view it from a sufficient distance to get a proper focus. They are a valuable group in any country's economy.
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It is most useful to have available some men with money, because, after all, this large group of employees have a product, namely labour, which they have to sell to somebody. By virtue of frugality and thrift some men have accumulated wealth sufficient to invest in industry, and they provide a market at which people may sell their labour. We must try to get the proper perspective.
One of the smallest groups in the table was that of the agrarians. I believe that an agrarian is a farmer. That group numbered 1.721, or a little over one-half of one per cent of all the individuals paying income tax. But let me qualify that. After all, as I said a few days ago, the farmer has something better than money can buy. With that in mind I would draw the attention of hon. members to the record of property ownership in Ontario as disclosed by the census of 1931. We find that most millionaires are situated in communities with populations exceeding 30,000, and that in those wealthy centres only forty-five per cent of the people own their own homes, while seventy-five per cent of the farmers own their own homes. In fact, the farmers are the largest home owners of any group in Ontario. When you try to make an anaylsis and allocate responsibility you will find that it simply cannot be done, and the whole thing finally resolves itself into the saying that it depends upon whose ox is being gored. It is one of the questions we can discuss here as long as we like without reaching a conclusion, because there is always some reason that can be offered why a particular class should be taxed or should not be taxed as the case may be. After all, if we compare our obligations here with those in Germany, I think we should let this resolution pass and go ahead.


Richard Burpee Hanson: I suggest that the minister might shorten this discussion if he would be good enough to consider the raising of the exemption. It is a little low. I will not say more about it than that.


James Lorimer Ilsley: Surely the hon. member does not think the government was not concerned about that.


Richard Burpee Hanson: The government is concerned about getting the money.


James Lorimer Ilsley: Not at all.


Richard Burpee Hanson: Yes.


James Lorimer Ilsley: The government is concerned about imposing a fair system of taxation, going far enough but not too far, and that question was given extended consideration. Hon. gentle-

men need not think that we can get this sum. altogether from the millionaires, because there are only a few.


Richard Burpee Hanson: If the
answer is, no, I have no more to say. That will shorten it.
Mr. O'NEILL: Does the hon. member for Brant believe that the principle contained in this national defence tax is correct?


George Ernest Wood: The point is that we have a job to do. We know what happened in the last war, and we know that a good many of our economic difficulties which developed since that ivar were attributable to the stupendous debt that had to be paid at a time when the purchasing power of money was low. The government at that time did not assume responsibility. They did not tax the people but allowed them to take the extra amount of income they had and buy everything they wanted, and that eventually gave rise to extreme prices and inflation. The result was that the government of that day was paying only forty-three per cent of the cost of the war, while on this occasion we are paying around seventy-six per cent of the cost of the war in cash.


Some hon. MEMBERS:: Oh, no.


George Ernest Wood: I believe that is the estimate.


James Lorimer Ilsley: If we spend $1,300,000,000 on Canada's war effort during the present fiscal year and spend $468,000,000 on our peace-time activities in the dominion, we are taxing at such a rate that we shall be meeting seventy-nine per cent of the total of those two expenditures out of taxation. If, however, we have to meet $900,000,000 more on account of Great Britain

it may be $700,000,000 or $800,000,000 -we shall have to make extensive loans. We shall have to borrow a great deal from the public, something over a billion during the current year.


Karl Kenneth Homuth: The minister has-not given a fair picture. If we were to balance our budget and that extra amount over $1,300,000,000 were raised in Canada and used for civilian purposes, the rest that we would raise would not be seventy-eight per cent of the war effort. We are not actually paying seventy-eight per cent of our war effort by taxation.


James Lorimer Ilsley: If we were not giving assistance at all to Great Britain, not raising money for that purpose, we would be paying seventy-nine per cent of our war and peace efforts out of taxation at the rate that we are taxing, on the basis of $1,300,000,000.


Harry Rutherford Jackman: Almost incredible!

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James Lorimer Ilsley: 
George Ernest Wood: It is easy to ask questions, but sometimes it takes a long while to answer some of them. The question which the hon. gentleman asked me a moment ago is one of those, because there is at stake the principle of paying for this particular war, and we have to do many things which in the ordinary course of events we would not do. Public policy, in many respects, is not very different from the running of one's own business. When the flow of money is greater in consequence of additional expenditure, that is the time when the government should collect some of it, so that when the post-war period comes we shall not find ourselves staggering under an immense debt. If we do not use that money for purposes of taxation we use it in the purchase of goods. That will result in an increased cost of goods to the consumer, absorbing his purchasing power, thus adding to the burden of the government in supplying munitions of war. It is a double-edged sword, and whether the policy is one that I like or not, I do not think there is anything about it that violates any definite principle. With that explanation, I believe the minister is justified in taking the stand he does. I am prepared to support this government on any policy that will enable us to pay as we go. It may be unpopular at the present time; and whether we survive as a party, when the conflict is over, we shall have done something of which we may well be proud. We shall have relieved those who are to follow us of a great deal of the burden that will have to be borne in the post-war period.


George Hugh Castleden: Is it not our duty to make it as equitable as possible?


George Ernest Wood: Yes, and I believe that is being accomplished. If you take away all the money from those 483 in the higher brackets, you will kill the goose that lays the golden egg, but it will not go very far in our war expenditure.


George Hugh Castleden: Nobody is advocating that.


George Ernest Wood: In the first three categories of that table are to be found what one might term the commonplace people-


Richard Burpee Hanson: People of low incomes.


George Ernest Wood: 
James Lorimer Ilsley: May I say, much more than one-third now.


George Ernest Wood: Yes. I have given these figures roughly, but I think they answer the question of the hon. member and show that the government of the day is going as far as possible towards a fair and equal distribution of the burden.


Mr. HARRIS (Danforth):: The minister made an observation a moment ago and gave a percentage. When he gave that percentage he did not carry in his mind the addition to the capital sum of the deficit we shall probably have during the current year. Be that as it may, we have to spend every effort and every dollar necessary to win this conflict, no matter where the money comes from.
I have disposed of the question that had to do with the minister's mathematics. Coming now to the matter of this taxation, my suggestion to the minister would be, "all that the traffic can bear." When I say that I would ask the minister to think it all the way through. A large portion of this tax will come directly or indirectly from industry. From the employees it will, of course, come directly, but indirectly it will come from industry itself. We were all enthusiastic for the war savings certificates, because we thought our employees were making an investment and would get the money back. Industry raised wages and paid the major portion of that. Many of those who did not subscribe found that instead of getting two cents an hour more money in the case of a single man or three cents more in the case of a married man, they got perhaps only one cent, for the reason that the employer thought they were well able to subscribe and did not do so, and therefore their raise in pay did not go to the same extent as in the case of those who subscribed to war savings certificates their twenty-five cents or fifty cents a week.
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To come to the defence tax particularly, immediately the budget was announced it was necessary to raise wages again, one cent, two cents, three cents, four cents, five cents an hour. What is the net result of that? No complaint at all; we must have the money to carry on our war effort. Industry does not mind rearranging itself to keep its employees happy and contented. Employers want their employees to feel that they are part and parcel of this war effort and are doing something themselves. And the deduction is made.
But it is more far-reaching than that. This increase in wages, along with general increases in the costs of running any industry, brings the costs a little higher all through the piece, with the result that industry must get a little more for its finished goods. In getting more for its finished goods, it finds that its inventories rise, its accounts receivable rise. Some hon. members will think profits rise, but they do not in the same proportion. The result is that industry finds itself short of liquid capital or liquid surplus on which to borrow from the banks sufficient money to conduct the business. Where do they get the extra money with which to keep their liquid position in a proper ratio? Perhaps from credit balances or profits. But immediately they get it from that source, forty per cent goes to the government-and quite rightly so; I am not objecting. Then they still find themselves in not as sound a liquid position as formerly.
Then in the case of the individual who owns the business, if he is a working partner, or the stockholder who draws out his dividends, he will pay another forty or fifty per cent on the same credit balance. The net result is that business and industry in Canada find themselves unable to expand as they would like, find their borrowing power reduced and often find it very difficult to expand and take on more business. Therefore I say to the minister, "all the traffic will bear", yes; but let him see that he does not, as one hon. gentleman said, kill the goose that lays the golden egg. Do not cripple business so that it has not enough working capital to carry on.
Compared with this, to my mind the war savings plan is much better. Whether or not we should have gone thus far with the defence tax is a question that I have not yet settled in my mind. I suggest that before any further move is made in this direction, consideration be given to the thought that the hon. member for Waterloo South so well expressed, namely, that in taking this tax from the earnings that are exigible, consideration be given to wage-earners with regard to borrowing from them for the duration of the war, so that, when the war is over, they will have some little nest-egg to fall back upon.

Another point I should like to mention is that to my mind an employee's pay envelope is something that should not be touched or tampered with by anyone, not even governments. What do we find in the small towns in which there is perhaps just one industry? Probably that industry owns many of the houses in that town. We find that by agreement the industry arranges to take the rental for the little home off the pay envelope. Very often the industry will have the employees insured for perhaps $1,000; the firm will probably pay twenty-five cents a week of the cost of that, and fifteen cents will be deducted from the employee's pay. That is deduction number two. Then the employer will probably bring in a car of hard coal and distribute it among his employees, and there will be a wage deduction for the coal. Then they have probably arranged to have a deduction made for war savings certificates. There is a deduction for the national defence tax.


Karl Kenneth Homuth: And war services.


Joseph Henry Harris: On July 1
next there will be a deduction for unemployment insurance. Moreover, in all these communities we have campaigns for community welfare and the Red Cross, and these services advocate that arrangements be made by employers to ask their employees to permit a small deduction each week from their pay for these services. The net result is that the amount actually received may be only half the man's actual pay. Most of these deductions are quite all right, but I say it is wrong to interfere in any way with a man's pay envelope, which I would almost say ought to be regarded as something sacred; and the housewife should not be asked to become a chartered accountant in order to ascertain whether or not her husband was bringing home all his pay every Saturday.


Norman Jaques: The hon. member for Brant told us that we were almost balancing our budget at the present time.


George Ernest Wood: No; I did not use that term.


Norman Jaques: 
James Lorimer Ilsley: 
Thomas Clement (Tommy) Douglas: The reasons
just given by the minister were exactly my reasons for objecting to the hon. member for Brant quoting the figures he did, because it seemed to me that Canada's war effort must include all the commitments which are made, particularly the money we must raise to meet Great Britain's account, and it would be most mischievous to have the impression go across the country that we were raising by means of taxation, seventy per cent of all the money we need. If we made that statement, it would become most difficult to raise the loan that will be launched next June or July, and that was why I objected to the statement made by the hon. member. All of Canada's war effort must be included, and that means a great deal more than was covered by our budget or by the war appropriation bill.
Having in mind the thesis on which the minister is basing this taxation, that of restricting the consumption of consumer goods; and having in mind the plea made by the hon. member for Kamloops with regard to setting money aside by means of war savings certificates, I presume the government has given consideration to what is generally called the
Keynes plan of deferred payment. I wonder whether the minister would be prepared to say whether that plan has been considered, what are the objections to adopting it, and whether the government has considered the possibility of adopting it at some time in the near future.


James Lorimer Ilsley: I do not know that I can make any statement on that point. We are not adopting that plan; we are not agreeing to pay back later any part of the amounts being raised by taxation. If we did that at any time I am afraid it would be necessary to increase considerably the amount we are taking from the people. It is not just as easy as hon. gentlemen seem to think. These amounts are being raised on taxation principles, not on loan principles; they are amounts which, generally speaking, the public can pay. This is a load the public can bear; it is not the sort of load that will crush people. We believe they can stand it because of the increased national income; and a great many people will have a good deal of money left. To them we are going and asking for loans. We are still on the voluntary system, not the compulsory system, with regard to loans.
In England they have instituted the compulsory system in a very minor degree. Perhaps this is not exactly the resolution under which this question should be discussed, but I should like to point out that in Great Britain their recent compulsory loans from companies have amounted to nothing but this: they are agreeing to pay back to the companies twenty per cent of the one hundred per cent excess profits tax. In England they have a one hundred per cent excess profits tax, and they have decided that this is too much to take and keep. The chancellor of the exchequer made that very clear in his speech, which I have before me; and because of the fact that in a great many instances companies would not be able to establish the necessary reserves and so on, in his budget the chancellor of the exchequer provided that, after the war, twenty per cent of that one hundred per cent excess profits tax would be repaid to the companies.
In this country we have a different system. Our total excess profits tax is 79-5 per cent. There is still 19-5 per cent left which we will ask companies to lend us voluntarily to the extent that they are able to do so. We will get a great deal of that; and we will get a great deal more from individuals. The two systems are not so very much different in amount in that regard. They are different in principle, the principle in this country being
Income War Tax Act

that here we are taxing, which means that we are taking the money we think the people can pay in taxation, without assuming an obligation to repay that money, and we are asking the people to lend us further amounts. If they respond perfectly, each in accordance with his ability, it will be a much better adjusted scheme than a system under which compulsion is adopted, because when compulsion is adopted there is the probability of a great many harsh cases arising. For instance, take the case of a man who has sickness, with perhaps two or three members of his family ill; or the case of a man who has heavy debts. It would be very difficult to make allowance for such cases because one cannot make general rules which will cover them. Then if you take away from that man by forced loan as much as you take from his neighbour, who has no sickness and no debts, you are apt to crush him.


Mr. NICHOLSON:: In connection with
the matter raised by the hon. member for Yorkton, I find that a great many farmers still are unaware of the existence of this tax. Has the minister any information to give us indicating the percentage of farmers across Canada who have made returns in accordance with the requirements of this act? I notice that section 5 requires that every employer shall deduct at the source if the rate of pay of the employee is such as, if continued for three months, would cause the annual earnings of the employee to be in excess of the amount mentioned in subsection 1 thereof. I observe that there are notices in post offices across the country, but at meetings which I have held I found that very few farmers know that they are supposed to deduct from employees the national defence tax. When we were discussing this last year I understood that, if a man engaged an employee for even one day and paid him the rate set forth in the act, be would be required to make the deduction, and later the employee could apply for repayment. I understand that later some changes were made in the regulations. Would the minister state, first, what has been the response from the farmers aero* the country, and, second, how many days does an employer have to employ a man before he is expected to make the return?


James Lorimer Ilsley: One day, if he pays him at the rate of $600 a year. There is no information as to the number of farmers who have filed returns. The commissioner tells me that he has not any information on that. It may be possible, by going through the returns and looking at the occupations of the persons making them, to compile that information, but I should think it would be quite a job,

and it would not give any indication as to the proportion of those, liable to make returns, who have made returns.


Alexander Malcolm Nicholson: I wonder what efforts have been put forward, apart from the notices in the press and in the post offices, to make known the existence of this tax.
Mr..MAYHEW: What value should we put upon the board and lodging provided by the farmer?


James Lorimer Ilsley: There was a brochure, widely circulated, which dealt with all these matters. I remember that it was discussed last year in this chamber. I cannot give the hon. member the figures. There was a question asked last year by the hon. member for Battle River with regard to the board and lodging of hired men. I think it is dealt with in a publication of the Department of National Revenue, income tax division. We discussed it fully here last year, and then this publication was issued and circulated. I do not believe that there has been any newspaper advertising bringing this matter specifically to the attention of employers, farmers or otherwise.


William Earl Rowe: The amount was $20 to $25, was it not?


James Lorimer Ilsley: I have forgotten.


Mr. MAYHEW:: Is the rate for urban and rural employers the same?


James Lorimer Ilsley: The Department of Labour was consulted, and a classification was made and some latitude given. There is a difference provided for between different localities, various parts of the country. I cannot give the hon. gentleman accurate information, but I know it is available.


Harry Rutherford Jackman: Before the resolution
passes, would the minister give at least a reasonably close estimate of what the difference would be to the treasury if the exemption w7ere raised from $660 to $750? Undoubtedly $660 is a very low figure, and we must have specific information showing what is involved before we can intelligently consider whether the exemption should be raised to $750.


Richard Burpee Hanson: The minister said that he would not raise it.


Harry Rutherford Jackman: Then he himself must have figures. His decision cannot be based on mere guesswork.


James Lorimer Ilsley: I think we can make some kind of estimate. I shall try to get it if the hon. member wants it. It would not be very accurate.


Harry Rutherford Jackman: Undoubtedly there is a feeling in this chamber that $660 is not much of an income for a person to maintain himself

Income War Tax Act
*or herself upon, especially when, as is the case with many girls in offices, and young men, the employee has to contribute in support of the home something more than would ordinarily be involved for board and lodging. If it does not make a great deal of difference to the revenue, I think we should consider establishing a higher minimum bracket, and if necessary, put the national defence tax at a higher rate. It may be the purpose of the minister to employ this arrangement as an anti-inflation measure rather than as a revenue-raising device. As I have said, however, we cannot as business men give this question intelligent consideration unless we know what amount is involved.


James Lorimer Ilsley: I shall try to give some sort of estimate.


Mr. PERLEY:: In listening to this discussion I am rather confused, and in my own case a question arises which I should like to have cleared up. I happen this year to be hiring men by the day and by the month. I am also getting work done by men under a contract. For instance, take seeding; I contracted to have so much land seeded for a given amount, over SI,200. I have already made an advance to the man who has undertaken the work; the job is finished, and in the next few days I shall have to make the final payment. I am also hiring men by the day, paying them $2.50 and $3, to do certain work, and they will work for me for probably two or three weeks. Do I take it that I have to make the deduction from the man who is working for me by the day, when I pay him, because if he worked for a full year he would receive over $600?


James Lorimer Ilsley: Is he a single man?


Ernest Edward Perley: No; he is a married man.


James Lorimer Ilsley: No.


Ernest Edward Perley: I have others working for me who are single men. How do I stand with respect to the man who is doing my seeding? While I am citing my own case, probably there are other farmers here who are in the same position. This man contracted to do a certain job for a certain amount. Have I to deduct this tax from my payment to him?


James Lorimer Ilsley: Is the person who is doing the work for you your employee?


Ernest Edward Perley: Well, I have an agreement with him to do certain work, to do a certain operation within a given time.


James Lorimer Ilsley: If the man is not the employee of the hon. member, the hon. member does not have to make the deduction; but if the man is an employee, the hon.
member does, even though the man is engaged for only a week or two, if the rate of pay would amount to $600 a yen'-.


Ernest Edward Perley: In that case he would be termed a contractor?


James Lorimer Ilsley: No, I will say it again. It is only in the case of an employee. In case the hon. gentleman wants to look it up, it is section 91 of the Income War Tax Act, under part XV, dealing with the national defence tax, subsection 5:
Every employer at the time of payment of earnings to an employee shall deduct and collect the tax imposed on the employee under this section in respect of earnings of the employee earned and accruing due during and after July, 1940, for each period covered by the payments, if the rate of pay of the employee is such that if continued for twelve months would cause the annual earnings of the employee to be in excess of the relevant amount mentioned in subsection one hereof.
If, instead of employing the person as an employee, he makes a contract with someone who is an independent contractor, that person is not his employee, and the amount he pays that contractor is not deductible.


Ernest Edward Perley: I have an agreement in writing.


Richard Burpee Hanson: The test is. I think, is it master and servant relationship?


James Lorimer Ilsley: In that case, that would be so.


Harry Rutherford Jackman: If the information for which I have asked is not forthcoming, might I point out that it is six o'clock.


James Lorimer Ilsley: I want to make an announcement on another matter. The taxation on soldiers' fares has been receiving consideration, and I was in hopes we would have reached the resolution soon. Apparently, however, it will not be reached until next week, and therefore I want to announce now that I intend, when the resolutions under the Special War Revenue Act come up for consideration, to move an amendment that the tax imposed on transportation tickets will not apply to members of his majesty's armed forces in uniform, when proceeding on leave. I take it from the speeches urging this step which have been made by members from all quarters of the house that I am perfectly safe in seeing to it that this change goes into effect just as soon as the transportation companies can be notified. It will be an extraordinary step to take, but I feel perfectly justified in taking it in view of the expression of opinion from all sides of the house.
At six o'clock the committee took recess.
Income War 'Tax Act

After Recess
The committee resumed at eight o'clock.


The CHAIRMAN:: Shall the resolution
carry?


Mr. BLACKMORE:: Before the resolution carries, I should like to ask two or three questions. It was not made entirely clear, at least to my satisfaction, whether we are imposing such taxes as this one in resolution 5 mainly to raise money or mainly to curtail purchasing power. I assume the minister would answer that we are imposing the tax for both purposes. Is that right?


James Lorimer Ilsley: Correct, yes.


John Horne Blackmore: First of all, to raise money, and next, to curtail purchasing power?


James Lorimer Ilsley: Yes.


John Horne Blackmore: Our object in reducing purchasing power is to prevent inflation?


James Lorimer Ilsley: Yes.


John Horne Blackmore: That is the second point.


James Lorimer Ilsley: To prevent inflation and to make available for the prosecution of the war effort our resources in labour and material to the extent that they are required.


John Horne Blackmore: That is consistent with what the minister has said since the beginning. If that is the situation, then all of us agree, I suppose, that inflation is a rise in price which results mainly from a scarcity of goods. We would be safe in assuming, would we not, that that is the meaning of inflation?


Richard Burpee Hanson: No.


John Horne Blackmore: Well, unless we take that as a definition, it is difficult to be consistent, is it not?


James Lorimer Ilsley: No.


John Horne Blackmore: If we are curtailing purchasing power to prevent people from buying goods, and thereby preventing a shortage of goods from developing, with a rise in price, we must assume that inflation is, in effect, a rise in price resulting from scarcity of goods. That is consistent, is it not? I must say that I have a little difficulty in following the minister's reasoning, and it seems to me important, in the interests of the country and of all hon. members, to be clear about this, so that all of us will be thinking along the same lines.


James Lorimer Ilsley: We have gone over it very often. If you put into circulation a lot of money; if everyone has plenty of money and starts to buy goods, the price of goods is very

likely to go up. There may not be, in one sense, any scarcity of goods, although perhaps there are not all the goods that everybody would like to have at that moment. If hon. gentlemen wish to call that condition a scarcity, perhaps it is. Certainly we do not think it would be a good thing to have great numbers of people working to produce goods to meet that civilian need, when they ought to be producing goods to meet the war-time need.


John Horne Blackmore: That is quite in accord with what the minister has said. I believe that right here there lies a principle upon which we can build a sort of solution for our difficulties. I may be wrong, but I am strongly of that opinion. I am glad to see that the leader of the opposition is in his seat, so that we can all talk this over together.


Richard Burpee Hanson: Leave me out of this!


John Horne Blackmore: No matter how much money there is in circulation, if there are more goods in the country of any particular kind than people wish to buy, the price of those particular goods will not rise. For example, I assume that, with the quantity of potatoes we have in Canada, the price would not rise even though we had twice the amount of money in circulation that we have at present. The reason is that we have so many potatoes that people can buy all they 'want, and still there would be more than they can consume. The same thing would be true of wheat and wheat products. It seems to me important that we should clearly understand this point. I must say that, listening to most of the hon. members who speak in this chamber, I gather that there is a general inability to face this fact. If what I have said is true, that the price will not rise unless there is a relative scarcity of goods, then, before we assume that we need to reduce the purchasing power of the people we should look to our supply of goods. If we find that that supply is sufficient to meet the needs of the people, there is no need to reduce the purchasing power of the people because of those goods.


James Lorimer Ilsley: Mr. Chairman, I do not wish to get into a Socratic discussion here of abstract principles; but there are not enough goods in the country. We must import from abroad very, very large quantities.


John Horne Blackmore: There is no desire,
Mr. Chairman, to get into any discussion of abstract principles. I believe, however, that there is a failure on the part of most of our economists, most of our thinkers, to comprehend the real cause of the rise in price, the real cause of inflation. In Canada to-day

Income War Tax Act
inflation is setting in for two reasons. There may be scarcity in the case of some commodities; but in respect of some other commodities the cost of production is being increased by taxation to the extent that there is a rise in price because of that. If the government fails to recognize these two facts, it can make some grave mistakes in levying these taxes, and I would say right at this point that this particular tax is one in respect of which the government, unless it realizes the truth of what I have said, can make as grave a mistake as has been made in this country in the last fifty years.
Suppose you take potatoes, butter, eggs, milk, cheese, cream, all kinds of garden vegetables, and a great many kinds of fruit, as well as a wide variety of other commodities;
I say that there is not in the hands of the people enough money to buy the supply of these goods which we have on hand. If we reduce the amount of purchasing power in the hands of the people which could be used in the purchase of these goods, we are making a serious mistake.
I am not trying to advocate any particular theory. Of course, the recognition of the fact I am endeavouring to demonstrate lies at the basis of my own theory; but we do. not need to be advocating social credit in order to talk good, sound sense and good management, economically speaking, in this country. There are principles which apply independently of any particular theory. Not long ago I was talking to a man who had invested a certain amount of money in a plant in order to increase bis production, on the assumption that thereby, if he could sell his goods, he could reduce his overhead and his costs of production; but the taxes which the government is imposing are limiting the amount of goods which he can sell. The result is that instead of being able to cut down overhead and make a profit because of that additional investment, he actually has his overhead increased and loses because of the investment, and his concern is likely to be wrecked. This is very important.
I would say that to impose a tax on so low an income as $660 a year, if it is imposed from the point of view of limiting consumption, is a serious mistake. If it is imposed in order to raise revenue, that is another matter. I wonder whether I make myself clear. I agree that there are certain commodities which we are importing from abroad and there are commodities of which we have not enough, and probably to manufacture which we would have to use material and man-power which we cannot afford to use. As regards these commodities it is necessary to limit consumption. But this method of limiting it is, in
my opinion, wrong. If we want to limit the purchase of automobiles let us put on a quota, let us ration automobiles. If we want to limit the purchase of stoves or of refrigerators, let us ration these commodities. But do not let us, in seeking to restrict stoves, impose such a tax as will prevent people from buying strawberries, apples, butter and wheat. That is the very thing that will happen as a result of the tax.


Arthur Graeme Slaght: In what I have to say on
this point I desire to make two things clear. In the first place, I do not reach my conclusion along the economic philosophy of the leader of the Social Credit party who has just spoken, nor do I subscribe to the economic doctrines of his group. The second point I wish to make clear is that I subscribe to the budget and its principles, and I believe our Minister of Finance has made a wonderful contribution, in the very difficult problem which he has set out to solve.
There are two respects in which I differ from his principle in some minor details which I will discuss later on, but I wish to go on record in this regard. I do not subscribe at all to the economic theory that a man whose net income is $660 a year, having a family if you like, a wife and two children-


Some hon. MEMBERS:: No; single men.


Arthur Graeme Slaght: Well, then, take the lower brackets where you reach the man with a family, whose income is $1,200. That we should attempt to discipline either of these men by telling them that it is bad for them to have a little more money than that to spend is something with which I do not agree. I thought we had been endeavouring in this country for many years to increase the spending capacity of eighty per cent of the people, who are borrowers, who are in debt, people who have to struggle and battle for existence. Instead of now attempting to act as schoolmaster to them and to tell them that it will be bad for them to have a little more money to spend, we should direct our taxation, for the raising of funds to carry on our war effort, to those-and this has already been embodied in the policy-who are best able to pay. I believe we are adopting a false economy when we attempt to indicate to the people that one of the great purposes of this taxation is to restrict the capacity to buy goods for the home and for the ordinary needs of the man who has a sparse income and is in debt.


James Lorimer Ilsley: We are not attempting to say to any man that it is bad for him to buy goods, and I certainly do not want my position to be represented to the public as being
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anything like that. I did say that there were two purposes in these taxes, and there are two purposes. Whether the purpose of the tax in the low category is to curtail consumption or not, I am not prepared to say. It is hard to 'be absolutely definite about purposes. The main immediate purpose is to raise a tremendous sum of money and to go down to the point where there is a large number of people who are earning the money. The hon. gentleman started to say that a married man with children, supporting them on $660, would be taxed. That is a mistake. The limit there is $1,200; we are not bringing everyone down to $660. Moreover, there is $20 credit for each child. Opinions will differ as to where the line should be drawn, but it is drawn at a higher level this year than it was last year, at $600. I do not know how we are going to make out if we do not do some taxing of these lower incomes. Of course, I have no doubt that members of the house, if we were to put the matter to a vote, would say that we should make it $700 or $750 or $800, but there is a grave responsibility in getting money.


George Hugh Castleden: I wish to direct attention to a grave evil and injustice under the regulations as they stand. I refer to the deductions at present made on the wages of people, many hundreds of thousands of which never reach $600 for single men, or $1,200 in the case of married men. Under the present regulations, each employer deducts the amount of two per cent defence tax, and the labourer is under a serious handicap because he does not understand the regulations, and in the majority of cases does not realize that he is entitled to a refund if at the end of the year his income does not reach $600, or $1,200 if he is a married man. Would the minister consider making a statement at the present time to clarify this regulation with regard to that refund? What are the dates within which the worker must make his set annual income? I believe this tax went into force in July, 1940. Second, will the minister make a statement as to the procedure that must be followed for the worker to procure the refund? Third, what about the onus of proof? Must the worker present vouchers to show that the two per cent has been deducted? I believe that is the situation with those who have to pay income tax. If every employer in Canada has to send in returns with regard to every person he employs, and every worker must make application to the federal department for his refund, we must have a terrific bureaucracy. From the returns given in Hansard at page 2992, I believe there must be $200,000,000 paid out in wages to labourers each year. Five per

cent of that would be $10,000,000, which the worker has paid in, on the assumption that he comes under the tax, although he is supposed to make application for refund. I am quite sure that many employers in Canada are not sending in returns.


Richard Burpee Hanson: Why does the hon. member say that?


George Hugh Castleden: Because I know that many farmers in the west who employ men in threshing do not know about the regulation and do not know they are supposed to take that off. I am sure that there are hundreds and thousands of men across this country, the large bulk of casual workers, who do not know that they are to get this money back if their annual income is below $600 or $1,200.


Mr. CRUICKSHANK:: That is where ignorance is bliss.


George Hugh Castleden: I do not think it is bliss for these men to be done out of $10,000,000. Would the minister be prepared to make a statement as to what can be done to clarify this matter, so that the workers may know? I think the whole scheme is an extremely poor one because it deals largely with taxing men ' who are not in reality taxable under any defence tax since their wages do not reach the minimum.


James Lorimer Ilsley: I do not know just what statement I can make in addition to those I have made. I stated this afternoon that the Department of National Revenue has issued a publication which explains this whole matter, and which has, I assume, received wide distribution. I can tell the committee in addition to what I have already said that refunds cannot be made until the returns are received from employers giving lists of the employees to whom they have paid wages from which they have made deductions. Those returns are still coming in.


Harry Rutherford Jackman: They must be in for the end of the year by now.


James Lorimer Ilsley: I do not know. They come in about the end of March.


Harry Rutherford Jackman: Do not employers have to make returns every month? In that event the return for January must have come in two months ago.


James Lorimer Ilsley: Yes, they do, but in order to make the refund the department must have returns from numerous employers.


George James Tustin: I asked the same question this afternoon, and the minister told me there could be no refunds because the year is not up.

Income War Tax Act


James Lorimer Ilsley: I corrected that statement
later. I found that the year ended December 31, not July 1.


George James Tustin: The employers made a statement to the income tax division at the end of April of this year, giving a list of men in their employ from whom deductions had been made. The very next resolution, No. 5, sets out that the sum shall be $660 for the calendar year 1941.


Mr. MacINNIS:: This is the first opportunity I have had to say anything on these resolutions, because I was on committee work. I wish to associate myself with what was said by the hon. member for Lethbridge in connection with resolution 5.


Thomas Vien: I would point out to hon. members that we are on resolution 4. I have tried to have it disposed of, but so far, resolution 4 is still under consideration. I may remind hon. members that we are in committee on the various items of these resolutions. A great deal of discussion of a principle of general application, not directly related to the various resolutions now being studied, has been allowed, which is contrary to standing order 58, subsection 2, which reads:
Speeches in committee of the whole house must be strictly relevant to the item or clause under consideration.
The rule uses the word "strictly." There is a reason for that rule. If we do not adhere to it there is tedious repetition in committee on each item of the general discussions that took place when the budget speech was made and the budget resolutions brought down. Although a certain latitude is given, unless the committee by unanimous consent suspends standing order 58 it is the duty of the Chair to bring that to the attention of hon. members.
We are now studying resolution 4 which purports to raise from two to five per cent, or from three to seven per cent as the case may be, the rate of national defence tax. It is to this that the committee should direct its attention.


Angus MacInnis: Other hon. members may have been tedious in this discussion, but I have not, because I have not had the opportunity. I understood from the discussion since I came in that we were discussing resolution 5. Indeed, I think resolutions 4 and 5 should be discussed together, otherwise they are not understandable.


Thomas Vien: If the hon. member wishes to move that, he may do so, but it must be moved and agreed to by the committee, otherwise I must limit the discussion under the rules.


Angus MacInnis: If you will accept a motion that we discuss resolutions 4 and 5 simultaneously I shall be glad to move that.


Some hon. MEMBERS:: Agreed.


Thomas Vien: Mr. Maclnnis moves:
That resolutions 4 and 5 be studied together.
Is it the pleasure of the committee to adopt the motion?


[Stage Direction]
Motion agreed to.
5. That the amount of $600 mentioned in the national defence tax section be raised to $660 for the calendar year 1941 and for each year thereafter.
Angus MacInnis: Resolution 4 raises the national defence tax from two per cent to live per cent, and on single persons receiving incomes of $1,200, from three per cent to seven per cent. Resolution 5 raises the minimum income at which the national defence tax begins from $600 to S660. Last year I took the position that $600 was too low an income to begin at, and I am still convinced that $660 is too low, because $660 in 1941 is no better than or possibly not as good as $600 was in 1940. The rate is now raised. I do not say that the cost of living has risen that much; It may have, when one takes into consideration the particular items that people in this income group use mostly. Then, again, there are several deductions. The great majority of employees-and these people would all be employees-are compelled, whether they want to or not, to buy war savings certificates. There are other items. At the time this tax will go into effect there will be another deduction from their pay, the unemployment insurance tax. That is all right for people who have incomes which enable them to pay a few cents or a few dollars without being hurt. But I would point out that a person receiving an income of $660 must consider every five cent piece he spends.


John Ritchie MacNicol: He must consider every cent.


Angus MacInnis: When he goes into a
restaurant he does not look at the bill of fare for what he likes, he looks for what is cheap. If there is something for thirty cents, something for twenty-five cents and something for twenty cents, while he may like the thirty cent or twenty-five cent choice much better, he will take the twenty cent article.
I am convinced, as I believe I said before, that the minister made an excellent job of drawing up this budget. It must have been a difficult undertaking, and I think he carried it out very well indeed. But it is not a perfect budget, and I am trying to help him to improve it. There are a great many reasons
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why we should not further take away from those who have not. I do not know whether the minister understands it, but there is strong class feeling in this country. Perhaps that feeling is no stronger than in other countries, but when people are compelled to live on $500, $400 and even $300 a year, while they see other men with incomes amounting to several hundred thousand dollars a year, we are not going to get the voluntary cooperation of those people. Every cent taken from them is just that much more irritation. In Hansard of Tuesday last, I think it was, I read the defence offered by the minister for not taxing those in the higher income brackets to a greater extent. He pointed out that by greater diligence, greater effort and greater ability these men were able to command a greater income; that they had acquired a certain standard of living, and that it would not do to take away too much from them. I think we are now approximately in the position of being under siege; and when we are besieged, some people are not going to have cake while the rest have crusts. If we have reached the point where we cannot all have cake but we can all have bread, then let us all have bread. The minister said he would not know how to spend an income of $50,000. I wonder whether he would know how to spend an income of $600 or $700 or $1,200. I think that would be harder than to spend an income of $50.000; at least it would give one far more headaches.
I do not think the treasury would lose very much if the minimum were set at $750 for single persons and SI,500 for married persons, making the national defence tax apply in the same way that the ordinary income tax applies. I really wish the minister would give this suggestion his consideration, because I am satisfied that w'hat he would lose in revenue we would gain in increased morale, increased good will and increased cooperation in carrying on this struggle.


Mr. HAZEN:: A good deal of time has been spent on the discussion of resolutions 4 and 5, and I would not take up any more time but for the fact that I have something to say which may give the minister some satisfaction. I represent one of the largest constituencies in Canada. After this national defence tax was adopted during the last session of parliament. I spent most of my time in that constituency, where I had an opportunity of meeting and talking to some men and women in the lower income brackets. I also had an opportunity of talking to a great many others with whom I did not discuss this matter, but I did not meet one man or woman who complained about 
having to pay this tax. I believe they all took the view that it was only fair and right that they should make some direct contribution to the financing of this war; and although it is not pleasant to pay taxes, I believe they derived some satisfaction from the payment of this tax. Of course I do not know how they will feel about the increase that is being proposed, but I believe they will endeavour to meet it cheerfully and with good grace. One difficulty may develop later this year in connection with the additional deduction that will be made because of unemployment insurance. What the reaction will be I do not know, but so far as my constituency is concerned I believe, with a certain amount of assurance, that my people in the lower income brackets are glad to contribute in this way towards Canada's war effort.


Robert Wellington Mayhew: I believe the majority of those in the higher income brackets would prefer to pay a greater tax in order that those in the lower income brackets might pay a little less. I think this measure would be improved if the minister would increase the tax on those in the low income bracket from two per cent to three per cent instead of from two per cent to five per cent, and at the same time increase the minimum from $660 to $700. I have not the same sympathy for the single person who has $700 to spend; I think he will still have sufficient money to see quite a few movies. I know $700 was about as much as I had to spend in three years when I was in the same position; nevertheless many of these people are endeavouring to own their own homes, and with the many other calls they have to meet, I believe the $700 minimum would be reasonable.


James Lorimer Ilsley: There is a clerical error which should be corrected. The new rates proposed under resolution 4 are intended to come into effect on July 1, 1941, and it was proposed to change the minimum for the year beginning July 1, 1941. That is, the $600 limit is not being changed retroactively; that applies to the period from July 1, 1940, to July 1, 1941. and the $660 applies from that time on. As the resolution reads, that is not clear, and I think resolution 5 should be amended by adding the words "second half of the" after the words "for the", which would make the paragraph read:
5. That the amount of $600 mentioned in the national defence tax section be raised to $660 for the second half of the calendar year 1941 and for each year thereafter.


Norman Alexander McLarty: I move accordingly.


[Stage Direction]
Amendment agreed to.

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Harry Rutherford Jackman: I wonder whether we may not get into further administrative difficulties as a result of this. When you file your annual income tax return you are on a calendar year basis, whereas in connection with this national defence tax you are on a half-year basis. Will it not cause further difficulty in compiling total income tax returns when the department has to compute the ordinary income tax on the calendar basis and then has to compute this tax on the half-year basis? It will be seen that there is a difference in the amount allowed for dependents after July 1, as compared with what there is now. Is there going to be any certainty as to what we shall do?


James Lorimer Ilsley: It will make more difficulties, but they are not impossible of solution. They can be worked out. There is nothing impossible about what is being proposed. It is just a change, that is all. The tax begins in the middle of the year.


Richard Burpee Hanson: It is making the intention clear.


Harry Rutherford Jackman: But the exemptions are higher now than they were before. In other words, does a man with three children have exemption at the old rate, or the ne.v rate, or in between?


James Lorimer Ilsley: The matter of exemptions is worked out in resolution 6. When it is being discussed I can give the committee the way in which it is done.


George Hugh Castleden: Let us consider the case of a single worker who in the last six months of 1940 did not receive $300. Will he be entitled to a refund on all deductions made from his wages?


James Lorimer Ilsley: That is right.


George Hugh Castleden: Should he then make his application immediately, and to whom?


James Lorimer Ilsley: He should write a letter to the commissioner of income tax, and when the forms are available-if they are not already available, and I do not believe they are-he will be sent forms to fill out.


Richard Burpee Hanson: They will be sent to the employer.
Mr. O'NEILL: Just before six o'clock I was speaking to this resolution, and at that time I was given to understand that the intention behind the tax was, first, that of raising money. It was pointed out that there was a dire need for money, and that about $80,000,000 would be so raised. The second reason given was that it would curtail the consumption of those articles which might
have a tendency to create inflation in Canada. I am far from being satisfied with the tax in its present form, and certainly I am not satisfied with the explanation given.
I realize fully the necessity of raising money, and I have no objection at all to that. The working class in this country will pay, and they will pay with less complaining than will any other class. They always have done so, and they always will, not only in Canada but in any other country. The fact is that the working class make less complaints about taxation than do any other class; but there is such a thing as getting a tax to a point where it is eating into the very necessities of life. That, in my opinion, is what this tax is doing. If the government must raise the money, and if there is no other way in which it can be raised-and in passing let me say that I do not agree with that argument at all-if it wishes, it could add another one per cent to the taxation on the incomes of men like myself, and I am quite sure they would raise this $80,000,000. The government would then not have to place this burden on the shoulders of these people.
However, taking the argument that the government cannot get away from the tax, then I say that what it should do is this: Instead of taking the money as a tax, it should take it as a loan, and should put war savings certificates to the credit of these people while they are earning it. When the war is over, the money could be handed back to them. The government would have the use of the money while the war is on, just as it would have the money if it raised it by way of borrowing. For example, the government is going to raise a certain amount by the victory loan which will become operative on June 2. If this tax were done away with altogether, could the government not raise $680,000,000 instead of the $600,000,000 which it proposes to raise through the loan? I say it could be done, and by just the same means. If we really do not wish to take the money away from these people, then let us hold it in trust as war savings certificates until after the war. I believe these are suggestions which might be given due consideration.
Mr. O'BRIEN: Before six o'clock I spoke privately to the minister, asking him to clarify the situation with respect to the tax as it affects the piece-worker. In the lumbering industry of New Brunswick, and I have no doubt in other provinces, we have men working by the month on piece-work. They are paid by the cord. No doubt men in munitions and other plants are paid on a similar piece-
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work basis. Will the minister tell us if the tax should be deducted by the employer, or are such men treated as contractors?


James Lorimer Ilsley: If the piece-worker is an employee, the tax should be deducted. If he is an independent contractor, it should not. In that event he should make a return.
Mr. O'BRIEN:	How would we know
whether he is or is not? Does the law give any definition?


James Lorimer Ilsley: Yes. It is just one of those things which must be decided by the employer himself. It is a very mild legal question, but not one about which it would be necessary to consult a solicitor.


George Alexander Cruickshank: I understood the minister to say that the exemption was S20 for each child. My reading of the resolution is that the exemption is only $14. I am not very familiar with these budgets. I have been through two budgets, and one baby budget. If I come back another year I shall have to bring a ton of hay and a cow to pay the rest of my income tax. However, my interpretation is that $20 is the exemption.
The hon. member for Kamloops, coming from British Columbia, has hit the nail on the head. It is absolutely impossible to feed, clothe and educate a child on $20; certainly it is not possible in British Columbia. Yet that is all the exemption allowed for children. As I understand the hon. member for Kamloops, the government would take the entire $60 over the $1,200 of a man earning $1,260. I believe it was the hon. member for Rose-town Biggar-I might even give the hon. member for Vancouver East credit for it- who pointed out last year that $48,000 was left to a man who had an income of $100,000. In other words, $52,000 was taken away from him. It was pointed out that the amount taken away was not important, he still had $48,000 left to live on.
As the hon. member for Kamloops pointed out, the minister suggested that if we were to add further taxation to these millionaires, and they are making plenty of money now; there is no doubt about that-we might disrupt their way of life. Surely it is disrupting the way of life when a stenographer right in this building is paying a national defence tax of $5. That is a tremendous tax to be imposed upon a stenographer. I believe it is So-hon. members can figure it out for themselves. The sessional stenographer receives $5 a day. When a man with a family is getting $1,200, immediately his tax goes up. So far, no provision has been made for the ordinary people.
There is one source of income which might be given further consideration-although I

do not know how much these people are already taxed. Does the government tax that dollar from the dollar-a-year men? They are still getting their salaries of $25,000 or $30,000 a year from their corporations. They must be receiving enough, receiving their $20 or $25 a day living allowance, that a tax would not have the effect of lowering their standard of living. On the other hand, a married man receiving $1,500 has to pay. It does not make any sense to me; I do not think it makes sense to anybody else, either. In my opinion, some consideration ought to be given to that fact.
As I said, the sessional stenographers receive approximately $5 a day. The national defence tax is a terrible one for such a girl or for a married man getting $1,200 to pay. I should, of course, like to see the exemption raised to above the sessional indemnity. Surely the minister should give some consideration to the suggestion which has been made by both sides of the house to raise the exemption. I think we have wasted too much time on this resolution already, and probably I am wasting more time because I do not think any attention is going to be paid to our representations. At the same time we represent the rank and file of the people of this country, not the millionaire class. I have not one millionaire in my riding, and never will have, because there is no chance of making big money there. The minister should take into consideration the representations that are made by members of parliament, representing the farmers, working men and the rank and file of the people of this country, rather than listen so much to recommendations from professional civil servants who have never tried to raise a family on $1,200 a year.


Mr. DOUGLAS (Weybum):: Before six
o'clock the hon. member for Rosedale and I asked the minister to have a computation made of the cost to the treasury if the exemption in the case of the national defence tax were raised to $750 for single people, and $1,400 for married people. Has the minister had that worked out?


James Lorimer Ilsley: I have asked an official
of my department who, I thought, would be among those best qualified to give me the information, and he has given me this memorandum which I shall read. It is not very satisfactory because it is impossible to make an estimate with any definiteness at all:
I have looked into the available statistics on the distribution of incomes, which are based upon wages and salaries given in the census of 1931, and would guess that the loss of revenue at full rates for a full year resulting from an increase from $660 to $750 in the starting point for national defence tax would be something

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like five to eight million dollars; and if the married starting point were raised from $1,200 to $1,400 the loss of revenue in addition would be something like ten to fifteen million dollars. Together the changes would cost therefore from $15,000,000 to $23,000,000. It should be emphasized that the figures for incomes in these ranges are very poor, and the figures given above can only be considered as guesses based on scanty information.
While I am on my feet I had better complete giving information that has been asked for at various times by hon. members. While it is not strictly in order now, it will be as much in order under these resolutions as under any other resolution which has not yet been dealt with.
The leader of the opposition yesterday asked me if I would place on Hansard an estimate of the increase in revenue to be derived from each of the income groups mentioned in a previous memorandum, as a result of the new income tax rates. The estimated increase in revenue and the approximate percentages of total increase are as follows:
Estimated Distribution by income classes of the estimated increase in income tax revenue arising from the increase in the rates of tax (excluding national defence tax) on incomes of 1941.
Income class	Estimated	Approximate(income	increase	percentage ofper year)	in revenue	total increasender-	Per cent$ 2,000	$18,000,000	24-02,000-$ 3,000	8,000,000	10-63,000- 4,000	8,000,000	10-64,000- 5,000	5,000,000	6-75,000- 6,000	5,000,000	6 76,000- 7,000	4,000,000	5-37,000- 8.000	3,000,000	4-08,000- 9,000	2,000,000	2-79,000- 10,000	2,000,000	2-710,000- 15,000	6,000,000	8-015,000- 20,000	3,000,000	4-020,000- 25,000	2,000,000	2-725,000- 30,000	1.000,000	1-330,000- 35,000	1,000,000	1-335,000- 40,000	1,000,000	1-340,000- 45,000	500,000	0-745,000- 50,000	500,000	0-7ver 50,000	5,000,000	6-7jtal-all classes	75,000,000	100-0
The hon. member for Rosetown-Biggar asked me yesterday if I would give the committee some information as to the number of persons in receipt of incomes in the higher brackets. The number of people having an income between $50,000 and $60,000 is 139; between $60,000 and $75,000, 121; between $75,000 and $100,000, 102. The number of persons having an income between $100,000 and $150,000 is sixty-six; and the number of people having an income between $150,000 and $200,000 is twenty-eight. For incomes above that, the number is twenty-seven. I think that is as far as I ought to go.
Mr. COLDWELL; That breakdown is much more satisfactory. I do not think any one of us asks these questions out of mere curiosity but we wish to get a more accurate picture of the situation. I should like to have seen the twenty-seven broken down, but I express my appreciation of the minister's having brought this information down because in former years information as to incomes in the higher brackets has always been refused. Therefore I think we have made some progress this year in getting thus far.
I think if we were to have a free vote of this committee at the present time on these two resolutions we would find the majority of the committee in favour of raising the exemptions in the lower income brackets, and that being the situation, I think the minister and the government would be well advised to have these two resolutions stand in order that some consideration might be given to what appears to be a fairly general wish on the part of members of this committee. After all, this is a democratic country. It so happens, of course, that the government has an unusually large majority, but if we were more evenly balanced these two resolutions might be defeated. As it is, I think if a vote were taken now, the resolutions might have difficulty in getting through.
I realize that the minister has to raise the money, and like my colleague the hon. member for Vancouver East I recognize the ability with which the budget was brought down and the extent to which an endeavour was made to be fair; but like the hon. member for Lethbridge, while I know there is a necessity to transfer labour, material, machines and so on from peace-time industry to war-time industry, I do not believe that this is going to have that effect. If we have to transfer industry from one field to another, it seems to me it might be done directly rather than by resorting to means like this. I would much prefer to see some system of priorities put into effect, to cutting down the incomes of these lower-paid workers, and thereby compelling them, as the hon. member for Lethbridge said, to restrict their consumption of foodstuffs and clothing. We have in this country an abundance of food, and there is no need to reduce consumption. Indeed, to cut down food for the growing children of Canada will cause more war casualties, and of a different type, than those sustained on the field of battle, casualties which so far we have not had, and which, in any large number, I hope we may escape. The same process of cutting down will, as an hon. member reminds me, also have the effect of reducing the farmer's income.
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I would say to the hon. member for Victoria (B.C.) that, after all, we cannot compare the wages and salaries and earnings of thirty or forty years ago with the somewhat larger salaries which are being earned at the present time. Many things which have arisen since that time have now become necessities. When we speak of the humble movie, which is used so largely by people who can afford no other form of amusement, we must bear in mind that this very budget puts a twenty per cent tax on moving picture theatre tickets, and that is a substantial tax on those who enjoy that cheap forth of entertainment.


Robert Wellington Mayhew: Would the hon. member
prefer to have a lower tax on single men and retain the higher tax on the married men?


Mr. COLD WELL:: Oh, no.


Robert Wellington Mayhew: I was suggesting that we reduce the married men's bracket and retain the tax on the single men.


Leslie Gordon Bell: That is not the point
I was making. My point was this, that already we are taxing fairly substantially a luxury which the hon. member mentioned, and I do not believe that it enters into a consideration of these two resolutions. I believe that, if put to the vote of this committee at the present time, these resolutions would have great difficulty in carrying. As we have said, over and over again, it is not what the individual pays in taxes that counts, it is the amount that the individual has left. I maintain that these lower-paid groups, and particularly, if you will, the married group, will find it difficult to bear this tax, and I would rather see a slight increase in the taxes of, say, groups a little higher up, spread among them, to meet the deficit which the minister estimated a few minutes ago. I again make the suggestion that I believe it would be well if the minister would hold over these two particular resolutions and give some consideration to the very general representations which have been made from all sides of the chamber.


James Lorimer Ilsley: Mr. Chairman, I do not
feel like acceding to that very politely worded request. If anything like that is done, I shall have to resort to some other taxes. It may be that the committee is prepared to vote down this tax, but would they vote for a sales tax if I brought it in?


Mr. COLDWELL:: No.


James Lorimer Ilsley: Well, we are getting down to business when we are talking that way. The hon. gentleman says, "Spread it around among the higher incomes." But we have so few people there. We should also not forget
[Mr Coldwell.]
that the rate is very much greater on these higher incomes than it is on the lower incomes, and the increase is greater proportionately this year than it was. It is easy to say that I have made remarks about "maintaining standards of living" and all that kind of thing. I did not say that, although I know others have said it. But think of this: there are people who, with any further increase of taxation, would have to sell their houses. Perhaps it would not make much difference if you put them in a position where, without doing so, they could not pay their taxes. But I do not know that the wholesale liquidation which would result from terrifically heavy taxes on the middle and upper-class incomes would be in the interests of the community.


Angus MacInnis: Does the minister think this tax is in the interests of the community?


James Lorimer Ilsley: We would not be doing any of this, of course, if it were not for the war.


Richard Burpee Hanson: That is the answer.


James Lorimer Ilsley: But we are having to do it, and we are distributing it as fairly as we can. We can argue about that, but-


Angus MacInnis: If the minister were getting only S600 a year he would not think so.


Mr. QUELCH:: Where is the money for the big bond issue which is being talked about? The people in the $600 class are not going to be able to buy bonds.


James Lorimer Ilsley: Well, no, I suppose they
are not.


Victor Quelch: I think this is a very
important question. I understand that the government is going to sell this year in the neighbourhood of $600 million worth of bonds, and I would suggest that the people who have the money to buy those bonds are the people who should pay this increased tax, and not those in the $600 bracket. We all know that men earning $600 a year will not buy many bonds, because they are not in a position to do so. The people who can buy large quantities of bonds, are, undoubtedly, the people who are in a position to pay higher taxes.


James Lorimer Ilsley: We have not come yet to the capital levy, and I do not think we shall come to it. I must say that, while I have heard the capital levy advocated, I have not seriously considered it.


Victor Quelch: That is not a capital levy.

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James Lorimer Ilsley: Yes. Many people who buy bonds are going to buy them out of capital.


Karl Kenneth Homuth: May I say a word in this connection? I believe the minister realizes that so far as our party is concerned, we want to cooperate with him in every way possible. We know that he must raise the money, and we are willing to do anything we can to help him to do it. But I do feel, in view of the figures he gave to-night, that it would be a matter of somewhere between $13 and $20 million-
'Mr. HANSON (York-Sunbury): Fifteen and twenty-three.


James Lorimer Ilsley: Yes.


Karl Kenneth Homuth: Fifteen and twenty-three, if the exemption were raised.


James Lorimer Ilsley: Both exemptions.


Karl Kenneth Homuth: Yes. Both exemptions raised.
Mr. ILSLEY': That is, $660 to $750, and SI,200 to $1,400. That is just a guess.


Karl Kenneth Homuth: I realize that it is just an estimate. But if we were to levy the taxes in some places where I think they should be levied, I believe these exemptions could be raised. As I stated on the budget debate, there are people who are in a position to pay $3 for a dinner, $5 to hear a symphony concert, and SI to $2.50 to see a hockey match-all of which ma3' be classed as absolute luxuries which the average person cannot afford, and which the people in the low income-tax brackets who will be affected by these increases of from two to five and from three to seven per cent, cannot pay; yet, as a House of Commons, we are making no attempt to tax this type of luxury, and the people who can afford these luxuries are going scot-free. I suggest that, under this resolution, we exempt the single and married people, and levy a substantial tax on these other luxurious indulgences which have not been taxed under the act; I believe that we could raise thereby a substantial amount of money. If people insist on enjoying these luxuries at a time when the minister is trying to stop inflation and stop unnecessary spending, let them pay. The only reason why they enjoy them is because they have the money to do so.


Richard Burpee Hanson: What about the desire?


Karl Kenneth Homuth: Some have the desire and cannot afford to indulge it-like you and me. But I believe we could raise a substantial amount by levying the equivalent of this taxation from other sources, and giving the poor
people this slight exemption. It would mean a great deal to them, as the leader of the Cooperative Commonwealth Federation has said. I believe the minister realizes that nothing has been said from this side of the house in the nature of carping criticism of his budget, and nothing done to put any obstacle in its way. There is a feeling that a levy is being put on people who can least afford to bear it. I do think the minister should reconsider this question. I agree with the leader of the Cooperative Commonwealth Federation that, generally speaking, members in all parties feel the same way about this. Surely the minister might reconsider the matter to the extent of ascertaining what could be raised from other sources.


John Ritchie MacNicol: Taxing restaurant dinners.


James Lorimer Ilsley: It would be very small. I could not give a good estimate at once, but it would not be anything like this at all.


John Ritchie MacNicol: Has the minister any figures showing what the province of Quebec obtains yearly in revenue from the tax on meals costing over fifty cents in restaurants? It must be millions.


Richard Burpee Hanson: If the
minister says that the danger of increasing the exemption would result in the huge figure that he had estimated before, it will alter my judgment somewhat. I just cannot believe that the amount would be $23,000,000. Frankly, I cannot comprehend that it would come to that much.


James Lorimer Ilsley: There are millions of
taxpayers-


Richard Burpee Hanson: I suppose there are.
Mr. ILSLEY': -perhaps not quite within those brackets, but a very large number.


Richard Burpee Hanson: If the amount is substantial, I can see the quandary the minister is in. If we ask him to take off $23,000,000, it is up to hon. members to be constructive and suggest some other sources. I do not think it can foe raised out of a meal tax, and there would be objections to that. I doubt whether it could be raised out of an amusement tax such as has been suggested. An hon. member behind me suggests that the only means of getting it is out of sweepstakes. I do not know that I agree with that. I am content to let this go through, after the protest I have made, that protest resting on the theory that it would not be a substantial loss in revenue. I do not think I can say more.

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John Horne Blackmore: I do not wish to hold up these resolutions, but do many hon. members realize how painfully this tax will hurt certain people? This is precisely the standard of salary that affects thousands upon thousands of young people, schoolteachers. I have been a schoolteacher, and I know something of what they have to go through. If a young teacher gets $660 a year and receives $10 a year increase, which is a fairly substantial increase in the rural areas of the three prairie provinces and perhaps British Columbia, may I point out that the teacher paying this tax would have to teach three solid years and get no effective increase at all, because she can get no money beyond the $660 until she gets up to $694.75. That is because the government is taking everything over $660.
Some people have asked the question, where will you get the money? Go into the Chateau Laurier; go into the Fort Garry; go into the Macdonald, any of the high class hotels, and gaze upon the lordly creatures who keep their heads in the air, and roam up and down the corridor. Those are the people who can afford to pay money. Those people who are getting $660 a year never go and buy a sixty cent meal, but there are plenty of well-to-do people who go and get a meal for a dollar and twenty-five cents. Why not put a tax on meals above sixty cents? There you are getting at luxuries. Why not put a definite tax on all hotel rooms above $2? There is no one in the country who cannot sleep in complete comfort in a $2 room, yet there are people who occupy high-priced rooms while we are taxing young people who have to go and hunt up a twenty-five cent or a fifty cent bed, stealing into a room upstairs in some Chinese-


An hon. MEMBER:: Joss house.


John Horne Blackmore: -restaurant, in order to get by. We members do not know the meaning of these things; that is all. We do not know where the pressure is being put on. Look at the people who occupy chair cars, parlour cars, special compartments on the train. Look at any big transcontinental train and see how many people there are occupying these compartments. Why not make them pay extra? All these things are luxuries. Take membership in expensive clubs. The men who can afford to go and play golf in the big country clubs, the Mayfairs and whatnot, can afford to pay. There is no objection to their playing golf there, but the people who are patronizing these organizations can afford to pay. They are spending the money now. They are spending money that most of our young people will never dream of spending.

Let me give a picture of the young schoolteacher-and we must not overlook this. The young schoolteacher has to pay her way, and most of these teachers are girls, although there are some boys. They have to pay $25 or $30 to reach the place where they are to teach. They have to pay their return fare if they wish to spend their Christmas or Easter holidays at home. What a hole that makes in their income! While some of them are able to get room and board for $20, many will have to pay $30. There is no allowance for that in this tax, which is a blanket tax. It makes no difference what condition they are in, they will have to pay the tax. The schoolteacher has to keep herself in clothes; she has to pay for laundry, and she has to buy various necessities. Then, she often wants to go to summer school; she may have to pay back a loan of $200 or $300. What chance has she? This tax is simply tragically inequitable when you consider those who are enjoying real luxuries in comparison with these young people.
I know there is going to be a great deal of disinclination to take seriously what I now say, but I will say it nevertheless, and say it freely. Between 1914 and 1917 the dominion government created $26,000,000 of bills and used that money in defraying government expenses. Let no man rise in his place in this house and say that there is no other way of getting money than by taxation. If hon. members wish to read about that creation-I will not elaborate-I refer them to a pamphlet which is to be found in the library. It is the report of the royal commission on banking and currency in Canada, 1933, and the procedure will be found set out at page 22, paragraph 47. There is no laughing that off; it is there, because it occurred. The reason why I asked the minister so carefully about inflation was this. If anything had been said about that transaction four years ago, the then Minister of Finance would have risen in a semi-frenzied state and shouted "inflation." I happened to be here, and saw him do it. The point is we have discovered now that that could not cause inflation, because the expenditure of a million dollars of that created money would have no more effect on prices than a million dollars raised or obtained in any other way, especially if the latter were taken from people who would not otherwise spend it. I am not going to elaborate the matter, but the minister might just as well get ready to take this step sooner than later because he must take it. For him to bring down here year after year a set of taxes so burdensome as this, which I know it pains him as much as us, to put on, is simply not sound, and it must not go on.

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I think I have said enough on that. I wish to raise just one more point, and then, so far as I am concerned, I am going to let this resolution go through without saying any more. With respect to these commodities of which there is danger of a shortage, has the minister set up any machinery whereby he may know what commodities we are in danger of running short of? Is it any one of the fruits: strawberries, currants, gooseberries, raspberries, plums, peaches, pears or apples? Is it any of the vegetables? Is it potatoes? Is it any one of the grains? Is it any of the grain products? Is it any dairy product? Is it any of the meats? Is it wool? Is it clothing? While we are speaking of clothing, hon. members will recall that in the last war we were beginning to run short of clothes at about this stage of the war; people were not able to get the kind of clothes they were accustomed to. Several times since this war started, the clothing dealers have got all ready for a rise in prices and begun to talk about how they could not procure these particular clothes any more, but they have got over that and have now begun to advertise sales because they could not sell, which indicates that there is no shortage of clothes.
There are, however, scores and scores of other commodities as to which when we ask, is there danger of a shortage? the answer must be "no". There must be still other commodities of which there is danger of a shortage. Has the minister set up machinery to find out what they are? If not, why not? Why not go at this matter in a scientific way; why not do our housekeeping on business principles? Let us know where we stand. I do not think anyone is going to buy a car if there is danger of inflation or impairment of Canada's war effort thereby, although cars are becoming almost a necessity for many people nowadays. People are not going to buy radios or other specific commodities if they realize that they would be thereby doing a disservice to Canada. And if they persist, let us ration them and say that in a given area we will allow only so many radios or cars to be sold.
Mr. HOMUTH; If you rationed them, to whom would you give them?


John Horne Blackmore: We rationed things in the last war. They rationed sugar; I know that on many occasions they decided they would not give me sugar. They had no trouble in deciding with regard to me. They actually began rationing flour also. If I remember correctly, there was only a certain kind one could get.


Karl Kenneth Homuth: But everyone got some.


Mr. POULIOT:: Do not pay any attention to him.


John Horne Blackmore: Yes, he is talking good sense this evening. If there is really a shortage so that you have to ration, I suppose you will have to draw lots. But surely the minister could find experts to advise him as to ways to distribute. Surely we do not have to tax these young school teachers in the country to the point where they can hardly dress themselves decently and can not possibly save $20; we do not have to do that to keep anyone from buying a car.
Mr. O'NEILL: At the risk of incurring the displeasure of the Minister of Finance and perhaps the whip, I should like to ask if consideration could be given to changing the amount collected by this national defence tax to a loan repayable after the war. If consideration cannot be given to that, what are the objections?


James Lorimer Ilsley: The hon. gentleman puts
quite a burden upon me when he asks me to go into this question of forced loans and the level at which they should start. In England they have a system of forced loans, but I think they take more in taxes than we do out of these very income groups, and then they start on their loans after that. Perhaps I have not thought through this question of loans as thoroughly as I should have. I dealt with it to some extent this afternoon. I think the hon. gentleman was present at the time. It would occur to me, however, that the time would come when we had to repay this money, and it might be at a time when it would be difficult to raise it. People would demand the money; they would not want to renew or refund the amount. A great task of financing would be put upon us at that stage. We might be in a period of deflation when it would be very difficult for the government to raise large sums of money. We could not agree to repay all that we take from the people in taxes, somewhere between $1,000,000,000 and $1,400,000,000. That might be very desirable from the point of view of individuals after the war; they would be happy to be getting their money back, but from whom would we get the money with which to pay them?


An hon. MEMBER:: Tax them over again.


An hon. MEMBER:: From the Bank of Canada.


James Lorimer Ilsley: We have to keep some of the money we take. I am not prepared now at any rate to start making people give us money by way of loans.


Mr. GILLIS:: After listening for the best part of two days to this discussion, I have come to the conclusion that we have wasted a great deal of time, that we are not going
Income I For Tax Act

to get any changes in this item. I would remind the committee that so long as the people of this country and many hon. members in this house are satisfied that our resources shall be used on the basis of profits instead of human needs, the Minister of Finance is going to be placed in the position he is in to-day. He must play the game according to the rules. He -must get the money to finance the war and he must do it in this way so long as we are satisfied with the rules that guide him.
With respect to this tax on incomes of $660, I do not consider it a tax, I consider it a crime. Fifty-five dollars a month is not an income. No one can live on it.


An hon. MEMBER:: Many do.


Clarence Gillis: I am not much concerned about raising the exemption to S750 because it still would be away below a decent standard of living. I do not think anyone with an income under 81,200 should bo taxed, and sixty-five per cent of the working people of this country have an income under $1,200. T think that should be the exemption. I am, however, pretty sure we are not going to get it at this time.
I am prepared to assist the Minister of Finance, and I think this group is, in going in the other direction so far as it is possible to go, with respect to raising the funds necessary to prosecute the war. You can take away something from the income groups above SI,500 without pulling them down to where it means a shortage of the necessities of life. They have something to give; and I think if we intend to do the job as it should be done, everyone in this country should come to the point where they are really making some sacrifice. If I have an income of $10,000 a year and the actual necessities of life can be obtained for $1,500, if you take everything I have above $1,500, I am still not making any sacrifice. I am not suffering; I have enough to eat and enough to wear, and I am not going into debt. I think that is the way we should work.
Within the last few weeks I have seen much in the newspapers and heard a great deal on the street with regard to unrest among labour, strikes, stoppages of work and so on. Well, we have the answer to that in the discussion which has taken place during the last two days. The answer is that sixty-five per cent of the working people of this country receive less than 81,200 a year. Since the outbreak of war we have added a great many indirect taxes which have increased the cost of living by perhaps twenty-five per cent. In addition, we have war savings certificates, which are practically compulsory so far as the average
[Mr. Gillis.l
worker is concerned. Then there have been drives for war services, the Red Cross, and so on, to which all the workers have been asked to contribute. I do not think twenty-five per cent of the ordinary people understand the reason for the lowering of their standard of living. These things are being taken from them insidiously, and they do not understand it. The natural reaction is to try to get back what they are losing. They understand that it is much harder to get along; they are working longer hours and more man-days per week, and it is only natural that they should seek to replace what they appear to be losing.
That is the reason for the unrest, and the euro is so to order your finances that you do not tax those who are unable to make any sacrifice, that you do not drive people below the subsistence level. When you tax that sixty-five per cent of the common people who receive low incomes; when you reduce them below the subsistence level, then you sow the seeds of communism and everything that goes with it, because you are actually threatening their very existence and most of them do not understand it. Personally I think we would be well advised, if a change is necessary, to fix the minimum amount necessary for a reasonable standard of living at around $1,200 or $1,500, and take everything that anyone has above that. If anyone is not prepared to do this he is not interested in prosecuting this war and fighting the machine that is going to clamp down on us if we do not win. Lip-service is not good enough; a practical demonstration is needed. I think Clement Attlee very well stated the case in the British House of Commons when he told the British people that without the full application of socialist principles in the prosecution of the war, we could not win. I believe Ernest Bevin struck the right note when he said, "When you allow dissension and distrust to creep into the minds of the peace army, the army of working people who produce the sinews of war, then you are going to lose the war."
That is what we are doing when we impose these burdens on those who are below the subsistence level at the present time. We call it taxing them, but these are not taxes. I think every member of this group, and perhaps every member of this house, are prepared to make some real sacrifice. We should start tightening our belts, stop driving our cars, and begin giving what we have above what it costs to live. These people in the income group below $1,200 have not enough on which to live; and if a man has $40,000 or 810,000 or even 85,000 left, no one can say he is making any sacrifice, for he is not. Over in Britain

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they are living underground; they have given everything they owned. Their homes are smashed up; in one city fifty thousand people were forced into the fields with nowhere to sleep. They are in the front line of the battle for freedom; but over here we say we are making a sacrifice when we still have something left. We are doing no such thing. That is why there is so much chaos and unrest among the working people of Canada to-day. Too many people at the top are standing pat, holding on to what they have. Too many people in this house and outside it are prepared to have the country run under the rules now in force, with profits overriding human needs. I do not know of anyone who could do a better job than the minister, while conforming to the rules, but I think it is time we started changing those rules. Talking about it is not good enough; the people must be given a demonstration. I am prepared to assist in taking everything above $1,200 or $1,500. Let us get down to where we are all making some sacrifice; then we can go out and do a job with the people.


Norman Jaques: It seems to me that we are at cross-purposes. Is the object of this tax to raise revenue, or is it to keep down consumption? Some hon. members seem to believe the only money the government can get is that money which it taxes from the pockets of the people. If that be so, we have no option but to increase taxation to the point where large numbers of people will be literally starved to death. We know, however, that is not the situation. As I mentioned this afternoon, in Great Britain they get all they can by taxes, and they borrow all they can; yet they are spending something like two thousand million pounds a year in addition. In other words the government or the banks are creating ten thousand million dollars a year in addition to what they tax and what they borrow.
If the object of this tax is to keep down inflation by curtailing consumption, there are other ways of preventing inflation than by bringing about unnecessary suffering on the part of those people in the lower income brackets. I do not believe the prosecution of this war will be helped by lowering the standard of living of any people below what is necessary to keep up their strength, health and morale. There might be a system of rationing, as some hon. members have mentioned already. In Great Britain they have been following for some time the principle of compensating prices; that is, in connection with some essential foods and other commodities the retailers are authorized to sell at less than cost, and then they are compensated to the extent that they are out of
pocket. I am not going to say that this is the social credit principle, because if I did, the suggestion would meet with great opposition, but that principle has been adopted in Britain, I believe to the extent of half a billion dollars a year.
The point I wish to make, if I can, is that we should be clear in our minds as to the precise object of this tax. Is it for the simple purpose of raising revenue, or is it to cut down consumption? I think the minister will agree that it is principally for the latter purpose, but I suggest that there are better methods of controlling inflation than by reducing the standard of living of perhaps hundreds of thousands of people in this country below what is necessary to preserve their health and their morale.


Victor Quelch: I was hoping the minister would reply to the question raised by the hon. member for Wetaskiwin. It seems to me that the minister has fallen into the error into which former ministers fell, namely, that he is contradicting himself in connection with this matter. He stated emphatically, in reply to the hon. member for Parry Sound, that the idea was not that of stopping these people from spending their $600. And yet, on two occasions in this house he has stressed the fact that the taxation is not merely for the purpose of providing revenue but also to curtail spending. He made that statement most emphatically.
I have in my hand a statement by Professor Plumptre, who says:
It _ must be remembered primarily, and seemingly paradoxically, that the government's object is not to get money but merely to reduce the public's spending. The government can always get money, because it may, as an alternative to borrowing or even to taxation, create the required funds.
The statement made by the minister is in direct conflict with that which he has made in the house on previous occasions.
Let us for the moment examine the minister's statement that the tax is not for the purpose of preventing spending. If it is merely for the purpose of raising revenue- and apparently that is what it is for; it is not to curtail spending-would the minister suggest that the people in the $600 limit are in a position to provide that revenue? I think he has admitted that they are not. They are also now suffering certain hardships. I suggest then that we should tax the people who are going to buy bonds. The minister has stated that that would be in the form of a levy, and that it could not be met out of current revenue.
Then, according to the minister's own admission, neither the poor nor the rich are

Income War Tax Act
in a position to pay taxes higher than those imposed at the present time. If the people's spending has been reduced to as low a level as we dare reduce it, then I would suggest that the logical place to get money would be from the Bank of Canada, because such a condition would show that we have not too much money in circulation. And if the government is still going to continue to refuse to use that method, although reference is made to it by Professor Plumptre, then I would go back to the other idea, namely, that if we had to do it by taxation, then certainly there are more equitable ways than that of increasing the taxation against the people who come within the $600 limit.
I would say that there are very few hon. members who are making any real sacrifice at the present time. I am quite satisfied that the tax on members of parliament could very easily be raised, and it would be far better to raise the tax on them than to raise it upon the people who are within the S600 limit. Further, if the minister will introduce an amendment to that effect, I shall support it immediately.


William Earl Rowe: Take it all.


Victor Quelch: A very large sum of money could be raised from the people who have taxable incomes of from $3,000 to $5,000, and I do not see why it would not be possible to increase taxation on that class, rather than increase it on those in the $600 limit.


Karl Kenneth Homuth: Why not let the members come here for nothing?


Victor Quelch: Members, like everybody else, would have something to live for. They are in a preferred position, some having high incomes from other sources.


Karl Kenneth Homuth: No, they are not. You just said, "Soak the members"!


Victor Quelch: I say: Increase the taxation against members, rather than against those in the $600 limit.


Karl Kenneth Homuth: Take it all, then.


Victor Quelch: The people in the $7,000 a year or $5,000 a year class can certainly stand higher taxation than the people within the $600 limit. There are a large number of taxis which come to the door, driving members around. I suggest it would do the members good to walk for a change. It would not hurt them a bit. That is one place where they could save money.


John Ritchie MacNicol: If I waited for taxis I would not be here more than once a month.


Victor Quelch: There are more equitable ways of raising this taxation.


Thomas Vien: Shall the resolutions carry?


Major James William Coldwell: On division.
Resolutions 4 and 5 agreed to on division.
6.	That the maximum allowance for a dependent under the national defence tax be $4 for the calendar year 1940; $14 for the calendar year 1941 and $20 for each year thereafter.


Mr. CHAMBERS:: Mr. Chairman, I had not expected to say anything, but it seems to me that the point raised concerning the lowest amount upon which this tax is payable, and the remarks of the hon. member for Parry Sound, and other hon. members, make it necessary for me to add my 'mice.
This is our second year of war, and we are told on all sides that we may expect a long period of government expenditures, and increasing government taxes, to meet the cost of the war as we go along. I am one who is concerned'-and I have no doubt we all are- not only with the progress of this war, its financial aspects, and other points in connection therewith, but also as to conditions in Canada when the war is over. It seems to me clear that the minister wants so far as possible to cause saving by those whose incomes are being raised, due to the enormous expenditure of government funds during the progress of the war. It is only natural that the minister should want that saving, because so far as possible he wishes to withdraw that money from circulation.
It seems to me, however, that one should look a little beyond that, and seek to get the people to save in order that they, themselves, may be protected in that hour when the war is over. I have sat in the house for a short time, and I have heard hon. members to my left, and also those on the government side, demanding from time to time that the old age pension should be raised. From the point of view of the amount of money an old age pensioner has to live on, I entirely agree. But from the other point of view, namely, that of paying moneys out of the consolidated revenue fund, paying millions of dollars extra each year, with no contra collections, then I think such a procedure would be hardly feasible.
With that in mind I should like to leave a thought with the minister. Let me say clearly that I consider this amount too low. Let there be no misunderstanding about that. I would, however, be prepared to support any motion made by the minister or the government, between now and the next session, to introduce legislation of a contributory nature-compulsory, if you wish; preferably compulsory- whereby all employed persons would contribute

Income War Tax Act
a percentage monthly of their pay cheques, such moneys to go to a fund which, if necessary, the government might use during the war for war purposes. Then, when the war is over, these amounts would be paid back to persons who had reached a certain required age-possibly sixty, or whatever might be stipulated. There we would have a pension upon which such persons could live, without work.
I recollect bitterly the years from 1932, onward. Hon. members know I speak the truth when I say it was evident to all who in any way were connected with employment throughout Canada-and particularly with unemployment-that between 1932 and 1936 there was not enough work in Canada to go round, so as to give our young people a chance to work.


An hon. MEMBER:: Why stop at 1936?


Alan Chambers: I shall not argue about that. If any hon. member has anything to say, he will have an opportunity to say it. I have one thought in the back of my head, one which I believe a good many people have, including some in the army. We do not want to go back to that again. But if we do not set aside some moneys so that we can take some people off the labour market when the war is over, then I say we are going to have the same bad state of employment. And, on the financial side, we shall have to redeem issues of bonds, war savings certificates in a large measure, all of which will mean heavy taxation and low employment.
Why can we not now make provision for a scheme similar, so far as collection is concerned, to the unemployment insurance scheme? If a person were out of work he would not have to forgo his rights, because the unemployment insurance scheme could be tied in. I do not need to tell the committee what is being done in the United States, because I am sure hon. members know that very well.
I feel strongly, however, that if we are going to take a few dollars off the pay of the working people in this country, then we should take it off and say at the same time, "This money is going to be placed in a fund, and when you reach a certain age you will get a certain pension. It will not be something for nothing, and there is no charity about it. You will have laid aside for it, and it will be paid back to you."
In this way-and I suggest this in all sincerity-we will remove a feeling of insecurity from the minds of a great many people, who are to-day about forty-five or fifty years of
age and who, when this war is over, will certainly not have a chance on the labour market. I do not know of any better way of keeping up their morale in this struggle than by removing that fear of insecurity. This is only a suggestion. I have neither the time nor the knowledge to go very much further at the moment, but the Minister of Finance has his experts, as has also the Minister of Labour. I feel most strongly that if a certain portion of the tax went into a pension fund, the government would have a very much better response and that such action would be definitely in the public interest.


Mr. SHAW:: A married man is exempt up to SI,200. Take the case of a married man with a wife and two children, and the case of a widowed mother with three children, the eldest son being the bread-winner of the family. Would the eldest son be exempt as a single person up to $660, or be regarded as having the responsibilities of a married man and be exempt up to $1,200, as I think he should be?


James Lorimer Ilsley: The commissioner of income tax tells me that he would get the married man's exemption because he is supporting someone with whom he is connected by blood relationship.


[Stage Direction]
Resolution agreed to, on division.
7.	That the tax imposed by section 9B (1) shall not be exigible if no part of the premium is paid to the taxpayer.
Resolution agreed to.
John Ritchie MacNicol: I think, Mr. Chairman, that resolutions 8, 9 and 10 should be taken together, and I so move.


[Stage Direction]
Motion agreed to.
8.	That the rate of tax imposed by section 9B (2) of the act on all non-residents be increased from 5 per centum to 15 per centum and that the exemption in respect of interest payable' in a currency other than Canadian be repealed.
9.	That the rate of tax applicable to non-resident-owned-investment corporations be increased from 9 per centum to 22J per centum.
10.	That the tax of five per centum on nonresident persons, other than corporations, in respect of the total amount of the royalties, rentals or similar payments for the use in Canada of patents, real or personal property, or for anything used or sold in Canada, be increased to 15 per centum.
James Lorimer Ilsley: There is an amendment to resolution 8 which I should like to have placed before the committee. I will ask my colleague to move that resolution 8 be amended by deleting therefrom the following
2S74
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words: "and that the exemption in respect of interest payable in a currency other than Canadian be repealed".


Mr. CASGRAIN:: I move accordingly, Mr. Chairman.


Thomas Vien: The clause as proposed to be amended will then read:
8. That the rate of tax imposed by section 9B (2) of the act on all non-residents be increased from 5 per centum to 15 per centum.


[Stage Direction]
Amendment agreed to.
William Earl Rowe: That removes part of the objectionable feature of the original proposal, but I think this matter should be given consideration by the committee. With respect to the whole policy of the government in favour so strongly of "pay-as-you-go", I am not so sure that it would not be better for this country to borrow one billion dollars from the United States, rather than strangle industry in this country. The Minister of Finance shakes his head.


James Lorimer Ilsley: Think of the next generation.


William Earl Rowe: I would ask the Minister of Finance to think of next year and the year after. We are in the most destructive conflict the world has ever seen. We are in a battle to the death which is going to test the powers and resources of every man, woman and child in Canada, as well as the natural resources of this dominion. We must, of course, achieve victory at any cost. I have listened to a discussion about raising the exemptions above .$660 and other figures. We must win this war if it takes all we have, and the main question before us as members of parliament is not how this may please some group of labour men or some group of manufacturers or some group of financial interests, but how we can best preserve what might be termed the goose that lays the golden egg. How can we preserve our resources to last through a war that shows no sign of being ended in 1941 and possibly not in 1942 or 1943 or 1944, and perhaps not in 1945? It is more likely to be 1946 before this terrible conflict will end.
I am not so much concerned about the taxes we are paying this year. What I am concerned about is, shall we win if you take everything we have in 1945? This conflict is so serious that our people have not grasped its significance even yet, and I say that in all seriousness. It is not a question of whether you should take ten per cent or more this year. It is a question whether we can win if we give everything we have in 1945. Look at the headlines in the papers. Do not get alarmed about Hess flying over to Britain. Look at the possibility of France [Mr. Hsley.l
joining the enemy, and of Russia possibly lining up with the axis, and Japan with her. The challenge is clearly before us, and we must plan for a long-range effort, and if we can plan so that we can maintain this rate of taxation, then I say that this rate of taxation is not too high. But when one considers many of these taxes, one must consider what effect they are going to have not only on the individual but on the industries involved.
Referring to resolutions 8, 9 and 10, I compliment the minister upon having removed one discriminatory feature of the original proposal. To my mind it was ridiculous to suggest for one moment that because some company had planned for its bonds and interest to be paid in United States funds, those payments should be exempt, while payments of another company, which perhaps in a more or less haphazard way had arranged to pay in Canadian funds, should not be exempt. I can well remember Premier Hepburn in the last provincial campaign in Ontario stating that henceforth Ontario bonds would be paid in Canadian funds, and he criticized arrangements which had been made in the past to pay in, United States funds. Had this clause stood as drafted originally, it would have been most unfair to the province of Ontario. Why should we say that the United States bondholder who holds Dominion of Canada bonds should not be taxed fifteen per cent, while United States bondholders who hold province of Ontario bonds payable in Canadian funds should be taxed fifteen per cent? I am glad the minister has eliminated that provision.


James Lorimer Ilsley: I do not think the hon.
gentleman understands. I believe he is giving me credit for more-from his point of view- than he should.


Paul Joseph James Martin: Just the opposite of what the hon. member said.


James Lorimer Ilsley: The hon. gentleman is congratulating me upon doing something I have not done.


William Earl Rowe: Anyway, I am glad to be
able to congratulate the minister. Go ahead.


James Lorimer Ilsley: The resolution originally
proposed to raise the rate of tax from five to fifteen per cent on dividends payable to non-residents, whether payable in Canadian funds or foreign funds. The only change that I proposed is to take out the part about the foreign funds. It still stands that the rate is being raised from five per cent to fifteen per cent on payments to non-residents if payable in Canadian funds.

Income War Tax Act.


William Earl Rowe: Oh, yes. I thank the minister for partly correcting me, but I am not so far wrong as he thinks. I know he realizes, too, that he has raised it 300 per cent.


James Lorimer Ilsley: No; it is only 200 per cent.


William Earl Rowe: From five to fifteen per cent.


Harry Rutherford Jackman: We call it 200.


William Earl Rowe: Well, call it 200; when it
gets up around there it does not matter anyway. But the minister has raised the charge upon United States investors in this country 200 per cent. Again I must congratulate the minister, whether he wishes to accept the congratulation or n-ot, for at least not having left in the objectionable discriminatory features which were in the original proposals, the ones to which I have referred, namely, that, no matter which way they are written, whether they are expressed to be payable in United States funds or Canadian funds, the charge is still there. But I believe taking the case of the United States investors, because they are our chief creditors in respect of this type of investment, that when they invest their money in this country, whether in some great hydro development or other form of industrial development, or whether in dominion or provincial bonds, we need their money, we are glad of their friendship, we require their investments in Canada; and when one considers the probabilities of tremendous increases in their taxation as individuals following their interest in and participation in this war-to my mind necessary if victory is to be achieved-the Minister of Finance is drying up a great source of financial strength to this country by taxing them to such an extreme upon their investments in Canada. I have no objection to the five per cent.


James Lorimer Ilsley: Will the hon. gentleman
permit me to intervene at this stage? It is just the proper stage to clear up what I think is a misapprehension. The hon. gentleman has referred to the high taxes which residents of the United States will have to pay as they progressively participate in war production. Let me make it clear that a resident of the United States of America may deduct from the income tax which he pays to the United States government in respect of this income which he derives from the Dominion of Canada, the tax which we are levying on him by this resolution. That is, if his income tax is as high as or higher than fifteen per cent on this income, he simply pays it to the Canadian government instead of to the United States government and is not any worse off.


William Earl Rowe: Insurance companies in the
United States of America do not pay any income tax, and many of these bonds are held by those companies. I am, I believe, just as conscious as is the minister of his requirements in the way of revenue, and I believe I am just as sincere as any other hon. member in looldng upon this matter from the long-range point of view of strengthening our ability to pay. If you do not take the money this year you will take it next year; and before this war is over, I believe our payments will be far larger than any we are criticizing or suggesting to-night. Someone has talked about the taxing of the $660 a year men. Some other hon. member spoke of taking half the incomes of the $20,000 a year men, but the government will take three-fourths of it before this war is over, and we shall be glad to give it in order to win the victory which now at times looks difficult. I am as convinced that we shall win this war as I am of my own existence, but we shall win it only by every man, woman and child in this country, irrespective of politics, getting behind the Minister of Finance and behind the government.
There are many things I should like to say to the government with the object of saving at least part of that eighty million dollars. I am concerned, for instance, about some of the lawns which are being laid, at a cost of hundreds of thousands of dollars, in front of officers' messes across this country. I am concerned over some other extravagances. But I am not going to make an issue of these matters, because there is a far bigger picture which demands all our attention, which makes us feel that we are all in this battle, and, whether we like it or not, we must smother all party and racial prejudices and all religious bias, and realize that this great British country, Canada, is fighting alongside the motherland for the survival of freedom itself. We must rise far above the little, petty criticisms of matters which affect us politically and financially. I am as convinced of that as I am that there is a God above.
But I repeat, what I have said privately to the minister, that I would be very careful not to sap the very root and vitality of our financial strength. And I say to my hon. friends of the left that if the labour men of this country are to receive the high standard of living which is their desire and ours, we must protect the capitalistic fabric of this country.

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William Earl Rowe: Capitalism goes hand-inhand with democracy.


John Horne Blackmore: Hear, hear.


William Earl Rowe: I am glad to hear my hon. friend say, "hear, hear." If you destroy the capitalist system and the initiative which seeks and deserves reasonable remuneration for its services, you will destroy not only the goose which lays the golden eggs, but the hopes of the labour men of this country.


John Horne Blackmore: That is right.


William Earl Rowe: My hon. friend says, "that
is right." I am glad to hear him say so.


Clarence Gillis: At $660 a year!


William Earl Rowe: May I tell my hon. friend
that I have paid men on my farm $660 a year who have had far less worries than I had, and who in fact looked more prosperous than either he or I do at present. We have a different status, different places, in the social fabric of this country. Do not let us get too soft-hearted. The hour has struck when we must look these issues squarely in the face. We must not talk primarily for the satisfaction of some hired man on my farm or anywhere else, some man with an income of $600 or $700 a year, living along a brook-trout stream in a house renting at $5 a month, who can live more happily than some of my hon. friends who have not paid their Chateau Laurier accounts for the last three months. I shall not mention any names, although I see an hon. member who, I think, paid his last night.


Paul Joseph James Martin: Do not look at me,
because I do not stay there.


William Earl Rowe: I say this in all seriousness: I have rented houses at $4 a month to men with happy families, with better houses than some hon. members in urban districts are living in at $40 a month. So do not let us get confused by these references to $660. I have seen men in the rural districts, in 1932 and 1933, too proud to take relief, men who had fought in the last great war; but they kept their chins up and said, "We will see it through." I have in mind one man who lived on $20 a month and kept nine children. Four of them are to-day fighting in his majesty's forces overseas and they are still happy.


Charles Edward Johnston: Does the hon. member think it is a disgrace to live on relief?


William Earl Rowe: I do not think so, and if I had to do so I would, rather than die. But this man was too proud to live on relief, and he

said he could survive on that amount. The man for whom he was working would give him a few bags of potatoes, but he did survive and he saw it through. I say, therefore, do not suggest that a man with $660 in certain districts cannot survive. As every hon. member knows, I have fought for the labourer as much as anyone else has done.


Charles Edward Johnston: It is not equality of sacrifice when one has $600 and the other $60,000.


William Earl Rowe: No, probably not; but the man with $600 never aspired to have $60,000, and the man with $60,000 would possibly be happy if he had the $600 and did not have the responsibility involved in the other amount. Do not let us grow soft on this. Let us face the issue. I have every sympathy for the Minister of Finance, but I should like to give him this warning: Be careful lest you dry up the source from which you get the vital, fundamental necessities to win this war; because it is not the taxes of 1940 or 1941, it is not the taxes of 1942 that we have to consider, but Canada's ability to maintain her financial structure and to keep her economic resources sound against the days of 1945 and 1946, so as to meet all the difficulties which we shall have to go through before the war is won. Let us, therefore, face the storm with our chins up and not turn our backs to the enemy because of political opportunism and the expediency of the hour.


Howard Charles Green: Resolution 10 brings up a question which I would ask the minister to consider. It provides for an increase of from five to fifteen per cent on non-resident persons in respect of the total amount of royalties, rentals or similar payments for use in Canada of patents, real or personal property-and it is these words with which I am directly concerned-or for anything used or sold in Canada. In western Canada there is quite a lot of British capital invested in buildings, perhaps office buildings, homes, and so on. This tax is a tax on gross rental. It makes no allowance for taxes that have to be paid to the municipality, for the cost of collecting rentals, for insurance or repairs to these buildings; and in some instances the result has been that after the tax has been paid, the whole amount of the rental has been eaten up and the owner has had to advance money from some other source. In other words, it has become a capital tax. I suggest to the minister that at least a bottom should be put to the tax and that it should not apply below net income. If you take the whole of the net income, that is one thing; but to go further and make a man pay capital is entirely unfair.

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It is not the type of tax that should be imposed by this House of Commons. The British owner is in the position where he may have to pay from his capital, while next door the Canadian owner has a building on which he pays income tax only on net rentals received. That is an unfair situation, and at the very least we should not tax more than net rental.


James Lorimer Ilsley: There have been a number of representations with regard to this tax as it applies to rentals. The situation as between us and the United States is that the United States, imposing this kind of tax, has a rate of 16^ per cent on the gross. Ours is not quite as great as theirs and is based on exactly the same principle, so that it is largely reciprocal so-far as the United States is concerned.


Howard Charles Green: We are also concerned with the British owner.


James Lorimer Ilsley: The hon. gentleman is, but every representation that I have heard before has been on behalf of United States owners of real estate in Canada, and the reply which has been made by the Department of National Revenue has been that this is the same as the United States tax-slightly smaller-and can be avoided, in such cases as the hon. gentleman has mentioned, by incorporation in Canada. If that were done, there would be a corporation tax of forty per cent on the net income, which would be the equivalent of what the Canadian corporation would pay. In fact, it would be a Canadian corporation.
I was not aware personally of this situation as regards Britain. I believe that Great Britain, in dealing with a similar situation, if there are similar reciprocal situations, withholds fifty per cent but allows a filing of return and settlement on net income basis.
I am sure that the bulk of the transactions would be transactions between the United. States and Canada.


Howard Charles Green: There must be very little Canadian money invested in buildings in the United States.


James Lorimer Ilsley: Not very much, but there is some United States money invested in Canada.


Karl Kenneth Homuth: Insurance companies.


James Lorimer Ilsley: There does not seem to be very much reason for making an exception to the rule which applies to other payments in the nature of rentals. As I say, if an owner is hurt he can incorporate here and pay the corporation tax, and he would be on equality 14873-1821
with other owners of property in Canada. He can do that whether he is British or American.


Howard Charles Green: The resolution deals with royalties, rentals or similar payments. There is not much comparison between royalty and rental, because you do not have to pay something in connection with royalty. I suggest that the situation would be met if the minister inserted the words "net rentals" instead of leaving it at gross rentals as at present; or in some other way he might make provision for an owner to deduct his taxes, cost of repairs and insurance.


James Lorimer Ilsley: In that event it should be forty per cent and not fifteen per cent, and then the excess profits tax rate should come in.


Howard Charles Green: Why should the British owner pay forty per cent when the Canadian owner may pay only fifteen per cent on a building next door? The minister is dealing with the eventuality of the British owner incorporating, but why should he be compelled to incorporate?


James Lorimer Ilsley: He should be on an equality with his Canadian competitor who is doing business in real estate in Canada.


Howard Charles Green: The Canadian individual
would not pay forty per cent.


James Lorimer Ilsley: No; the individual pays a graduated rate, depending upon his total income, but the normal business rate would be the corporation rate. Under the excess profits tax it would be subject to the seventy-five per cent rate. The British owner of real estate in Canada should not be taxed any lower , than that. This tax on gross was designed to effect rough justice, and doubtless does. In a great many instances it probably is not as heavy a tax as a forty per cent rate on the net profits would be. If, however, any foreign owner wishes to be treated exactly the same as his Canadian competitor, all he has to do is to incorporate and then he will be a Canadian resident, get rid of this entirely and pay the same rate as the Canadian competitor.


Howard Charles Green: The Canadian owner does not have to incorporate, so he would not be treated the same. At the present time, in some instances you are taxing capital; it is not an income tax at all. I suggest that that is not fair.


James Lorimer Ilsley: No; it is a tax on gross, and there is no principle against imposing gross taxes. We impose them right along, without regard to whether the person upon whom we
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impose them has any profits left or not. If the business is in a healthy condition it may have large net profits, but it is quite usual for these gross taxes to be imposed on one owner who probably will get along all right. As I say, he would be in a better position than if he were a corporate owner in Canada, perhaps better than if he were an individual owner; for the individual owner might be in the high income tax brackets, he might be paying a high rate on his net profits, even if they were from real estate. But in this case that the hon. member mentions, the man is not in as good a position. This gross tax is a rough and summary one.


Howard Charles Green: It certainly is.


James Lorimer Ilsley: The hon. gentleman has perhaps heard of a few cases where there is no income left, but he has not heard of the cases where they gain. I do not know why we should depart from our principle of taxing at the source on a gross basis money that goes abroad. There are some people for whom I do not see a way of escape.


Howard Charles Green: It must be remembered that at present the government is controlling rents so that there is no chance of people getting a higher revenue by increasing rents.


Alexander Malcolm Nicholson: I should like to commend the minister for increasing this rate of tax from five to fifteen per cent. I do not propose to enter into an argument with the hon. member for Dufferin-Simcoe regarding the merits and demerits of the capitalist system, but I think it should be clear to all that those who have invested money in Canada have an interest in the outcome of the present conflict. Our victory is their victory. Should defeat come, it will be their loss. It is only fair that those who have made any form of investment should bear their fair share of the cost.


Richard Burpee Hanson: What is their fair share?


Alexander Malcolm Nicholson: I hope the minister will not take too seriously the observations of the hon. member for Dufferin-Simcoe.
What I rose to ask is, what was the reason for including this clause which has been deleted, and what difference will the deletion make to the treasury for the current year?


James Lorimer Ilsley: It will make a difference of between $8,000,000 and $10,000,000.


Alexander Malcolm Nicholson: Will the minister
explain his reason for including it in the first place and later asking for it to be changed?


James Lorimer Ilsley: I must admit that in the
first place I could not see any difference in principle between taxing bond interest which was payable in Canadian funds on bonds held by non-resident owners and bond interest payable in United States funds on bonds held by non-resident owners. It was due to my inexperience perhaps that I did not see it, because, whether my reasoning was sound or unsound, it is undoubtedly considered by everybody who deals in bonds-banks, trust companies, insurance companies, certainly in the United States-that there is a difference. They consider that when Canadian provinces, municipalities or corporations go into the New York money market and offer bonds payable in United States funds in New York, there is an implied obligation on the part of Canadian authorities not to impose taxes on those payments. They consider that we have gone into their money market and floated our securities and agreed to pay them so many dollars in their own currency.
It was represented to me by ever so many persons that the situation was not the same at all with regard to securities payable in our own currency, that they would regard that as an internal matter subject to the changes in conditions that we might meet from time to time. After I heard a number of these representations, many by gentlemen who were most considerate, most friendly, and who appeared to be as anxious as we are to advance the war effort of Canada, I was convinced that it would be injurious to the credit of Canada if we continued that provision. In 1933, Mr. Rhodes who was then, I think, Minister of Finance, undertook to do the same thing, perhaps for the same reasons, and he also withdrew it. But I intend to withdraw the rest of the clause, because I think our securities that are payable in Canadian funds and are now in the hands of United States holders, whether they be provincial or municipal or corporation securities, should have their interest taxed now at a higher rate.
Hon. gentlemen must realize that the United States rate against non-residents is 164 per cent. That is subject to the convention or agreement between the United States and Canada which was made in 1936, by which that rate was reduced to five per cent both ways. With the imposition of this fifteen per cent rate, that convention lapsed and they will tax us at 164 per cent and we will tax them at 15 per cent, which is fairly even. The reason why I think we are justified, and I do not think it will be resented abroad to any extent is this. Of course some holders of these bonds, like insurance companies and

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mutual organizations of one kind or another who are not subject to income tax and who, therefore, will not be able to set off this increase against the income taxes which they pay the United States government, will be out a little on this. But in my view they should share the fortunes of the Canadian people with regard to taxation on income which has its origin in Canada. We are taxing our own people fifteen per cent on the first $1,000 of that taxable income, in addition to the national defence tax. We have not touched the five per cent rate all these years; we have not moved this non-resident rate up' until we have taxed our own people very, very heavily. It would appear to me to be just, and I think in retrospect at least it will be regarded as just by everyone, to have this rate raised from five per cent to fifteen per cent.


Richard Burpee Hanson: On the first point raised, and on the question of the deletion to which the minister has referred, is not the crux of that the fact that if you maintained that position it would constitute a default, and therefore holders of those coupons would have a right of action against any assets, we will say, of a Canadian corporation in the United States? They could obtain payment from the company, and the effect would be that the company would have to pay this fifteen per cent. It is a default if you do not pay according to the terms of the contract. Therefore I congratulate the minister upon having deleted that provision, for that reason.
In the present situation I understand the theory upon which the minister is proceeding. It is another example of the doctrine of ex necessitas; he wants more money, and he is putting these non-resident holders of Canadian municipal, provincial and corporation securities on the basis of the resident taxpayer, who pays fifteen per cent on the first thousand dollars of net taxable interest. Apparently that is justified on this basis, but I wonder whether the minister has thought through the effect on the credit of Canadian provinces, Canadian municipalities and Canadian corporations, and the discrimination that is brought about by not including dominion issues held in the United States and payable in Canadian funds. Tor the life of me I cannot see why you tax an Ontario bond payable in Canadian funds, which is in the hands of a United States holder, and you do not tax a dominion bond. The reason is just this, that you do not wish to impair the credit of the dominion but you are not concerned about the credit of the provinces. I would ask the minister if he has not received
from the Ontario authorities a very pointed- I will not say violent-protest against this
measure-


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: -as it affects their credit; and would the minister give us the text of that protest?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: I hold in my hand a clipping from to-day's Globe and Mail, as follows:
Hepburn Asks Ottawa Forgo Bonds Impost
Demands Proposal to Levy 15 Per Cent on Income Be Abandoned Premier Silent
Au unqualified demand that Ottawa abandon its budget proposal to levy a 15 per cent tax payable on income from provincial and municipal bonds accruing to non-residents and payable in Canadian funds, yesterday was made by Premier Hepburn following a cabinet conference at Queen's Park.
Information that a wire had been sent from the cabinet came officially last night in an acknowledgment from Finance Minister Ilsley's office. The text of the communication was not revealed by Mr. Ilsley, and Premier Hepburn withheld comment. It is not anticipated that a reply will be forthcoming until the Ontario position receives further analysis by federal treasury officials.
The minister has made it clear that he is going ahead with this proposal. I should like to know the nature of the protest made by the province of Ontario, and what answer has been given by the minister. I suggest to him that the failure to tax dominion issues under similar circumstances constitutes a gross discrimination against the provinces and municipalities and can have but one tendency, namely, to injure the credit of the provinces and municipalities while upholding that of the dominion. It does not seem to me right, just or fair. If you must have money, tax them all; do not pick out the provincial and municipal issues and let the dominion issues go. I know the answer will be-


James Lorimer Ilsley: What is it?


Richard Burpee Hanson: "Protect the credit of the dominion in the American money market".


James Lorimer Ilsley: That is not my answer.


Richard Burpee Hanson: That would be a very probable answer; but I should like to hear what the minister has to say on that question of discrimination.


James Lorimer Ilsley: My first answer is that in 1933 the government of Mr. Bennett did this very thing.
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Richard Burpee Hanson: Well, two wrongs do not make a right. If they were wrong, that does not make this right.


James Lorimer Ilsley: I know. I do not wish
to attack my hon. friend, or anything like that, but this is exactly what was done in 1933.


William Earl Rowe: It was changed and never
came into force.


James Lorimer Ilsley: Just wait a moment.


Richard Burpee Hanson: An accommodation was reached.


James Lorimer Ilsley: Just wait. My hon. friend wants an explanation, but he does not want to let me make it.


Richard Burpee Hanson: I beg
pardon.


James Lorimer Ilsley: This is exactly what was done in 1933, only the rate was five per cent instead of fifteen per cent. A tax was imposed in 1933 which affected the bond interest of provincial, municipal and corporation bonds payable in Canadian funds then in the hands of non-residents. That has been the law from 1933 to 1941; it has been accepted by all the provinces without protest of any kind, so far as I know, except a faint protest by one of the western provinces three or four years ago of which I have some dim recollection, but that protest was not carried further. That is the established system in this country. I presume the reason why the Bennett government did not wish to tax the interest on dominion bonds was that they themselves had issued the bonds, in which event the argument becomes rather embarrassing.


Richard Burpee Hanson: Because it is a breach of contract.


James Lorimer Ilsley: When the dominion itself issues a bond and then taxes the interest which it has agreed to pay-the authority that issued the bond and made the promise proceeds to tax it-well, it was not regarded as a good thing to do. But that is a different matter from taxing other people in your country. You are not taxing them at all; you are simply taxing the holders of those bonds, asking the provinces who are paying that interest to withhold the amount of the tax. I never thought there was any question of principle involved in this at all that was not settled long ago and that had not become part of the well established law and practice of this dominion. Now Mr. Hepburn has
[Mr. Ilsley.l
sent me a long and emphatic telegram, as follows:
Following my telegram of May eighth I reiterate my emphatic protest against your proposal to levy a fifteen per centum tax on interest received by non-resident holders of Ontario bonds. Although you have somewhat modified your original proposal you still leave the impost upon interest paid to non-resident holders of Ontario bonds payable in Canadian funds. By exempting bonds issued and guaranteed by the dominion and at the same time imposing a. fifteen per centum tax on Ontario and other provincial issues you are discriminating against and undermining provincial credit. The iniquitous principle inherent in your proposals still remains a threat to the best interests of Canadian provinces and is bound to interfere with the good opinion of Canadian credit that American investors have formerly held. If the dominion can levy a tax on Ontario bonds and at the same time exempt its own such policy if unchallenged would make it impossible for the treasury of Ontario to carry on its ordinary financing. Our treasury officials question your authority and the legality of your proposal. I maintain that the action is rank discrimination and the situation should be remedied immediately.
I have not as yet replied to that telegram. I received it only last night and have not had time to frame a reply.


William Earl Rowe: This amendment is a reply in part.
Mr.' ILSLEY: I am replying to the telegram now. I am pointing out that, far from this action being new in its nature; far from its being the assumption of a position which raises a discrimination for the first time, this discrimination has existed from 1933 down to the present time.


William Earl Rowe: But it certainly is a
discrimination.


James Lorimer Ilsley: Well, they are taxed and we are not. But from the whole tenor of the representations that were made to me, I should be very much surprised if United States financial circles, or the people whose influence counts with regard to the credit of the dominion, would consider this any impairment of that credit. The value of those bonds is, I suppose, impaired to some extent by this tax, for the time being. It will adjust itself in the next transactions that take place in the bonds, and I hope and believe that by fair-minded Americans it will be regarded as an inevitable thing, something which in a moment of great extremity, and at a time when it was taxing its own people at rates in excess of these, the Dominion of Canada had to do.
The discrimination is that we have not done it with respect to our own bonds. I did not want to, and none of my predecessors has ever

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wanted to bring himself to the point where he would place a tax on the interest on our own bonds, after we had signed the bonds ourselves.


William Earl Rowe: Ontario signed the bonds.


Richard Burpee Hanson: You do
locally.


James Lorimer Ilsley: Yes, locally. We sell bonds to our own people, signed by us, and then we turn round and take as much as fifty per cent or ninety per cent out of the interest on those very bonds for which we promise to pay.


William Earl Rowe: It would be no worse than doing it to Ontario bonds.


James Lorimer Ilsley: Well, I should be embarrassed if I were waited upon by persons who had bought our bonds and said, "We bought your bonds, and then after we got your bonds you got some of the money."


William Earl Rowe: You would be embarrassed; but the premier of Ontario is embarrassed;
that is the difference.


James Lorimer Ilsley: No, it is a different matter. This principle is well established. It has been established for eight years.


Mr. CLAXTON:: Resolution 9 deals with the tax applicable to non-resident-owned investment corporations. In his budget speech the minister did not deal with this tax, and I am wondering whether he could give us an estimate of the amount he hopes to realize by the increase from 9 per cent to 22^ per cent, and also a statement as to how much was realized out of this 9 per cent tax in the last fiscal period.


Richard Burpee Hanson: What has been received under the 9 per cent rate, and what will be received under the 22J per cent rate?


James Lorimer Ilsley: The amount assessed in the fiscal year 1940-41 on these non-resident-owned investment corporations was $842,810.95. That amount might not all have been for that year. It might relate to a previous year or previous years. But that was the amount assessed in that year. What was the other question the hon. member asked?


Brooke Claxton: I should like to have an estimate as to how much it is expected will be raised in consequence of the increase to 22J per cent?


James Lorimer Ilsley: No estimate was made.


Harry Rutherford Jackman: It would be 250 per cent increase, would it not?


James Lorimer Ilsley: The amount would depend upon various things. They might not continue in business.


Richard Burpee Hanson: Has there been any protest against this tax?


James Lorimer Ilsley: Yes.


Brooke Claxton: There is one element I wanted to point out to the minister, one which of course he realizes, namely, that these nonresident-owned investment companies will in all probability not continue in business. I believe the committee probably knows that these are companies which came to Canada, and which were created in this country for the purpose of holding investments here belonging to non-residents. They came here because they got in Canada the security of our laws, and they had confidence in our institutions. For these reasons some hundreds of millions of dollars of capital were brought here from Europe, the United Kingdom and the United States. A good deal of that money has since left Canada for the United States. But there is a great deal left here yet.
I suggest that the committee and the minister ought seriously to consider whether or not the amount he hopes to get from this increased tax is worth the loss to Canada which would arise from the money ultimately leaving the country. I suggest that if the tax is imposed it will be in the interests of owners of the companies either to dissolve them and remove the assets out of Canada, if they can, or just to dissolve them and to put the assets in custodian accounts in Canada, in which even the Canadian government would lose almost all of the tax it is now receiving.
I suggest that if this 22-j per cent tax is imposed, at the first opportunity which presents itself these owners of capital will remove that capital from the country, and that it will not come back. They placed the money here on investment, because they had confidence in our institutions. They felt it would be secure in this country, and they acted with the assurance that they would be well and favourably treated throughout the years, so far as taxation is concerned. A substantial business was built up from the very fact that people throughout the world had confidence in Canada. This business was a mark of the feeling of security felt by the investing world in the future of Canada and in its institutions. When we begin to destroy the basis of that confidence, by imposing a tax such as the one now proposed, we are taking a most important move.
I share with hon. members our sense of responsibility, and our sympathy with and confidence in the minister. I share with them
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our desire to help him in every possible way to raise the vast sums of money required. In fact, I believe even the owners of the capital here involved would like to contribute, provided such contributions did not make it impossible for them to derive any benefit whatsoever from the continuance of their investments in Canada. But I seriously raise the question as to whether this is not getting out of line with what the traffic will bear; I am wondering if by such a tax the future of the country will best be served.
I would recall to the minds of hon. members that when this tax was first imposed it stood at 2\ per cent over the tax on non-residents. That amount was considered by our government and those responsible for taxation to be a proper charge upon these companies for the benefits and privileges of acquiring jurisdiction in Canada.


James Lorimer Ilsley: Not quite that.


Brooke Claxton: That was my information. It was a rough charge, arrived at in that way; and it was considered that that was what it was worth to these companies.


Richard Burpee Hanson: How far back does it go?


James Lorimer Ilsley: I believe it was 1936 or 1937.


Brooke Claxton: It would be 1936, I should think.


Richard Burpee Hanson: Then it cannot be loaded on to the Bennett government.


Brooke Claxton: It began by a spread of 2J per cent between the tax on non-residents and the tax on non-resident companies. The spread is now increased to 7\ per cent, and the total tax involved is 22i per cent.
I have this further to say, that a good deal of the assets of these non-resident companies consist of United Kingdom securities. Therefore the companies in Canada, by reason of the exchange control restrictions there, cannot get from England the revenue from their British securities; and yet they are taxed in Canada in respect of that revenue.


Richard Burpee Hanson: As if
received?


Brooke Claxton: I believe so. Then these companies have very considerable holdings of United States securities, and there they would be subject to the 16i per cent, too. These companies will not have the advantage of non-residents of exemption from the holding tax in respect of dominion government bonds. Putting all these things together cumulatively, we get a result which the traffic

will not bear; in the long run we shall lose this business, and I do not think it will come back.	.


Richard Burpee Hanson: I puzzled over this resolution, and I regret to say that I had not received any illumination on it until I heard the hon. gentleman. What he has stated is extremely disquieting to me. This is going to drive capital out of this country to a degree.


Alexander Malcolm Nicholson: Where is it going to go?


Richard Burpee Hanson: I do not know. It may be liquidated at great loss. It [DOT]seems to me that the minister is endeavouring to put this on a parity, I suppose, with the present taxation on domestic companies.


James Lorimer Ilsley: No, on non-residents.


Richard Burpee Hanson: On nonresidents, all right, but if what the hon. member for St. Lawrence-St. George has said to-night is correct, I would ask the minister to consider the matter again because I believe it will be a black-eye to foreign capital coming to invest in our securities.


James Lorimer Ilsley: I wish my hon. friend would let me put my side of the matter before him before he passes judgment. I have the greatest respect-it is mutual, my hon. friend says -for the hon. member for St. Lawrence-St. George, but let me tell this story. I cannot go into details because they are extremely complicated, but the Income War Tax Act was amended in 1936 to permit a new species of corporate creature to have existence in this country. They were called non-resident owned investment corporations.


Richard Burpee Hanson: You found a new victim, that is all.


James Lorimer Ilsley: Not at all. These investors were most anxious to come here and incorporate, largely in Charlottetown, to some extent in Montreal and perhaps in some other places in Canada. We provided that they should be taxed at 7i per cent, which was half our corporate rate at the time, but certain deductions were permitted from their income which made the effective rate on these companies five per cent, not 7jt per cent. I said to the hon. member for St. Lawrence-St. George that I would correct his statement. I should properly have said that I would complete his statement. His statement was perfectly correct, technically, but it was never intended to tax these companies 2i per cent more than non-residents. It was intended to

Income War Tax Act
tax them at the non-resident rate which was five per cent, and this was a way of doing it. The rate in the statute is 7i per cent, but the effective rate on their income was five per cent.
The reason why we are raising this rate, multiplying that original 7J per cent by three, is that we have multiplied the non-resident rate by three. It was five per cent and has now become fifteen per cent, and the effective rate on these companies now is not 22i per cent but, by reason of deductions and adjustments which I cannot describe because they are so complicated but anyone acquainted with them will know what they are, the effective rate is fifteen per cent.
It may be that we shall lose revenue rather than gain revenue by this. I do not know. The resolution is being passed more as a matter of principle than anything else. There was never any undertaking, express or implied, with these corporations that we would not move the rate up if we moved our nonresident rate up. If our non-resident rate goes to fifteen per cent, it is only fair that this rate should also go to fifteen per cent. I do not know whether they will discontinue their corporate existence, but they will in effect be paying only fifteen per cent on the dividends of their shares when they go abroad. Is that not correct?


Mr. ABBOTT:: That applies only to the revenue which was received from dividends of Canadian incorporated companies. On the interest from Canadian bonds the tax will be 22| per cent. I am sure I am correct in that. As a matter of fact, these companies will not benefit from the exemption of section 9 B(2). If they hold the bonds of the Dominion of Canada they will pay 22^ per cent. I know one or two companies which have substantial holdings of Dominion of Canada bonds. They now pay a nine per cent tax on these bonds. Under the proposed amendment they will pay 22i per cent.


James Lorimer Ilsley: The hon. gentleman may be right. I was led to believe, and I still believe, that substantially the rate will be fifteen per cent. I will, however, check that.


Douglas Charles Abbott: Only, I think, if the company's entire portfolio is in the shares of Canadian dividend corporations.


James Lorimer Ilsley: Do any of these companies hold dominion bonds?


Douglas Charles Abbott: I can speak only of one or two. I have knowledge of their balance sheets, and they are holding almost entirely bonds. There are only two cases I can recall.


James Lorimer Ilsley: What kind of bonds?


Douglas Charles Abbott: 
James Lorimer Ilsley: I shall have to check the
statements of my hon. friend, but when I was Acting Minister of Finance-I could not get the details of all the various enactments and references from one section to another in my head solidly enough to remember them for more than a day at a time- I remember distinctly that the intention was to give these corporate companies the five per cent rate, and it was considered that by giving them a rate in the act fifty per cent higher, that is the effective rate they would get. It was based upon that, and the theory of this resolution, whether there is some error in detail or not, is that we are giving them the fifteen per cent rate now.


Douglas Charles Abbott: It will not work out in
that way.


Richard Burpee Hanson: What is
the practice of the department in the application of the law? That would show what the intent was, to a degree at all events. The commissioner of income tax would know.


James Lorimer Ilsley: The practice is to apply
the 7i per cent or the 9 per cent rate as it has been applied since last year. But it is the effect with which we are concerned- what it works out to. We are supposed to arrive at the non-resident rate. These are in effect non-residents. They are individuals. They may have been British who own shares all over the world, property and shares in India, south America, and many other places; they transferred these shares to a Canadian company which, in many instances, had its head office at Charlottetown, and the individual investors took in return the shares of that Canadian company. Then they received dividends on the shares of the company. But for the most part their property
Income War Tax Act

was abroad. They just put that in this for purposes which were advantageous to themselves.


Richard Burpee Hanson: Let me ask a plain question: did they come here to escape taxation in their own jurisdiction? Is that a true statement of affairs? If it is, of course they alienate a certain amount of sympathy which I might have for them.


James Lorimer Ilsley: I should not like to-


Richard Burpee Hanson: The minister would not like to say that?


James Lorimer Ilsley: No.


Richard Burpee Hanson: I quite appreciate that.


James Lorimer Ilsley: I should like to ask the hon. member for St. Lawrence-St. George.


Brooke Claxton: I do not think anyone could give a categorical answer, because, as the minister has said, this has been an exceedingly complicated business. Each company is an individual entity of itself, set up for a special purpose, and usually having a trust behind it. But I would say that many of the companies that were created for the purpose of getting more advantageous taxes have ceased to exist since the change in the British finance act in 1936. For the most part these companies came to Canada to obtain, first, security, and, second, through domiciling themselves in Prince Edward Island they avoided any possibility of double succession duty- which was certainly a substantial advantage. There were, however, other purposes as well.


Thomas Vien: Shall the item carry?


Richard Burpee Hanson: It is eleven o'clock. I think the minister had better sleep on it.


James Lorimer Ilsley: Could I have resolution 8 carried?


Thomas Vien: Shall resolution 8 carry? Some hon. MEMBERS: No.


Alexander Malcolm Nicholson: Mr. Chairman-


Thomas Vien: Shall resolution 9 carry? Mr. ILSLEY: Perhaps it had better stand.


Thomas Vien: Shall resolution 10 carry? Resolutions 8, 9 and 10 carried.


Alexander Malcolm Nicholson: I understood that we were discussing the entire group together.


James Lorimer Ilsley: If the hon. gentleman raises that question, I shall have to ask that they all stand.


Thomas Vien: Resolutions 8, 9 and 10 stand.
Progress reported.
It being five minutes after eleven o'clock, the house adjourned, without question put, pursuant to standing order.
Friday, May 16, 1941.