1942-07-17

OFFICIAL REPORT

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*	OF

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House of Commons Befmtes
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Friday, July 17, 1942

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Fifth report of special committee on land settlement of veterans of the present war.- Mr. Macmillan.

Right Hon. W. L. MACKENZIE KING (Prime Minister):: I wish to take this opportunity of tabling three copies in English and French of the recent exchange of notes dated April 24, May 20 and June 27, 1942, between the governments of Argentina, Australia, Canada, United Kingdom and the United States. This exchange of notes brings into effect as of June 27, 1942, the memorandum of agreement initialed at the final session of the wheat committee held at Washington between July 10, 1941 and April 22, 1942.
For the convenience of hon. members I suggest that the document be printed in Votes and Proceedings. There are about thirty typewritten pages.


Mr. E. E. PERLEY (Qu'Appelle):: In view of this document being tabled to-day, and the Minister of Trade and Commerce having said yesterday that he might make a statement, is he prepared to make that statement now?


Mr. SPEAKER:: That might come on the orders of the day.



STATEMENT OF THE MINISTER OF TRADE AND COMMERCE

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On the orders of the day:
Hon. J. A. MacKINNON (Minister of Trade and Commerce):: The hon. member for
Qu'Appelle (Mr. Perley) suggested yesterday that if the international wheat agreement should be tabled to-day I might make a
statement on it. In tabling the agreement the Prime Minister (Mr. Mackenzie King) has announced that it will be printed in the Votes and Proceedings, which I think obviates any necessity for any long statement on my part, particularly in view of the fact that some time ago a statement was given to the press which received very wide distribution in Canada. However, I might very briefly refer to a few of the important points covered in the agreement, for the benefit of other hon. members, perhaps not as diligent as the hon. member for Qu'Appelle, who may be inclined to follow it up.
The Washington wheat conference was held between Great Britain, Australia, Argentina, the United States and Canada. A convention was drafted which it is hoped will ultimately be agreed to between all wheat exporting and importing nations. Realizing that no general conference could be held at the present time or possibly for some time after the cessation of hostilities, the five nations participating in the Washington meetings have agreed to implement the terms of the convention as far as possible until it is ratified by all interested countries.
The main points of the convention agreed to be made operative between the five countries are:
The relief pool-article 6, page 6-of not less than 100,000,000 bushels of wheat: Canada,
25,000.000, the United Kingdom, 25,000,000, the United States, 50,000,000, and Argentina, Australia, Canada and the United States such further amounts as may be agreed.
Control of production-article 2, page 2-so as to not exceed domestic requirements plus the basic export quotas and maximum reserve stocks provided for in the convention.
Control of stocks-article 3, page 3-providing for Canadian year-end stocks of not less than 80,000,000 or more than 275,000,000 bushels.
Expert control of wheat and flour-article 4, page 4-providing for Canada to have 40

International Wheat Agreement

per cent, Argentina 25 per cent, Australia 19 per cent and the United States 16 per cent of the total volume of international trade in wheat and flour after allocation of quotas to other exporting countries not now parties to the present agreement, and allowance for exports from governments not party to the agreement.
Price control-article 5, page 6-providing for basic minimum and maximum prices to be fixed by the council from time to time. Until the convention is agreed to or by other countries which may participate, it is provided in paragraph 6 of the memorandum of agreement that it shall be fixed by unanimous consent between the five nations, and until so fixed shall be the last price negotiated by the United Kingdom for a bulk purchase of wheat from its principal country of supply.
Administration, which ultimately is to be by a council of one or more delegates from each contracting country, with a permanent secretary and if necessary an executive committee. In the meantime, until the full convention comes into force, administration shall be by equal representation of each of the five countries.



REQUEST FOR STATEMENT AS TO ARRANGEMENTS FOR 1942 CROP

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On the orders of the day:
Mr. G. H. CASTLEDEN (Yorkton):: I
wish to direct a question either to the Minister of Agriculture or to the Minister of Trade and Commerce. In view of the possibility that a large crop of wheat may be harvested in the west next month, and the reported shortage of storage facilities, will the appropriate minister inform the house what the government intend to do with regard to quotas, delivery arrangements and storage payments for the 1942 crop?


Georges Parent: Order. This question
should be placed upon the order paper.



ORDERS IN COUNCIL


William Lyon Mackenzie King: I desire to table, in
English and French, volume 6 of proclamations and orders in council from January 7, 1942, to March 31, 1942.
These volumes are now being published quarterly instead of half-yearly as heretofore.



HONG KONG COMMISSION


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On the orders of the day:
Hon. R. B. HANSON (Leader of the Opposition):: I understand that Colonel Drew has sent another communication to the Prime Minister. I wonder if he will be good enough to lay it on the table.


William Lyon Mackenzie King: I decline to lay the communication on the table for the same reason that I declined to lay the previous communication on the table. I might add, however, that as my hon. friend is aware, he has received a copy of the communication, as have also the leaders of the other two groups in the house.



CZECHOSLOVAK REPUBLIC


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On the orders of the day:
William Lyon Mackenzie King: The Canadian government has agreed to a proposal of the government of the Czechoslovak republic to enter into direct diplomatic relations with Canada by the opening of a legation of the Czechoslovak republic in Ottawa. Doctor Frantisek Pavlasek, who has represented his country as consul general of the Czechoslovak republic in Montreal since 1936, has been appointed by his government as the first Czechoslovak minister to Canada. I am sure that Doctor Pavlasek's promotion to the rank of Envoy Extraordinary and Minister Plenipotentiary will be warmly welcomed by his many Canadian friends.
It is entirely fitting that a minister of the Czechoslovak republic should join the other ministers who have been appointed to represent in Canada the allied go-ernments which are now in London. Nearly two years ago the Canadian government recognized the government which had been established in the United Kingdom under the presidency of Doctor Edward Benes. That government is recognized in a full sense as the government of the Czechoslovak republic and as being in its juridical position identical with the position of the other allied heads of states and governments in the United Kingdom. The

Business oj the House
governments of the United Kingdom and of the United States accredited ministers to the President of the Czechoslovak republic some time ago. While the Canadian government does not at present propose to accredit a Canadian minister to the president of the Czechoslovak republic in London, we are glad to receive a minister of the Czechoslovak republic in Ottawa. The question of the permanent exchange of ministers between the two countries is to be deferred until after the war.
I	should like to take advantage of this occasion to express again the profound admiration and deep sympathy of the government and the people of Canada for the Czechoslovak people, who are proudly and valiantly enduring the most bitter oppression in their long history. The free peoples of the world, enured though they may be to reports of nazi persecution, have been shocked and horrified by the brutal executions and repressions which followed the assassination of Heydrich. The destruction of Lidice, with the indiscriminate execution of its male inhabitants and the systematic purge of the leaders who have remained in their own country, are unforgettable additions to a long tale of terrible suppression. Their spirit of resistance has not been dampened by these barbarous outrages, and we can feel sure that they will endure these trials with high courage until the hour of their liberation.



BUSINESS OF THE HOUSE


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On the orders of the day:
William Lyon Mackenzie King: I notice that the press interpreted the vote of yesterday on, the motion of the hon. member for Gaspe (Mr. Roy) as a decision by this house that there should not be any secret session. Such as a matter of fact is not the case, nor was it the intention. The motion that was voted on yesterday was a motion for the house to adjourn. Just why hon. gentlemen opposite supported that motion in the way they did I have yet to understand. However, hon. members will recall that I stated that before the government could decide on the question whether or not it was advisable to have a secret session it was desirable that the minister who is primarily concerned should have
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before him such information as it was thought would justify the calling of a secret session. Since the return from Collingwood and Midland yesterday of my colleague the Minister of National Defence for Naval Services (Mr. Macdonald), he and I have gone over the matter together and we both feel that in the light of some of the things which were said in the course of the discussion yesterday afternoon, and as well in the light of representations which have been made to him, it would be advisable to have a secret session of the house. I would now announce that to-morrow morning the first order of business will be the holding of a secret session to discuss or consider the matter of urgent public importance which was the subject of the motion by the hon. member for Gaspe.
Mrs. DORISE W. NIELSEN (North Battleford): Would the Prime Minister be kind enough to tell us whether it will be possible for hon. members of the house to obtain any information to-morrow morning during the secret session, with regard to the opening by the allies of a second front, or is the discussion to be limited to the question raised by the hon. member for Gaspe (Mr. Roy).


William Lyon Mackenzie King: I stated that the discussion would have reference to the question raised by the hon. member for Gaspe, but if my hon. friend wishes to bring up the question she has just raised, I will be prepared to make such answer as it may be possible to make to it.



GASOLINE


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On the orders of the day:
Mr. J. G. DIEFENBAKER (Lake Centre):: I should like to direct a question to the Minister of Finance in connection with a matter which has been previously mentioned in this house, following representations made by various public bodies in the western provinces, including, I believe, the government of the province of Saskatchewan. The question is whether or not a final decision has been arrived at by the government on the question of the relaxation of the rule preventing farmers and their families from using trucks for transportation purposes, subject, of course, to conformity with gasoline and rubber regulations.
Labour Conditions


Georges Parent: I think this is a question which should be placed on the order paper. Already it has been the subject of discussion, not in this but in a similar form, and since it is a question having to do with a declaration of intention on the part of the government, I do not think it should be asked on the orders of the day.


John George Diefenbaker: If I may be permitted a word, I believe a decision should be reached by the government; representations have been made, and I suggest, with the utmost respect, that this is a matter of very great importance to many farmers in the western provinces.


Georges Parent: I must say that I am not impressed by the argument that the question should be answered now. I think it certainly is a question that should be placed on the order paper.



MILITARY CAMPS


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On the orders of the day:
Hon. J. L. RALSTON (Minister of National Defence):: The other day the hon. member for Red Deer (Mr. Shaw) asked whether a report he had heard was well founded, to the effect that the available fire-fighting apparatus at Barriefield military camp had proved useless on the occasion of a recent fire. I want to say to him-and I only mention it now in order that it may be on the record-that the reports I have received indicate that the available fire-fighting apparatus operated most efficiently. I shall be glad to show the hon. member a copy of those reports.



LABOUR CONDITIONS


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On the orders of the day:
Mr. J. H. BLACKMORE (Lethbridge):: I desire to direct a question to the Minister of Labour based on a letter which reached me from Vancouver this morning, from which I quote:
In Vancouver there are many munitions workers available and anxious to play their part. The age limit of thirty-five years for war emergency training excludes hundreds of efficient women. I have written to Hon. Mr. 
Mitchell, but his reply is that all training is sponsored by employers. That can hardly be the case. The government pays so much per week per student while training, and should have some say regarding the selecting of students. This is total war, or should be, and every woman should be working, regardless of age. The above unit have a membership of three hundred, all skilled in the manufacture of munitions, yet to date only sixteen of them are in the plants, due to my personal efforts and contacts. If you can do anything-


Georges Parent: Order. The hon. member is reading a long letter in support of his question, which is in somewhat the same category as one already asked this afternoon. I should regard that as a notice to the minister to make reply to-morrow or at such other time as he may see fit.


Mr. MITCHELL:: I would rather get it out of the way now.


Georges Parent: A question improperly
asked may not be improperly answered.



WAYS AND MEANS


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The house in committee of ways and means, Mr. Vien in the chair.
The CHAIRMAN:: Resolution 1, part I.


George Hugh Castleden: With regard to what
was the defence tax, is it the intention to tax labour which receives less than the minima of $660 for single and $1,200 for married men under the new regulations?


Mr. ILSLEY:: No.


George Hugh Castleden: It is intended to collect the tax at the source, as was done previously?


James Lorimer Ilsley: Yes.


George Hugh Castleden: How much money was collected last year under these regulations, from persons who, as it turned out later, had not reached the minimum requirements for taxation?


James Lorimer Ilsley: The information is not
available at the moment, and I am doubtful whether it would be possible to get it. To answer the question it would be necessary to tell the hon. gentleman not only what was refunded because it turned out that the person paying was earning less than the minimum, but also the amount which should be refunded, and that information is not complete.

Income War Tax Act


George Hugh Castleden: That is the very
point I am making-the fact that those who are getting less than the minima are being taxed by the government, and the money which they are paying is being held by the government. The machinery by which they can recover the money is so complicated that most of them just let it go. I undertook to follow up a case to see what the procedure was and what possibilities there were of getting these refunds. When the taxpayer inquired of the department, the dominion income tax division sent him a long form which he had to fill out. He had to give his name and address, the names and addresses of all his employers during 1940-and he had worked for several; he had to state whether he was married or single or a widower, the number of his dependents or dependent children, grandchildren, and whether they were wholly dependent on him; the number of dependent brothers and sisters under twenty-one; the reasons for his claims; particulars of income, gross salary, wages, bonus or other compensations; the value of board, subsistence and so on; gross dividends, gross interest-most of these chaps do not get very much of that-various deductions; the names and addresses of the persons making deductions at the source; the amount collected by each, and so on. He had to state what the gross income was from each of his employers. Many of these workers do not keep an accurate record so that they do not know what their employers have deducted; all they get is a cheque at the end of the week. He has to give the total income from these sources, one-half of the amount taxable for 1940, at 2 per cent or 3 per cent as the case may be, less credit for national defence, and make out a complete disclosure of total income from all sources for 1940, and so on. He has to state the name and address of his wife.
The form is so long and complicated that by the time this fellow got through with it he was not sure whether the information he gave was correct or not. He made out the form and sent it in, and so far he has not heard anything about it. He finally received a letter on July 28, 1941, referring to his request for refund. The department sent him the defence tax brochure with a full explanation, but since then he has received no information. I wrote to the inspector of income tax at Regina on April 30 of this year, and the last word I had was that nothing had been done in the matter.
If the government does not intend to tax these people receiving the lower incomes, there should be some method by which the return of the tax could be facilitated. If the
intention is to tax them, then there should be an impost in the form of a tax. Most of these chaps do not mind paying the tax; they have been without work so long that they are glad to get a little pay. If the government does intend to tax them, then I suggest that it should be made plain to them; otherwise the machinery for making the refund should be simplified and made easier than it is at the present time. I contend that there must be at the very least $2,000,000 taxed from these people who are receiving less than the minima. That is my estimate of the amount which these people are being taxed, and I suggest that something should be done in this matter. Either they should be taxed openly, or the return of the refunds should be facilitated.


Mr. GIBSON:: This is a very difficult problem. We have men who have been employed for short periods at high rates of wages; consequently the national defence tax has been deducted from the amount they received, and *when they claim a refund those deductions must all be checked. The employer's returns must be checked with the claim which the taxpayer files, and that takes a certain amount of time. I know there are claims numbering many thousands, which will all have to be checked, and it cannot be done very quickly. It is necessary to secure the information that has been asked for in order that the claims may be thoroughly checked before refunds can be made of the amounts refundable. So far as the income tax department is concerned, every effort is being made to get ahead with these refunds as rapidly as possible.


George Hugh Castleden: I realize that, but it seems to me that the machinery is too heavy for the amount of money involved. This man's refund does not amount to more than nine or ten dollars, and he would rather let it go than bother about it. That is the very thing I am pointing out. These people are not bothering about it; they are paying the tax. I do not know whether it is worth while keeping the machinery going if you are going to search through all the records.


Colin William George Gibson: If we did not check a claim for a nine dollar refund, we would have a great many nine dollar claims.


Mr. ABBOTT:: I have a few observations to make along the same lines as those made by the leader of the opposition (Mr. Hanson) when he opened the discussion on this resolution. particularly that part of his remarks relating to the burden placed upon married men. There seems to me to be too great
Income War Tax Act

a difference between the position of the married man and the position of the single man, particularly in the lower income brackets. In the case of the married man with no children there is a tax credit of $150. I do not think anyone will argue that the tax deduction should be sufficient entirely to support a wife or children, because in that case it would mean they were being supported at the expense of the bachelor and the other taxpayers of the country. I am not saying that my hon. friend suggested that, but the hon. member for Parry Sound (Mr. Slaght), in giving his figures the other night of 36 cents a day, did intimate that that was the amount one would have left to support a wife.
I	want to deal with the effects of these tax schedules upon married men in the lower income brackets. The leader of the opposition referred to men in the $1,200 to $1,700 bracket as forming the backbone of this country and said he felt that married men in this category were being terribly penalized by this budget. There seems to be widespread misapprehension among members of this house, and certainly among the people of the country, as to the effect of these new tax schedules upon married men in the lower income brackets. I have made some calculations covering incomes from $1,500 to $2,500. While I have not the exact figures, I think it is fair to say that 75 to 80 per cent of the married men in this country would come within that salary range or lower. In making my calculations I have taken married men with one, two, three, four, five and six children. I realize that in my own province of Quebec families are much larger than that, but I thought that that would be a fair basis to work upon. I found the results of these calculations rather striking. In making them I excluded the compulsory savings portion of the tax, because the taxpayer gets that back. If he is paying insurance premiums or making principal payments on a house, he can claim those as a reduction. Hon. members will agree that if we are to check inflation there must be a substantial reduction in the spending by the people in these lower income groups. On the other hand, on grounds of equity, everything should not be taken away by taxation;
they should be able to look forward to spending that or using it when the emergency is over.
It will take just a few examples to illustrate my point. A man with one child and receiving $1,500 per year pays less in cash under the new rates than he paid under the rates last year. This year he pays $54.60, while last year he paid $55. It is true the difference is slight, it is much greater in other cases, but the fact is that he does pay less. A married man with two children and receiving $1,700 pays less this year than he paid last year. A man with an income of $1,900 and having three children pays less than he did last year. A man with an income of $2,100 and having four children pays less than he paid last year. A man with an income of $2,300 and having five children pays less than he did last year, and a man with an income of $2,500 and having six children is in the same position. Married men in the salary range between $1,500 and $2,500 are actually paying less than they did under last year's schedules, depending upon the number of children they have. There is another point to consider. Last year a provincial tax was payable in some of the provinces; these have been eliminated under the agreements between the dominion and the provinces.
With the permission of the committee I should like to place this table upon Hansard. It is quite short, and it sets out in dollars and cents just what men in these income brackets will have to pay depending upon the number of children they have up to six. The impression seems to have been created that the low income man, the family man with children, is being discriminated against in this budget. I am satisfied that that is not so, that the reverse is true. It is a tough budget, but this is a tough war. If the budget is to be accepted by the people as a whole, and I hope it will be, it is necessary that they should be satisfied that it is fair and equitable. The minister and his advisers are to be congratulated upon doing what they have done to see that the married man with a relatively low income is given real consideration. The table is as follows:

Income War Tax Act
Net Tax Only (Excluding Compulsory Saving)
		One	Two
Income	child	children$1,500	..Old	$ 55 00	$ 35 00New	54 60	24 501,700	..Old	65 00	45 00New	95 40	41 401,900	. .Old	75 00	55 00New	139 40	85 402,100	..Old	115 00	65 00New	183 40	129 402,300	. .Old	155 00	75 00New	227 40	173 402,500	. .Old	195 00	115 00New	271 40	217 40
Married man with

Three	Four	Five	Sixchildren	children	children	children$ 15 00	10 50	25 00	$ 5 66	17 50	3 50	35 00	15 00	31 40	10 50	45 00	25 00	$ 5 66	75 40	21 40	3 50	55 00	35 00	15 00	119 40	65 40	11 40	65 00	45 00	25 00	$5 66163 40	109 40	55 40	3 50


Richard Burpee Hanson: I am surprised at the results of the hon. member's computation. First of all, I am glad to find him in agreement with me in connection with the disparity between married and single men. I shall endeavour to analyse the figures which he has placed on Hansard, but I wonder if he has seen an article which appeared in the current issue of the Financial Post entitled "Bachelors Get Budget Breaks." This article contains a Jong table which is divided into three categories. First there is the percentage increase in taxes, then the total increase in taxes, and then the total taxes at 1942 budget rates, excluding post-war refunds. That is working it out on the same basis as my hon. friend. I shall examine with care the figures he has given, and in the meantime I should like to have an expression of opinion from the minister on the point raised by the hon. member. If I could have the permission of the committee I should like to have this table put on Hansard, for its informative value. It may not be correct.


James Lorimer Ilsley: I do not know, but it is all right to put it on Hansard.


Richard Burpee Hanson: Then I will hand it to Hansard:


BACHELORS GET BUDGET BREAKS
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Most significant complaint raised against the new budget is not the size of the gross tax bill, bound to be overwhelming in the face of Canada's commitments, but in the apportionment of the burden. Herewith the Financial Post presents one facet of this pressing problem; the disparity in the tax increases imposed on those with children as compared with single or childless taxpayers.
Two key facts come out of the accompanying table: the tax jump is, in all brackets except the $2,000 incomes, uniformly higher as the family responsibilities increase; _ and the percentage increases are higher in the lower brackets. Latter fact is largely attributable to taxation in the higher brackets having already approached saturation levels, but note that the married man with four children at $4,000 a year has had almost four times as big a percentage tax boost as the single man with $35,000.
For comparative purposes, dollar tax rates and increases for 1942 are included.
Gross	Single	Without	With one	-Married man With two	With three	With foursalary	man	children	child	children	children	childrenPercentage increase $	in taxes %	%	%	%	% -	%2,000	
4,000	
7 000	. 29-6	31-9	69-9	79-0	33-5	-30-0. 33-4	42-9	47-1	48-5	48-7	82-8. 24-8	29-8	32-0	33-9	35-8	38-012,000	. 20-1	23-1	24-3	25-4	26-5	27-620^000	. 21-1	23-4	24-2	25-0	25-9	26-835',000	. 22-8	24-7	25-2	25-8	20-3	26-9Dollar increase in taxes $ $	$	$	$	$	$2 000	. 101	56	66	47	13	-64'000	319	289	261	218	170	2117'000	540	525	511	488	462	43312,000	934	937	937	928	916	90220,000	. 1,924	1,949	1,961	1,973	1,985	1,99735j)00	. 4,145	4,208	4,240	4,272	4,304	4,336
Income War Tax Act
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Gross				- Married man		
annual	Single	Without	With one	With two	With three	With fousalary man children Total taxes at 1942 budget rates excluding post-	child children war refunds*	children	children$	$	$	$	a	$	$2,000	231	161	107	53	144.000	964	816	668	520	4667,000	2,285	2,107	1,929	1,751	1,57312,000	
5,592	5,002	4,794	4,586	4.378	4,17020,000	
11,029	10,279	10,071	9,863	9,655	9,44735,000	
* Taken to	nearest dollar.	21,263	21,055	20,847	20,639	20,431
I had hoped that when we met to-day the minister would make some statement in reply to the observations I made in the budget debate, as well as in the committee stage, with respect to this feature of the budget and with respect to the normal tax. It would be interesting to hear what the minister's reactions are. I did not, of course, analyse all the resolutions, because that would be a hopeless task to attempt at one time, and I thought we could only deal with it in chapters. I trust that we can deal with the whole matter in an orderly way, and that the discussion will not be allowed to get out of bounds as it has done in the last day or two, because if we go on in that way we will not get through.
Mr. 1LSLEY: Mr. Chairman, I had intended to prepare a careful statement on one or two points as to which I think there is quite a widespread misapprehension, but I have not had time to do it. I have some figures here, though, on these important points which I shall present to the committee, and I shall do it slowly and systematically. I shall not answer all the questions which the leader of the opposition asked the other day, but after we have finished with this phase I can deal with the other questions he asked.
I want to deal first with the question whether we have increased the burden disproportionately on the low income groups. It has been said in the press, by the leader of the opposition, the leader of the Cooperative Commonwealth Federation group, and by others, that the proportionate increase is greater on the lower income groups than on the higher income groups.
Richard Burpee Hanson: Does not the chart indicate that?


James Lorimer Ilsley: Taken just in that way, that is true, but it is of no importance, of no significance; it would have to be that in any increase in taxation. For instance, if you are taxing a man at the rate of 10 per cent and you raise his income tax by 50 per cent, you have taxed him at the rate of 15 per cent. But if you are taxing a man at 70 per cent and you increase his rate by 50 per cent you are taxing him at 105 per cent, which is impossible and absurd. Therefore, to apply that criterion is to apply a false and misleading criterion.
What is the right criterion to apply in determining whether increases have been progressive; that is to say, whether they have been a little heavier or much heavier as the income goes up? The officials of the department, the experts, tell me that the fairest criterion is this: to take the increase in tax expressed as a proportion of what the taxpayer has left this year before the increase takes place. That is to say, each of us has an income, each of us pays a tax under the old rates, and we have left in our hands after paying that tax a certain amount. If when the new and higher rates come along, the increase in the tax which we all have to pay rises in proportion, expressed as a ratio of the amount we have left, then you have effected a real progressive increase. You have increased the tax more on the higher income groups than you have on the lower income groups. That is the fairest criterion, and I think the generally accepted one.
Applying that criterion I have here a table that I shall place on Hansard to illustrate the progressive character of the proposed changes in income tax. The table is as follows:
[Mr R. B. Hanson.]

Income War Tax Act


TABLE TO ILLUSTRATE PROGRESSIVE CHARACTER OF PROPOSED CHANGES IN INCOME TAX
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Increase in tax and minimum savings requirement expressed as a percentage op the income remaining

[Stage Direction]
Income	Single	Married	Married, 2 dependents	Increase in tax	Savings	Total	Increase in tax	Savings	Total	Increase in tax	Savings	Total%	%	%	%	%	%	%	%	%S 700..'..	-0-2	30	0-8	-	-	-	-	-	-850....	01	7-4	7-5	-	-	-	-	-	-1,000....	0-4	8-9	9-3	-	-	-	-	-	-1,250....	0-4	9-3	9-7	-2-1	2-1	0	-0-5	1-3	0-81,500....	2-3	9-4	11-7	2-4	7-6	100	-0-7	1-7	101,750....	3-9	9-5	13-4	2-2	9-9	12-1	0-3	3-2	3-52,000....	60	9-7	15-7	3-1	10-9	140	2-4	5-6	8-02,500....	7-5	9-8	17-3	5-7	11-2	16-9	4-3	91	13-43,000....	8-8	9-8	18-6	7-1	11-5	18-6	4-3	12-0	16-34,000....	10-4	10-6	210	8-7	120	20-7	61	13'6	19-75,000....	10-7	10-9	21-6	9-5	12-4	21 9	7-7	140	21-77,500....	11-2	11-7	22-9	9-9	13-7	23-6	8-8	15-4	24-210,000...	111	12-5	23-6	9-9	14-4	24-3	8-7	16-5	25-220,000....	17-7	7-3	25-0	16-7	8-6	25-3	10 -3	9-8	26130,000...	22-2	5-4	27-6	21-1	6-3	27-4	20-9	7-4	28-350,000....	30-1	3-7	33-8	28-6	4-3	32-9	28-4	51	33-5100,000...	44-8	2-3	47-1	42-3	2-6	44-9	42-0	31	451500,000....	68-6	0-9	69-5	61-5	10	62-5	61-4	1-2	62-6
It would take a long time for me to go through all these figures, because it is quite a table, but I will take the tax alone and read a few figures to the house which will leave no doubt as to the very carefully worked out progressive character of these increases in income taxation.
Let us take a single man having an income of $700. The percentage of the increase in tax to what he has left after his present taxation is a minus quantity, minus 2 per cent; that is a decrease. At $850, the increase in the tax is -1 per cent; at $1,000, the increase is -4 per cent; at $1,250, the increase is -4 per cent; at $1,500, the increase is 2-3 per cent; at $1,750, the increase is 3-9 per cent; at $2,000, the increase is 6 per cent; at $2,500, the increase is 7-5 per cent; at $3,000, the increase is 8-8 per cent; at $4,000, the increase is 10-4 per cent; at $5,000, the increase is 10-7 per cent;
[Stage Direction]
), the increase	i is	11-2	per	cent; atthe	increase	is	11-1	per	cent; atthe	increase	is	17-7	per	cent; atthe	increase	is	22-2	per	cent'; atthe	increase	is	30-1	per	cent; at
$100,000 the increase is 44-8 per cent; and with an income of $500,000, the increase is 68-6 per cent.
Now take the married man. There we begin with the married man who has an income of $1,250 because there is no tax unless the married person earns $1,200.
Richard Burpee Hanson: Normal tax.


James Lorimer Ilsley: Either normal or graduated. Take the married man with an income of $1,250. The percentage of the increase in tax to what he has left after his present taxation is a minus quantity, minus 2-1 per cent; with an income of $1,500, there is an increase of 2-4 per cent; and so on down the table.
The next objection was that we have treated the married taxpayer unfairly as compared with the single taxpayer, and that is probably the most telling point, if it- were valid, that has been made in the press and in the house. Let me, as I did before, confine myself to tax increases alone, leaving out compulsory savings. I will put this table on Hansard:

Income War Tax Act


INCREASE IN TAX ALONE
[Stage Direction]
(amounts rounded to nearest dollar)
Income	Single	Married	No children	2 children	5 children	8 childrenSI,250	5	-25	6	1,500	30	34	-10	-	2,000	101	56	47	2,500	151	126	102	30	3,000	202	184	119	122	174,000	319	289	218	237	2105,000	398	378	327	269	3727,500	570	555	517	430	43810,000	712	682	636	542	420
Looking at this table, it will be seen that the single taxpayer with an income of $1,250 has had his tax increased by $5; the married man, without children, and with that same income, has had his tax decreased by $25; the married man with two children has had his tax decreased by $6. I admit that that is just a little out of line from what the proper principle would be, but slight departures are necessary in the application of the formula; that cannot be avoided. There is just one other difference in this whole table. The single taxpayer having an income of $1,500 has had his tax increased by $30, and the married taxpayer by $34: that is the second failure of the formula to get ideal results and, as hon. gentlemen will note, it is the last one. The married man with $1,500 and two children has had' his tax decreased by $10. At $1,750 the increase for the single man is $58, for the married man without children it is $36, and for the married man with two children it is $5. At $2,000 the increase for the single man is $101, for the married man without children it is $56, and for the married man with two children it is $47. At $2,500 the increase for the single man is $151, for the married man without children it is $126, and for the married' man with two children it is $102. At $3,000, the increase for the single man is $202, for the married man without children $184, and1 for the married man with two children, $119.
Richard Burpee Hanson: Just there: does not the single man with an income of $3,000 pay $1,064?


James Lorimer Ilsley: Yes, I believe so.


Richard Burpee Hanson: How much did he pay on his 1941 income?


James Lorimer Ilsley: That is, including the compulsory savings. We do not know how much of that he will pay the government. He may not pay anything.


Richard Burpee Hanson: What is
the tax?


James Lorimer Ilsley: It is $824.


Mr. SLAGHT:: The minister is speaking
of the increase as so-and-so; is that over last year?


James Lorimer Ilsley: Over last year. The point
I am trying to make is this. The argument has been that we have pooled these two categories and in some way have done an injustice to the married man; that we have narrowed the spread between the single man and the married man. That is not so. With the exception of the two instances which I gave, in every case we have widened the spread. We have increased the tax more on the single man than we have on the married man, and still more than on the married man with two children.


Arthur Graeme Slaght: Would not that depend
upon whether you were pretty bad last year or not?


James Lorimer Ilsley: Well, if it is an attack on
last year's rates, that is another thing, but I thought it was an attack on this year's rates. Assuming that last year's rates gave a proper relationship between the single and the married man, we have done even better for the married man, and still better for the married man with children this year, on the lower categories. I will go along. At $4,000 the increase for the single man is $319; for the married man, $289; and for the married man with two children, $218. At $5,000 it is $396 for the single man, $378 for the married man, and $327 for the married man with two chil-

Income War Tax Act
dren. At $7,500, it is $570 for the single man, $555 for the married man, and $517 for the married man with two children. At $10,000 it is $712 for the single man, $6S2 for the married man, and $636 for the married man with two children.


John Horne Blackmore: Before the minister
goes on, do these figures allow for the exemptions? Is it the net result which the minister has been giving us?


James Lorimer Ilsley: That is right. The hon.
member means, exemptions for the children and everything?


John Horne Blackmore: Yes.
Mr. ILSLEY': Yes. I have taken the married man; he is taxed on a different basis from the single man, and then the married man with two children has certain deductions or exemptions for his children.


John Horne Blackmore: That is all included?


James Lorimer Ilsley: That is all included. In regard to this table which I said I would put on Hansard I merely gave the figures for single men, married men, and married men with two children. The table carries it out to the married man with five children and the married man with eight children; this will give further information and bear out the general proposition which I have stated.
Let me now give the difference in figures. This is the difference in the tax payable by the single person and the tax payable by the married person, the married person with two children, with five children and with eight children. The difference last year between the tax payable by a single man and a married man w'ith children, at $1,500 was $142; the difference 'this year is $150.


Mr. MacNICOL:: Over last year?


James Lorimer Ilsley: No. Let me say it over again. I am giving now the difference last year in the tax payable by a single man with $1,500 and a married man without children, at $1,500-


John Ritchie MacNicol: That is the difference between last year and the year before?


James Lorimer Ilsley: No. I am taking the difference last year. I am talking now purely about the tax for last year as between the single and the married man. At $1,500, the difference between the tax on the single man and on the married man without children was $142; this year it is $150. The difference last year, at $1,500, between the tax on the single man and the tax on the married man with
44561-274J
two children was $182; this year it is $318. The difference last year, on the same income, between the tax on the single man and on the married man with five children, was $217; the difference this year is $367. The difference last year, at $1,500, between the tax on the single man and on the married man with eight children, was $217; this year it is $367. I have similar figures for the $2,000, $2,500, $3,000, and $5,000 levels. The differences that I have been giving for this year are the differences in the total take, including the compulsory savings.


Richard Burpee Hanson: Of course that complicates the situation.
Mr. ILSLEY': Not if a person just thinks about it a little. I have here also the difference in tax. If any hon. member thinks it would be better to leave out the compulsory savings entirely and take the tax I have the figures here for that. With a minor exception the same result is obtained, that the difference between the tax on the single man and the tax on the married man last year and the tax this year has been widened.


An hon. MEMBER:: Will the minister put that on Hansard tpo?


James Lorimer Ilsley: Yes, I will put that whole thing on Hansard. Here are the figures:
Difference between the taxes payable by single persons and by married persons, as specified, under previous and proposed tax rates.
Income		Married person with-		
Previous	No	Two	Five	Eightrates	children	children	children	children$1,500..	.. $142	$182	$217	$ 2172,000. .	.. 165	280	340	3402,500. .	.. 200	360	450	4753,000. .	.. 222	407	572	6225,000.	.. 332	597	932	1,197Proposed rates-Total tax, including refundable	portion.	No	Two	Five	Eightchildren	children	children	children$1,500....	$150	$318	$367	$ 3672,000....	170	386	601	6012,500....	175	391	715	8263,000....	180	396	720	1,0305,000	250	466	790	1,114
Proposed rates-Net tax, excluding refundable portion.
No Two Five Eight children children children children
$1,500....	$138	$222	$ 247	$ 2472,000....	210	334	441	4412,500	225	409	571	6263,000....	240	490	652	8075,000....	350	666	1,059	1,221


Richard Burpee Hanson: Does the minister contend that his figures answer the point I made, that there is not sufficient
Income War Tax Act

distinction between the bachelor and the married man, having regard to the latter's duties and responsibilities? That is the point of my argument.


James Lorimer Ilsley: I do not know what the test is that one applies. We tried to preserve as much tax advantage this year for the lower categories as they had last year.


Richard Burpee Hanson: The minister means he has tried to preserve the same ratio?	.


James Lorimer Ilsley: Yes. Let me explain what I mean by that. In the taxes for last year there was a $400 exemption in the graduated tax for each child. The first or lowest rate was IS per cent; that would give a tax advantage to a person in that income rate of $60 for each child. We thought it would be a little harsh perhaps to start at the lowest so that we took the second lowest, which was 20 per cent. The people who have incomes of-I do not know exactly-$2,500, let us say, to be in the 20 per cent class, got a tax advantage last year of $80 a child. This year, therefore, we put in the graduated tax a tax advantage of $80 a child. That gave a greater tax advantage than last year to the $1,000 man, to the $1,500 man, to the lower income people; but it gave a smaller tax advantage to the taxpayers with incomes of say from $2,500 or $3,000 up.
It must be borne in mind that a person paying on an income of $100,000-1 shall just have to take figures that will not be accurate -might have a tax advantage of perhaps 80 per cent. He would have to have a pretty big income to have that, but let us say 70 per cent; there would be many married men who would have a rate of 70 per cent, and with $400 off for a child they would receive a tax advantage last year of $280.


Richard Burpee Hanson: That is not very much. In the case of an income of $500,000 it would be 98 per cent.


James Lorimer Ilsley: It may not be very much. These people in the higher income groups are all flattened down so that they do not get any more tax advantage than men in the lower income groups.


An hon. MEMBER:: They do not need it.


James Lorimer Ilsley: We flattened the whole thing right along the line. We have given the poor man a little more tax advantage than he had last year and the richer man a little less, but we have given the same deduction right across the line.


Mr. GREEN:: Would it not have been fairer if it had been calculated on the lowest taxable rate of this year's budget, which is 30 per cent? This exemption of $80 works out on a basis of 20 per cent. It does not help much to refer back to last year.


James Lorimer Ilsley: The only reason we took the 20 per cent, rate this year instead of 30 per cent is that we are giving back half of it. We are giving the taxpayer a certificate for a return of half after the war.


Howard Charles Green: But he cannot eat the certificate.


James Lorimer Ilsley: We have to raise a lot of money in some way, and if the people did not let us have it in this way we would expect them to lend it to us voluntarily. We would have to get it, that is all, or we could not finance. And a great many are lending. It is to catch the man who does not feel any obligation to lend that we have made him lend this money by the compulsory savings feature. That is why it is fairer to take 30 per cent in taxes than 20 per cent.


Howard Charles Green: I suggest that the minister consider that feature, whether it would not be wise to make it on the basis of 30 per cent, which would give everyone an exemption of $120 for a child.


James Lorimer Ilsley: Would the hon. gentleman suggest that we give no money back? That is what goes with it.


Howard Charles Green: I was going to ask whether or not one of the tests applied in drawing up this budget was the amount of money a person will have left to live on. It seems to me, from the explanation given to-day and from the general frame of the budget, that little consideration has been given to that aspect of it. Where the tax has been increased so greatly the exemption for the people with the lower incomes should have been increased also, so that they can at least get by. That is the test-what a person has left to live on; and I doubt very much whether it has been used in drawing up this budget.


Mrs. CASSELMAN:: The budget allows a married man to deduct $150 for his wife?


James Lorimer Ilsley: That is right.


Frederick Clayton Casselman: If the wife is working and has a separate income, that is also taxed. Does that deduction of $150 still apply to the man's income?


James Lorimer Ilsley: By the amendment of which I gave notice the other day the wife can

Income War Tax Act
earn as much as she likes without its affecting the deduction of $150 from the husband's tax. That does not apply to investment income of the wife, but she can earn as much as she likes. The way the budget was at first, if she earned more than $660 she was taxable as a single person and the married man lost his exemption; he also was taxable as a single person.
That was on the theory that the $150 deduction from the tax of the married man was made in order that he might support his wife; that if he was not supporting his wife he did not need it, and therefore we did not allow it. In actual working out, it means that married women had a great incentive to stop work when they had earned $660, and not on any account to earn more than that, because if they did they immediately increased their husband's tax bill by at least $150, and I think something additional under the graduated tax. Therefore they started to leave industry, and I think some of the government departments, and there was a great uproar in the country about the folly of the government in framing a tax scheme which would make it desirable for married women to leave industry and the government service when we needed the services of everyone, as we do to-day. We had to cut that out in order to give the married women some incentive to remain at work. I do not want to raise grievances for people, but of course the person who has the grievance now is the single woman, who sees working beside her a married woman who has a husband to support her, and whose husband is getting an allowance on the assumption that he has a home and is supporting his wife when actually he is not supporting her, because she is working. But we cannot help it; we have to get these people to work and keep them at work, so that we had to make that change.


Frederick Clayton Casselman: Generally speaking
the wife who works is either' doing a double job, looking after her work and looking after her home, or employs extra help, perhaps a maid or a nurse for the children. I think if she is maintaining a home and working as well, any objection might be answered in that way.


James Lorimer Ilsley: I will get plenty of letters
from single women, as I have in the past, complaining about this favoured treatment of married women.


Arthur Graeme Slaght: Would it be all right for
the minister to table some of those letters?


James Lorimer Ilsley: Yes, I think I could table
them all without embarrassment. But if we
get any complaints in this connection I will send an excerpt from Hansard of the remarks of the hon. member for Edmonton East (Mrs. Casselman).


Mr. GILLIS:: I should like to come back
for a few moments to the question raised by the hon. member for Yorkton (Mr. Castleden). So far as I am concerned the answer given by the Minister of National Revenue was far from satisfactory, in regard to the refundable portion of the tax. This portion is to be deducted at the source, but the minister says no scheme has been worked out as yet with respect to allowances, and his answer would lead anyone to believe that this was a rather difficult job. That may be so with regard to the individual who is working for a small organization, or who is employed on a farm on a seasonal basis, or something of the kind, but the regulations definitely make provision for allowances in regard to the portion of the tax which will be returned, provided that a certain part of the income is devoted to mortgage payments, hospital bills . or insurance premiums. I do not see that there would1 be any difficulty in having most of the workers in Canada register their mortgages with their employers, as well as their insurance premiums. These are fixed obligations; they know what they will be at the first of the year, and the deductions do not begin until September. The employer is making the deduction and the return to the department, and there would be no additional expense or clerical work involved if the employer were given to understand that it was part of his obligation to advise his employees to register with him their mortgage and insurance obligations. Of course the hospital end of it is something they will have to take care of themselves.
I am not so much concerned with the income tax provisions of the budget. I think anyone who has sufficient income to have any difficulty in figuring out his tax at least is not going to be in want. I should like to clarify a statement made by the hon. member for St. Antoine-Westmount (Mr. Abbott) which might be misleading, though I do not think the hon. member meant it in the way it reads. He said that 75 per cent of the married people in Canada would be in the income bracket of $1,500 per year.


Douglas Charles Abbott: What I really meant, if I
may interrupt, is that 75 per cent would be in that bracket or lower.


Mr. MacINNIS:: Mostly lower.


Clarence Gillis: I should think the statement would be correct if the hon. member had said 20 per cent, but if he means less than
Income War Tax Act

$1,500 he would be correct. The groups about which I am concerned are those affected by the normal tax. I believe the exemption of $660 is too low; I think it should be raised to $750. I believe the exemption of $1,200 for the married man, for normal tax purposes, is too low; I think that should be raised to $1,500. This tax is deducted at the source, and it affects everyone in the low income groups. People in that category are merely getting a subsistence at the present time, and nothing should be taken below $1,500 and $750, as the case may be.
This tax cannot be properly discussed without relating it to wage rates and the cost of living bonus. I am not going into the question of wage rates, but a large percentage of the workers of Canada, particularly those in the non-essential industries, have already suffered a 15-2 per cent drop in their standard of living on account of the war. They do not come under the cost of living bonus arrangement; it concerns only those employed in the war industries. There are many people who are said to be in the non-essential industries, though they are not non-essential; for if they were they would not be employed to-day, therefore I think the expression "nonessential" is misleading. They are catering to and caring for the needs of the nation in war time; they are essential, or they would not be there. Their wage rates have remained unchanged; they have not been given the benefit of the cost of living bonus, though the cost of living has increased by 15-2 per cent. They were excluded from that benefit under order in council 8253, though I understand some amendment has been made since that time, providing for some increase in the cost of living bonus over the last basic period, which was October, 1941. I think the Department of Finance should understand, with respect to this normal tax, that it affects particularly this group which already has made a sacrifice equal to a lowering of their standard of living to the extent of 15-2 per cent. I believe that situation could be overcome by increasing the exemption as I have suggested. If you cannot amend the wagefreezing regulations to take care of these people, you could give them compensation by increasing the exemptions that apply under the normal tax.
Then there is another category which I think should be considered. Last evening the Ottawa Journal stated that the minister was considering some adjustment in the tax arrangements affecting the married man, as well as some modification of the income tax as it applies to officers serving in Canada.
I am not particularly concerned with officers

as such, but I think the tax as it applies to them at the present time is unjustifiable. I imagine that in exempting officers serving overseas, or those on ships on the Atlantic, or those in Newfoundland, and so on, the department went on the assumption that the men serving in those theatres were exposed to a certain amount of risk for which they should receive some compensation, and this tax arrangement was made accordingly. I see very little distinction or difference to-day between the officer serving on the east or west coast of Canada and the officer serving in England. They are merely standing to against the time when they shall go into action. Their duties are just as strenuous as the duties of those in the old country. It is a stand-to. They are not engaged in actual combat in either place, and the tax arrangement has placed the lower ranking officers, from captain and lieutenant down, in the position where some will revert back to the ranks in order to get clear of this burden. I have a letter from a man on one of the coasts who resigned his commission two weeks ago on the ground that if he reverted to the rank of warrant officer it would result in enhancing his financial position.
I submit that there should be some readjustment with respect to officers, and I was waiting for the minister to say something in that regard. If the Journal is correct, I submit that the minister should make a statement to offset the impression that exists. These are two categories that are discriminated against. The question of risk should not be taken into consideration. A man may be in action on the east coast or the west coast before a man goes into action in the old country. Men who are on the naval patrol boats on the coast are exempt, and so are the officers on the training ships off the harbours. But the officer who is responsible for organizing the defences on the coasts, working twelve and fourteen hours a day-and most of these men work such long hours-are obliged to pay income tax and therefore suffer a considerable cut in their pay. These two matters should be rectified.
There is another point that should be considered. As regards the return of hospital expenses, that is a justifiable arrangement, and there is a group of workers in Canada in most of the plants who come within this category. They maintain insurance schemes of their own. They contribute to the maintenance of benevolent associations, hospital protection and so on, and doctors' fees. They are making a contribution of perhaps ten dollars a month maintaining these services for themselves. In the event of sickness or surgical operation they

Income War Tax Act
are protected, but actually they have a financial outlay that should be taken into account in connection with any taxing arrangement. It is not possible for the Minister of Finance to keep his finger on all these matters, but in his taxing arrangements, I submit, if they are to be equitable, all these factors that eat into the economic life of the people should be considered.
There is another aspect of the cost of living bonus which is not much discussed but which is important. A man has five or six or seven children going to school. He alone is working to support them. There is one cost of living bonus going into that house. Next door his neighbour may have five or six grown boys and girls, all employed in plants, and five or six cost of living bonuses are going into that house. I suggest that the cost of living bonus arrangement is not equitable. It is not handled fairly.


Humphrey Mitchell: Would the hon. member suggest that when a wage structure is established it should be on the basis of the number of children? He knows the classical answer of the labour people, that you should pay the same wages to the single man because he is saving to get married. If the hon. member carried his suggestion to its logical conclusion he would base wages on the number of dependents and children.


Clarence Gillis: You cannot give a stock answer in this case. We are discussing a budget, and we are not living in normal times; we must therefore take abnormal action. If we were living in normal times and the entire economy of the country were devoted to taking care of the citizens of the country, a proper wage structure would be the family allowance. But in making taxing arrangements now I think the matters I am attempting to describe should be taken into consideration in order to avoid hitting one group much harder than another. There are non-essential workers who have suffered a 15 per cent decrease in the standard of living by reason of the fact that they do not come under the cost of living bonus. Such people should not be taxed in the same proportion as those in other industries who have been compensated for the increased cost of living.
This was what I rose chiefly to say. Had the minister made some statement with regard to the question of officers, and as to the manner in which exemptions- are to apply, as outlined by the Joumal apparently they knew more about it than the minister did-I would not have taken up the time of the house. I would ask him specifically
to consider raising the exemptions in the case of the normal tax from $660 to $750. That is only $12.50 a week or $750 a year, and with taxes coming out of that there is not much left to live on. The sum of $28 a week is not much to maintain a family when all other expenses are taken into account. The amounts of $660 and $1,200 in the normal tax are far too low. If the suggestion I make were adopted it would do much to encourage many of these people in the lower income groups to accept the other taxing arrangements.


Richard Burpee Hanson: There is no exemption on the normal tax.


Clarence Gillis: Yes, there is an exemption.


Richard Burpee Hanson: That is on the graduated tax.


Clarence Gillis: There is an exemption below $660 on the normal tax.


Mr. BENCE:: One point mentioned by the hon. member for Cape Breton South I must take issue with, and that is the suggestion that life insurance should be registered with employers at the beginning of the year. In my judgment the personal affairs of employees are their own business and that of the administration; it is something between them and the government and no one else. Employees with whom I have discussed the matter, and, I believe, tl;e majority of employees throughout Canada, would take that position. There is going to be considerable difficulty in collecting these refundable payments, which are not to be paid back for some considerable time. After all, as has been pointed out, that money is required to meet obligations at the time it is paid to the employee. When the insurance premium or the mortgage payment is due it has to be paid, and if a man has to wait for months before he can get his money he will be put in a difficult position and in some instances lose his life insurance.


Clarence Gillis: That is what I was trying to overcome.


Alfred Henry Bence: The money is taken from him and repaid afterwards, as I understand. He is not allowed to keep, at the time his monthly pay cheque comes in, the amount that would be refundable under the provisions of section 7. He has to wait to get that money back. I do not think the employee should be put in the position of revealing his personal affairs to his employer. A scheme like this might be worked out. The amount of the tax which covers that portion, with
Income War Tax Act

the exception of the amount taken by way of compulsory savings, or the refundable portion, could be taken off month by month, whenever pay-day comes around. The portion that is refundable could be paid at the time the income tax return is made out. I believe there will be considerable difficulty if people are not allowed to have this money to take care of obligations. I have other suggestions to make in connection with resolution No. 7.


James Lorimer Ilsley: I think we had better take them up resolution by resolution. My hon. friend and the hon. member for Cape Breton South (Mr. Gillis) have been discussing resolution No. 25. When we reach that resolution we will have a discussion on it. The two points of view expressed are important, and my colleague, the Minister of National Revenue, will be prepared at that time to discuss the matter of procedure.


Mr. BOUCHER:: Has the minister considered explaining the tax by showing what an individual will have left after paying the tax and the compulsory savings? This is something which is of interest to the people. There is one class of taxpayer who is paying on life insurance, on annuities and perhaps on a mortgage, and he is given certain exemptions from his compulsory savings. On the other hand, to many young married people who are just starting out in life to raise a family, a home is most essential, but these schedules will give them 'exemption only on payments on mortgages which were in existence before the budget was delivered.


James Lorimer Ilsley: That is covered by resolution No. 7.


George Russell Boucher: It has an effect on this resolution, because we should consider what is left to the individual. In many areas of Canada there is a shortage of houses, and every inducement should be offered to persons newly-married to buy houses. If we knew what would be left to persons in the various income groups after they had paid all taxes, we would be better able to discuss this matter.


James Lorimer Ilsley: If the hon. gentleman will turn to page 3582 of Hansard he will find the taxes on various incomes, and then it is just a matter of subtraction.


Thomas Vien: I find myself quite unable to link up some of the remarks that have been made with resolution 1. I have allowed some latitude in the hope that it would shorten the discussion later, but I may be mistaken.


Mr. NICHOLSON:: I followed with a great deal of interest the remarks last night of the

hon. member for Broadview (Mr. Church), who was very critical of this tax. The hon. member and many others seem to find it difficult to realize that about a million and a quarter of our Canadian people are now either in the armed forces or working in munitions industries. It is physically impossible to carry on a war of this sort without making a great many adjustments in our national life. We must face the fact that to a greater extent than ever we must see more and more of our consumer goods diverted directly to war purposes and less and less available for civilian use.
The hon. member for Broadview contended that this income tax would take away all incentive, that the people would be left with very little. I should hate to think that when the session is over hon. members who have professions will refuse to do any work because they will be compelled to pay the government 50 cents or more on every $1 that they earn. I should hate to think that people who are in the favoured position of being able to pay an income tax are going to rest on their oars because the government has found it necessary to impose taxes of this kind. As I said before, there is no easy way under the sun to carry on a war of this sort.
Members of the minister's own party have offered criticisms regarding the methods he is using to finance the war, but if they were in his position I am sure they could not devise any scheme which would make it easy for the Canadian people to maintain a million and a quarter persons in industry and in the war services. The hon. member for Broadview said that people would have nothing left. I was interested in the table placed on the record this afternoon by the minister, and I commend him for accepting the suggestions made by members of this group on former occasions. On other occasions we have suggested that it is not the amount of tax that the individual pays that matters; it is the amount he has left after the tax is paid. I appreciate the difficulty the minister must have in steering a course midway between our point of view and the point of view of members like the hon. member for Broadview.
I have prepared a table showing the amount per day that is left to a Canadian this year as compared with what he had left last year, assuming that there are six days in the week and fifty weeks in the year. All my figures are for single persons without dependents. A man who had an income of $1,000 last year paid a tax of $87 which left him $3.04 per day; his new tax, plus the refundable portion-we must remember that the refundable portion is imposed so that he may not use

Income War Tax Act
consumer goods-amounts to $172, which leaves him S2.76 per day. That is the reduction in his standard of living. A single person who had an income of $2,000 last year was taxed $340, which left him $5.50 per day; this year he is paying a tax of $601, which will leave him $4.66 per day. A man with an income of $5,000 last year paid a tax of $1,332 which left him $12.22 per day; under the new tax he will pay $2,128 which will leave him $9.57. Again there is a drastic reduction. With an income of $10,000, he paid last year a tax of $3,600 which left him $21.33 per day; under the new tax he will pay $5,112 which will leave him $16.29 per day. With an income last year of $20,000 he paid $9,105, which left him $36.31 per day; under the new taxes he will pay $11,829 which will leave him $27.23 per day. With an income of $30,000 last year he paid a tax of $15,082, which left him $49.72 per day; this year he will pay $19,196, which will leave him $36.01 per day.
With an income of $50,000 he paid a tax last year of $28,392, leaving $72.02 per day. The new tax will be $35,703, leaving $47.65 per day. With an income of $100,000 he paid a tax last year of $64,347, leaving $118.84 per day. The new tax will be $81,137, leaving $62.87 per day. As the minister has pointed out, there is a steep increase there. The man who is privileged to have an income of $500,000 paid, last year, a tax of $411,720, leaving $294.26 a day, and this year he pays a tax of $473,104, leaving $89.65 per day, which still is a lot of money.
I should like the minister to continue this policy of taxing heavily those that have the money available. I know that it is going to make drastic changes in the way of living of Canadian people, but who is there who can expect to find himself at the end of the war in as favourable a position as he was at its commencement? Those in the highest income brackets are citizens to whom Canada has been very kind, and no sacrifices which they can make, financial or otherwise, will be too great to see to it that Canada assures those in our armed forces-and we must do this-that they will have better equipment and better food than ever before and that those in our war industries shall be assured of adequate food, shelter and clothing. While it is true that so far those in war industries and those at home, with the exception of the farmers on the prairies where the income has been derived largely from wheat, have been able to enjoy a higher standard of living than they have ever known before-and it is a serious reflection on our economy before the war-we cannot expect that state of affairs to last indefinitely. Sooner
or later we must face up to the fact that those in civilian life will have less to spend, and we must be prepared to have our standard of living restricted, as the minister is proposing to do by the drastic tax increases he is making this year. When the budget is brought down next year I hope that those in the higher income brackets will be prepared to make even greater sacrifices than the present resolutions call for.
Mr. O'NEILL: Mr. Chairman, there is one thing I should like to say at the outset, and it arises out of the speech which was made by the hon. member for Parry Sound (Mr. Slaght) on Wednesday night in this chamber. In reply to the hon. member, page 4270 of Hansard, the Minister of Finance said:
If my hon. friend believes that, then he has no confidence in the financial policies of the administration. He should not be a supporter of the financial policies of the administration, because his attack is upon fundamentals.
Since 1935, and for a considerable time before that, I have been pretty well in agreement with the principles expressed by the hon. member for Parry Sound the other evening, and quite naturally I took that remark of the Minister of Finance as applying to myself as well as to the hon.. member for Parry Sound. There may be some merit in the suggestion that now is not the time to discuss any change in the monetary policy of this country, but I do not think there can be any doubt that there must be a change from the present-day way of doing our financing. I had not intended to say anything about the matter at this time, but since the question has been raised, and in view of the remark that was made by the Minister of Finance, it is up to me to say something about it.
During the election of 1935 I expressed views very much the same as those expressed here the other night by the hon. member for Parry Sound and by the hon. member for Vancouver-Burrard (Mr. McGeer). I expressed those views on the public platform everywhere in my constituency. I was supported on that platform by some of the most prominent members of the Liberal party, not only in the west but in the east, and they raised no objection to my voicing those opinions. Those opinions were also voiced by me to the Liberal party before I received the nomination. If there were any objections to those opinions, that was the time to make them, and had objection then been made, they should never have given me the nomination.


Mr. HOMUTII:: The Prime Minister himself was pledged to that platform, was he not?
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Mr. O'NEILL:	If we can judge by what
was being said at the time, I believe the hon. member for Waterloo South is quite correct, because the Prime Minister said that the credit of the country would be used for public need.
For a great number of years prior to this war, young men and young women of Canada were going round the country looking for a job. Men were riding the rods on the freight trains. But as soon as the war breaks out we find we have plenty of money. I cannot see where there is any more money or credit in the country to-day than there was in those days. I cannot see why it is not possible to raise huge sums of money for an emergency of any kind, whether it be a war-time or a peace-time emergency. It does not appear to me to make any difference 'whether the emergency be an earthquake, a flood, a depression, or a war. If money is required to feed and clothe our people, you should be able to get it, and I believe that you can get it. But I do not believe that you can go along eternally financing the way we have been doing.
The orthodox argument is that raising money by bonds and paying interest on them is perfectly right and legal, but that if you raise money by bonds and do not pay interest on them, that is no good. I cannot see that it makes a particle of difference. I cannot see that argument at all.
I have not changed my mind with respect to the ideas I held in 1935. As a matter of fact, as the years go by I am becoming more and more convinced that the opinions I held at that time were sound. I believe that the Minister of Finance is making a wonderful job of our financing, and I did not get up here at this time to try to embarrass him. Far from it. But there are some things which I think should be taken into consideration.
I am very much in agreement with the hon. member for Cape Breton South (Mr. Gillis) that we should not tax people with incomes as low as $660 and $1,200, for single and married respectively. In 1940 I advocated that the minimum incomes that should be taxed should be $750 and $1,500, for single and married respectively. I still hold that view. You have to tax the majority, and it is true that the great majority of the people are in the low income brackets. But when you start taxing very low incomes you are taking money that is required for the very essentials of life, and you are running down the physique of the nation. I do not think there can be any question about that. When this war started and we called up young men for the army, we found that a very large percentage of them

were not fit for service because they had been undernourished. Many of them were rejected because they had bad teeth, and the only reason they had bad teeth was that they did not have money enough to pay a dentist. These conditions obtained because of malnutrition, and when you get down to taxing people in the low income brackets the same thing will go on.
I am rather disturbed that something has not been done to grant a bonus to old age pensioners and to people on fixed incomes of this kind. Definitely the cost of living has gone up. The increase has been taken care of as regards wage earners in some brackets- not in all of them. As the hon. member for Cape Breton South pointed out, in some of these categories the cost of living bonus has been granted, but the cost of living has gone up 15 points, so that they are being penalized in addition to the new taxes which they will have to pay. Some consideration should be given to people with fixed income of the type of old age pensions and mothers' allowances.
The wartime prices and trade board is of necessity a part of the present method of financing, and I believe that in principle it is sound. But I have in my hand a copy of the Merritt Herald, a small paper circulating in a part of my constituency, and it has these headlines on a news item:
Rancher Drops $500 in Cattle Deal. Packers' Squeeze Disclosed Here. Fixed Price on Meat -not Cattle.
So that there is a fixed price on meat, but apparently no fixed price on cattle. This cattle buyer came in this fall when the wartime prices and trade board had fixed prices, and when the rancher's cattle were sold he was beaten out of $500. It seems to me that there should be some way to control the packers.


Thomas Vien: I do not believe that this matter comes under resolution 1. The resolution proposes a certain scheme of taxation on incomes, and I cannot see how it can be extended to cover the subject now being discussed by the hon. member.
Mr. O'NEILL: I must abide by your ruling, Mr. Chairman. I do not know whether the subject which I want to deal with has already been discussed, because I have been on the
Defence of Canada regulations committee and have not been able to attend the sittings of the house.


Thomas Vien: The point of order
which I raised was not in respect of whether or not this matter had been discussed. The point of order is that resolution 1, with

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respect to income tax, is not capable of being extended to the subject matter now being discussed by the hon. member.


Richard Burpee Hanson: That is,
the packers' and ranchers' position.


Thomas Vien: Yes, the packers' and ranchers' position.


Richard Burpee Hanson: But
monetary reform is.


Thomas Vien: Oh, yes; I allowed the discussion on monetary reform. My ruling is that the reference to packers is not relevant to the resolution now before the committee.
Mr. O'NEILL: I have not been able to get a copy of these resolutions because enough of them have not been printed. I had one in my desk, and somebody took it and substituted a French one. We should have an opportunity somewhere, I believe, of discussing matters of this kind. When and where will that opportunity be given?


James Lorimer Ilsley: There was a budget debate, and that was concluded. There was a request that some latitude be given on the resolutions, and much has been given, but last night it seemed to be the wish of hon. members pretty generally that we confine our discussion strictly to each resolution as it came up. That is what I hoped we would do. Certainly that was the feeling of the committee last night. Now the hon. gentleman asks where there will be an opportunity to discuss the beef question or the price-ceiling policy. I cannot think of any at the moment.


Richard Burpee Hanson: Under the war appropriation bill there was ample opportunity.


James Lorimer Ilsley: On the war appropriation bill we had a long discussion, and I do not think there is anything unreasonable about adopting the principle that some discussions in a session have to end. The session will go on forever if that is not the case. There have been several opportunities of discussing the wartime prices and trade board and the price ceiling, and I do not know of any more.


Richard Burpee Hanson: The hon. member was in order in discussing under resolution 1 any question of financial policy, although I personally had hoped that that discussion would be over last night. On this question of the exemptions, the hon. member is quite in order in discussing the reduction from $750 to $660 and from $1,500 to $1,200.


James Lorimer Ilsley: Oh, certainly.
Mr. O'NEILL: I do not want to violate the rules, but there are several questions which
I thought could be properly discussed at this time. One of them is the price ceiling. I am quite in agreement with the principle of a price ceiling, but certainly if there is a price ceiling there should be a price floor. There is not, and these fellows can pay as little as they like to the cattle raiser, who is not permitted to sell his cattle over a certain price.


James Lorimer Ilsley: Mr. Chairman, I must raise the point of order myself. I agree with the chairman. This committee of the whole is discussing the income tax resolutions. We are on resolution 1, which sets out the scheme of income taxation, with rates, and so forth. I cannot see any connection whatever between a discussion of the price of beef and that resolution, and I think I shall have to take that position.


Mr. CRUICKSHANK:: May I speak to the point of order? The hon. member for Macleod stated to the Minister of Finance, with the concurrence of probably 95 per cent of us, that we would not speak on the budget, in order to facilitate it. But to hon. members from British Columbia, one of the most important things is the price of beef in so far as the wartime prices and trade board is concerned, and I think, under the pledge given the hon. member for Macleod, any hon. member from British Columbia should have the right to discuss the wartime prices and trade board.


Mr. FAIR:: I do not think that applies solely to British Columbia. The hon. member for Macleod is from Alberta, as are a number of us, and I think we should have every right to speak on these questions now, because they affect directly and indirectly the incomes of a number of those who will be compelled to pay income tax.


Thomas Vien: Standing order 58,
paragraph 2, is quite clear. The Chairman, when an objection is raised, and there was one in this case, is bound by the rules of the house. I must now confine the discussion to resolution 1, Income War Tax Act.
With respect to questions which were raised on currency, I have been able to connect them somewhat with resolution 1. The government proposes certain ways and means of raising money by way of income tax, and certain hon. members suggested other ways and means of providing the same revenue, that is, by the issue of currency. There is a certain connection between the two. But the fixing of a ceiling price on beef is certainly irrelevant.
Income War Tax Act

Mr. O'NEILL: I am not going to question your ruling, Mr. Chairman, but I will say that when the budget was passed we were given to understand that we would have the greatest latitude in discussion in committee. I think we are not being given quite the latitude we were led to believe we would be given.
One question is, a taxpayer on his income tax may deduct from the refundable portion the amount he pays on a mortgage on his home-


Mr. STIRLING:: That comes under resolution 7.


Thomas Vien: That will come later.
Mr. O'NEILL: With all these committees and other things it is impossible for one to be here all the time. I came here and I have listened to everything under the sun being discussed for seven months, and now when I have something that I want to discuss I am told it will be discussed on another day. How shall I know when that day is here?


Thomas Vien: If hon. members will permit us to reach resolution 7, there will be an opportunity.


Mrs. NIELSEN:: I want to identify myself with those who have protested against the income tax levied on the lower incomes. I realize that the job which the Minister of Finance has to do is to finance this tremendous war undertaking of the Canadian people. In other words, he has to weld this whole nation into one great war machine. But it does appear to me that by the imposition of income tax on incomes in the lower brackets, particularly $660 and $1,200 for single and married men respectively, he is to some extent defeating his own purpose. Already it is apparent that these low income people, those who are contributing so much to the production of war material by working in our factories, on our farms and so on, are not able to maintain the standard of health to make continuous employment possible.
As far as the people of my own constituency are concerned, I do not think there will be any high proportion of them who will be called upon to pay income tax, because unfortunately their incomes are not high enough. The few who will be called upon to pay will come in the very lowest brackets.
I noticed a little while ago, as reported in the Montreal Gazette of June 26, that Doctor A. S. Lamb, the director of physical training in McGill university, made a startling statement. He said that the cost of the air training plan during 1941 was $225,000,000, but the cost of sickness in Canada for the
[The Chairman.]
same period was $250,000,000. When you realize that by taking money out of the income of those people in the lower brackets you are going to increase, as I think undoubtedly you are, the amount of sickness among the people of our country who are working on the production of war materials, you will find that this money will have to be paid out again to care for them in sickness, and the war effort will be slowed up by the loss of working time. I cannot see that the minister is any further advanced by taking money from these groups; in fact I think he is defeating his own purposes, for what he gains in income tax he will lose by having to take care of them in sickness as well as losing their time from production.
There is only one thing that matters to-day, that is production for our war services and the prosecution of this war to the maximum limit. It appears to me that if these people were exempt we should in the long run be far better off and the minister would not be out of pocket but would perhaps gain by it.
I have in my room a clipping from one of the papers, I think it was the Montreal Gazette, an advertisement which appeared perhaps two or three weeks ago asking for a housemaid and parlourmaid. It said, "comfortable home for two girls, two adults in the family, no children, five other servants kept." If we have in this country two adults without children-and possibly this situation could be multiplied many times-who are still able to enjoy seven servants to take care of them, perhaps the minister could go to those income brackets and still find further money. His object in the budget is to finance the war. We hear so much about trying to take from our people their surplus money so that they will not spend it on luxuries and things that io not matter, yet we still find certain groups in this country who cai afford to keep seven servants to take care of uivo people. I would say incidentally that the Minister of Labour should have something to say about that; the two young women, instead of being kitchen-maid and housemaid, would be better off in a war industry.
As to raising money from these lower income groups, this tax will impair the health of the nation to such an extent that it will be detrimental to the war effort and in the long run will not help the minister in financing the war.


James Lorimer Ilsley: With regard to the family mentioned by the hon. member, I think it highly probable that that household is being supported out of capital largely, and if that

Income War Tax Act
is the situation, a process of redistribution of wealth is going on that will in the course of time do some levelling.
With regard to the other and perhaps more important question as to whether the $660 and $1,200 limits are too low, all I can say is that in Great Britain a single man starts to pay at $489.50, that is on the assumption that a pound is worth $4.45, which is the official rate of exchange. He is living in a country where the cost of living is, I think, as high as it is here; it has certainly gone up a great deal more than it has here since the beginning of the war. The married man in Great Britain starts to pay at $939.
With regard to the United States, the present law is $750 for a single person and $1,500 for a married person, which has been advocated here to-day. The treasury proposal for the new tax this year is $600 for a single person and $1,200 for a married person. The committee of ways and means has been considering the proper rates and exemptions and has recommended $500 for the single person-


John Horne Blackmore: In the United States?


James Lorimer Ilsley: Yes, in the United States; $500 for a single person and $1,200 for a married person. Therefore we are not out of line with other countries, and I do not think we are out of line with the necessities of the case. To raise the exemptions as requested would mean very large losses in revenue as compared with our present proposals. Those would be very important changes from the point of view of revenue. The level of $660 and $1,200 is an uncomfortable one, I admit; but this is an uncomfortable time, a time when sacrifices are asked for and expected and when sacrifices will be assumed. The main point I wanted to make was that we are not out of line. We are not nearly as low as Great Britain, and in the case of a single person we are not as low as the committee of ways and means has recommended in the United States, while in the case of a married person we are on the same level. There may be some changes in the form of taxes which make the comparison not strictly fair, I do not know; but what I have said is accurate, that they start to pay at that level in Great Britain, and will start to pay at that level in the United States.


Dorise Winifred Nielsen: I do not know about the United States, but I do know that in Great Britain they have a national health scheme. There, when people in the lower income brackets become ill through lack of essential foods or otherwise, they have a scheme which takes care of such people. In this country, however, we have nothing to take the place
of that system, and I cannot help feeling that a tremendous loss of time will be experienced by the people in these low income brackets, resulting from insufficient food, anxiety, lack of sufficient time for leisure and rest, and so on.


James Lorimer Ilsley: The national health scheme in Great Britain is supported out of taxation which is in addition to the income tax. In other words, there is a special levy for the national health scheme, and therefore they are paying for the advantages of that scheme.


John Ritchie MacNicol: In addition, it is
contributory.


James Lorimer Ilsley: Yes.


Mr. ROSS (Souris):: I noticed in the press yesterday and again to-day several articles in which it was stated that the provisions with regard to compulsory savings and the income tax schedules might be amended. If the minister has those amendments in mind I wonder if he would not save a great deal of discussion by announcing them now. He said there would be an amendment with regard to officers in the armed services, and suggested that discussion on this matter be deferred until that amendment was introduced. If he has other amendments to offer I think he might announce them now, and I believe he would thereby save a great deal of time.


James Lorimer Ilsley: I do not think we would save any time. I have no further amendments to resolution 1, part I, and as we come to the next resolutions, if I have amendments I will move them.


James Arthur Ross: My point was that on resolution 1, part I, there has been a great deal of discussion with reference to the other resolutions, particularly the general deductions.


James Lorimer Ilsley: There should not be.


John George Diefenbaker: There are two or three representations I should like to make with regard to part I, and the first has to do with subsection 1 (c), in which certain changes have been made. Paragraph (c) as it appears in the resolution deals with "an individual, other than a married person, who maintains a self-contained domestic establishment," and so on. The changes are the insertion of the words "other than a married person" and the word "wholly". In other words, the paragraph deals with an individual who maintains a self-contained domestic establishment and who actually supports therein one or more individuals wholly dependent upon him. I am wondering why the paragraph was altered
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by adding the word "wholly". Then I would point out that a change has also been made in paragraph (d), which reads: a minister or clergyman, other than a married person, in charge of a diocese, parish or congregation, whose duties require him to maintain at his own and sole expense, a self-contained domestic establishment and who employs therein on full time a housekeeper or servant.
What was the necessity of adding the words "other than a married person" to the provision as it previously existed? I would also point out that in subsection 2 (i) the exemption for a child, a grandchild, a brother or a sister is now determined by whether or not that person is wholly dependent on account of mental or physical infirmity.


Richard Burpee Hanson: Perhaps we could deal with one at a time.


James Lorimer Ilsley: With regard to the words "other than a married person", that is merely a change in wording which does not alter the sense. The case of the married person is covered by paragraph (a), and then paragraph (c) covers an individual other than a married person.


John George Diefenbaker: But the act as originally drafted provided for a married person.


James Lorimer Ilsley: This is thought to be a little improvement in the wording. With regard to the word "wholly", that is in section 91 of the national defence tax provisions of the Income War Tax Act. This just adopts the wording of the national defence tax section rather than the wording of the graduated income tax section. I do not know whether it would make any difference; I should not think it would.


John George Diefenbaker: I come now to subsection 2 (ii), where provision is made for a parent or grandparent of a taxpayer, wholly dependent on account of mental or physical infirmity. I suggest to the minister that there are many taxpayers throughout the country whose wives have no independent incomes, and who are to-day supporting one or both of the parents of their wives. I know of two instances of this kind; I have had letters from these people during the last few days, and there seems no reason why a man who is willing to support his parents-in-law in order to relieve them from the necessity of accepting public charity should not be entitled to the same exemption that is accorded a taxpayer who supports his own parent or grandparent. Would the minister give consideration to extending the right of a taxpayer to claim exemption in cases of this kind.
[Mr. Diefenbaker.J


James Lorimer Ilsley: This matter of the in-laws is an old question, which has been brought up, I think, at every session for the last twenty-five years. I am not familiar with the standard argument on it, though I know the request has always been refused. Exemptions for dependents are confined pretty largely, if not wholly, to dependents in connection with whom there is an obligation to support.


Richard Burpee Hanson: Of course, there is none in that case.


James Lorimer Ilsley: No. That, I think, is the reason.


Richard Burpee Hanson: I think
the reason is the desire to restrict it.


John George Diefenbaker: I support the suggestion made by the hon. member for Calgary East and also by the hon. member for Vancouver South in reference to exemptions of officers in Canada on active service from payments of income tax. During the debate yesterday the suggestion was made that there is no exemption in the United States or in Great Britain in so far as service men are concerned, the general principle being that, subject to the exceptions set out in the act as at present constituted, all should be required to pay income tax. But we in this parliament have departed from that principle in that we recognize the right of exemption of our officers and men overseas as well as of those men in the service in Canada and officers who are actually engaged in the navy or in the air force, requiring them to be at sea or in the air from time to time. Therefore, so far as the general principle is concerned, I submit that having departed from it in one particular and having regard to the representations that have been made as to the anomalous results which flow from imposing the income tax on junior officers who are on active service, whereby they receive less than their noncommissioned officers, the exemption should be granted. I want to add to that something which has not been brought up before, and that is that the women who are in service in Canada and overseas in connection with the navy, the air force and the army, should be exempt. Women in the army or in various services, whether overseas or in Canada, do not appear to be exempt under the act, certainly not as the statute now stands, and I would suggest that when the minister does bring before the house the amendments which he has said he intends to propose regarding officers in the services in Canada, the matter of exempting women in service in the various forces should be provided for. The effect of

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the amendments which were passed in 1940, allowing for the exemption of men in service in Canada, is discrimination against officers in junior ranks, to such an extent that from one end of the country to the other complaints are being received. It is not as though the men who hold commissions are financially better off than many men in the ranks. I remember during the last war, in the reinforcements from Canada to the Princess Patricias, and in the Western university battalion, there were university professors in the ranks, and students were - their officers.
I point that out to show that there were then and are now no school-tie qualifications for officers in Canada's democratic army. The result of the law as it now stands is to discriminate against those men who, either by promotion or, in any event, by orders given by superior authority, are required while on active service to remain in Canada.


Richard Burpee Hanson: Or	to
return to Canada.


John George Diefenbaker: Or to return to
Canada, as the leader of the opposition suggests, in consequence of orders they receive. I do not think I have any other representations to make. Will the minister take into consideration particularly the question of exempting women who are now a part of our armed services, both in Canada and overseas?


James Lorimer Ilsley: I do not know whether they are exempt or not now, but just on principle, I am always greatly interested in these demands from members for forgoing very large sources of revenue, and I wish to speak frankly now, because I am in a position where I have to and where I can. I have to say what I think regardless of whether it meets with approval outside this house.


Richard Burpee Hanson: Whether
it is popular or not.


James Lorimer Ilsley: Yes. I am going to do that, and I will invite a little frank response, which I know I shall get from the hon, member for Lake Centre who has just resumed his seat. He has based his request for exemption of officers in Canada on the ground of discrimination, and he assumes that the only way in which that discrimination can be removed is by the removal of taxation. I have asked the officers of the department to tell me how much that w'ill mean in loss of revenue, and the estimate, while it is not at all close, would be between $15,000,000 and $25,000,000.


Richard Burpee Hanson: As regards
the officers?


James Lorimer Ilsley: Yes, under the present rates including refundable savings.


Richard Burpee Hanson: That is
an astonishing statement.


James Lorimer Ilsley: Yes, but there are about
20,000,	I believe. Does this feature of the matter worry hon. members, and do they think it would worry the public?-not that what worries the public is what guides us, but we are putting taxes on poor people in this country down to very low levels. We are putting very heavy taxes on men with medium incomes, and very, very heavy taxes on men with higher incomes. Does the discrimination between the taxation on civilians and the taxation on officers in Canada worry anybody? It does me, because I know that hundreds, and I think thousands, of civil servants have enlisted. In a great many cases they are doing non-combatant work, although they are members of the active forces. They are accountants, auditors and so forth and are doing a great deal of work of that kind; and as I say, there are thousands and thousands of them. For the most part their pay and allowances are considerably larger than they were in the civil service. I had a list prepared from one department showing the very large increases in pay. We refused permission to a great many civil servants to enlist. We have kept them in the civil service; we work them to death, or nearly to death in many cases, and we load on their backs these various taxes because we are asking them to make sacrifices. But they see across the way their former associates with uniforms on, and now we are asked to take the taxes off the latter altogether. Does that worry anybody? I should think it would, and yet nearly every hon. member rises in his place and advocates it. Take the girls who have enlisted. As I say, I do not know whether these non-commissioned officers and privates among the girls are free from income tax or not. The hon. gentleman shakes his head, and perhaps he is correct.


John George Diefenbaker: It is not in the
statute.


James Lorimer Ilsley: The hon. gentleman makes a fervent appeal; he ask that these people be relieved of taxation. I do not know upon what he bases his argument, but I suppose it is on the ground that they should be treated the same as non-commissioned officers. Consider the stenographers who are in uniform, and the cooks and other women who are performing many types of duties. When everything is considered these women, even though they receive only two-thirds of the private's pay, are receiving more pay than the grade one stenographers. Think of the thousands of grade one stenographers here in
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Ottawa crowded into any place they can get. Many moving appeals have been made because these girls are being asked to pay S20, $30, $40 or something like that.


Karl Kenneth Homuth: It is a crying shame.


James Lorimer Ilsley: Unless we tax these lower paid people we cannot get the amount that we require. Does it worry anyone that these girls in uniform should be relieved completely from paying a tax? I find it hard to understand the great lightness with which hon. members talk about throwing off fifteen, twenty or twenty-five millions; they talk of doing away with all discriminations, and there are some, eliminating them at the expense of the rest of the overburdened taxpayers. While I must admit that I look at the matter the other way I do find it hard to understand this attitude.


Richard Burpee Hanson: The minister asks if we are worried. While I may not have received as many representations as the minister, I have received a good many and have given a great deal of consideration to this matter. I had intended to say something in the address which I made on the budget. Almost immediately after we got into the discussion on this resolution the point was raised by the hon. member for Calgary East. I thought he was jumping into it just a little too soon, but I knew we were bound to reach the question sooner or later. There is a wider picture to be considered. My information is that everybody in the United States pays, whether they are in or out of the country, provided, of course, that they come within the taxable brackets. The same thing is true in the United Kingdom.


James Lorimer Ilsley: They get a little more pay when they are outside the country.


Richard Burpee Hanson: But the principle of their taxation is that they all pay. I want to discuss this matter in the light of all the circumstances and as judicially as possible. I think the minister wants a frank expression of opinion from the members of the house who are not looking particularly for votes. I am not dealing with it from that angle. It is quite popular to espouse the cause of cutting taxation; I have done a lot of it in days gone by, but I never found that it got me many votes in the final result. We have departed from the principle in a particular instance, and the operation of that departure has caused hardship. There has been a terrific increase in the rates of taxation imposed upon some of these men. There is a discriminatoiy effect upon the junior officers, up to and including majors, I believe, as opposed to warrant officers.


James Lorimer Ilsley: I think it just includes captains.


Richard Burpee Hanson: That is probably correct, but I was told that it included majors. These junior officers up to and including captains are now taxed at such a rate that they actually receive less than warrant officers. That is an invidious discrimination. There are men who enlisted for active service and who have been sent back to Canada. I believe all officers are subject to direction to go anywhere, there is no such thing as a home army officer. Those men who have been overseas and have been brought home are subject to a tremendous impost because of a move they have made against their wish and desire. They want to stay overseas, but they have been ordered to come back to do service here. Those men are entitled to some consideration.
But there is another large array of men who are now in the armed services who hold relatively high ranks and who have never dreamed of going overseas. Many of them got into the army because they could improve their positions. Why should they escape? The minister tells us that $20,000,000 is the aggregate amount of money to be collected from all, including the class of soldier who never thought of fighting. I have no sympathy for men like that, men who probably bothered everybody they knew to get transferred from a peace-time department into the Department of National Defence and be able to occupy an office in that department and wear a uniform. I have no sympathy for that type of man at all. If he does not like his job, let him resign and go back to his peace-time occupation.


John Ritchie MacNicol: There is not a chance in a million of his doing that.


Richard Burpee Hanson: I do not think there will be. I suppose it would be almost impossible to lay down a general rule, but I understand the departmental experts have tried to establish a general principle so that this particular class shall not escape. This particular class of army officer, made up of men who are not soldiers, who are simply bookkeepers or paymasters in uniform-we have seen some of them around-will escape if we make an alteration. If it is humanly possible to differentiate between these men and those who are actually in the fighting services, it should be done. Consideration should be given to the man who is sent back from overseas for instructional purposes, and to the man sent out to the coast to help defend the coast.


Howard Charles Green: And the man who is there now.

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Richard Burpee Hanson: And the man who is on the coast now. These men
are in a different category from the men on Slater street.


Mr. REID:: It might help if you did not put
them in uniform.


Richard Burpee Hanson: That is probably where we made the mistake. Go to the Jackson building and you see crowds of them.


John Ritchie MacNicol: Saluters.


Karl Kenneth Homuth: There are forty in one office, and not one of them saw service in the last war.


Richard Burpee Hanson: There is a tremendous army of them doing administrative work, men who never expect to be off the ground in the air force, or on the sea in the navy. Why should we not tax them? They are probably better off than they were in civilian life, and they never expect to fight. It is on the principle of sacrifice, that men may have to give up their lives, that we have exercised the right of granting exemption from income tax. Why cannot the officers of the department make a differentiation between these men? If they will do that, it will solve the problem.


James Lorimer Ilsley: I think it is absolutely impossible.


Richard Burpee Hanson: That may be so, as an administrative problem. I ask the question. If the minister says that that is out, then he has a situation where he will not give satisfaction to anybody.


James Lorimer Ilsley: I know.


Richard Burpee Hanson: But I
think another effort ought to be made to deal with the matter. I thought the minister had an amendment to make. We must wait to see whether it is a solution or not. But there is no doubt about it that there are two diametrically opposed principles operating there. One class ought to have relief, and the other class should not. If you agree with me, let us grapple with it on that basis. Let us tax the one, and not tax the other. Surely the problem is not insoluble.


John George Diefenbaker: What justification has the minister for taking the stand that women in the ranks in the armed services in Canada and those who go overseas and are being sent overseas to-day, in the medical corps and otherwise, should not be entitled to the same consideration that men are receiving under the law as at present?


James Lorimer Ilsley: I do not think there is much.


John George Diefenbaker: Is there any justification?


James Lorimer Ilsley: What is the justification for discriminating between a stenographer in uniform and the one out of uniform? We are going to do some discriminating whatever we do. The attitude I object to is always taking the ground that we should eliminate certain discriminations which would cost the treasury money and throw additional burdens upon the taxpayer. I admit that whatever we do in this case there is going to be discrimination.
I am going to propose an amendment, but I shall not have it ready until Monday. In the meantime I think we have plenty of work before us this evening. I know the amendment will not be satisfactory to everybody. It will be satisfactory to some. But it is going to be the best I can do under the circumstances. But do not, just for the sake of avoiding discriminations, throw out millions in taxes and think the problem is solved as simply as that, because that just creates other discriminations and, when it comes to the higher incomes, frightful discriminations.


Richard Burpee Hanson: Take the case of the women. Why is it necessary to enlist women as stenographers? Can they not be taken on as civilians in these
departments? I know there is a great attraction in the uniform for the feminine eye-


Karl Kenneth Homuth: The air force uniform.


Richard Burpee Hanson: I have often wondered ,why so many people were enlisted in the air force who were never intended to do anything but administrative work. I was in the Jackson building within a year and was astonished at the number of young men there doing, not administrative work, but just purely clerical work-


Mr. CARDIN:: Messengers.


Richard Burpee Hanson: - messenger's work. Those people should not be in uniform at all. That sort of thing should be reserved for civilians, and those boys should be put on ground crews or they should be looking forward to doing national duty in the fighting forces. We have many of those fellows in the air force and, by the same token, in the navy, men who never took their feet off dry land. But they are all in uniform. I have wondered why we enlisted so many men who never get into action and never intended to get into action or who

this is a fair statement-under the system which governs them find it impossible to get into real action.
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I will give the case of a young lawyer, keen and anxious to go overseas. He is chained to a desk helping to keep records. Somebody, of course, has to do that; it is very important to keep records. But here is a man who can do valuable work as a fighting man, and yet, because he has some qualifications as a lawyer and is a good office man, he is just chained to a desk keeping records.


Mr. ROSS (Moose Jaw):: Should that man be taxed?


Richard Burpee Hanson: He does not want to stay in Canada; he wants to go overseas. If he were back in civilian life practising his profession he would be taxed much more heavily.


John Gordon Ross: There are many men in his position in the forces to-day who would go overseas if they could, but they are held back for some particular reason.


Richard Burpee Hanson: I know; the whole thing is so difficult that it is impossible to lay down a general rule that will give satisfaction to everybody, and I think the minister will agree with me there.


Mr. MACDONALD (Brantford City):: Is it not better to err on the generous side?


Richard Burpee Hanson: I am
agreeable to that principle, but not if it is going to cost the nation $25,000,000. That is a huge sum. I can scarcely believe it is that large, but the minister says so. His officials have made the estimate, and I must accept it because I have no evidence to the contrary. Certainly, be generous, but I do suggest that it is a good principle to follow that you must be just before you are generous.


Howard Charles Green: Did the minister say there
were 20,000 officers in Canada? Would he mind repeating the figure?


James Lorimer Ilsley: The number of commissioned officers in Canada in the three services is 24,499.


Howard Charles Green: Does that include the reserve?


James Lorimer Ilsley: I took it for granted that it did not include the reserve. It was not made for the purpose of including the reserve, and I am pretty sure it does not.


Howard Charles Green: It seems very high. The minister has said that between twenty and twenty-five million dollars would be lost in taxation if these officers were exempt. That would amount to about one thousand dollars per officer, which again seems very high. The history of this matter, the committee will remember, is that when the national defence

tax was imposed two years ago there was quite a battle staged in the house to bring about exemption from the tax for all the men in the active forces, in the navy, the army and the air force, but at that time the minister would not go the whole way. He taxed the officers and exempted those in the ranks, and that is why the act appears in its present form. I thought at the time, and I still think, there is too much of a tendency here to focus attention on the staff officers that we see around Ottawa. For every man you see here who is in a very nice spot-and some people think he is having a life which is too easy-there are a hundred out in the districts who are there ready to do a job, ready to fight and ready to die. I do not think it is fair to let our views be based entirely on what we see here in Ottawa. We must look beyond and see these men who are out in the various units.


James Lorimer Ilsley: May I ask a question: Is readiness to fight, readiness to do one's duty in that way, a ground for relief from taxation?


Howard Charles Green: I think that the idea of the house two years ago was that these men who are prepared to die for us should not be subject to income taxes, and more particularly the national defence tax. That was the basis on which the house passed the exemption in 1940, and so far as I am concerned that still holds good. I do not think these men should be taxed even if it means a loss of $20,000,000, and I think that is a very much exaggerated figure.


James Lorimer Ilsley: What about the reserve army? They are prepared to die-


Howard Charles Green: The reserve army are in an entirely different category. They are serving only at night; they are not on a fulltime basis.


James Lorimer Ilsley: They are prepared to defend themselves and, if necessary, to die. Is that a ground for exempting them?


Howard Charles Green: They are in an entirely different position from the active army.


James Lorimer Ilsley: They are different, but not on that criterion.


Howard Charles Green: Their pay is very, very small, at any rate. It is not a matter of their being forced to live on their pay, which really does not amount to anything at all. Some of them in the final result do not get anything. But I do suggest that no one wants to see the exemptions which are now in effect taken away, and if there must be taxation then let there be exemption up to

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the basis of the present exemption, or in other words exemption right up to the pay and allowances of a first-class warrant officer. His pay and allowances are exempt now, as well as the cost of his rations; let the exemption for these officers start at that figure. It should be possible to work it out on some such basis as that. I never could see why you tax the cost of the rations and why you tax the dependents' allowances which are paid for these men.


James Lorimer Ilsley: That is the rule which is applied to civilians.


Howard Charles Green: There is too much of this trying to keep these men in the same classification as civilians. We should get away from it. They are not at all in the same classification as civilians; they deserve entirely different treatment. I think the minister could work out some scheme which would solve this problem, perhaps along the line which I have suggested. Let us not focus our attention on conditions here in Ottawa; if the men here are not doing proper military duty, they should be put in civilian clothes.


James Lorimer Ilsley: On the question of keeping them in civilian life, the much-abused treasury board tries' to do that so far as the civil service is concerned. When persons in the civil service are proposing to take a commission in the army and discharge substantially the duties they discharged before, their cases have to be reported to treasury board, and a great many differences arise between treasury board and the various defence departments as to whether they should be permitted to put on uniform. It has been my unpleasant duty often to take the side of the controversy of trying to keep them out of uniform, and in most cases it has been a losing battle. The arguments advanced are, that they are going to work with men in uniform; that they must have authority; that they must be in a position to uphold their side in a discussion, and that others have been put in uniform.


Karl Kenneth Homuth: Churchill never was.


James Lorimer Ilsley: Considerations of discipline
are advanced. It is said that they must go; maybe there is no intention of their going anywhere but Ottawa, but they can be sent; and so on. Well, it is just a perpetual headache trying to fight these cases, and I usually lose out. If I do not lose out it is another black eye to treasury board, because treasury board is trying to control things it does not know anything about.


Mr. ROSS (Calgary East):: Of the 24,000
commissioned officers in Canada, I wonder whether the minister could tell us how many are in a medical category which would make them acceptable for overseas service. When I introduced this discussion I had considered this matter; and I do not think officers who are not qualified for overseas service by reason of not being medically fit, and who are just holding down civilian jobs, should be exempt from taxation. But if a man has offered his services, his services have been accepted, and he is medically fit for overseas service and of the proper age, I think he is entitled to a great deal of consideration.


William Ross Macdonald: Every officer is liable for overseas service.


George Alexander Cruickshank: No.


Karl Kenneth Homuth: He has to be physically
fit.


George Henry Ross: When I asked for exemption I was limiting my request on behalf of those who are medically fit for overseas service. I do not think those who are not in that category are entitled to such consideration. Could the minister give us any idea as to the number who are medically fit?


James Lorimer Ilsley: No, I cannot.


George Russell Boucher: While we are on this point,
I wonder if the minister has considered the matter of compulsory saving as far as this particular class of people is concerned. It seems to me there is some divergence of opinion with regard to what is fair with regard to the taxation of soldiers going overseas, soldiers returning from overseas, the ladies, and the soldiers who are' here in Canada. But it seems to me that it would be pretty sound policy to embark on a system of compulsory savings, even in excess of that under the present act, for the soldiers in that particular position, so that the government could have the use of the money during the war. The spending power of the soldier in Canada would be reduced and the rehabilitation problem would be greatly facilitated by the soldier having that reserve coming to him when the war is over. In all these questions we have been discussing for the last fifteen or twenty minutes, I believe a very interesting sphere of research would be along the line of a policy of compulsory savings, even in lieu of taxation to a great extent.


Howard Charles Green: If I may interrupt on that
just for a moment; if such a suggestion were adopted it would strike at the root of all the legislation to help soldiers, the general plan of which is that the government will help the
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soldier to become rehabilitated; that is certainly the responsibility of the government. This plan of compulsory savings, on the other hand, is the civilian's way of helping himself to become rehabilitated after the war, and I would argue just the opposite way to the hon. member for Carleton-that the refundable portion should not be charged against the soldier.


William Ross Macdonald: I
would associate myself with the hon. member for Vancouver South in that regard.
Mr. LEDUC; Nobody has more sympathy than I have for the rank and file of the soldiers who are in uniform, but I quite agree with the leader of the opposition in the remark he made this afternoon about these men holding office here in Ottawa. I do not know how many there are. I know some people who have been working here in Ottawa ever since the beginning of the war. They are wearing uniforms, and we do not know for whom we should have respect. It is about time we should know whether a man is an impostor or not.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.


Mr. ROSS (St. Paul's):: I should like to say a word as to the officers. It is all very well to say that these officers should not pay any income tax, but I do not see why they should be treated differently from warrant officers. A warrant officer class B has a net income of $2,167.25: living allowance, $480; trade pay, $263.75; salary, $1,423.50.


An hon. MEMBER:: How many warrant officers are there in the army?


Douglas Gooderham Ross: I do not know, but why should you stop at a warrant officer; why should you not tax him just as you do a lieutenant? A second lieutenant gets $1,551.25 plus separation allowance of $540; his tax is $470. Therefore, he has a net income of $1,620. The difference is between $2,167 and $1,620. You can go all up the line. Take a lieutenant, his net income is $1,773.60. He receives $1,825 pay and $540 separation allowance, and the tax amounts to $591.
A captain gets $2,372.50, plus separation allowance of $600. His tax amounts to $871, leaving his net income $2,101.50.
The least that I think should be done is that the separation allowance should be free from tax. All these officers are willing to go over-

seas. Not only that; a great many of them are separated from their families; in many cases they have to maintain two homes, and the separation allowance is hardly adequate at the best. In addition, the officer has to contribute to the cost and upkeep of his mess. Yet he has to pay 70 cents a day income tax.
Let us take some other men in the service. Take our dollar-a-year men. They can deduct all their expenses, while the man in the army cannot. Men who for various reasons are put in the army cannot deduct any living allowance. When the war is over, the man who is in the army is going to be at a tremendous disadvantage when he comes back into civilian competition. It seems to me that in all fairness he ought to have some opportunity to build up something for the future.
I have a letter from an officer who says:
Most of the officers known to me have taken advantage of the generous offer by the banks and borrowed the money from them and paid last year's tax in full and face the twelve monthly payments from March, 1941, to March, 1942. In most cases wTe have assigned pay to our wives as pay cannot be assigned directly to the bank. If the finance department start taxing our pay at the source next September most of us will be most seriously embarrassed. There are very few officers that I know that have not scaled their living down to the limit and most that I talk to are seriously considering applying for permission to leave the service as they feel they cannot carry on.
Many of them have commitments for war bonds and war savings stamps. I do not say that they should have total exemption, but there should be some way of getting them some exemption, something that is free from taxation. I hope the minister will give this matter his closest consideration.


Richard Burpee Hanson: The
amendment refers only to earned income?


James Lorimer Ilsley: Of married women, yes.


Mr. KUHL:: Just a few words by way of relating the necessity of this increase and these imposts to fundamentals. The other day the Minister of Finance, in replying to the hon. member for Parry Sound, made this statement:
We are talking about realities. This is not a question of money at all; it is a question of things and people. It is elemental. We are just confusing it if we think it is a question of money.
I wish to say a few words from the point of view of realities. The minister, as the financial adviser to the government, the government as a whole, and the country as a whole, would make a great deal more progress if the minister actually carried out the ideas implied in that statement. He seems to imply there that, after all, money is

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a secondary consideration, and from the point of view of providing money I agree that money is a secondary consideration. It is the cheapest commodity on earth to obtain, nothing but paper and ink. As far as procuring money is concerned I agree with the minister if that is what he implied, that money is a secondary consideration. I agree that the all-important factor, whether we are considering war-time or peace-time requirements, is the men and the materials available.
From the point of view of the necessity for the increase in the income tax on the lower incomes I believe everyone will concede as a fundamental that no country, neither Canada nor any other part of the empire, nor any of the united nations, can make its most effective contribution to the war effort unless the people at home who are working in the industries, as well as those in the armed forces, are in the best state of health. I believe everyone will concede that workers in industry, and in fact anyone doing work of any kind, can do his best and contribute his maximum only if his standard of living is such that he enjoys the best of health and can work at the highest possible efficiency. If there is any factor contributing to the impairment of a man's efficiency in this war work, then I say that factor, whatever it may be, whether it be an increase in the income tax or any other kind of impost, is doing a decided disservice to the war effort, and is actually subversive. If we are going to contribute the maximum in all fields of production, then surely the first fundamental we should establish is that every individual worker should be allowed an income which will permit him to work with the greatest possible efficiency. Does this budget promote that efficiency on the part of the large majority of the workers in this country? If one may judge from the remarks that have been made by many hon. members, the imposts contained in this budget will not bring about that result. Many people will be denied health services. Many will be denied even some of the necessities of life, some of those things which contribute greatly to their ability to produce. Therefore, from the point of view of realities, surely the minister must admit that in connection with these lower income brackets this budget does not promote the greatest war effort.
Let us now consider the matter still farther from the point of view of realities. Men and materials, as the minister has said in the past and as we in this corner have said many times, are the fundamental considerations. If we have the men and the materials, then we have nothing to worry about. Surely no one will deny that we have not the wherewithal, as far as food or clothing or shelter is concerned, adequately to take care of our war workers. These things are not beyond our _ reach; they can be produced, for the physical essentials are here. It is just a matter of apportioning to domestic requirements the maximum we feel we can afford to devote to those purposes; and surely we cannot afford to apportion to our living standard any less than will give all workers a decent standard of living.
As far as the money angle is concerned, the same reasoning holds true. This budget is going to bring about a great increase in our national debt. After all, what is our financial system? Is it anything more than an accounting system? The debate that took place yesterday and the day previous in connection with the question of national money was very interesting; but in all that has been said with regard to the issuing of national money I I believe too much emphasis has been laid on the question of currency. Currency is a very minor part of our monetary system, It amounts to possibly less than 5 per cent of the complete operation of our financial system, while by far the greater part of that system is carried on through bookkeeping transactions which are the simplest things on earth to perform. The costs that are involved in operating the financial system are being met from day to day, in the same manner that we are meeting the real costs of the war. We provide from day to day all essential labour with which to produce the munitions of war at home. Those in the armed forces are jeopardizing their lives, sometimes losing their lives, and munitions and supplies are being blown up. But from the physical point of view the costs are being met from day to day. Does that not apply with equal force to the matter of finances? After all, the money we use is created simply through bookkeeping transactions, with a little depreciation in connection with bank equipment and buildings, and some clerical work. This work energy is being provided from day to day by those engaged in the banking business. All the physical requirements, all the essentials, are being met from day to day in our banking system. Consequently, as the minister has suggested, from the point of view of realities we are meeting all costs, physical as well as financial, from day to day. Therefore I see absolutely no reason why there should be any debt in connection with Canada's war effort, and of course that also would apply in peace time.
Now a word as to the need for securing funds from those in the lower income groups in order to finance the war effort. From the point of view of physical realities I see
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absolutely no reason for that at all. After all, the money system is merely a monetization of the real wealth that exists in the country; and the reason why the government has been obliged to obtain funds from the chartered banks, in addition to what has been taken from the people in the form of taxation and war savings, is simply that there is never sufficient money put into circulation completely to monetize the actual wealth of the country. It has been our constant contention that when the funds in circulation, the money paid out in the course of production, whether during peace time or war time, is insufficient to monetize all the goods, then additional money ought to be obtained from the Bank of Canada or from the government's monetary set-up, at cost. The fact that the government is going to be obliged to borrow $1,228,000,000 during the ensuing year indicates that there is not enough money in existence, to begin with to monetize the complete production of the nation. Consequently I cannot see that it is anything but reasonable to suggest that the government itself should bring about this monetization at cost, rather than put the people as a whole into debt for the amount of this monetization plus the interest rates that are charged. I feel therefore that until this field is explored and utilized to the fullest possible extent, the people of Canada can never make their maximum contribution to the war effort.


Mr. LECLERC:: I hold in my hand something that may prove to the exponents of easy money what easy money means after all. I have here a menu from a dining car plying between the United States and Mexico, and here are some of the different prices on that bill of fare:	Fried fillet of fresh fish,
tartar sauce, chopped beef steak, et cetera, $1.20 in American money-this is printed in English and in Mexican-or $6 in Mexican money. The next item is $1.15 in American money or $5.75 in Mexican money.


Mr. GRAYDON:: Plus the tip.


Mr LECLERC:: The next is $1.10 in
American money or $5.50 in Mexican money; and the 85 cent meal, in American money, is $4.25 in Mexican. When you have to pull out a $10 bill every time you have a meal with your wife you realize that easy money goes as easily as it comes.


Mr. FRASER (Peterborough West):: When the national defence tax is deducted from the employee's wages now he is given a slip showing the deduction, but on that slip the man's name is not shown nor does the name of the firm appear.
[Mr. Kuhl.l


James Lorimer Ilsley: I am informed that that is not correct.


Gordon Knapman Fraser: Is the man's name on it?


James Lorimer Ilsley: Yes.


Gordon Knapman Fraser: How long does it take to get the refund? I understand that there are some cases that have been pending for about eight months.


Colin William George Gibson: I have already given one answer to the question of refunds. They are made at the end of the fiscal year after the returns for the entire year have been filed. There are a great many returns filed in April. The man's return has to be compared with the employer's, and sometimes with the returns of three or four employers, and it takes a good deal of time to get all the refunds checked and ready for payment. It is a new branch that has had to be built up, and actually it has not been working as rapidly at first as we hope to have it working in the future. It has taken some time to get these refunds made, and it will be a considerable time before the great mass of them can be paid.


Gordon Knapman Fraser: I can understand that it will take a lot of work to get the branch set up, but in the meantime the workers are suffering a hardship. If the employer knows that the employee is not making, in the case of a single person, $660, or, in the case of a married person, $1,200, does he have to deduct the amount, or can he pass that up, or does he make the form as at the present time?


Colin William George Gibson: I am not quite clear whether the hon. member is asking about what happens under the national defence tax, or whether he is inquiring about the new budget?


Gordon Knapman Fraser: The same situation exists under the new budget.


Colin William George Gibson: If the hon. member does not mind waiting, that will be dealt with under resolution 25.


Richard Burpee Hanson: Are we still on resolution 1?


Thomas Vien: Yes.


Richard Burpee Hanson: I call the attention of the minister to the fact that while he answered part of my allegations with respect to this resolution, he did not give the reason why there has not been a complete amalgamation of the two taxes. I asked whether it was not possible to combine the two taxes, to have refrained from bear-

Income War Tax Act
ing so heavily on the low income group, and to have achieved a more simplified and logical tax structure. I suggested that the reason why he had not done so was that he was thereby enabled to strike more heavily at the lower income groups. What has he to say about that? Why did he not make it all one tax?


James Lorimer Ilsley: The graduated rates would have to be higher to get the same amount of money if it were done on the other principle.


Richard Burpee Hanson: Then that supports my theory, that you are striking at the lower income group?


James Lorimer Ilsley: That is a rather hard way to put it.


Richard Burpee Hanson: Perhaps it is rough, but it is probably true.


James Lorimer Ilsley: The fact is that if we had abandoned the national defence tax, quite a number of taxpayers who had been paying small sums would not be paying anything. The national defence tax principle was pretty well accepted, and we did not think we would be justified in abandoning it.


Grote Stirling: May I ask in what position the man finds himself who, having been in receipt of a salary and having incurred certain commitments with regard to life insurance, and having paid them for a few years, decides, as the result of a call of duty or because he is pressed to a training camp, to enter the army. He receives $39 a month. It is obvious that he cannot still continue to keep up his commitments on his life policies.	In what position does he find
himself under this budget?


James Lorimer Ilsley: That man is evidently a private and he is not taxed on his service pay. On his ordinary income, if he still has an ordinary income-


Grote Stirling: The presumption is that the salary he has been enjoying ceases.


James Lorimer Ilsley: Then he is not taxed.


Grote Stirling: But he cannot carry out his obligations. He cannot maintain the life insurance to which he has committed himself.


James Lorimer Ilsley: That is correct.


Grote Stirling: Is there no assistance forthcoming? Is that the death of that man's insurance policy?


James Lorimer Ilsley: Yes.


Mr. WRIGHT:: When you get into the higher age groups you find that many of these men who took out policies of considerable amounts at the age of twenty-five are being drafted now into the army as privates, and their policies will lapse unless provision is made. Is no provision being made by the government to protect these policies?


James Lorimer Ilsley: It is not a taxation question at all.


Percy Ellis Wright: I know it is not a taxation question, but it is a question that arises.


James Lorimer Ilsley: The government has not undertaken to keep insurance on a person's life in force.


Percy Ellis Wright: In certain cases difficulty would arise because of the taxation.


Mr. JOHNSTON (Bow River):: I can appreciate quite readily that the minister is finding difficulty in obtaining money. When the taxation budget was brought down a year ago the minister said definitely that the purpose was not to obtain revenue; that it was to prevent inflation. He has changed his attitude, because he states now that we must have increased revenue. In fact, he went on this afternoon to explain that it was necessary to increase the taxes upon incomes in the lower brackets, especially those of girls and stenographers, in order to obtain this great amount of money. Some members of the opposition criticized the minister quite severely because he had not raised the tax on certain incomes, because he had not exempted officers and so on, but the strange thing is that while some of these old, hide-bound Conservatives who cannot see any further than their noses are ready to criticize the methods adopted by the minister to raise revenue, they have nothing to offer in their place. My hon. friends over here are so steeped in old conservatism that they will never get out. The only hope we have is that they die off, but I do not want to wish that on them. It is one thing to criticize the minister, as they have done quite freely, and it is-


An hon. MEMBER:: Constructive criticism.


Charles Edward Johnston: Constructive criticism! I never heard anything constructive come out of your outfit yet. You are quite ready to criticize the minister, but I challenge any one of you to show him where he can get the money. Very few Liberals have the ability -not exactly the ability, rather the nerve to rise in their places and say what they think about the need of a change in our monetary system. Those who have expressed their ideas in regard to the need for a change in this
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system deserve a great deal of credit, whether or not the minister is ready to follow their suggestions. If we are finding difficulty in meeting this budget, we shall have still more difficulty in meeting the next one. The minister will have a much harder time raising money next year than he had this year. He will be compelled to go into the field of monetary reform.
The policy of the government in connection with this niggardly way of financing the war is interfering with our war effort. I made this statement before, but the Prime Minister (Mr. Mackenzie King) ridiculed me. I said that because of government policy the production of this country was being held back. After having had a little more experience during the last few weeks, I am ready to repeat that statement with much more emphasis. The method used to finance the war is one of the things that are holding back our war effort. If it had not been for our antiquated methods of financing we would never have been caught the way we were in regard to our defences. As one hon. member has said, we should be careful that we are not beaten because of the antiquated measures we are adopting.
I say in all earnestness that the minister should consider most seriously the suggestions made in regard to the expansion of credit through the Bank of Canada. In that way he could increase our war effort and would not have to tax the really low income brackets and take away the livelihood of these people. That is just silliness and tommyrot. It is interfering with our war effort; it is interfering with the health of the people, and without question it will interfere with production, not only on the farm but in the factory. When the Conservatives discuss this question I hope they will indicate some way in which the minister can raise money. Even the leader of the opposition (Mr. Hanson) admits that he might have been wrong.


Richard Burpee Hanson: I stated that you could do it to a limited degree, but beyond that limit you should not go.


Charles Edward Johnston: What is the limit?


Richard Burpee Hanson: No one can tell. If I knew the limit, I would advocate it.


Charles Edward Johnston: If the leader of the opposition is that far along in the elementary study of finance, he has made a little progress. He admits now that he was wrong yesterday and this afternoon when he was criticizing the hon. member for 
Parry Sound (Mr. Slaght), but he now says that you can expand credit to a limited degree. Let us expand it to that limited degree, and then to that extent we shall not have to take the last penny out of the poor fellow's pocket. When we have gone that far I am sure that the leader of the opposition will find that it has done no harm, that in fact it has done a great deal of good, and he can then pursue his studies a little further and advise the Minister of Finance accordingly.


William Ross Macdonald: When this resolution was before the committee yesterday I expressed an opinion with regard to payment of income tax by officers who are still in Canada. I have listened to the arguments advanced since that time, and I am still strongly of the opinion that some relief should be given to these men. At the present time all ranks other than officers are relieved from payment of income tax, and I trust that that will be changed.


Thomas Vien: The minister has stated that at a later stage an amendment will be introduced but that the nature of the amendment had not yet been determined. There is a rule of the house with regard to repetition, but I am not addressing myself in this connection to the hon. member. I think this subject has now been covered quite fully, and I should like to invite the committee to consider the amendment and resolution 1.


William Ross Macdonald: The amendment was before the committee this afternoon, and a great many hon. members took advantage of that occasion to express their views about the payment of income tax by officers. I have taken up very little of the time of this committee, and I feel that I should be allowed to express my views on this subject.
I noticed that the Minister of Finance stated that he proposes to bring down an amendment. It will be of no avail for me to address my remarks to the committee after that amendment has been brought down, because everything will then have been decided. I wish to express my views now, so that, for what they are worth, the minister will have the benefit of them.
This afternoon it was stated that many officers never expect to leave Canada and that many of them were holding down cushy jobs. That may be so. I believe the leader of the opposition referred to the case of a young lawyer who wanted to go overseas but could not, and had to sit behind a desk in Ottawa

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or some other place. The hon. gentleman intimated, although he did not definitely say so, that this man, in his opinion, should pay income tax. That is what I gathered from his remarks. I would, however, point out to the committee that even if that man never goes overseas he has given up his profession and, when the war is over, he will have no practice to go back to, whereas other lawyers who are not in the armed forces are carrying on as usual. True, they may not be making much money; nevertheless they have their practice and, after the war is over, they have a job, while this lawyer who is sitting behind the desk has no job to which he can return.
I would also point out that all officers except those who are in a low category are liable for service overseas. They have no option if they are fit. They cannot volunteer only for home service. If they are needed they will be sent overseas. I believe that every officer in the armed forces, in the army, navy or air force, who had a job before the war and gave up that job, is making a sacrifice and that some consideration should be given to them in the payment of income tax.
I am fully aware of the difficulties with which the Minister of Finance is faced, and I know he is trying to find a solution. When I spoke in this house several weeks agp I stated that I thought the Minister of Finance was one of the greatest finance ministers this country has ever had, and since he has brought down his budget I have had no reason to change that opinion. I want to say to my hon. friends opposite or in any other part of this house that if I think any member of this government or any member of this house is doing a great service to his country, I shall not hesitate to tell the house of the great service which is being rendered. It is all right to say nice things about members after they have passed out of this house or gone to their great reward, but so far as I am concerned I am going to say good things about them while they are here.
It was stated this afternoon that if officers are relieved entirely of the payment of income tax, the coffers of this country will be depleted to the extent of probably $15,000,000. The hon. member for Vancouver South suggested to the Minister of Finance that officers should be granted an exemption equal to the pay which a warrant officer would receive.


Howard Charles Green: And allowances.


William Ross Macdonald: The pay and allowances which a warrant officer would receive. I joined with my hon. friend this afternoon in that suggestion, and I am still in accord with him. I trust the Minister
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of Finance will be able to grant such an exemption. However, if he should feel that that is going too far, I have a further suggestion to make. I suggest that all noncommissioned officers should continue to be exempt from payment of tax and that all officers in Canada pay income tax to the extent only of 50 per cent of what a civilian earning the same amount would pay. That would deplete the coffers of this country by only $7,500,000.
While this country is spending billions of dollars, is it not fair to give some consideration to these officers? I know as well as other hon. members that some officers have better jobs to-day than they had in peace time, but I also know that if these officers were not in the armed forces they would, with conditions as they are to-day, be making just as much money outside as they are now.
1	also know there are many officers in the army, navy and air force who will never go outside Canada but who have made great sacrifices. I think of auditors and, in particular, of doctors, who have given up great practices, and of dentists, and if I were not a lawyer myself I would add lawyers. There are many, many men who are making a financial sacrifice in addition to leaving their home and family, and surely we can give them some consideration. It would not cost us much, if my suggestion were adopted, just 50 per cent of what they would normally pay. That would be welcomed by all of them; it would raise their morale, and be a great thing for the armed forces of this country.


Mr. MARSHALL:: Mr. Chairman,. I do
not desire to make a speech but to ask a question which comes under subsection 2 of resolution 1. First I should like to quote from a letter I have received, and then ask my question. I quote:
Have a problem in request to tax exemptions for our two girls, Joan, age 12 years, and Joyce, age 9 years, who have been with us as our sole charge since they were about two years old.
The girls have no other home, no one else is getting exemptions for them, and we cannot see why we should be penalized for taking care of them. The Edmonton office admitted we should be entitled to exemption but as the act reads they could not allow it, but advised us to take it up with the tax commissioner, Ottawa. We could furnish you with a sworn affidavit to the effect that if we had not taken care of them, they and their mother would have been on relief all these years. In fact their father was on relief quite a few years.
We are advised that the only way we can claim exemption is to legally adopt them. This we hesitate to do on account of their mother's state of health, as she is in rather a nervous condition.
Is a case of this kind covered by subsection
2	of resolution 1?

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Colin William George Gibson: No, that case is not
covered. The letter has correctly stated that exemption can be made for children only if they are the taxpayer's own children or children legally adopted. Expenses incurred in such a case as my hon. friend mentions could be treated only as charitable donations, and not as expenditures entitling the taxpayer to exemption for children.


Richard Burpee Hanson: Paragraph (h) of section 1 of resolution 1 refers to:
Estates having income taxable as provided by subsections 2 and 4 of section 11 of this act;
Nine per centum of the income.
To what does this refer? I have not the act before me. I have not looked this up and I was wondering just what it was. Normally estates would not pay this tax, would they?


James Lorimer Ilsley: Well, there is no $660 exemption or $1,200 exemption. Whatever the income is, it is taxable.


Richard Burpee Hanson: What is this section 11 of the act?


James Lorimer Ilsley: The heading of the section, which consists only of section 11, is this, "Income from estates and trusts", and the marginal notes are:
Income from an estate or accumulating in trust. Trusts for unascertained person. Trusts in favour of the same beneficiaries. Accruals to date of death. Income capitalized. Accrued earnings received after death. Income capitalized, how taxed. Life beneficiaries.
It provides for taxation of estates; that is all.


Richard Burpee Hanson: As I understand the law, when the income is received by an estate it is allocated to the beneficiaries; the trustee or the executor files a return, and the amount allocated to each beneficiary is attached to that person's income, and he pays a tax, does he not? Is there a deduction now before anything is allocated?


James Lorimer Ilsley: When there are unascertained beneficiaries.


Richard Burpee Hanson: That is what I want to know. If there are ascertained beneficiaries this does not apply, but it is taxed in the hands of the beneficiary.


Angus MacInnis: Would the minister elucidate a little more the answer he made to the hon. member for Camrose (Mr. Marshall)? I thought I heard him mention that the money spent on the bringing up of children that were not legally adopted was some form of charity.


Colin William George Gibson: I used the expression that it was a charitable donation. I did not mean

that it was exempted, as a charitable donation, from income tax. It is treated as charitable work, private charity, which a man is carrying on which is not entitled to the exemption.


Angus MacInnis: If the same family put these children in an approved children's home run by a church or some such organization and made a contribution of a certain amount on a charitable basis to that home, would the family be entitled to deduct that from the income tax, or would it be a non-deductible charitable donation?


Colin William George Gibson: If they were paying the board and lodging of that child in the home it would not be an exemption, but if they were making a donation to the home for the general purposes of the upkeep of the children in the home it would be a charitable exemption.


Angus MacInnis: That is the very point I want to make. Why the difference? Here these people are willing to give those children a home, but on account of certain circumstances they do not want to go through the process of legal adoption, and they are not allowed any income tax deduction because of this expense. Yet if they put the children in a home where they have just institutional care and make a donation to that home to the same extent as they are paying now for the upkeep of the children, they are allowed to deduct the amount from their income tax. Surely there should be some way to meet a situation of that kind. It does not seem to me to make sense, in a civilized society.


Gordon Graydon: Following the line which was adopted by the hon. member for Vancouver East, may I ask this question? Is not the present tax structure in connection with the head of a household who has, for instance, one or two children of that type, more harsh in its application than it was previously? As I recall it, under the previous income tax provision there was an exemption of $1,500 to start with. Now the householder has only $660 by way of exemption. Let us suppose that he had two children who were not his own, who were not legally adopted, and who did not come under the government's evacuation arrangements. Previously at least $1,500 of his income was actually exempted before any income tax was paid; now he has only $660 as an exemption. It may be said that as a married man he has an allowance of $150; but actually, at the rate of, say 30 per cent, the difference there would be a matter of $300, roughly speaking, instead of $150. Therefore it seems to me that he is in a much worse

Income War Tax Act
position under the present arrangement than he would have been had the exemption remained at $300. I should like to have the minister's explanation because this is rather confusing to me.


James Lorimer Ilsley: I do not know that I understand the question. It is true that there has been an exemption for a married man, or a single man under certain household or other conditions, of $1,500, and now the provision is that the tax shall not reduce his income below $1,200. If the hon. gentleman will put his difficulty again, I shall try to follow it more closely.


Gordon Graydon: My problem is this.
Under the previous taxation arrangements a man was allowed $1,500 exemption. Now he is allowed $660 exemption.	The difference
between $1,500 and $660 is $840. Roughly speaking, 30 per cent of that would be somewhat less than $300. But actually what he is allowed off the tax under the present scheme is $150, whereas under the previous scheme he was allowed about $290. Having regard to the point which was raised by the hon. member for Vancouver East, the present rate of tax bears rather hardly upon the man if he is keeping one or two children for whom he is not able to get the $28 or the $80 reduction, as the case may be, for a child who is either adopted or his own.


James Lorimer Ilsley: Does it come to anything more than this, that it would be better for him if he could get a reduction in respect of children that are not his own, provided he is keeping them? Is there any more point to the objection than that?


Gordon Graydon: Yes, because he is really paying a good deal more; at least his exemption does not mean nearly as much to him under the present legislation as it did under the act of last year.


James Lorimer Ilsley: I do not see that it has any bearing whatever on the question which has arisen about foster-children. It is a different matter altogether. It is a harsher measure, we know that, but it does not have anything to do with this other question.


Gordon Graydon: It has this to do, that when a man is in that income bracket-the situation is much the same with regard to officers of the army-when you are taking so much more off the married man with one or two additional children to keep, it is not an easy thing in these days to take care of one or two extra children for whom you cannot get any additional exemption. The problem becomes more acute.


James Lorimer Ilsley: There is no doubt it does; the heavier the taxes, the harder it is for a taxpayer to take in and keep children for whom he cannot get any exemption.


Richard Burpee Hanson: The exemption is based on legal liability or obligation. That is the trouble.


James Alexander Marshall: Am I right in assuming that those who take in children from the British isles are allowed exemption under this paragraph?


James Lorimer Ilsley: Some of them.


James Alexander Marshall: It says here:
(iii) a child under eighteen years of age maintained by the taxpayer in Canada under a cooperative scheme sponsored by the governments of the United Kingdom and of Canada or any of the provinces of Canada, for children brought from the United Kingdom under a government plan, or under twenty-one years of age, and likewise maintained, upon proof that such child is a student at a secondary school, university or other educational institution.
It seems to me that this case would be more or less parallel and would come under that section.


James Lorimer Ilsley: No. The committee will
remember that two years ago or last year we had a hot argument about whether we should permit evacuated children generally to be treated as children for the purpose of tax reduction, and I took the ground that this should not be permitted to any greater extent than that section covers. One of the reasons I gave was that if we opened the door wide we would have to upset the practice, to change the law, that had been in force in Canada ever since the Income War Tax Act was enacted in 1917, namely, that foster-children are not treated as children for tax deduction purposes. I said that practice was very firmly established and that we would have to hold to it; that there were reasons why we should. Evidence is difficult to obtain; abuse is possible; exchanging of children is possible and all that sort of thing. I may be wrong about that, but at any rate it would be very difficult to check on the matter, and it has always been felt that the principle of the exemption is legal liability. If a person wishes to be kind-hearted and do a charitable deed, that is not sufficient ground for getting an income tax deduction. Many kind acts are done; taxpayers support relatives whose health is bad; all that kind of thing is done, and no deductions are made for that. Nothing has been more firmly established in our income tax law than the principle that only children of the taxpayer and adopted children come within the terms of the section.
44561-27SJ
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We did think we could go the length we did by passing the section the hon. gentleman has just read, that is, with regard to children who come under a scheme sponsored by the the governments, children who presumably are for the most part poor, whose parents have no means and whom the government in a sense has asked the people to take. We thought we could go to the length of making a limited concession in respect of those children. We were pressed very hard to go much further, but I said we could not go further without opening it up to all foster-children in Canadian homes, something that we had never done. There are thousands of them, tens of thousands, in every province of Canada. My hon. friend's request simply bears out the contention I made; he is basing his argument on that limited section about sponsored children. I do not think it is a valid argument. He would have a very much better argument if he went the whole way with evacuated children. The British government has since released money for those who have money to send-


Richard Burpee Hanson: 
James Lorimer Ilsley: -and had we allowed that as a deduction we would have been in this position, that Canadian taxpayers would be getting an exemption for those children and getting something from their parents at the same time.


Richard Burpee Hanson: Has the
question of allowance for a common-law wife ever arisen, and- what is the position?


James Lorimer Ilsley: The question has arisen,
but no allowance is made.


James Alexander Marshall: A point that I think is overlooked is this; these people are perfectly willing to take out papers for these children, but on the advice of the doctor it is not deemed advisable to do so. If they took out papers they would get full exemption under this section. . The only thing that bars them from doing so is that the doctor believes that the issue of such a certificate would be detrimental to the health of the mother of the children.


George Russell Boucher: The Minister of Finance said this afternoon that it has not been the policy to grant exemption, to married daughters whose parent or parents live with herself and her husband, whereas it is granted to the son whose parents live with him. I believe a serious wrong is created there. Any person who has practised law can hardly help coming to the conclusion that as a rule the daughter is more willing and anxious to look 
after her parents, and the parents as a rule are more happy with a daughter than with a son. That being the case, you have the situation whereby the married daughter taking in and supporting her parents cannot through her husband get exemption under the Income War Tax Act, but the husband can get exemption for his parents. In these days when we are going into so much social legislation I believe that is a relic of the past which we should soon obliterate. I wonder whether the minister has any more reason than that stated this afternoon when he said it was just that they had not done it in the past.


James Lorimer Ilsley: There is no obligation to
support a mother-in-law. In nearly every province, in many provinces at any rate, there is an obligation to support mother and father.


Richard Burpee Hanson: There is
no common-law obligation. Has the minister met the alimony case, the man who is divorced, who has an income of, say, $10,000?


James Lorimer Ilsley: I certainly have.


Richard Burpee Hanson: Do you allow that alimony payment as a deduction?


James Lorimer Ilsley: No.


Richard Burpee Hanson: Such a man who has married again is in a very tight spot. I think he ought to have a little consideration; that should be allowed as a deduction.


Alfred Henry Bence: I was going to say a word on that point. It seems to me most unfair that when a man is divorced and is supporting his ex-wife by order of the court, he should not be allowed to deduct, for income tax purposes, the amount paid in alimony. If that were done, the ex-wife could be required to file an income tax return as a single woman, as she should, and she would have to acknowledge receipt of that income in making up that return. In many cases the man has married again, but still he must pay a very high tax on the $60, $70 or $80 a month he must pay his former wife. I am not thinking of it so much from the point of view of the husband, though I believe he is in a very bad spot. In the cases with which I have become acquainted, the husband has defaulted in his payments because he has not been able to make them, and in those cases it is the former wife who suffers, and accordingly I believe she should be given as much consideration as the husband.


James Lorimer Ilsley: I agree that there is a great deal of injustice to the husband, and perhaps

Income War Tax Act
indirectly to the wife, under the law as it stands now, and much consideration has been given some method by which the law might be changed. However, I am not in a position at the moment to say whether or not an amendment to meet the situation will be proposed. The matter is still under consideration.


Howard Charles Green: What is the law in Great Britain and the United States?


James Lorimer Ilsley: In Great Britain the law is that if the payment to the ex-wife is made under an order of the court, it is allowed as a deduction from the husband's income for the purposes of income tax, and it is taxed as income to the wife. In the United States I believe the law is the same as ours.


Howard Charles Green: Have they not changed it this year?


James Lorimer Ilsley: They are trying to, but I do not know how they will get along. I should have completed my remarks about Great Britain. If the payment is under a separation agreement instead of an order of the court, then the husband is taxed on the full income, and the wife not at all.


Howard Charles Green: Why has Canada followed the United States law rather than the British law in this case?


James Lorimer Ilsley: There has never been any other law in Canada. Perhaps they are following us; I do not know. We just do the same; that is all.


Howard Charles Green: I really think it is an impossible situation, with the tax so greatly increased as it has been this year. After all, our law recognizes divorce, and once the parties are divorced they are entitled to marry again. In some cases that have been brought to my attention the husband has remarried and had children by the second wife, but is forced to pay income tax on the alimony that he pays the first wife, and I suggest that the position is absolutely unfair.


James Lorimer Ilsley: I agree that it is, in a great many cases.


George Henry Ross: Where a
widower has young children, and requires the services of a housekeeper, is any allowance made for that housekeeper?


James Lorimer Ilsley: No, there is none.


Gordon Graydon: I do not rise to pose as an expert on the question of alimony, like those of my colleagues who apparently have made a close personal study of the matter; but when the hon. member for Vancouver South suggested that we in this country had
followed the policy of the United States I was reminded of the minister's very mild boast during the course of his budget speech as to the way the United States had followed his price-ceiling policy, and I was wondering if this was another evidence of that reciprocity about which through all the years this government has been so proud to boast.
I should like to point out to the minister that according to the answer to a question tabled yesterday, some 7,920 children have been brought here from Great Britain since the outbreak of war. Of these I believe all but 189 came prior to or during 1941, and therefore the stream of immigrants of tender age from that quarter has apparently pretty well dried up, I presume because of transportation and other difficulties. It does seem to me that in connection with the income tax, even though the minister has refused similar requests in previous years, in view of the acuteness of the financial stringency of some of our people in the very low income brackets who are looking after these British guest children, this year he might well give further consideration to this matter. If the arguments used in former years in support of exemptions in respect of these children had any strength at all, the minister might (veil take into consideration the tremendous increase that has been brought about in the income tax and do something with respect to these evacuated children who have been brought to Canada. There are less than
8,000	of them, and I think it would be an extremely nice gesture on the part of this government, and would not cause any great drain upon the treasury, if some consideration could be shown the people who, often at great personal sacrifice, are looking after these guest children.


James Arthur Ross: I should like to ask a question in connection with officers in the armed forces, and I do not see any other clause under which I may do so. I remember a discussion which took place about a year ago in regard to the different treatment given the air force and the army in this country, and I believe at that time it was pointed out by the minister that those who were undergoing flying training certainly were exposed to greater danger than those in the army. Since then I have been told that any administrative officer of the air force who has done 100 hours of flying during the year is exempt from payment of income tax. Is that correct?


James Lorimer Ilsley: Yes.


James Arthur Ross: Then I think that is most discriminatory. I believe the army
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officers of this country are just as much entitled to exemption from payment of income tax as are the administrative officers of the air force, who are not attached to the air crews and who do not undergo the dangers which are faced by those who are actually undergoing training. I was very much surprised to find that these administrative officers, who are in no way connected with the air crews but who fly for pleasure, or perhaps even for business, from one point to another in Canada just in order to put in their 100 hours in the air, were given this treatment. I think it very unfair, and I wanted to point this out now because I was not sure whether there would be another opportunity. The minister says that is a fact, and now I hope he will take this matter under consideration and remove this discrimination in any amendment he may bring in. I think the army officers should be given at least the same treatment that is given the administrative officers of the air force. I repeat, that sort of thing is most unfair and most discriminatory, and I can see no reason at all for any such ruling.


George Alexander Cruickshank: I want to be clear on this. Does the minister mean that the administrative officer flies the machine himself or rides as a passenger?


James Lorimer Ilsley: He rides.


George Alexander Cruickshank: Well, I was not going to say anything in connection with this matter; I was going to take any abuse coming from the Canadian Legion in British Columbia for not saying anything, but now I am going to say something. I could take some time, since many speakers have taken twenty minutes or so to pay unnecessary compliments to the Minister of Finance. I realize that he is an excellent man, though he has taken two-thirds of my income, and I had none to start with. I also believe that this budget, naturally, was drawn up by the minister's advisers, because of course he cannot do all this work himself. I am, however, most certainly of the opinion that none of those advisers are married men, to start with, and that very few of them are veterans of the last war, certainly not of the front line.
I cannot understand such a ridiculous suggestion as has been put forward. Some of the petticoat army of the Royal Canadian Air Force administrative forces have been riding across Canada, back and forth, to check up on mess rooms and canteens, and it is suggested they ought to get exemption from income tax, when men are running risks daily on the east and on the Pacific coasts.

We shall hear something about this in the secret session to-morrow. This morning I saw some pictures-I hope they were not faked-of the defences on the Pacific coast where our officers and men are training, and I am to understand now that other men who never saw France or Germany and will never see it, and who in most cases never had any intention of ever seeing the front line when they joined the army, are to get exemptions. It is ridiculous. I take back the silent criticism I made with regard to the hon. member for Brantford City (Mr. Macdonald), and I think all returned soldiers in this house should register their protests against the proposal. The hon. member for Souris (Mr. Ross) deserves credit for bringing the matter up. I cannot see any justification for the exemption. I do not know what the privileges of cabinet ministers may be when the budget is under discussion, but I warn the government that they had better never put me in the cabinet because if anything comes up concerning returned soldiers they will hear from me, even if I am fired the next day.
I am expected to go back to British Columbia next week or the week after and endeavour to build up an active army by means of what is probably the wrong method, the voluntary system, because the government will not adopt the selective compulsory service method. I am to endeavour to get men to enlist to face terrible casualties, which are surely coming as soon as the second front, starts. I am expected to build up a reserve army to defend the coast. What inducement have I to offer men to join the army in that province to-day, when one young man of twenty-seven and another of twenty-eight, both single and both medically fit, are acting on the personnel of the selection committee of the civil service in connection with the wartime prices and trade board in British Columbia? I have another inducement to offer young men in my riding-I am sorry the Minister of Agriculture (Mr. Gardiner) is not here to hear this-when they realize the situation of one particular farmer whom I might mention. He has two boys, one of whom is missing over Germany, the other still serving over there, their mother being sixty years of age and the father over that age. This is the first time in their lives these elderly people have had to get out and milk cows. That is the inducement I have to offer men to join up. Yet I am to endeavour in that district to secure volunteers for the army. This parliament is supreme, and I warn the members of this house that, in my opinion at any rate, there is no justification for them to go back to their ridings, and certainly no returned soldier member has any

Income War Tax Act
justification for going back to his riding, to try to convince the people there that as a private member, or in any other capacity in this House of Commons, he has done his duty by the men who are making the supreme sacrifice, or who will shortly be called upon to make that sacrifice on our behalf, so long as such members stand back and permit such a ridiculous, nonsensical, idiotic class of legislation to be placed oni our statute books. I do not know what more I can say against it, but certainly it will not carry except on division so long as I am a member of this house.


James Lorimer Ilsley: To a great deal of what my hon. friend has said I listened with agreement, which is more than usual. I did not learn until recently, a few weeks ago, of the practice which apparently has arisen-I do not know how extensive it is-


James Arthur Ross: Fairly extensive.


James Lorimer Ilsley: -on the part of administrative officers of the air force of "flying in" their income tax. When I did learn of it I thought it was scandalous, and I still think so. The basis of it is this, and it will give hon. members an idea of the difficulties and the dangers of trying to meet what appears to be a meritorious claim without thinking of where it will lead the government. The members of this committee will recollect that about two years ago, I believe, members on the other side of the house, and perhaps on this side too, although I do not remember, made very strong appeals on behalf of our forces overseas, and non-commissioned officers and privates in Canada, and said that they should be exempted from income tax and national defence tax. That met with the usual acceptance from members of the house who did not feel that such persons ought to pay. Accordingly the government drafted a provision for insertion in the Income War Tax Act among the exceptions. This provision in section 9 of chapter 34 of the Income War Tax Act reads:
The following incomes shall not be liable to taxation hereunder:
(t) The service pay and allowances of
(i)	warrant officers, non-commissioned officers and. men in the Canadian naval, military and air forces while in the Canadian active service forces, and
(ii)	commissioned officers of the said forces while on active service beyond Canada, or on active service in Canada, whose duties are of such a character as are required normally to be performed afloat or in aircraft.
The reason for exempting "commissioned officers of the said forces while on active service beyond Canada" was that it struck
members of the house and, I believe, a great many of the public, that it would be undesirable and not in accordance with public opinion in Canada-I was going to say public opinion of the generous Canadian people to tax men who were fighting in France, as we thought these men would be doing at that time. It was felt that public opinion would not be in favour of their being pressed for income tax returns, having a national defence tax deducted from their salaries, and so forth. Therefore that exception was agreed upon as a proper one, although I may say parenthetically that there is no such exception in the United Kingdom or United States law. At any rate, we put it in the Canadian law. As soon as that was agreed upon, a little reflection convinced us that if men in France were to be excepted, or men in Great Britain, equally the men doing duty in the navy on the Atlantic ocean, with all its perils and dangers and fatalities, must be given the same privilege. Then it was said that if we did this for men on the ocean we should do it for the patrols out over the ocean, the airmen who go out in all kinds of weather; and if we did that we could not draw a distinction between them and the men who are flying in Canada, some of whom crash, and undergo considerable risks. Consequently this provision was drawn up:
Commissioned officers of the said forces while on active service beyond Canada or on active service in Canada whose duties are of such a character as are required normally to be performed afloat or in aircraft.
That section was carefully drawn, and there seemed to be good reason for every word of it. That is the law. What did it mean? What is meant by "duties of such character as are required normally to be performed afloat or in aircraft"? There had to be some classification, and that was an extraordinarily difficult thing to do. Conferences were held between officials of the Department of National Defence for Air and the Department of National Revenue, and finally it was agreed to take the average number of hours flown by those flying in one year, I think it was 1940. That worked out in the neighbourhood of 200 hours, and in order to err on the side of generosity, as we have been urged to do to-day by the hon. member for Brantford City (Mr. Macdonald) and others, and leave no chance for criticism on the ground of niggardliness, the 200 hours were divided in two and 100 hours was fixed as the standard. If an officer had flown 100 hours or more he would be deemed to be an officer whose duties were of such a nature as are required normally to be performed in aircraft.
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This apparently gave some of the administrative officers in the air force bad ideas, and I understand that they are flying around rather freely. I do not want to say anything that I should not, but the fact is that they are "flying in" their income tax. I do not mind saying that to me that is scandalous. We do not ordinarily associate that kind of activity with our fliers, and they certainly should not be able to qualify in that way. I do not think the section requires any amendment, but I certainly think an administrative change will have to be made in order to avoid this abuse. I think that administrative change can be made. I just wanted' to say this, because it is not often that the hon, member for Fraser Valley (Mr. Cruickshank) says something with which I agree.


Mr. EDWARDS:: The minister's observations have answered largely the matter to which I was going to refer. Be it said to the credit of one officer whom I know and whose duties were such that he had to fly, that he was unwilling to be a party to this practice or be suspected of flying out of his income tax, so he refused to turn in his flying hours for the last several days. In contrast, I do not think I can do other than raise my voice in protest against those in the air force who are known-this comes from the air force itself rather than from the public-to be carrying out the practice referred to by the minister. I think we can rely upon the minister and the officers of his department to see that this is taken care of by suitable regulations.
I am wondering if all hon. members who have spoken in regard to the situation with respect to payment of income tax by officers have not had such representations as they have received from officers of the rank of major and below. These representations have been prompted by the fact that their sergeants and warrant officers, classes 1 and 2, were in effect receiving a greater compensation on account of the innovation of this income tax. May I say that I have yet to meet a Canadian officer in our army, navy or air force who has protested to me, or to any of my friends with whom I have had conversation, about his obligations to pay income tax. I have heard from numerous officers of their willingness and readiness to contribute financially toward the payment of this war. I think it is wonderful that such a tribute can be paid to the officers of our three active services.
Such complaint as now exists arises as a result of the discrepancy between the three upper ranks of the non-commissioned officers and the lower brackets of the commissioned officers. This applies in the army and air

force, but I am not sure whether the same observations can be made with regard to the navy. I have been told that sergeants and warrant officers are refusing promotion in the army and air force because such promotion would mean they would lose $200 or $300 a year. I do not think there would be any vocal resentment by these warrant officers and sergeants if they were brought into the income tax field. I think that is the fair and reasonable way to deal with this matter.
At the outbreak of the war many men came forward and volunteered their services. They took this action in the light of their known incomes and their prospects for promotion in rank. These men cannot make financial adjustments such as the civilian at home can make. I think it is absolutely unfair to increase their income taxes from year to year. Two years ago these men gave up their professions and businesses; they sat down with their wives and families to figure out what they could do, whether or not they could get along, and now the government comes along and raises the ante on them by way of income tax.


Gordon Graydon: Replying to the hon. member for Fraser Valley (Mr. Cruickshank), the minister gave a schedule of exceptions with regard to forces afloat. Will those include merchant seamen, or do they apply only to the naval forces?


James Lorimer Ilsley: Just to naval forces.


Gordon Graydon: Without reflecting on the perils of the service which anyone on active service is risking, and it may be much more dangerous before long, our airmen who are flying oyer Germany and our men who are serving in the merchant navy are almost in a class by themselves so far as actual danger is concerned, and if the minister has in mind at any time making further exceptions I trust that he will not forget the men in the merchant navy who have to undergo the greatest perils of almost any branch of the service, military, naval, air or civilian. We have all seen the appeals that have been made throughout this country on behalf of the men in the merchant navy, and I am sure that the minister and everyone else is convinced that they are carrying on a service for us for which they can never receive an adequate reward. But if any further exceptions are in contemplation I would plead with the minister not to forget the men in the merchant marine.


Howard Charles Green: That is a very important point. The bill that has already passed this house for the reinstatement by employers of their men who have served in the armed forces

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applied also to men in the merchant navy, and they are also covered for pensions, not by the Pension Act but by order in council.
We have this situation on the Pacific coast. All of the Canadian Pacific Empress boats have been taken over for troopships as well as some of the boats running between Victoria and Vancouver. Just to-day I received a letter from a lady who said:
I personally know of two cases, one a survivor of the Empress of Asia and the other an injured member of the crew of one of the other Empresses, who soon after their return to Vancouver after serving fourteen months in the war zone received a request for payment of income tax for the year 1941.
She goes on to say:
This is an injustice. These men are as much in the firing line as the navy.
I think that situation should be met by some change in the act. The merchant navy is really the fourth arm.


James Lorimer Ilsley: I would not be frank if I said that I would give the matter favourable consideration, because to do so would be entering upon a road the end of which we would never reach. The men in the merchant navy are running terrific risks and giving marvellous service, but I cannot admit that as a reason for income tax exemption. They are not being paid by the crown. We know nothing about their rates of pay, bonuses and things of that kind. They are paid by private employers. The reason given repeatedly in arguments that have been made for exemptions for certain members of the forces has been that we were paying them money to fight for us and that we should not take part of it back. That does not apply at all to members of the merchant navy. If we start assessing degrees of danger and risks assumed by Canadians who are not in the employ of the government at all-


Howard Charles Green: What about the men who will serve on the new merchant ships we are building? Are they not going to be employed by government companies?


James Lorimer Ilsley: It may be a government company, but it is still a company. I am simply saying that members should not try to push the government step by step, because that is what it amounts to, right along the line of extending income tax exemptions because they are impressed with the risks or dangers that people are running. I have already told the story to-night of what happened in connection with the exemptions that we did insert in the act contrary to the practice of Great Britain and the United States, and now we are being pushed still further. We have heard
speech after speech to-day urging us to extend exemptions to a great number of officers here in Canada, and now we are being asked to go outside our own armed forces and consider those in private employment or in the employment of corporations on account of the risks they run. Next we shall be asked to extend exemptions to someone else who runs just as much risk, and next perhaps exemption may be sought for people who live on the coast instead of in the interior. That is a road to which there is no end. I may be thought to be lacking in sympathy. I am not at all.
I am tremendously impressed, as we all must be, with the splendid service the men of the merchant navy are giving, but let us recognize it in some other way than by shooting our revenue system all full of holes, just causing it to disintegrate.


Gordon Graydon: The minister talks about being pushed along step by step. Perhaps my eyes are deceiving me, but if this is the minister I think it is, he has not been pushed very far on matters like this in all the time I have been here in the house, and I give him considerable credit for that. He is one minister who does not get pushed around very much. To-night, however, I think he is feeling a little sorry for himself when he makes the statement he has just made. While I have every sympathy for his position, surely we as members representing the people have a right to bring to the minister's attention the plight of people such as those in the merchant navy, and no matter what the minister may say I do not apologize for raising my voice in this house on their behalf. I am sure the minister would not ask me to do so, and yet that was implied in the remarks he has just made. The minister may not have been impressed by the arguments that have been advanced, and evidently he does not consider them convincing. But at the same time I do not think he should by implication suggest that they are matters which should not be brought to his attention; for the House of Commons is the one place where members can bring before the government grievances, complaints, suggestions and constructive criticism. Perhaps the words the minister used did not express just what was in his mind. I would hope that he would welcome suggestions such as are being made here to-night, and made in good faith, not with the idea at all of making the government retreat in some direction not in the public interest. If the minister is going to retreat on this question, it will be the first retreat I have ever seen him make since I entered the house in 1936.

Income War Tax Act


John Horne Blackmore: I have listened to the discussion all afternoon and thus far this evening, and I have found that there have been objections to almost every impost proposed in this budget. I have found no one who has given the budget his full approval. I take that as evidence that the whole tax structure is too severe. Of course the minister will say that he must have the money, thereby indicating that there are two points of view which are clashing and that we have not found the right -way of doing the thing. I just wish to say that the minister has not allowed for the needs of a people at war. This afternoon he cited the income tax of Great Britain and the income tax of the United States, and indicated that the Canadian income tax structure is no more severe than theirs. Even so, we can understand why the British income tax should be severe, why purchasing power there would have to be limited rigidly, because there is a shortage there of all kinds of goods, a shortage of resources. But that is not true of Canada. We have plenty of man-power and plenty of woman-power to produce all the goods and services that the people of Canada can use, as well as provide all we need for our allies and for the conduct of the war. To say that simply because Great Britain's income tax has to be severe, therefore Canada's has to be, is to draw a false conclusion.
Just to show that there is altogether another side to this question of the needs of the people, I propose to read into Hansard a little statement which is found in a publication, Labour, coming over from the United States. In the issue of July 14, 1942, I read the following:
The American Federation of Labor has estimated that a family of five must have an income of $44 a week, at present prices, to live in "health and decency," and of at least $30 for "bare subsistence."
Figures like that make all the minister's remarks in extenuation of his income taxes look like so much piffle. The minister said in his budget speech that he had in mind a standard of health and decency. During my reply to the budget speech I asked a question which was designed to see if the minister had formed any conception as to what constitutes a decent standard of living, but the minister had no conception, or at least he was not prepared to take the house into his confidence with respect to what his conception was. The advisers to the minister seemed to have no notion whatsoever as to what constitutes decency in regard to a standard of living in Canada.
This tax structure is so severe that the suffering and deprivation which it is going to

necessitate for a large percentage of the Canadian people is so great as to be a disgrace to the minister, and to render an effective war effort impossible-and "impossible" is the word. I think that all hon. members need to do is to multiply $44 a week by fifty-two and compare that with what the average family will have left when the minister has finished with them this year, or to multiply $30 by fifty-two, to see how disgraceful this tax structure is.
It will be said that we must have the money. I am not going to enter into a discussion of this subject on this occasion. The hon. member for Parry Sound (Mr. Slaght) deserved well of his country the other night. It was a noble and courageous thing for that man, in the position he occupies in his country and his party, to rise in his place and make the declaration he made, and he would not have made it if he had not believed it to be true. I say that when that hon. member, with all his intelligence and experience, has become convinced that what he advocated on that occasion is true, that may well constitute a warning and a challenge to every hon. member in this house.	,


John Ritchie MacNicol: Did you not hear the reply of the finance minister?


John Horne Blackmore: Yes; the reply of the finance minister was childish.


John Ritchie MacNicol: It was a masterly address.


John Horne Blackmore: The finance minister's reply was childish. I am not going to take the time to go into it, but there simply was no complete argument or answer to the hon. member for Parry Sound; and the hon. member for Vancouver-Burrard (Mr. McGeer) completely devastated every argument the minister advanced.


Richard Burpee Hanson: It is a wonder that they do not join you.


John Horne Blackmore: True. It is easy to make smart-Aleck, foolish wise-cracks. To make a sound and factual argument is another and a different matter.


John Ritchie MacNicol: Does the hon. gentleman say that the two hon. members did make sound factual arguments?


John Horne Blackmore: Most certainly! The hon. member for Vancouver-Burrard was unanswerable. I say that the hon. member for Parry Sound did his country a great service on that occasion. He pointed a way which would provide Canada with a means of escape from the dreadful situation of economic slavery into which we are being driven.

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Up to the present time there has been some pretence on the part of ministers of the crown that they believe in the principle of equality of service, equality of sacrifice. On every occasion here this afternoon and all day yesterday it was shown over and over again that such a thing as equality of service, equality of sacrifice, has simply completely departed from the minister's mind. It is no longer a guiding principle.
I want to repeat this one remark. Something must be done to find a way in which the war effort of this country can be carried on without such a ruinous system of taxation, and I testify, Mr. Chairman, that the system can be found, and that if hon. members do not find it, instead of indulging their time in smart-Aleck wisecracks, they will stand condemned before all generations that follow us in Canada.


John Ritchie MacNicol: I merely have a question to ask; I shall be very brief. Recently in front of this house we saw a battalion of fire-fighters parade before going overseas. I believe that that unit is now overseas and that one or two battalions are to follow. In what position will they be in comparison with officers of the regular army? They are going into very hazardous work in London and in other cities, fighting fires; they are called overseas fire-fighters. Will they benefit by any of the exemptions which are accorded officers of the regular forces?


James Lorimer Ilsley: They are not covered by the section, no.


Richard Burpee Hanson: They are not enlisted men.


James Lorimer Ilsley: No.


John Ritchie MacNicol: I thought they were
enlisted men.


James Lorimer Ilsley: No.


Howard Charles Green: They are not in the army.


John Ritchie MacNicol: They were enlisted here under direction of the military authorities. Is not Huff, the chief commander, an officer in the Department of National Defence?


James Lorimer Ilsley: I understand they are not members of the forces. They are not members of either the army, the navy or the air force.


Richard Burpee Hanson: Therefore the statute does not apply.


James Lorimer Ilsley: That is right.


Mr. HANSELL:: I have not spoken on this budget. I think it is the first budget presented luring my short experience in the house on
44561-276 i
which I have not spoken. Perhaps that is because the taxation is so drastic that-well,
I just choked when I began to figure out the taxes. I usually write to my wife several times a week, and when the budget was brought down and I began to figure out this income tax I did not know what to write. Accordingly I scratched only a little note, and it went this way:
Dear Sweetheart:
This is only a short note as I am too full for words.


An hon. MEMBER:: Shame!


Ernest George Hansell: I want you to know' that you are the best wife a man ever had. Right up until now I have always considered you my greatest asset. But I have been figuring out the meaning of the new budget and I find my good friend Mr. Usley, through some sort of money magic has changed you from an asset into a liability.
I am sorry sweetheart; you are just as beautiful as ever, just as lovable, and I haven't changed towards you. Nothing has changed except the figures, but figures don't lie-not these figures.
With all my very best,
Your loving husband.
I have not had an answer.
It does seem to me that there is a great deal of merit in the proposal that we should use our own credit facilities to create our own money. Of course the country and this house are well aware of the position this group takes. I do not claim to be an expert, but I have common sense enough to know that a hen scratches and a duck swims. There is one thing about which I have been very much concerned and puzzled. I should like to ask the Minister of Finance one question. He may not want to answer it. The question is, Is it possible for a millionaire to get any more sugar in Canada than a poor (man? We might say no, that sugar is rationed, so he cannot get any more. Assuming the minister says no-that has to be his answer or else the rationing system is all haywire-my next question is, Why could you not ration practically everything in time of war? Then people could buy only so much, and what great difference would it make then whether we were taxed at all? What difference would it make then if we all had a fair amount of money and we create the money that we need with our own credit facilities without going into such tremendous debt which some day we shall have to pay, for there is going to be a day of reckoning some day.
Amendment (Mr. Mackenzie, Vancouver Centre), agreed to.
Resolution 1, part I, as amended agreed to.
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Richard Burpee Hanson: What does that mean that we are carrying?


The ACTING CHAIRMAN (Mr. Macdonald, Brantford City):: All of resolution
No. 1, I take it.


James Lorimer Ilsley: I thought it was the whole section down to the middle of page 3, including the graduated rates of tax. That is resolution 1.


Richard Burpee Hanson: Oh, no.


George Russell Boucher: Looking at the wording of the resolution it does create some confusion. There is I in Roman numerals for "normal tax" on the first page. Then you come to the figures 1, 2 and 3 in brackets which are definitely part of that. Later you come to II in Roman numerals, and again you come to the figure 2 in plain figures. The numbering is confusing.


The ACTING CHAIRMAN (Mr. Macdonald-Brantford City):: Resolution 1 extends down as far as "$69,925 upon income of $100,000; and 85 per centum upon the amount by which the income exceeds $100,000." That is resolution 1. Shall resolution 1 as amended carry? Carried.
Resolution 1, part II, agreed to.
Resolution 1 as amended agreed to.
2. That the exemptions of $1,500 and $750 shall be reduced for the purposes of the graduated rates to $660 for all persons.


Richard Burpee Hanson: This, I
think, raises the whole question of the principle upon which tax exemption should be based. The old principle has been abandoned, and by resolutions 3, 4 and 5 a new principle of deduction from tax has been adopted. I adverted to this in my speech on the budget on June 30 last, as reported at page 3792 of Hansard, the second column. I do not want to put that again on the record, but there is a very substantial difference in the basis of this deduction. With reference to resolution 4-
. That in lieu of the deduction of $400 from income for each dependent child or grandchild there shall be allowed a deduction of $80 from the tax payable under the graduated rates.
-and that in the case of a married person under resolution 3, or a person heretofore entitled to exemption equivalent to that of a married person, there shall be allowed as a deduction an amount of $150, I hold the opinion that the old provision was preferable. Perhaps that is because we are accustomed to it. That may be the psychology of the thing. But on mulling the matter over, I would ask, is this as advantageous to the taxpayer under the new increased rates as the 
old deductions from the amount of taxable income were on the then existing rates, or how does the matter stand?


James Lorimer Ilsley: It is just about impossible to give an answer except to get out the schedule and see what the taxpayer is taxed this year and last. I put a schedule on Hansard with the budget speech for that purpose, and comparisons have been made since and published in the newspapers. There has been a decrease in pure tax in some of the lower brackets, but for the most part of course the tax is increased to a considerable extent. As I explained this afternoon-I think the leader of the opposition was present-the flat $150 is better than $750 deduction from income on account of a wife in the lower income groups but not as good in the higher, the same as with the children. One hundred and fifty dollars is 20 per cent of $750, the tax advantage of having a wife, if I may put it in that way. Accordingly, if a person were paying 20 per cent, his advantage was $150 last year. If he were paying 15 per cent, the lowest rate, it was not that much and by being married he is getting a bigger tax advantage to that extent.


Richard Burpee Hanson: You are going to adhere to this?


James Lorimer Ilsley: Oh, I think so.


Richard Burpee Hanson: Then let
it go.


Howard Charles Green: Apparently the basis last
year was that the married man was allowed an exemption $750 higher than that of the single man. That was the basis last year, was it not?


James Lorimer Ilsley: Yes.


Howard Charles Green: This year, for some reason
or another, the minister has converted that to a basis of allowing a fixed amount to be deducted from the tax.


James Lorimer Ilsley: That is right.
Mr. GREEN':	Then I suggest that the
exemption should be figured on, at least, the lowest tax rate paid this year, which is 30 per cent; that you should allow 30 per cent on the $750, which would be $225 which might be deducted from the tax, rather than $150. I do not see what last year's tax has to do with the matter at all. It seems to me that it should not be brought into the picture, but that the exemption should be based on the rates of this year.


James Lorimer Ilsley: It would, I believe, cost
twenty-four or twenty-five million dollars to do that. If there were 400,000 married men

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in Canada and you allowed an exemption of $215 per wife instead of $150, that would be an additional $65, which, multiplied by 400,000 would come to something like $26,000,000. But I will not put my argument on the basis of cost, for in connection with a few of these items we might have less revenue instead of more if we accepted some of the suggestions that have been made. This is the most expensive change suggested yet, but the answer I should like to give is this, that if we were keeping the 30 per cent that might be all right, but we are not. We are giving back half of it, in the lower brackets, and then the returnable portion tapers down to less than half as you get into the higher brackets. Therefore I think it would be entirely unfair-


Howard Charles Green: Why was the basis changed?


Richard Burpee Hanson: That is
what I should like to know; what was the reason for changing the basis? Was it to get more money? Is that about the size of it?


James Lorimer Ilsley: The process of preparing a
taxation scheme is a long one. Formula after formula is devised to get perfect progression and to achieve justice as between single and married persons, as well as to get the revenue desired. All those factors go into the making of a new income tax schedule. Here the difficulties were very great once we decided to retain the national defence tax principle and to combine the national defence tax with a graduated tax; it was extremely difficult to combine all those factors. The results seem to be such that every objection can be pretty well answered, except the one objection that the tax is very heavy. You cannot answer that; it is heavy. I do not try to answer that; I admit it. But I think I have a pretty reasonable answer to every criticism on the grounds of discrimination, or unfairness as between groups, or anything like that, and this formula gives those answers. It incorporates the principle that the tax advantage will be equalized for poor and rich. The poor get a little greater tax advantage by reason of having a wife or by reason of having children than they did last year, while the rich get considerably less tax advantage than they did formerly. It is arguable as to whether or not that change is correct. It has some very interesting implications if it is thought through, but it was thought through, I think from every point of view. It was decided to adopt the principle; we have adopted it, and I do not see that any reasonable objection can be taken to it. If we are to convert the formula into terms of tax advantage, there is quite a lot to be said against giving the
very wealthy man a tax advantage of $300, perhaps, for having a child, and giving a poor man a tax advantage of only $60. Now each receives a tax advantage of $80. At any rate, there it is.


Howard Charles Green: The same thing is true of
the exemptions in respect of children?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: The motivating factor was the necessity of getting more money, and this is the means that was taken?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: That is one of the most important factors of all, is it not? That is the main factor in these tax increases?


James Lorimer Ilsley: I would not say that.


Richard Burpee Hanson: Well, it runs into a great deal of money. It is the biggest single item, I should think.


James Lorimer Ilsley: It is very important,
certainly.


Angus MacInnis: Considerable criticism has been offered with regard to the minister's methods of raising money. I have heard it said several times that he levied this or that tax because he had to get the money. I think we must admit that he has to get the money; that the taxes must be heavy because the revenue must be obtained, and under those circumstances the only consideration we can press for is that the tax shall be equitable. We have said many times, and now I think for the first time it has been admitted in this house, that not what a man pays but what he has left is the criterion of his sacrifice so far as taxation is concerned. For years I have maintained that the figures of SI ,500 and $750 were too low, to start with. I doubt very much if those who worked out the formulas on which these tax schedules are based would like to carry on with an income of only $750, which now has been reduced to $660. We must remember that in spite of price ceilings and all that sort of thing the cost of living is going up. Not only that; a person who to-day has an income of $660, or any similar income in wages, has innumerable deductions made from that income which were not made a few years ago. I was shown a slip that came in a pay envelope some little time ago, and it showed eight or nine different deductions. There was a deduction for unemployment insurance, another for the purchase of war savings certificates, another
Income War Tax Act

for a contribution to the Red Cross, and deductions for this, that and the other thing. The result is that the worker does not get $660 at all, but much less.
In other years the amount raised by taxing these low incomes has been very small indeed. Early in the session I asked a question with regard to these matters, and the reply to that question may be seen in Hansard for March 23, 1942, at page 1512. My first question was:
1. How many persons in the calendar year 1940 paid income tax on, (a) incomes of more than $750 but less than $1,000; (b) incomes of more than $1,000 but less than $1,500?
And so on. It appears that it was impossible to give me an answer as to these low incomes, but my question was answered as the number of persons paying on incomes up to $2,000, and the total number of persons for the calendar year 1940 who paid income on that amount was 127,954. These 127,000 persons were assessed in income tax slightly over a million and a half dollars. This shows the large number of people in this country who are receiving incomes of less than $2,000. When we were talking about the excess profits tax the minister said that he found it politically necessary-I do not mean in the party sense-to allow the exemptions on excess profits tax as an incentive to more economical production. These are people who have a great deal more than what they get out of these profits. They get in some cases quite high salaries, and they want a further incentive. What incentive is left to the wage slave working for an income of less than $1,000, less than $700 in many instances, and less than $500 in many other instances? Of course, the latter are not taxed directly in income tax on $500, but as soon as the individual reaches $660 he is taxed. This exception of $660 is too low. The exempted amount should be the same as it was last year and the year before, namely $1,500 for married persons and $750 for single persons.


Mr. QUELCH:: When the wife is living with her husband and has an income of less than $660 it is exempt from taxation. But are there any conditions under which that income would be added to her husband's? If not, what is there to prevent the husband from transferring certain property to his wife in order to evade the income tax?


James Lorimer Ilsley: The transfer is not recognized for income tax purposes. There are carefully drawn sections in the Income War Tax Act in that regard.


Victor Quelch: As of what date?


James Lorimer Ilsley: It has been there many years.


Victor Quelch: If the property had been transferred to the wife before this taxation became heavy, would that transfer be allowed?


James Lorimer Ilsley: There have been amendments since the beginning of the Income War Tax Act, and any transfer made after the passing of the relevant section is not recognized.


Victor Quelch: Under any other conditions the wife's income is not added to that of the husband? If she derives it from property which is left her by will or which she acquired by purchase in her own name, then that income is not under any conditions added to her husband's? In Alberta the income of the wife is added to the husband's, and I know of many men, including myself, who have been paying on their wives' incomes in the belief that the law was the same as it is in Alberta.


James Lorimer Ilsley: Is it a joint income in Alberta?


Victor Quelch: Where the wife has property in her own name and gets an income of less than $660, that would be added to the husband's income, but federally it is not?


James Lorimer Ilsley: We do not do it here because we would have to get returns from every married woman, no matter how small her income might be. The married woman with a $10 income would have to make a return.


Victor Quelch: In Alberta the husband merely includes it in his income.


James Lorimer Ilsley: He includes it in the return of his income?


Victor Quelch: Yes. Federally, he does not have to?


James Lorimer Ilsley: No.


Richard Burpee Hanson: It has
been the law that gifts to a wife from her husband, from which an income is derived, must be included.


James Lorimer Ilsley: Yes. That is regarded as his income.


Richard Burpee Hanson: No matter when the gifts were made?


James Lorimer Ilsley: After the passage of the act.


Richard Burpee Hanson: I always thought that was very unfair.


Charles Edward Johnston: If the wife's income is less than $660 she is not required federally to turn in an income tax return.


James Lorimer Ilsley: No.


[Stage Direction]
Resolution agreed to.

Income War Tax Act
3. That a married person, or a person heretofore entitled to an exemption equivalent to that of a married person, shall be allowed as a deduction from the tax payable under the graduated rates, an amount of $150.
Angus Lewis Macdonald: There is an amendment which has been already moved. Is it the pleasure of the committee to adopt the amendment?
Amendment (Mr. Mackenzie, Vancouver Centre) agreed to.
Resolution as amended agreed to. Resolution 4 agreed to.
5.	That a deduction from the tax payable under the graduated rates be allowed a taxpayer to the extent of 20 per centum of the amount actually contributed for the support of a dependent parent or grandparent, or a brother or sister under eighteen years of age or eighteen years of age or over and dependent on account of mental or physical infirmity, or under twenty-one years of age, upon proof that such brother or sister is a student at a secondary school, university or other educational institution; provided that the maximum credit herein shall not exceed $80.
Mr. HANSON (York-Sunbury); The same principle is in the law now, but the amount is changed.
Mr. ILSLEY; Yes.


Richard Burpee Hanson: It is based on the $80 deduction from the tax?
Mr. ILSLEY; Yes.


[Stage Direction]
Resolution agreed to.
6.	That one-half of the total taxes payable by a taxpayer under the normal rate of tax and the graduated rates of tax shall be refundable to a taxpayer
provided, however, that such refund shall not exceed
Eight per centum of the income of a single person, or $800, whichever is the lesser; or Ten per centum of the income of a married person, or $1,000, whichever is the lesser; plus One per centum of the taxpayer's income for each dependent, or $100, whichever is the lesser.
Mr. FRASER (Peterborough West); In the case of a married person, suppose the wife had an income and the husband had an income; would so much be allowed out of each income, or would it be a straight $1,000 for the two of them? The deduction would be made on each income?
James Lorimer Ilsley: Yes, that is right.


Mr. SHAW:: First I should like to say that I believe the minister is imbued with considerable courage when he introduces a policy of enforced savings alongside of an anticipated
system of voluntary savings. I have no doubt the minister has had a number of headaches in connection with matters financially, but I anticipate further headaches for him when he undertakes to operate these two systems in competition one with the other.
On a previous occasion in this house I stated that there was an aspect of the savings policy with which I took issue. I know as a fact that during the past couple of years employers have made contribution to the voluntary savings almost a condition of employment regardless of the circumstances of the individual. Some of the committees which have functioned in connection with this system of voluntary savings have in many instances made the extent of one's contribution a barometer by which his patriotism should be judged. In my estimation such practices are not commendable in any sense. Unless definite instructions are given to these "leers, I visualize this condition becoming m h more critical under the combined systems of enforced and voluntary savings. Those in the lower income brackets who will be called upon to make compulsory contributions towards a post-war credit, if we may call it that, will find that as much if not more pressure will be put upon them by these committees. Unless these committees refrain from carrying on the practices now in effect, some very unsatisfactory conditions will occur.
I am afraid we do not properly differentiate between taxation and compulsory savings. I have always contended that the one is immediate taxation and the other is deferred taxation, much more vicious than heavy immediate taxation. This compulsory saving is looked upon as a post-war credit. In other words, it is considered as a nest-egg which may be drawn upon during some period following the cessation of hostilities. In Great Britain they have had these two policies in effect, that is, compulsory savings and an excess profits tax, a portion of which is refundable. The industries in Great Britain undertook to label these refundable taxes, to use the minister's phrase, as assets, but the organized accountants of Great Britain refused to accept them as such in the ledgers of the companies. I should like the minister to explain the principle whereby the organized accountants in Great Britain have refused permission to the companies there to consider these returnable taxes as assets.
Mr. ILSLEY; The returnable taxes which were not recognized as assets were that part of the excess profits tax to be refunded after the war. It was not the tax upon the individual at all.

Income War Tax Act


Frederick Davis Shaw: The same principle would apply to the individual.


James Lorimer Ilsley: Not at all, because there were certain conditions attached to the 20 per cent of the excess profits tax. The first year the 20 per cent tax was imposed it was provided that 20 per cent would be returned under certain conditions. I do not know whether those conditions were the same as the conditions suggested by the leader of the Cooperative Commonwealth Federation (Mr. Coldwell) for the return of 20 per cent of our tax, but they were probably something similar. Those conditions destroyed the returnable portion of the tax as an asset. The accountants contended that if the 20 per cent was to be returnable only under certain conditions, if it was to provide employment or to be used to create capital goods, a building or something of that kind, then a company would not know whether they could qualify for the return and therefore it could not be called an asset. The government found that this fact was having a deleterious effect upon production and they backed away from that position. Under this year's budget they are returning it without any strings attached. When I had to make my budget this year I gave careful consideration to whether strings should be attached to this 20 per cent, and I decided finally to take the responsibility of attaching no strings. I knew it would be said in the house that this would be used to pay dividends and bonuses, but I decided that I would have to take that position and would have to meet these arguments as best I could. It was either the companies' money or it was not, and I decided that this 20 per cent would be considered as the companies' money. Perhaps that answers the question of the hon. gentleman.


Frederick Davis Shaw: I am sorry to say that it does not. I understand there are no strings attached to the returnable portion in Great Britain this year. If there are no strings attached, why cannot that portion be regarded as an asset? ,


James Lorimer Ilsley: It is.


Frederick Davis Shaw: No, it is not. I believe the organization of chartered accountants in Great Britain dictates the policy in this country, and in May of this year this organization refused to allow the returnable portion to be entered as assets on the books of the companies, even though there were no strings attached to that returnable portion.


James Lorimer Ilsley: That was since the budget? Mr. SHAW: Yes.


Alfred Henry Bence: Was that not because it was not assignable?


Frederick Davis Shaw: I am trying to get an answer, and the hon. member for Saskatoon City (Mr. Bence) has questioned me. As I say, immediate taxation and compulsory savings are merely different forms of taxation; compulsory saving is a deferred type of taxation.


James Lorimer Ilsley: That would not be the reason at all. Has the hon. gentleman the report, because I think the reasons must have been given?


Frederick Davis Shaw: I have a section of the report which I shall read.


James Lorimer Ilsley: There must have been some conditions imposed even this year. That would be the answer.


Frederick Davis Shaw: Let us make it abundantly clear that there were no conditions attached. I quote from The Accountant, which is recognized as the weekly organ of chartered accountants and accountancy throughout the world, this extract which is reproduced in the Western Producer-.
... we sometimes wish that the chancellor of the exchequer when making budget announcements would help us all be a little clearer in the mind about the effect of contributions which are enforced through taxation. The famous "post-war credit," which is still as vague as ever, is a case in point. This is constantly represented to taxpayers as a benefit which will come back to them in the future. We think that the accountancy profession has rightly treated this benefit by ignoring it when evaluating the assets of commercial concerns. . . .


James Lorimer Ilsley: Whose words are these?


Frederick Davis Shaw: I am quoting from The Accountant, the subtitle of which is "The Recognized Weekly Organ of Chartered Accountants and Accountancy Throughout the World." I proceed:
It seems incredible that the intention can be to pay it out in money but even if it were so disbursed at a future time, that could only be done bv increasing taxation in parallel, thus redistributing as a burden on a possibly different body of taxpayers the payments made by their predecessors.
I am quoting that, Mr. Chairman, for this reason, that we in this country are wont to look upon immediate direct taxation as being something entirely different from taxation which in fact becomes compulsory savings or deferred taxation.
I go a step further and say that we might just as well look upon all taxation, including that which is not returnable and that which is, as being taxation. I do not think we should differentiate between the two. The only thing is that we pay the one to-day and the other

Income War Tax Act
to-morrow, with interest. Therefore when we talk about looking forward to the post-war years and the savings we shall have accumulated by virtue of this legislation we must bear in mind that our taxation following the war must be paralleled with our debt. In effect we are going to pay ourselves back when the war is over.
I think the same principle that applies to corporations or to any business applies also to the personal income tax on individuals. Therefore let us regard this thing in its true light and regard it as being one further condemnation of the financial system. The Western Producer, in commenting upon the extract I have read from The Accountant- and I think it is only fair to say that the Western Producer views matters with a good deal of thought and consideration before printing anything-has this to say in an editorial of July 9:
The devices to which orthodox finance is being driven-
Mark these words:
-to save itself in these critical times serve only to expose its true nature to every intelligent observer. It is every day becoming clearer that the effort to maintain and fortify the financial system is proving an incalculable handicap in the whole war effort and not less harmful in undermining the confidence of the people in the sincerity and singleness of purpose of those responsible for the conduct of the war. Mr. Usley's innovation which some master of irony has called "compulsory saving" is only one step in many which lead to the inescapable conclusion-if the war is to be won our whole financial system must be recast.
I think there is a good deal of meat in that paragraph, and I trust that in the remarks which I have made the Minister of Finance will find it possible to agree with me. The facts are rather difficult if one should undertake to refute them.


Charles Edward Johnston: The minister proposes to increase the revenues through the principle of compulsory savings, I do not agree with that, and for this reason. The people in the lower income brackets, from whom the minister has told us on several occasions he expects to get a tremendous volume of revenue, are going to be forced to lend their savings to the government at 2 per cent. This compulsory savings feature means that all the people within the low income brackets will be able to buy no more victory loan bonds or war savings certificates, because they are being compelled to turn over to the government a certain portion of their earnings by way of compulsory savings. When the minister comes out with another victory loan, as I presume he will some time this year, he will have only one class of people from whom he can raise
the money, namely, those with a sufficiently large income that they have money to spare to invest in victory bonds, and they will be able to invest their money in victory bonds at 3 or 3^ per cent.


James Lorimer Ilsley: Three per cent.


Charles Edward Johnston: 
James Lorimer Ilsley: Because it is for a shorter term.


Charles Edward Johnston: Why force the man with a small income to take 2 per cent, while the man with the high income can buy victory bonds and get 3 per cent?


James Lorimer Ilsley: Because we think 2 per cent is a fair rate for a short term.


Charles Edward Johnston: But you are forcing something on him that he does not wish to do. You are compelling him to take
2	per cent whether he likes it or not, and you are giving the other fellow the opportunity of getting 3 per cent. The wealthy man gets
3	per cent when he buys victory bonds, but the man with the small income is forced to turn his savings over to the government and take only 2 per cent. Why does the minister not take the opposite stand and say: "On the compulsory savings we will give you 3 per cent, and on the voluntary loans, we will give you 2 per cent." There would be more sense in that.


James Lorimer Ilsley: No, there would not be.


Charles Edward Johnston: You do not give the little fellow any option. He is compelled to turn in his savings and take 2 per cent.


James Lorimer Ilsley: The only reason why we do not take it from the big income man at
2	per cent is because we take it and keep it from him.


Charles Edward Johnston: You do not do that on the victory loan. You give him
3	per cent.


James Lorimer Ilsley: To the small income man we pay back after the war as much as half of what we take from him, but to the big man we pay back only a very small percentage of what we take from him, and the limit we return to him is $1,000. My hon. friend, if he argues it out, cannot make this out to be a favour to the rich. I assure him of that.


Charles Edward Johnston: I think it definitely is a favour to the rich.


James Lorimer Ilsley: I know he will try to.
Income War Tax Act


Charles Edward Johnston: 
Gordon Graydon: Are you in favour of interest-free loans?


Charles Edward Johnston: No, I am not, in that instance, because I say that in one case you are barring the little fellow from investing at 3 per cent any money he might have left over, and I do not think that is a fair deal.


James Lorimer Ilsley: I do not want any more of this than is necessary, to get abroad. I expect a certain amount of it; it is part of my lot in life. But just consider what we are doing here in the budget. Forget about the victory bonds for a moment; I will come to that in the second stage. In this budget we are agreeing to return as much as one-half, in the lower incomes, to the little man. As for the big man, from whom we are taking a large percentage of his income, we are keeping nearly all; we are not paying him 2 per cent; we are not paying him any per cent. We are returning very little to him in proportion to what we take.


Richard Burpee Hanson: That is, the excess profits?


James Lorimer Ilsley: No, that is the returnable proportion. The proportion of the total taken from the small man which we return is 50 per cent, and the proportion of the total taken which we return to the rich man is about 10 per cent, or rather it runs away down, far below that. There is a limit of $1,000. If we were favouring the rich or treating the rich as well as we treat the poor, proportionately, we would be agreeing to return half of what we take from the rich man and pay him 2 per cent; but instead of that we are keeping all but a small proportion.
My hon. friend says, "Oh, yes, but the rich man is going to be able to save more money and buy victory bonds; the poor man is not." To begin with, I do not agree with that. But let us assume that it is so.


Charles Edward Johnston: Where will you sell your victory loan, then, if you put another one out?


James Lorimer Ilsley: We will sell war savings certificates and small victory bonds to the small wage-earners. My hon. friends may say that we won't, but we will.


Charles Edward Johnston: But a lot
less than you did before, because your field is so much narrower.


James Lorimer Ilsley: You can cry "defeat" all you like, but we are going to do it, and we know how. However, before eleven o'clock I want to deal with this victory bond argument. Let us say that the small fellow is not going to buy any war savings certificates and victory bonds, but the higher-income man is. I do not admit that that is so, but for the sake of argument we will agree that it is so. Is it. unfair to pay the man who does buy victory bonds 3 per cent? That is, is it unfair to pay 3 per cent for ten- or twelve-year money, and 2 per cent for two-year money? Is that unfair? I know it is going to be argued that it is. But we have borrowed money from the banks at If per cent; we have borrowed money from the banks also at two-thirds of one per cent. That is what we pay the hated banking institutions. Why? Not because the banks are generous or anything like that, but because it is short-term money and because it is not worth as much as long-term money is. Two per cent is a fair rate for money for that term. We have to take some little chance there; we cannot get the thing so scientifically correct.


Charles Edward Johnston: But you are forcing him to take that small rate.


James Lorimer Ilsley: But we are forcing the big fellow to let us keep the money and not return it at all.


Charles Edward Johnston: But there is this distinction-


James Lorimer Ilsley: Oh, well, forget it.


Charles Edward Johnston: You cannot dismiss it so easily, though.


James Lorimer Ilsley: I have not dismissed it
easily. I have worked it out.
I think I should correct a statement I made to the hon. member for Peterborough West. I do not know that I understood him correctly. I think he asked whether the 10 per cent would apply to both the income of the husband and the income of the wife.


Gordon Knapman Fraser: If
they both had income, would they both be allowed to deduct the 10 per cent?


James Lorimer Ilsley: I think not. It is not clear. I think the one would be 10 per cent and the other would be 8 per cent.

Income War Tax Act


Richard Burpee Hanson: Is this
under resolution 6?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: I was going to ask that question, to be clear. Where the husband and wife both have income, they are treated under resolution 6 as if they were single persons. Would they be both entitled to only the $800, or under the 8 per cent rate?


James Lorimer Ilsley: I shall have to think about the matter between now and Monday, but I believe the implication of another amendment is that, as regards earned income, she is regarded as a single person and he as a married man. That would give him 10 per cent and the wife 8 per cent.


Gordon Knapman Fraser: That refers to earned income?


James Lorimer Ilsley: That refers to earned income, yes.


Gordon Knapman Fraser: But
supposing it was invested income, it would be ten?


James Lorimer Ilsley: No, I think it would be
eight.


Gordon Knapman Fraser: On
all?


James Lorimer Ilsley: On all.


Gordon Knapman Fraser: Then this item would have to be changed in the resolution?


James Lorimer Ilsley: In the bill. That is right.


Gordon Knapman Fraser: But I think that should be definitely clear now.


James Lorimer Ilsley: We will make it clear.


Gordon Knapman Fraser: Make it fair enough.


James Lorimer Ilsley: Make it one thing or the other. I think it should be ten and eight.


Victor Quelch: One point I should like to ask the minister about relates to the purchase of bonds. In view of the fact that the minister and various bodies have stressed that one of the purposes of the bonds is to withdraw purchasing power from circulation, I can never understand why we have adopted the policy of encouraging the chartered banks to lend money to people to buy these bonds. A lot of pressure is brought on people to buy bonds by borrowing money from the banks when it is very well known that these people
will not be able to repay the loan. I know places in the west, in the drought area, where banks have put up 90 per cent and the farmer 10 per cent, and in many cases the farmer has not been able to pay the 90 per cent, with the result that the bond remains in the custody of the bank. There are cases where people who bought bonds were not in very good shape to do so, and consequently they have had to sell them back. Would it not be advisable to make these bonds non-negotiable for the duration of the war, or if they have to be sold back, they might be sold only to the Bank of Canada; otherwise are we not defeating the very purpose which the minister had in mind?


James Lorimer Ilsley: Well, we do not encourage people to borrow money from the banks to buy bonds if they cannot pay the money back, but we do encourage people to borrow for the purchase of bonds money which they can pay back.


Victor Quelch: Has the minister any record of how many purchases of bonds have been defaulted upon, and in how many cases the bonds have had to be bought in by the banks?


James Lorimer Ilsley: I do not know.


Victor Quelch: Is it not true that for the first three months the rate of interest is the same; that is, the amount charged to the borrower is the same as the rate of interest on the bond, but after that the rate of interest is increased, so that if, after the end of, say another three months the individual cannot pay off the loan, he is bound to relinquish his bond, or give up the deal, because he is paying a higher rate of interest than he receives on the bond?


Richard Burpee Hanson: There is no doubt that in the victory loan campaign people were asked to use their credit with the banks to make sure that the loan "went over the top". I do not know how far that has gone. Some people absorbed them out of other savings. What I objected to was that there was a slight scalping of i of 1 per cent, which the people just absorbed, but afterwards the things went into the investing institutions.


Victor Quelch: Is that a sound practice? Does that not defeat the very thing which the minister is trying to accomplish? I consider that when the minister has obtained every cent that he can by taxation, and every cent that he can by the sale of bonds apart from the practice of lending money to buy them with, we have then reached the point where,
Secret Session oj the House

if the money obtained in that way is not enough to meet government expenditures, some other method should be used. If we are going to create money we might just as well have it created by the Bank of Canada instead of the chartered banks, provided we adopt ways and means of preventing the chartered banks from using that new money as a basis for further expansion of loans.
I want an answer from the minister regarding that practice of obtaining money to buy government bonds by borrowing from the chartered banks. In the old country at the end of the last war it was found that the financial institutions owned 70 per cent of the government's bonds.


Douglas Gooderham Ross: In 1939 we had an exhaustive investigation into the question of money and all that sort of thing. All I have to say is that all this "funny money" stuff gives me a pain. The point is this, just before we sit down-


Some hon. MEMBERS:: Eleven o'clock.


Douglas Gooderham Ross: I want the minister to listen to me for just a minute. The average working day of every individual is divided into various categories; that is, so much of your work you do for the support of your family, so much for the support of your church, so much for the support of-what shall I say? -pleasure, so much in support of your municipal services; it is divided up like that. One of the things we have neglected all these years is the defence of our country, and now we are paying for it. You cannot get away from it. Right at the present time every single one of us-
The	ACTING	CHAIRMAN	(Mr.	Macdonald, Brantford City): Order.


Douglas Gooderham Ross: Just one second.
Might I finish?
The	ACTING	CHAIRMAN	(Mr.	Macdonald, Brantford	City): With the unanimous
consent of the committee.


Some hon. MEMBERS:: Eleven o'clock.
The	ACTING	CHAIRMAN	(Mr.	Macdonald, Brantford City): I regret that the hon. member has not the unanimous consent of the committee. It is eleven o'clock.
Progress reported.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.

Saturday, July 18, 1942