1946-07-26

PRIVILEGE


Mr. M. J. COLDWELL (Rosetown-Biggar):: Mr. Speaker, I rise on a matter of personal privilege. In the five o'clock edition of the Ottawa Journal of yesterday's date the story appears on the front page, headed: "House Sustains Speaker's Ruling to Bar Questions." Referring to myself the article states:
While he asked for and was refused an explanation of the ruling. CC.F. leader Coldwell headed his followers in voting with the Liberals to uphold the Speaker.
Later in the article, on page 14, again in reference to myself, it states:
Mr. Coldwell, wrho had protested against C.C.F. questions being dropped from the order paper and then restored without explanation, asked for further information.

Privilege-Mr. Coldwell

"Will you please make your ruling clear?" he asked Dr. Fauteux.
"The ruling is quite clear," replied the Speaker.
Denied a fuller explanation, Mr. Graydon appealed.
This obviously is an incorrect and garbled account of what actually took place. I have consulted the official record-and may I interject just here, Mr. Speaker, also perhaps another matter of personal privilege, that it is unfortunate we are not receiving Hansard in time to check it before the house meets. I had to go to the office of Hansard and consult the record there. I think every attempt should be made by the Secretary of State and by the king's printer to improve the service in this house which is required in the circumstances. But I quote from the official record:
Mr. Coldwell: Would Your Honour make the ruling clear? I did not understand your ruling as the hon. member for Peel (Mr. Graydon) seems to interpret it. My understanding is that questions will be permitted on the order paper when the subject matter of these questions is not referred specifically to a committee, 'which makes all the difference in the world.
Mr. Mackenzie: That is right.
Mr. Coldwell: I think that is a ruling which the house should substantiate because I think it is a correct one.
Mr. Speaker: The hon. gentleman is perfectly right, and for the information of the house I shall read the conclusion of my remarks:
"In conclusion, I think it is, generally speaking, a wise rule that provides that while a committee is inquiring into a matter the house will not encroach on its jurisdiction by allowing the same matter to be discussed in the house, but members must not be debarred from seeking information by placing on the order paper questions -which are not debatable and do not give rise to discussions As long as these questions do not deal with the very specific matters referred to, they should be permitted to appear on the order paper."
That is the official report. It is to be regretted that the Ottawa Journal which, for many years, had a reputation for accuracy, should on several occasions of late-


Mr. GRAYDON:: It still has.


Mr. ROSS (Souris):: It still has.


Major James William Coldwell: -have published stories which bear little or no resemblance to what actually took place in this house.
Before I sit down I wish merely to add that, as I stated yesterday, in my opinion the explanation given was a correct interpretation of the rule, and on that ground we voted to sustain your ruling, Mr. Speaker.


James Arthur Ross: It is always difficult
to sit on both sides of the fence.
Hon. IAN A. MACKENZIE (Minister of Veterans Affairs): I wish to rise to a question

of privilege. I have a certain amount, a somewhat humble amount, of responsibility in regard to the activities of this house, and I found it my duty yesterday to vote against His Honour's decision. I am profoundly convinced that my decision was correct. I say that whereas you cannot discuss the proceedings of a committee until the committee has reported back to the house, there is no impairment or impediment to any freely elected member of the parliament of Canada in discussing any matter referred to a committee. The house will recall that earlier this session the hon. member for Souris (Mr. Ross) asked me if any questions referred to the committee on veterans affairs could be discussed in this house, and I immediately consented.


Mr. SPEAKER:: Order.


Mr. MACKENZIE:: This is a question of
privilege, and I am entitled to explain my position in this house.


Some hon. MEMBERS:: Hear, hear.


James Horace King: Order.


Ian Alistair Mackenzie: With all respect to you, sir, I am not going to be compelled to sit down in regard to any matter which as a private member for Vancouver Centre I am entitled to refer to in this house. I insist on my question of privilege, and I am not going to be bound by any archaic rules of the eighteenth or nineteenth century.


James Horace King: I would ask the minister
to be kind enough to resume his seat. I am not questioning the right of the hon. gentleman to rise on a question of privilege. He may rise at any time; that as the privilege of the hon. minister and of all other hon. members. But I wonder if I should permit the hon. gentleman or any other hon. member to discuss or debate the ruling that was given yesterday.


Ian Alistair Mackenzie: That is quite correct,
Mr. Speaker, and with all respect I was not questioning your ruling at all. I was trying to explain the stand I had to take as a matter of conscientious duty as a member of this house.


Hon. PAUL MARTIN (Secretary of State):: In the course of his remarks the hon. member for Rosetown-Biggar (Mr. Coldwell) suggested that perhaps the king's printer was not acting with dispatch in the printing of Hansard. As the responsible minister I should say that I think on reflection the hon. member will realize that the king's printer and his staff are working under very difficult conditions.

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The house is now meeting in the morning. When the house met at three o'clock in the afternoon Hansard was always available to hon. members before the opening of sittings. I am sure the hon. member had no intention of casting any aspersions on the efficiency of the king's printer, and I believe he will agree that the staff of the king's printer is doing its work as efficiently as is possible under the circumstances.


Mr. COLD  WELL@: I was casting no reflection upon the king's printer or upon the Secretary of State. I was only asking that an attempt be made to speed up the distribution of Hansard.



BANKING AND COMMERCE

[Stage Direction]
Seventh report of standing committee on banking and commerce.-Mr. Oleaver.

[Stage Direction]
On the orders of the day:
Mr. JOHN BRACKEN (Leader of the Opposition):: I wish to direct a question to
the Minister of Trade and Commerce having to do with the announcement he made yesterday with respect to the United Kingdom wheat agreement. He advised that the price of wheat to the United Kingdom would be SI .55 a bushel for the next two years, with a minimum of SI a bushel at the fourth year. My question to the minister is this. Is the government now in a position to state whether there will be any change in the domestic price in Canada

now SI .25 a bushel-or whether there will be any change in the initial price of $1.25 which is now paid to wheat growers? If the minister is not in a position to make an announcement now perhaps he would do so at an early date.


Hon. J. A. MacKINNON (Minister of Trade and Commerce):: A great deal of attention has been and is still being given to the point raised by the leader of the opposition. This crop year ends on Wednesday next, and it naturally follows that some time between now and Wednesday a statement must be made in this connection. I am hoping to be able to make a statement next Tuesday.



TOMAHAWK IRON MINE


[Stage Direction]
On the orders of the day:
Gordon Graydon: I should like to bring to the attention of the Minister 63260-246J
of Mines and Resources a startling charge made in the issue of the Canadian Mining Reporter which hon. members received this morning, relating to the Tomahawk iron mine at Hastings, Ontario. I do not expect the minister to give an answer now, since this may be a new problem to him, but I think the matter is of sufficient importance that after he has investigated it, perhaps on Monday, he might report to the House of Commons so that we may know the story in full. I shall send the paper over to the minister so that he may be apprised of the allegations which it contains.


Hon. J. A. GLEN (Minister of Mines and Resources):: The hon. member for Peel showed me this article when I came into the house. I shall make inquiries and report later.



MEAT AND CANNED FOODS ACT


[Stage Direction]
Hon. H. F. G. BRIDGES (Minister of Fisheries) moved that the house go into committee on bill No. 164, to amend the Meat and Canned Foods Act.
Motion agreed to and the house went into committee, Mr. Macdonald (Brantford City) in the chair.
Section, 1 agreed to.
On section 2-Regulations dealing with canned fish or shellfish.
Mr. BRIDGES:: This section was amended by the marine and fisheries committee.
Section as amended agreed to.


[Stage Direction]
Title agreed to.
Bill reported, read the third time and passed.


[Stage Direction]
The house resumed from Tuesday, July 23, consideration in committee of bill No. 250, respecting judges of dominion and provincial courts-Mr. St. Laurent-Mr. Macdonald (Brantford City) in the chair.
On section 1-short title.
Mr. MacINNIS:: Mr. Chairman, I have to leave the chamber to attend a committee meeting, and I am taking this early opportunity to say a word on this bill. I oppose it.
I cannot see a more unwise measure at this time than the bill before us. Along with other members I am serving on a standing committee of this house and hearing matters in dispute between wage earners and their am-
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ployers, with the government in the picture I believe as having set down certain basic increases in wages beyond which boards cannot go. In other words, the wage rates were frozen in 1941, and there is only a slight relaxation in those rates at the present time.
The Minister of Labour indicated in the house some days ago that any increase in wages over ten cents an hour would be fraught with danger to the country because of its inflationary effect. I do not know whether that is true or not; but the point is that wage increases in the very low wage categories are being resisted, with the result that we have now in Canada some 50.000 or 60,000 industrial workers on strike. Those increases are being resisted. And at that very time, with these conditions existing, we have before us a bill which proposes to raise to the extent of as much as one-third the salaries of persons who are already getting extremely high salaries in relation to the wages being paid industrial workers in Canada.
To the salary of the Chief Justice of the Supreme Court of Canada who, at the present time receives $15,000, we are proposing to add one-third more, to make it $20,000. To me this does not make sense, from the point of view either of economics or of social thinking. It would appear to me that any reasonable society would consider its duty to be that of raising the living standards of those at the bottom before raising the standards of those at the top. As a matter of fact an increase in salary to a man receiving $9,000, $10,000, $12,000 or $15,000 does not raise his standard of living, bemuse the increased amount received will not be spent in that way.


An hon. MEMBER:: Liquor.


Angus MacInnis: I do not know that that is a fair remark, even if it comes from this side of the house. I am not suggesting at all that these people will spend part of their salary on liquor. And even if they did, it is their business, not mine. That does not enter into the picture. But the point is that they do not need to spend any of that increase in salary on the basic essentials of life. The great majority of the people in Canada have never yet received an income sufficient to provide their essential needs. I cannot understand a man of intelligence and culture, and with an understanding of what makes society and keeps it integrated, bringing in a measure to increase salaries where they ought not to be increased, thus creating further class divisions in Canada, and at a time when we should be doing the very opposite.


Mr. FLEMING:: You are creating them.
I Mr. Maclnnis.]


Angus MacInnis: It is creating class divisions, because the man who receives $20,000, $15,000, $12,000 or $10,000 in salary has no understanding of or connection or association with the man who must live on a wage from $500 to $1,500 or $2,000, or perhaps even $3,000.


Mr. BROOKS:: Will the hon. member tell us what salaries the heads of labour unions are getting in Canada and the United States?


Angus MacInnis: I am not concerned with the United States. But I am satisfied that there is no head of a labour union in Canada who is getting a salary of $10,000.


Mr. STEPHENSON:: What about the
Comintern?


Angus MacInnis: The Comintern?-what is the sense of that question? I have no connection with the Comintern. Let me give my hon. friend to understand that I enjoy the distinction of being the only member of the House of Commons who tried to gain entrance to Russia and was refused. Any person who asks a question like that shows his stupidity, if he does not show anything else.
Not only are these judges provided with good salaries, but they are also provided with generous pensions, so they need not worry about the future. They have not to put by something for a rainy day, because the people of this country have put by something for them.


Mr. IRVINE:: It never rains.


Angus MacInnis: Then we make provision
for their widows. In looking over the estimates I find pensions for widows of judges ranging from $1,600 to over $2,000, and perhaps there are some higher than that, because I only glanced through the list. What is the position of the widow of a longshoreman, of a lumber worker, or of a street car conductor, such as I was myself? If they are seventy years of age they will get $30 a month in some parts of Canada, but only if they can prove that they are not in receipt of an income of more than $365. While in receipt of that pension, every six months they must make an affidavit that their economic condition has not changed. I do not think that is democracy; I do not think it is a reasonable and satisfactory social organization for our country. If any hon. gentleman here passed on-there are no judges here-their widows would consider themselves just as worthy as the widows of judges. Why should they not be looked after? Can anyone give a reasonable explanation of that?
I have here a letter which I received from a woman in Vancouver under date of July 15,

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and this is only one of hundreds that I have received. I have another interesting letter from a woman in Montreal who is sixty-nine years old and who cannot get an old age pension because she has not reached the age of seventy. She is wondering where in the world she is going to turn in order to live until she is seventy. I imagine the reason she wrote to me is that she noticed I had raised the question of old age pensions in the house. This Vancouver woman writes:
My husband receives the $25 from Manitoba-
This couple are living in British Columbia but the husband receives the pension that would be paid in Manitoba.
-and I help a little by sewing or washing sometimes. My health broke down last fall and so it is very little I can do. I shall be seventy if I live till next March, so you see if only the age limit was sixty-five it would help some.
I sometimes wonder how the men responsible for this situation can sleep in their beds when such hardship has to be endured by the pioneers. We lived in Manitoba from 1904 till 1940, then we came here to avoid the cold winters. My husband, who will be seventy-six on August 19, attends to a furnace and garden for a free small cottage, but there is no money goes with it. So you will see we have to do some stretching, and the only way to get clothes is when some friend passes on.
I ask hon. members of this house if they are going to pass a bill to increase the salaries of persons who do not need it when there are hundreds of thousands across Canada in the same position as this woman? Are we called here to look after the poor and the needy who are not in position to look after themselves, or are we here to do something for people who are already well looked after? That is the question hon. members have to decide. Hon. members must justify their position in this house before the old people of this country.
When the Minister of Justice introduced the resolution that preceded this bill he said, as reported on page 3178 of Hansard:
The salaries that are being paid at this time are those that were fixed in 1920. Personally I feel that they are out of line, not only with what are the salaries elsewhere, but also with what prevails for salaries and income in our own country. The suggestion is, now that there is being some relaxation in the controls over wages and salaries,-
I wonder just how much relaxation there is? Evidently there is not very much. If there was some relaxation I doubt if we would have so much industrial unrest in this country. The minister continued:
The suggestion is, now that there is being some relaxation in the controls over wages and salaries, that a provision which will come into
effect on January 1, 1947, will not be out of line with what will be happening generally in the readjustment of the post-war period.
I wish that this matter of increases in the salaries of judges was under the Department of Labour and another judge was appointed and instructed to make a recommendation in regard to the salaries of his brother judges just as they make recommendations in connection with the wages paid to trade unionists. He would then bring down a recommendation, not that the salaries be increased by one-third-I have never heard of a judge as generous as that when dealing with a labour dispute-he would say: "Taking into consideration the ability of this country to pay, I recommend that they be given an increase of ten cents an hour." If he were on the national war labour board and hearing a case where no strike threatened, he would give them two cents an hour, as was given the maintenance of way employees some little time ago.


Mr. PROBE:: If that applied to judges it
would be considered dictatorship.


Angus MacInnis: A judge who appeared
before the committee yesterday accused union leaders of this country of being dictators.


The CHAIRMAN:: The report of that committee is not before us.


Angus MacInnis: I did not say it was.


William Ross Macdonald: It should not be discussed until it has been received in the house.


Angus MacInnis: As I said, when the minister was introducing the resolution he said that the salaries being paid at this time were fixed in 1920. I imagine that there were more lawyers in the house than there are now, as the salaries were fixed at a generous rate. Hon. members will remember what this country went through from 1920 to 1946. While millions of people were depressed in poverty, while a million and a half were receiving relief, these judges continued to have a standard of living that is considered a good one even to-day.


Mr. EERGUSON:: For their services.


Angus MacInnis: Of course, for their services. I am not saying anything against their services. But they are not giving any more service than any other citizen of this country. If there were some real criterion by which to judge the ability of these men when they are appointed, we could judge better of the services given, but a great many of them were appointed because they failed to win a seat in an election. Ini British Columbia, so far as I can see, the road to a judge-
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ship is defeat in an election. The hon. member for Vancouver South defeated a lawyer in the 1935 election-and mot only a lawyer; he was also a Liberal. When1 he was a lawyer- I cannot speak of him as a judge-I do not think he was blessed with an overabundance of grey matter. But he was made a judge. In 1940 my hon. friend defeated another lawyer, and he also was made a judge. That is the general pattern across the country. So that before we begin talking about the services they are giving to the people we should think about their ability to give that service. I hawe a high regard for the great majority of the judges of this country. But I do say that they are well paid, whichever way you look at it, and exceptionally well paid when you compare them with the generality of people who must come before them in the courts. I have not time to go into that, but I should very much like to do so and to show what is the real basis of crime not only in this country but in every other. The real basis of crime lies in poverty, in misery, in lack of education and lack of the social amenities which people must have before they can live rational lives.
Let me refer for a moment to the incomes on which taxes are paid, which in the Idst analysis must be taken as the criterion of the income that people receive. I have figures here taken from the Financial Post of May 4 of this year which show the number of persons in the various income tax brackets in 1945 and 1944. The figures show that 70 per cent of the income tax payers in 1945 and 1944 were in the categories from $660 to $2,000. This was before the proposed increased exemption. The figures showed that 90 per cent of all the income tax payers had incomes of $3,000 or less. So that all the judges in this country, even the lowest paid judge are in the upper 10 per cent of income tax payers. Surely persons in such a position are not being dealt with hardly by the people of this country. As a matter of fact they are in a very favourable position. I do not think I need take up the time of the committee by reading all these figures, but I would again ask the committee to consider carefully what we do in this matter.
I do not want to raise again what we did here last session in relation to members' indemnities, but I warned the house on that occasion of what the consequences would be; and let me say that in every application for an increase in wages that has been made since then, the increase in our own1 indemnities has been brought forward as a justification, and the justification is properly made. So, I would advise hon. members not to do the

same sort of thing again and drive still further apart the people in the low income brackets and the people in the high income brackets in this country.


Mr. HACKETT:: Mr. Chairman, I do not think there is any topic which comes before the house that arouses more violence in expression of opinion than that of the judiciary. Perhaps one should make an exception, as to the source of these expressions of opinion, of the province from which I have the privilege of coming, and of the provinces to the east.
I listened the other day to the remarks of the hon. member for Cariboo and of the hon. member for Weyburn, and I listened this morning to the speech of the hon. member for Vancouver East. Some of the time-honoured sneers at the legal profession creep from time to time into a debate of this kind. Possibly this debate, so far as it has been participated in by members who do not believe in the judiciary in the form in which we have it, has been freer from them, than most.


Angus MacInnis: I hope the hon. gentleman is not referring to anything I said, because I do not think that any member of this group, and I include myself, has any exception to take to the form under which the courts and the judiciary operate in this country. I would not have that impression left, not even by my hon. friend, whom I regard so highly.


John Thomas Hackett: No. I was going to point out-and I am, sorry that my hon. friend's duties take him away-that he and those associated with him do not believe in the form of government which has developed this type of institution, and I shall attempt in the remarks that I am about to make, with calm and fairness I hope, to show that the point of view which has found expression by them is part of a philosophy which would entirely do away with the form of government which we have and with many of the institutions which uphold it.


Mr. ZAPLITNY:: When the hon. member says "form of government", will he be more explicit and tell us what he means? Does he mean the existing political parties, or does he mean the democratic system? I want to be clear on what I am being accused of.


John Thomas Hackett: I am not accusing anybody and if the hon. gentleman will listen to what I have to say-I am not asking him to agree with me-I think he will have no difficulty in finding an answer to his question. I am attempting to point out that theirs is

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a type of prejudice, a point of view, which is entirely subversive of our form of government and of the institutions upon which it rests.
I listened, with great interest to what the hon. member for Vancouver East had to say a little while ago. He argues that judges are overpaid; he invites the government to withdraw legislation which would increase the salaries of judges, and he gives as his reason that there are many people in this land who are in w'ant. He read the letter of a woman whose husband is seventy-six and who, being sixty-nine herself, is not entitled to an old age pension, as a justification for his own point of view. The fundamental difference is this. The hon. gentleman represents a socialistic group who would invest all activities in one agency and make the state the general administrator of everything, including justice.


Mr. BRYCE :: That is not true.


John Thomas Hackett: Now we came to the system which obtains here, and which obtains in other countries of free enterprise. It is based upon private enterprise and upon competition, which brings to the top, whether it be in commerce or whether it be in the professions, the people who possess the greatest skills.


Mr. McKAY:: That is not true of the judges always.


John Thomas Hackett: The hon. member for
Weyburn says that is not true of the judges.


Eric Bowness McKay: I said it was not always true of judges.


John Thomas Hackett: I listened very carefully to what the hon. member for Weyburn had to say the other day about the judges, about "political" judges, and the appointment of judges by political parties. I assure him that, respectable as is his opinion, and I do not begrudge him the right to any opinion he may hold, it would be more weighty did it rest upon experience. I tell the hon. gentleman that my whole life has been spent in the courts; it has been spent in the courts of a province in which my party has been unfortunate for many years. I suppose that ninety-nine per cent of the judges before whom I have appeared in the last forty years have been appointees of political opponents, and never once-never once, and I have practised in every court of that province-have I felt that I was the victim of political prejudice.
The hon. gentleman suggested that it might be better if our judges were selected by learned societies. I am not sure whether he mentioned universities; he did mention the law societies.


Eric Bowness McKay: I said "recommended", not "selected".


John Thomas Hackett: And he even went so far as to say that he would preclude from the high judicial office anybody who had ever been soiled-


Eric Bowness McKay: I did not use the word
"soiled".


John Thomas Hackett: -anybody who had ever held a representative position such as a member of this house; and I will add, as my own interpretation of what he said, anybody who had ever been scarred or soiled by public confidence; he would make that person unworthy of high judicial office.
May I tell the hon. gentleman that most men who come to this house possess something which most men do not have. They have something which begets confidence and trust; and while they are fulfilling that office of representing their people they are brought into close association with the wants, needs and the longings of the people. I make bold to say, Mr. Chairman, that the man who has been the representative of the people in some great deliberative assembly such as this, or in a legislature of a province, has given proof of the qualities which in part fit him for the duties of the judiciary and has had an experience which makes him highly acceptable and highly fitted for that office.
I offer the suggestion-it is my own, no one else is responsible for it-that the judge whom I most fear is the learned gentleman who is absolutely certain he could not err, who has had no experience of public affairs, who does not know the frailties and the foibles of the people, who does not know that truth does not always abide where the uninitiated believe it does. I believe that one of the great qualifications for the bench is a knowledge of the human heart which is acquired from close association with the whole gamut of our population. I do not wish to be disagreeable to the hon. member for Weyburn, but I say to him that, had his experience been mine, I think he would have been less critical of the method of appointment of our judiciary. I should like him to recall that in no land in the world does the judiciary stand higher, in no place in the world and at no time in the world is essential justice, as admitted by all, more perfectly administered than in Britain; and there, be it said, their judges, high and low, are political appointees.
The hon. gentleman desired or suggested that judges be appointed by learned societies. Well, the members of learned societies belong to political parties, and I am not sure that
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we would escape from this bane or blight, if it be such, by accepting their recommendations.
I should like to refer for a moment to the idea of promotion. It has been thought highly improper that there should be promotion on the bench. It is not desirable that the judge who is entrusted with that which we hold dearest-fame, family and fortune-should be subject to the baneful influence of opportunity to better his own position. The judge is given a status which is his for life, not to be improved or altered. That, I believe, is a principle which has been accepted.
I now wish to turn to the remarks of the hon. member for Vancouver East.


William Irvine: Before the hon. member does that, may I ask a question?


John Thomas Hackett: Yes.


William Irvine: He made reference to the appointments of judges in Britain, and said that they were political. Would he mind describing how these appointments are made? -because I was under the impression that they were not entirely political.


John Thomas Hackett: 
An hon. MEMBER:: Be fair.


John Thomas Hackett: I wish to be fair. I would ask the hon. gentleman to name some country in which his system of government obtains in which the judicial system is comparable for fairness to our own.
Let us go into another realm. Under our system, persons who are competent are sought. Persons who are competent get the largest

return for their knowledge and skill. If an hon. member were slightly ill he would go to his family doctor, but if he were smitten with some unknown or exceedingly malignant disease he would hie himself to the specialist, to the man whose skill and study and natural endowment have lifted him in earnings and status above the ordinary run of his profession. He would do that because he wants to live; he goes to the one who can give him the best chance of retaining life and regaining strength and health. The same principle applies in another field. We want the best men for judges. I will admit that there would be no dearth of judges were the salaries diminished by one-third instead of being increased by one-third. The minister might diminish the annual salary to S2,000 and there would be no dearth of judges, but they would not be men of eminence in the science of law. They would not be men capable of rendering justice in a way which would command the respect and confidence of litigants.
Until men become more altruistic than they are now there are positions which will be filled by competent incumbents to the extent that the remuneration paid is comparable to what the incumbent could earn elsewhere. Let us go into another realm. I have heard hon. gentlemen sitting to my left-among whom, strange as it may seem, I have a number of very good friends-advocate better pay for school teachers, and I have applauded them. Why? Because the pay that you give to a job determines its social importance. I do not say that remuneration is the only factor, no; but I say in our day and generation it is the principal factor.


Eric Bowness McKay: School teaching has not
been a very good job in the past, then.


John Thomas Hackett: If a school teacher
receives $5,000 a year the chances that he is an excellent teacher are better than if he receives $500. The same is true of the judges. Somebody has said that everybody wants to be a judge. Again that was the pronouncement of one whose experience in the matter is not, according to his own admission, vast. The men who are best equipped for judicial office cannot be had unless the office be paid something approaching the equivalent of what the recipient could earn in other fields. We have to accept that. It is a fact. To-day the judicial office has gone begging for good men. Oh, there are multitudes who are willing to serve. I admit that, but the best men are not available at present salaries, and we need the best men.

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Institutions are of slow growth. Our whole development depends upon our institutions and upon their integrity. Unless we can attract to these institutions the best men that the nation can find, those of us who believe in them-and I know that some of my friends to the left do not believe in them-are not discharging our full duty.
I commend the minister for having increased the salaries of the judges. I believe it is the proper thing to do. But, the measure as a whole is not entirely free from criticism. I suggest to the minister that the increase should be made immediately, and for more than one reason. In the first place there are a number of judges who are aged, and who at the present time are not as capable of useful work as they were some time ago. Naturally these men will remain in office until the salaries now proposed become effective, as they may have a bearing upon their retiring allowance. That is human. That is something we can all understand. I believe the increase should be made effective immediately. In other fields, in labour unions, people are striking for higher salaries, and frequently the increases are made retroactive. In this case because the judges cannot or do not or will not strike, we are postponing for six months the date on which their salaries shall be raised. I do not think that is a good reason.
There is another reason. This is a part of my self-imposed task which I dislike, but I intend to go on with it. I have spoken several times about the misuse of judges. I spoke of it as the head of the bar association in my own part of the world; I have spoken of it two or three times here, in very moderate language. I feel that with the possible exception of the church, the judiciary is the greatest institution of Canada; that upon it we rely entirely for the reign of law and order which in these days it is so important to maintain. I believe the salaries of the judges should be increased immediately so they might be free to refuse, to their own honour and dignity, the belittle-ing tasks which the government has been allotting to them in the last few years. I am going to be very direct. We are talking about making the Supreme Court of Canada the court of final arbitrament for all Canadians. I am not debating whether that is wise or unwise; there is before the privy council at the present time an appeal which will determine whether or not the dominion has the right to make the supreme court the final court of appeal in this land.
Here I must say in sorrow, not in anger, that the high repute of that great court has been seriously damaged by referring to some of its members, whom individually I do not 63260-247
blame because an invitation from the government is almost tantamount to a command, political problems for solution during the last several years. I say that the two honouiable gentlemen whose names appear at the bottom of a report recently laid on the table of the house undertook duties which 'have exposed them to great criticism; and I may say to you, Mr. Chairman, that although we may not discuss in this chamber what is going on elsewhere, the newspapers tell us of an outburst of a judge yesterday against labour unions. I know nothing of the merits of the issue. I will not say that such a statement was not competent to a person acting as he was, as an arbitrator, but I say it was highly improper that a judge of a court of justice should be put in a position making it necessary or possible for him to make such an utterance. How is any labour man or any labour union going to feel when appearing in a court presided over by that honourable gentleman? I am not criticizing him; I am criticizing the government. I am not criticizing the Minister of Justice, who is only one member of the government; I am criticizing the government for undermining a fundamental institution in an effort to solve its own political difficulties. The government is not solving its difficulties; it is merely concealing them under the mantle of dignity and confidence which the bench has worn until now.
I know that in this bill there are sections which make it possible for the government to allocate problems of this kind to the judiciary. I know that bar societies will object to them. I know that the judiciary and1 members of the judiciary are being criticized as never before for partisanship. I know the judiciary is suffering, that the institution itself is suffering as a result of these practices; and I pray the government to desist from undermining the bench by referring to members of the judiciary questions highly tinged with politics, questions which are beyond and outside the ambit of judicial function and which are drawing into the dust and dirt of the political arena those whom we have liked to believe were above and beyond such controversies.
I shall read again for the benefit of the house a passage which I read to the commons on June 21, when I was quoting from a statement of Lord Esher, whom all lawyers know was a man of highest repute in judicial circles in England. Referring to the judiciary, and to a single judge who had departed from the high traditions of the bench, he said:
Their education and training made them impartial and determined to do what was right in any question that came before them. This, indeed, was so well known and recognized, and

Judges Act

'"hen the judges of England acted within the scope of their ordinary duty, nobody ever attempted to suggest that they were not impartial. At the present time, however, they knew that one of the judges had been asked to go beyond the scope of his ordinary duty, and he, for one, was surprised and sorry that the judge in question had consented to do so. The result was inevitable. That judge had been fiercely accused already of partiality or of want of desire to do justice.
I say to the Minister of Justice, give to the judges an increase in salary; give it to them immediately, that they may protect their own virtue even if the government is not as solicitous of it as it should be.


Frederick Samuel Zaplitny: I hope what I have to say will not be taken as any criticism or disrespect of the judiciary or the legal profession, because I want to make it clear that I have the most profound respect for both. Some of the innuendos thrown out by the hon. member who has just taken his seat, however, cannot be allowed to go unchallenged. He said, for example, that the underlying philosophy of this group, the group to his left, was to do away with the present form of government. I attempted to find out just what he meant when he spoke of the present form of government in this country, because I think it is a matter of great importance to distinguish between the political parties as they exist at present and the form of government as such. I was not successful in getting an answer, though I listened carefully and with interest to what the hon. member had to say. However, I imagine he must have meant by the present form of government the democratic form of government, and that the institutions to which he referred are the existing democratic institutions.
I think it should be made clear that no one in this group attacks the democratic form of government. I do not think it is fair in a discussion of this kind-which, as I realize, has strayed from the bill-to give talks upon political philosophy and to misinterpret it in order to suit the argument of the moment. If I were so inclined I believe I could make attacks and offer arguments to show that the political philosophy in which my hon. friend believes is opposed to the best interests of this country. But this is not the place to do it.
I believe it should be put on record that even though we in this grou-p might be opposed to the present government, or to that which preceded it, when it comes to a fundamental form of government we are a democratic party. We have not attacked and are not attacking our institutions as such, and any criticism which we may offer of this bill arises out of our belief that its provisions are not
IMr. Hackett.]
in the best interests of the great majority of the people of Canada. While this may be a matter of argument, and I shall not dwell upon it, I think we should be given credit for sincerity and earnestness when we bring our views forward, and should not be accused of entering into a conspiracy to upset the form of government or to be subversive in any way.
Coming more closely to the matter under discussion, may I say I was intrigued by the statement of the hon. member for Stanstead that the free enterprise system brings the best or the most able people to the top; and he used that as an argument to show that under the present system our judiciary should be paid more. It seemed to be the trend of his argument tlhat we 'have to pay for value received. If that were sound I would say he had scored a point. But it is not always correct to take it that way, because it seems to me it is putting the whole question on a mercenary basis. It takes away from his main argument a good deal of its validity- the argument that the judiciary are persons of sincerity who sacrifice themselves in order to render a service to their country. I do not think people will refuse to sacrifice themselves or their own well-being if it is not in their financial interest to do so. It is a bit of a contradiction to say that, although that is the way the hon. member's argument has developed.
The first part of the hon, gentleman's argument was an attack upon anyone who attempted to criticize the judiciary, but before he concluded he objected to judges getting into what he called the "dust and dirt" of the political arena. Well, if the hon. member has not a greater regard for the political institutions of this country which I contend are part of our democratic system, how can he justify his view that the judges should be political appointees? How can those who spend their time in the "dust and dirt", as the hon. member described it, be competent to appoint persons to the highest and most respected offices in the country?
I do not wish to prolong the discussion, and shall refer to only one more point. The hon. member challenged the house to show where in any other country with a form of government which he described as socialistic there is a judiciary appointed in the same way as it is in this country, namely by political appointment. Then, answering the question himself, he referred to Great Britain and said that it has the most highly respected judiciary in the world, a statement with which I am inclined to agree. It so happens that at the

Judges Act
present time there is in power in Great Britain a Labour government which, although this is subject to argument, is being called a socialist government. Accepting that fact, I believe it is proof that it is not the political party in power which is at issue, but rather t'he form of government. I suggest it proves what I started out to say, that even though in Great Britain to-day there is in office a political party which is opposed to practically everything the capitalistic parties have been doing, and is attempting to make what it believes to be proper changes, the democratic system is being maintained. The judiciary over there is not in question or under fire. The government has shown that it is willing and able to make changes in a peaceful democratic *way. I suggest that it is a complete answer to the attack made by the hon. member.
Perhaps I should comment on his reference to school teachers, because I happened to be one of those unfortunate people.


John Thomas Hackett: Underpaid.


Frederick Samuel Zaplitny: I am not weeping about it, from a personal point of view. But if in matters of salary we are to draw an analogy between school teachers and judges we are attempting something fantastic. If I were to present a schedule showing the average salaries paid to teachers across Canada, and indicate the responsibilities given to those teachers to bring up and to mould the coming generation, and probably to keep them from appearing before the judges, I am sure it would be realized that any attempt to draw an analogy between the two is just begging the question.


William Scottie Bryce: The hon. member who has just spoken must have seen my notes, because he has said many of the things I had intended to say. I should not like any hon. member or anyone outside the house to think that I am opposed to the judiciary. Some of them are among my personal friends. In fact I have many good friends among them, although they hold political views different from those I hold. I respect their views, and I hope they do the same for mine.
The hon. member who has just taken his seat referred to the political appointments in Great Britain, to which reference was first made by the hon. member for Stanstead. It will be noted that while they are political appointments, it is not always a process of appointing political friends.


John Thomas Hackett: If the hon. member would cite a few instances to bear out his argument, it would be helpful. I know very well that 63260-247J
the gentlemen who are now in office do not appoint their political friends, and for the obvious reason which I gave.


William Scottie Bryce: I am at a disadvantage when I am asked that question.


John Thomas Hackett: Probably so.


William Scottie Bryce: I cannot give an answer off hand. But I have followed the political life of Great Britain since I was a young man. What I had wanted to do at this time was to go on record as being against this increase in salaries to judges at the present time. It seems far too much, and it is out of reason altogether when we have fishermen, farmers and workers who are clamouring for a few more cents an hour. I say to hon. members to my right that if they want to guard their reputations in the future, and if they are to contest another election, they will never come back if they now raise judges' salaries by one-third. The rank and file of Canada will be against them.
We heard the Minister of Trade and Commerce announce what will take place in two years' time-dollar wheat. I am not speaking as a lawyer, but as a farmer-and I would never attempt to speak as anything other than a dirt farmer from the prairies-when I say that when we got 38i cents a bushel for our wheat the judges were getting the same salaries as they are getting to-day. The Minister of Trade and Commerce tells us that we are to get $1 a bushel for our wheat in three or four years' time. When that happens the judges will still be getting the same salaries. I do not want to take up the time of the committee, but I do appeal to the Minister of Justice to hoist this bill for a year and let us see where we are.


Mr. MATTHEWS (Kootenay East):: If I understood the hon. member for Stanstead aright he left the impression that the hon. member for Vancouver East was opposed to the present salaries paid the members of the judiciary, and that he felt they were overpaid. I do not think the hon. member for Vancouver East made any reference to anyone being overpaid. He made a strong and impassioned appeal to the minister not to do this thing now. He gave his reasons, very ably, and I want to associate myself with everything he said.
The hon. member for Stanstead said that certain people were sneering at the profession of law. You do not have to be in this house to hear sneering things said about the law, but that does not mean that every lawyer is a shyster or a crook. Unfortunately there have been men in the profession who have brought down slurs upon that profession. At
Judges Act

times sneers were due them, but they were not due to the group as a whole. I have the greatest respect for the profession and the work it has been trying to do, and I have also great respect for the judiciary of this country. I do not think I can be accused by anyone of having made any unseemly remarks about them.
I think the timing of this thing is altogether wrong. I do not think the members of the judiciary are suffering because of their present salaries. Hon. friends to my right have been accusing the government of extravagance. They have been saying that the government is not practising economy at a time when economy is demanded. They should be consistent. How can they justify the things they have said during the budget debate when they are all out to raise the salaries of judges? As the hon. member for Vancouver East has said, there is considerable unrest in this country at the present time. H the matter comes to a vote I shall certainly vote against the proposal to grant these increases.


Julian Harcourt Ferguson: I have the utmost respect for the judiciary. It has been stated this morning that certain political lawyers have been appointed to the bench. I am sure they will make far better judges than if they had had no training as politicians. The mere fact that a man is a defeated candidate and is appointed to the bench does not detract from his ability.
Personally I feel that this bill should have been brought in after the old age pensions question had been settled. Surely this government must view with alarm the position of many old people who are forced to live on the pension they are receiving with prices as they are to-day. Surely this government must feel that it is far more important to provide for those who are too old to provide for themselves than it is to increase the salaries of judges. Therefore I am in favour of hoisting this bill until such time as we can conscientiously feel that people who must live on old age pensions are properly provided for having regard to the present cost of living. I feel confident that the judges of Canada would view the situation in almost the same light.


[Stage Direction]
Section agreed to.
Section 2 agreed to.
On section 3-Persons who may be appointed.
Mr. HARRIS (Grey-Bruce):: I take it from this section that there is no barrier to a county court judge being appointed to the supreme fMr. J. H. Matthews.]
court. The eligibility seems to be that the person must have practised as a barrister or advocate for ten years.
Mr. ST. LAURENT: That is right.


Walter Edward Harris: I had intended to say a few words on this section, but practically everything that I had to say has been said by hon. members who took advantage of section 1 to discuss the bill as a whole. I should like to refer to the remarks made by the hon. member for Weyburn. He suggested that county and district court judges might be appointed to the supreme court bench if they were qualified and Showed talent in their position. In connection with the other recommendations made by the hon. member, may I say that I agree entirely with all that was said by the hon. member for Stanstead in answer to him.
I should have thought that the members of the C.C.F. group would have suggested that members of the legislatures and of parliament should go to the bench. If I recall the criticism of the judiciary by members of that group, it is that the law has become too rigid, that judges have become too fixed in their attitude toward mankind, that they tend to perpetuate the past rather than move into the future, I suggest that the answer to that criticism is to have on the bench persons who have the outlook of humanity, if you want to put it broadly. I think you are more likely to get such a man from an elected group than from any other section of the community. Without wishing to refer to our own judges in particular, I ask hon. members of the C.C.F. group to consider the late Mr. Justice Holmes of the United States supreme court. I think they will agree that he was the type of judge they would like to have, and I am sure that type of man is more likely to be found among those who are more closely in touch with public affairs than in any other group of lawyers.
So far as I know, no county court judge in Ontario has ever been appointed to the supreme court bench. Masters of the supreme court have been appointed to the supreme court bench, but it seems to be the practice that county court judges be not appointed. Perhaps What I am about to say comes close to infringing upon the duties of the governor in council, but I hope the minister will accept my comments as in no way doing that. I do not cast any reflection upon any supreme court judge, or upon any county court judge for that matter. I have considered the present situation, and I think it is our desire that we should have the best talent on our supreme

Judges Act
court bench. We can draw from practising barristers, or we can draw from the county court bench. I am sure that most hon. members will agree that a county court judge who has shown good judgment and who has had experience in trying cases might conceivably make a better supreme court judge than a barrister who is brought in without any previous experience on the bench. Without arguing that it should be so, I am interested to know why the system has been carried on in the present fashion, because I say without any hesitation that I know county court judges who would make excellent judges of the supreme court bench.
In order to place before the house a few facts I went through the report of the inspector of legal offices in Ontario and, taking the decisions of the court of appeal in Ontario, I find this result. In all the cases which have reached the court of appeal in Ontario in a nine-year period, the decisions of the county court judges have been upheld slightly more frequently than the decisions of the supreme court judges. I do not say that that is an indication that the country court judges are better than the others. I merely place the facts before the committee as a statement of what is happening. In that nine-year period, from 1937 to 1945, there were 1,066 cases in which the court of appeal of Ontario dismissed or allowed an appeal from decision of supreme court judges. I do not want to say anything about the minor number of decisions which were varied or referred back. The result is that the appeal was allowed in thirty-four per cent of the cases. At the same time 902 decisions by county court judges were similarly dealt with by the court of appeal and the appeals were allowed in 33-5 per cent of the cases. So that there was slightly less than one per cent variation. In the nine-year period you would have thought that any real difference between the merits of the two classes would show up.
During four years of the same period in the supreme court of Canada only two cases reached that court from county judges and in both cases the decisions of the county court judges were upheld. At the same time the average of decisions of the supreme court judges of Ontario was running fifty per cent allowed and fifty per cent dismissed. On that basis alone I wonder if we could properly make a distinction between the relative merits of the judges. I know this may sound as if I am reflecting on supreme court judges, but I am not, as I said earlier. I do submit that
county court judges as such because of their appointment should not be considered barred from appointment to the supreme court.
There has been a good deal said this morning and the other day about the intervention of politics bn the bench, originating no doubt from the fact that the appointments are made by a political body. I only add this to what the hon. member for Stanstead has said. If the answer is made that county court judges should not be appointed to the supreme court bench because they might conceivably be considered in politics if at some future time they were appointed to a higher office: we find this situation in Ontario, that we do appoint supreme court judges to the court of appeal; we do appoint masters of the supreme court to the supreme court bench, and a master, as everyone knows, is or should be an expert in procedure and practice although he may have no trial experience of any kind and on that basis might not be as acceptable or efficient on the bench as a county court judge who has had long years of experience as a trial judge. The county court judge, if he is in politics in any way under our present system, becomes involved only in trying a case of a controverted election or the like, which seldom happens; whereas the supreme court judge, as the hon. member for Stanstead has argued this morning, is often appointed to commissions and the like which at least it can be argued have a political tinge. I do not agree with what the hon. member said on that point, but he did make the point. If the hon. member for Stanstead is correct, the county court judge in his tenure of office is more likely to be divorced from political questions than the supreme court judge.
I put these facts before the committee only by way of eliciting an explanation, not as to the discretion of the minister or of the governor in council, but one which will be satisfactory to me as to why we could not appoint to the supreme court bench a highly qualified county court judge if it were felt his efficiency and his merit were such that he could fill that appointment properly.
Mr. ST. LAURENT: There is no legal objection to a gentleman who has occupied a post on the county court bench being appointed to another court. As a matter of practice I understand that in certain of the provinces it has been done. My understanding is that so far with respect to Ontario it has not been felt that it would be proper to do it.
I am very glad to have on the record the remarks made by the hon. gentlemen. These are matters about which those who have taken
391G
Judges' Act

responsibility for recommendations feel very deeply their responsibility to the public, and everything and anything that can help them in making the kind of recommendations that will redound to the high repute which the courts have enjoyed in this and any other country where they are organized on the British system is always very helpful.
I fully agree with much that the hon. member for Stanstead has said. I think that in the system of society that we have here, which is the outgrowth of the development of political liberty in Britain, nothing has been more beneficial in mundane affairs than the repute of the judges and the respect which the public has had for the administration of justice. The hon. member for Stanstead said that next to the church it was the thing that made for the greatest degree of political stability, and I fully agree with him in that regard. I do not think that there has been anything in the development of British institutions that has contributed more to that form of government of free men, by free men, for free men, than the high repute of those who administer justice. The whole system is founded upon the concept of justice, and unless the people can feel that justice is not merely a theory but a living thing that is contributing to their wellbeing, the system would not endure. It is for that reason it was felt that in our society it was necessary to make provision for an increase in the salaries that are paid.
As I said in introducing the resolution, this scale of salaries is still lower than those which prevail in any of the countries where justice is administered on our system. As pointed out by the hon. member for Stanstead, we have a competitive system of social intercourse which brings to higher levels certain individuals because of certain qualities they possess. Now that is true in the legal profession as it is in other walks of life, and it is felt, and it has always been felt down through the centuries, that it is necessary to get for the bench those who are at the top of the legal profession, In order to do that it is not necessary, and it would not be possible, and I would not recommend, that salaries be fixed to equal the scale of the professional earnings of those who reach the top. But I do feel it is necessary to have that . scale such that you can appoint a man who has reached the top and he can continue to live as he lived before his appointment without having to provide out of his capital what is required for his annual expenditure. It is not possible to ask a man whose net earnings have been substantially more than will be provided by these salaries to accept a situation where he will not be able to continue to

live in practically the same manner as he did before, and as he has accustomed his family to live. It may be that no one should acquire those expensive tastes, but it is only human nature that they do, and we have to take the situation as it in fact exists.
It is seventeen years since the matter was very carefully gone into by a committee of this house and since that theory was put before the committee and served as the foundation for a recommendation. The position taken then, in 1928, was that no one expected that the government of the country would fix salaries to equal the earnings of the leaders in the profession Whom it would be desirable to have take positions on the bench, but that what was desirable and necessary was to provide them with enough to enable them to continue to make the expenditures for themselves and their families that they had been making theretofore. I have had more than one expression of regrets from gentlemen I approached to ask to go on the bench, and they have put it just in that way: "We do not want to be able to get from the salary what we earn, but we do want to be able to get enough to carry on. We are not disposed to change our way of living; we are not disposed to go from the premises we have occupied with our families for a long time, and the upkeep of which is expensive, into more modest surroundings." That is the situation which in fact has to be dealt with.
With respect to the suggestion that the act should be made effective right away, I have been discussing this for a long time with my colleagues, because I had been told early in 1929 that something just about like this was going to be done then. It did not get done then. I had been a member of the committee of the Canadian Bar Association, pressing for this, for a long time, and when I came here immediately gave it attention, but I realized that while there was this freezing order on wages and salaries it would not be the proper time to do it. But there has already been some relaxation, adjustments are being made in a number of places, and it was felt that if this were to take effect on the 1st of January 1947 it would not be at the head of the procession in the readjustments of incomes which are necessary and which are being made and will continue to be made.
For these reasons I cannot acquiesce in the suggestion of two or three hon. members that I withdraw the bill. I feel that I am discharging a responsibility which I have not only to the profession but the country in putting this bill before parliament and asking parliament to adopt it with the provision it will become operative on January 1, 1947.

Succession Duty Act
As to one of the objections raised by the hon. member for Stanstead, it is being provided that the pensions which may be granted by the' governor in council to judges who resign their functions can be granted on the new scale immediately after the bill receives royal assent; so that those elderly gentlemen who naturally have been waiting to see if this was to be done will not have to defer their own decisions until the 1st of January if the bill gets royal assent before the end or at the end of this session.


Mr. FULTON:: I should like to associate myself with remarks made by the hon. member for Grey-Bruce, at least to the extent of supporting the principle that no judge should be appointed to an appellate court unless he has first served as a trial judge. That of course is not my view exclusively; it is held by many lawyers and judges to whom I have spoken. I do not want to discuss the whole matter at length. The minister has said that he is glad to have such remarks on the record, and I feel that it is something which should be on the record, because in my opinion a system of advancement of judges, if we want to call it that, would be something of the kind which normally is open to citizens in other vocations-that is, that a man should not take a higher office until he has had experience in a lower one.


John Thomas Hackett: The function is entirely different.


Edmund Davie Fulton: The function is entirely different, as the hon. member has just remarked; nevertheless the fact remains that appellate courts hear cases coming from the lower courts, and that is why I suggest that at least some of the judges of the appellate courts should have had experience as trial judges and know the problems and difficulties which are encountered in the same or similar cases in the lower courts.
Mr. ST. LAURENT: Might this clause be allowed to carry, so that we might get down to what the bill is really for? The next section begins to deal with increases in salaries.


Edmund Davie Fulton: I might put a question, very briefly, to the minister under section 3. Is it the general practice, when appointments come to be made or vacancies exist, that the minister asks for or receives recommendations as to an appointee from the law societies of the various provinces or the law society of the province concerned?
Mr. ST. LAURENT: The minister receives with gratification recommendations from all those who are in a position to make them.
Two or three years ago I answered an inquiry from the law society of my hon. friend's province, telling them that of course we could not relieve ourselves from our responsibility with respect to the recommendations, but we would welcome such representations as they might wish to make and we should be glad to have them give the reasons for the representations so that they could receive careful consideration.


William Ross Macdonald: Shall the clause carry?


William Irvine: I should like to ask a question of the minister. I take it that we are still on section 3. What does the minister regard as the outstanding qualifications which a judge should have? Do they justify the limitation of the appointments to barristers? I should like to call to the attention of the minister the statement made by the hon. member for Stanstead, that one of the greatest qualifications of a judge was the knowledge of the human heart. Can barristers be said to have a monopoly of the knowledge of the human heart?
Mr. ST. LAURENT: Since it is one o'clock I shall have to answer the question on another occasion; I could not do it in three seconds.


William Scottie Bryce: Are we to continue with this
measure this afternoon?
Mr. ST. LAURENT: No. I suggest that progress be reported. After royal assent at three o'clock it is proposed that we go on with the budget resolutions. This measure will have to stand until some progress has been made with them.
Section stands.
Progress reported.
At one o'clock the house took recess.



WAYS AND MEANS

[Stage Direction]
The house in committee of ways and means, Mr. Macdonald (Brantford City) in the chair.

[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend the Dominion Succession Duty Act and to provide:
1. That rates of tax upon or in respect of any succession upon the death of a person after December 31, 1946, shall be twice the rates presently in force and that the tax paid to the government of any province in respect of the same succession be allowed as a deduction from the tax payable under the Dominion Succession Duty Act up to but not exceeding one-half of the tax otherwise payable under the said act.
Succession Duty Act
Hon. DOUGLAS ABBOTT (Acting Minister of Finance):: This resolution proposes two things: first, that existing dominion succession duty rates be doubled; second, that a credit be allowed against the double dominion rates of the duty paid to the provincial governments of one-half the dominion rate. Generally speaking, provincial duties are higher than dominion duties, and generally speaking, the doubling of rates with the credit of provin-' cial taxes does not add to the weight of the succession duties in Canada. Under the offer to the provincial governments it is expected that some agreeing provinces may give up succession duties. In such province the dominion tax will be the only tax left. If therefore the present dominion rates were enforced with no provincial tax in force, the level of succession duties in such province would only be about half what it would be in the rest of Canada, where the provinces were still in the field. Under the proposed offer the double dominion rates will apply, which will mean a level of succession duty generally equivalent to that in force where the provinces still remain in the field, because in the latter case the provincial tax will be allowed as a credit up to one-half the dominion rates.


John Thomas Hackett: At the present time the dominion makes no allowance to the estate of the deceased for any succession duty which the province may collect, that is correct, is it not?


Douglas Charles Abbott: That is correct.


John Thomas Hackett: The suggested amendment is that succession duties exigible by the dominion be doubled. The remarks of the minister were susceptible of the interpretation that credits would be allowed only to an agreeing province.


Douglas Charles Abbott: I did not realize it was susceptible of that interpretation.


John Thomas Hackett: I do not wish to debate the question. If the minister can assure me that provinces, whether they become adhering provinces or not, are entitled to the credit, all right.


Douglas Charles Abbott: I can give that assurance without any hesitation.


Mr. GREEN:: Has consideration been given to the case where succession duty is payable under dominion law and not under provincial law?


Douglas Charles Abbott: Consideration has not been given. Of course, as my hon. friend knows, there is succession duty payable under the laws of all provinces at the present time.


Howard Charles Green: It is not just that simple. Take British Columbia. In certain cases there is no succession duty payable on an estate which is taxable under the Dominion Succession Duty Act.


Douglas Charles Abbott: That is correct.


Howard Charles Green: As I read the resolution, it means that the dominion tax is doubled without there being any chance of a set-off.


Douglas Charles Abbott: I understand my hon. friend is correct in that statement; but the amounts involved, of course, are very small.


Howard Charles Green: They may not be; they may be quite large. For example, I think our province allows 825,000 exemption for insurance over and above the $20,000 exemption for an ordinary estate, in the case of a wife. That might mean a very big increase in this dominion succession duty, if the estate is one coming within that category. Is it not a fact that unless the provincial succession duty is at least half the new dominion succession duty, the result of this legislation will be to penalize estates?


Douglas Charles Abbott: It is correct that if the provincial succession duty were less than the present dominion rate there would be a somewhat higher tax payable in such a province.


Howard Charles Green: That condition will not be changed, even though there should be an agreement with the province?


Douglas Charles Abbott: That is right.


Howard Charles Green: In how many of the provinces does this legislation mean an increase in the succession duty payable by people in that province?


Douglas Charles Abbott: I am advised that it is not possible for me to give an answer in terms of provinces. There may be individual cases in a province where there might be a slight increase owing to peculiarities in the rate structure, differences in exempted limits, or, for instance, assets which are taxable under the dominion succession duty law and not taxable under the provincial law. Broadly speaking, however, I am informed that in most of the provinces it works out that the average rate of succession duty is equal to or greater than the dominion duties.


Howard Charles Green: Is it not the broad intention of this legislation that where the dominion is going exclusively into the succession duty field in a province, the tax is to be doubled, and where the dominion is not going exclusively into the field in a province, in other words where the province is not giving up its succession duty rights, the dominion is not going

The Royal Assent
to increase the burden on the residents of that province? Yet under this provision you are increasing the burden on the residents of British Columbia.


Douglas Charles Abbott: I can agree with the first part of my hon. friend's contention, but not with the latter part. The intention of this proposed legislation is to establish a rate of succession duty which, as the resolution indicates, is double the present dominion rate. As I say, on average the provincial rates are equal to or greater than the dominion rates, so accepting that as true, on average the proposed provision, with the credit allowance, will mean that the vast majority of estates in all provinces will not pay greater duties. It may well be that in British Columbia, because of special tax laws in that province, there will be some cases in which as a result of this proposed legislation the total amount of succession duties payable will be increased. I agree that this may be the case.


Howard Charles Green: I do not ask the minister to give some consideration to that, because I do not think it fair that people in certain provinces should be penalized in that way. For us in British Columbia it means that in many cases the succession duty is to be increased while in the other provinces it is not; and I do not think that is a fair way for the dominion government to legislate. You should have the same rule for the whole of Canada; you should not bring in legislation which affects one part of the country in a different way from that in which it affects people in the other parts.


Douglas Charles Abbott: We believe we have the same rule for all parts of Canada, but I shall take note of my hon. friend's statement and perhaps we can discuss the matter further when the legislation is before the house.
Mr. HAiCKETT: The burden of this tax will depend, as I see it, upon the extent to which any province relies upon succession duties as a principal source of revenue. If a province on the prairies derives a very small amount from succession duties this enactment will affect it in one way; but a province like Quebec, which if I am correctly informed has the highest effective rate of succession duty of all the provinces, will be prejudicially affected by it. It can only get a rebate of a relatively small fraction of its duty. Does that not follow?



THE ROYAL ASSENT

[Stage Direction]
A message was delivered by Bonner Larose, Esquire, Acting Gentleman Usher of the Black Rod, as follows:
Mr. Speaker, His Honour, the deputy of His Excellency the Governor General, desires the immediate attendance of this honourable house in the chamber of the honourable the Senate.
Accordingly, the house went up to the Senate.
And having returned.
Mr. SPEAKER informed the house that the deputy of His Excellency the Governor General had been pleased to give in His Majesty's name the royal assent to the following bills:
An act respecting the Marking of Articles containing Gold, Silver or Platinum.
An act to amend the Royal Canadian Air Force Act.
An act to amend the Department of Transport Stores Act.
An act to amend the Soldier Settlement Act.
An act respecting Canadian National Railways and the Acquisition of the Manitoba Railway.
An act respecting benefits for persons who served in the Women's Royal Naval Services and the South African Military Nursing Service.
An act to amend the Railway Act.
An act to incorporate Prescott and Ogdens-burg Bridge Company.
An act to amend the Yukon Placer Mining Act.
An Act to amend the Research Council Act.
An Act respecting the operation of Government Companies.
An Act to incorporate Cooperative Life Insurance Company.
An act to consolidate and amend the Acts relating to La Societe dee Artisans Canadiens-Francais.
An act to amend the Food and Drugs Act.
An act to amend the House of Commons Act.
An act to amend the Public Printing and Stationery Act.	,
An act to amend The Quebec Boundaries Extension Act, 1912.
An act to amend the Public Printing and Stationery Act. (Advances to the King's Printer.)
An act to amend the Exchequer Court Act.
An act to amend the Criminal Code.
An act for granting to His Majesty certain sums of money for the public service of the financial year ending the 31st March, 1947.

[Stage Direction]
The house in committee of ways and means, Mr. Golding in the chair.

[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend the Dominion Succession Duty Act and to provide:
1. That rates of tax upon or in respect of any succession upon the death of a person after December 31, 1946, shall be twice the rates presently in force and that the tax paid to the government of any province in respect of the same succession be allowed as a deduction from the tax payable under the Dominion Succession Duty Act up to but not exceeding one-half of the tax otherwise payable under the said act.
Succession Duty Act
Douglas Charles Abbott: The hon. member for
Stanstead had just asked a question, and I am not sure that I remember it exactly; if I am wrong he will correct me. In a province in which the succession duty rate is as high or higher than the present dominion rate, this legislation will not increase the liability of the taxpayer. That is obvious because he is entitled to deduct up to fifty per cent of the dominion rate. In cases where the provincial rate is 50 per cent or greater, then a little exercise in mathematics will show that there is no increased liability. In the province in which there are no succession duties, or where the duties are up to one-half the present dominion rates, then unquestionably the tax liability of estates would be increased when this law comes into effect over the present combined dominion and provincial rate.


John Thomas Hackett: I do not want to review or revive the controversy that we had earlier in tire session, but it seems to me that in a province like Quebec, which derives a substantial revenue from succession duties, a heavy burden will be placed upon the people if there is failure to retire from the field of succession duties. That is what prompted my question.


Douglas Charles Abbott: The burden is not greater;
it will remain exactly the same.


John Thomas Hackett: The burden which was
assumed is an incident of the war. Quebec is now asked to retreat from the field which has yielded a very substantial proportion of the income of that province. I will not say there has been a threat, but if a province is wilful and continues in the exercise of its constitutional right to collect succession duty it will suffer as compared with the more submissive province that yields up its right to that tax.


Douglas Charles Abbott: No, I should not think so; I think the result would be just the opposite. I think it would continue to be in exactly the same position. The more submissive province which yields up its right to levy on the taxpayer in that province will continue to be in approximately the same position. The only difference will be that the province referred to by my hon. friend as the submissive province will receive the succession duties through arrangement with the dominion instead of collecting succession duties directly through its own succession duties department. That is the only difference I can see.


Mr. MACDONNELL (Muskoka-Ontario):: When the minister says a province will receive the succession duties through the dominion does he mean it will receive a sum by reason

of its having given up that duty, or does he mean it will in fact receive the succession duties collected for it by the dominion?


Douglas Charles Abbott: The province will have
rented its right to collect succession duties and will be paid a sum in lieu of that right, as well as of others.


John Thomas Hackett: Could the minister give
the figures which would show the present duties exigible, say on an estate of 150,000, where a man leaves a widow and two children, breaking it up into dominion and province of Quebec rates?


Douglas Charles Abbott: I have not the figures for
a man leaving a widow and two children, but where a man leaves a widow with an estate of $50,000 the present dominion tax would be $1,470 and the provincial tax would be $2,000. The combined tax is $3,470, and under the proposed legislation there will be no change in the total reported.


John Thomas Hackett: Could' the minister give the same information for Ontario?


Douglas Charles Abbott: I do not happen to have it on $50,000 for Ontario, but I have it for $60,000.


John Thomas Hackett: Take $60,000, and give it also for Quebec.


Douglas Charles Abbott: Well, for some reason or another they have not $60,000 for Quebec.


John Thomas Hackett: Have you some figure common to all the provinces which will help?


Douglas Charles Abbott: I have given $50,000, so perhaps I had better stick to that. I have already given it for Quebec. In Ontario the provincial tax is $1,438 compared with $2,000 in Quebec; the dominion tax is $1,470, and1 the total tax $2,908. No change under the proposed legislation.


Howard Charles Green: There would be, I think, a slight increase there, where the Ontario duty is a little lower than the dominion.


Douglas Charles Abbott: In that case, I am informed, there would be perhaps $12 or $14 difference, the Ontario duty being somewhat less than the dominion duty-actually, $32 less. If my hon. friend is interested in comparative figures I will put them all on. All this is contained in the volume entitled "Succession Duties", a reference book to the dominion-provincial conference on reconstruction, table 2, page 24.


John Thomas Hackett: 
Douglas Charles Abbott: On $50,000 in Saskatchewan the provincial tax is $1,375, the dominion $1,470, a total tax of $2,845. There would be a small increase in that bracket-a difference of $95, I am informed-in Saskatchewan.


John Thomas Hackett: And Prince Edward
Island?


Douglas Charles Abbott: Prince Edward Island:
provincial tax $3,750, dominion tax $1,470, a combined tax of $5,220. No change.


Alfred Johnson Brooks: What is New Brunswick?


Douglas Charles Abbott: New Brunswick: provincial tax $2,200, dominion tax $1,470, total $3,670. No change.


James Arthur Ross: Would the minister give the figures for Manitoba?


Douglas Charles Abbott: Manitoba: provincial tax $1,725, dominion tax $1,470. No change. I have given the figures for Ontario. Alberta: provincial tax $1,800, dominion tax $1,470, total $3,270. No change. British Columbia: provincial tax $563, dominion tax $1,470, total tax $2,033. Increased tsx, $907.


Howard Charles Green: You see, Mr. Chairman, that shows the unfairness of this provision so far as British Columbia is concerned; it is highway robbery.


Some hon. MEMBERS:: Hear, hear.


Douglas Charles Abbott: My hon. friend seems to have a sympathetic audience behind him.


Howard Charles Green: I would refer the Acting Minister of Finance to the budget speech, Hansard, page 2910, where the Minister of Finance used these words:
. . . the general burden of the combined dominion and provincial succession duties in those provinces which continue to levy succession duties will be the same as at present.
In other words, he gave the assurance that if a province did not come into this agreement the citizens of that province would not have to pay increased succession duties by reason of the change in the Dominion Succession Duty Act. Yet you have this change brought in by the government, which, in the case the minister has just mentioned, makes a difference of $900, double the amount of the provincial tax. I suggest that that situation could be met by inserting a proviso to the effect that succession duty levied by the dominion under this doubling of succession duty tax is not to be increased in a nonagreeing province; in other words, that there is to be no increase in succession duty in a non-agreeing province.


Douglas Charles Abbott: I will take a note of my hon. friend's representation. He will observe that the minister in the statement said, the "general burden of the combined dominion and provincial succession duties." It varies, depending on the bracket and the rate.


Howard Charles Green: But as I read that statement of the Minister of Finance it meant that the citizen of a province that did not agree was not to be discriminated against by reason of this change in the dominion succession duty law and he would not have to pay any increased tax.


Douglas Charles Abbott: There is no distinction between provinces that agree and disagree so far as tax treatments are concerned.


Howard Charles Green: There is, in -that very statement. It refers to provinces which do not agree.


John Thomas Hackett: Is that a complete
statement?


Douglas Charles Abbott: I make that as a positive statement:	there is no distinction made
between provinces which agree and which disagree so far as tax credit is concerned.


John Thomas Hackett: There is no complete agreement between the different provinces, and you find overlapping and double succession duty as between the provinces. A man who dies in Montreal owns stocks which are on a register in Edmonton, and Alberta collects duty on an asset which is subject to duty in Quebec. Now under the agreement which is held out that would disappear; it is an added enticement, possibly, to kneel down and adore.


Douglas Charles Abbott: I do not accept the phrase money.


John Thomas Hackett: Yes, kneel down and save money.


Douglas Charles Abbott: I do not accept the phrase, "kneel down."


John Thomas Hackett: Kneel down at that price. But I think the minister will admit that to that extent his statement was not all-embracing. I think that that does constitute an exception to the broad statement which he has made.


James MacKerras Macdonnell: Can the minister indicate what the increased revenue would be to the dominion? As I see it, the only place in which the dominion will get anything additional as the matter stands is in provinces where the tax is less than the
Succession Duty Act

dominion tax. That is, where the tax is equal to the dominion tax the dominion doubles the tax and takes half of it off. How much more will the dominion get? I am puzzled to understand why this legislation was introduced at all. Is there specifically a benefit to the dominion treasury, or is there some other point of which I am not aware?


Douglas Charles Abbott: The figure of course would have to be based on the past year, because one cannot tell what the rates will be in the future. Assuming the number of deaths and the value of estates to be the same as last year, the total collectible by the dominion would be double, but it would have to give credit up to fifty per cent of its tax for the tax paid in the particular province in which the deceased was resident. I am advised by the deputy minister that the net result would be about the same, assuming that no province entered into the suggested agreement.


James MacKerras Macdonnell: (Muskoka-Ontario)
When you say "the net result would be the same" you mean the dominion would get about the same as it does now?


Douglas Charles Abbott: Yes.


James MacKerras Macdonnell: That is what I rather guessed. Then why this change in the legislation? Is it not a long way round to get to the same place?


Douglas Charles Abbott: If a province agreed and went out of the succession duty field, in that province there would be only half the rate in force as compared with the other provinces, and one purpose of this is to endeavour to achieve reasonable equality of succession duty rates throughout Canada.


James MacKerras Macdonnell: I am not sure that I follow the minister when he says half the rate. Does that mean that the dominion rate is so much less than the provincial rate that even doubling the dominion rate means that there will be only half as much as before?


Douglas Charles Abbott: Let us say that the dominion rate on an estate to-day would produce $1,500 and the provincial rate $1,500, or a total of $3,000. That is the present tax liability of the estate of a deceased, let us say, in the province of Quebec. The province of Quebec decides to come into the agreement and goes out of the succession duty field. If then the rate were not doubled the result would be that in the province of Quebec the succession duty liability would be restricted to $1,500, the dominion rate, whereas in Ontario, which for the purposes of our argument we

will assume has the same rate of tax, an estate of the same size would continue to pay $3,000.


James MacKerras Macdonnell: That does not answer my question. That is supposing a state of affairs to exist which does not exist at all. As I see it, the dominion is putting into one pocket exactly what it takes out of the other. In other words by doubling the tax you are not going to alter the situation. There must be some other reason for this. If you are not going to get any more money, what are you getting?


Douglas Charles Abbott: I am afraid I cannot follow my hon. friend's argument.


James MacKerras Macdonnell: The minister said in answer to me a moment ago that the dominion government was going to get virtually the same sum by doubling the tax.


Douglas Charles Abbott: I qualified that; I said, "if" none of the provinces came into this agreement. If some come in, the dominion will obviously get more, and to those provinces the dominion will have to make the payments provided for in the agreement. If all the provinces come in, the dominion will get approximately double what it is getting to-day. If only some come in, it will get less than double.


Howard Charles Green: Is there not another way of getting around the difficulty for a province that is in the position of British Columbia? Could you not say that there shall be no doubling of dominion succession duty except in a province which agrees to give up the levying of succession duty taxes?


Douglas Charles Abbott: I have promised to give consideration to the representations my hon. friend has made on that point. I should1 like to think them over.


John Thomas Hackett: A province that is relying upon succession duties for a big proportion of its revenue is more seriously affected by this proposal than a province that is not relying upon succession diuties to the same extent. For instance, where the duty on an estate of a given amount under Quebec law is $2,000, under British Columbia law the payment is only $500. So by yielding up succession duty Quebec suffers much more than does British Columbia or does any other province which has a low succession duty. Is that not a fact?


Douglas Charles Abbott: Not necessarily, because British Columbia may be relying for its total' revenue on other types of taxation.


John Thomas Hackett: Yes, on other types Which are not taken over by the federal government-

Income War Tax


Douglas Charles Abbott: I do not know that that is the ease. It may be that British Columbia is getting a larger revenue from personal income tax and certain corporation taxes than was Quebec. As a matter of fact I think it does get a very muoh greater revenue from those sources. There is a quid pro quo all along the line.


John Thomas Hackett: In so far as the issues are before us, British Columbia would be in a much better position by yielding up succession duties than Quebec or Ontario would be.


Douglas Charles Abbott: I cannot agree.
Mr. HAiCKETT: On the estate that I referred to British Columbia would yield up but $500, whereas on an estate of an equal amount the province of Quebec would yield up $2,000.


Douglas Charles Abbott: That is only one element in the revenues which the provinces are yielding.


John Thomas Hackett: The others are personal income and corporation tax.


Douglas Charles Abbott: Gasoline tax and the rest.


John Thomas Hackett: There you get into a field where theTe was not complete understanding. The minister based his offer on the three taxes just mentioned, personal income, corporation tax and succession duties.


James MacKerras Macdonnell: Let me ask this question. Will the minister agree to these two propositions? First of all, having regard to the provinces that are likely to be adhering provinces, to use the minister's term, and to the amount of income which they have raised from succession duty, the amount which the dominion is likely to get by doubling this tax is comparatively trivial. Second, would not this provision be a very strong deterrent to a province raising a substantial amount of succession duty from increasing its succession duty rate any further?


Douglas Charles Abbott: Of course it is obvious that if a province is now levying a rate higher than the present dominion rate, this would be no deterrent because they are up already to the dominion rate.. It may be a deterrent to increasing rates still further.


James MacKerras Macdonnell: That was my question. Would it not be a strong deterrent to a province increasing its rate? I want to be clear on that.


Douglas Charles Abbott: My answer is, no more
than there is to-day. If it is 56 per cent to-day, there is a deterrent to raising it to 60 per cent. If they raised it to 60 per cent there would still be a credit up to half of the dominion tax.


James MacKerras Macdonnell: If the province should raise its rate, the rebate is half of the dominion tax, not half of its own.


[Stage Direction]
Resolution agreed to.
Douglas Charles Abbott: Mr. Chairman, I should like to go back to resolution 12 of the Income War Tax Act.



INCOME WAR TAX ACT

[Stage Direction]
12. That for the 1947 and subsequent taxation years, the provisions exempting the income of certain cooperative companies and associations be repealed and that for the 1946 and subsequent taxation years provision be made that there may be deducted from a taxpayer's income the aggregate of the payments made,
(a)	in the taxation year or within six months thereafter to his customers of the taxation year; and
(b)	in the taxation year to his customers of a previous taxation year after the 1941 taxation year and not previously deducted under paragraph (a)
in respect of specified allocations in proportion to patronage for the said years the prospect of which was held forth
(c)	by the statute or bylaws under which the taxpayer carries on business or by his contracts with his customers, or
(d)	by the taxpayer in a specified manner prior to the commencement of the taxation year except that portion of such payments as would if deducted leave the taxpayer with an income less than an amount determined by deducting from three per cent of the capital employed in the business, including therein borrowed moneys, the interest paid by the taxpayer on borrowed moneys and deductible as an expense in computing his income.
Douglas Charles Abbott: This resolution and succeeding resolutions up to No. 15 deal, broadly speaking, with the taxation of cooperatives. As hon. members are no doubt aware, numerous representations have been made by cooperative organizations regarding the budget proposals as they affect their operations. The government has considered these representations carefully, for it is anxious that the tax laws should not only be fair and equitable but workable. This, as hon. members are aware, is an extremely difficult and contentious field of taxation, and I doubt whether any legislation can be framed which will please everyone concerned. The best that can be hoped for is a reasonably equitable plan which preserves equity between various forms of enterprise. The government felt that the best way to arrive at this equitable plan was to appoint a representative commission to hear evidence and to bring in a report. This it did in 1944, and may I remind hon. members that this commission included a member nominated by the Cooperative Union of Canada, a member nominated by the Canadian Chamber of Commerce, two impartial and
Income War Tax

highly regarded economists, and a judge. I do not think anyone could accuse this commission either of bias or of lack of competence.
To a very large degree the government has adhered to the commission's report. The report is not necessarily the final word on the subject, but unless the government is to take the view that the commission was incompetent or biased, I think it has every reason for giving the recommendations a fair trial.
Some of the representations received have, in effect, urged the government to reject the commission's main line of approach and enact legislation giving special exemptions to cooperatives generally. These could not be accepted. A number of representations have been made, however, which the government is able to accept without a major change of policy or without departing too far from the commission's recommendations. Two of these suggestions necessitate amendments to the resolution, and in a few moments I shall ask one of my colleagues to make the necessary motion. For example, certain cooperatives have pointed out that it is physically impossible for them to pay out patronage dividends within six months after the end of their fiscal years. Accordingly it is proposed to allow twelve months for such distributions. Certain other cooperatives find that the limitation with respect to payment of patronage dividends for years earlier than 1942 presents difficulties. This limitation was originally inserted because until 1941 very few cooperatives paid any tax whatever and were therefore free of tax on patronage dividends allocated but not paid. To give exemptions when these amounts are paid out would therefore result in a double benefit to the taxpayer. However, in view of alleged discrimination 'between cooperatives, some of which operate on a five-year revolving fund and some of which finance themselves out of a fund which revolves over a period longer than five years, the limitation is being withdrawn.
These are relatively minor changes. More important is the question whether patronage dividends should be deductible if paid at a different rate to members than to non-members. As my colleague the Minister of Finance pointed out, the government in framing its proposals on this point followed the recommendations of the McDougall commission. The commission was in unanimous agreement* that patronage dividends should be paid equally to members and non-members. I am emphasizing this because the impression seems to have been created that by proposing this rule the government was attempting to make it difficult for cooperatives to grow and enlarge their membership. Nothing could be further

from the truth. It is clear, however, that many cooperatives fear that the requirement of equal treatment for members and non-members would be prejudicial to their development. Since the government has no desire either to hamper the development of the cooperative movement or to appear to be hampering that development, it is willing to go a long way toward meeting this objection. In fact the government proposes to accept in principle a plan proposed by a great many of the cooperatives themselves. These cooperatives have suggested on many occasions that they should be free to make a distinction between members and non-members but should be required to pay tax on income derived from dealings with non-members. While this does not affect the resolution itself, which is in very general terms, I am taking this occasion to say that in the legislation founded on the resolution provision will be made whereby a cooperative which wishes to pay patronage dividends only to members, or at a lower rate to non-members, will be able to treat such patronage dividends as a deduction, provided that they pay tax on income arising from non-member business.
In order to anticipate any discussion there may be on the point, I should perhaps add that the proposed legislation will meet the case of certain cooperatives, such as the Alberta and Saskatchewan wheat pools, which wish to transfer certain outstanding obligations from inactive members to new and active members. Provision is already made, of course, for the continued operation of ordinary revolving funds.
So far as the resolutions affecting the future operation of the cooperatives are concerned, that is all. There is a question which has been raised by a number of hon. members in the course of the budget debate relating to what in my judgment has been inaccurately referred to as retroactive taxation. I refer, of course, to the assessments made against the western wheat pools for income tax during the years 1942 to 1945 inclusive. The committee will recall that in his budget speech the minister made an offer to the pools of settlement of these claims. Following the delivery of the budget speech the minister met the representatives of the pools and discussed the question with them. The members will recall that later the minister said that he had had this discussion, and that if it were felt by the pools that the proposed offer of settlement was not fair he was prepared to consider some further adjustment. Following the minister's departure I met the representatives of the pools on Monday. They submitted to me a counter-

Income War Tax
proposal for settlement of these claims. That counter-proposal is now under consideration by the government, and I simply want to say I am confident that a settlement will be arrived at which will be satisfactory to all concerned, but which, I must emphasize, must be fair to all those, including the general public, who are affected. Other than that I do not wish to say anything more at the moment.


John Bracken: I am not aware that I fully comprehend the changes in the government's programme which the minister has announced. I have in front of me the resolution which is before the committee, and that resolution, as I said in my address the other day, we do not regard' as satisfactory.


Douglas Charles Abbott: Before my friend proceeds with his remarks, will he allow me to have an amendment moved to resolution 12?


John Bracken: I have an amendment of my own.


Douglas Charles Abbott: It is the amendment to which I referred in my remarks.


John Bracken: Perhaps the minister would permit me to make some observations and then we shall consider his proposal.


Douglas Charles Abbott: I do not wish to interrupt my hon. friend, but in my statement I said I would ask one of my colleagues to move the amendment. I have indicated what the amendment is.


John Bracken: I shall withhold my
amendment, but perhaps I may be permitted to make some comments now.


Douglas Charles Abbott: The amendment is a short and simple one, and I think in the interests of order it should be moved.


William Irvine: We ought to have it so that we shall know what changes have been proposed.


Ian Alistair Mackenzie: I move:
That the word "six" appearing in paragraph (a) of resolution 12 be replaced by the word "twelve"; second, that the words "after the 1941 taxation year" appearing in paragraph (b) be deleted.


John Bracken: As I read the resolution before us, Mr. Chairman, it has three objectionable features. In my address the other day I objected to the government's programme on four grounds; and on a fifth ground I said we would require further light from the government before determining what attitude to take. This resolution deals with three of the points upon which we took objection. The government's resolution provides for the exemption of patronage dividends only if they are paid in cash. We think there should
not be any such limitation, and the amendment I shall propose, when it is in order to do so, is that these dividends may be paid in cash or its equivalent of any kind. The resolution also requires the compulsory payment of patronage dividends to non-members.


Douglas Charles Abbott: Not now. It never did, as a matter of fact, but I have stated that the legislation will not include that.


John Bracken: Your amendment does not deal with that.


Douglas Charles Abbott: The resolution does not deal with it at all, as my hon. friend will see if he will look at it. I think the statement I made a moment ago has cleared that up.


James MacKerras Macdonnell: The minister's speech did.


Douglas Charles Abbott: My hon. friend is quite right. In his budget speech the minister indicated that payment of patronage dividends would be compulsory to both members and non-members alike, which of course was the recommendation of the McDougall commission. The statement I have just made indicates that following representations which have been made, this will not be included in the legislation.


John Bracken: I do not mind the minister interjecting these statements, but I am speaking of the resolution which is now before us, and I was coming to the changes he now tells us the government is going to make.


Douglas Charles Abbott: No change in the resolution on that point.


John Bracken: In my reading of the
resolution you have changed it. Look at paragraph (c):
. . . by the statute or by-laws under which the taxpayer carries on business or by his contracts with his customers . . .
His customers are not all members; some are non-members. That term is used in another place as well; look at paragraph (a): ... in the taxation year or within six months thereafter to his customers of the taxation year . . .
His customers are not all members.


Douglas Charles Abbott: It does not say "all his
customers" in the legislation either.


John Bracken: It says "to his customers".


Douglas Charles Abbott: Yes, but not to all his
customers. Perhaps I should not interrupt my hon. friend, but I have made it as a statement of government policy. My hon. friend knows these resolutions are drawn up in general terms. It is perfectly true the
Income War Tax

minister stated in his budget speech that patronage dividends, in accordance with the report, were to be required to be made to all customers, and the legislation would have so provided had there not been the change I have just indicated.


John Bracken: If the minister will
permit me to say what I have to say, I shall come to what he said. This resolution is government policy. This was all we had before us until the minister rose five minutes ago. Objection had been taken to the government proposals. Now the minister comes along and says the government is going to change its plans, which we want to see him do. I am not trying to say he is not changing his plans. It is perfectly clear that the original intention of the government was to require that non-members be paid patronage dividends. Now the minister says they are not going to require that. I do not see that in the amendment he has proposed, but we will accept his statement on that point.
The third point as far as this main resolution is concerned is that it places a limitation on the exemption in the case of moneys expended by the organization in the purchase of the interest of members, only if that interest had been acquired after 1941. We say that limitation should be removed.


Douglas Charles Abbott: I also stated that this has been taken out.


John Bracken: I commend the minister for that change of policy too. I gather from what the minister has said that his amendments do not cover the point about the payment of patronage dividends in cash or in kind?


Douglas Charles Abbott: In one case it does. I am told that where they want to transfer stock certificates or deductions from an inactive member to an active member, it will be covered by the legislation. I may say to my hon. friend that I am not an expert in the operation of cooperatives. I am sure he knows much more about them than I do, but I am informed that is what will be done.


John Bracken: If that is correct the changed policies of the government go part Way to meet our objections. But I want to see the legislation before I accept it fully. Since the minister's amendment has been before us only for the last few minutes, it is pretty hard to apprehend its full meaning. I do not see that the first part of the amendment changes the principle it deals with at all. It simply provides that the word "six" appearing in paragraph (a) be replaced by the word "twelve."
	. '"I


Douglas Charles Abbott: That means they will have twelve months in which to pay a dividend, instead of six.


John Bracken: It does not alter the
principle.


Douglas Charles Abbott: No.


John Bracken: Then the amendment provides that the words "after the 1941 taxation year" appearing in paragraph (b) be deleted.


Douglas Charles Abbott: That leaves it wide open as far as the year is concerned.


John Bracken: If you will permit me to place my interpretation upon this particular point, you have accepted our suggestion with respect to it.
I should like to have the minister further elaborate the amendments he has now proposed, if he would, because to the extent that the objections I have raised are covered b>
the changed government policy, we shall accept them. To the extent that they are not fully covered we shall of course have to come along, either now or later, and do our best to see that they are covered.


Douglas Charles Abbott: I think all my hon. friend's objections have been met, but perhaps when he has had an opportunity of reading the prepared statement I gave this afternoon he will be able to see whether or not that is so. If not, I appreciate that he will be free to renew his objections or his suggestions when the specific statutory measure is before the house and the committee.


Frederick Samuel Zaplitny: I refrained from taking part in the budget debate chiefly because I wanted to feel justified in taking a little time to place my views before the committee on this very important question. When I gave way to the leader of the opposition a few minutes ago I hoped he would cover the subject so thoroughly that it would not be necessary for me to take very much time. I must confess that I was somehow disappointed in what I heard. The question which has been brought before the committee is one which requires looking into to a greater extent than simply changing the wording of the resolution, or the legislation which may follow. I say that because the whole question whether this government and future governments are going to take an appropriate altitude toward cooperative enterprise is at stake.
The resolution before us starts out by providing for the repeal of what are here described as certain provisions exempting the incomes of

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certain cooperative companies. It does not name those provisions, although I imagine the reference is to section 4 (p) of the statute.
It is significant that that section was not mentioned either in the resolution or in the remarks of the Acting Minister of Finance. It provides for the repeal of that section. Wjiat is proposed in its place? As I understand it, that is the only piece of legislation on the statute books which pertains to cooperatives as a whole. If it is taken off the statute books what is to be put in its place? What shall we be left with? That is my question.
I hope the Acting Minister of Finance will be able to tell us to-day, or in the near future, that he is bringing down, or that the government is contemplating bringing down, a dominion cooperative act, so that in the future cooperatives will have something to lean on, something to guide them and to show them when they are right or when they are wrong. Much of the controversy over this question in the last few years arose from the fact that there was nothing on the statute books definite enough to guide the cooperative movement. In fact had it not been for the indefiniteness of section 4 (p) it is possible we would not be considering these matters today. As I have said, if in the near future the government will bring down a dominion cooperatives act setting out clearly the definition of a cooperative, and making definite provisions in the tax law for cooperatives as such, we shall save ourselves a great deal of trouble.
When we examine closely resolution 12 we find it does not provide, nor does it contemplate providing, anything for cooperatives as such. It refers to certain companies and to taxpayers, but after section 4 (p) has been repealed there will be nothing to provide for cooperatives as such. In other words the effect of the whole thing, as I see it, will be to place cooperative enterprise in such a position that it will be drowned or immersed in private enterprise. There will be no cooperative enterprise recognized as such. The very fact that the section is to be repealed, and that the resolution as it stands to-day, even with the amendments, is so vague, shows that the government evidently has not taken into consideration the enacting of a dominion cooperatives act, which would be something upon which cooperatives could depend.
Passing on from there-


John Thomas Hackett: Before the hon. member passes on to another item, perhaps I may ask
the minister if the dominion could enact such legislation, or if it is a matter falling within the jurisdiction of the provinces.


Douglas Charles Abbott: I would find it difficult to give an answer offhand, but I shall give the matter consideration.


Frederick Samuel Zaplitny: If the question had been directed to me-and it would be strange if such an eminent lawyer asked a school teacher an opinion on a constitutional question-


John Thomas Hackett: I like to be sure.


Frederick Samuel Zaplitny: -I would answer in this way, that I think it is within the competence of the dominion government to pass a statute when the provinces are willing to pass concurrent legislation so as to make it legal in each province. The hon. member will be able to figure that out for himself While I pass on to something else.


Mr. SENN:: I hesitate to ask the hon.
member a question, but would he give us a definition of a "true cooperative"? There seems to be some difficulty in deciding just what a true cooperative is.


Frederick Samuel Zaplitny: I am not prepared extemporaneously to give a definition of a true cooperative, because that is a question which seems to have stumped the experts. The McDougall commission did not in their report define a true cooperative. So that I shall not assume that responsibility to-day. I could direct the hon. member to a source. If he would get in touch with the Cooperative Union of Canada, they could give him a good definition.


Mark Cecil Senn: I am afraid they do not agree either.


Frederick Samuel Zaplitny: That is a matter for argument. To go on with what I was about to say, may I point out that I have been informed that a cooperatives act of the kind I have indicated was promised by political parties in the past. I believe it was at the time of the 1911 election that the political parties which were national in scope held out such a promise. Evidently they must have felt it was a proper and constitutional thing to do.
Listening to the Minister of Finance in his second speech on the budget one would have gained the impression that it was the C.C.F. group which was kicking up all the tow about the taxation of cooperatives. This is what the minister said at page 3591 of Hansard:
Hon. members, particularly hon. members of the C.C.F. have taken a position that is surprising to me, that what we are proposing constitutes an attack on cooperatives.
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Then, at page 3593 he returned to that subject and said:
I must say that we have tried to be so fair to cooperatives in this matter that I have been a little surprised at the fury of the attack of some members of the C.C.F. on our motives and on our acts in this regard.
I can hardly agree that there was fury in our attack. There may have been a little forceful language, but I do not think we exhibited actual fury. The point I would bring out is that what we have said in the house and what we are doing now is not something undertaken because w'e want to cause controversy. What we are trying to do is to reflect the feelings of cooperatives themselves. In order to establish that, I wish to read from advertising or a directive appearing in an issue of the Manitoba Cooperator of July 19, 1946. The heading in large letters is "Act Now", and it goes on to say:
The whole subject of budget proposals on the taxation of cooperatives is a serious matter. If strong action is not now taken it may be seriously regretted in the near future. Members of cooperative organizations have their opportunity now to stick together to protect themselves in the present crisis.
These are strong words.
It is a struggle to keep discriminatory and arbitrary legislation off the books. Let Ottawa know that you do not want this legislation. It is vicious. Act now.
This is not C.C.F. propaganda; this is the cooperator speaking. I could quote from various publications in the last few weeks in which it is indicated that the cooperatives have reacted violently to the proposals brought down in the budget.


Douglas Charles Abbott: In fairness I think it should be said that I do not think they fully understood them.


Frederick Samuel Zaplitny: I am glad the government has gone to the extent of offering the amendments placed before us to-day. They do not satisfy all the demands. They go part of the way. As a matter of fact I had an amendment drawn up which I would have presented had I been given an opportunity. If as time develops we find that the amendments now proposed are not what they appear to be, we mar^ still have to present our amendment.
When the minister said in his speech that he was leaning over backward in order to be fair to the cooperatives there must have been something wrong somewhere. The cooperatives immediately and spontaneously rejected the proposal. In the brief time between the presentation of the budget and the present debate the government found it necessary to

change its policy. I know the acting Minister of Finance tried to make it appear that it was not a change in fundamental policy, but-


Douglas Charles Abbott: I did not try to give that impression at all. I said frankly that following the representations which had) been made we had decided to make these changes. I think there is one change which is certainly fundamental in character from the findings of the MoDougall commission report, that is the different treatment given to members and non-members. I do not want it said that I tried to make it appear that there was no change in policy.
'Mr. ZAPLITNY: Perhaps I was wrong, but that is the way it appeared to me. The acting minister apparently was not quite willing to accept the statement of the leader of the apposition that this was back-pedalling in policy.


Douglas Charles Abbott: I never like such terms as back-pedalling. I am always willing to change my mind when I hear representations which convince me that they are well founded.


Frederick Samuel Zaplitny: I congratulate the acting minister upon that attitude because I think that is the proper way to look at it. I think w'e should recall what were the objections of the cooperatives, in order that we may have a background upon which to decide whether the concessions made are sufficient to satisfy those objections. I should like to put on the record something which has been put on already in bits here and there. These are five objections to the proposals, made by the Manitoba federation of agriculture and cooperation, which I believe speaks at least for all the Manitoba cooperatives. From the telegrams and letters I have received from other provinces I think substantially the same objections have been taken there. I quote:
1.	Proposals ignore basic differences between cooperative and private business.
2.	They force cooperatives to treat members and non-members alike in respect to patronage dividends. This would eventually destroy cooperatives.
3.	Proposals prevent cooperatives from providing service at cost by forcing them to pay tax on three per cent of employed capital.
4.	They interfere with the right of the individual member to leave his earnings with his own cooperative by forcing payment in cash within six months.
5.	The proposals provide that the minister may in his discretion discriminate between cooperatives in the matter of retroactive taxation with the result that cooperatives do not yet mow their tax positions.
As I said, some of these objections have been overcome by the amendments, but taking the five objections as a whole I doubt whether if the cooperatives will acquiesce in what has

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been presented to-day. I do not think we should hold back on the demands that they have made. I should like to refer to one of the proposals which I think is ill-considered, that is the proposal to force-I do not know whether that word will be acceptable to the acting minister-the cooperatives to pay a profit of three per cent on the capital employed. I think I can establish what I have in mind.
Apart from the amount of money which will be involved, which I submit is a secondary consideration, the principle involved is that these cooperatives have organized on a cooperative basis; they have signified quite clearly that they do not believe in the opposite way of doing business, the private enterprise system. They organized their cooperatives to overcome the weaknesses in the other system and yet the government comes along and in effect says: You are going to become a good capitalist organization and like it. We are going to make you pay profits on the capital employed, or else you will be penalized for not doing it. This is a fundamental issue in this matter. Why should any government which prides itself on being a free enterprise government force any organization or any group of organizations to do business in a way in which they have signified they do not believe? The very fact that they have organized themselves into cooperatives shows that they have lost faith in the private enterprise system. Although this three per cent proposal ,is a small thing in itself, it serves to remind them that they are still living in a capitalist society and are to have capitalism shoved down their throats whether they like it or not. I object to that.
I believe there is room in a democratic society for all forms of enterprise. Whether we believe in one form or another is neither here nor there. At the present time there happens to be in office a government which believes in private enterprise. Well and good; but at the same time wye are living in a free economy, and we should permit cooperative associations to do business in the way they wish without interfering with their internal arrangements by saying: You must pay so much on the capital employed. I take strong objection to that, and I hope the proposal will be withdrawn before this discussion is over. The government seems to have overlooked the economic and social values of the cooperative movement as a whole.


Douglas Charles Abbott: Not at all.


Frederick Samuel Zaplitny: This is not altogether a question of dollars and cents; it is primarily a matter of principles and values. There are more values in society than dollars and cents.
Earlier to-day we did hear something about how success can be measured, but I do not think it can be measured by the wealth accumulated. The cooperative movement in this country should be the pet of the Minister of Finance. The Minister of Finance told us the other day that there is still a great danger of inflation. It is in the interests of all who want to ward off inflation to promote the growth of the cooperative movement.
I should like to give some figures to show how the cooperative movement would help in preventing inflation. Inflation is not caused only by surplus money, although that erroneous impression has been left upon the minds of the people. They have been told that when they have too much money there is danger of inflation, but there is another factor that enters into the picture besides the surplus money over the amount of goods available. There is the urge to raise prices. You can have an abundance of money and a shortage of goods, but if there is no urge to raise the price of each unit you will not have inflation. Under the private enterprise system there is the urge to raise prices at every opportunty, because prices reflect income and profit. I am not saying that that is immoral, because at the present time it is probably the natural reaction under the economic system that is now operating; but there is that motive.
If goods are in short supply and money is plentiful, those who have goods to sell and who are in position to set the prices of the goods they sell will raise their prices as high as they can by letting people bid against each other in order to create an inflated price. But with a cooperative movement the situation is different. In a cooperative organization the customer is also the owner, and there is no motive for him to raise the price which he himself has to pay. The motive is service at cost. It does not matter what shortages there are or how plentiful money is; there is no incentive for a cooperative to raise prices against itself. For that reason the cooperative movement has a stabilizing effect on our economy.
Here are the figures I said I would give. In Sweden it is admitted that the cooperatives have risen to great heights. They have been effective in reducing the prices of the following commodities: The price of margarine has been reduced by 59-2 per cent; flour, in spite of the fact that the price of wheat went up, went down 11 per cent; rubber footwear, 58-8 per cent; linoleum, 15 per cent; electric light bulbs, 37 per cent; gasoline 55-4 per cent-it is too bad we did not have cooperation on the prairies last fall in the gasoline business when the price of gasoline was increased by two cents a gallon.
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Mr. McCANN:: Over what period did these decreases take place?


Frederick Samuel Zaplitny: I have not the precise years. It was over a period of time. Silk fibre went down 50 per cent in price and superphosphates went down 15 per cent. That shows the effect which cooperatives can have on the whole economy if they organize to protect themselves from the high prices they would otherwise have to pay. I do not think the period has any particular bearing on this discussion, may I say in reply to the Minister of National Revenue. The fact that the cooperatives in Sweden have been able to reduce prices shows what a stabilizing effect they can have on the whole economy. For that reason I think the Minister of Finance should be very happy to do everything possible to promote the growth of cooperatives at this particular time.
Cooperatives have another economic value which is important, and that is in the prevention of the growth of monopolies and cartels. I have a clipping here from the Christian Science Monitor of July 17, 1946, in which certain figures which are illuminating are given in an editorial. It points out that fifty years ago there were 15,000 tobacco manufacturers; to-day there are less than 300. It goes on to say:
At the turn of the century there were nearly 700 iron and steel manufacturers; now there are fewer than 300. Manufacturers of lumber and lumber products numbered 28,000; now there are fewer than 12,000.
That shows the effect which monopolies have had on private business. The editorial goes on to say:
In another generation, unless the trend is reversed, there will be no opportunity for a businessman to enter any of the 100 or so basic industries in this country, except by the tolerance and patronage of the three or four companies controlling the entire industry.
If the government were to make a tax increase of two cents on the dollar everybody in the country would be up in arms, I am sure the minister will agree, but monopolies, through the very fact of controlling industries, can raise prices of commodities ten and fifteen per cent and, because we do not know just how and when it is done, we do nothing about it except complain. But the cooperatives do something about it. They do not just sit around and grouch. They organize themselves to give service at cost, and they prevent the growth of monopolies by giving the people of the community an opportunity to do business for themselves with themselves. That is an important function which the cooperative movement is performing.

I would urge those who express such great love for the free enterprise system, which to my mind began to die when capitalism was born, to do everything possible to preserve the cooperative movement and help it grow, be-eeause it is the surest way of giving everybody an opportunity to do business, whether it be called free enterprise or not. But if it gives everybody an equal opportunity and satisfies those who want free enterprise, I say they should support it.
I should like to quote from the Western Farm Leader, published in western Canada. In its issue of Friday, July 19, 1946, it gives some pretty strong advice to the government.


Douglas Charles Abbott: We get lots of that.


Frederick Samuel Zaplitny: It says in an editorial:
By their failure to take into account the special social significance of the cooperative movement, the proposals respecting the taxation of cooperatives made by Mr. Ilsley in his budget speech reveal the reactionary trend of government policy. These proposals, if enacted into law, would remove, in certain important respects, the differentiation between cooperatives and profit-making enterprises which those who recognize the social value of cooperation have always properly stressed.
That brings me to the next point, the social value of the cooperatives. I have pointed out their economic value. From the social angle everybody will admit that the cooperative movement has done more than any other single agency to bring people together. This country of ours, made up of so many types of people, has been suffering and to a degree is still suffering from national disunity. There have been prejudices and divisions which have tended to divide the people and set them against each other when they should have been working together. The cooperative movement has, in my experience and in the experience of others, tended to bring people together on a common ground on the basis of self-help and for the good of the community. People of various religious beliefs and racial origins have been able to get together and work for the common good in an organization such as their local cooperative. The value of that cannot be overemphasized. It has also the educational value of giving every member an opportunity to know something about his own business. We are often told in this house that we should not discuss certain matters because we know nothing about them. If that were to prevent members from speaking, this would be a silent chamber. I maintain that through the cooperatives people have learned more about their business and what makes the clock tick in our economic system than they could have learned in any other way, because they are the owners of

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the business, the customers, the management and everything else in their own organization. In that way they see every side of the question.
It has been asked, what is the attitude of labour on the taxation of cooperatives? There are, unfortunately those in Canada who would like to drive a wedge between organized labour and the organized farmer. Most of the cooperatives in this country are in the hands of organized farmers. I have checked the magazines and other publications of organized labour carefully, also the news letters they send out, and I find that almost invariably the labour unions of this country have come out in favour of the cooperative movement and are protesting against the budget proposals to tax cooperatives. That, to my mind, is heartening, because it shows that organized labour has recognized in its own way the value of the cooperative movement in Canada.
I would suggest to the government that if they want to save themselves a good deal of grief they should give an opportunity to the members of this house to study this question a little further and, if necessary, let the item stand over for another day. The committee should perhaps be given an opportunity to study the various amendments which have been prepared by different members. I understand that the leader of the opposition has an amendment and I have one myself, but we cannot move them so long as there is one before the committee. We cannot even discuss them because we would be out of order. I think it would be wise if these items were allowed to stand for further study in the light of all the proposed amendments rather than to try to carry on with just what the government has given us.
The last point I want to refer to is something which I do not particularly care to raise but which, under the circumstances, I am almost forced to mention. Listening the other day, and again to-day, to the leader of the opposition talking about the taxation of the cooperatives, I had to turn over in my mind and figure out just where the party which he leads actually stands on this question. I hope that he spoke for the whole group which he leads in this house, because it is commonly known that in the province of Manitoba the whole question of the taxation of cooperatives was started up and agitated by a gentleman who gives allegiance to the Progressive Conservative party and happens to be a Winnipeg member of the legislature. I refer, of course, to Mr. G. S. Thorvaldsen. I am not saying that, just because he happens to be a Progressive Conservative; all Progressive Conservatives are of the same opinion. I say that in order to clarify the matter, in order to make sure where we stand on this question, the leader of the opposition in this house-or someone else, if he wants to delegate to him that unpleasant job-


James Arthur Ross: Nothing unpleasant about it.


Frederick Samuel Zaplitny: should rise in his place and make dear the position of the party in relation to the stand taken by Mr. Thor-valdson. We have seen what has been done in the newspapers in the way of advertisements; we know of the issue of thousands of cards, signed in some cases by men who were not at the addresses given, urging us to tax the cooperatives. All that stemmed from the agitation started by the income tax payers' association. I am not objecting to the existence of the income tax payers' association. That is their business. They may have certain legitimate activities. But I say this-and I want to be very clear and plain on it-that I deplore the activities of that organization and of its leader, G. S. Thorvaldson, and the role they have played on this question. I do not think they have been fair. They have published much material which is questionable. In order that we may feel that the opposition, on this side at least, is united on the question, someone in the Progressive Conservative ranks should rise to-day and repudiate the stand made by the gentleman to whom I have referred.


Douglas Charles Abbott: May I say something in reply to the remarks made by the hon. member for Dauphin? I thank him for the objective and temperate presentation of his views; if he had not taken up the teaching profession he would have made a good lawyer.
I am not going to deal with the various points he has brought up concerning the desirability of cooperatives. Both the Minister of Finance and myself have tried to make it as clear as we could that the government is in favour of cooperatives and is not trying to discourage them; and on the last point he raised I think it is pretty obvious that we have not adopted the recommendations of the income tax payers' association.
The point I really want to make, however, is that it is difficult in drawing budget resolutions to be completely specific. The purpose of the resolutions is to indicate the broad, principle which the legislation to follow is intended to provide for and to permit a general discussion on those matters. Thus, when the specific legislation is brought before the house on second reading there may be criticism, and
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votes against, if you will, on the principle, and when the bill is in committee there may be discussion of the specific provisions themselves. The leader of the opposition suggested to-day that when he saw the specific text which it is intended to put into the law it would, of course, be easier to discuss the particular points involved; and I think the same point was made by the hon. member for Dauphin. I just-make that point because I do not want the committee to feel that, because the resolution is in pretty broad, general terms, it covers all the specific details which will be included in the legislation.
There is just one other point I want to deal with, which was raised by my hon. friend, and that is the question of this three per cent return on capital. I think the minister, in his address, tried to make it perfectly clear that this is not an attempt to force cooperatives to pay interest or dividends when they want to operate on some other basis. But a great many cooperatives do pay interest and pay dividends now; a great many cooperatives, probably all, have certain employed capital, and it was felt that the capital earns some reasonable return and that that, therefore, could not be looked upon as a return from patronage.
I do not know that I could put it any better than the minister did in his speech as reported in Hansard at page 2921.
After careful consideration, the government has, therefore, come to the conclusion that it should accept the commission's recommendation that patronage dividends and similar payments be treated as a deduction from income subject to one relatively minor limitation designed to avoid at least some of the discriminatory effects I have mentioned. The limitation is this: that no company or association shall be able to go so far in its distribution of tax-free patronage dividends as to reduce its taxable income below a reasonable return on capital employed in the business. This reasonable return will be defined as three per cent on the capital employed, including borrowed capital, less the interest paid by the company or association on borrowed capital that is allowed as an expense in the computation of the taxpayer's income. The principle underlying this rule is that amounts set aside out of taxable income to be distributed in proportion to patronage by a cooperative or company which does not pay at least three per cent on the capital employed in its business contain earnings which arise from the employment of capital and ought not to escape tax entirely. For many cooperatives which pay patronage dividends this modification of the commission's recommendation will have little or no effect, for they already recognize an obligation to pay interest or dividends equal to at least three per cent on capital or retain undistributed income on which tax will be payable. Share capital with a limited dividend and -with limitation of voting to one share per member rather than one vote per share was a characteristic feature of the plan of organization of the Rochdale Equitable Pioneers Society, the

real founders of the cooperative movement. Cooperatives of this character will usually be able to claim the full amount of their cash patronage dividends as a deductible allowance. Any cooperative which does not set aside as taxable reserves or pay as interest or dividends a total amount equal to three per cent of capital employed, will find itself subject to tax on a portion of the amount it had set aside out of its income to distribute on the basis of patronage.


Mr. FAIR:: Might I ask the minister at this point, is this a recommendation of the commission?


Douglas Charles Abbott: No, it is not a recommendation of the commission. As the minister pointed out in his speech and as I mentioned in my statement, in large measure the government has followed the recommendations of the commission, for obvious reasons, which I gave. The commission made a careful study of the whole question. But I do not think this matter was suggested to the commission. I cannot indicate what their views would have been had it been suggested; but I can hazard my view that, judging from the rest of the report, they would have seen the justice of it. My hon. friend is quite correct when he says that it was not recommended by the commission. On the other hand, the commission recommended that members and non-members would be treated1 the same, and that was the unanimous conclusion of the commission.


Robert Fair: Who suggested this three per cent proposition?


Douglas Charles Abbott: That was suggested by the Minister of Finance and his advisers, and it was felt, as the minister said in the opening part of his statement, that it was "a minor limitation designed to avoid at least some of the discriminatory effects I have mentioned". The whole intent and purpose of the government is to arrive at a solution which is fair- fair to cooperatives and fair to those who, for reasons of their own, do not operate under a cooperative sj'stem, such as the local storekeeper, and so on.
All we tried to do was to be fair. As I said earlier, this is a complex question. I myself feel that we should proceed for a while by trial and error.. In my judgment this is a decided step forward in the settlement of this vexed question. I agree with what the Minister of Finance said, that the findings of the commission and the legislation which is proposed constitute a real victory for the cooperative movement against those who may be opposed to it.

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Mr. STEWART (Winnipeg North):: What revenue does the government think will accrue to the treasury as a result of the taxation, of three per cent?


Douglas Charles Abbott: I am told that it is impossible to estimate what it will be, but it is bound to be small.


James Arthur Ross: First of all, in view of the remarks of the hon. member for Dauphin about capitalists, may I say that every member of the wheat pools, about whom he chiefly spoke, is a capitalist. There is not a farmer in Canada who can be defined by the dictionary or the encyclopaedia as anything but a capitalist. We should be clear on that before we proceed any farther.


Frederick Samuel Zaplitny: I was asked a while ago if I could define a cooperative. I now ask the hon. member if he can define a capitalist?


James Arthur Ross: I have looked it up in the dictionary and I have the definition typed out. I carried it around with me for a year for such occasions as this, but I have not it with me now. I can assure the hon. member that it is anything but a socialist, and I am not one of these.
As a free enterpriser I may say that I agree in great part with what the hon. member for Dauphin said. He gave five objections which were put forward by the Manitoba pool. That is where he got them. His first objection was that the proposals ignore the basic differences between cooperative and private business. His second objection was that they force cooperatives to treat members and non-meimbers alike with respect to patronage dividends, and he said that this would eventually destroy cooperatives. That was dealt with to-day by the Acting Minister of Finance. If I followed him correctly he said that provision is now being made in his department for differentiation between members and nonmembers, and that the non-members would be taxable. I think that clears up that objection.
Then there is still argument about the three per cent on the employed capital, and the minister has just made a statement on that. That was also mentioned in the objections of the hon. member for Dauphin. What the minister said about that matter to-day was confusing.
The fourth objection was that the proposals interfere with the right of the individual member to leave his earnings with his own cooperative by forcing payment in cash within six months. There should be an amendment to take care of that objection. An amendment was made to change that to twelve
months. In my opinion that does not actually change the .principle of the objection. The objection still remains.
The fifth objection is that the proposals provide that the minister may in his discretion discriminate between cooperatives in the matter of retroactive taxation with the result that cooperatives do not yet know their tax position. I raised objection to that when I spoke in the budget debate on July 10. The minister referred to the same objection to-day, and, as I understood him, he said that his department was now negotiating' particularly with the three western pools to try to come to a satisfactory settlement on that point. I sincerely trust that that will be done, because that is an important objection so far as the wheat pools are concerned, and I am particularly interested in those organizations.
May I say that if we were not discussing the budget resolutions I should have moved an amendment to No. 5 in the following terms:
That patronage dividends paid or allocated fm payment by the wheat pools or the united grain growers in years previous to 1946 be exempt from taxation.	.
I appreciate that the rules of the house do not permit me to move that amendment; it would not be in order because it deals with government revenues or expenditures.
Then there is another objection to the 1941 limitation. I do not think it should apply because there are many-


Douglas Charles Abbott: It has been removed to-day by the amendment.


James Arthur Ross: I am glad to hear that. Mr. Chairman, you will understand that it is difficult to follow and discuss this matter intelligently because of the way things have developed in the last few days. The minister's department has certainly been working long hours with the officials of these cooperatives, and the cooperatives have been getting somewhere in the last few days. It is difficult for us in the committee to keep abreast of all that is taking place. In that respect I trust that the resolution will not pass to-day, but that it be allowed to stand.
The hon. member for Dauphin raised some other points in regard to who were the friends of the pools in Canada. If our memory goes back to the early thirties when the wheat pools in Manitoba, Saskatchewan and Alberta found themselves in great difficulty we shall remember that if there is one man in Canada more than another deserving of a little credit it is the hon. gentleman who was premier of Manitoba and is now the leader of the official opposition. At that time he led a delegation
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of the three provincial governments of Manitoba, Saskatchewan and Alberta to Ottawa, along with other delegations, and he was successful in negotiating satisfactory financial arrangements to save these pools.


Alistair McLeod Stewart: And the banks.


James Arthur Ross: It is true that he had to work with the bankers and everybody else, but he had the courage and foresight to take action which saved these pools and cooperatives. I would not have mentioned this had it not been for the fact that the hon. member for Dauphin endeavoured to put some of us on the spot. If there is any one individual more than another in Canada deserving of credit it is the present leader of the opposition. History will accord him that credit.
As to what certain other hon. members may do, may I say that, living in a democracy as we are, we should respect the opinions of others. The president of the tax payers' association is a close friend of mine. We can be friends and be diametrically opposed to each other on certain matters. The fact that we are friends does not mean that we should agree on everything. Every individual should *be given a chance to express his opinions and be listened to, but that does not necessarily tie us in with his opinions, politically or in any other way. The president of the tax payers' association should have the right to express his individual opinion. He is probably as conscientious about what he is doing as I am about what I am doing on behalf of 'the cooperatives and the pools. I hope that answer is satisfactory to the hon. member for Dauphin who raised the matter.
There is much more that I should like to say at this time, but because of what has happened in the last few days and even in the last hour I think we should allow the resolution to stand over, probably after some further discussion, until we find out exactly what has happened. I wish to express my dis- [DOT] approval on these five points as heartily as I can, which were, first of all, the outcome of the budget which was presented on June 27.
I hope that everyone of these objections is resolved satisfactorily by the Acting Minister of Finance, since he is working on it to-day and has led us to believe that he is going to accomplish something.


Douglas Charles Abbott: On the suggestion that we should allow the resolution to Stand, may I say that if that were the decision of the committee I would be bound to accede to it; but I should like to say, as I said a moment ago, that on the points which my hon. friend Wishes to see solved I believe that the dis-

cussion could be more effective with the bill before us. I really believe that the proposed amendments which are not covered in the resolution, but which I have said will be included in the bill, do meet most of the objections. We have a very heavy programme ahead of us. If we were dealing with second reading of the bill or in committee on a particular section I would, of course, accede at once and allow the section to stand to enable hon. members to study the detailed provision. But since there will be fullest opportunity both on second reading of the bill when the principle will be discussed-we are not settling the principle of the bill to-day -and when the bill is in committee on the particular sections to give effect to this legislation, I suggest that the committee, after full discussion along whatever lines it desires, general principles or otherwise, should allow the resolution to pass and reserve further discussion for the bill and for the committee stage. I am perhaps influenced to some extent by my own personal position. I have such a heavy programme ahead of me-this matter will have a great deal of discussion, because it is an important one-that I urge that the discussion could be carried on to greater advantage and to greater effect if it were done with the specific measure before the committee. I would ask the committee to consider that aspect and see whether, after a full discusson of broad principles to-day, they could allow the resolutions to pass and permit me to have the bill introduced as soon as possible.


William Irvine: Mr. Chairman-


Alistair McLeod Stewart: May I ask a question?


William Irvine: Not if I can help it; I am not going to sit down again unless the chairman orders me to. I would not mind agreeing to the suggestion of the minister if I knew exactly what was going to be in the bill. The fact is, however, that if any attention is paid by a government to what is said in parliament, then this is the time for us to tell the government what we think ought to be in the bill.


Douglas Charles Abbott: I agree.


William Irvine: So that I hope we may be permitted at least to express our point of view. I did not speak on this question during the budget debate because, frankly speaking, I did not believe the government would go through with it. From my knowledge of the government and their ability to understand the temper of the Canadian people I felt perfectly certain that they would never carry this thing through. I hope they will not even

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carry it through to the extent they now indicate as their intention. As I now understand the situation, the government propose to amend their budget proposals in the following ways. First, instead of only six months being allowed in which to pay out patronage dividends without taxation, that period is extended to twelve months. I understand that is the first modification.


Douglas Charles Abbott: That is correct.
Mr. IB.VINK: The next is that non-members and members are not now to be compulsorily treated alike, but that any profits which may accrue to the organization because of the business done with non-members shall be taxed, which I think is a reasonable proposition. Further, if I understood the minister aright, the revolving fund is to be permitted to revolve without limitation.


Douglas Charles Abbott: That is correct.


William Irvine: Those are really quite
important modifications, and I want to congratulate the government upon having adopted them. I should like also to congratulate the leader of the opposition upon the part he has played in bringing the government to this viewpoint, because he did take a decided and courageous stand. I am glad to say this, because I do not want to take any kudos which properly should go to him or anyone else.
I am not speaking on this from the point of view of CjC.F. propaganda. I am speaking on it, first of all, because I am a believer in cooperation and am a member of cooperatives; and also because I have here a sheaf of long messages coming from a large number of organizations within the province of British Columbia asking me to present their viewpoint on these matters to this house. I am not going to weary hon. members by quoting these messages at length . They all oppose the things already abandoned by the government as well as the one particular thing that has not yet been abandoned to which I want to address myself in a few moments. However,
I should like to mention where these protests come from. I have one here from the directors of the Dawson Creek cooperative union.
I have another message from the British Columbia cooperative wholesale society; another from the associated growers of British Columbia; another from the fishermen's cooperative federation; another from the British Columbia cooperative union of Kelowna; another from the Fort St. John cooperative association; another from the president of the Beaver Lodge cooperative association; another from the British Columbia cooperative union of Vancouver; another from 63260-248
the Pemberton district cooperative association, and another from the secretary of the Cecil Lake cooperative organization. As I say, all these messages protest against the taxation of cooperatives and against some of the phases of the government proposals which the hon. gentleman who is now acting as Minister of Finance has indicated are being abandoned by the government. The proposal to tax cooperatives, however, still stands. I notice the velvety interpretation of the minister in respect to the provisions for a taxable amount equal to three per cent of the working capital of cooperatives; but, after all, it is still proposed to tax cooperatives. Am I right in that? If the minister says I am wrong-


Douglas Charles Abbott: That is correct, if they have an income.


William Irvine: The proposal is to tax cooperatives; and that proposal-


Douglas Charles Abbott: Only if they have an
income.


William Irvine: Naturally.


Douglas Charles Abbott: And by "income" I mean
taxable income.


William Irvine: Yes, if they have a taxable income; but the government proposal makes it certain that they will have a taxable income.


Douglas Charles Abbott: My hon. friend, as I understood, admitted a moment ago that it was quite proper to tax a cooperative on income received from non-member business.


William Irvine: Yes.


Douglas Charles Abbott: Therefore it is obvious
that he admits a cooperative has some income.


William Irvine: If that were all I still
would not want to make my speech, but I am afraid there is something more than that in it. I believe the government does intend to continue with the imposition of a tax on cooperatives. By so doing, they are going to affect vitally at least a million people in this country who are now directly concerned with cooperative enterprise in one or other of its activities. The cooperative movement in Canada has become in recent years a formidable movement indeed. To-day we have great fishermen's cooperatives on both the east and west coasts of this country. There are some splendid cooperatives among the farmers right across Canada; selling agencies dealing in all kinds of farm products, grain, live stock, dairy products and so forth. In' Quebec we have some great cooperative organizations, credit unions and other cooperatives that are gradually developing,



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and then, last but not least, we have a great cooperative movement which engages in buying and selling general merchandise for its members, these cooperative stores which go right across this country and which render splendid service to their members and to the communities in which they are located.
My interest in this is not merely because so far it has been a successful movement, but because I recognize in the cooperative movement an alternative to that jungle type of competition which has been associated in history with industrial and civil strife, and with war. I think it is true to say that the challenge which comes to the world to-day is for us to learn to cooperate, else we must face the fear of perishing. In this connection I wish to quote one paragraph from the Western Farm Leader. The editorial is entitled, "Turn the Clock Back," and states:
By their failure to take into account the special social significance of the cooperative movement the proposals respecting taxation of cooperatives made by Mr. Ilsley in his budget speech reveal the reactionary trend of government policy. These proposals if enacted into law would remove in certain important respects the differentiation between cooperatives and profit-making enterprises, which those who recognize the social value of cooperation have always properly stressed. The distinction has been clearly drawn in many lands. It is pretty late in the day for any government to deny it. That it should be denied is evidence of the very great influence wielded by the enemies of cooperation in high circles in our commercial life.
Incidentally, I would say that the main task which is facing our modern world to-day is to cultivate both the art and science of mutual help. That is the only alternative to the annihilation of the race. That annihilation is threatened through the continued practice of the art and science of competition.
The Canadian government professes, for example, to be anxious to consummate cooperative understanding between this nation and other nations of the world, with a view to world peace. Do we mean that? If we do, surely then it is unwise, to say the least, to propagate and maintain the art and science of competition in our domestic economy, while professing the very opposite ideology in international affairs.
If we continue to do that, we thus will be whitening the outside walls of the sepulchre, while we gather from the battlefield of competitive struggle in our domestic affairs the dry bones of greed and profit to be cherished as a national ideal.
The cooperative movement, despite the many almost insurmountable difficulties, has reached a point where it is now recognized as a real
[Mr Irvine.]
challenge to the ordinary type of enterprise which is conducted on the basis of competition. Because of that real challenge there has grown up in Canada what I am calling an anticooperative propaganda organization. That organization seeks at all times to undermine the foundations of the cooperative movement. That organization is supported by big business, and big business in supporting that organization is naturally out to protect its own particular private interests. That organization is known, as one of the speakers already has announced, as the income taxpayers' association.
Those of us in parliament know that association very well. We have been bombarded with its propaganda throughout this session. I have no hesitation in saying that its activities are behind the fact that the royal commission was called upon to find a way to tax cooperatives. That being so, it is certain that-
Douglas Charles Abbott: That is not correct. I should not interrupt my hon. friend, but I cannot allow that statement to pass, that the royal commission was set up to find a way to tax cooperatives.


William Irvine: I hope I shall not convey to the minister anything that is unfair. It is not my intention to do that.


Douglas Charles Abbott: I know that. I hesitate to interrupt the hon. member, but I could not allow that statement to remain unchallenged.


William Irvine: I am not applying that particularly to the government. I was applying that to the intention of those who sought the royal commission in order that they might find a way to tax cooperatives. I believe that before I have finished I shall show that such is true.
It is pertinent, I believe, for us to discuss and to examine the reference submitted to that commission in this connection. Contrary to the general impression, the commission was not charged to inquire into the question as to whether or not cooperatives were legally taxable; that is to say, whether cooperatives as an entity had taxable income. Rather the commission was appointed and charged with the task of finding a way to tax cooperatives.
Here are the actual words of the reference in that regard. The commission was to-
. . . report all facts which appear to them pertinent for determining what would he in the public interest

I think that should be in the private interest. -constitute a just, fair and equitable basis for the application of the Income War Tax Act and the Excess Profits Tax Act, 1940, to cooperatives.

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In other words, they were to find some practical way of applying the Income War Tax Act and the Excess Profits Tax Act to cooperatives.


Douglas Charles Abbott: It could, of course, have suggested complete exemption. The reference was broad in its terms.


William Irvine: The complete exemption was already suggested and incorporated in the law.


Douglas Charles Abbott: But it was not; that was the difficulty.


William Irvine: I should like to have discussed with the minister that little tricky word upon which the thing hinges, as to whether it is "like" or "unlike." But I am not going to take up the time of the committee in that discussion., although I think this is one of the most illuminating sections of the commission's report. At any rate, in my opinion the commission was appointed-I will put it in that way-to find the most inoffensive way possible of taxing cooperatives. Naturally the commission would be there to cushion some of the expected criticisms which would follow any such proposal.
I suggest that it would have been more in keeping with the nature of cooperatives, as well as evidence of more competent 'statesmanship in our time, had the commission been charged to report all facts which appeared to them pertinent for determining why cooperatives as non-profit seeking and non-profit making bodies should not be subject to any sort of profits tax whatsoever.
It is significant that neither the commission nor the minister defined "cooperative." A true cooperative has no profit; therefore it cannot be subject to profits tax. I say a true cooperative has no profits, and that is true, except ini respect of non-member business, which is very difficult to avoid in some small degree if those who persist in remaining nonmembers will also persist in buying through the cooperatives. Of course the cooperatives want that business, and want those people to be members. If they become members they get all the share that the others get of the patronage dividends which accrue from their-common cooperative effort.
It is possible, of course, for profit-making corporations to masquerade as cooperatives and thus try to escape the legitimate profits tax which they should bear. But that very fact is one of the main reasons why the commission should have defined definitely what a cooperative is.
Because of its failure really to investigate cooperatives, to see whether or not they had taxable income in the legal sense, the corn-63260-248J
mission proceeded to ignore the very purpose for which cooperatives exist-and it said so. Quoting from page 9 of the report, we find:
In our view the purpose or the alleged purpose of the association is irrelevant.
In other words, the commission ruled as being irrelevant the subject committed to them, which was at least the alleged reason for the commission's existence. The definition of "income" as set forth in the Income War Tax Act is quoted in such a way as to put private corporations which operate for a profit and cooperatives which operate to give service at cost on exactly the same footing. The commission's finding in this connection was:
It is our unhesitating opinion that the association and its members as a result of the trading venture which they undertake do make a profit.
There is a vast difference between the opinion of the commission and the facts of the case. I would say at once that any association which makes a profit is not a cooperative to the extent that it does make a profit, and such an association should not be taxed on a profit basis like a private corporation. A true cooperative does not make a profit and therefore should not be taxable. Here is as simple and clear an example as I can give.
The head of a family spends $800 a year in buying groceries and general supplies for his family. He finds that a little too much and decides to join a cooperative in the hope that he will not have to pay out so much. At the end of a year, after joining the cooperative, he finds that he has still paid out $800 for groceries and supplies because the cooperative has sold at the same prices as anybody else. However, he finds that through his cooperative effort there is $100 coming to him as a patronage dividend. He has been buying goods from himself, so that $100 is not profits.


Douglas Charles Abbott: The proposed legislation
recognizes that.


William Irvine: As I shall show the minister in a minute it does not recognize it yet, but I hope it will before it is finally passed. To follow my example, the man paid into the cooperative out of his own income. It might be said that the $100 are savings from his cooperative transactions, but they cannot be regarded as being income either of his own or of the association in any intelligent sense of that term.
The members of a cooperative do not make their income from the cooperative; they spend their income in the cooperative, which is a great difference. Members of a cooperative make their incomes from farming, from fishing, or from whatever task they may
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perform or service they may render to the community. Their income does not come from the cooperative, it comes from the calling in which they spend1 their efforts. Farmers and fishermen receive their income from the farm products they produce and the fish they catch, and the workers' income is in the form of wages. All these people are subject to income tax on their personal income, and that personal income is the only income the cooperative knows anything about.
Strange as it may seem, this same royal commission found that patronage dividends, which, of course, represent the property of the individual members of the cooperative, which property the cooperative is obliged to return to the members and which is not taxable if paid out to the members within six months, were not taxable. However, the government now proposes legislation which will tax those dividends. It is the patronage dividends which will go to make up the three per cent of working capital, because there is no place else for it to come from. The commission says that those patronage dividends should not be taxable, but the government ignores that recommendation. I want the minister to centre his thought upon that point. The three per cent of working capital which will be the basis of the taxation of cooperatives must be made up of patronage dividends which, according to the commission's report, should not be taxable. I want to emphasize that to impose taxation in that way is to go contrary to the finding of the commission with respect to patronage dividends. This legislation is considering that portion of the individual members property which goes to make up the three per cent of the working capital of the cooperative, as profits, which it is not. It has only been lent for the moment to the cooperative by the individual member.
There are other features of the original budget provisions which are objectionable on several grounds. I think the minister has satisfied us that he is going to alter these things and1 I shall not comment upon them at the moment. I am assuming that the twelve months' provision in place of the six months will be lengthened ultimately, and that the revolving fund will be permitted to revolve as it should and as is necessary for the operation of the cooperatives. I shall leave all these and proceed to deal with the taxing of the three per cent. The minister has said1 that the government had no intention of taxing cooperatives.


Douglas Charles Abbott: I do not think he said that.
[Mr Irvine.]


William Irvine: I meant to say that the minister indicated that the government had no intention to obstruct the development of cooperatives.


Douglas Charles Abbott: Which is just the contrary.


William Irvine: The Minister of Finance made similar statements in his budget speech. He was quite emphatic about anyone thinking the government had any intention of harming the cooperatives. I would do as the royal commission did and rule that the minister's intentions were irrelevant because of the action taken by the government. That is the real answer, and their action shows their intention. Here is what the minister said, as reported at page 3592 of Hansard,'.
The commission said that this rule should apply throughout, that any body corporate, cooperative or otherwise, which paid out on the basis of patronage to its members should be entitled to deduct that from its income for taxation purposes. In that way it has the appearance of fairness.
The fact is, of course, that when you make a recommendation of that kind you are making a recommendation which benefits cooperatives but which really does not benefit to any substantial degree their competitors, private business. The great range of private business in Canada cannot practically pay out part of their profits on the basis of patronage.
So what the minister regards as fairness is to try to prevent the cooperatives from entirely swallowing up private enterprise.


Douglas Charles Abbott: Why not?


William Irvine: Why keep the bally thing alive if it is not functioning in the best interests of the common people? If it cannot stand up and carry out its own philosophy in competing with cooperatives, it ought to go out of business.


Douglas Charles Abbott: Compete on fair terms, yes.


William Irvine: What right has it to expect the protection of this house and parliament before it can function?
In order to show that we are not the only people who thought this would affect cooperatives, may I quote fairly extensively from the Financial Post of July 13 last. Here is what it says:
Mushroom expansion of the big cooperatives at the expense of tax-paying private competitors and the federal treasury should be halted by the new budget proposals.
There is a lie in that and there is truth in it. It is true that the cooperatives have expanded in recent years in almost mushroom fashion. It is not true to say that they have expanded at the expense of tax-paying corporations, for the members of the cooperatives pay taxes just as well as the corporations do.

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It goes on:
Through untaxed patronage dividends, cooperatives will still be able to return to members the big bulk of their profits, but from now on these profits will have to be paid back promptly as earned. Previously, as a rule, they were merely allocated to members, but actually held by the cooperative for buying out competitors and for working capital. Now, to qualify for tax exemption, they must be paid to members within a few months of being earned.
It goes on:
One of the main complaints of the sorely pressed private competitors of the cooperatives has been the enormous expansion of the latter through these untaxed and unpaid profits. While the great bulk of the private companies' profits were taken away in taxes, the untaxed co-ops enjoyed a tremendous double advantage. Not only were their profits exempt from taxation, but there was no hurry about returning them to members. Under an ingenious "revolving door" plan these profits were retained in the co-op treasury for varying periods up to seven years and usually at no interest.
That, thank heaven, is being removed. The writer goes on to tell with considerable glee that the cooperatives are going to be caught within another pair of pincers. He says:
Finance Minister Ilsley's new budget pro-losals, it is believed here, will end this era of iree and almost unlimited capital for the co-ops and will permit private competitors, if they wish, to meet the competition of paying untaxed patronage dividends to grain and other shippers.
Here is the next point, and this is the only point that is left:
For the private company shareholders, not to be confused with patrons or shippers who get the patronage dividends, there is also a little comfort in Mr. Ilsley's new proposals. Private companies have complained that payment of unlimited tax-free patronage dividends would allow a cooperative to return every bit of profit to shippers and if they were forced to meet this competition, there would be nothing left for the shareholders who subscribed the original capital. In other words, cooperatives could operate at no profit and private companies would have to do the same or lose all the business.
Mr. Usley now stipulates that no company or association shall be able to go so far in its distribution of tax-free patronage dividends as to reduce its taxable income below a reasonable return on capital employed.
That is the point upon which all discussion must hinge from now on. The minister has wiped out all other objections, and this is the only one remaining. I am arguing now that this is the moment to wipe this one out, but if the minister would like to have another day or two to consider it, all right. But this is the one that should be wiped out, not that it would mean a very great deal in taxation at the moment, but I regard it as the thin end of the wedge which will raise the cooperative movement off its foundations and tend toward its collapse. This is the beginning. I suppose
that this worthy tax payers' association which has been spending so much of its members'
. profits in trying to undermine the cooperatives in the last few years will be perfectly satisfied if it can get away with this much in the budget because it will represent the beginning.
Let me point out something to the minister which has perhaps escaped him. I want him to realize that the cooperative movement is not only a unit that operates in a community, but operates provincially and interprovincially. First, you have a local cooperative which serves the immediate community. That cooperative is affiliated with a provincial cooperative, and that provincial cooperative is affiliated with an interprovincial cooperative. Veiy well. Then as I understand this budget proposal, each one of them will have to set aside three per cent of its working capital and each one of them will be taxable. But it is likely that the capital would come from one source, largely from the local unit. They set aside three per cent of their capital and are taxed thirty per cent on that. Then it may be necessary to send that capital into the provincial organization, and the same demand is made there; again it is taxed another thirty per cent. Then the capital is sent to the interprovincial organization and taxed another thirty per cent. If this is not to be done I should like the minister to make that clear. If only one unit is to be taxed, the law would have to say which unit it is to be, or whether it is all three or none of them. As it stands now, each one of them is a cooperative, and each one of them must set aside a sum equal to three per cent of its capital, according to this proposal. Then it is taxable thirty per cent. It is true that the funds of the local unit have to be sent to its central provincial office to meet the demands there, and again it often has to be sent to the interprovincial office, so that it is important to have that point cleared up.
I have almost exhausted1 my time, Mr. Chairman. I shall have much more to say on this later, if the government does not consider the complete removal of this tax before it brings down its final legislation. I shall content myself now with pleading with the government to be as wise in consideration of the one remaining fragment of the proposal as it has been with respect to the others, and, if it is, not only will it do a great service to the cooperatives and thereby to this nation, it will indeed do a great service to itself.


Mr. QUELCH:: I was absent from the chamber in a committee meeting at the time the minister made his proposals or the con-
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cessions which he has made, so that I am not any too sure of them, but I listened to the listing of them by the hon. member for Cariboo. It is perhaps a pity that the minister did not wait to make that statement until the end of the debate to-day, because a number of speeches had been prepared on the old formula. Therefore these members, had they made these speeches, would have been able to pat themselves on the back and feel that the concessions were made as a result of their representations. The minister has taken that joy away from them.
I want to make just a few remarks and ask one or two questions to clarify the budget resolutions in my own mind. I studied at some length the report of the royal commission; and, generally speaking, I thought the recommendations were sound and fair, fair both to the cooperative and to those people who consider themselves to be competitors of the cooperatives. The recommendations, I believe, generally speaking, received fair support from the cooperatives, at least far better support from the cooperatives than they did from the people who opposed them. I understand that the report was unanimous, and I think that is quite an achievement in view of the fact that one of the members of the commission was Mr. Arnason, who is, I understand, the deputy minister of cooperation in the government of Saskatchewan.
Whilst supporting, generally speaking, the recommendations of the royal commission, I did very much deplore the fact that the government had departed in several respects from the recommendations, and in every case where they had1 done so the departure was in favour of the opponents of the cooperatives rather than of the cooperatives themselves. I have received from my constituency quite a large number of telegrams, sent on behalf of several thousand people. The main points raised in these telegrams are as follows. First of all, they resented the fact that the government was proposing to treat members and non-members alike. I understand that that has been straightened out-


Douglas Charles Abbott: Right.


Victor Quelch: -and that the amount of patronage dividends which would have been distributed to non-members will now be taxable. I think that is quite just, because it means that the members would1 profit on the business of non-members, to which I do not think anybody can take exception.
Then, they charge that the proposals are a serious threat to the expansion of co-

operatives and will prevent the use of the revolving fund. Am I to understand that this has -also been taken care of?


Douglas Charles Abbott: Any net additions to the revolving fund are taxable, but the revolving fund continues to revolve.


Victor Quelch: Then, they protest the proposal to levy a tax on an amount equal to three per cent of the capital employed less interest thereon. I think that is, generally speaking, the provision, and I understand that that has not been wiped out. That, I think, is the main complaint, and I still cannot follow the minister's argument in trying to justify that being done, because, after all, this capital is the capital of the person who put it in; he paid income tax when he put it in, and he is going to pay income tax on any patronage dividends paid on that capital.


Douglas Charles Abbott: No. If dividends are paid on that capital that can be set off against the three per cent, if my hon. friend understands me.


Victor Quelch: No. I am not talking
about a cooperative having to pay an income tax on a patronage dividend; but the recipient of the patronage dividend will have to pay an income tax on that dividend if it is from a producer cooperative?


Douglas Charles Abbott: Right.


Victor Quelch: If it is from a consumer cooperative he will not?


Douglas Charles Abbott: That is right.


Victor Quelch: No tax as far as the consumer cooperative is concerned?


Douglas Charles Abbott: So I am advised.


Victor Quelch: The only justification for the three per cent tax will be where the three per cent on capital represents business done with non-members. I mean to say, if the amount of the patronage dividend due but not paid to non-members is equal to three per cent, I do not think there can be any objection, because they will have to pay a tax on the dividends which have been paid to non-members, and therefore, if the grand total of that equals three per cent on capital, there will be no objection to that three per cent being taken. In many cases however, the non-members will be so few that the amount of their patronage dividends will not be equal to three per cent of the capital employed, but if there are a large number of non-members the amount of the dividends would be, or might be, more than three per cent of the capital employed.

Gold Mining


Douglas Charles Abbott: Of course, if dividends are
paid to non-members-there is no obligation to pay them-they may be deducted from the gross income in just the same way as patronage dividends declared to members. In the case of the three per cent to which my hon. friend is referring, it is based on the assumption that the capital employed in the business earns a reasonable return, and that that return is not derived, in the case of the producer cooperative from the marketing of the primary products; in the case of the consumer cooperative, from the purchases made by the members of the cooperatives; but that the capital employed has actually earned a reasonable return, which it is suggested here should be three per cent, and that that should be considered as taxable income if the organization has not paid the equivalent of that amount to either shareholders who have shares in the form of dividends, or to lenders who have lent them money at a rate sufficient to absorb interest equivalent to three per cent on capital employed. That is all the provision is intended to accomplish. I do not know whether I have made myself clear. I should have added-or if it retains reserves which are subject to tax equivalent to that amount.
At six o'clock the speaker resumed the chair and the house took recess.
After Recess
The house resumed at eight o'clock.



GOLD MINING


Douglas Charles Abbott: Mr. Speaker-


William Ross Macdonald: With the unanimous consent the minister may make a statement.


Douglas Charles Abbott: With the permission of the house, I wish to make a statement on the subject of gold mining. Since the restoration of the Canadian dollar to parity with the United States dollar, various suggestions have been made in this house for government action on behalf of this industry and the Minister of Finance (Mr. Usley) and myself have received a number of suggestions and recommendations from persons and organizations outside the house. In this field where the possibilities of speculative profit or loss are so important we have so far, of course, given no indication or hint of what the government might do. However, I am now
in a position to state the results of the government's consideration of the various suggestions which have been made and of others which have occurred to us, and I now wish to announce them in this public statement so that all may have an equal opportunity to learn about them at the same time.
It is the case that one effect of the government's action in altering the exchange rate is that Canadian gold producers will receive approximately $35 instead of approximately $38.50 per ounce, Canadian funds. The change in the exchange rate has, of course, other effects bearing on the position of this industry. For example, this action will help to keep the cost of mining gold in Canada from rising, just as our whole stabilization programme has been protecting us from an undue rise in costs and prices during the past five years. Indeed, as the minister pointed out in his statement of July 5, the alternative to changing the exchange rate was to allow ' economic forces to work out an increase in our price and cost structure, more or less to the United States level plus ten per cent.
Four types of action have been suggested and the government has naturally given the most careful consideration to all of them. To deal first with the simplest and least important suggestion, it has been pointed out that the mint is making a charge for handling and marketing gold that exceeds the mint's out-of-pocket costs of performing the service. After considering this matter, we have come to the conclusion that we can reasonably reduce our handling charge from thirty-five cents an ounce to twenty cents an ounce, and the necessary instructions are being given to the mint to do so without delay.
The second matter is much more important and difficult. We have been requested to grant export licences for gold freely in order to permit our gold producers, and perhaps others in Canada, to sell gold to other countries at prices above $35 an ounce, which is the standard price of gold for monetary purposes. It is claimed that there are persons in various countries-India, Egypt, Greece, Mexico, Cuba and Argentina have been mentioned-willing to pay substantially higher prices for gold. As yet, no one has put forward specific proposals involving sales abroad which would be legal and for which United States dollars or equivalent foreign exchange could be obtained, although it is possible that some few opportunities of this kind might be found. We have made inquiries and we find that these alleged high prices are, generally speaking, expressed in terms of inconvertible paper currencies and that even if sales were effected at these prices it would be impossible to convert the proceeds
Gold Mining

into Canadian dollars. Our inquiries show there are very few, if any, markets where our gold could be legally sold at more than $35 per ounce for United States dollars or currency that could be converted into United States dollars. There are some private gold transactions taking place at premium prices in certain parts of the east, but most or all of the countries concerned are in the sterling area. We could not justify accepting payment in sterling for our gold1 production, and these countries would not be prepared to pay us in United States dollars, as they need their dollars for imports very much more essential than gold to be used merely for private hoarding. In regard to Mexico, the fact is that the Mexican government (or its central bank) buys from its own gold producers on the basis of $35 an ounce and itself obtains whatever profit can be made from sales above that price. Mexico is still exporting a good1 deal of gold at the standard price. Any imports of gold from Canada would require a licence and licences would not be granted unless the central bank itself wanted gold, for which it would pay on the basis of the standard price. In Argentina there is, apparently, a small free market for gold coins which are relatively scarce these days, but not for bullion. On the basis, therefore, of the information we have been able to obtain we have come to the conclusion that the vision of export markets at high prices is largely a will-o'-the-wisp and that no significant amount of Canadian gold could be legally sold abroad at premium prices unless payment were taken in an inconvertible local currency, which would be of no use to the Canadian seller.
Moreover, if we as one of the major producers of gold were to allow Canadian gold production to flow to these private markets, we would have to expect others to follow our example. If the output of American, South African and Australian mines as well as of our mines were allowed to flow to these private markets, how long would the price stay up-and, indeed, what country in which a premium price now prevails could afford the foreign exchange to permit the flow to continue? It is clear that a premium market for gold could not be expected for any sizeable quantity or for any considerable length of time. Competition would quickly bring the price down to the standard price. Indeed, the main reason why there are any prices above $35 an ounce is simply that there are restrictions outside of Canada on the export or import of gold or on securing foreign exchange to pay for it.
In any event, whether or not there are private hoarders willing and able legally to 
buy our gold for dollars above the standard price, we are convinced that we can best assure a satisfactory long-run market for our gold by avoiding these speculative export markets and continuing to regard gold as an international money, used for settling balances between countries. It is this fundamental, and quite sensible, use of gold which really gives it its value and which assures a steady, unlimited market for it at an established price. We believe that for us to go shipping our gold off to private hoarders and speculators in various hole-and-corner markets of the world might, over the long run, prejudice the position of gold for international monetary purposes and the various national and international arrangements affecting it. I think we would all agree that it would not be in the best interests of the gold mining industry to take any action which might endanger what must in any case be the major market for our gold and the underlying support of its price.
For the reasons I have given, we are not prepared to grant licences for the private export of gold, except in the normal types of circumstances where licences have been granted in recent years, for example, for the export of ores which require smelting before refining.
We have also been asked about the sale of gold within Canada. Under an understanding reached a number of years ago, the gold mines, with the exception of a few mines the ores of which require treatment by smelting before they can be refined by the mint, have been selling all their gold to the mint. This arrangement we believe is desirable and should be continued. We see no reason to encourage the private hoarding of gold. It would serve no useful purpose, but would, on the contrary, reduce the amounts available for the only sensible non-industrial use of gold, namely, the settlement of international balances. Moreover, the industry itself would suffer if the existence of a Canadian gold market were to make it easier for highgraders to carry on their illegal operations.
I come now to the fourth suggestion, which relates to the depletion allowance for gold mining companies and the shareholders of such companies. It has been recommended by various persons and organizations in the mining industry that the present depletion allowances of 33^ per cent to the corporation and 20 per cent to the individual shareholder should be increased to 50 per cent in each case. The principal argument advanced by those who advocate creating this large segment of tax-free income is simply that the gold mining industry has not continued to expand as rapidly as they think desirable, that few successful new mines have been found in recent years,

Gold Mining
that consequently taxation must be to blame and that we should, therefore, reduce tax liability in this way in order to create highly attractive prizes that would tempt new capital and enterprise into this hazardous but important field.
The difficulty with this type of approach is that it would give relief where it is not needed and no effective relief where it is needed. It would increase substantially the non-taxed income of the more profitable mines but it would be of no help at all or very little help to the marginal mines. Already under the present law successful mining companies are able to get a return of, and an adequate return on, their capital invested in resources that are subject to depletion without the return of capital being subject to tax, and the shareholders of these companies receive a portion of their dividends tax-free, as it is deemed to be return of their capital. To increase to 50 per cent the depletion allowance for these highly successful enterprises where the company and shareholders are already receiving, or have already received, their capital back tax-free, would be to single out certain incomes-many of them quite high incomes-for particularly favourable treatment that would seem impossible to justify on any grounds of logic or equity. If a subsidy for gold mining were really needed and desirable in the country's interest, it should be possible to devise a more equitable and effective subsidization plan than one which gives most to those who need it least. The government, therefore, finds itself unable to accept this recommendation.
However, it has canvassed the possibility of modifying the arrangements relating to depletion allowances in such a way as to benefit marginal mines, those which by reason of low grade ore or insufficient ore or high cost of production make small profits or are likely to make profits for only a short period. Under the present arrangements such mines may not get all their depletable capital back through the allowance because their profits are too small or the working life of the mine too short to return as depletion the total capital amount involved. It is these marginal mines which have the best case for some change in the depletion allowance, although I should mention, in passing, that of course they will also benefit most from the holding down of costs which the new exchange rate makes possible.
In view of all the circumstances, the government has decided to modify as a temporary measure its present formula for the determination of depletion allowances in respect of gold mining companies in such a way as to assure a minimum depletion allowance of two dollars per ounce of gold produced. In other words, 63260-249
a company engaged in the mining of gold will in respect of its first two fiscal years ending after June 30, 1946, be allowed the option of accepting as depletion either 33j per cent of net profits or $2 per ounce of gold produced, whichever is the greater. This will be of assistance to the marginal mines which really need assistance, but will not benefit the highly profitable mines which already do well on the present depletion formula.
Before concluding these remarks I wish to announce an additional measure which relates to the budget proposals of this year and which should be of encouragement to the whole mining industry. The house will recall that in the recent budget the Minister of Finance proposed that new mines coming into production after January 1, 1947, would pay only half rate corporation income tax on their profits of the first three years of production. When this resolution is before committee an amendment will be moved to change this provision for a half rate to complete exemption. This should give further encouragement to prospecting for and development of new properties and tend to offset to some extent the effect in this connection of the lowered proceeds or export sales of gold and other metals.


Mr. ADAMSON:: Since I believe the statement by the minister is the direct result of a speech I made in this house advocating free gold, or the establishment of a free gold market-


Douglas Charles Abbott: Others had thought of it.


Agar Rodney Adamson: Yes, but I was the first to advocate it in this house, and I should like an opportunity to say a few words on the proposals of the minister.


Douglas Charles Abbott: I do not want to interrupt my hon. friend, but he will appreciate that this is a statement and there is nothing before the house on it; it is not debatable. As soon as we call the item in the budget resolutions dealing with the mining industry, an opportunity will be afforded for discussion. I question whether we should permit a general debate on the gold mining industry now.


William Ross Macdonald: The statement by the minister was made with the unanimous consent of the house and is not debatable. I suppose any remarks made now would also have to be by unanimous consent.


John Bracken: With all respect to your ruling, Mr. Speaker, in view of the fact that the Acting Minister of Finance has made this statement of which we had no notice, and since there is a budget resolution dealing with

Gold Mining

the matter, I should think the acting minister would be meeting the wishes of this house if now he would bring in that resolution and permit this discussion to go on. It is very unfair to the house for the minister, at a time like this, to come in with such a pronouncement, and fall back on the rules to deny us an opportunity of discussing it.


Douglas Charles Abbott: I would have no objection whatever to that. I should think some hon. members might like an opportunity to consider the statement and discuss it later; but if the house wishes, later on when we get into committee on the budget resolutions I shall be glad to have one of those resolutions called. My only point in rising was to suggest that it is common practice for ministers to make statements on important matters of public policy when Mr. Speaker is in the chair. The house will realize that this is a matter which, if announced in advance, would have afforded opportunities for speculative profit. Therefore I felt the statement should be made at eight o'clock in the evening after the markets were closed and so on, as was done in connection with the budget speech. I have no desire to curtail discussion on the matter, and if the house desires when we get into committee I shall have one of the resolutions relating to mining called.


Angus MacInnis: Before you decide on
this point, Mr. Speaker, I think the Acting Minister of Finance has suggested the proper course. That was a very long statement, and many of us-the lesser minds-in the house could not take it all in. We had better have the debate at the beginning of the week, after we have had time to consider the statement over the week-end, so that we may be able to discuss it intelligently next time it comes up.


William Ross Macdonald: Private and
public bills!



PRIVATE BILLS


[Stage Direction]
Bill No. 246, respecting the Canadian Indemnity Company.-Mr. Maybank.	_	_
Bill No. 247, respecting the Canadian Fire Insurance Company.-Mr. Maybank.


Mr. D. G. ROSS (St. Paul's):: Mr. Speaker, I rise on a point of order. This matter of ministers reading statements in the house without the consent of the house is growing too much.


William Ross Macdonald: Order.


Douglas Gooderham Ross: On a point of order-


William Ross Macdonald: There can be no point of order at this time. The hon. member should have raised the point of order before. I might inform him that shortly before he came into the chamber the Acting Minister of Finance (Mr. Abbott) asked and obtained the permission of the house.


Douglas Gooderham Ross: I should like to ask Mr. Speaker a question. Did Mr. Speaker put the question before the house requesting unanimous consent?


An hon. MEMBER:: Yes.


Some hon. MEMBERS:: Order.



REPORT OF COMMITTEE

[Stage Direction]
Twenty-fifth and final report of special committee on veterans affairs-Mr. Tucker.


[Stage Direction]
The house in committee of ways and means, Mr. Golding in the chair.
12. That for the .1947 and subsequent taxation years, the provision exempting the income of certain cooperative companies and associations be repealed and that for the 1946 and subsequent taxation years provision be made that there may be deducted from a taxpayer's income the aggregate of the payments made,
(a)	in the taxation year or within six months thereafter to his customers of the taxation year; and
(b)	in the taxation year to his customers of a previous taxation year after the 1941 taxation year and not previously deducted under paragraph (a)
in respect of specified allocations in proportion to patronage for the said years the prospect of which was held forth
(c)	by the statute or bylaws under which the taxpayer carries on business or by his contracts with his customers, or
(d)	by the taxpayer in a specified manner prior to the commencement of the taxation year except that portion of such payments as would if deducted leave the taxpayer with an income less than an amount determined by deducting from three per cent of the capital employed in the business, including therein borrowed moneys, the interest paid by the taxpayer on borrowed moneys and deductible as an expense in computing his income.
Douglas Charles Abbott: I will repeat what I said when Mr. Speaker was in the chair. I am in the hands of the committee. If there is a desire to discuss the statement which I made this evening with respect to the gold mining industry, I shall be glad to let resolution 12 stand and call resolution 30. As I said before,

Income War Tax
perhaps hon. members would like to consider the statement and 1 can call it early next week.


The ACTING CHAIRMAN (Mr. Golding) :: Before we proceed to make that change, I think the hon. member for Acadia should be permitted1 to finish his speech. I think I should put the amendment to the committee. I have read ithe amendment but I think I should now ask all those in favour of the amendment to say "aye."


Mr. STIRLING:: What amendment?


William Henry Golding: The amendment moved by the minister when we came to resolution 12.


Douglas Charles Abbott: I do not want to insist that the amendment be put, because probably a good many hon. members would like to speak to the amendment. The hon. member for Acadia was speaking when the committee rose at six o'clock. The amendment had been read and, if the committee cares to proceed in the same way, that is quite satisfactory so far as I am concerned.


Victor Quelch: When the committee rose at six o'clock I was suggesting that if the volume of non-member business was large and patronage dividends were not paid out and were therefore taxable, the three per :ent proviso would have little or no effect lpon that particular cooperative. However, I ;hink the minister will agree that that would lot be a healthy state of affairs for a cooperative, and we should not encourage any such action which would tend to nullify the education work being done by cooperatives.
Just when does a customer become a member of a cooperative and when would the dividend be taxable or not taxable? The reason I ask that question is that there is a general practice among cooperatives to apply the amount of the dividend which would be paid to a non-member to his membership fee. I should like to quote from a letter sent out by one of the prominent cooperatives in the west to illustrate this practice, and in doing so I will not give the name of the cooperative. The letter reads:
Our records for the fiscal year ending October 31. 1945, show that you have done $81.65 worth of business. The rate of dividend has been set at four per cent, so that the amount of patronage dividend due you on your business is $3.27.
As has been the practice in previous years only paid-up members are entitled to receive dividends. All those doing business with us and wishing to receive dividends are being made permanent members. Fee for permanent membership is $5. Our records show there is $4.75 due on your permanent membership fee. This amount will be deducted from dividends.
When does that individual become a member? Would it be at the time the twenty-five cents was credited against his membership fee, or would he have to wait until the full membership was paid?


Douglas Charles Abbott: I think that would depend upon the by-laws of the cooperative. As my hon. friend knows, a patronage dividend, whether paid to a member or a non-member, is deductible from gross income. There is no difference as to the tax-exempt feature, if I may use that term, of the patronage dividend, whether it is paid to a member or a nonmember. I think the question of when a man would become a member of a cooperative would depend upon the by-laws or other internal regulations of the cooperatives.


Victor Quelch: I was thinking that if a dividend is credited against dues of a nonmember, then the association would be taxable.


Douglas Charles Abbott: It would not be taxable; there is no difference.


Victor Quelch: It was suggested this afternoon that the three per cent proviso is really the only objectionable feature left, but personally I am not so sure about that. The three per cent proviso is certainly a bad one. I say that because the government is trying by legislation to define a cooperative as a profitmaking institution. I consider it a vicious practice to define it as a profit-making institution. The minister shakes his head, but that is what it amounts to.
The point I disagree with most of all is in relation to the revolving fund. The majority of telegrams that I have received have referred to the revolving fund. I will quote one:
Budget proposals constitute serious threat to expansion of cooperatives. Taxing of revolving dividends will impede growth.
The minister, in his reply this afternoon, stated, and I got this from Hansard to make sure I have it right:
Any net additions to the revolving fund are taxable but the revolving fund continues to revolve.
He ended there. He might have added, until it is exhausted. The revolving fund accumulated in the past will not be taxed, but any additions to it will be taxed. Is that correct?


Douglas Charles Abbott: Yes, but it can keep turning over. Suppose there is $15,000 in it now. It can be maintained at that figure and keep turning over and over.


Victor Quelch: The practice is to pay out certain sums from the revolving fund from time to time, but if any new money is put into the revolving fund it will be taxable?
Income War Tax


Douglas Charles Abbott: It would1 have been clearer
if I had said that the net additions to the revolving fund are taxable.


Victor Quelch: Are we to understand that if a certain amount is paid out of the revolving fund and a certain amount of new capital is put in, that new capital will be taxable?


Douglas Charles Abbott: Not unless it increases the fund.


Victor Quelch: Then it will not be possible to expand the business without paying the tax?


Douglas Charles Abbott: That is right. The expansion of the revolving fund will have to be made either out of patronage dividends received by the member and put back into the business, or out of profits-I call them, profits-which are kept in the business and would have to be considered as taxable profits. You cannot further build up working capital out of tax-exempt income.


Victor Quelch: If only part of the fund is paid out and a certain part of the patronage dividends is allocated or credited to the customer and made exigible and is put into the revolving fund, and there is an increase in the amount in the revolving fund, will that dividend be taxable?


Douglas Charles Abbott: The answer to that is this. If a patronage dividend is declared to member A, and it is $25, and it is desired that SIX) of that should stay in the cooperative and form part of what we refer to as the revolving fund, that could be done in two ways. A cheque could be issued to the member of the cooperative for the $25 and he would hand $10 back, or he could direct the cooperative to pay him $15 and keep the $10. It is just a matter of machinery.


Victor Quelch: The minister will note in the recommendations of the commission, section VI, that paragraph (3) reads as follows:
That cooperative associations and organizations, joint stock companies, partnerships, and other bodies and persons shall be allowed to deduct, in computing taxable income, such amounts as patronage bonuses, patronage dividends, refunds of excess handling charges, discounts, rebates and other similar amounts which are paid-
Not paid out by cheque at all.
-or credited to their customers, in proportion to the quantity, quality or value of goods acquired, marketed, or sold or services rendered; provided that:
(a)such amounts are paid in cash or its equivalent within six months after the annual meeting of the relevant fiscal period of the association, organization or company and within six months after the end of the relevant fiscal period of other businesses; or-

And this is the point:
-alternatively, that they are credited within the same period to each customer and exigible by him on giving such notice as may be deemed reasonable.
That is the recommendation of the royal commission, that patronage dividends credited, made exigible, should not be taxable. The same applies in Great Britain. I quote from page 226 of the report:
Again, in Britain, societies are financed in great measure by share or loan capital. Much of this capital is accumulated by crediting purchase bonuses to the share or loan account of the individual member. Payment for shares or loans is typically exigible by the individual member on demand or short notice. Accordingly, any patronage payment credited to the share or loan capital account of the member, or prospective member, may be treated as equivalent to a cash payment and is not taxed as income of the society. As old members withdraw and new members enter, the capital of the society may be "revolved" by means of patronage allotments by the society without payment of income tax.
That is the practice in Great Britain, and the comimission recommend that it should be the practice in this country. Therefore I cannot see why the minister insists that the money must be actually paid out to the member and the member return the money to the society. Surely, if the patronage dividend is credited to the member, made exigible, there should be no tax on the society. I would agree that the money of the customer would be taxable as the income of the customer if paid bv a producer cooperative, but it should not be taxed again as the income of the society. Otherwise you would have double taxation, thirty per cent on the cooperative, and then later the individual would have to pay a tax as well when the dividend is paid out to him. That is a vicious departure from the commission's recommendation and also different from the policy in Great Britain.


Douglas Charles Abbott: I am advised that there is no real departure from the commission's recommendation. This is a complicated matter and I do not know that I shall be able to make it entirely clear. It was found under our system there would be serious administrative difficulties if it were credited without any direction on the part of the member who would ordinarily receive it. Therefore it was decided that it could be paid in cash or its equivalent. If a dividend is declared and a portion is paid in cash and the balance retained on the specific direction of the member, the whole can be deducted. My hon. friend will notice that on pages 44 and 45 of the report under the heading, "Summary of Recommendations", there is a further provision that even if the dividend is held by the

Income War Tax
cooperative without the direction of the member in the way I have indicated it can be claimed as a deduction when paid out. I am advised by the departmental officials who have studied this matter carefully that substantially the recommendation of the commission in that respect has been carried into effect. I accept that statement. Perhaps my non. friend, like myself, finds this a little difficult to follow. Of course, as I said this afternoon, the resolution is only in very general terms, and even after the legislation is passed there will have to be the usual administrative practices to supplement it.


Victor Quelch: I would agree that it is certainly better than it was before the minister made his statement this afternoon. But where the dividends are credited or allocated and made exigible, there should be no question of the tax being paid, even though in later years it may be deducted.


Douglas Charles Abbott: In the meantime they will nave to pay a tax, apparently.


Mr. BENTLEY:: There is one other point I should like the minister to explain to the committee if he is prepared to do so at this time; just what is the situation now regarding the wheat pools?


Douglas Charles Abbott: I made a statement on that this afternoon, so that perhaps my hon. friend would look at it.


Thomas John Bentley: I want a little more clarification. I understood the minister to say that the revolving funds were not taxable unless they increased.


Douglas Charles Abbott: Unless there was a net in crease.


Thomas John Bentley: Above what? What is the measuring stick by which you calculate the increase?


Douglas Charles Abbott: From the previous year. Suppose the revolving fund at the end of 1946 were S25,000; that revolving fund could continue through 1947 at $25,000; but if it had increased to $35,000 at the end of 1947 I take it that the net increase, $10,000, would be considered as taxable income in that year. Does that answer the hon. member's question?
Mr. BENTLEY; I thank the minister for the explanation, but that does not satisfy me that it is a proper thing to do, for this reason. Supposing a cooperative agrees at the annual meeting by vote of the members that it will deduct each year from the dividends payable, say 12J per cent-some use 50 per cent-not a net amount but a percentage of the dividends. That amount of business in a certain
year will make 12i per cent of that, a certain amount of money. In the following year, through increased efficiency because of reduced costs, or more business, the amount may possibly be increased. At the end of four or five years, when the first amount has revolved, the actual amount of that revolving fund may have changed several times. Each time the business is increased, through increased efficiency because of reduced costs, or more business, and the same percentage is retained in the revolving fund, the amount of the revolving fund is increased because of that increased efficiency or increase in business, and you plan to tax them for having done that. I do not quite follow how you reason out the excuse for doing that.


Douglas Charles Abbott: I am not entirely sure that I follow my hon. friend correctly, but I assume from what he has said that the net increase to which he is referring is, in fact, income of the cooperative which has not been disbursed to its members.


Thomas John Bentley: Naturally, because it has been retained under agreement by them at the annual meeting. So I say that it is not a net increase that should be taxed.


Douglas Charles Abbott: That, of course, is a matter of opinion. I appreciate that my hon. friend thinks it should not be taxed, and I think it should.


Thomas John Bentley: But it is your intention to tax it?


Douglas Charles Abbott: That is right, yes.


Mr. ISNOR:: I am not going to deal with this question of profit-making enterprise from the point of view of either private enterprise or cooperative enterprise, but as I sat and listened to the hon. member who last spoke with regard to the increase of this revolving fund I wondered where that increase was coming from if it were not coming from profits. If it were coming from profits I think it should be taxed, and I believe that is the intention. With that in mind, I am going to ask the minister three simple questions. I have written them out so as to place them before him to make it very easy for him.
The first question is, has an estimate been made as to the annual cost or loss to the income tax division by the permission being granted to cooperative enterprises to deduct patronage dividends from their income tax returns? If so, is the minister prepared to state this cost?


Douglas Charles Abbott: The answer is that no such estimate has been made.
Income War Tax


Gordon Benjamin Isnor: Would it be fair for me to estimate that it will run into many millions of dollars?


Mr. KNOWLES:: Or does it prove it if
you do?


Gordon Benjamin Isnor: I leave it in the air, the same
as you often do.
Next, if cooperative enterprises are permitted to deduct so-called patronage dividends from their income tax returns, will the same permission apply to those engaged in private enterprise who wish to pay yearly patronage dividends to those who assist, by loans or otherwise, in promoting taxpayers' business?


Douglas Charles Abbott: Well, as my hon. friend
knows, under the proposals private concerns may pay patronage dividends on the same basis as cooperatives, provided that they are paid in proportion to patronage. The main difference in the case of the private concern will be that the private concern must pay to all customers on the same basis. The cooperatives may pay to members and not to non-members.


Gordon Benjamin Isnor: I should like to enlarge a
little on the last reply made by the minister. I am to take it for granted from his reply that as a business man I am permitted every Christmas or at some time in the year to send out a cheque to all known customers doing business with me, and thus to pay out the entire profit which I might make during that year.


Stanley Howard Knowles: Good idea.


Douglas Charles Abbott: Only if, as provided in
the terms of the resolution, you have held out the prospect to them that they will receive that patronage dividend at Christmas or some other appropriate date.


Gordon Benjamin Isnor: We could very well do that. We could very well have done it in the last six years to the extent of our excess profit tax.


An hon. MEMBER:: Some of them did it.


Gordon Benjamin Isnor: I am not one of those who did it. I should like it on record as to whether we are allowed to do it.
The other and last question-and I feel it is a simple one for the minister-is this: could a merchant at present doing business, who reorganized his business into a cooperative mail order enterprise, selling stock or memberships at $10 a share, with a total capital of, say $200,000, and who did an annual business or turnover of $1,500,000 with a net profit of 
$400,000, deduct this full amount from income return, provided that it was paid out in the form of patronage dividends or business bonuses?


Douglas Charles Abbott: That is a pretty complicated question. I think I shall have to consider it carefully when I see it in Hansard and give my hon. friend an answer a little bit later, if I may.


Gordon Benjamin Isnor: Then I may look forward to an answer.


Douglas Charles Abbott: I will give some kind of
answer.


Mr. CRUICKSHANK:: I hope the minister will permit merchants to deduct at Christmas or any other appropriate season of the year the excess profits tax on the suit for which I have been charged. Speaking for one of the largest cooperatives in the Dominion of Canada, in the dairy industry, I have one simple question, and I, too, have written it out, so that I shall not waste as much time as some of those representing the poor down-trodden private interests. Where capital stock bears a fixed rate of interest, which rate is written into the rules of a cooperative and is set aside concurrently in a manner similar to any other operating charge, is this to be considered corporate income?


Douglas Charles Abbott: No, it is deductible from
gross income for tax purposes.
Mr. TOWNLEY-SMITH:	To come back
to this revolving fund mentioned by the hon. member for Swift Current, the revolving fund is not taxable unless it increases; is that the intention?


Douglas Charles Abbott: That is correct.
Mr. TOWNLEY-SMITH: Suppose they increased from $35,000 to $45,000 because patronage dividends were left in. Those dividends would not be taxable up to twelve months. That is also correct?


Douglas Charles Abbott: Put it the other way. They may be deducted if they are distributed within twelve months.
Mr. TOWNLEY-SMITH: If this revolving fund increases because of the patronage dividends which were left in for twelve months, on what ground would they be taxable?


Douglas Charles Abbott: I think the answer to that is this. Let us take a specific date. Let us take January 1, 1946. The revolving fund amounts to $20,000; in the course of 1946, by reason of the fact that patronage dividends

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are not paid out, it increases to $30,000. If, before December 31, 1947, patronage dividends to the extent of $10,000 are declared and paid out, they can be deducted from the earnings of the previous year. If they are not declared and paid but are left in, that means that there will be $10,000 of income subject to tax in that year. Of course they can be declared. The recipients can instruct the company to retain them in the company, and in that event they would continue to be deductible, as I pointed out a moment ago to the hon. member for Acadia.


Thomas John Bentley: In that event would the minister consider that an annual meeting recommendation would be sufficient to show that the member had given the cooperative authority to hold them?


Douglas Charles Abbott: No.


Thomas John Bentley: Must it be in writing?


Douglas Charles Abbott: No; I think it must be individual authorization on the part of the member himself, not a vote of the majority of the members, which, in fact, would be the annual meeting recommendation. In other words it would have to be individual action rather than corporate or association action.


Thomas John Bentley: Why does the minister require that provision; is he trying to limit the growth of the cooperatives?


Douglas Charles Abbott: Not a bit.


Thomas John Bentley: It will have that effect.


Some hon. MEMBERS:: No.


Douglas Charles Abbott: I do not agree with my hon. friend that it will. I say that we are doing it only to maintain some semblance of logic, propriety and fairness as between those concerns which operate as cooperatives and those vhich do not. In my opinion the legislation is such that it cannot handicap in any way a genuine cooperative enterprise.


Thomas John Bentley: Has the minister ever been a member of a cooperative? Has he ever worked for one or helped to build one?


Douglas Charles Abbott: I have never been a member, nor have I worked for one. I have seen a good many of them operate. We have them in Quebec; I have talked to a good many people who are members of and are interested in them, and that is my opinion for what it is worth. I know my hon. friend holds a different opinion. It is obviously a question on which opinions may differ.


Mr. CAMPBELL:: The minister said that if the capital were increased the increase would be taxable. I have one illustration here.


Douglas Charles Abbott: I cannot agree with that statement as it stands. Perhaps my hon. friend will elaborate it.


Alexander Maxwell (Max) Campbell: I will elaborate by reading a telegram.


Douglas Charles Abbott: It would depend on the way in which capital was increased.


Alexander Maxwell (Max) Campbell: The telegram reads as follows:
Our programme of improved facilities is financed by the revolving reserve plan of deferred patronage dividend loans from members and loan from the Saskatchewan cooperative credit society. If budget proposals adopted will involve considerable embarrassment in plans for repayment.
There is no question but that many of the cooperatives depend on the allocation of patronage dividends which are left in to be used as capital. Is this going to affect them? Are these patronage dividends which are left in as capital to be taxed?


Douglas Charles Abbott: I can answer that in this way. They are not going to be taxed in the hands of the cooperative if the man who receives them or who is entitled to receive them says: "Keep that amount of money in the cooperative and pay it out when I demand it."
Mr. TOWNLEY-SMITH: He may leave it for a year if he wishes.


Douglas Charles Abbott: He makes an investment in the cooperative. In many of our cooperatives in Quebec the members make an investment in the cooperative; they buy a share or they may lend the cooperative money. The capital is obtained in various ways. They may acquire their interest in the way that is mentioned by using a portion of their patronage dividends to supply that capital interest in the cooperative.
Mr. TOtWNLEY-SMITH: The statement has been made that these patronage dividends are taxable if they are kept by the association for more than twelve months.


Douglas Charles Abbott: But not if they are declared as patronage dividends and actually, or constructively, paid to the member. That is the point I am trying to make, but I am afraid I have not made it too clear.


Victor Quelch: Provided that they were actually paid, would the cooperative have to send the cheque out?


Douglas Charles Abbott: No. I said that was one way in which they might do it. But I gave an illustration of two ways in which it might be done. One would be for the cooperative to send out a cheque for $25 and the member
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would send back a cheque for $10. I said that another and equally legal and effective way would be for the cooperative to send out the cheque for $15 and keep $10, provided that they had received the specific written direction from' the member to keep that $10.


George Alexander Cruickshank: He could receive a share for that $10?


Douglas Charles Abbott: Yes.


Victor Quelch: If the cooperative announced that they were withholding a certain amount, and it was an equitable amount, would that be satisfactory without having to get authorization?


Douglas Charles Abbott: Put it in this way. If the patron has his individual, legal right established to receive $25, which I used as an example, he is perfectly free to say, "Keep $10. $15 or $20, or even the whole $25 and apply it in the purchase of a share or keep it as a loan," or in any way he sees fit to furnish capital to the cooperative of which he is a patron or a member.


George Alexander Cruickshank: That could be done in the case of milk, a deduction of so much per pound of butter fat?


Douglas Charles Abbott: I am advised1 that that could be done if there is a contract which authorizes the cooperative to do it on behalf of the members.


Mr. LOW:: Is there not just one limitation to what the minister has just said in connection with the $25 which is kept by the cooperative on behalf of a member-


Douglas Charles Abbott: And on his instructions.


Solon Earl Low: Yes. If that results in a net increase in the revolving fund, does not that become taxable?


Douglas Charles Abbott: No. I realize that it is a little confusing, but the answer is definitely, no.


Mr. McGARRY:: Does the tax legislation ignore the basic difference between cooperative and private business?


Douglas Charles Abbott: I am afraid there was a little noise and I could not hear my hon. friend's question.


William Ross Macdonald: If there could be more order in the committee it would not be necessary for the 'lion, member to speak any louder.


Moses Elijah McGarry: Does this proposed legislation ignore the basic difference between cooperative and private business?


Douglas Charles Abbott: I would say no.


Stanley Howard Knowles: Does it do it?


Douglas Charles Abbott: The answer is still no.


Moses Elijah McGarry: Does it mean that cooperatives have to treat members and nonmembers alike?


Douglas Charles Abbott: No.


Moses Elijah McGarry: Are cooperative members allowed to leave their patronage dividends with their societies?


Douglas Charles Abbott: If they so instruct the
society, yes.


Alexander Maxwell (Max) Campbell: I think it all adds up to this, that it will be pretty hard for the minister to bring in a bill which will cover all the statements he has made to-night.


Douglas Charles Abbott: That is one point on which I am 100 per cent in agreement with my hon. friend.


Alexander Maxwell (Max) Campbell: I think this discussion has indicated the need for a cooperative act which will define what a cooperative is and make plain what the cooperatives are going to be up against. For instance, when the Minister of Finance was speaking on Thursday of last week he had this to say, at page 3593 of Hansard:
If this resolution that we are proposing as a result of the recommendations of the royal com-misison does not work well; if it turns out to be prejudicial to the development of cooperatives, which we do not want it to be, it can be changed.
I think the time to change it and make it right is now, and it would be a good idea if we let this resolution stand and had further conferences with the cooperatives themselves, and tried to make this legislation satisfactory all round.


Douglas Charles Abbott: I think, if I may say so to my hon. friend, that we shall make a little more progress along that line if, as I said this afternoon, the house sees the legislation that is to be brought in, and I question whether the matter would be very much further advanced by deferring action with respect to legislation until we have had further conferences with the cooperative organizations or others. There have been extensive conferences, as my hon. friend knows. This debate and the conferences we have had and the discussion that has gone on for a period of some years admirably illustrate the statement that it is impossible to please everybody, and I think we should make a start in this matter. As the Minister of Finance has said, and as I have said, we are following substantially the recom-

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mendations of the commission. I believe the proposals are sound, and I am also a believer in the process of trial and error. Let us get the legislation in force and see how it works. There are a great many people in this world who do a lot of crying before they are hurt, and I have a suspicion that that applies here. It may be, and I think is, due to lack of a full understanding of just how the thing will work; and I confess I could almost include myself in that class. Still I believe the proposals are sound. Certainly I do not feel that I would want to substitute my judgment for that of the commission which made this exhaustive investigation into this difficult question. I think the time to act in this matter is now. I believe we should get the bill into the house as soon as we can and let hon. members shoot at it, as I am sure some of them will; but let us try to get the thing settled.


Robert Fair: I believe we are making pretty good headway here this evening. We had two big points to discuss and now, after a great deal of education on both sides, I think one of them is pretty well cleared up, at least until the legislation is brought in. I hope we shall not have to spend any more time in getting a clarification of the proposals in regard to the revolving fund. The minister's final explanation of that is quite satisfactory to me, provided that there is not in the legislation something which will change that around again. Of course, if there is, we shall have a whole lot more talking to do about it. The minister has suggested that he believes in trial and error. We do, too, and we have been trying this cooperative legislation without the three per cent which is now the difference between us. I suggest that the minister allow it to be carried on as it is, and that will be quite satisfactory over here. Perhaps the time spent in the house on the matter is costing the government more money than it will get from the three per cent provision.
I think we should realize that the cooperators are not making profits on people other than themselves, without being quite willing to pay income tax on any amount made in that way. That is a point some people fail to recognize. The sooner some of those who are throwing monkey-wrenches into the works realize that the cooperatives are not' profiting at the expense of anyone but themselves, that they are merely returning to themselves overcharges, the sooner we shall get along. So I suggest to the minister that he do away with this three per cent. It is not recommended by the commission and I do not think it works in
that way in the old country. If he will throw that aside, perhaps we can give him a clearance on this resolution.


Frederick Samuel Zaplitny: I am sorry to come back to this revolving fund, but I do so because I think I can be helpful. The difference I see is a difference in principle; that is why I bring it up on the resolution rather than on the bill itself. Up to now the custom has been that at the annual meeting of the cooperative it is decided by a majority vote of the members present what amount shall be kept as a reserve, or a revolving fund, or whatever you wish to call it, and what amount shall be paid out in patronage dividends. I understand that system was satisfactory and there were no complaints from the members of the cooperatives themselves. If they did not like that system they could change it in their local cooperatives. The government now proposes to change that system by declaring that they cannot by a majority vote withhold any amount they wish, but that they must have an individual authorization from each member of the cooperative who receives a dividend.


Douglas Charles Abbott: If my hon. friend will allow me, I take it he appreciates that the commission recommended against the practice he has been describing.


Frederick Samuel Zaplitny: Yes, but that does not alter the argument. Regardless of what the commission may have said, we are legislating here for the cooperatives. The thing I am trying to get at-


Douglas Charles Abbott: We are legislating for
Canada, not for the cooperators alone. We are legislating for every Canadian; I think that should be made clear.


Frederick Samuel Zaplitny: Well, for the time being we are talking about the cooperatives as a group, and I am trying to point out that in effect we are telling the cooperatives how to run their business. We are interfering with the internal functions of the cooperatives themselves by telling them they must do it in a certain prescribed way. At the moment I am not criticizing the government for what they are doing; I shall do that later. I am only trying to find out what is the motive behind it, why they are doing it. There must be some particular reason why they have found it necessary to interfere with the internal methods of operating the business of the cooperatives.


Douglas Charles Abbott: The answer to that is very simple, if I may give it at once. We endeavour to treat every Canadian on the same basis as far as taxes are concerned. No other Canadian
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is entitled to build up capital out of tax-free income; and if the cooperative as such has income, it cannot be added to the capital without paying a tax on it. The commission recommended against it. We are telling the cooperatives how they should run their business in the same way as we are telling anybody else how they should run their business if they are or are not to be subject to taxation. That is all we are doing.


Frederick Samuel Zaplitny: I am afraid that is only part of the story. I want the minister to understand that unless he is prepared to admit there is a basic difference between the setup of a cooperative enterprise and that of a private business, then we are at cross-purposes and we could argue all night. However, from the answer the minister gave to an hon. member who asked a question, I understood that he felt there was a basic difference. Maybe I should bring out that basic difference. In the case of the private business, where a dividend is to be declared the whole decision of how much shall be declared and when it will be paid is in the hands of the person who owns the business. The customers of that business have no say in when or how much of the dividends shall be distributed. In that case, therefore, it is necessary for the government to put a limit of six months, or twelve months, or whatever they like, in order to make sure that that dividend is paid, and not only declared.
If we wanted to take a hypothetical case we could say that if I were the owner of the business I could declare a dividend to my customers at the end of this year, but fail to pay it for the next fifty years. There would be nothing to make me pay it, because I am the owner of my business. No one can tell me what to do, because it is my money, even though I have declared it to somebody else.
But in the case of a cooperative that is not true, because the members of a cooperative are the customers. Therefore they themselves can decide when and how much shall be paid. It is, therefore, unnecessary in the case of a cooperative enterprise for us to butt in and tell them how to run their business.


Douglas Charles Abbott: But the companies to which my hon. friend refers have to pay taxes on their profits, whether they pay dividends or not. The only difference is that the shareholder would not get dividends and have to pay taxes on them as personal income tax. However, the question which has been raised was considered by the commission, when at page 31 it says this:
On this first head of argument-

And the context explains what is meant by the "first head of argument."
-therefore, considerations of public interest do not lead us to the conclusion that cooperative associations should be given a blanket exemption from income tax while their competitors are subjected to the full burden of the current heavy rates. The considerations referred to do suggest, however, that where there is doubt as to what the income of an organization really is, the relative strength of cooperative associations and their competitors should be carefully considered to make certain that the solution finally adopted will not ruin one or the other, or unduly constrict their relative growth and development.
The granting of fiscal advantages is not usually a good method of giving special encouragement or assistance in the field of economic venture. Exemptions granted to one segment of the commercial community can scarcely benefit the public as a whole. Welcome though they may be to those who receive them, the burden from which some are relieved falls with proportionately increased weight on the rest of the economy.
It is for that reason I say that in drafting tax legislation one must see that it is fair to every Canadian.


Stanley Howard Knowles: Yesterday, while we were discussing another resolution, the minister made a statement which I warned I would quote back to him at the appropriate time. That moment has arrived. It was in connection with resolution 24 when, as recorded at page 3S70 of Hansard of July 25, the minister said:
It is believed that investment trusts of the sort being considered represent in effect merely collective investment by individuals, and it is considered' that the mere funnelling of income through the company to individuals should not bring on an extra tax.
I will admit that there are points of-


Douglas Charles Abbott: Substantial points of difference.


Stanley Howard Knowles: Yes, but also substantial points of similarity. The minister will correct me if I am wrong when I say that the granting of the exemption to these trusts, in respect of both corporation income tax and excess profits tax, was based upon the fact that the individuals who joined in this collective effort already pay, personally, a tax on what they earn.
That being so, I suggest that there is a substantial similarity in that the members of cooperatives are simply getting back a portion of their own income, on which they have already paid taxes.


Douglas Charles Abbott: And when they do there is no tax payable by the cooperative. The patronage dividends are deductible.


Stanley Howard Knowles: The minister admits, by that, that there is merit and validity in the

Income War Tax
point we are making, namely that patronage dividends are savings and should not be taxed. That should apply all the way through, and that is why we contend the three per cent provision should not stand. That is our principal objection.


Douglas Charles Abbott: On the so-called investment trust, under the funneling through idea, as my hon. friend knows the provision in our income tax law is that there will not be double taxation on corporation dividends. Dividends received by a Canadian corporation from another corporation are exempt from tax. In the case of the investment trust, the main point is that there is no active business enterprise carried on by the company. It simply holds the tokens, shares, or debentures of some other concern which carries on the active business operation. It is merely an intermediary, as it were; I wonder if I am expressing myself clearly; the so-called investment trust does not perform any active business operation. It is not a commercial corporation, as is a manufacturing company. It does not carry on active business, as does a cooperative, whether it be a consumer or producer cooperative. It is just a creature of the law, which holds the Stocks or the evidence of indebtedness of other corporate entities.


Stanley Howard Knowles: Very similar to the provincial cooperative set-up, or a provincial cooperative wholesale. I admitted, when the discussion began, that the analogy does not hold all the way through. Analogies are always risky. But the minister has said that the difference in respect of this investment trust is that it is not in the business of making profit for itself as a corporation. It is simply an intermediary, working in the interests of individuals who have put their money in there.
I submit that that is what we have in both producer and consumer cooperatives. We have the collective effort of a group of people, not to make profits but rather to save themselves money. As a matter of fact the case is much stronger for them than for those in the other examples mentioned.
While I am on my feet, I should like to say a word or two about one cooperative in particular. I do so simply because I am a member of it. I have been a member of the board of directors, and for that reason I know something about it. This particular cooperative is situated in Winnipeg.


Mr. MacNIOOL:: What does it handle?


Stanley Howard Knowles: Chiefly fuel. It is known as the Red River Cooperative Supply Limited, and it is located in the area represented by the hon. member for Winnipeg South. One
feature I remember particularly about the first annual meeting of the Red River Cooperative Supply Limited was the enthusiasm and unanimity with which the members of that cooperative decided that, although the Manitoba law allowed them to declare interest on invested capital, they were not going to do so. That matter has come up from time to time since the cooperative was organized, and it has been declared the wish and desire of its members that no interest should be paid on their working capital.
This legislation opposes that principle.
The savings effected by the Red River company are paid out in dividends, and there is also a revolving-door fund plan which has been taking the place of extra share capital, which interested people subscribed in the early years of the organization. The people who buy their fuel from that cooperative are not making profits, as anyone can understand. They are simply saving some of the money which they have already earned as wages or salary, and upon which they have paid taxes. And as a matter of fact, because of the savings they effect in that way, these people are able to spend that money on other things.
I suggest to other sections of the business community that do not like the cooperative organizations to get stronger that actually it is better for the community as a whole to have these increased savings in the pockets of the people so that they can purchase other things. Not only is it a perfectly fair position that we are taking; it is a position much more farsighted than that taken by private enterprise in opposing the growth of the cooperative movement. It is the business of the government and certainly it is the business of this parliament to be interested in this movement, not only from the point of view of fairness and equity, but because in the long run it will be good for the community as a whole.
By contrast with this legislation I was interested a few days ago to read a Canadian Press dispatch from Wellington, New Zealand, headed "Consumers' Co-Op in New Zealand", and reading:
The latest step in the New Zealand Labour government's socialization programme is the introduction of consumers' cooperative societies to control all shops and other business in the huge state housing settlements being built throughout the country.
The proposal is that there should be communal ownership and control of all groceries, bakeries, butchers, hotels, theatres, restaurants, boarding houses, garages, service stations, coal, wood and milk supplies and any other consumer services required.


Julian Harcourt Ferguson: Is that from Russia?
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Stanley Howard Knowles: This is from New Zealand, one of the members of the British commonwealth, a sister dominion. The article continues:
Government officers have been canvassing state house tenants in the new suburbs for support for the plan. It is proposed to use state-built buildings which would be rented to the societies. Any profits would be distributed in consumers' dividends and rebates.
One society is already functioning at Naenae, near Wellington. No room for private enterprise remains in this suburb. All buildings are state-owned and are made available only to the society.
That is part of an effort by that government to improve conditions in all ways for the people by putting things more and more into their own hands. That is what the cooperative movement in this country is also seeking to do. The acting minister would like to have this resolution pass so that he could present the bill, but it is evident that the principle involved in this proposal meets with serious objection from those; of us who come from parts of the country where the cooperative movement is well established. If there were any validity yesterday to the minister's argument in connection with investment trust funds, there is much more validity to the argument that the savings of people which they save out of income and wages and on which they have already paid income tax should not again be taxed, not even to the extent of this three per cent of their employed capital.


Mr. BLACK (Cumberland):: 
Gordon Benjamin Isnor: Unfortunately, the hon. member for Inverness-Richmond is not in his seat at the moment. If he were I feel sure that he
would immediately correct an impression which the hon. member for Cumberland may have left on the minds of some hon. members. The statement made by the hon. member for Inverness-Richmond with respect to Doctor Coady was simply a statement as reported by the Canadian Press. I want to make it clear that he simply read a statement published in certain newspapers and attributed to Doctor Coady. I know the hon. member for Inverness, as I have heard 'him say on more than one occasion, holds Doctor Coady, as do all the members from Nova Scotia, in the highest possible esteem, and if the hon. member for Inverness-Richmond were here-


John Ritchie MacNicol: He is in his seat now.
He came in quickly when he was called.


Gordon Benjamin Isnor: I know he will speak in the highest possible terms of Doctor Coady.


Moses Elijah McGarry: Mr. Chairman, if I am in order, I should like to explain my position with regard to what I said in my speech on the budget dealing particularly with cooperatives. I spoke on that occasion while I was a member of and sympathizer with and militant worker on behalf of the credit union of cooperatives as I know them in my constituency. I was not familiar with all the intricacies and the policies and the philosophy of that particular movement, and on that occasion I did not express my own opinion but based my opinion of what was submitted in the budget on an announcement that was made by Doctor Coady as reported in the Canadian Press. As I read his statement, it was that Doctor Coady was very well satisfied with this part of the budget proposals dealing with cooperatives. Afterwards Doctor Coady wrote me a letter, which I should like to read in part:
A representative of the Canadian Press quoted me (Halifax Chronicle, June 28) as being thoroughly satisfied with the proposals of the budget resolutions on the taxation of cooperatives. There is no foundation for this. On the night that the budget was brought down, a Canadian Press representative called me on the telephone and asked me for my views. My answer was that I knew nothing about it. lie went on to outline the highlights on this matter and stated that patronage dividends were deductible before taxation, and that credit unions were to be entirely exempt. My answer was that if this were true it would be a triumph for the cooperatives. Subsequently it was plain that this supposition was not true. But the important "if" of my remark was omitted from the statement that appeared in the press.
He goes on to say:
I have now to say that legislation should be founded on sound basic principles. If not, it cannot long endure in a free society. The McDougall royal commission that thoroughly investigated this whole matter based their findings
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on a thorough understanding of cooperative principles, and brought in sane and reasonable recommendations.
Private profit business and cooperatives are specifically different kinds of business. It is logical to suspect, therefore, that no tax legislation that applies to the former would be applicable to the latter. Violence will have to be done to fundamental principles if this is tried. The essence of private profit business is that the business man takes a toll from his fellow human beings-legitimate in some cases, and positively unjust in other cases. In cooperatives on the other hand no member of the firm or company-to use the terminology of old-line business-can take a toll from his fellows. Any money he receives back in the shape of patronage dividends is his own money. These dividends are overcharges that were made by himself in the course of a year's business. By no stretch of the imagination, therefore, can patronage dividends be called profit or income. If governments want to tax farmers and labourers who engage in cooperative enterprises, they should do it under some other title.
As I said in my budget speech, I did not know anyone better qualified than Doctor Coady to quote in stating my position with regard to this legislation. 'Let me add that I undertook to ask the minister to-night questions which were put to me by members of the cooperative. I have asked three questions of the minister, and I understand from his answers that even the cooperatives themselves do not really understand1 this proposed legislation. I am banking on the authenticity of what the minister said. There is another question I will ask when the bill comes down.


Douglas Charles Abbott: I should like to add one word with regard to what the hon. member for Inverness-Richmond and the senior member for Halifax have said. Perhaps when Doctor Coady has an opportunity of appreciating the changes which I have proposed this afternoon he will feel that the proposed legislation is satisfactory. May I say that both I and the officials of my department would be very glad to discuss this matter with Doctor Coady if he would care to come to Ottawa. The bill, of course, will not be passed for some little time yet, and I am sure there will be ample opportunity for him to come here, should he care to do so, and discuss it with me and with the officials.


Mr. GILLIS:: May I add a little to the confusion? In the last fifteen minutes, from the opposite side of the house and from my right-


Douglas Charles Abbott: Nova Scotia forever.


Clarence Gillis: -I have heard a Liberal member and a Conservative member read a letter with which, apparently, they are in agreement, since both admit that there is

some basic principle which divides private business from the cooperative movement. Now the minister does not believe that-
Mr. KNOWLES': He does not want to.


Clarence Gillis: -according to statements he has made here to-night. If it can be repeated from both sides in this way, pretty soon we shall all begin to believe it.
I want to make a brief observation with respect to the reading of these letters. I think it is unfortunate that the Canadian Press carried the story which precipitated the discussion which we have had' for the last fifteen minutes. What the senior member for Halifax said a few moments ago is not correct, though I appreciate his coming to the defence of his colleague the hon. member for Inverness-Richmond. The hon. member for Inverness-Richmond merely stated in the house that he was referring to a press dispatch.


An hon. MEMBER:: He quoted from a Canadian Press dispatch.


Clarence Gillis: He did not do any such thing. I want to keep the record straight.


Moses Elijah McGarry: Doctor Coady made the announcement the day after the budget was brought down; I think it was on June 28; I did not speak until the 16th of July, and what I said that day I based on a press report.


Clarence Gillis: I am not, disagreeing with the hon. member for Inverness-Richmond. I do not know what he based it on.
'Mr. MeGARRY: Well, I made it clear.


Clarence Gillis: The record is not clear on it. The hon. member for Inverness-Richmond spoke on the 17th of July.
Mr. 'McGARRY: I spoke on the 16th first, but I concluded on the 17th.


Clarence Gillis: Well, this statement with reference to Doctor Coady is on the 17th, and this is what the hon. member said, as reported in Hansard, at page 3540:
Doctor Coady has been the organizer, the initiator and the developer of the cooperative movement throughout the maritimes. He is now and has been for many years the director of that movement. What does Doctor Coady say of the legislation dealing with cooperative taxation? He has said it over the radio; he has expressed it in the press.
That is not quoting a press dispatch.
Mr. MeGARRY: Oh, well, what-


Clarence Gillis: Just a minute now:
He has said it over the radio;


Moses Elijah McGarry: You are splitting hairs now.

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Clarence Gillis: . . . lie has expressed it in the press. This is what he said:	"I am well satisfied with this
legislation." After hearing the comments of the director of the maritime cooperative movement, who should know the facts of this legislation better than any other person in the mari-times, at least, what attitude should I take? Common sense should dictate the answer.


Moses Elijah McGarry: Might I interjedt that I did not quote all he said in the press, because he actually eulogized this piece of legislation?


Clarence Gillis: The fact of the matter is that he did not say anything in 'the press. He denies that to-night from both sides of this house. That press dispatch was the concoction of some reporter who merely gave him misleading information over 'the telephone; and the hon. member for Invernees-Richmond said that he had stated it over the radio. Well, I do not think he did, according to these two letters. Some news commentator may have expressed something over the air. I just want to keep the record on that straight. I was shocked when I heard that statement in the house, because I know Doctor Coady quite well and1 I know his opinions on the cooperative movement. 1 did not think he would "go overboard," as the statement in the press would indicate. I had1 too much confidence in his judgment.


Moses Elijah McGarry: May I ask the hon, member a question? Does he doubt that I based my statements the day I made my speech on anything other than what I read in the Halijax Herald?


Clarence Gillis: I am not quarrelling with that. Perhaps the hon. member based his statement on that. But for the purpose of the record-


Moses Elijah McGarry: There is no "perhaps" about it.


Clarence Gillis: There is. It was not clear in the record.


Mr. LAPOINTE:: It does not affect the issue at the present time.


Mr. GIBSON (Comox-Alberni):: You never quote the press yourself!


Clarence Gillis: Very carefully.


Hugues Lapointe: When it suits you.


Clarence Gillis: I am very careful with the press. However, Mr. Chairman, what I rose to say-and I agree that this matter has been pretty well sifted and mixed up and I am still rather mixed up about it myself-is, that perhaps the focal point with regard to legislation on cooperatives in this budget is the matter of taxing that reserve fund. I am concerned about it for this reason, that I believe taxing
that reserve fund will definitely stop any further development of the cooperative movement.


John Lambert Gibson: Not if it is on a sound basis.


Clarence Gillis: Maybe not. But I have been in this movement for a long time. I have been a member of committees of a consumers' store and a credit movement; I have helped to promote these patronage dividends and explain the purposes for which they were used, and that kind of thing, and, as I see it, the patronage dividend for a start, is an overcharge that is given back to the member.


Douglas Charles Abbott: That may be the case with consumer cooperatives.


Clarence Gillis: I am thinking about consumer cooperatives now. If you are going to tax that overcharge which is given back to the member, and which he allocates back to that store for the purpose of promoting his business, what you are going to force cooperatives to do is to discontinue that overcharge-


Douglas Charles Abbott: We do not do that.


Clarence Gillis: -and cut their prices, cut down their units of business. Some of these stores have three or four thousand members. They cam cut down their units, distribute through the community, discontinue their overcharge, and run out of business the private merchant.


Douglas Charles Abbott: We are not doing that.


Clarence Gillis: But that is the effect you are going to have on the consumers' stores.


Douglas Charles Abbott: I think you are wrong.


Clarence Gillis: I hope I am. I caution the minister to examine carefully to see if that is not the effect that will have, because I think that is what will happen.
That is the only point I am concerned with. I think the amendments brought in have improved the situation considerably, and I have not any quarrel with the legislation as it is, except on that point.


Douglas Charles Abbott: I honestly think my hon.
friend will find he is wrong in the view he holds that that will be the effect.


Clarence Gillis: The minister stated a moment ago that he was not reluctant to discuss this matter with the leaders of the cooperative movement in Canada before legislation was finally passed and come to a definite understanding as to the effect it is going to have. I am quite satisfied that that is the danger point in the taxation of the cooperatives.
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Douglas Charles Abbott: As my hon. friend knows, over the last week or ten days I had a considerable number of discussions with those prominent in the cooperative movement, and I shall be glad to continue that discussion. I shall be glad to have further discussion with the delegations who may wish to come and discuss it when the bill is before the house and when it is available for discussion. Other than that, I have nothing to add at the moment.


Percy Chapman Black: When will
the bill be printed so that we may have a look at it?


Douglas Charles Abbott: It cannot be printed and
produced until we pass the resolutions. I suggested this afternoon that we are not finally settling the principle of the bill which will be introduced when we pass these resolutions. I had hoped and suggested that we might get past the resolution stage so that I could introduce the bill. The committee could then see the specific statutory measure which is proposed and, both on second reading and when we are in committee, we can discuss it in concrete form. That is when, if necessary, specific amendments can be made to the suggested sections. That is all I was suggesting.


Major James William Coldwell: Do I understand that
when the bill is before the house the minister will be prepared to accept amendments and not take the position that, since the resolution is to govern the legislation that must follow, amendments in regard to particulars which are under discussion will not be accepted. That is the point which seems to be worrying some of my hon. friends. I have been attending committees and have not been following this discussion, and that is why I have not been participating in it. What seems to be the fear of some of my colleagues is that once these resolutions are passed, the government may take the position, when the bills are down, that we must abide by the substance of the resolutions.


Douglas Charles Abbott: I would not take that stand, provided that the amendment being proposed by a private member were one which could properly be proposed by him. Obviously, if it is an amendment which can be proposed at this stage is could be proposed at that stage. Any amendment to the resolution which can be proposed, can be proposed when the bill is before the house and when it is in the committee stage. That is my understanding of proper parliamentary procedure.


Major James William Coldwell: The minister is not
closing the door?


Douglas Charles Abbott: No. I said this afternoon, of necessity, the resolutions are drafted in rather general and not too specific terms for the very purpose of allowing a general discussion on the particular principles of the legislation on which the bill is to be founded. I am not too clear as to the history of these budget resolutions. I know that from a constitutional point of view a resolution approved by the governor general must precede, a money bill; and in budget matters it is apparently the traditional practice to present a series of resolutions on which there is a general discussion. Then the government introduces legislation and there is further discussion on that. It has this merit, that it enables a good deal of general discussion to be held on the resolution stage, and in a good many cases it affords some guidance to the government as to what can usefully be included in the bill. Hon. members of the committee who have been here for some time know that, as a result of discussion in committee, very often numerous amendments are made to the legislation which is brought in. I think I can safely give the assurance to the committee that when the legislation is before us any amendment which can now be suggested could then be suggested; any amendment which a member, other than a member of the government, could properly place before the house can be made at that time. If there is any doubt on that point a record can be made of the passing of the resolution on division, for instance, which would indicate that there was not unanimous acceptance by some members of the resolution as it stands. I think that is a fair statement of the constitutional position.


Major James William Coldwell: That is a satisfactory statement up to this point. From the weight of opinion in this committee and from the discussion that has taken place on this resolution from all sides it is quite obvious that there is a desire so to amend the legislation that the cooperatives will not in any way be penalized or prevented from expanding as they should. What I have in mind is that some amendments which might be proposed could not be proposed by a private member.


Douglas Charles Abbott: Either here or in committee.


Major James William Coldwell: That is right. If the minister and the government feel that the weight of logic advanced on both sides of the house is sufficient to show that the amendment should be moved, will the government take the responsibility to amend the legislation in spite of the fact that they have produced the bill following these resolutions?

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Douglas Charles Abbott: I shall answer that in this way by saying that the fact the government has produced a bill based on these resolutions would not preclude the government from changing its mind and proposing amendments, provided that it were satisfied that such amendments should be made. I must add to that by saying that under our system the government must and should assume the responsibility for making these amendments.


Mr. COLD  WELL@: I have no quarrel with that.


Douglas Charles Abbott: That is the function of government under our system. My hon. friend will recognize that I could not, in advance, give a general undertaking such as he suggested other than to say that the government has not a closed mind in this matter, if I may use that expression. The government will be perfectly ready at the legislation stage to consider amendments which it may be felt are desirable.


Percy Chapman Black: In view of the fact that so many people in the outlying parts of the country are concerned and disturbed with respect to the object of this legislation, could the minister not have these provisions relating to cooperatives printed separately in advance, and copies placed in our hands so that we would be in a position to consult those who have expressed their misgivings with respect to the legislation?


Douglas Charles Abbott: I am afraid that that could not be done. I am hopeful that the discussion which has gone on to-day-and which has been helpful and which I have no doubt will be reported in the press-will help to clear up some of the misunderstandings. The cooperative union have an office in Ottawa, and I have no doubt that they will have taken cognizance of what has been said. If there are further points on which they are not clear they will no doubt consult me or the officials of my department. I hope that before the legislation is through its final stages ample opportunity will be given to all those who are actively interested in this matter to get information and to understand fully exactly what is proposed.


William Scottie Bryce: I should like to assure the minister that I do not want to be any more persistent than any other hon. member, but I have been bombarded with telegrams from my constituents in Selkirk who believe that, under the legislation about to be brought down, their rights are being taken away from them. I had a complete speech to give tonight, but I have sat quiet and allowed other hon. members to steal my thunder. The
minister will be relieved at not having to listen to that speech. We have been talking about the revolving-door plan. The only thing I am satisfied about now is that I have money in a revolving-door plan in Winnipeg. I have listened to the minister twice and he has made two different statements, so that I shall have to read them to-morrow and decide which one he means.


Douglas Charles Abbott: I hope my hon. friend is wrong. I do not think I have made contradictory statements, but if I have I shall clear them up.


William Scottie Bryce: I admit I could make a mistake, just as the minister might, but that is how it appears to me at the moment. I should like to get clear in my own mind this three per cent on the capital employed in the business. I happen to belong to the same cooperative' as the hon. member for Winnipeg North Centre. I have a little money lying there, say $100, and you will tax the Red River cooperative on that $100 if they do business with it; is that not right? It is mine; I give it to them, and they are working with it.


Douglas Charles Abbott: I have to make a qualified answer, but that is not necessarily so. If you have $100 which you have left with the Red River cooperative and they pay you interest on it, they deduct that interest as an expense and of course there is no tax. If you allow them to use that $100 without interest and take your share of the income of the corporation in the form of a patronage dividend, then the income of the cooperative for that year will be considered to have been derived to the extent of $3 from the $100 you have let them use as capital.


William Scottie Bryce: And that would be taxable?


Douglas Charles Abbott: Provided, of course, that they have earned $3 or its equivalent.


William Scottie Bryce: The Red River cooperative gets that money from me so that they may do business. Then in turn they lend that money to the Manitoba cooperative wholesale, and when they get it you tax it again.


Douglas Charles Abbott: No.


William Scottie Bryce: Oh, yes. It is their funds then, because it has been lent to somebody else.


Douglas Charles Abbott: That is an accounting
matter, but I make the positive assertion that the $100 we are using as an example would not have the income taxed twice.


William Scottie Bryce: Would that be contained in the legislation, because it will go farther than
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that? When the Manitoba cooperative wholesale get it they again reinvest it with the interprovincial cooperative, and it is added to the funds of each different organization.


Douglas Charles Abbott: I can only answer that the $100 cannot be in two places at once.


William Scottie Bryce: I know, but it can be taxed in two different places.


Douglas Charles Abbott: No, it cannot.


William Scottie Bryce: Yes, it can.


Douglas Charles Abbott: No money can be in two or three places, nor can it be taxed in two or three places.


William Scottie Bryce: I will show the minister how it can be taxed in three places in one year.


Douglas Charles Abbott: But I would not accept the suggestion, because that would be unfair.


William Scottie Bryce: The legislation itself is
unfair.


Douglas Charles Abbott: You have not seen the legislation yet.


William Scottie Bryce: You are driving the cooperatives into becoming profit-making businesses.


Douglas Charles Abbott: No.


William Scottie Bryce: You are defeating the very ideal of cooperative business. It does not seem that I am going to be believed, but if you want to have peace and quiet in the western provinces leave them alone. You have brought in some amendments; now take off the three per cent and let the men who have built up the cooperatives go ahead, because they are prospering to-day as they never did under the old system.
Just before I sit down I should like to say another word. The Minister of Finance had this is to say in concluding his remarks on this subject during his budget address, at page 2923 of Hansard:
Credit unions which derive their incomes >rimarily from loans made to members and federations of credit unions will continue to be exempt from tax.


Douglas Charles Abbott: That is the next resolution, if my hon. friend would care to allow his remarks to stand.


William Scottie Bryce: Very well.


John Lambert Gibson: Would the minister indicate what he expects to be able to collect in these taxes on cooperatives, now that he has introduced his amendment?


Douglas Charles Abbott: That question was asked this afternoon, and the answer was that I could not give any indication. My hon. friend and the committee will realize that a

number of cooperatives do quite an appreciable business with non-members. Under the proposed change, in line with the views of most of these cooperatives, they agreed that the profits from that type of business should be taxed. The amount to be realized will depend in large measure on the proportion of business cooperative enterprises do with non-members, and the deputy minister assures me that it is impossible to give any estimate which would mean anything. In view of those circumstances, it would be a piece of sheer guesswork


John Lambert Gibson: But you expect there will be something?


Douglas Charles Abbott: Yes, there is bound to be something.


Mr. SMITH (Calgary West):: I am sorry that the need for my presence in other places during the last few days puts me perhaps a little behind in this discussion. I am anxious that at some time, now or on second reading or at some other time, the minister should tell us what a cooperative is.
The second question I want to ask him is, what is profit? Until we know those two answers it seems to me we cannot advance very far.
However, here is my humble and simple thought. I live in the western country, from which comes the hon. member who spoke just a moment ago, who said to leave the cooperatives alone. Well, I wish we could, but if we leave them alone, the country will soon not collect anything in taxes, because everybody will adopt that method of doing business.
I am going to tell you, Mr. Chairman, what I think a cooperative is now. I think of a town forty miles from Calgary, where I lived, called Irricana, a very small village. On one side of the road was a grocery store run by an old friend of mine. He went broke and then died, though I do not suggest that going broke killed him. On the other side of the road another man had a store of about the same size. A dozen or so farmers in that area bought the store across the road. These were both general stores and their windows contained about the same things. Driving along in my motor car, granting that I did not know either one, I could glance at both and would go into the place whose window attracted me most. That is in no sense a cooperative; but persons calling themselves such have received consideration in taxation which the merchant on the other side of the street has not received. There can be no justice in a situation like that, where there is

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differentiation in taxation as between one store using a certain name and another store on the other side of the street using another name.
I hope this meagre contribution may give the acting minister an idea, and that before we conclude this discussion he will tell us what a cooperative is. Then, being a Solomon in his own right, he may go on and tell us what profit is and what patronage dividends are.


Douglas Charles Abbott: May I quote what the
members of the McDougall commission had to say on this question of what a cooperative is. In view of their statement, perhaps my hon. friend will relieve me of the obligation of attempting to give him a definition. This is what they said, as it appears at page 40 of their report:
It may be said that the term "cooperative" is nowhere defined in the statute. That is quite true and, indeed, it would he an almost insuperable task to devise a definition which, having regard to original principles on the one hand, and present-day practices on the other, would do justice to the subject.


Arthur Leroy Smith: May I say to the minister that, McDougall commission or no McDougall commission, he is the man who is bringing in the statute. It seems to me that before he shall have finished he will have the inexorable duty-and that is a big word, and a difficult one-of telling us what a cooperative is; because that is what his legislation is about. Thanks to Mr. Justice McDougall, and those other grand persons who also touched upon the problem, as the minister is doing, I think the minister will have to give that definition before he finishes.


George Alexander Cruickshank: While I do not
wish to take over any of the duties of the acting minister-


Douglas Charles Abbott: Go ahead.


George Alexander Cruickshank: -I should like to give the hon. member for Calgary West a true definition of a cooperative. A true cooperative association is the Fraser Valley Milk Producers' Association of Vancouver, British Columbia.


William Ross Macdonald: Shall the amendment carry?


John Bracken: Mr. Chairman, before the resolution either in the original or the amended form is passed I wish to make one observation, and to ask one or two questions of the minister and, in the light of that, to try to summarize the discussion we have had this afternoon, so far as I understand it.
My observation has to do with the discussion we have had in the last few minutes regarding the reported attitude of Doctor Coady,
director of extension work at St. Francis Xavier university. I do this because I believe it was I the other day who questioned the statement of the hon. member for Inverness-Richmond. 1 wish to say that I do not think anyone in the house thought the hon. member intended to misrepresent the attitude of Doctor Coady. Certainly I did not think that, and I do not think any other member did. But the effect of the comment in Hansard was that Doctor Coady's views were misrepresented.
Because of that Doctor Coady wrote to certain members of the house, including the hon. member himself, the hon. member for Cumberland who read his statement, and to other hon. members. They have read his statement, and I think that ought to satisfy the committee with respect to his attitude. He did not approve the proposition as the government has brought it forward.
The questions I wish to ask the Acting Minister of Finance are just two in number. Whatever the details of resolution 12 may or may not 'be, it is clear that, in spite of the changes the minister proposes in his amendment, and the changes he States he is willing to make, the government still expects to do two things. It expects to collect a tax of three per cent on the capital employed by cooperatives, provided that the earnings, savings or dividends of those cooperatives amount to that much. It is still clear that he means to 'try to collect taxes on certain cooperatives, namely the western pools, for business done by them during the years 1944 and 1945.
The minister has indicated that he cannot answer one question accurately. Perhaps that may be true, but I am sure be or his advisers could give an approximate answer to an inquiry as to what- the revenue would be to the government on the basis of the application of this tax at three per cent on the earnings of the capital employed by the three western pools, provided that they made that much by way of dividends, earnings, profits or whatever one chooses to call them. The name is not important. It is a gain to those who are interested. What would that tax be?
Then, I would ask the minister ito give an estimate of what the tax would be on those same three large cooperative organizations, the three western grain pools, in either one or dther of the last two years, on the basis which the government propose that they shall pay I do not mind saying why I am asking the question. I ask it because I think the tax on those organizations which the government propose to collect for 1944 and 1945 will be very much greater than on the basis they propose to apply taxation from this time forward.
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I am going to suggest to the government that if in their wisdom the policy they are proposing for the future is sound, it will be difficult for them to establish that they can apply compulsion by which they will collect from those western cooperative organizations vastly greater sums for the last two years.
I pause at this point to allow the minister to state whether he can answer the questions now. I would not expect him to be able to do so at this time, but I say the house and country should have an estimate of what those revenues would be, before we are asked to give final consideration to the bill which will be brought down. After the minister answers, I should like to take five minutes to summarize our position.


Douglas Charles Abbott: As the leader of the opposition has said, it would not be possible to give such an estimate at the present moment. However, I shall see if it can be prepared, and will give it within the course of a day or two, provided that it can be done. It may have to be given with certain qualifications, depending upon one contingency or another. However, I shall take his questions into consideration, and see what estimate can be given in reply.


John Bracken: The most I would expect, and I am sure the most hon. members would expect, would be as close an approximation as the minister or his advisers could give.
The business before the committee is the consideration of resolution 12, the chief resolution advanced by the government with relation to the taxation of cooperatives. What does it propose? I shall not try to show all the things it proposes, but shall indicate only some of them. It proposes the exemption from taxation of patronage dividends, if they are paid in cash. It requires the payment of patronage dividends to non-members of the cooperative organization. I am now dealing with the main resolution.


Douglas Charles Abbott: No, it does not.


John Bracken: Third, it places a limitation on the exemption on earnings used to purchase the interest of deceased members, unless the purchase is made after 1941.


Douglas Charles Abbott: No.


John Bracken: The minister says, "No." I know he has said that he is going to have it modified in some way, but that is the way I read this resolution and that is the way I think most hon. members read it. If it is not so and if it is not going to be in the bill, so much for that.
In addition, the resolution proposes that there shall be a tax paid on three per cent

of the capital employed, provided that that much is made in the way of profits or earnings.


Douglas Charles Abbott: And not paid out in dividends or interest otherwise.


John Bracken: Whether they are paid out or not, you are going to tax them to that extent.


Douglas Charles Abbott: No, not if they are paid out in interest.


John Bracken: If the concern makes up to three per cent you are going to tax them on the basis of that three per cent earned. That is in resolution 12, no matter what else there is in it. This afternoon when the acting minister came in he suggested that he was going to make some changes, and certain of those changes were incorporated in an amendment which has been suggested but which, I gather, has not been moved.


Douglas Charles Abbott: It has been moved but not yet put.


John Bracken: That is not a matter of importance.


Douglas Charles Abbott: The record will show that one of my colleagues moved it.


John Bracken: That does not matter. I did not hear it moved.


William Henry Golding: The amendment was moved and I read the amendment to the committee.


John Bracken: It is not worth while wasting time on, but who moved it?


Douglas Charles Abbott: The Minister of Veterans Affairs.


John Bracken: Sometimes things appear on the record which have not happened, but that does not matter. If it was not moved, it can be; the minister tells us that it is going to be, so that there is no question about it. What was in his amendment? There were two things in it. First, he moved that the word "six" appearing in paragraph
(a)	of resolution 12 be replaced by the word "twelve". Everybody in the house accepts that as far as it goes, but it changes no principle. To the extent that it does change, it is more acceptable to this side of the house and, I think, to all parties on this side. The second part of the amendment was that the words "after the 1941 taxation year" appearing in paragraph (b) be deleted. That covers one of the objections which members on this side of the house and I myself raised the other day. As a matter of fact, the words in that part of the amendment are almost

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identical with the words in an amendment which I would have proposed myself. The words in my amendment were:
That the resolution be amended by deleting from sub-paragraph (b) the words "after the 1941 taxation year."
In that one respect one of the features of the amendment which I would have moved has been completely covered.
The question was raised a little while ago as to what power a private member would have, either at this or at a later stage, to deal with major aspects of this question. I think I am right in saying that a private member of the house cannot move an amendment, either now or later, which would impair the revenues that the government had decided it wants to get. Therefore we are precluded from moving that the taxation on this three per cpnt be cut out, and we are precluded from moving that the taxation on the earnings or profits or savings of a cooperative during the last two years be cut out.
For the information of the acting minister when he is drafting his bill, I should like to read the other amendments I would have proposed. The minister has to some degree agreed to put these into effect, although perhaps in one instance not completely. The first clause of the amendment that I would have moved and had planned to move until the acting minister proposed to make certain changes was:
That the said resolution be amended as follows:
(a)	by adding after the word "made" in the seventh line thereof the words "in cash or its equivalent of any kind."
That was intended to not limit the exemption on patronage dividends to dividends paid in cash only; it was intended to apply the exemption to dividends paid in cash or some equivalent. The minister has said that he is going part of the way to meet that, and we shall have to wait until we see the bill to know how far he is going. Perhaps that may be too wide; perhaps the minister's plan may be too narrow, but when the bill is brought down the house can deal with it. The other clause of my amendment was:
That the said resolution be amended as follows:
(b)	By deleting from the second line of subparagraph (a), and from the first line of subparagraph (b), the words "his customers," and substituting instead thereof "its members," and from sub-paragraph (c) the words "his contracts with his customers" and substituting instead thereof "its contracts with its members."
The point of that amendment was to see that cooperative organizations shall not be required to pay partonage dividends to nonmembers. The minister has given some indication that he will accept that, as I interpret his remarks. I think that is one thing that all members on this side want done, and to the extent the acting minister does it he will be meeting the wishes of hon. members.
I should like to ask also that the minister clarify as simply as possible just how he intends to apply the taxation to these three types of cooperative organizations for the last two years. I know he dealt with it this afternoon, but that was in the form of a prepared statement which I have not as yet seen.


Douglas Charles Abbott: That was not a prepared statement; that was extemporaneous.


John Bracken: Then the minister can do it extemporaneously again, and perhaps in a shorter time.
I rather hesitate to refer to a matter which was raised by one of the speakers this afternoon. Ordinarily, when a private member asks a question and requests an answer of me I do not feel compelled to give it. This afternoon the hon. member for Dauphin raised a question as to my authority to speak for this party, and he referred to someone in Winnipeg who speaks either for himself or for an organization known as the income tax payers' association.
I think every one admits that we are still living in a country where there is free speech. Mr. Thorvaldson is entitled to speak for himself or for the organization he represents. Whatever may be the merits or demerits of his attitude toward this matter, he does not speak for this party. If there is any question about that, let this one simple statement answer it. The question was raised as to the sincerity of myself or of this party with respect to this matter by the hon. member for Dauphin.


Frederick Samuel Zaplitny: I am sorry to have to
interrupt the hon. member, but that is not a correct interpretation of what I said. There was no question raised as to the sincerity of the leader of the opposition-


James Arthur Ross: There was of this
group.


Frederick Samuel Zaplitny: I do not think there was even that. All I wanted to know was whether he or Mr. Thorvaldson spoke for the party.


John Bracken: If the hon. member had to wait to be told that, he is not half as intelligent as he appears.
With respect to my attitude on this matter, no member who is familiar with the history of the cooperatives in western Canada can have any doubt about it. Let me say briefly that if it had not been for the stand taken by myself and two other men-I happened to be
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premier of Manitoba at the time; another was the premier of Saskatchewan and the other was the premier of Alberta-if it had not been for our attitude with respect to saving the cooperatives from destruction in the year 1930 there would not be any western wheat pools to-day. At that time these well-intentioned organizations, trying to serve their farmer members who formed the organizations, had advanced initial payments on hundreds of thousands of bushels of wheat at a time when the price of wheat was rising. If I remember correctly the payments advanced were 60, 70, 80 and eventually 90 cents a bushel. I am just calling on my memory because this was in 1930.


Mr. WEIR:: One dollar a bushel.


John Bracken: The hon. member for
Macdonald says, "one dollar a bushel." The pools advanced that money to the farmers because the price of wheat was considerably higher, but before the crop was sold the price of wheat went down below the amount that had been advanced. These organizations, in order to finance, had borrowed from the banks, which was a legitimate business transaction, the way they were carrying on their business and had given the banks security on their organization for the repayment of the money. The banks saw the danger that was coming and they were taking the position that the grain should be sold before heavier losses were sustained. The three western premiers, feeling that, if a huge crop were dumped on the market, the price of wheat might be driven down to 30, 40 or SO cents a bushel, went to the banks and said: "Even though you have the power, do not do this. Do not do anything that will cause the market to crash. If now you want to protect yourself and you are afraid, we will guarantee that you will get back the money you lent to these organizations on condition that you undertake not to have this crop thrown on the market."
So the crop was not thrown on the market. The three western governments guaranteed the banks against loss of the money they had advanced to these cooperative organizations. But when the accounting came, the pools got less money for the crop than they had advanced. There were other steps taken, which I need not go into now, and eventually the dominion government was brought into the matter in later years. As I said, the pools had paid the farmers more money than they got for the crop, because in the meantime the price has gone down.
What was the result? I will deal with only one province. The Manitoba pools came into the possession of the Manitoba government

because of the guarantee it gave.. The Manitoba government could have kept these pool elevators. It could have sold them to private concerns. It could have sold them back to the farmers themselves. What did we do? We did not keep them ourselves. We had had in that province a previous experience with government-owned elevators which was not to the credit of government ownership, although I am not blaming government ownership generally. But the results in that particular case were far from satisfactory.
WTe did not sell the elevators to private concerns. Everybody was looking to get the elevators at a low price. We sold them back to the original owners-the farmers-on time. They had no money, but we had faith in their integrity, and we sold these elevators back to the men who had1 owned them before. We sold them back to them, not at the amount we had to pay to rescue them, but at a loss of one and a quarter million, dollars, and if the farmers of Manitoba to-day have a cooperative organization know as the Pool Elevator companies, it is because of that act.
While I am telling the story, let me say that the agreement entered into by that organization, as I remember it, was this. It was to pay for the elevators so much a year over twenty years. We had even to help them with their operating expenses. They have lived up not only to the spirit but to the letter of their agreement, and they now have those elevators practically all paid for.
The cooperatives in Manitoba never asked for any favour from me or from the government I led, and we never promised them any. But they expected, and we were always willing to assure them, that they would get a square deal. And now, as the hon. member for Calgary West has said, the job in this house to-day is to find a fair system of taxation of these and other organizations, to find it without discouraging or hurting these organizations, which, as so many members have said, are a splendid acquisition to the economic life of this country. I would not have referred to this personal experience of the past if it had not been for the question raised this afternoon by the hon. member for Dauphin. I do not ask this house to give favours to the pools. I agree with .those who say that we must find a system of taxation which by itself will not drive the industry of this country from one kind of economic industry to another. At the same time we must recognize what Doctor Coady said this afternoon, that the pools are not only a great economic organization but

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a great social organization, and we in this house must not do anything to discourage their sound development.


*Mr. CLEAVER:: While I support the
cooperatives I think it would be well that all the facts should be brought out, and if it is not going to tax too much our already overworked officials in the department I think it would be helpful if we had on the record the amount of taxes paid by the line elevators during the last five years and an estimate of the volume of business done by the line elevator companies in that period as compared with the volume of business done by the pools.


Douglas Charles Abbott: I do not think we can give the information for individual line elevators.


Hughes Cleaver: I am only asking for the totals, and I am not pressing for it.


Douglas Charles Abbott: We will try to get that information along with the information asked for by the leader of the opposition.


Frederick Samuel Zaplitny: I have a few questions which I think should be answered because they deal with the principle of this matter, and I think this is the proper place for them. Could the minister tell us whether the legislation he has in mind as based on the resolution to be adopted will in any way differentiate between private business and cooperative business?


Douglas Charles Abbott: Yes, it will, more particularly with respect to non-member business. My hon. friend will appreciate that the legislation will have a differentiation in that respect.


Frederick Samuel Zaplitny: The next question is
this. I understand that one of the first provisions of the resolution is that section 4 (p) of the Income War Tax Act will be repealed, although it does not say so in those terms?


Douglas Charles Abbott: That is correct, and that is what the commission recommend.


Frederick Samuel Zaplitny: Could the acting minister tell the committee briefly what are the chief reasons why it is proposed to repeal this legislation?


Douglas Charles Abbott: The reasons are those given in the report of the McDougall commission and also given by the Minister of Finance in his budget speech, Hansard, page 2920, as follows:
The reasons for this recommendation-
That is, that section 4 (p) be repealed.
-are summarized in the report as follows:
"As a result of the ambiguities of language and the difficulty of administering the section, and because we are of the opinion there is no general class or group of cooperative associations in Canada to-day whose income should be declared not to be liable to taxation, we are of the opinion that the section in its present form cannot survive the attacks made upon it."


Thomas John Bentley: I am not quite satisfied with the reply I got a little while ago, and I also think it might be well if the hon. member for Calgary West had a little bit of a reply, so far as possible, given him to-night to his question. His question was, "What is a cooperative and what is a profit?" This resolution is important because it deals with those two very things.
All through our life in western Canada we were in the low income groups, mostly speaking. Every dollar we had to spend to provide for the needs of our families was important. We endeavoured to deal with the various dealers and concerns which we had to buy our goods from at the place of business where we thought we could get the best services or goods for the least amount of money. We found that this was not working as well as we should have liked. We had learned that in other countries, and even in other parts of Canada, there was a way of doing this, to save ourselves some money by buying collectively, because we felt there were too many middlemen between ue and the place where our goods were manufactured, or between us and the product of our labour from the farm and the place where it was finally put into consumable form, that we did not get our full share of the consumer's dollar for our wheat and meat and other farm products, and that we paid far more than the actual cost of manufacture of the goods we had to buy; that there were too many middlemen. Therefore we built these cooperative organizations so that we could pool our money in a collective way, to buy the goods we required with the least use of middlemen or speculators between the makers of these goods and ourselves. We did the same thing in building our marketing organizations. We endeavoured to build by the pooling of our money, not for the sake of interest on the money, but to put the money together to build marketing facilities and a machine which would take a little bit closer, under our own control, our grain and products to the people who were actually going to consume those goods.
That was our purpose. We tried a variety of methods in both the producer and con-
Income War Tax

sumer fields, and the dividing line is so thin that some day we may have to debate that point, but I will not do it to-night.
Earlier in the evening I asked the minister a question about the revolving-door fund and how it would be taxed, and when I had finished someone said that I was just as clear about it as the minister, and he did not understand a word. I said I appreciated the compliment. I am sorry if the minister did not understand what I meant, and I am going to try to make it clear to him. He stated that the intention is to tax any increase in a revolving fund. My question was, what place do you decide is the point above which is an increase? I drew up a little table here to show how a revolving fund works, and why I wanted this question answered, and how the minister might answer it.
I am going to assume that we started a cooperative, a consumer cooperative, if you like, in 1940. We operated that year. One man who had a good-sized family and ran a tractor bought his gasoline, drugs, hardware and groceries from that place, and the amount was a thousand dollars. I make it a thousand for the sake of the even figure. The patronage dividend declared at the end of the season was four per cent, which is $40, fifty per cent of which, by agreement with the cooperative is retained, in the revolving-door fund, to revolve back into his pocket after being employed for four years; that is, in the fifth year it would come back. So that in 1940 he put $20 into that reserve. In 1941 business was not quite so good, so that the dividend declared was not quite so high; it was three per cent on the same amount of goods bought by this man. Therefore the dividend at three per cent is $30, half of which stays in, namely, SIS, making $35 all told. In 1942, on the same amount of business, but because of fluctuations in cost of operation and so on, the dividend is 3J per cent; that is $35 on the $1,000, or $17.50 in the revolving fund.
Do you wish to call it eleven o'clock, Mr. Chairman?	.


Douglas Charles Abbott: I wonder if the committee would allow my hon. friend to complete his example, so that I can have the week-end to look it over.


Thomas John Bentley: It will take me about five minutes. I should like to complete it.


Douglas Charles Abbott: It would be helpful to have the statement, so that I may have an opportunity of checking on the matter.


Thomas John Bentley: I gave the amount in 1942, $17.50. In 1943, the fourth year, the business in the cooperative has been a little better; that is, it has been more efficient in
TMr. Bentley.]
operation, or in some way the dividend is as high as it was in the first year; that is, four per cent again, or $40, fifty per cent of which, or $20, remains in the revolving fund. Added together, this means that in those four years this individual has in the fund $72.50.
Let us now understand the purpose of this fund. It is not for investment purposes; it is his share of the money necessary to provide the facilities and the machinery required to supply him with these goods and services from the shelf, out of the tank, or through the warehouse. He has already paid for these facilities with that. Having served their purpose, they then come back to him from the earnings of the next year, because in that year new members come in and should take a responsible share of financing their share of these facilities which are to serve them, because this is clearly a service organization.
In the fifth year, 1944, the dividends declared on the same amount of money are 4J per cent, which makes $45. That gives him $22.50. That would be a total of $95 that year. The first year, 1940, revolves, and therefore he gets $20 back. That leaves his fund $75. There has been a variation in the fund of $2.50. This year, having got the first year's back it is $2.50 higher, if my mathematics are correct. Does the minister get the point? It can vary from year to year according to the efficiency of the organization and the ability of the men they hire to operate it and buy the goods that they wish to buy collectively to put there. All the way along, because of the operations, they can increase or decrease the dividends, which will vary from year to year. The point I am getting at is, at what stage does the government's plan say the fund has reached a level from which an increase in the revolving fund is considered to have taken place for taxation purposes? Does the minister get the point?


Douglas Charles Abbott: I think I follow my hon. friend, but I would ask if he would allow me to read his statement in Hansard and give him an answer later? If the committee wishes to pass the resolution I shall give the answer on the next resolution or at some other time. It would be better if I followed his statement in Hansard and gave a considered reply. Will the committee care to pass the resolution?


Some hon. MEMBERS:: No.
Resolution stands.
Progress reported.
It being five minutes after 11 o'clock, the house adjourned, without question put, pursuant to standing order.

Questions
Monday, July 29, 1946