1955-06-29

[Stage Direction]
Second report of special joint committee on capital and corporal punishment.-Mr. Brown (Essex West).
Eighth report of standing committee on banking and commerce.-Mr. Tucker.


Mr. Diefenbaker:: 1.	What has been the total amount of expenditures to date on the mid-continent radar defence line?
2.	What is the anticipated total cost of this project?


Mr. Blanchette:: 1.	By 31st May there had been a total expenditure on the mid-Canada line of $978,505. The total value of contracts let at the same date was $32,592,629.
2.	The present estimated cost is $170,000,000 and authority has been given to spend that sum but it must be appreciated that the figure is still only an estimate.
queen mary's veterans hospital, Montreal


Mr. Macnaughlon:: 1.	At Queen Mary's veterans hospital, Montreal, how are the doctors appointed?
2.	What research is being done at Queen Mary's veterans hospital, particularly with reference to heart and blood vessels?
3.	What facilities are present at Queen Mary's veterans hospital for the treatment of paraplegics?


Mr. Bennett:: 1.	There are, at present, employed at Queen Mary's veterans hospital 13 full-time doctors and 130 part-time doctors. Full-time doctors are employed through the civil service commission by the usual procedure.
The part-time doctors are appointed pursuant to a recommendation by the medical advisory board of Queen Mary's, consisting of the chiefs of the various services. A large percentage of these part-time doctors are also on the faculties of medicine of McGill and, in those cases, the recommendation of the university is obtained. The recommendation, if concurred in by the director general 50433-3421
of treatment services, Department of Veterans Affairs, is submitted to the minister for approval.
By this method of employing part-time specialists and consultants, largely connected with universities, it is possible to employ highly skilled doctors.
2.	Because the average age of veteran patients in Queen Mary's veterans hospital is above that found in civilian hospitals and because the department has clinical records for many years, this group of patients is ideal for the study of diseases of the heart and blood vessels which occur most frequently in older people.
At Queen Mary's studies are being undertaken to determine the effect of various diets on diseases of the blood vessels which in turn may cause strokes or coronary thromboses. The effects of certain drugs are also being studied in the hope of finding some method of preventing the onset and progress of these vessel diseases.
In the department of physics at McGill University, the Department of Veterans Affairs has set up a special ultracentrifuge which examines the blood of patients having blood vessels diseases. By its use it is hoped that early indications of vessel diseases may be detected and progression prevented.
3.	There is at Queen Mary's a very modem wing of 30 beds specially equipped to treat paraplegics. The treatment is carried out with the most modern equipment and using the facilities of the department of physical medicine at the hospital.
These 30 beds are continuously occupied and there are about 150 admissions a year of which 30 are new admissions. Where there are vacancies, treatment is made available to civilian patients.
The tremendous advance in the treatment of paraplegics is illustrated by the results of treatment at Queen Mary's. Of 75 new cases admitted between 1945 and 1955, only 2 have died, 5 remain in institutions, and the other 68 have been successfully rehabilitated. Before world war II, 85 per cent of all paraplegics died in the first three months after their accidents.


DISABLED PERSONS ACT, MANITOBA
Mr. Bryce:: 1.	How many persons in Manitoba have applied for assistance under the Disabled Persons Act 1954?	'

Questions
2.	How many persons have been granted a full pension?
3.	How many persons have been granted a partial pension?
4.	How many persons have been refused a pension?
5.	What are the necessary qualifications to receive a pension under the Disabled Persons Act, 1954?
6.	What are the necessary qualifications to receive a partial pension?


Mr. Robertson:: 1.	2,130	as	of	May	31,	1955.2.	371	as	of	May	31,	1955.3.	33	as	of	May	31,	1955.4.	670	as	of	May	31,	1955.5.	The requirements that an applicant must fulfil are set forth in the Disabled Persons Act and the regulations under the act. An applicant who is found to be totally and permanently disabled must meet additional requirements relating to age, residence and income. An allowance may not be paid to persons receiving assistance or allowances under certain other acts, nor to persons in institutions other than as provided by the act and regulations.6.	Partial allowances result from applicants having income that exceeds the difference between the maximum assistance and the maximum amount of income specified in the act as applicable to the case.



H.M.C.S. &quot;DOCKYARD&quot;, HALIFAX  CIVILIAN PAYROLL

Mr. Balcom:: What is the present total weekly civilian payroll as paid through H.M.C.S. Dockyard, Halifax, Nova Scotia?


Mr. Blanchette:: During the pay period 22nd April to 29th April, 1955, the weekly payroll paid through H.M.C. Dockyard, Halifax, was:
Prevailing rate employees of H.M.C. Dockyard, Halifax .. $117,116.64
Prevailing rate employees of establishments outside H.M.C.
Dockyard, Halifax, but paid through dockyard facilities .. $ 46,527.50
Total	 $163,644.14
The total monthly civilian payroll paid through H.M.C. Dockyard, Halifax, including the weekly payroll, for the month of April was approximately $1,316,372.



BUTTER STATISTICS

Mr. Blair:: 1.	What are the present stocks of butter in the hands of the government?
2.	What quantity of such total stocks of butter, is 1954 production?
[Mr. Bryce.3
3.	What quantity of butter has been exported, or sold for export, by the government?
4.	To what countries has butter been exported, and at what price?
5.	Is the government making butter available to private firms for export? If so, to what countries and at what price?


Mr. McCubbin:: 1. 59,269,899 pounds as at June 25, 1955.
2. 41,977,009 pounds as at June 25, 1955.
3.	No export sales of butter have been made directly by the agricultural prices support board. One sale of approximately 300,000 pounds of unsalted butter destined for Europe has been made by a private exporter on the understanding that an equivalent quantity of butter from price support storage stocks will be delivered to the exporter at the equivalent of the European price of butter at the time of sale with proper allowances for point of delivery, salt content and other factors. The exact price will be settled after the export is completed. There are no other definite proposals for the exportation of butter under consideration at present.
4.	See answer to No. 3.
5.	See answer to No. 3.



ST. LAWRENCE RIVER  CLOSE OF NAVIGATION

Mr. Balcom:: 1.	For how long was the St. Lawrence river closed to navigation in the 1954-55 winter season?
2.	What was the average time that the St. Lawrence river was closed to navigation during each of the five-year periods since 1935?
3.	What was the (a) shortest; (b) longest, closed season since 1935?


Mr. Langlois (Gaspe):: 1.	122 days, from December 15, 1954 to
April 17, 1955.	.
2.	1935-1940, 125-6 days; 1940-1945, 124-4 days; 1945-1950, 120-4 days; 1950-1955, 117-8 days.
3.	(a) 1935-1936, 109 days and 1952-1953, 109 days; (b) 1938-1939, 145 days.



DRAINAGE AND FLOOD CONTROL PROJECTS, MANITOBA

Mr. Zaplitny:: 1.	Has the government of Manitoba entered into an agreement with the federal government or any department thereof for the construction of drainage and/or flood control projects in 1955?
2.	If so, what is the date of such agreement?
3.	What are the terms of such agreement?
4.	What amount of expenditure is involved, and what proportion of such expenditure is to be borne by the federal treasury?
5.	What is the nature and location of each such project?


Mr. McCubbin:: 1.	None other than for continuing with the construction of reclamation and flood control works in the Riding, Duck and Porcupine Mountain areas. These works were begun by

the province in 1949 and a yearly agreement providing for a 50 per cent federal contribution has been entered into every year since for varying amounts. For 1955 an item of $150,000 has been included in the estimates to cover the federal government's contribution.
2.	See answer to No. 1.
3.	See answer to No. 1.
4.	See answer to No. 1.
5.	See answer to No. 1.



CABANO, QUE., POST OFFICE  THEFT

Mr. Dufresne:: 1.	On or about January IS, 1954, did one Germain Dumont plead guilty in Riviere du Loup court in connection with a theft from the Cabano post office, county of Temiscouata, Quebec?
2.	If so, (a) what was the sentence; (b) was it fully served and where?
3.	Was one Marcel Belair implicated in this theft?
If so, was any accusation made against him?
5. If not, for what reason?


Mr. Kirk (Shelburne-Yarmouth-Clare):: 1.	Yes.
2.	(a) Three months; (b) No information received from provincial authorities.
3.	No evidence.
4 and 5. See answer to No. 3.



SALMON PLANTING, RIVER PHILIP, N. S.

Mr. Lusby:: 1.	Has the Department of Fisheries completed the experiment scheduled for this year of planting in river Philip, Cumberland county, Nova Scotia, some 66,000 yearling salmon raised from eggs of an early run of salmon at Rocky Brook, Miramichi, New Brunswick?
2.	If not, when will this experiment be carried out?
3.	Are special precautions to be instituted to guard against any illegal taking of the fish so released in river Philip?
4.	Have similar experiments been previously undertaken elsewhere?
5.	If so, do results indicate that the salmon will prove to be early-run in their new habitat?


Mr. MacNaughi:: 1.	No.
2.	44,000 of the 66,000 fry salmon referred to will be marked by removal of one fin and planted as advanced yearlings when conditions are suitable later this year.
3.	Close patrol of the area of planting will be arranged.
4.	Yes.
5.	In 1932 Restigouche river early run salmon fry were planted in Apple river, N.S., considered to be a late run river. On their return to Apple river they did not ascend as early run fish, but were found in the estuary both early and late in common with the natural stock.
Motion for Papers



WAR VETERANS ALLOWANCES, CUMBERLAND COUNTY, N.S.

Mr. Lusby:: 1.	How many (a) veterans; (b) widows; (c) orphans, resident in the county of Cumberland, Nova Scotia, were in receipt of allowances under the War Veterans Allowance Act, 1952, during the fiscal year 1954-55?
2.	What was the total of the allowances paid to each of the three said classes of beneficiaries during such fiscal year?
He said: I would ask leave to withdraw this question so I may reword it.


Mr. Speaker:: Question No. 25 dropped.



QUESTION PASSED AS ORDER FOR RETURN


PRAIRIE FARM ASSISTANCE


Mr. Diefenbaker:: 1.	How many applications for prairie farm assistance have been received in respect of the crop failure for 1954 in each of the three western provinces?
2.	In how many cases have applications been turned down?
3.	Of those turned down, how many appeals have been made in each of the said provinces to the boards of review, and of those, how many have been allowed?
4.	Do the boards of review give specific reasons for the rejection of claims? If not, why is this course followed?



MOTION FOR PAPERS


Mr. Diefenbaker:: For a copy of all letters and other communications which have passed between any persons and groups in the city of Prince Albert, Saskatchewan, and the national parks branch or any minister of the crown since the 10th August, 1954, containing requests to the park authorities or to the minister in charge of the department to have the services of William J. Halstead of Prince Albert in the Waskesiu national park terminated and discontinued.


Mr. Speaker:: The Minister of Northern Affairs and National Resources would like to have this motion stand. Is it agreeable to the hon. member?
Motion stands.



BUSINESS OF THE HOUSE


Right Hon. L. S. St. Laurent (Prime Minister) moved:: That on Wednesday, June 29, 1955, and every Wednesday thereafter until the end of the session, the sittings shall in every respect be under the same rules as are now provided for other days.


[Stage Direction]
Motion agreed to.
[Stage Direction]
Inquiries of the Ministry PARLIAMENT HILL

[Stage Direction]
On the orders of the day:
Mr. J. A. Charlton (Branl-Haldimand):: Mr. Speaker, I should like to ask a question of the Prime Minister. Does not the government consider Dominion day of sufficient importance to have left the decorations on parliament hill up for two more days?


Louis Stephen St-Laurent: I do not think there is any relationship between the respect we have for Dominion day and the decorations that have been provided for the United Nations anniversary. Here Dominion day is a statutory holiday that was fixed by this parliament and that is observed throughout the whole country. It recurs every year. I do not think it would have been appropriate to mark it by flying the flags of all the countries who form part of the United Nations, and that we had displayed on parliament hill for the anniversary of the signing of the United Nations charter.
ILater;]


John Alpheus Charlton: Mr. Speaker, I should like to ask a supplementary question of the Prime Minister. In view of the fact that these decorations are being taken down now, is it contemplated by the government that new decorations will be put up for Dominion day?


Louis Stephen St-Laurent: I have not made any arrangements in that regard, and I think the hon. gentleman's question should be addressed to the Minister of Public Works. I am sure that everything that is usually done will be done, and that we shall continue for a very long time to have the same regard for what it is proper to do on Dominion day as in the past.



REPORTED SALE TO COUNTRIES BEHIND IRON CURTAIN

[Stage Direction]
On the orders of the day:
Mr. G. K. Fraser (Peterborough):: Mr. Speaker, I should like to ask a question of the parliamentary assistant to the Minister of Agriculture (Mr. Gardiner). Can he tell the house what the loss was on butter sold to iron curtain countries, and if there are any other iron curtain countries butter is being sold to?


An hon. Member:: Order paper.


Gordon Knapman Fraser: Oh, you don't want an answer.


Mr. Robert McCubbin (Parliamentary Assistant to the Minister of Agriculture):: Mr. Speaker, since this matter has been discussed in the press, I think I should make a short statement.
Up to the present time, no export sale of Canadian butter owned by the agricultural prices support board has been finalized. However, as the minister mentioned when introducing the agricultural estimates in the house, one small sale has been arranged.
In this connection I would just quote what the minister said on May 27 when he was speaking on his estimates. Discussing the butter situation, he said:
The third proposal made by the Canadian Federation of Agriculture is that small surpluses be exported. We have made one small sale of butter and are investigating the possibilities of others.
This sale is experimental since it involves a Canadian exporter shipping unsalted butter to Europe-the board does not own stocks of unsalted butter-and, after the shipment has been completed, the agricultural prices support board will arrange to trade the equivalent of salted butter to the exporter on a negotiated export price basis. The maximum quantity which may be involved is approximately 300,000 pounds.


Gordon Knapman Fraser: May I ask a
supplementary question. In the press this morning a statement is made that the government would sell to the exporters at 38 cents. Would the parliamentary assistant comment on that?


Robert McCubbin: That has not yet been worked out. Until the deal is completed, and they come back to us, we do not know what the loss or what the price will be.


Mr. Rowe:: It might be 25 cents.


Mr. Drew:: I have a supplementary question which I should like to direct to the Prime Minister. If for any reason it becomes desirable to sell butter held by the government at prices below those which would be paid by the people of Canada, would it not be desirable that arrangements be made with countries whose governments are friendly to us, instead of to communist countries which would benefit by these price arrangements?


Louis Stephen St-Laurent: The possibilities of disposing of the relatively small surplus of butter that was carried over have all been explored, and it would have been more agreeable to the government to have had whatever butter was going to be exported go to friendly countries; but in a general way, you know, we have no personal antipathy against individuals even in some of the countries behind the iron curtain,

Inquiries of the Ministry
and we have no desire to see them suffer that price. Will the institutions in Canada personally. We do not like the conduct of be given the lower price? their governments in many instances, but Mr>
st. Laurent: Well, the whole matter there is no feeling of personal animosity has t>een very carefully considered and the toward the ordinary people of those coun- hon gentleman will realize that we tried to tries. We hope the time will come when the do j-jjg rjgj^t thing by the institutions without feelings we have for the ordinary people of affecting the dairy industry's ordinary mar-those countries we can extend even to gov- ket>
and that is what we are going to ernments which will have improved their contjnue t0 d0i methods of handling their public affairs.


George Alexander Drew: Mr. Speaker, I wish to ask another supplementary question of the Prime Minister in connection with that. Will the Prime Minister not agree that the communist governments will be very careful not to disclose to their own people the source of this butter, if it is of any advantage to them; and also there are questions as to why the Canadian taxpayer should subsidize the delivery of butter by communist governments to their own people in what he describes as limited quantities.


Louis Stephen St-Laurent: There is no intention anywhere of subsidizing the delivery of butter by communist governments to their own people, but there is a desire to maintain a stable condition in the marketing of dairy products of this country. When it was found that there was possibly a small percentage in excess of the butter that would be taken up in the ordinary course of domestic sales in Canada, offers were made to the institutions that were using spreads other than butter at a lower price, and all they were willing to take was supplied to them at the lower price. There still remains something over and above what the normal calculations of the Department of Agriculture felt would be necessary to carry us through to another season and it was felt it would be preferable to have somebody eat that butter rather than have it spoil.


William Earl Rowe: Mr. Speaker, I have a supplementary question. Would it not be desirable for the government to try to work with friendly nations of the United Nations who are hungry for butter to see whether they would not take these relatively small quantities at 20 cents a pound less than the Canadian housewife is paying for it?


Louis Stephen St-Laurent: I am afraid any attempt to work out that kind of an arrangement with friendly countries would be looked upon, by New Zealand, for instance, as rather an unfriendly act and possibly spoiling a part of their market for their product.


Gordon Knapman Fraser: Just one question in regard to charitable institutions. They have a set price now. I understand that the price offered to the exporter is less than



FISHERIES


[Stage Direction]
On the orders of the day:
Mr. Clarence Gillis (Cape Breton South):: Mr. Speaker, may I inquire from the Minister of Fisheries whether he is leaving tonight or this afternoon for a prolonged visit to the Soviet union for the purpose of studying the techniques and methods of the fishing industry in that country? If so, I think before he leaves on what apparently will be a long and tiresome trip we should indicate to him that this is a mission which is most important to the people of the Dominion of Canada, particularly to those who live in provinces where the fishing industry is of great importance at this time. I think we should send off the minister with the very best wishes of this house and an indication of our recognition of the importance of his mission. I hope his trip will be beneficial to himself, to ourselves and to the Soviet union which he is visiting.


Hon. James Sinclair (Minister of Fisheries):: Mr. Speaker, I am not going on a prolonged visit to study fisheries, I am going to attend the annual meeting of the international whaling commission. However, I have asked the Russian authorities if when that meeting is over it would be possible to see some of their fishing industry, which is a large one, and to see how the fishermen work and live. I can assure the house that I am looking forward to the visit and I hope I will represent Canada in a creditable fashion.


Mr. T. G. W. Ashbourne (Grand Falls-White Bay-Labrador):: Mr. Speaker, as chairman of the standing committee on marine and fisheries and as a Liberal member sitting on this side of the house I should like to support the statement just made by the hon. member for Cape Breton South with regard to the mission on which the Minister of Fisheries leaves today. We realize that he is a splendid ambassador of good will and we shall follow him on his extended itinerary with the utmost interest.


Mr. Speaker:: May I interrupt the hon. member simply to say that as representing

Income Tax Act
the whole house I should like to wish the minister a good trip and a successful mission.



NEWFOUNDLAND


[Stage Direction]
On the orders of the day:
Mr. J. A. Power (St. John's West):: Mr. Speaker, I should like to ask the Minister of Fisheries if he would wish to comment on the statement appearing in today's Montreal Gazette about deficiency payments to Newfoundland fishermen?


James Sinclair: Mr. Speaker, other members from Newfoundland have drawn my attention to a Canadian Press dispatch reading as follows:
Payments to Newfoundland fishermen will be made when an audited receipt is received of cash advances made to fishermen in that province by the provincial government.
The tense is wrong. The payments have been made by the province as our agents and all we are waiting for now is the audited statement of the province so that we can reimburse it. No prices support is to be paid on the 1954 catch. The announcement which I made was that a salt subsidy would be paid instead.



INQUIRY AS TO PROSPECT OF ADEQUATE SUPPLIES

[Stage Direction]
On the orders of the day:
Mr. Roland Michener (Si. Paul's):: Mr. Speaker, may I ask the Minister of Defence Production if he can give the house any information or assurance about the supply of steel for construction and industry in Canada, having in mind particularly the current reports of shortages for highway construction?
Right Hon. C. D. Howe (Minister of Defence Production: Mr. Speaker, I am in some doubt as to how to answer that question, as a bill which has a good deal of bearing on this and on my ability to distribute available supplies of steel seems to be in jeopardy. However, I think I can assure the hon. member that the situation will be taken care of to the best of my ability.


Daniel Roland Michener: May I be permitted to ask a supplementary question in view of the answer I have had. My question related to the supply of steel for industry and construction work. I would appreciate it if the minister has any information on that score for the house.



INCOME TAX ACT

Hon. W. E. Harris (Minister of Finance) moved: the second reading of Bill No. 417, to amend the Income Tax Act.


Mr. J. M. Macdonnell (Greenwood):: Is the
minister going to make any statement?
Mr. Speaker, I wish to make a few general remarks on this measure, which obviously is one of the most important to come before the house because from it we realize considerably more than half our revenue, if my calculations are correct. The total receipts for the first two months are approximately $600 million, of which $375 million comes from income tax. At the time of his budget speech the minister is at great pains to predict as accurately as he can the receipts and disbursements over the year. We now have the chance of doing a partial stocktaking, two months' stocktaking, because we have the minister's statement covering the first two months.
I believe it is relevant to do this stocktaking because, in theory at least, it might be possible that the result of the two months might have been so much better or so much worse than the minister's estimates that he might come to us at this time with suggestions that he was going to make proposals different from what he made two months ago. Therefore I propose to read this brief statement which sets out the most important figures, and then to ask the minister certain questions based on this statement, all pursuant to what I suggest is the useful exercise of a two months' stocktaking. The statement is a press release of June 25, and I read part of it which gives us the figures:
Budgetary revenues for May were $382-3 million or $7-8 million less than for May last year, while expenditures were $278-2 million or $32-6 million more than a year ago. The budgetary surplus for May was $104-1 million compared with $144-5 million for May 1954.
For the first two months of the current fiscal year budgetary revenues were $611-3 million, expenditures were $474-7 million and the surplus was $136-6 million. For the first two months of 1954-55 revenues were $635-6 million, expenditures were $461-4 million and the budgetary surplus was $174-2 million.
I hope, when the minister comes to speak, he will himself comment on these figures, going into considerable detail and telling us where the results are better and where they are worse than he anticipated two months ago; in other words, putting us as far as possible in a position to look at the situation with his own eyes and with the knowledge that he has. Now I wish to draw his attention to certain figures in the statement and ask him if he will comment on them particularly.
I now read from the summary of budgetary revenues and expenditures. First of all, I would draw to his attention the fact that for the month of May the personal income tax figures are rather surprisingly down from

those of May a year ago. I would ask him to comment on that fact. I then go on to ask him to comment on certain other things, such as for example, the fact that the national defence expenditures are substantially up, as was the case in April also. I go on to draw his attention to the post office, public works and transport, on all of which I should like him to comment. Then I come to certain non-budgetary transactions such as the S15 million in the exchange fund account and the $25 million in the securities investment account.


Mr. Speaker:: May I interrupt the hon. gentleman just to ask him whether he considers it would be relevant to this debate on income tax to comment upon the increased expenditures in certain departments?


James MacKerras Macdonnell: I submit, Mr. Speaker- as I have tried to suggest-that we now have the opportunity, with two months' evidence before us, to ask the minister to comment on his forecast. Surely he will be able to do that because he will know the figures he had in mind. He will know the departments which have done better than he expected and those which have done worse and I suggest he will be able to enable us to discharge our duty which is, after all, to know all that we can about the finances of our country. With two months' evidence before him he will be able to do what I call stocktaking and to put us in the position that he now is in, whereby we will be better able to judge the likely results of the year. Mr. Speaker, I suggest that that stocktaking is all the more important in a year in which our budget will show a deficit. Indeed, I cannot imagine anything which is more relevant to the consideration of the bill which is going to bring in something over $2 billion of revenue and one which, incidentally, provides for certain reductions which we all welcome. As I said, it is conceivable-although we know it is not an actual fact-that the situation might have altered to the point that the minister was going to propose certain alterations in the recommendations of two months ago.
Therefore, Mr. Speaker, with deference I suggest that there is nothing more relevant in considering a bill, the principle of which is to raise $2 billion, than for us to know just whether the minister has any fresh evidence or whether there are any new situations which confront him, in order to enable us to judge the situation upon which we are called upon to take action in this measure, as I say, for the raising of $2 billion. I might reassure you, Mr. Speaker, by saying that I do not propose to spend much 50433-343
Incovie Tax Act
time on this matter but, with deference, I suggest that I cannot imagine anything more relevant than the matter to which I have referred.


Mr. Speaker:: If the hon. member will allow me to say so, what he has in mind is to have, after two months of experience, a discussion of the forecast that was made by the minister when he made his budget speech. If he thinks that sort of discussion or stocktaking is in order at this moment on this bill, why would it not be in order on the other two bills? The three bills submitted by the Minister of Finance (Mr. Harris) may be affected. It might be contended that he might have some changes to make in the other two bills as well as in this one. When the first item of the Department of Finance is being considered in committee of supply, I think perhaps the hon. member may ask the minister to comment on the statement referred to. But at this moment we are dealing with a bill to amend the Income Tax Act, and only in so far as he believes what he is referring to may affect this particular act would his remarks be considered relevant. In so far as the discussion of a general statement on the conditions of the country may be concerned and the relevant measures of taxation that have been in effect within the last few months, I do not think at the moment they are relevant to this bill.


James MacKerras Macdonnell: I lost a word there, Mr. Speaker. Did you say you did not think they were relevant at the moment or they were most relevant?


Mr. Speaker:: I said I did not think at the moment they were relevant.


James MacKerras Macdonnell: Will you allow me, sir, just to make one further statement? You raised the question of the other two bills and said the same arguments might apply there and they might be relevant. Let me go back to my first argument. Here we are-


Mr. Speaker:: Perhaps if the three bills were before the house for second reading at the same time, I could go along with the hon. member. If the house is willing to have the three second readings put before them at the same time and then the three bills sent to committee on the same motion, I would go along with the hon. member. But as long as we have only one bill at a time before the house, I feel the hon. member will have to make his remarks relevant to the particular bill that is before the house.


James MacKerras Macdonnell: I am not quite sure
whether you are allowing me to go further on this. With deference again, it seems to me you have conceded my principle, and

Income Tax Act
you are only varying it in detail. As a matter of convenience, I suggest that it would not be desirable to have these three discussed at this moment. But I come back and venture to suggest you have conceded my principle, that actually when we are discussing the raising of something more than $2 billion I think you will agree that I was right when I suggested it is quite conceivable-we know it is not the intention-but it is quite conceivable that the minister might be coming to us to recommend changes in what he said two months ago.
If he were, then I think you would agree, Mr. Speaker, that what I am trying to say now is tremendously relevant. There could not be anything more relevant. If I am right in that, surely it is correct to say that before we fix the rates in this bill, which as I say are going to bring in something over $2 billion, we should know what the facts are. After all, we are going to be asked to vote for a deficit which is not an everyday thing. We have been spared that for years. I still hope, Mr. Speaker, that you may allow me to continue my very brief remarks. With deference, I submit that you have agreed with my principle when you said that with a small variation in detail, namely, putting the three bills together, I might be permitted to put forward the arguments which I am now putting forward.


Mr. Speaker:: The hon. member realizes, of course, that if he initiates that sort of a general discussion on this bill and wishes to carry along on the same lines on the other two bills, we are going to have three budget discussions in miniature on the second reading of these three different bills. If I do not issue a warning at this moment, the hon. member will be followed by others in this debate perhaps-I do not know how many may follow the hon. member-and I certainly do not want another budget debate in miniature on the second reading of a bill to amend the Income Tax Act.


James MacKerras Macdonnell: I do not want to be in the position of compromising anyone who wishes to make general remarks on the other bill. I am still on my feet, Mr. Speaker, and you have not prevented me from continuing. I shall be very brief, and of course I shall take due note of your warning. I am sure anyone else who wishes to follow afterwards will do the same.
I have asked these questions of the minister hoping he will answer them either now or at the committee stage because they seem to me to be very important. There is one other point I wish to raise which will depend a good deal on what the minister has to say

to us about the functioning of the department. It is the question of the relationship between the finance department and the other departments, and the control which the finance department is able to exercise. We know that we have heard a good deal of the strong arm methods which are used by the finance department in beating down all the other departments to their lowest terms. This suggestion has never been very convincing to me, Mr. Speaker, because I have always felt the finance department neglected the one way of keeping expenses down, and that is the rationing of expenditures. It is wonderful what people-


Mr. Speaker:: If I may say so with deference, the hon. member is now getting much farther away from the principle of this bill. If the hon. member has remarks relevant to the bill I am sure the house will enjoy listening to them. But if they are to be so far removed from the principle of this bill, I think the hon. member would be wiser if he were to make a serious attempt to discuss the principle of the bill. It is an act to amend the Income Tax Act, and if the hon. member continues to argue along the lines he is following, anything in the administration of the government may eventually affect this act. He could, therefore, talk about almost anything under the sun so far as the administration of the government is concerned. Surely, the hon. member has looked at the bill. It is a bill to amend the Income Tax Act. Let us have speeches relevant to this act.


James MacKerras Macdonnell: As you know, I wish to fall in with you and I even like to think that if I follow your advice-


Mr. Speaker:: The hon. member is killing me with kindness. He is so kind to me when he says he is going to accept my warnings and he is going to try to follow whatever counsel I have given with respect to the rules, that really he disarms me. On the other hand, I am sure he understands my responsibilities and I have to insist that the rule of relevancy be strictly adhered to.


James MacKerras Macdonnell: I am going to follow that. I am a little afraid you may think that what I am saying now might well have been said earlier, but would you help me by telling me what you consider to be the principle of this bill? I consider the principle of this bill to be the method by which we may raise over $2 billion. Will you tell me what you consider the principle of the bill to be?


Mr. Speaker:: All I can tell the hon. member is what I consider not to be relevant to the

principle of the bill. I am afraid the hon. member will have to find out for himself the principle involved in this bill.


James MacKerras Macdonnell: I have been trying to do that, but apparently you do not approve of my attempts. This bill sets the rates by which over $2 billion is to be raised. What I am seeking to find out-


Mr. McCann:: About half the revenue.


Mr. Lesage:: It is an amending bill.


James MacKerras Macdonnell: I realize that; I have read it. I am seeking, Mr. Speaker, to discuss it from the point of view of the amount required, which seems to me very relevant to the setting of rates. That is what I meant by saying that it is quite conceivable the minister may have facts before him which would make him change the rates. I am not going to persist in this, but I still do feel that Your Honour could help me if you would tell me what you consider to be the principle. I cannot believe that the principle is just to change the rates. Surely that is not the principle; it is a point of detail.


Mr. Speaker:: The hon. member has had
the benefit of having the ways and means resolutions studied by the committee on ways and means. At that time ways and means to raise revenue were discussed. Whatever he has in mind now perhaps was relevant at the committee stage when the ways and means resolutions were being discussed.
Now the bill has been introduced and is based upon that which is tantamount to an order for leave, namely that the ways and means resolutions be read a first time, and that they be read a second time and concurred in.
We now have before us a bill to amend the Income Tax Act. What the hon. member may discuss is whether or not the act should be amended in the fashion indicated in the bill. After having given his reasons pro and con he has exhausted the area of discussion permitted under the bill.


James MacKerras Macdonnell: I have only one question to ask, and I shall not persist. Does Your Honour not feel that one event has taken place since we had the resolution stage, and that is the issuing of the statement which we saw only on Saturday last. It is on that basis I place my suggestion that we might ask the minister to answer certain questions. Let me make it clear that I am not going to persist, if what I say does not impress Your Honour.


Mr. Speaker:: The statement to which the
hon. member refers is one which, by law,
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the minister must issue in the regular course. It is made whether parliament is in session or not. If the hon. member, having the benefit of that statement, wishes to discuss it, then he will have to find another opportunity.
Some members appear to think that under the rules they can discuss anything whenever an opportunity, no matter how remote, may appear. I have before me a set of rules which it is my duty to administer and, although I would like to give as much latitude as possible, I am restricted by those rules- and especially so at this time when I know that the estimates of the Department of Finance will have to come before the committee of supply. At that time discussion will take place on the first item with respect to the very matter the hon. member has mentioned, namely the administration of the Department of Finance in relation to other departments, including the machinery put into effect.
The extent to which that particular statement can be debated at that time must be left to the committee of supply to decide. But so far as I am concerned, unless the house gives unanimous consent to go into general conditions in the country, as outlined in the statement to which the hon. member is referring, I must insist that the rules as to relevancy be adhered to. Therefore I would ask the hon. member to co-operate with me in this regard. See Beauchesne's third edition, citation 140; Bourinot's fourth edition, page 509; ruling by Mr. Speaker Macdonald, Journals, Friday, February 24, 1950, page 31; Blackmore's Speakers' "Denison and Brand's" Decisions, 1857-84, page 70.


James MacKerras Macdonnell: Perhaps I might have
a chance to resume the discussion on the first item of the estimates. Meantime I shall say no more.


Mr. Stanley Knowles (Winnipeg North Centre):: Mr. Speaker, I rise to speak for
only a moment. This bill is introduced for the purpose of amending the Income Tax Act. I deeply regret that the minister has not yet seen fit to include in the bill a provision to remove the 3 per cent floor in relation to the deductibility of medical expenses, for income tax purposes. I hope the next time he brings in a bill of this kind he will include such an amendment, for it is long overdue.


Mr. T. S. Barnett (Comox-Alberni):: Mr. Speaker, I listened with interest to the exchange that has taken place between Your Honour and the hon. member for Greenwood (Mr. Macdonnell) as to what constitutes the principle of the bill before us. Perhaps after

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listening to the discussion, and to the hon. member's suggestion that Your Honour should define the principle, I may be overbold in suggesting that it appears to me that at least three principles are involved in this bill to amend the Income Tax Act.
The first of these is as to whether or not this amending bill makes the necessary provision for the raising of funds through this medium. The second is as to what the impact on the economy of the country may be as a result of the changes proposed in the bill now before us.
So far as I am concerned, I feel those principles have been fairly thoroughly discussed in the budget debate, the debates on unemployment, and in other debates; and I do not propose to enter into any discussion of those aspects of the bill. However, I think there is another important principle involved in this bill to amend the Income Tax Act, and that is as to whether or not it removes any existing inequities in the application of the income tax which heretofore may have existed.
My contention is that this bill does not remove those inequities as it should, and I have one example I should like to mention in this debate on second reading of the bill. I have gone through its provisions and have tried to digest them. I have found that the reading of the provisions in resolution form is somewhat simpler and, having read them, it does appear to me that the amendments being proposed, speaking generally, seem to concern themselves much more with changes in the income tax as they affect, for example, people who are going to be issuing capital stock, and the expenses involved in connection with shares, than in removing some of the existing inequities in the Income Tax Act as they apply to ordinary taxpayers whose incomes are derived from wages or salaries.
I am not in agreement with the proposal of an across-the-board percentage of decrease in the application of the personal income tax, but at the moment I shall not enlarge upon that point. I should like however to refer briefly to a question I raised last year in connection with income tax, one concerning which I have had correspondence with the minister. I refer to deductions of expenses involved in the earning of a living by people whose incomes are derived almost entirely from wages and salaries. I feel that people whose incomes come from other sources are in a more favoured position in the matter of making deductions for expenses from taxable income than are people who receive their incomes from wages and salaries. To my mind this bill does not meet the situation satisfactorily.

As a specific example I would refer once again to the plight faced by large bodies of workers who, in the course of earning their living, of necessity must travel long distances from their normal places of residence and must incur the added expenses of board and lodging while away from home. They also incur certain other expenses in connection with the earning of their living.
I have in my hand a copy of a brief submitted to the minister on behalf of the loggers in the coastal areas of British Columbia, and which the minister has assured me would receive consideration. Apparently, however, it has not received sufficient consideration. In my opinion expense payments necessarily incurred in the earning of their living should be deductible for income tax purposes, for that group of workers, just as they are for other groups within the country. This group specifically suggested that some allowance should be made with respect to the cost of transportation to and from their place of employment in the remote areas. Some consideration should be given to the man who is faced with the problem of maintaining a home in a city and at the same time having to pay additional board and lodging while he is absent from his home. To my way of thinking, these are practical suggestions and ones which could very easily have been included in the present bill.
The third suggestion they make is with respect to certain special articles of clothing which that particular group of workers is required to have as a condition of being able to earn their living, such things, for example, as special caulk boots and hard hats. Last year when I raised this question I pointed out that all of the items I have referred to would be deductible for income tax purposes if the expenses were paid out by the employers of those people. They would then be deducted as business expenses. I submit, Mr. Speaker, it is not an equitable state of affairs when the employer is permitted to deduct such things as an expense item in the cost of doing business, and the man who is dependent entirely upon a wage or a salary, and whose income tax is very easily deductible at source, is not given the same privilege.
If one examines the forms on which income tax returns must be made he finds that the T-l short form, which is used by people whose incomes come from wages and salaries, is a form which by its very nature precludes the opportunity for any sort of deduction of that kind at all; whereas the people who use the T-l general form certainly have some opportunities within that form of claiming exemptions for certain expenses. Included among those who use the T-l general are the

farmers and the fishermen of this country. Provision is made for those groups, as I pointed out last year also, to deduct, for example, a certain amount for small tool expenses. There again is an example of how, because of the circumstances under which the income is derived, large groups of people have an opportunity to claim exemptions which are denied to groups of tradesmen in the country, who, as a condition of being able to carry on their employment, must necessarily incur quite substantial expenses for small hand tools. And yet, under the present act and under the proposed amending bill, if it becomes law, they will still be denied any medium through which they can receive the equivalent deductions.
There is one other matter which I feel could very well have been provided for in this amendment to the Income Tax Act. That has to do with the problem faced by many of the young people of this country who are attempting to finance their way through university. As I understand it, if a parent has the kind of income which will enable him to provide education for his children, and the kind of income which will enable him to support them during the vacation period in the summertime when they are not in school, in other words, if he can claim them as being wholly dependent children, then he is in a position to receive certain exemptions on his taxable income on that account. On the other hand, a man who is not in that position and whose sons or daughters go out during the vacation period and work at gainful employment, and are not wholly dependent upon him, loses the right to claim them as wholly dependent children when they are engaged in acquiring a higher education. At the same time, the young people who are working are liable for income tax if their income reaches a figure above the basic exemption.
This is an instance where the bill does not remove an existing inequity from the income tax structure. There are other instances, but I do not want to prolong the debate on this subject. I do feel that the bill before the house is not one which carries out the principle which I have suggested, namely, removing a number of inequities from the income tax structure.


Mr. Donald M. Fleming (Eglinlon):: Mr. Speaker, I should like to make a few observations on the second reading of this bill. I suppose that of all the bills that come before parliament in any session the bill to amend the Income Tax Act is without doubt the most complicated in its provisions. It seems to me that for that reason there could be
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some improvement in the way in which we handle these bills. I recall that-I think it was two years ago-the Minister of Finance arranged with those members of the opposition who were particularly interested in tax questions to sit down with his senior officials and draftsmen and have an informal discussion together. That was a helpful procedure because no Minister of Finance, no matter how clear may be his own understanding of the provisions, or how lucid his attempted explanations in the house, can, it seems to me, clarify the intent and effect of the provisions of so technical a bill as well as can be done in an informal discussion of the sort that was used a couple of years ago.
I suggest that in aid of better understanding of these technical bills and also in aid of expediting the consideration of them in the house.
Sir, the bill before us is no exception to the normal routine followed in respect of the annual bill to amend the Income Tax Act. It represents a sifting out by the Minister of Finance of what are undoubtedly many proposals that come to him for changes in the act. No doubt most of the proposals that have come to him from sources outside government circles are proposals seeking some modification in the provisions of the act, either in the rates or in those provisions having to do with the exemption of income from the application of some of the taxing provisions, or applying exempting provisions of the act to certain individual cases or groups of cases. From government circles no doubt the minister receives proposals of a different nature, proposals arising directly from the administration, where difficulties or injustices may arise which were not contemplated when the provisions in question were enacted previously by the house. And then there is always the question of rates as well. From all these the minister makes his selections and brings them before the house in the form of a bill.
There are many individual amendments to the act in this bill. The minister has not been idle in dealing with the proposals which have come before him. Obviously this bill represents a sifting out or a winnowing of the proposals that have come before him, and the house is now being asked to give effect to this selection.
We may agree with many of them. So far as they are remedial, I am sure the house will agree, but I should like to make one observation. These are the results of the winnowing out of a multitude of proposals which come before the minister, particularly in the months immediately preceding the preparation and the introduction of the budget. They are not winnowings out that are carried on by parliament in any sense. Unquestionably when

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many groups make representations to the minister they are under the impression, an erroneous one, that they are being made to parliament or to members of parliament. Some groups which are more experienced in these matters do take the precaution when submitting briefs to the minister and discussing them with him and his senior officials of sending copies of the brief to members of parliament. Others do not always realize that that is the way in which members of parliament come to know, apart from individuals or representatives of organizations speaking to them directly, what alterations are considered necessary in the Income Tax Act.
I realize that in this respect government policy is involved. None of these proposals can be put before the house in amendment or legislative form unless the government is prepared under our constitutional practice to sponsor them. I realize also that the minister is in frequent contact with interested bodies. There are certain groups in this country who are particularly engaged in a constant study of tax problems, whether in the larger field of rates and the form and nature of taxation or within the more minute range of problems arising out of administration.
The bill before us contains some decreases, but let it not be forgotten that there are also some increases in tax rates. The bill contains some new inclusions and some exclusions from income. The most spectacular change is the 2 per cent reduction in the rates of personal and corporation taxes. When I say 2 per cent I refer to the reduction of two points in the tax percentage.
There is one aspect of the reduction in the rate of corporation tax which should not escape the attention of the house at this time. I do not say that it was not mentioned in the budget debate, but it is certainly something which the house should have before it in approaching this bill. Section 39 of the Income Tax Act divides corporations into two classes. First of all it takes those with taxable incomes not exceeding $20,000, those in what we could term the small corporation class, and then there are the larger corporations with taxable incomes exceeding $20,000 per year. The rates in effect on those two classes of corporation have been respectively 20 per cent in the case of the small corporation, and 49 per cent in the case of the larger corporation if you include the two percentage points which are added on account of contributions to the old age security fund. I am riot overlooking the fact that in the calculation of the tax payable by corporations with incomes over $2b,000 they pay the lower rate on the first $20,000 of their income.

I hope it has not escaped the attention of hon. members of this house that the reduction which the minister has proposed and which this bill now will bring into effect in the corporation tax rate is a reduction confined to the second class of corporation. It does not extend to the first class of corporation. There is no reduction in the rate applicable to those corporations whose taxable income does not exceed $20,000. In my submission that is a regrettable exclusion. It is a regrettable oversight; no doubt an intentional oversight, and therefore the more regrettable. That reduction is denied to small companies or to companies in receipt of the smaller taxable income.
When these remedial provisions in favour of corporations with a taxable income of not over $20,000 were introduced several years ago by the then minister of finance they were generally hailed by all parts of the house as being sound fiscal legislation. Here was an opportunity that was being grasped to encourage the growth of business. Here was encouragement being given to the flowering of free enterprise in order that men in this country might be encouraged to start up in business in a small way, to exercise their skill, ingenuity, resourcefulness and hard work in order to start businesses. We understood the principle to be encouragement for the general good of the establishment of as many businesses as could survive the economic tests of the times. If that principle was sound, and it was conceived to be sound by all parties in this house, what principle now justifies the minister in confining the reduction in the corporation tax to those corporations whose taxable income exceeds $20,000 per annum? It seems to me that we are taking a retrograde step.
The minister will say that these young corporations, many of them small corporations, have since had an opportunity to grow. Surely the birth of small corporations is not a process that is to stop. Surely this process within the constant operation of our economic system and the economic growth of this country is continuous, and the kind of encouragement that was thought to be sound and wise four or five years ago for the benefit of small companies surely is just as sound and wise and as necessary today.
Actually today we have a much higher proportion of our population unemployed than was the case when this legislation was first introduced to give special tax and fiscal benefits to the small corporation. I should have thought that there would be strong reasons today for at least dealing with all corporations alike, but if there is to be any

discrimination as between corporations with small incomes and those with large incomes there should certainly not be discrimination against the small corporations. Yet that is what this legislation does. It effects a reduction in the total income tax levied on the corporations with incomes over $20,000 to 47 per cent. But it leaves the rate static at 20 per cent on the corporations whose incomes do not exceed $20,000 or on the first $20,000 for corporations whose taxable incomes exceed $20,000.
There is one other aspect to this matter where in my submission the minister has failed to take advantage of an opportunity to give some sound fiscal assistance to small businesses. This ceiling on income was set at $20,000 about five years ago. At that time $20,000 meant more in purchasing power than $20,000 means today. It seems to me that the time has come for an upward revision in this ceiling that is now put upon the permissible income of these corporations that enjoy the benefit of the lower rate. Therefore, as earnestly as I can, I urge that if it is not too late the minister should reconsider his refusal to share with small corporations the benefit of the reductions that he is offering to corporations with incomes of $20,000 or over. At the same time he should give the most serious consideration to raising that $20,000 ceiling, which in my submission is no longer an adequate or fair test to apply as between the two classes of corporations.
I hope that no words I have uttered will be regarded as indicating any antipathy toward or disapproval of the proposed reduction in the rate of taxation applied to the larger corporations. We hear from some in this house from time to time claiming that there should not be reductions in the rate of corporation income tax, and we even hear demands that the rate of corporation income tax ought to be increased.


Stanley Howard Knowles: Hear, hear.


Donald Methuen Fleming: There is a sample of it
coming from the usual quarter, the socialists in this house. Sir, you know perfectly well, and every other hon. member in this house knows perfectly well, that the purpose of the C.C.F., the socialists, in advocating what they do in this respect, is not to share the tax burdens equally across this country but by every means at their disposal to confiscate and to make it as difficult as possible for enterprise to survive. The harder they make it for enterprise to survive, the more difficult it becomes for enterprise in this country to go on expanding and providing employment and opportunities for all Canadians.
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Stanley Howard Knowles: Keep your blood pressure in check.


Donald Methuen Fleming: I shall keep my blood pressure in check, if the hon. member will only keep his constant vocal intrusions in all debates at all times and on all issues in this house in check, but I do not believe he can do so. He has never done so yet, and we shall go on listening to him with his 700 interventions per session, or 40 per week, as we have in the past.


Mr. Ellis:: Two-hour speeches.


Donald Methuen Fleming: I did not hear that senseless interjection.


Alfred Claude Ellis: Two-hour speeches.


Donald Methuen Fleming: I suppose that is a sample of the kind of jealousy that goes with begrudging to the official opposition the position it is accorded under the rules of this house as the official opposition.


Mr. Speaker:: Order. Perhaps we could come back to the bill.


Donald Methuen Fleming: Sir, I am happy to stay with the bill, and I hope that the house may be spared these senseless interruptions from the socialists.


Stanley Howard Knowles: It is only the interruptions that are sensible.


Donald Methuen Fleming: There is more of the same thing, Mr. Speaker. I do not suppose you heard it, but the hon. member just cannot help it. There is something about him that he just regards it as normal that he should talk, and when he is silent conditions are abnormal.


Mr. Speaker:: Order. May I ask hon. members to allow the hon. member for Eglinton to proceed without interruptions.


Donald Methuen Fleming: I have no personal objection to it, Mr. Speaker, but due regard should be paid to the rules of the house. Sir, I had been endeavouring to say that I hoped my remarks would not be regarded as a disapproval of the proposed reduction of two percentage points in the rate of corporation tax as applied to the group of larger corporations. I am urging that that type of benefit should be extended to the small corporations. Indeed the rate of corporation tax still remains so high that it would be intolerable, it would be an effective blanket and restraint upon the exercise of enterprise in this country, were it not for the fact that under the present legislation the individual taxpayer is permitted to deduct from the tax he would otherwise pay 20 per cent of the dividends he receives from Canadian corporations on which corporation tax has already been levied.

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However, there are many things in our income tax legislation that need to be reviewed. The Minister of Finance has now been in office for 364 days. Tomorrow, I believe, marks the first anniversary of his having been sworn in to his present office. I can assure him that the good will that I expressed to him at that time on taking up the heavy burden and heavy responsibility that he carries goes to him still in the fullest measure.


Walter Edward Harris: Thank you.


Donald Methuen Fleming: I am sure that the experiences he has had this year in facing, no doubt, a multitude of deputations and wrestling with a multitude of problems-perhaps some of them not new to him, but no doubt many of them new

may have inclined him to view sympathetically the suggestion I should like to make to him, that there should be some form of periodical parliamentary review of this taxing legislation. I am thinking particularly of the Income Tax Act.
When the old income war tax act was supplanted by the present Income Tax Act some six or seven years ago, there was a general revision of the legislation. There was a reference of the bill to the banking and commerce committee. I believe that much more than that type of reference is required to achieve the purpose I have in mind. There we were not permitted to hear the observations of anyone outside the committee. The Minister of Finance indicated that government policy was represented in every section of the bill and therefore there could not be any amendments that did not conform with the constitutional usage.
It seems to me, without subtracting anything from the responsibility of the government or the special responsibility that rests upon the shoulders of the Minister of Finance in regard to the form and nature of amendments to our taxing legislation year by year, that it would be highly useful, not only to the government but also to parliament, to the taxpaying public and in particular to business, which faces the brunt of most of the difficult tax problems that arise, if there could be some form of public review whereby organizations which have made intensive study of our tax legislation and the problems that arise in the course of its administration would have an opportunity of putting their proposals before some wider forum than simply before the minister and his officials. I realize that any such proposals, if they are to be given effect, will still require to have the approval of the government. The minister and his officials sitting with him no doubt will still be required to give approval to them. But our tax legislation, and in particular our Income Tax Act, has now become fMr. Fleming.]
so complicated in its provisions that there are few people who can give an intelligent reading to that legislation. Arising from it there are many problems that require a public hearing in the presence of more than just the minister and his senior officials. It seems to me that having regard to these problems there should be given the opportunity of a periodic general review of the legislation and I hope, in consequence, a periodic general revision as required.
I just give you one example, Mr. Speaker, because I do not wish to prolong my remarks on second reading. I cite this problem just by way of example. It does not appear in the bill. It was not referred to in the minister's budget speech. However, it is the sort of problem that requires serious consideration. We have that provision to which I referred and the right on the part of the individual taxpayer to deduct from the tax he would otherwise pay 20 per cent of the dividends he has received from Canadian corporations which have already been subjected to Canadian income tax. There arises the relation of that form of deduction to the man whose wife is in receipt of an income largely made up of dividends of that nature and whose income is not of taxable amount. As things stand today it seems to me that there is a denial of the full intent of the 20 per cent deduction in a case of that kind. The matter was brought to the attention of the minister in the brief submitted to him by the Canadian Chamber of Commerce, dated February 10, 1955. I shall read just one short paragraph from that brief. It refers to section 38 and section 26 (2) under the heading "Tax Credit on Dividends received by a Tax-exempt Spouse", and reads as follows:
When the income of a wife is over $250 but below $1,000, the excess of her income is in effect added to the income of her husband through a reduction of his marital exemption. If the income of the wife is composed of dividends, the 20 per cent tax credit is lost. Accordingly, it is recommended by the executive council that in such cases the husband be allowed the 20 per cent tax credit on that portion of the dividends received by his wife on which he has to pay tax.
In brief enlargement of that statement I point out this result, and it is one that has been in my mind for some time because I have seen the effect of it in preparing income tax returns for clients. The Minister of Northern Affairs and National Resources (Mr. Lesage) will recall discussion related to this particular problem when he was parliamentary assistant to the Minister of Finance because that was in the days of the introduction of the 20 per cent deduction. Here is a case where, if the income of the spouse is from bond interest or other forms of investment income, apart from dividends, and

her income amounts to $700, that income so far as her husband is concerned is in exactly the same position as the income of another taxpayer whose wife has an income of $700 a year and that income is entirely composed of dividends from Canadian corporations which have already been subjected to Canadian corporation income tax. In that situation, the intended benefit of the 20 per cent deduction is entirely lost. Neither the husband nor the wife derives any benefit from it.
I have selected that point out of many that could be raised, simply as an example of the sort of thing that, it seems to me, requires a forum for discussion which this committee of ways and means, so large in numbers and under such pressure of time, does not adequately afford.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Robinson (Simcoe East) in the chair.
On clause 1-Expense of issuing shares or borrowing money.
Mr. Enfield:: On clause 1 there is a point that I should like to raise with regard to section 11, subsection 1 (1) of the existing Income Tax Act. In regard to this section which I will outline in a moment, I would suggest that the interpretation of the regulations under the act have raised an inequity concerning certain orders made by certain courts. The section generally provides for deductions from personal income tax of certain payments and expenses and this particular subsection sets out the requirements regarding the payments for the maintenance of a wife or children of a marriage where there has been divorce, separation or anything of that nature. There are three requirements: An order for divorce or judicial separation-I may say we have no action for judicial separation in Ontario-a written separation agreement, or alimony payments on a periodic basis. If you come under any of these three and the parties are living apart, such payments can be deducted for income tax purposes.
In Ontario most of this type of work is done by what we call the family court. The family court is not recognized by the income tax officials as a court or at least as a competent judicial body; "a competent tribunal" are the words used in the section. Hence any payments made pursuant to an order of the family court in Ontario are not deductible. I would respectfully suggest that this situation results in some inequity with regard to the act. As I say, the family court handles the bulk of this sort of thing in Ontario.
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Because of this fact and because of the special training the family court officials have received, I think they are highly competent to consider and to dispose of these domestic difficulties.
I can best put this point across by giving the committee a concrete example of how this thing works out. This is an actual case that occurred in Ontario recently. Mr. X and his wife separated about 10 years ago because of incompatibility and Mrs. X promptly made an application in the family court under the Deserted Wives' and Children's Maintenance Act. An order was made providing maintenance for her and separate amounts for their children. This order was varied on several occasions until it reached $50 per month for the wife and $35 per month for each of the three children. At no time would it have been possible because of the feeling between the parties to arrange a separation agreement between themselves. I might point out here that a separation agreement is merely made between the two parties and has no authority of a court behind it other than any other simple contract between two parties but payments made under a separation agreement are deductible. I will go on with the case. In 1952 in this case a writ for divorce was issued and served and the action was heard in the early part of 1954. The husband had continued to make payments through the family court regularly. When the action was heard the judge followed the award of the family court as far as the wife was concerned and increased it to $60. He stated however that he would not disturb the findings of the family court since he recognized their competence regarding the children. The net result is as follows: Mr. X will be paying the sum of $720 per year to his wife which will be deducted for income tax purposes. He will also be paying the sum of $1,260 per year for the support of his children which he may not be able to deduct. I think the situation as I have tried to set it out there is obvious. The income tax officials have ruled definitely that payments made by virtue of an order of the family court cannot be deducted. My suggestion is that this does provide an inequity and I would ask the minister to give some consideration to changing this situation. Perhaps we do not need any amendment. I do not think any amendment to the act would be necessary. It merely calls for some directive or some new attitude of mind on the part of those who are responsible for interpreting the words, "competent tribunal", as set out in section 11, subsection 1 (1).


The Chairman:: Shall the clause carry?

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Donald Methuen Fleming: I am going on to a different point, but I thought the minister was rising to make some comments on the remarks of the hon. member for York-Scarborough.


Walter Edward Harris: No, go ahead.


Donald Methuen Fleming: The first point is that clause 1 is one of the remedial provisions of the bill, and therefore I am sure will be welcome so far as it goes. There are two questions that occur to me in regard to it. The first is as to why, if the legislation were sound, it could not have been given some retroactive effect, at least to recent times.
The subject matter of this section arises, as I think the minister will agree, out of litigation which was disposed of in the courts not so very long ago. Some taxpayers had to incur considerable expense and run the gamut of the courts in order to find at the end that, in addition to paying the tax on that portion of their income which had been expended for the purpose indicated in this section, they had to pay the costs as well.
Now, in a situation of that kind where the government recognizes after a case has run through the courts that the law ought to be changed to conform with the interpretation of the law which the taxpayer in the litigation sought to uphold, and where the government has then decided to sponsor legislation to change the law there is a strong case made out for making remedial legislation retroactive.
The rule, of course, is that we frown upon retroactive legislation where it imposes a burden in any form upon the subject. But that rule does not apply in the case of remedial legislation, as you well know, Mr. Chairman. It seems to me in a case of that kind, in all fairness, the government ought to give very serious consideration to making legislation of that kind retroactive. Now, I realize the difficulty where you are introducing retroactive legislation even of a remedial kind, of putting in an effective date. But in this particular situation, having regard to the history of litigation that is antecedent to this provision of the bill, it seems to me there was every reason for making the remedial legislation retroactive.
The second point I should like to make on the section relates to the extent of the expenses which the taxpayer is now permitted to deduct under section 11 of the act, thereby reducing his taxable income. The explanatory note to the section speaks of the paragraph providing "that the taxpayers may claim a deduction for certain expenses in the course of issuing shares or borrowing money." It is the "certain expenses" to which my question relates. The provisions in the section are not
[The Chairman.]
very clear as to how far these expenses extend. The expression contained in the section is, "an expense incurred in the course of the year", in doing thus and so. One interpretation that has been put on this is that business expenses which may be deducted by taxpayers will now include certain costs incidental to the borrowing of money by bonds, debentures or other means and issuing or selling of shares. Items such as professional fees, printing costs, registration fees and the various minutiae of complying with the legal and accounting provisions surrounding the raising of capital are now to be admitted as deductions. Still excluded, however, from the deductible list, will be bond discount or commission on the sale of securities. I should like to ask the minister to comment on that interpretation that has been put upon the section and to indicate if the definition of expense is going to be interpreted in that way?


Walter Edward Harris: Just before I answer that question, perhaps I should answer what was said by the hon. member for York-Scarborough. He has spoken about this before, and we did give consideration to his remarks during the course of the budget preparation. I would not want to say that the decision we made not to make a change this time was in any sense final. I recognize the difficulties he has dealt with, and we will give consideration to them again, having in mind that there are some people who feel there ought to be a change in this respect.
In connection with the question just asked, I do not know from what my hon. friend was reading when he read that interpretation of the proposed bill, but it is quite correct. Perhaps he was reading the resolution I introduced myself.


Donald Methuen Fleming: Those were not the minister's words. The passage that I read was taken from the tax service edited by Mr. Stikeman.


Walter Edward Harris: It seemed to me, as I listened to the words, that I could not have used better words myself to describe the interpretation of this subsection.


Donald Methuen Fleming: The minister has not touched upon the other possibility to which I referred, of the legislation being made retroactive.


Walter Edward Harris: I agree that there is a principle that remedial legislation can be made retroactive, but retroactive to whom in order to bring about the effect the hon. member has in mind? Would it affect persons who have borrowed money prior to April 5 or prior to the date this bill would become effective or persons who would have borrowed money for this purpose prior to January 1 or July

of last year? If you make it retroactive, you always come close to some other group who feel that they ought to have the effect of the retroactive features. Therefore, it is not possible to do so.
I have an amendment to move to clause 1. Perhaps I may read the explanation of it before I ask my colleague the Minister of National Revenue to move it.
Under section 11 (1) (h) of the Income Tax Act, which has been in the law for a number of years, an employer is allowed a deduction for a lump sum paid to fund a pension for a retiring employee. However, the present law allows this deduction only if the amount is paid in the year the employee retires or becomes eligible to retire. Certain of these plans now provide that the employee shall have a vested right to benefits under the plan after a certain number of years of employment, even if he does not remain with the employer until he reaches the age for retirement stipulated under the plan. If such an employee with vested rights terminates his employment before reaching retirement age the employer has to make a payment to provide the pension benefits, but under a strict interpretation of the present wording of the law this payment is not deductible either at the date of termination or later because at the time of termination the employee is not eligible to retire and when he does reach retirement age he is not an employee of the employer involved.
Therefore, Mr. Chairman, I have an amendment which I would ask my colleague the Minister of National Revenue to move, which carries out the purpose in changing the law as I have outlined, that is to provide for the employer a tax deduction on a lump sum payment he has made and which, by a strict interpretation that I referred to, is not deductible at the present time.


James Joseph McCann: I move:
That Bill 417, an act to amend the Income Tax Act, be amended by renumbering subclause (2) of clause 1 thereof as subclause (3) and by adding thereto as subclause (2) the following:
'(2) paragraph (h) of subsection (1) of section 11 of the said act is repealed and the following substituted therefor:
" (h) where an approved superannuation fund or plan contains a provision under which the taxpayer may provide superannuation or pension benefits for an employee or former employee of the taxpayer by making a lump sum payment to or under the fund or plan in the year in which the employee or former employee
(i)	becomes eligible to retire,
(ii)	retires or otherwise ceases to be employed by the taxpayer, or
(iii)	reaches an age at which the superannuation or pension benefits so provided for become payable or commence to be payable to him,
Income Tax Act
an amount paid by the taxpayer in the year or within 60 days from the end of the year pursuant thereto as the lump sum in respect of an employee or former employee who, in the year, became eligible to retire, retired or otherwise ceased to be employed by the taxpayer or reached the age referred to in subparagraph (iii) (except to the extent that it is deductible under paragraph (g)"'.


James MacKerras Macdonnell: Is it clear in this event that the situation is covered where a man reaches retiring age, but still continues to be employed by the employer after the benefit has become payable?


Walter Edward Harris: Yes. May I repeat that this occurs where, under a vesting, the employee has certain vested rights. However, he terminates employment by leaving. Normally, then, the employer is not to be expected to make the payments, for which everyone supposed he had the right to make deductions, until the pension in fact became payable at retirement age.


James MacKerras Macdonnell: The three alternatives here are-
(i)	becomes eligible to retire-
And perhaps that answers my question.
(ii)	retires or otherwise ceases to be employed by the taxpayer, or
(iii)	reaches an age at which the superannuation or pension benefits so provided for become payable or commence to be payable to him.
Now, my question is this-and I think the minister answered it-that this will cover the case of a man who reaches the age of retirement, but nevertheless continues to be employed in the same employment.


Walter Edward Harris: Yes.


[Stage Direction]
Amendment agreed to.
Clause as amended agreed to.
On clause 2-
Donald Methuen Fleming: This is the clause that relates to the taxation of a portion of the benefit collected by the taxpayer under an insurance policy in respect of loss or destruction of property. Section 6 (ea) of the act now provides that there shall be included in the income of the taxpayer for the taxation year such part of an amount payable to the taxpayer under a policy of insurance in respect of damage to property that is depreciable property coming within the meaning of section 20, as has been expended by the taxpayer (i) within the year and (ii) within a reasonable time after the damage, or repairing the damage.
The effect of clause 2 is to introduce into section 20 of the act a new provision, subclause (5a) following subclause 5. I would like to be clear as to the net effect of the

,	Income Tax Act
proposed change on the provisions of section 6 (ea), the calculation of the amount where it is applied, for example, within a year or within a reasonable time after the damage has been done, and on repairing the damage.


Walter Edward Harris: The explanation is that they have no connection. Section 6 (ea) refers to damage to property under a policy of insurance. Section 20 refers to the loss or destruction of property of a prescribed class. But it is not with respect to the same property referred to in 6 (ea).


Donald Methuen Fleming: I realize there is no amendment to section 6 (ea), but I am just trying to read the two provisions of the law together.


Walter Edward Harris: Under 6 (ea) the policy of insurance would cover damage to property- wind damage, damage from lightning and so on, or any form of damage which is suffered in the normal course of business, or through an act of God. And receipt by the taxpayer of proceeds of the claim would be dealt with under 6 (ea).
On the other hand if you have a complete loss or destruction of property in question, that is dealt with under the new proposed amendment to section 20.


Donald Methuen Fleming: Has there been any difficulty in complying with these provisions administratively?


Walter Edward Harris: I have not heard of any.


James MacKerras Macdonnell: I note on page 2 of the bill at line 12 it refers to "a building of a prescribed class" and I am wondering about the words "prescribed class." I would have found it easier to understand if it had used the words "similar class". What does that mean?


Walter Edward Harris: I think the hon. member for Greenwood knows that under the regulations we have what are known as prescribed classes. This refers to the loss or destruction of an item which is in a prescribed class, as prescribed by order in council.


James MacKerras Macdonnell: Does that mean, in effect, that it will be a building of a similar class, or the same kind of thing that has been destroyed?


Walter Edward Harris: Yes. When it comes to the question of claiming deduction there may be replacement of the item in the same prescribed class.


Mr. Monleith:: What would happen if, for the sake of argument, there had been a frame building-and that is not found frequently

these days, but it could be-and that a complete loss was suffered, and the replacement made with a brick building? What would happen then?


Walter Edward Harris: Well, the class is the building -not whether it is frame or brick.


Jay Waldo Monteith: I do not think that is the interpretation in the act. I believe a brick building is in a certain class in the matter of depreciation allowances, and the like, and a frame building is in another class.


Walter Edward Harris: I agree they are different rates. But the purpose of the amendment is not to confuse the issue. The purpose is to permit the taxpayer to claim deduction within a certain time prescribed for his cost of replacing the item, under the conditions of the regulation. If he replaces a frame building with a brick building, I am sure no law of parliament would seek to prevent progress toward better conditions, and the regulations under the act would be interpreted accordingly.


[Stage Direction]
Clause agreed to.
Clauses 3 and 4 agreed to.
On clause 5-Persons wholly dependent upon more than one taxpayer.
Stanley Howard Knowles: Clause 5 amends one of the most important sections of the Income Tax Act, namely, a section having to do with the deductions that are allowed in computing one's income tax. The change that is proposed by clause 5 is welcome, but I feel we should not let this stage of the session go by without urging the minister once again to consider the question of the statutory exemptions for income tax purposes. We feel, as do a great many people in this country, that the government has taken a complacent stand-pat attitude that these exemption levels of $1,000 and $2,000 are there for all time. In view of the increased cost of living and many other increases that have taken place, in view of the reasons given by the government for the increases in salaries put through this house in the last little while, we feel this whole question of the exemption level should be reviewed and these levels should be raised to higher figures.
The minister has already been congratulated on having survived one year as Minister of Finance. I hope that in his second year he will take a really good look at these exemption levels and decide in his next budget to raise them at least to $1,500 for a single person and $3,000 for a married person.


Donald Methuen Fleming: That is good Conservative doctrine.


James MacKerras Macdonnell: I did not realize we were carrying clause 5. May I ask a question with regard to the wording on line 46, page 3? I shall read the last part of subparagraph (d) of paragraph (5a):
No more than one taxpayer Is entitled to a deduction . . . and in the event of failure on the part of two or more taxpayers otherwise entitled to a deduction under that paragraph to agree as to the taxpayer by whom the deduction may be made, no deduction thereunder may be made by either or any of them.
That almost looks like a case where it was getting around five o'clock and people were tired and did not want to work out the problem that wras left. Surely, that is a very arbitrary way to deal with it, to leave it to the people who are collectively qualified to work out some division, and if they do not, then nobody gets it. I agree that if they cannot work it out there ought to be some arbitrary way of disposing of it. I am not suggesting necessarily the minister get mixed up in family brawls and have to decide between those people. Surely, it is an entirely defeatist way of dealing with the matter, and it ought not to be left in that way.


Walter Edward Harris: We avoid arbitrary legislation.


James MacKerras Macdonnell: It is true it is getting on to one o'clock and the minister wants his lunch. I do not really think that is a constructive answer.


Walter Edward Harris: I think quite seriously the hon. member for Greenwood gave the answer in what he said. He offered no solution to the problem. He recognized what the problem was, that there could be family brawls on this subject, and he did say that he did not think the minister ought to become involved in them, and the minister has no intention of doing so. This is remedial legislation designed to assist the taxpayers who are maintaining dependents under certain conditions. If the taxpayers are not able to work out satisfactory means, then I do not think the government should intervene to do so on their behalf.


James MacKerras Macdonnell: Well, the rather obvious suggestion would be, what is the matter with saying it ought to be divided equally among them.


Walter Edward Harris: Because I presume a family difficulty will arise owing to the fact that they do not believe it is equal between them.


[Stage Direction]
Clause agreed to.
Clause 6 agreed to.
Income Tax Act
On clause 7-Deduction from tax where resident, etc. in prescribed province.
Donald Methuen Fleming: I wish to make a brief observation here. We of Her Majesty's loyal opposition have not attempted to provoke debate on this subject of the deduction of provincial income tax up to 10 per cent of the federal tax paid by a taxpayer in a province which levies a provincial income tax. Our reason is that since this matter was introduced into the budget and since we have known that there was to be a dominion-provincial conference, we have felt that the [DOT]matter should be discussed at that dominion-provincial conference, indeed where it is certain to be discussed, before it should be made the occasion of contention on the floor of the house. I wish to make it clear that that is the reason why we have not entered into a discussion on this subject. We hope and firmly trust that out of the dominion-provincial conference there will come some satisfactory agreement on this subject, at least a serious effort on the part of those concerned to arrive at a just solution.
But I just put to the minister this one question. I do so in the light of observations made on this subject by his predecessor as minister of finance. What is the principle which made it proper to allow a 5 per cent deduction from federal tax in respect of provincial income tax, which will make it proper under the proposed amendment to deduct from the federal tax 10 per cent on account of the payment of provincial tax, but which makes it improper, in the view of the government, to deduct anything more than that same 10 per cent? What is the principle?


Walter Edward Harris: Is this a request that the 10 per cent be made 15 per cent or 20 per cent?


Donald Methuen Fleming: No, it is a question. I should like to find out what is the principle involved? The rate of deduction permissible hitherto has been 5 per cent. It is now to be made 10 per cent. We were told that when one province asked for a higher deduction it could not be done. This was justified on the ground of principle. I am asking one simple question. What is the principle that permitted a 5 per cent deduction hitherto, will now permit 10 per cent under this legislation, but which says that beyond this no further increase in the deduction would be in keeping with principle?


Walter Edward Harris: Well, I still do not quite understand my hon. friend and his final

Income Tax Act
words that nothing beyond this will be permitted. Is his suggestion again that it should be 15 per cent or 20 per cent and not 10 per cent?


Donald Methuen Fleming: No; I am not suggesting what it should be. I am taking note of the fact that a request was made to the government for a 15 per cent deduction and the government refused it, and indeed appeared at one time to be launching a crusade in support of what it contended to be some principle involved. I am just asking a simple question. What is the principle that permitted hitherto a deduction of 5 per cent, will now permit under this legislation a deduction of 10 per cent, but which says that any increase in the deduction beyond 10 per cent would be an offence against principle?


Jean Lesage: Are you preaching for an increase in the 10 per cent?


Donald Methuen Fleming: I am asking a simple
question.


Walter Edward Harris: I do not think I can do better than draw my hon. friend's attention to what the Prime Minister said on January 17, as reported on page 229 of Hansard, when he gave a full explanation of the change which is now being carried out in the income tax law. I must confess to being still somewhat uncertain as to the point of my hon. friend's question.


Donald Methuen Fleming: Can we not obtain a statement on the principle then? We are left without an answer as to what is the principle.


Walter Edward Harris: Read the Prime Minister's statement; the principle is set out there.


Donald Methuen Fleming: I am aware of what the Prime Minister had to say, but it still leaves me asking my question as to what is the principle. Apparently the principle relates somehow to percentage. The principle of a 5 per cent deduction in the view of this government was sound for the past couple of years; the principle of a deduction of 10 per cent is sound in the view of the government or it would not be sponsoring this legislation. I am asking where lies the line, that up to 10 per cent the deduction is sound and in keeping with the principle, but anything beyond that percentage would be contrary to the principle.


[Stage Direction]
Clause agreed to.
At one o'clock the committee took recess.

The committee resumed at 2.30 p.m.
William Alfred Robinson: When the committee rose at one o'clock we were discussing clause 8. Shall this clause carry?


James MacKerras Macdonnell: Mr. Chairman, might I interject this before clause 8 is discussed? I asked the minister certain questions this morning when the Speaker was still in the chair. I should have pressed those when we got to clause 1, but the minister's courtesy is always proof against small oversights of this kind. I am assuming that before this bill is carried-or now, if he wishes-the minister will answer the questions I asked.


Walter Edward Harris: Mr. Chairman, I must say that in the 30 minutes my hon. friend was on his feet, I think at least 21 or 22 were taken up in a discussion with the Speaker on points of order. The only questions he asked me were with respect to the income and outgo as reported in the two-months statement. I am quite prepared to answer any questions about the income, but not about the outgo. With that in mind, I should like to know just what questions my hon. friend has in mind, and I shall answer them at the end of the discussion on these items.


James MacKerras Macdonnell: To save my repeating them, if the minister would send one of his staff to Hansard he could get them that way most conveniently.


William Alfred Robinson: Shall clause 8 carry?


Donald Methuen Fleming: Mr. Chairman, I wonder if the minister would make some comment to elucidate subclause 2 of clause 8 of the bill, and in particular the changes being made in paragraphs (b) and (c) of subsection 1 of section 36 of the act. These provisions are restrictive, as I understand it,


Walter Edward Harris: Yes, Mr. Chairman, they are restrictive. By the addition of the words it is made clear that the benefit of averaging for the purpose of income tax only goes to those persons who receive these lump sum payments in the year of retirement or within the period of time mentioned, one year thereafter. The point, I think, is well taken. We cannot be expected to grant the averaging principle to a series of payments extending into the future.


[Stage Direction]
Clause agreed to.
On clause 9:
Donald Methuen Fleming: Mr. Chairman, on clause 9, I should like to press for some statement. In the debate this morning on second reading of this bill, I drew attention to the effect of this

clause, 9, of the bill. It singles out a particular class of corporations for the minister's bounty in reducing the corporation income tax rate by two percentage points. In this respect, in my submission, if he is going to do any singling out and follow a discriminatory course, he has not selected the small corporations, which could make out a very strong case for reduction. The minister made no comment this morning on the points I sought to put forward, and I should like to ask him to do so now, bearing in mind, if he will, two aspects of the case I tried to state this morning. First of all, there is no justification for discrimination, as this clause will create discrimination in the tax reduction, giving it to those corporations whose incomes exceed $20,000 a year and denying it to those whose incomes are less than $20,000 a year. The second point is that, with the change in circumstances since the present provision was first introduced into the Income Tax Act to tax incomes of corporations with less than $20,000 of taxable income at a lower rate, the $20,000 ceiling then imposed is too small in relation to today's circumstances. There are two opportunities the minister had, in my submission, for introducing sound fiscal measures, and it seems to me they have both been overlooked. I should like to ask the minister to make a statement on these two points, please.


Walter Edward Harris: Mr. Chairman, I did comment on those at the resolution stage, and I have no doubt my hon. friend has read what I said on that occasion. There are, however, two other observations I would make. In the first place the tax rate of 20 per cent, the 18 per cent and 2 per cent, on corporations earning less than $20,000 has one result that is not in common with the other. That is that, if distribution is made, there is in most cases a 20 per cent dividend credit to shareholders. I confess, however, that every change that you make could be open to the argument that you are discriminating. That is, if you make one change, there probably are a great many other changes it could be said you ought to make as a consequence, and I was conscious of these when we were considering the question of reducing the corporation income tax. But it does not necessarily follow that there is any inequity if you lower the corporation income tax in the one case and not in the other. Indeed the revenues that are required to maintain the government could be seriously impaired if we had done much more than we were able to do on this occasion. I think everyone knows I would be glad if there were no taxes and if we could have no rates. So, in choosing any reduction, you are bound to
Income Tax Act
make a choice among the many you have available to you. With that in mind, all I can say is that we did choose to reduce the rate on those corporations which have an income greater than $20,000.


Donald Methuen Fleming: What about the other point, the amount of the ceiling?


Walter Edward Harris: This government has increased the ceiling once from $10,000 to $20,000, and I am quite sure we are capable of making other changes as we feel the necessity may call for them or as the welfare of the people may dictate.


Donald Methuen Fleming: Mr. Chairman, that last answer is not very informative. But I go back to the minister's comment on the first point. He says it is a matter of choice. The fact is that the minister, in exercising his power of choice, has chosen to reduce the tax on the corporations with the larger incomes and has chosen also not to make any reduction on the corporations with the smaller incomes. As I mentioned this morning, I take no exception to the reduction in the tax reduction on the incomes of the corporations with the larger incomes. I support that reduction. But I do contend that the same relief should also be extended to corporations with incomes less than $20,000 per annum.
The minister has spoken about the necessity of choice in framing the budget. I should like to ask him what loss of revenue would have been sustained if the reduction of two percentage points in the effective tax rate had been applied to the corporations with incomes of less than $20,000 per annum.


Walter Edward Harris: We shall have to work that out, Mr. Chairman.


William Alfred Robinson: Shall the clause carry?


Some hon. Members:: Carried.


Donald Methuen Fleming: No; stand.


William Alfred Robinson: Shall the clause stand or carry?


Donald Methuen Fleming: Stand. The minister is obtaining some information with regard to part of my question.


Walter Edward Harris: Stand.


William Alfred Robinson: Stand.
Clause stands.
On clause 10-"Tax otherwise payable under this part" defined.


James MacKerras Macdonnell: Will the minister explain the exact effect of this clause? The note says:
This is an amendment to the definition of "tax otherwise payable" used in calculating the maximum credit allowed for taxes paid to a foreign

Income Tax Act
government. The Canadian tax against which credits for foreign taxes can be applied is the amount of tax remaining after deducting any credit allowed because of provincial income taxes and any credits allowed to individuals in respect of dividends from taxable Canadian corporations.
That seems to affect nothing except the amount from which the deduction is to be deducted. What is the practical effect of it? That is the way I read it, and that does not seem to me to be a practical interpretation.


Walter Edward Harris: I think the explanatory note tries to make it clear that if you deduct from taxes with respect to provincial government taxes and the like, you then have a remainder from which you may deduct the foreign taxes. The deduction for your foreign tax cannot exceed the net tax that you are liable to pay after these other deductions.


James MacKerras Macdonnell: I understand. I wondered if possibly that was the explanation, but it did not seem to be clear from the statement.


Walter Edward Harris: That is the explanation.


[Stage Direction]
Clause agreed to.
On clause 11:
Jay Waldo Monteith: The explanation reads as follows:
The subsection being repealed was enacted in 1946 to provide a restriction on interest because at that time there were long delays in assessing returns. These circumstances no longer exist. The subsection being repealed reads as follows:
And so on. It has to do with the charging of interest to a taxpayer if his assessment has not been completed for 12 months following the filing of the return. If the department is going to have these income tax returns all assessed on time, that is fine; but it is a protection to the taxpayer to have that section in the act in case the department should at some time get behind as it has in the past. I do not quite see why it'is necessary to repeal the section.


Walter Edward Harris: I appreciate the point made by my hon. friend. It is being repealed because the department is now in a position to do what he has in mind.


Jay Waldo Monteith: If they are so sure they are going to keep up on top of these returns, Mr. Chairman, why repeal the section?


James MacKerras Macdonnell: That section would help to keep them up.


[Stage Direction]
Clause agreed to.
Clause 12 agreed to.
On clause 13-Capital cost allowance.
Jay Waldo Monteith: The minister might tell us just exactly what type of circumstances they

might have run into that would cause the change in the wording of this section.


Walter Edward Harris: The circumstance, of course, has been that only if the taxpayer had a future interest in the property could he claim the items under discussion. That would mean that the trustee concerned could perhaps make a claim. This section now puts in the hands of any person interested in the property the right to claim the deduction provided, of course, that there is only the one deduction, and that somebody else has not claimed it; that the trustee has not claimed it.


[Stage Direction]
Clause agreed to.
On clause 14-Special tax rate.
Donald Methuen Fleming: Clause 14 falls into the category of the creation of new taxes or increased taxes, something that we should not lose sight of in talking about such reductions as the budget has made in taxes. I take it that when we find new taxes created of a particular nature, their purpose is either the raising of revenue or the elimination of some preferred position that might have been thought to be discriminatory. May I ask the minister what is the reason which has moved the government to propose this new tax?


Mr. Benidickson:: This clause actually
confers a benefit. There will be some small loss to the government as a result of this amendment because shareholders of these investment companies will now be able to claim for the 20 per cent dividends deduction for which they were previously not eligible unless the investment company had voluntarily elected to pay the corporate tax.


Donald Methuen Fleming: May we take it that no net revenue yield is anticipated as a result of this change, but that such yield as may be received from the new tax imposed under section 69 will be more than offset by the 20 per cent deduction right enjoyed by shareholders of investment corporations?


William Moore Benidickson: That is the expectation.


James MacKerras Macdonnell: In how many cases,
roughly, has the choice been made in the past? In other words, in how many cases have companies elected to pay the tax so that the shareholders could benefit?


William Moore Benidickson: I understand up to now that about two-thirds of the investment companies gave up their tax-free status in order that their shareholders would be able to have this other right.


[Stage Direction]
Clause agreed to.

On clause 15:
Jay Waldo Monteith: At the top of page 11 I notice the following:
"(b) it has, not later than 90 days after the commencement of the taxation year, elected in prescribed manner to be taxed under this section; and"
The part to be withdrawn reads in this way:
"(b) it has, within 90 days from tne commencement of the taxation year, elected in a prescribed manner to be taxed under this section; and"
The explanation is as follows:
This amendment makes it clear that a company does not have to file a new election each year.
I just do not understand that difference in wording, Mr. Chairman; in the one case it is "not later than 90 days" and in the other case it is "within 90 days".


Walter Edward Harris: I think the wording really
makes clear what is intended. If you had left it "within 90 days", that would require annual election but when you say "not later than 90 days", after they have made one election, it is not necessary to make another.


James MacKerras Macdonnell: The clause contains the words "not more than 10 per cent of its gross revenue was derived from rents". May we have an explanation as to why that business was picked out particularly, or why it is only that kind of business which is legislated against?


Walter Edward Harris: During the course of the past few months, Mr. Chairman, there has been some difficulty in the courts in determining just what rentals were earned income and what were not earned income. In order that there would not be any doubt, we merely moved it into the class referred to here and there should not be any doubts in the courts as to what is meant by 10 per cent of the gross revenue derived from rents.


James MacKerras Macdonnell: That is another point we are coming to, the question of rental income being earned income. The point here is the picking out particularly of the 10 per cent coming from real estate. Is that the only kind of competition you are heading off? Is it confined wholly to that?


Walter Edward Harris: Yes, Mr. Chairman, the point is we did not think that we should permit a non-resident investment corporation to carry on the business of rentals and have the advantage.


James MacKerras Macdonnell: I understand that, but the thing I am not quite clear about is whether that is the only kind of business in which you think a non-resident-owned corporation should be prevented from competing with home business; that is my question.
Income Tax Act


Walter Edward Harris: At the moment, at any rate, it is.


James MacKerras Macdonnell: I should like to explore it a little further. Have we run into a great deal of practical difficulty under the situation as it is? Do we find non-resident corporations crowding into the real estate field?


Walter Edward Harris: Yes. I do not mean my answer to be in any sense limited. We are attempting annually to do these things that experience has shown should be done. My hon. friend would not expect me to say now I think this is all we ought to do with respect to non-resident corporations. My answer was that at this moment we feel those are the difficulties which should be overcome.


James MacKerras Macdonnell: I think I understand. Really, it is an indication that if people want things done they had better make representations to the minister, and continue doing so.


[Stage Direction]
Clause agreed to.
On clause 16:
Daniel Roland Michener: I wonder if the minister would explain a little more clearly the purpose of this clause. Apparently, it is to protect Canadian shipping, but I am not very clear just what its operation would be from the clause in the bill. At the same time, may I ask whether representations which were made after the resolution was introduced have been considered and any amendment is proposed?


Walter Edward Harris: Yes, I have an amendment which I hope my colleague the Minister of National Revenue will move. By way of explanation I should like to remind the committee that clause 16 of the bill provides a new condition for foreign business corporations. It has been suggested that under the existing wording of the bill a corporation might be said to derive more than 10 per cent of its revenue from leasing or operating a ship or aircraft if it receives more than 10 per cent of its revenue from a subsidiary which operates a ship or aircraft. This amendment to the bill, which adds the words "by it", is to make it clear that the revenue taken into consideration must be derived as a result of the corporation itself operating or leasing a ship or aircraft.


James Joseph McCann: I move:
That Bill No. 417, to amend the Income Tax Act. be amended by striking out line 12 on page 11 thereof and substituting therefor the following:
"the leasing or operation by it of a ship or aircraft".


James MacKerras Macdonnell: There is one question I want to ask. I notice that in item 11 of the resolutions it says that for the year 1956 and

Income Tax Act
subsequent taxation years, a corporation any part of whose income was derived-this is now changed to 10 per cent. What is the reason for that?


Walter Edward Harris: Yes, Mr. Chairman, it is a fact that the resolution did cover any part of its income, but after considering the representations that had been received we felt there ought to be a specific portion of income, and that is why we made it 10 per cent.


James MacKerras Macdonnell: It was suggested to me in this connection that there was a certain treaty arrangement with the United Kingdom and perhaps others, which may have a bearing on this. Is this arrangement in any danger of conflicting with any treaty arrangement?


Walter Edward Harris: No, Mr. Chairman.


[Stage Direction]
Amendment agreed to.
Clause as amended agreed to.
On clause 17:
Jay Waldo Monteith: In connection with this
clause, section 72(1) reads:
There may be deducted in computing the income tor a taxation year of a taxpayer who carried on business in Canada and made expenditures in respect of scientific research in the year
(a)	all expenditures of a current nature made in Canada in the year.
Then, there is subsection (b) which reads:
(b)	the lesser of
(ii) the undepreciated capital costs to the taxpayer of the property so acquired as of the
beginning of the taxation year.
Now, according to this clause, the new subsection will read:
The undepreciated capital costs to the taxpayer of the property so acquired as of the end of the taxation year (before making any deduction under this paragraph in computing the income of the taxpayer for the taxation year).
I am sorry, but it is not quite clear to me what is meant by "before making any deduction"-the wording in the brackets.


Walter Edward Harris: The purpose of the amendment is, as I think my hon. friend appreciates, to add to the advantages of the taxpayer in that at the moment he can only claim the capital cost acquired as of the beginning of the year, and therefore he would lose a deduction for anything he may acquire during the whole of that first year. Now, this gives him the advantage of back dating, if you will, depreciation for anything acquired prior to the end of any year.


Jay Waldo Monteith: In the explanation of this change in clause 17 the note says that this is a change in wording to make it clear that the deductions permitted in respect of capital expenditures for research commence in the year the expenditures are made. Now, may

I take it that this is one particular research project that you are referring to that commences in the year the expenditures are made? If this is a separate project for research which commences the year before, then the capital cost allowance as at the end of that year would be written off, I suppose?


Walter Edward Harris: That is right.


[Stage Direction]
Clause agreed to.
On clause 18-Limitation.
Donald Methuen Fleming: I believe this provision is clear, but I should like the minister's assurance that the intention with respect to this small amendment is to bring the French version into keeping with the existing English version. I understand there is no intention of making any change in meaning. The English version uses the expression "in respect of a period" and the change obviously brings the French version into line with the English. I take it that the word "durant" was just a mistake in translation when the French version was first settled.


Walter Edward Harris: That is correct.


[Stage Direction]
Clause agreed to.
On clause 19-Allocation contingent or absolute taxable.
James MacKerras Macdonnell: Would the minister give a further word of explanation. The note says:
This amendment provides that an officer or employee who Is a beneficiary under a profit sharing plan need not include in income those amounts allocated to him by the trustee under the plan which have been derived from reallocations of amounts which have at some previous time been allocated to him or some other beneficiary under the plan.
Would the minister say a word on that.


Walter Edward Harris: The purpose is that where you have a profit sharing plan and at the end of a given period of time a sum of money is allocated to an employee, he is then subject to taxation on that amount. If there is subsequent reallocation as a result of employees withdrawing from the plan this would avoid tax being paid the second time for the same amount.


[Stage Direction]
Clause agreed to.
Clause 20 agreed to.
On clause 21-Exemption jor three years.
Walter Edward Harris: There is an amendment to this clause. The purpose is to clarify the section. The lines in the bill which the committee is asked to amend list several things as not being classified as mines. This amendment adds a clay pit and shale pit, to make it clear that these deposits shall not be classified as

mines. It also provides that deposits of oil shale and bituminous sands shall be classified as mines.


James Joseph McCann: I move:
That Bill 417, an act to amend the Income Tax Act, be amended by striking out lines 42 and 43 on page 12 thereof and substituting therefor the following:
'(a) "mine" does not include an oil well, gas well, brine well, sand pit, gravel pit, clay pit, shale pit or stone quarry (other than a deposit of oil shale or bituminous sand: and'


Donald Methuen Fleming: Would the minister enlarge somewhat upon the general purpose of this amendment. I had intended to ask a question before the amendment was moved, in which I was about to point out that I believe it is unusual to have negative expressions in a clause of this kind. Will the minister say something broadly about the reasons for approaching the problem in terms of the exclusion of a long, and now a longer, list of things. The new section is quite different in form from the one it is replacing.


Walter Edward Harris: From the time when these special advantages were given to those who would develop and derive earnings from mines, there has been no specific definition of such mines, except that contained in this section. At one time undoubtedly the purpose was to compensate, if that is the proper word, those who were developing the country and who were risking money for purposes of that development. In that connection certain types of concessions were granted. We had in mind always the risky ventures, ones in remote areas which would require at least the risk of considerable sums of money to bring them into production, rather than the more obvious items such as, for example, sand pits. These are on the surface, and it is easy to see whether they will yield a return, and that can be found out without very much difficulty if one is able to estimate accurately. I agree with the hon. member that it is unusual to have negative expressions in a bill. Nevertheless the purpose of these words is to define a mine, actually, and to define it from time to time as circumstances arise which would make it necessary to interpret the policy of exemption.
I agree with what the hon. member said earlier, that if one had a general revision of the bill there is no doubt this type of thing would receive a good deal of attention. I think he would agree with me however that changes in definition would have to take place as circumstances arose, and as requests were made for exemptions in respect of new projects. You would have to judge in each case whether it came within the terms of your stated policy.
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Donald Methuen Fleming: I hope no difficulty will arise under the new definition. It would seem that the general intent of the section is to place on a permanent basis the exemptions which hitherto have been on a three-year basis. I am sure there will be general agreement with that purpose. However, the new form of definition is a quite wide departure from the form which has existed up to this time. The present section simply provides:
Where a corporation establishes that a mine was
(a)	a metalliferous mine, or
(b)	an industrial mineral mine certified by the Minister of Mines and Technical Surveys to have been operating on mineral deposits (other than bedded deposits except sylvite).
This is a radical change in the form of definition. I think it will be appreciated by all hon. members that when a specific enumeration is employed, even where as in this instance it is an enumeration couched in terms of exclusion, difficulties may arise. I would express the hope that sufficient thought has been given to the new definition that no difficulties are likely to arise within the next year.


Walter Edward Harris: Difficulties may arise, of course; but at the moment none of the projects which are now redefined is receiving the advantage of this section.


James MacKerras Macdonnell: I would ask the minister whether this clause, and subsequent clauses with regard to depreciation, implement exactly the items in the Income Tax Act. In other words the intention is to implement what is here, and not to go beyond that?


Walter Edward Harris: That is right.


James MacKerras Macdonnell: In those circumstances I would like to put on record one or two comments regarding depreciation, because I wish to have them before the minister. I think also they should be on record.
The amendment, as I understand it, will permit oil or mining companies to expense expenditures on either oil or mining exploration in cases where the expenditures were incurred otherwise than on the company's own account, in consideration for shares or an option or right to purchase shares of a corporation on whose account the expenditures were incurred. This would have application where a company participates in the exploration of mining or oil properties with others, through the medium of a corporation set up specifically to hold those properties and to explore them.
This amendment does not apply to oil company mergers and amalgamations, of which there have been a number in recent years. There still does not appear to be any provision made or contemplated in the statutes whereby such mergers can be carried out without the successor company losing

Income Tax Act
the benefit of the expenditures for drilling and exploration costs to which its predecessor or predecessors would have been entitled.
This problem is a serious one, especially for shareholders of the smaller Canadian oil companies which have in recent years been merged with others, or which may have to be consolidated in the future in order to survive. Reasons for mergers are usually the conventional ones-economy in operations, reduction in overhead, consolidation of properties, provision of additional finances, the fight for survival. Practically all such companies have incurred expenditures for exploration in excess of their income in anticipation of the application of such expenditures against future taxable income. The right to charge off those accumulated losses against hoped-for future income is not extended, under present tax policy, to a successor company.
If for no other reason than that the policy discriminates against the thousands of small Canadian investors in smaller Canadian oil and mining companies, I trust that the government will not delay too much longer in amending the Income Tax Act to permit carrying over into company consolidations and mergers the right to write off qualified exploration expenditures. The Canadian Petroleum Association, I might say, has been urging such a step on the government for some 17 months.
Let's consider now depletion allowances, which as now constituted in Canada place the Canadian company at a competitive disadvantage with American companies in the acquisition of and development of Canadian oil and gas resources. While it is vitally important that we have a continued large inflow of foreign capital, particularly American investment, it is at least equally important that the maximum possible Canadian investment and equity be maintained in our own resources. Revision of present depletion allowance policy would go a long way toward increasing the Canadian stake in our western resources, by offering Canadians greater encouragement to invest in competition with Americans in this resource development.


William Alfred Robinson: Shall the clause as amended carry?
Clause as amended agreed to.
Clause 22 agreed to.
On clause 23-Expenses deductible under certain enactments deemed not otherwise deductible.


Donald Methuen Fleming: Mr. Chairman, one can see the purpose of clause 23, but I should like some information in regard to the effect it is going to have. The explanatory note deals with the matter; because the crown owns these corporations is no reason why they should be regarded as associated. Will the minister indicate what payments of income tax are being made by these crown corporations now?


Walter Edward Harris: I do not think I can add very much to the explanatory note, which really makes it clear that the crown corporations as such, because they happen to be crown corporations, should not be considered in the same class as those for which we are legislat-

ing at the present time. When they are not, then they are not subject to the restrictions imposed on others.


Donald Methuen Fleming: I follow that. I ask as a matter of information for the amounts that these crown corporations are paying by way of income tax today.


Walter Edward Harris: I shall have to get that for the hon. member.


[Stage Direction]
Clause agreed to.
Clauses 24 to 26 inclusive agreed to.
On clause 27;
Jay Waldo Monteith: On clause 27, we are really dealing with three other subjects, namely, clauses 85E, 85F and 85G. I gather that the change in clause 85E simply clarifies the fact the inventory is to be valued on the sale of the business. I shall read paragraph (2) (b):
Where an agreement as contemplated by paragraph (a) has not been filed with the minister within 60 days after notice in writing by the minister has been forwarded to the vendor and the purchaser that such an agreement is required for the purpose of any assessment of tax under this part, such part of the consideration paid as is fixed by the minister shall be deemed to be the price agreed upon by them as the price paid for the property so sold.
I think the change in the act with respect to the inventory is quite sound. I should like to comment on clause 85F. It is quite obvious now that this applies to somebody who is in the farming business, and I presume fishing, or in a profession. In other words, a person who has been paying tax on a cash basis. I think we wasted a lot of time when we were discussing item No. 8 of the budget resolutions, trying to find out just what it did mean. If item No. 8 had been more clearly set out we would not have had to question the minister. I think the change in the act is sound. With respect to clause 85G, I am wondering whether it is an indication that the department has changed its thinking on reserves as a whole. Sometime ago it was considered that a certain percentage of the accounts receivable, for instance, might be regarded as possibly bad. Time went on. The department changed its thinking and decided there ought to be specific accounts to justify a bad debt. Apparently a company lending money on the security of a mortgage is going to be allowed to go back to a straight percentage basis. Is that correct?


Walter Edward Harris: Yes.


Mr. Quelch:: Can the minister explain what the main difference is under clause 85F between this proposal and the present method under which a farmer files an income tax return when he is on a cash basis? I can understand 85D(1) and (E)(1) but I do not understand (D)(2) and (E)(2). Does that mean that a farmer on a cash basis would have to pay income tax on the increase in livestock whether they are sold or not?


Walter Edward Harris: Perhaps my hon. friend would make a little clearer just what he has in mind. There is no intention to change the present method of dealing with cash returns.


Victor Quelch: That is all I want to know. There is no change there.


Daniel Roland Michener: This clause deals with
farmers and fishermen. May I ask the minister whether consideration has been given in the department to the question of the pension payments of self-employed people which we discussed at length last session but which has not been mentioned this session. At that time I thought I got the impression that the department was giving study to a method by which those who are selfemployed might be able to accumulate some tax exemptions for their pension savings as those who are working for others do. Perhaps this is not the right place to raise the matter. The minister can tell me whether the matter is still under consideration and whether any progress is being made.


Walter Edward Harris: I covered this very briefly at the resolution stage, but I can amplify it by saying that I spent one of my Saturday afternoons reading the very excellent speech of the hon. member for St. Paul's on this subject and I assure him we are studying the problem.


Daniel Roland Michener: That is some satisfaction. Is any progress being made?


Jay Waldo Monteith: With respect to mortgage reserves, I should like to ask the minister how the figure of 3 per cent was arrived at? In the first year in which it comes into effect how is the adjustment to be made? Apparently there was some actual reserve in effect at the end of last year, according to specific doubtful accounts, and then coming along at the end of this year the 3 per cent reserve is to be allowed. I presume the adjustment will be charged to operations in the current year. I should like the minister to clarify that, if he would.


Walter Edward Harris: This again is one of those decisions that might have been any other percentage. However, an attempt was made to
Income Tax Act
determine what we considered was the proper percentage which a company under these conditions might have by way of a reserve at the expense of the taxpayers of Canada. Whether 3 per cent was correct, or whether it should be 2, 4 or 5 per cent, I could not say, but I am recommending 3 per cent. I believe that on the whole it will be found acceptable to those who felt that there should be a reserve of this kind.
With respect to the second part of the question, I think it has reference to the words at the bottom of page 22. This is a most complicated section which I think leads one to think at first reading that possibly there would be no reserve. The purpose is to permit one to have a reserve of 3 per cent building up at the rate of one-twelfth per year which I think presupposes that there would always be some reserve.


James MacKerras Macdonnell: In connection with the accounts receivable part of this long section, representations have been made to me which I wish to read to the committee because I think it would be possible administratively to deal with this discrimination-I think it could be called that-however unintentional. This reads:
Resolution No. 8 of the proposed amendments to the Income Tax Act reads as follows:
"8. That for the 1955 and subsequent taxation years proceeds of a sale or realization of inventory or accounts receivable of a taxpayer upon or after selling or ceasing to carry on a business be included in computing income, but that the taxpayer be given the option of paying tax in respect thereof at his average rate of tax for the three taxation years immediately preceding the year in which he sold or ceased to carry on the business."
For an individual the ''taxation year" is the calendar year, in which case this resolution would only apply to transactions made after December 31, 1954, whereas in the case of a corporation the "taxation year" is the fiscal period, so that as presently worded the resolution could apply to transactions of the nature contemplated which had taken place in 1954, depending on the date of its fiscal year end.
One case has come to my notice of a company with February 28 as its year end, where the major portion of the business including inventories was disposed of during the summer of 1954, with the transaction being completed strictly in accordance with the income tax regulations then in force.
It may be claimed that a corporation's taxation year would end when it ceased to do business, upon the sale of its inventory or accounts receivable, but this would not hold if it had other revenue producing property, such as securities, which had not been disposed of until 1955. Consequently, if the sale of inventory or accounts receivable took place during a fiscal year which ended after December 31, 1954, the corporation could be required to include the proceeds in income, whereas if the fiscal year coincided with the calendar year the corporation would not be affected by the proposed resolution, even though the sale had been made on the same day in both cases.

Income Tax Act
The resolution as now submitted would therefore appear to be discriminatory not only as between individuals and corporations, but between corporations with different year ends. In addition, the retroactive feature could prove a real hardship in many cases.
It could be that it was not the minister's intention to make this legislation both retroactive and discriminatory and I am wondering if you would care to raise these points when the resolution in question comes up for discussion before the house in committee.
It seems to me that there is substantial discrimination and I am wondering if it could not be met by providing a fixed date and not referring it to the phrase "taxation year", which I think quite obviously could introduce great inequalities which are not intended.


Walter Edward Harris: I am sure the representations which have been made to my hon. friend cover some of the awkwardness created by the adoption of the present section. Nevertheless it has been our custom to apply laws during the taxation year and the discrimination which my hon. friend speaks of is discrimination which, if it exists, exists on every occasion when you make a change of this kind. While I recognize the possibility that some person will be taxed while another person may not be, I think that is one of those things that we will have to face when we meet it.


James MacKerras Macdonnell: I am not seeking to argue against the general principle which the minister has just mentioned. One or two other things have been stood over for consideration and I wonder if the minister would not just take a look at this to find out whether it would really hurt the public interest if this were done. He has admitted that there is discrimination; in effect he says it is the rub of the green and you cannot get away from it. Actually he did not say that you cannot get away from the very points I am raising. Would not the minister consider whether in fact this could or could not be done, perhaps without any injury to the public interest and certainly with a view to removing what could be great hardships to individual institutions.


Walter Edward Harris: I have two amendments which I should like to have my colleague move. One is purely technical concerning the renumbering of sections, and the other provides that sales shall be those sales made after April 5, 1955.


James Joseph McCann: I move:
That clause 27 of Bill 417, an act to amend the Income Tax Act, be amended by renumbering paragraphs (d) and (e) of subsection (1) of section 85F on page 21 as paragraphs (c) and (d) respectively.


[Stage Direction]
Amendment agreed to.
James Joseph McCann: I move:
That clause 27 of Bill 417, an act to amend the Income Tax Act, be amended by striking out lines 9 and 10 on page 23 thereof and substituting therefor the following:
"is applicable in respect of sales made after April 5, 1955, of property referred to in section"


[Stage Direction]
Amendment agreed to.
James MacKerras Macdonnell: I have another point which I wish to raise, and I do not know whether the minister has an amendment up his sleeve to cover this one as well. I would be glad if he would certify that the amendment was offered only because of my representations, but I expect that that is asking too much. I want to raise the whole question of changing the character of accounts receivable and inventories in the case of transactions such as those we have been discussing. I take it that this is legislation to nullify the effect of certain judgments of the income tax appeal board and I should like to refer briefly to one or two of those judgments and ask for further elucidation of the change. I refer first to No. 10 v. Minister of National Revenue, 3 Tax Appeal Board Cases, 367, where we find the following:
At the request of counsel for the appellant, this appeal was heard in camera. The point involved is the taxation, in the appellant's 1946 income tax assessment, of an amount of $9,147.32 as a profit on the sale of the appellant's inventory in a business which had been carried on by him since 1901 until it was sold In the fall of the year 1945.
The appellant, who was a sole proprietor, had another business of a similar nature which he conducted in another city, and which he had commenced at a date much later than the business with which we are concerned in this appeal.
The appellant's evidence was that, in the fall of the year 1945, he decided to sell the complete business which he conducted in the city in which he resided at that time. A buyer was found, and an agreement was entered into in September, 1945, between the appellant and the purchaser, a copy of which was filed as an exhibit. The agreement recites the sale and specifies that the consideration shall be the aggregate of:
"(a) The price of the aforesaid stock in trade as of November 1, 1945, determined as hereinafter set out, and
(b)	Accounts receivable at the rate of eighty-five cents (.85<0 on the dollar, and
(c)	Five thousand dollars ($5,000) for the fixtures and equipment hereinbefore referred to."
I need not read the details, but I shall read the judgment as follows:
I am satisfied that the amount in question herein was not derived as a profit from the carrying on of business, but was derived, upon the cessation of business, as an appreciation of capital, which is not taxable under the Income War Tax Act.
Having reached this decision, it is unnecessary to deal with the problem of the valuation of the inventory which was raised at the hearing, other than to say that the method of valuation of the inventory in previous years had been accepted by the minister's officials and, in my opinion, if a change in the method of valuing the inventory was to be adopted at the time of the sale in the fall

of 1945, the same method of valuation would have to be adopted for the opening inventory at the commencement of the fiscal period of the business ending in 1945.
I do not think I need to read the other case.
I think the principle is clear, and the steps which are now being taken to alter the practice and principle which has been followed are also clear. I wish the minister would say something as to the equity of the proceedings. Some people say there is no equity in income tax, but I believe there is. I should like to hear something said on that because it is a drastic change in the operation of the law as it stood and in what was considered at that time to be an equitable arrangement as between the taxpayer and the Minister of National Revenue.


Walter Edward Harris: Mr. Chairman, I think the hon. member has made just as good a case for this change as he made for the proposed amendment that I had ready when he spoke. He has read the judgment of the court setting out the reason why inventories in that particular instance escaped taxation. It must be obvious that the reason given was that this gentleman was no longer carrying on business, and the law as it stood at that time was that what was taxable was what one earned in carrying on a business. In those circumstances we are changing it so that these items may now be taxable even if the business ceases to be in the hands of the taxpayer or in fact if it ceases to exist altogether. Under those circumstances I think he will agree with me-in fact, I know from the words he has used he does-that it would be fair to other taxpayers that this profit which has in fact been made, though not realized while the business has been carried on, should be taxable.


Donald Methuen Fleming: Is it quite clear that in every case this is a profit in the proper sense of the word? I can understand that in some cases it may be, but in other cases it may well be what the income tax appeal board found it to be in these several cases extending over a period of several years, namely an accretion on capital. The feature of this bill, introducing quite extensive new legislation into the Income Tax Act, that concerns me is that it proceeds on the blanket assumption that every appreciation in inventory in the case of sale or other disposal of the business in which it has been earned, and is later realized, is necessarily profit. It seems to me that an assumption as broad as that is too broad to be justified. As I say, I can see some cases where it may be felt that increases in inventory value should be treated as profit, but I must say that I feel some allergy toward treating as income what has been hitherto
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treated, and in this case by the courts, as simply an accretion to capital. Every step we take to turn into profit what has been treated by the courts in sound decisions as capital represents the equivalent of another march towards increase in taxation, engulfing in the scope of income tax things that have not been regarded in their proper meaning as income hitherto.
By what reason does the minister say that in every such case what has hitherto been held by the courts to be an accretion to capital should from this point on be regarded as profit and treated as income?


Walter Edward Harris: Mr. Chairman, perhaps I did not make myself clear. I understand the case my hon. friend has referred to won on the ground that, because the business had ceased to be in existence, therefore certain consequences followed, and did not specifically state that any increased value of an inventory was an increase in capital as such. If that were the decision, I suggest it would not be founded on any of the philosophies of taxation that have been followed in the past, because the purpose of the income tax is to tax a business in which a profit is being sought, that is, certain profits that are earned in a business. When a trader carries an inventory, he is changing the inventory daily, he hopes, turning it over as often as he can, for the purpose of making a profit. The inventory is not his capital; it is the means of earning his income.


James MacKerras Macdonnell: Mr. Chairman, I should like to pursue what the hon. member for Eglinton has said, because it seems to me that what we are trying to tax is income. As he has pointed out, we have had a board with the authority to look into the facts and determine what was and what was not income, and we have had a few cases here, and there are several others with which the minister is no doubt familiar, where in fact the board has come to the conclusion that it was not income but capital. Now, what is happening is that we are getting away from what I think is the fair thing, that is the attempt to find what is income and what is not income. What we are saying in the statute is that such and such a transaction, even though under the fair interpretation it is in the contemplation of the law not income at all, yet by the wording we put into the statute it becomes income. I wonder if this is a sound decision. Do we want to introduce measures to tax capital profits? That is another matter. My colleague says, "I hope we never come to it". So do I. But I only say this seems an indirect way of getting to that. Is it fair to go behind a competent

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board which is charged with the duty, among other things, of finding out what income is?-and presumably it is competent tb do that. After all, transactions vary from case to case. Two transactions may look exactly alike, and yet it may well be that one transaction that takes place shows an accretion to income and another one does not. What we are doing here seems to me to be regrettable, stepping in and undertaking to vary by the arbitrary power of the law the meaning of words which have a definite meaning in the business transactions, and which we have a competent board to assess.


Walter Edward Harris: I must say that I am astonished at the principle which my hon. friend has tried to elucidate. Surely parliament aims to make the law for the very purpose of raising the revenues that are required. If it is found that parliament does not agree with the results of decisions which are made by the income tax appeal board, surely he is not suggesting that we should stop all legislative processes at that point.
It may be that we are making such a great change in what has been the accepted practice heretofore that my hon. friend would feel obliged to object to it on the ground of public policy. But as I understand the scope of the income tax appeal board, it is to rule on cases which come before them, by way of interpretation of the act, as to whether the taxpayer is exempt or is taxable and so on. It is then the duty of parliament, I would think, to pass legislation consequent upon its decisions if they feel that public policy requires that to be done. That is just the point here. We are in fact legislating as the consequence of a decision, and we feel that legislation should commend itself to the committee. Indeed, I think it does.


James MacKerras Macdonnell: I suppose my argument can be summed up by saying that what you are really doing is saying that A is not A, but is B. But the legislature can do that, I assume.


Walter Edward Harris: What we are saying is that certain things shall be considered as income which a decision of the income tax appeal board said was not income.


Donald Methuen Fleming: The minister has not yet dealt -certainly not to my satisfaction-with the points I sought to raise. Of course, I agree that you must have general rules in situations of this kind. I am concerned, however, about the effect this legislation may have. The minister is seeking to carry out what he conceives to be sound public policy in asking parliament to declare to be income that which

has hitherto been found by the courts not to be income but to be capital or an increase or accretion to capital.
Such reasons as the minister has given- and there have not been many of them-seem to me not to go beyond saying this: in some cases it may be fair that the taxpayer should not be permitted to reap the full benefit from the accretion to his capital, as the courts have regarded the transaction up to the present time, where he goes out of business or sells his business. But if parliament steps in now and legislates in the manner in which we are being invited to legislate in clause 27, thereby introducing into the Income Tax Act some extensive and far-reaching new provisions- indeed, about four pages of legislation-I should be greatly surprised if we are not legislating to create as many injustices as we are being invited to remove.
That is the difficulty that invariably arises. I think the minister will appreciate the force of the point we are trying to make here. No one denies that parliament has the right, in proper cases, to legislate so as to change the law as declared by the courts or by the income tax appeal board. Parliament often does that. But here we are dealing with a situation which has many ramifications. It is hard for us sitting here this afternoon to conceive of all the circumstances that may arise in the case of either the sale of a business in which there is an inventory-


Walter Edward Harris: That is so with respect to every amendment in the whole act.


Donald Methuen Fleming: Yes. But here you are dealing with cases of an involved nature, with an unquestioned wide variety of circumstances. It seems to me that to step in and treat them all as though they yielded to a simple formula, namely that what has been declared by the courts hitherto as being capital shall hereafter in every case regardless of the circumstances be treated as income and subject to taxation, is inevitably going to result in as many injustices as we are now being invited to remove, and perhaps even more of them.
I cannot approach a matter of this kind without serious misgivings as to the effect of legislation of this nature that is just overriding a decision of the courts; and it is overriding not just one decision but a whole course of judicial decisions. The first of this group of cases was decided by the income tax appeal board in February, 1951. That was over four years ago. The decisions run right down to later cases. The first was No. 10 v. Minister of National Revenue. Then there was one later in 1951, that of Empire Manufacturing Company Limited v. Minister of

National Revenue. Then this year again we have another decision of the income tax appeal board, in the case of Nemessany v. Minister of National Revenue, which again confirmed the same decision. So that we have a whole course of judicial decisions on this point. Now we are being asked to reverse completely the law as declared in a whole course of judicial decisions. I must say that I approach this matter with extremely grave misgivings as to the effect of the legislation we are now being invited to pass.


William Alfred Robinson: Shall clause 27 as amended carry?
Clause as amended agreed to.
Clause 28 agreed to.
On clause 29-Tax.


James MacKerras Macdonnell: On clause 28, Mr. Chairman-


Walter Edward Harris: I have an amendment to suggest, if I may, with respect to section 105B, which imposes a tax in respect of dividends paid out of designated surplus. Subsection 3 of this new section which the committee is now asked to amend deals with what are referred to as "deemed-to-be dividends". It is considered that the existing wording of the bill does not adequately cover the situation where deemed-to-be dividends are received by a non-resident. The existing wording refers to dividends "required by this act to be included in computing the recipient's income ..." but the Canadian Income Tax Act does not require these dividends to be included in a non-resident's income. For this reason this amendment adds the words:
"or that would be so required if the recipient were resident in Canada at the time the dividends were so deemed to have been received".
I will ask my colleague the Minister of National Revenue to move that amendment.


James Joseph McCann: I so move.


William Alfred Robinson: Order. It is moved by Mr. McCann that clause 28-


Walter Edward Harris: Clause 29.


William Alfred Robinson: I understood the hon. member was raising a question on clause 28. Is clause 28 carried?


Walter Edward Harris: Yes. This is on clause 29.


Daniel Roland Michener: Mr. Chairman, as I understand it, the amendment is to clause 29.


Walter Edward Harris: That is right.


Daniel Roland Michener: Before the amendment is put may I ask the minister for his assurance that the effect of this amendment is not in any case to tax-
Income Tax Act


William Alfred Robinson: Order. Is the hon. member speaking on clause 29?


Daniel Roland Michener: Yes.


William Alfred Robinson: Before the hon. member proceeds I shall read the amendment, which is as follows. It is moved by Mr. McCann:
That Bill 417, an act to amend the Income Tax Act, be amended by striking out lines 44 to 46 on page 24 thereof and substituting therefor the following:
"and that are required by this act to be included in computing the recipient's income (or that would be so required if the recipient were resident in Canada at the time the dividends were so deemed to have been received) shall be deemed to have been paid by the payer corporation."


Daniel Roland Michener: I am not sure that I have taken in the full import of the amendment. What I should like to do is ask the minister at this point whether he can assure the committee that the effect of this section as amended is not to tax the income of charitable trusts and corporations in any circumstance. It appears to me that a reading of the section as it stood indicates that although no tax is levied on charitable trusts or corporations as such, a tax of 15 per cent is levied on the income which comes to the charitable trusts. If that is so, then in effect the passing of this amendment will reduce charitable funds in the hands of these trusts by 15 per cent of the income which comes from certain dividends. Before proceeding further, I should like to have the minister give the departmental interpretation of the effect of this section in those cases.


Walter Edward Harris: The purpose of the amendment was not to tax charitable corporations, and it does not do so. It might be said it taxes the income of charitable corporations in the sense that income is received from any other corporation which is now being taxed, but that is true probably of the income of charitable organizations because most of it is subject to taxation in one form or another before it is received.


Daniel Roland Michener: Then my fears are well founded, because what we have here is a new tax of 15 per cent on income devoted to charitable purposes, and which would not be taxable in that way if this amendment were not passed. I ask the minister if he is not catching more fish in this net than was intended, because it is a broad section.


Walter Edward Harris: May I suggest to my hon. friend that he knows exactly the purpose of this section, and it is not intended to go beyond that.


Daniel Roland Michener: As I understand the reply I have had so far, there is a tax of 15 per cent

Income Tax Act
which will be levied which is not now levied on dividends received by charitable trusts in certain cases?


Walter Edward Harris: No, the tax is on the payment of dividends by another corporation.


Daniel Roland Michener: I appreciate that, but it is on the payment of dividends to a charitable trust, if the charitable trust chooses to take the dividends in this form.


Walter Edward Harris: Of course.


Daniel Roland Michener: The effect of that, Mr. Chairman, will be to reduce the income of charitable trusts, in some cases, because to the extent the 15 per cent tax has to be paid there will be that much less income for the trust. As the minister knows, these dividends which are taxable are dividends paid by corporations whose issued shares are largely owned by a charitable trust. I suppose the Atkinson foundation, which owns the issued shares of the Toronto Daily Star, might be one such. If I am correct in my interpretation of this section, then the net income from the Toronto Daily Star which is available to the Atkinson foundation will be reduced by 15 per cent which is taken as a tax under that section. I would ask the minister to tell me if I am correct.


Walter Edward Harris: Mr. Chairman, I am not familiar with the terms, assets or liabilities of the Atkinson foundation.


Daniel Roland Michener: Well, assume that a charitable trust, the Atkinson foundation, holds the controlling issued shares and that the earnings of the newspaper are designated income within the meaning of the act. It may be that the effect of subsection 6 is to save those companies where the shares were received for trust as a bequest under a will, and I think that is the effect of that subsection. But where those shares were obtained in other cases by purchase or by investment and the portfolio of the charitable trust comes within the section, certainly the income of the organization which produced the revenue for the charity would be reduced by that amount. That is the point I want clearly understood when we accept this.


James MacKerras Macdonnell: Has the minister answered the question of the hon. member for St. Paul's? Is there not a point there with which he might wish to deal, if we could agree on exactly what it is? Surely the illustration of the Atkinson foundation is very practical, and the result might be what is suggested. Supposing that is the effect; would the minister then be quite happy to take this stand as against charitable foundations?


Walter Edward Harris: I am, as I said before, unfamiliar with the operations of the Atkinson foundation.


James MacKerras Macdonnell: We will take that as an illustration.


Walter Edward Harris: Taking that as an illustration, and assuming that it is a charitable organization with an investment in another company -are those the facts with which we are dealing at the moment? Then I would suppose, Mr. Chairman, that they should not be in any preferred position with respect to a non-resident corporation, for example, or a trader or dealer with respect to the object of this section, which is to collect a tax which at the moment is not being collected.


Daniel Roland Michener: That may be one view of the effect of this section, but another view is that this is doing indirectly and in a roundabout fashion what the government and the house would not want to do directly, and that is to impose a 15 per cent toll on funds which are mainly directed to charitable purposes. Unless they are mainly directed to charitable purposes they do not come under the section at all. When I say "mainly directed", I mean to the extent that the majority of the issued shares of the earning company are held by the charitable trust. The same thing would apply to other exempt organizations in section 62 of the act, such as labour organizations, non-profit organizations and so on. However, I do not see how any instance of that would arise. Certainly there might be very serious inroads made on charitable funds if this section is allowed to stand.


James MacKerras Macdonnell: Would the minister not agree that if you had a situation where in fact a charitable trust was going to bear the whole effect of this tax, that would be a case for consideration? After all, we do a good deal to protect charitable foundations. I quite agree that you cannot have every company, a portion of whose shares are owned by a charitable foundation, exempted from the act. I would think there may be some special cases, however.


Walter Edward Harris: Carry that one step forward to a provision of this kind, which provides for a tax on dividends paid by a company which is controlled by a tax-exempt organization; that is what we are discussing. If my hon. friend agrees that where they own shares in a corporation that corporation should not be tax exempt, then I suggest it would be even more so where they control the corporation.


James MacKerras Macdonnell: I am coming back to the case outlined. I am not familiar with the details of it, except in a general way, and I do not know what the technical position is.

I listened to what my hon. friend from St. Paul's said, and it seemed to me that the net effect of his explanation meant that in this case the tax was going to come wholly out of the income devoted to charitable purposes. If I misunderstood it, then my argument falls to the ground. If that is the situation, is it not possible, by a word, to deal with it?


Walter Edward Harris: The advantage which is given to a charitable organization is given with respect to its income. There is an exemption with respect to the income of charitable organizations. But I do not think anyone would seriously suggest there ought to be a further exemption of income received from corporations which would be tax exempt. That is what would happen if we did not have this legislation. It provides for a tax on a dividend account, for a controlled corporation, to certain other persons. At the moment it is not being taxed, and that is why we are trying to tax it.


Daniel Roland Michener: It would be a simple matter if there were intent to preserve the position of the charitable trusts. I raise this point because it seems to me that although charitable trusts are not being taxed directly, they would have to be kept in a preferred position to achieve the result I have in mind. It seems to me that if this section is allowed to pass it will discourage to a considerable extent the payment of dividends to charitable trusts; because the payer corporations will have to provide 15 per cent tax with respect to dividends payable to a charitable trust, whereas, as the law now stands, the payer corporation does not have to provide that tax at all. And it is not put to the expense simply because some of its shares, or a large part of its shares, are held by what is a charitable trust.
The situation could be remedied if under subsection 1(b), where reference is made to a person exempt from tax under section 62, a charitable trust or charity under section 62 were excluded.


Walter Edward Harris: Perhaps we could more profitably discuss this elsewhere, because I do not think there is a meeting of minds at all. What we are trying to do is deal with a situation where a tax-exempt organization controls another corporation, and the latter then distributes dividends to the former. We feel that should be taxable, and nothing I have heard this afternoon has changed my mind on that point. The normal purpose of a charity is not to go around acquiring the control of corporations. There may be reasons for doing so, but I think for taxation purposes we ought to consider those reasons.
50433-344J
Income Tax Act
My hon. friend is quite aware of the fact that we are amending the act at the moment so that under these circumstances there will not be a desire on the part of tax-exempt corporations to acquire control of other corporations.


[Stage Direction]
Amendment agreed to.
Clause as amended agreed to.
James MacKerras Macdonnell: By consent, Mr. Chairman, might I ask the minister to give a further explanation of the note with respect to clause 28. My attention was distracted and I missed that clause when it was called. The note says:
This amendment is only for clarification.
I am asking for further clarification.


Donald Methuen Fleming: Clarification of the clarification.


Walter Edward Harris: The clarification consists in the addition of the underlined words at the top of page 24. I take it my hon. friend has read those words. They refer to the particular time when the share had no par value. I think the words are not open to any misunderstanding, surely.


William Alfred Robinson: Then I understand that clauses 28 and 29 have been agreed to. We will now turn to clause 30.
Clauses 30 to 33 inclusive agreed to.
On clause 34-"Fiscal period".


Jay Waldo Monteith: Why is a corporation set out separately from any other taxpayer? I can understand the reason for allowing a 53-week period in connection with certain types of business, but actually an individual taxpayer might have the same type of business. It might not be as large as certain corporations, but it occurs to me than an individual taxpayer in a similar type of business might be affected just the same as a corporation. I cannot see how we can differentiate between a corporation and any other taxpayer, in that some other taxpayer might be in the same kind of business as a corporation. I think there should be some redress for an individual in business in this way. There might be a partnership. It would be a similar type of business to one which would require a 53-week period during a particular year. Would the minister express his views on this.


Walter Edward Harris: I am sure my hon. friend has studied the section and will realize what we are trying to avoid. We are trying to avoid a corporation, by reason of having a longer

Income Tax Act
taxing period, and a variable one, as compared with an individual, getting the advantage of too low rates. Obviously that should not be open to an individual, and the case would not arise in any event. This is to preclude the possibility that, because of a certain relationship, corporations could take advantage of the lower rate because of having the 53-week taxation period.


Jay Waldo Monteith: I do not think I understood the minister. If I understood him correctly he said that a corporation might get into a lower rate. What does he mean by that?


Walter Edward Harris: I must apologize. I had thought my hon. friend was referring to another incident. I realize that my explanation was not applicable to clause 34.
The purpose of clause 34 is to deal with corporations that usually take their inventory on a fixed date. Is that not the situation that is open to an individual taxpayer?


Jay Waldo Monteith: That is my question. There could be a large partnership in the same position which would take its inventory on the Saturday closest to the end of the year, or something like that; and in some years it might run into a 53-week period.


Walter Edward Harris: This is probably a hypothetical case, because I am told we have not had it arise in any event. If there is any distinction to be made, or any discrimination, of course we would look at it. It does not seem possible, however, that an amendment having to do with a corporation which had a taxation year running into the 53rd week could have an opposite number, if we may so call it, as an individual. But if my hon. friend feels that may be so and will give an example, we will look into it.


Jay Waldo Monteith: I think it could possibly arise.	[DOT]


[Stage Direction]
Clause agreed to.
William Alfred Robinson: Clause 9 stood. Shall this
clause carry?
On clause 9-Associated corporations.


Walter Edward Harris: Mr. Chairman, I am told that the loss of revenue, if the lower rate were extended to the smaller group, would be about $6 million.


William Alfred Robinson: Shall the clause carry?


Donald Methuen Fleming: That is to say, your yield today from the total 20 per cent tax on the corporations with incomes under $20,000 is about $60 million a year, so that a reduction of 10 per cent in that tax, equivalent to two percentage points, will be $6 million.


Walter Edward Harris: Yes.


Donald Methuen Fleming: I should think many of them could have derived the same useful benefit in the public interest from that reduction as the larger corporations have. At a time when we are trying to encourage business to expand and provide more opportunities for employment I hope the minister, having confined the benefit of his corporation tax reduction this year to the corporations with the larger incomes, will do his very best to make the same kind of reduction available to the small corporations in his next budget.


[Stage Direction]
Clause agreed to.
William Alfred Robinson: Shall the title carry?


Walter Edward Harris: Mr. Chairman, I think I gave an assurance to the hon. member for Greenwood that I would comment on the questions he asked at the opening of the discussion on second reading. I have been reading through his remarks, as he suggested. I find he asked me just one question. He said:
First of all, I would draw to his attention the fact that for the month of May the personal income tax figures are rather surprisingly down from those of May a year ago. I would ask him to comment on that fact.
Then he goes on to speak of expenditure. I can only comment, Mr. Chairman, that I regret that the personal income tax was down in May. This indicates that revenue of the self-employed, in the light of last year, was not as great as we had expected it would be, or else that a considerable number of taxpayers who had paid in May a year ago postponed paying this year until later. The actual amount, of course, is some $6 million; but my hon. friend will note further that the increase for the two months was of the order of $3 million.


Donald Methuen Fleming: The minister was going to give me an answer to my question with respect to the income tax paid by the crown corporations. Has he it available now?


Walter Edward Harris: No, I have not; I am sorry.


James MacKerras Macdonnell: I am a little puzzled by one answer the minister gave. I have before me the statement. I shall read it to him. The two-months' figures-


Walter Edward Harris: I beg your pardon. I read the tax deductions and not the returns.


James MacKerras Macdonnell: Yes, that is what I thought.


Walter Edward Harris: The reduction, Mr. Chairman, was, as a matter of fact, in the non-payroll collections. I read the wrong column. The actual reduction in the two-months' period is of the order of $28 million. I presume, as I said before, that this can only be accounted for because of fewer persons filing returns

during those two months than a year ago, or that in fact the income in 1954 was not as great to those people as it had been in 1953.


James MacKerras Macdonnell: This comes as a great surprise, because it does not seem to fit in with the other figures of business activity that we are getting. I am not going to take the time now to go into it. Perhaps we can get it when the minister's estimates are before the committee. Perhaps he can elucidate it a bit further for us at that time, because it still leaves me with a great big question mark.


Walter Edward Harris: I do not want to hold up the committee. I think my hon. friend is just one year out. It may be recalled that 1953 was a better year than 1954, and these are the returns on the incomes of 1954. Perhaps because of present indications he will not be able to say what he is saying now about the income in May, 1956.


James MacKerras Macdonnell: Quite so.


[Stage Direction]
Title agreed to.
Bill reported.
Mr. Deputy Speaker:: Shall this bill be read a third time now?


Stanley Howard Knowles: By leave.
Bill read the third time and passed.



EXCISE TAX ACT

Walter Edward Harris: the second reading of Bill No. 418, to amend the Excise Tax Act.


James MacKerras Macdonnell: Is the minister going to make a statement?


Walter Edward Harris: No.


James MacKerras Macdonnell: If not, there are one or two things which are painfully familiar to us here, but which I think should be mentioned again. I am sure the minister has been bombarded with requests from charitable institutions regarding sales tax particularly, and of course all of us have in mind the imposition of the sales tax which bears so heavily on the lower formations of government. I am not going to take the time of the house to discuss it except to reiterate what is in our minds, and that is the very urgent appeals with which I am sure the minister must have been flooded from charitable institutions asking for relief. I wish the minister would say something on that.
Let us understand the position. It is clear that he feels nothing can be done. I should like to know just what approach he feels he has to take. An argument can easily be made. We see the work being done by these people. We know the difficulties they have
Excise Tax Act
in getting money. We know that often the appeals fall short, and it does seem to them extraordinarily hard that after all the voluntary effort that is being put into this work today, no relief is given. It could be so easy to leave it to the government. I suggest that because that is one of the bitter feelings they have. They are doing work which otherwise would have to be done by public agencies, and they find themselves mulcted in the way we all know. I say no more about that at the moment. I hope the minister will say something about it. I shall not say anything in detail about the municipalities and the provinces. We know what has been done and what has not been done.
I suppose the minister will say there is to be a reassessment of that situation when the dominion and provinces meet shortly. But there is the situation. It stands out. We constantly have it brought to our attention, and I wish before we proceed with the details the minister would say a word or two about it. He must have given it a lot of thought, because I am sure the representations he must have received were legion.


Mr. M. J. Coldwell (Roselown-Biggar):: should like to join with the hon. member for Greenwood in the plea he has just made for consideration of the sales tax on charitable institutions. I know, as other hon. members know, that these charitable institutions have great difficulty in raising the necessary funds to carry on. An exemption from sales tax would be fully warranted and would meet with the approval not only of the house but generally of people all across Canada. I am not going to labour the point, because I am quite sure the minister has considerable sympathy with these people. He is responsible for the financial affairs of the country, and it is to him that we make a plea on behalf of these institutions.
While I am on my feet I should like to deal with another point. When the budget was brought down I congratulated the minister upon having reduced the excise tax on automobiles. I would have liked to see that tax reduced still further because, as I said at the time and as I repeat now, the automobile is no longer a luxury article. In many parts of Canada, and particularly in the prairie provinces, the distances are so great and people must travel many miles to go to the store or to do business in nearby villages and towns. The reduction of 5 per cent was useful and certainly was welcomed, and I want to express to the minister our appreciation for what has been done.
I think few of us realized the hardship that we were going to work on the automobile

Excise Tax Act
dealers of the country when the tax was suddenly reduced at the time the minister made his budget speech. Like other hon. members, I have no doubt, in all parts of the house, I have received many representations as to the serious effect this has had on automobile dealers in many parts of the country. When I was in Saskatoon just two weeks ago dealers whom I knew called on me and told me the serious effect this had had upon them personally. They had had to accept quite a number of automobiles earlier in the year, and they found that this sudden move on the part of the government, while welcome, had certainly embarrassed them financially. I do not know whether the minister has given consideration to the requests he has received, but I hope he has. I was hoping that when this bill came up he would be able to announce to the house and to the country that there would be some relief for these hard-pressed automobile dealers.


Mr. W. Ross Thatcher (Moose Jaw-Lake Centre):: Mr. Speaker, I should like to appeal to the minister to consider granting a rebate to these automobile dealers. I happen to be a retailer, and I think this legislation is most unfair and certainly is discriminatory against these garage men across Canada. I think originally the sales tax was meant to be a tax on the consumer, but if the minister carries this legislation forward in effect it will be a tax on the garage men, a tax which will become a real financial hardship.
All automobiles have serial numbers and are sold through finance companies and the like, and it would be an easy matter to check back and grant these rebates. Like the hon. member for Rosetown-Biggar (Mr. Coldwell),
1	appeal to the minister to give further consideration to this problem. It is a serious one, and it will be most unjust if the minister lets this legislation go forward without providing for some rebate at this time.


Donald Methuen Fleming: Mr. Speaker, I do not propose to repeat what I said on June 2 at the resolution stage, but I do wish to give what support I can, as I did on that occasion, to the plea for the exemption from sales tax on goods purchased by charitable and philanthropic organizations for use in their work, and also for the exemption of municipalities, municipal councils, boards of education and school boards from sales tax on goods purchased by them.
With regard to the excise tax on automobiles, which is the principal feature of this bill, I shall not repeat what I said on June
2	when I expressed regret that the minister was not able to go further in reducing the tax than he did in bringing it down from 15 to 10 per cent.

On the matter of losses suffered by motor car dealers on their inventories, I should like to recall one or two observations I made and refer to the statement which I tried so hard to extract from the minister's parliamentary assistant on that occasion. While appreciating the difficulties that confront the minister in proposing to antedate any reduction or to entertain a request for refunds when a reduction in taxation comes into effect with respect to inventories of goods, whether new cars or used cars already in the hands of dealers and on which they have paid tax and will suffer substantial losses in consequence of the reduction, I would recall the statement made by the minister on May 18 indicating that he was giving serious consideration to the plea of the automobile dealers for some form of refund. On that day, as reported on page 3881 of Hansard, the hon. member for Kamloops (Mr. Fulton) asked the minister this question:


Mr. E. D. Fulton (Kamloops):: Mr. Speaker, X should like to ask the Minister of Finance if he has received a brief from the motor car dealers' association of British Columbia asking for his consideration of their request for a refund of the excise taxes paid on cars in stock on April 5? Would the minister say whether he will be able to give further and favourable consideration to this admittedly difficult problem, and whether he is able to hold out any encouragement to that association?


Walter Edward Harris: I received briefs not only from the British Columbia motor car dealers' association but from the national body, I think from all the provincial bodies, and from quite a number of individual dealers. Of course we accept these representations along with all others and give them our best consideration.


Edmund Davie Fulton: Consideration is always welcome, but how about encouragement?


Walter Edward Harris: Encouragement is a word which I think is used on every occasion by this government as to its intentions with respect to the Canadian economy.
If those words were not calculated to buoy up the hopes of the motor car dealers, then I do not know what better words the minister could have used for that purpose. If the minister did not mean to give encouragement to the hope of the motor car dealers that some form of refund would be forthcoming, then he ought not to have used those words. Had the minister said that he would have liked to meet the requests of the motor car dealers but there were difficulties in the way, that would have been a fair, candid and understandable answer, whether the members of the house would have been prepared to accept it or not; but that was not the answer the minister gave on that occasion. He did not say a word about the difficulties; he talked about giving favourable consideration and when the word "encouragement" was used he did not disclaim it.

If favourable consideration was not to be given to the motor car dealers' requests for refunds in respect of new cars in stock on which they had paid the tax before the effective date of the budget, then I am afraid it was a cruel thing the minister did on that occasion I have mentioned in giving cause for hope to those men. It is a very serious matter for them. Some of them have sustained most substantial losses. I am sure that every hon. member of the house has some knowledge, from the representations made to him by dealers in his riding, of the extent of these losses.
It should be remembered that conditions in the motor car market this year are probably more competitive than they have been at any time in Canadian history. They are extremely competitive, and these substantial losses are going to have their effect. I come back to the minister's statement, and say that it is up to the minister to make good on it. If he cannot do that or is not prepared to do that, then I say he was very cruel in making the statement I have just quoted.


Mr. G. W. McLeod (Okanagan-Revelsloke):: Mr. Speaker, I too would like to lend my support to the previous speakers in asking that further consideration be given to the question of a refund to motor car dealers. It is true that this reduction has meant a stimulus to their business, but on the other hand it is a direct loss for which they will in no way be able to be repaid. There is one other thing I should like to mention in connection with the excise tax on cars. It happens that I have had some experience as a car dealer, and comparing them with other commodities on which this tax is levied I have noticed that there is quite a difference.
The car dealer is possibly one of the few retailers who deal directly with the manufacturer, whereas in the case of other commodities the tax is paid first by the distributor and then it becomes a part of that distributor's base price. When he sets up his price to the wholesaler, of course, there is a margin of profit on that total base price, including the excise tax. The same thing happens between the wholesaler and the retailer and, of course, the retailer does likewise. So by the time the retailer pays the tax it has possibly pyramided by another 50 per cent, or maybe 100 per cent in some cases.
The car dealer is in the unhappy position that he pays the full amount of the tax before he takes possession of a new car, and he has to hold it in his possession after paying out the money including the tax. When it is sold to the consumer he has not made five cents
Excise Tax Act
on his investment, so far as the tax is concerned. Therefore it will be readily seen that this is unfair to the car dealer and certainly not in keeping with merchandising methods as followed by other dealers in taxable goods. So I would suggest that the minister give attention to this question and try to evolve some means whereby the car dealer, if he is not able to make any profit on his investment, should not have to pay the tax until it has been collected from the consumer.


Gordon Knapman Fraser: Mr. Speaker, I should like to say a few words regarding this. I quite agree with what has been said regarding the social welfare organizations. I know the minister has received many briefs from different places, including Peterborough. In fact he received one letter from Peterborough in which an organization mentioned that in closing the books for the year there was an operating deficit. They have to get their money from the community chest and also from various other sources, mostly from donations. I am referring to the Y.W.C.A., which is for the welfare of the young girls in our community.
I should also like to say this in regard to the tax on cars that were held by the dealers when the budget came down. In some cases it did not amount to very much, but in other cases it amounted to a great deal. We have to remember that despite the fact that 5 per cent was taken off the 15 per cent excise tax, 10 per cent still remains, plus a 10 per cent sales tax. That is a great deal of money to pay on a car, especially when a car is an essential item to the worker of today. I know many workers who have to use a car every day to go to work. In fact I had a worker up to see me last Sunday night who had to travel 27J miles to work each day. Not only is he paying the excise tax and the sales tax; he is also paying, of course, the gasoline tax.
One other subject I should like to mention is the fact that in the budget this year the minister did not do anything regarding the excise tax on cigarettes. I know that the smuggling of cigarettes, though reduced to some extent on account of the slight reduction in the excise tax in 1953, is carried on today on a large scale despite everything the Royal Canadian Mounted Police can do. The smuggling benefits only one person, the smuggler, but he benefits at the expense of the smoker, the government and the manufacturer. There is only one solution to the problem, and that is for the government to reduce the tax differential as between Canada and the United States so it would not be profitable for the smuggler to take a chance on bringing those cigarettes into Canada.

Excise Tax Act
On the 1st of April I came across a case where king size cigarettes were smuggled into Canada, and I know the price the particular party paid for them. I wondered why king size cigarettes were not sold in Canada. King size cigarettes are manufactured and sold in practically every other country in the world. On T.V. programs that we receive in Canada from United States stations, king size cigarettes are shown and advertised very extensively.
When I inquired into this matter I found that the excise tax on Canadian-manufactured cigarettes runs to about 18 cents for a package of 20. To qualify under this tax rate the cigarettes must not weigh more than 2J pounds per 1,000 cigarettes. I understand that includes paper. All king size cigarettes weigh more than that. If king size cigarettes were manufactured in Canada they would attract another tax of about 2J cents per package. As king size cigarettes require more tobacco, material and labour, the cost to the consumer in Canada of king size cigarettes would be an extra 3 to 4 cents a package.
There is only one remedy for this; that is, that Canada do what is done in the United States and allow the tax to be the same for king size as for ordinary cigarettes. In order to stop this smuggling, the differential in the tax as between Canada and the United States must be reduced. From what I know, smuggling now is nearly as great as it was in 1953.


Alfred Claude Ellis: Mr. Speaker, like other hon. members, during the past few months I have received representations from automobile dealers' associations in my province regarding what I feel to be their reasonable request for some consideration in the matter of rebates in connection with inventories on hand at the time the tax change came into effect. The Saskatchewan motor dealers' association has supplied me with some figures about what this tax change meant, in so far as the dealers in my city and in the province of Saskatchewan are concerned.
It has been estimated by the dealers' association that Regina dealers will have lost amounts ranging from $100 to as high as $5,000 per dealer, depending on the availability of their product and of course the size of the new car inventories that it is necessary for a firm to carry in order to conduct normal operations in the car business. It has been estimated by the association that the Regina dealers as a group will have lost $18,900 as a result of the refusal of the government to grant rebates with respect to cars on hand at the time the change was
I Mr. Fraser (Peterborough) .1
made, and that in the province of Saskatchewan the dealers will be out of pocket in the neighbourhood of some $175,000 as the result of this government action.
At the time the change was announced by the government and the representations were made by the automobile dealers' associations, we had reasonable grounds to expect that the government would give consideration to these reasonable requests and that we would have had action before this time. It seems to me the dealers have set forth their position quite clearly, both with respect to the losses involved by individual dealers and by the industry as a whole. The Saskatchewan association, in their representations to me, gave some figures with regard to the automobile dealers' association in Canada. They report that 67-5 per cent of those reporting averaged about 0-47 per cent of profit before sales and that some 32 [DOT] 5 per cent of those reporting were operating at a loss.
No information was supplied as to the number of firms not reporting, nor was any figure given as to the number of bankruptcies. However, I think the situation is quite clear. In my own province, and indeed throughout the west, the precipitous fall in income is reflected in business conditions generally. The automobile dealers are in a vulnerable position. Notwithstanding years of business in the past, the position they are in at the present time is such that they can ill afford to absorb the losses involved in this recent change in the tax structure.
The dealers' association pointed out that when the excise tax on automobiles was increased on June 25, 1940, the dealers were assessed and taxed on the vehicles on hand at the time, and that under these circumstances it does not seem fair that they should now be required to absorb the loss. The dealers' association suggested that there will be no great administrative difficulty in providing for rebates. They pointed out that with respect to automobile sales, cars can readily be identified by the serial number, that the delivery dates can be confirmed by licence registration in the province, by factory records, by finance company and insurance transfers and by affidavits obtained from the factory by the dealers. In other words there is an ample check on all sales. There is no great possibility of any dealer receiving a rebate when he is not entitled to one, since here is a clear-cut business transaction which can be traced.
I want to repeat that in my view the position of the dealers is not too good. An article dealing with automobile dealers was

published in Maclean's magazine a month or so ago, but I am not going to refer to that article. As I think those who read it will agree, that article gave a picture of the situation car dealers are faced with in various parts of Canada. It so happens that the change came in the early spring, at the worst possible time for the dealers in Saskatchewan.
In view of the representations that have been made by the motor dealers' association, I make this request. I have been in contact with them and they supplied me with information regarding the status of the dealers in my province. Mr. W. B. Ledingham, who is president of the Queen City motor dealers' association, has kept me up to date with the picture in my own constituency. In view of the inability of many of these dealers to absorb the loss at this time I would ask the government to reconsider their announced decision, which at the present time is to refuse to grant rebates to automobile dealers with respect to prepayment of excise tax on cars in stock at the time the tax change came into effect.


Mr. George H. Hees (Broadview):: Mr. Speaker, I should like to join with those who have already spoken on behalf of the automobile dealers urging that a rebate be made to the dealers who had already paid the 5 per cent excise tax which was reduced by the government in the latest budget.
I have here a letter written to me by a dealer in my own riding. I should like to read it because I think it explains the case of the automobile dealers very well indeed. It is written by Mr. George Hogan, president of Hogan motors, Danforth avenue, Toronto. The letter reads as follows:
Dear Mr. Hees:
Confirming our telephone conversation of April 15th, I am pleased to submit certain information respecting the effect of the recent reduction in excise tax on automobiles. While I know that this subject is one of considerable concern to dealers generally across Canada, I can speak most accurately with respect to our own dealership, and the losses which we have suffered on automobiles in our inventory as of April 5th, 1955.
At the time of the effective date of the excise tax reduction we had in stock one hundred and fifty-three new cars. The 5 per cent portion of the excise tax already paid on that inventory amounts to approximately $15,384. In addition we, of course, had in our inventory a comparable stock of used cars on which we must absorb a comparable loss. We are satisfied that our position is reasonably representative of many automobile dealers, not only in our own metropolitan area, but across all provinces of Canada. A large number of those are larger dealerships than our own and, of course, many are smaller but we believe it is reasonable to claim that all dealers regardless of size will suffer losses somewhat proportionate to our own.
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Like most Canadian dealers we appreciate the tax reduction as an indication that automobiles are being partially removed from the category of luxury goods for tax purposes. However, it appears far from equitable that a tax which ostensibly was imposed on the consumer should now be levied against us as "collectors-in-advance" and for which we now have absolutely no hope of being reimbursed except by rebate from the government.
As you are aware automobiles are paid for or financed when they leave the factory door. Dealers must not only pay the tax in full but, in many cases, must absorb finance and insurance charges on them until they are sold. Because of the time of year which the budget is presented, dealers are obligated to carry possibly their heaviest inventories of the entire year. If they, in fear of an impending budget, radically reduce inventories, they may lessen their losses through tax reduction without rebate but materially reduce their sales at a time when they should be most adequately stocked.
It has been frequently argued that in the past, when tax increases were applied, the dealers were permitted to take advantage of the situation and pass that increase on to the consumer. This has not been our experience nor do we believe that it has been the practice of most dealers. In fact, during most periods of past tax increases, dealers' stocks have been extremely limited in size.
Because the tax is collected at the manufacturer's level it is probably one of the easiest and cheapest to collect. The question of refund of tax could be just as easily handled and I would suggest one of two methods listed below-
1.	The factories could refund the amount of reduction in tax on all cars delivered by the factory from March 1st to budget date and bill the government.
2.	The factories could refund the amount of reduction in tax on all cars in dealers' hands on budget date and bill the government.
I should appreciate your study of our problem because, as intimated earlier, I think we are fairly representative of the dealer body across the country. Whatever you may be able to do to draw to the attention of the government this manifestly unfair situation will be greatly appreciated.
Yours very truly,
Hogan Pontiac Buick Ltd.
G. W. Hogan, President.
I think that outlines in very clear terms exactly the problem these dealers are up against.


Walter Edward Harris: Did the hon. member write to the manufacturers as the writer suggests?


George Harris Hees: He is suggesting that the government write.


Walter Edward Harris: He is suggesting the manufacturer rebate the tax to him.


George Harris Hees: He is suggesting the government take steps to do that, and he is asking the government to write. The government is the only body that can act in this matter, and the minister knows that quite well.
This is an average sized dealer, and his loss is over $15,000. That is a very serious loss to absorb. As the hon. member for

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Moose Jaw-Lake Centre said quite rightly, this is not a situation in which anyone could get away with anything. The cars are all marked by serial numbers. It is known when the cars were delivered and when they were sold. This could be one of the easiest transactions into which the government could enter. I think the minister would agree it would be manifestly fair to have these rebates made, and they could easily be made. I think it is an injustice if they are not.
I agree with the hon. member for Eglinton in that I feel, and I know the dealers in my riding feel, that the answer the minister gave the hon. member for Kamloops clearly indicated something was going to be done. Now they are sorely disappointed.
I think the minister, perhaps not intentionally, misled the automobile dealers across the country, because they were certainly under the impression that something was going to be done in this regard. The fact that something is not being done is extremely unfair. I should like to hear the minister comment on this, because I think that it is a matter that deserves his very close attention.


Stanley Howard Knowles: Mr. Speaker, I wish to support the representations made by my leader, the hon. member for Rosetown-Biggar, my colleague the hon. member for Regina City and those in other parts of the house who have urged the minister to reconsider his position with regard to the rebate of excise tax to automobile dealers. I am glad to see that he is trying to get the floor to close the debate. I hope the moment or two longer I am giving him to think it over will result in his making a favourable reply.
Perhaps he might also explain a little more fully what he meant in the paragraph he uttered on the night of his budget speech, immediately after making the announcement on behalf of his colleague the Minister of National Revenue that no rebates would be forthcoming. I refer to the paragraph in which he admitted that there is a problem which arises because of manufacturers selling to customers at different levels in the marketing process. As a result of admitting that problem, he said it was the intention of the government to invite a small committee, including experienced persons of the business world, to study these technical problems and make recommendations. It looked to me as though this had some relationship to this question, and perhaps he might amplify it when he rises in a moment or two.
While I wanted to support the representations that were made, I did not need to take time to add to them because they have been

so well made by others who preceded me. However, I did also want to support the request that the Excise Tax Act should be further amended with respect to schedule III so as to include charitable institutions in the list of those accorded exemptions from the sales tax. Again this is a matter that has been presented to the minister and his predecessors repeatedly, but it does seem to me the time has come for favourable action on that point.
There is one other point, Mr. Speaker, which I do not believe has been mentioned in the debate today. Although we welcome most heartily the addition of vaccine for use in the prevention of poliomyelitis to the list of drugs to be accorded sales tax exemption, I urge upon the minister that he review this whole field of drugs and medicine to see if he cannot greatly extend the list. At the moment, unless there are additions in recent years that have escaped me, the list includes adrenocorticotrophin (ACTH); cortisone, insulin, radium, liver extract used exclusively in the treatment of anaemia, and now vaccine used for the prevention of poliomyelitis.
There are on the market today many drugs and medicines which doctors have recommended, for both curative and preventive purposes, and many of these are very expensive. Part of the expense is in the customs duties, and part of the expense is in the sales tax. It does seem to me that we are making a very justified plea when we ask that the list of drugs and medicines exempt from the excise or sales tax should be greatly extended.


Walter Edward Harris: Mr. Speaker-


The Acting Speaker (Mr. Applewhaite):: the Minister of Finance speaks now, he will close the debate.


Walter Edward Harris: May I work backward on the representations that have been made. I wish to assure the hon. member for Winnipeg North Centre that there is no connection between the paragraph to which he referred and the subject under discussion with respect to the refund of excise taxes paid on motor cars. The paragraph to which he refers had relation to a wholly different subject. I was rather hoping to be able to say something about it today, but I am not in a position to do so. I hope to be in that position in a day or two. I assure him it has no connection with anything we are discussing now.


Stanley Howard Knowles: Is the minister in a position to suggest to what it does relate?


Walter Edward Harris: I would rather do that when I read the statement I hope to make in a day or two.
With respect to the appeal on behalf of charitable organizations for further exemption with respect to sales tax on those things which they purchase, of course this and every other matter that has been referred to receives the consideration of the government weekly, especially during the time the budget is being prepared. Representations were received from many charitable organizations, and I saw more than one deputation with respect to this matter. But it should not be forgotten that a charitable organization receives donations from individual taxpayers which are exempt in the hands of the donor to the extent of 10 per cent of his taxable income. In addition to that, corporations may donate to charitable organizations and claim tax deductions up to I think it is 5 per cent of their income. These donations are, I think, the backbone of the work of charitable organizations.
It is much easier to permit tax-free money in the hands of charitable organizations in that way than it is to exempt these organizations from sales taxes. The number of cases to be dealt with would be limited, and they could be dealt with as part of the tax return, whether of a corporation or an individual. But to set up a means whereby one would exempt every charitable organization in Canada from sales tax would provide a good deal more administrative work than we think we could undertake for the results that might be obtained.


James MacKerras Macdonnell: What would it cost?


Walter Edward Harris: I have not estimated the cost, but I think just stating the problem makes it obvious. Any charitable organization in any municipality, and there are some in almost all municipalities, could make a local purchase on which there would be a small sales tax and then claim the refund of that tax from the federal government. This would mean there would be a problem of administration far out of proportion to the problem of dealing with the tax returns of individuals or corporations.


Stanley Howard Knowles: Is it not true that you do it now, despite the administrative problem, in connection with public hospitals certified by the Department of National Health and Welfare?


Walter Edward Harris: That is quite true. I suppose my hon. friend would say there are several hundred public hospitals in Canada, and that is a fact. But the several hundred public hospitals would not come anywhere near the 50433-345}
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number of individual claims for deduction we would get from the type of purchase I have just mentioned. I suggest to hon. members that when they consider the problem in that light, desirable though it might be to aid charitable organizations in this or any other respect, they will come to the conclusion that any aid granted could be granted in some other way that would be less costly or less troublesome to deal with.
Then on the second point, as to the motor car dealers, I realize that hon. members have had representations made to them by almost every dealer in their own constituencies, and by the various associations in the several provinces. And there could not be any doubt that this may result in some loss to motor car dealers. When I have said that, I have said it as a possibility; I do not admit that it is a probability. It is much easier to stop thinking with the situation on April 5 than it is to go on to consider what it has been since.
It is quite true that motor car dealers had in their inventories on that day a number of used and new motor cars, on the latter of which a tax had been paid. Just to multiply the tax by the number of motor cars, and come to the ready conclusion that the loss sustained by motor car dealers was a result of the multiplication of those two figures should not, I suggest, be accepted by hon. members quite so readily. There is no certainty whatever that a motor car dealer took a loss on a motor car which he had in his possession on April 5.


Wilbert Ross Thatcher: I do not think that is right.


Walter Edward Harris: Permit me to continue. It may very well have happened and, as I said at the beginning, it probably did happen. But I say now that it should not be assumed that it happened in every case and on every car.
The result is that in computing the possible loss, one must just assume that there was a maximum loss, and then say whether in fact there was that result. No one has mentioned the cost of the refund which has been recommended to the government by various members. We really have had no way of computing that, either. But I think the gross loss, if I may put it that way, by taking the tax paid on the cars on hand on April 5, regardless of the subsequent dealings those cars might have gone through, might have run somewhere between $2 and $3 million.
Hon members are saying in effect that motor car dealers should be dealt with in a manner different from any other retailers or any other persons who, on the face of it,

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suffer a loss because of budgetary action. It has not been the custom of this parliament to give rebates and refunds consequent upon budgetary action. The whole purpose, or almost the whole purpose, of the secrecy which attends budgetary announcements is to avoid any possible suggestion that one could make a profit, or escape a loss, or something like that, because of a change in taxation laws which, as all know, are made effective after the close of business on budget day.
If you were to single out the motor car dealers and say they should be reimbursed by the government or by the taxpayers of Canada to the extent of their ostensible losses on that date, I am sure you would find that your problem would increase immensely, and that you would be faced with similar problems at every change in the tax laws of the country.
This may not sound like very good comfort, however, for the motor car dealers who feel they have taken a direct retail loss. But let me point out what has been referred to by more than one speaker today, that the motor car dealers along with the motor car trade, and along with almost every business group, as well as innumerable individuals, urged this government to reduce the excise tax on motor cars, and did this several months before the budget was brought down. Speeches were made in the house by persons who suggested that if that tax were reduced, or removed, there would be such a stimulation in the motor car trade that not only would the economy revive but that indeed the loss the government would be contemplating through the reduction in the tax would be more than made up by the increased sales of motor cars during the coming fiscal year.
On the night of the budget I believe I said our loss from the reduction in the excise tax we did make would probably be about $26 million. Now if in fact, as a result of the increased sale of motor cars, we had no net loss, and the $26 million was made up by the reduced tax on the increased sales, how can anyone suggest that the motor car dealers would not have a profitable year?
I am not suggesting that will be the outcome; but I am saying that under the circumstances, and because it is not such a clear case of direct loss in the number of dollars paid by way of tax on the motor car, I do not feel that we could depart from the past practice of not making refunds under these circumstances. And if I were to add a postscript it would be that if hon. members felt there ought to be a reduction in the sales tax on an item, as a matter of logic one would expect that anyone who had that article on

his shelf in a retail store would expect a refund of the amount of the tax that had been paid.
If stated in that manner it would draw the attention of hon. members to one of two things. Either they feel that because of the large sum of money which has been paid by way of tax on the motor car-that is, $75 and up, or something like that

as compared with the smaller amount that would be paid by the retailer in some other line, the motor car dealer had a special case for special consideration which would not be given to anyone else on that account; or, alternatively, I think they would feel, as we do, that much as we do not want to impose any loss on anyone as the result of action we take here, nevertheless, it would be unwise to take the step suggested in this particular case.
At least two speakers have mentioned my remarks on May 18, I believe it was, in answer to the hon. member for Kamloops. I do not think on that occasion I was doing more than promising continued consideration of this problem. Indeed, since that time I have received a deputation from the motor car dealers' association of Canada, and have received from them a great deal of information on which to base my judgment. And that is precisely what I meant. I knew perfectly well that we would have these representations after the budget announcement was made, and I did not expect the house would suppose that I would categorically refuse to consider any information made available in the future. I do not intend to do so from now on, either, for that matter. But to say that because I did not on that occasion deny that there would be further consideration, it could be read as a promise that I would give favourable consideration, seems to me to be stretching the point far beyond either what was intended or what could be read into what was said.
I would like to think we could find a way of avoiding this situation. It has been said that the budget comes at the worst possible time for the motor car dealer; that is, at the time of the spring build-up of his inventory. There must be a lot of other retail businesses in Canada which find that February, March or April, or whatever the month may be, is the period when they have as high an inventory as they have at any other time. But of course I agree that the motor car dealers do, in fact, find that the budget comes at an awkward time with relation to their inventory.
They have made representations as to how this problem could have been overcome. We were not able to accept those recommendations, not because there was not some merit in them but because we did not feel they met

the problem quite in the manner it should be met, if any change could be effected. I can only say, sir, without anything possibly being read into what I may say in the future, I would hope that some means can be devised whereby there will be a minimum of loss on any occasion when there is a change in the tax laws of Canada.
If I have not covered all the points that were brought up in the course of discussion I shall be glad to do so if I can be reminded of them.


Gordon Knapman Fraser: What about
cigarettes?


Walter Edward Harris: The hon. member for Peterborough referred to the tax on cigarettes. We studied the tax on cigarettes, and I rather thought that answering my hon. friend at this time would be to really take part in the budget debate again, because he did not take time to do so on that occasion. He made a point about smuggling. I was informed at the time we were giving this consideration that smuggling was not now quite the problem that it had been some three or four years ago. Nevertheless it is a problem, and we do not want to do anything which would aggravate it. On the contrary, we feel that the less there is it is not only the better for the revenue of the people of Canada, but the better from the point of view of a more law-abiding citizenry. At the same time it is not the problem which was pressing upon the government when they altered the tax some three years ago, I think it was. I would hope that any future change in the tax law would not have to be dictated by that reason.


Gordon Knapman Fraser: What about king size cigarettes?


Walter Edward Harris: On that point I am afraid I have not much information. I am not familiar with king size or any other size.


Stanley Howard Knowles: Would the minister care to comment on the question of extending sales tax exemption to a longer list of drugs and medicines?


Walter Edward Harris: Yes, Mr. Speaker, I omitted that. I received representations from several drug associations and medical associations with respect to tax exemptions on various drugs. It seemed to me that we had embarked upon a tax exemption out of sympathy for those who have to use specific drugs for particular diseases. While that was probably laudable and understandable and there were some cases, of course, where the cost of the drug was of such magnitude that it would normally drain the resources of a family with average income and for that reason ought to be given special consideration, it also seemed
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to me there was not, if I might use the words, any philosophy behind this as to the general approach to tax exemption for drugs as such. I agree with my hon. friend that we ought to have a review of the whole problem. While he has added the words "for the purpose of extending the exemptions", I would not go that far, but I would go so far as to say that a study would probably give us an accurate picture of those drug exemptions which should be granted, as I have said, for the reason that their cost is so great in that it would interfere with the normal savings or income of a family.
The other group of diseases that are sought to be cured are of a kind that we would like to do what we could to overcome; but in any event those normal, everyday drugs, patent medicines and the like are perhaps not ot that particular class. A general study-and I may be using words which probably could be much better interpreted by my colleague the Minister of National Health and Welfare- along this line with a review of all the drug items would be useful, and I think probably would be profitable in the sense that the house would have a chance of approving or disapproving the choice which was made after the general study.


Wilbert Ross Thatcher: I have one question on the automobile tax. The minister said that in the past it had not been the practice of the government to refund excise tax after the budget was brought down. Is it not correct that back in 1921, when precisely the same circumstances arose, the government ultimately did refund the tax to the automobile dealers, I believe some seven years later? I believe when they did it they also paid the back interest. I am just wondering whether that would not be a precedent.


Walter Edward Harris: If we can go into committee of the whole I shall answer the questions, Mr. Speaker.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Applewhaite in the chair.
On clause 1:
Walter Edward Harris: May I just answer the question asked by the hon. member for Moose Jaw-Lake Centre. It is a fact that the excise tax on motor cars which was reduced in the summer of 1920 was refunded in the year 1927; but we have had several reductions in excise tax on motor cars since that time and no refunds have been made. I was referring, of course, to the later practice rather than that of 35 years ago.


Donald Methuen Fleming: I was amazed at the statement made by the Minister of Finance just

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now in closing the debate on second reading with respect to the intended effect of the statement he made in the house on May 18. He has indicated what he did not intend to convey to the house or to the motor car dealers who, through their associations, were making representations to him seeking refund of the tax paid on cars purchased by them prior to the introduction of the budget. He indicated that he intended only to convey the idea that this was a matter under consideration; he just was not closing the door, and it was a sort of routine matter.
Mr. Chairman, I do not know how the minister could have been so careless with his words. Let us remember that this matter had already been discussed. It had been discussed very thoroughly in the course of the budget debate. Those same considerations had been very directly laid before the minister then. A number of hon. members had put the question very directly to the minister, and it was in the minds of all hon. members; it was recognized to be a problem to which no little difficulty was attached for the very reasons given by the minister this afternoon, because it does raise questions about where you draw the line. It was not because of any lack of warning that the minister allowed himself to say those things on May 18, which certainly have had the effect of misleading the motor car dealers involved. Let me read again the question that gave rise to the minister's statement. On page 3881 of Hansard the hon. member for Kamloops asked this question:
I should like to ask the Minister of Finance if he has received a brief from the motor car dealers' association of British Columbia asking for his consideration of their request for a refund of the excise taxes paid on cars in stock on April 5? Would the minister say whether he will be able to give further and favourable consideration to this admittedly difficult problem, and whether he is able to hold out any encouragement to that association?
I suggest, Mr. Speaker, that everything is in the question; the whole problem is set forth there. There is an indication that the questioner recognized the difficulties involved. He asks whether the minister is prepared to give further and favourable consideration to the problem. He is then asked whether he is prepared to give encouragement to those who have made those submissions. It cannot be said that anything was omitted from the question or that any hidden meaning was left lurking. That was a question that was open and plain and gave the minister complete warning. To this question the minister gave this answer:
I received briefs not only from the British Columbia motor car dealers' association but from the national body, I think from all the provincial bodies, and from quite a number of individual

dealers. Of course we accept these representations along with all others and give them our best consideration.
But the hon. member for Kamloops did not stop there. That might have been regarded as just a routine answer to a question. The hon. member continued:
Consideration is always welcome, but how about encouragement?
The hon. member went right back to the very nub of the question, and then the Minister of Finance permitted himself to utter these words:
Encouragement is a word which I think is used on every occasion by this government as to its intentions with respect to the Canadian economy.
I am quite sure that hon. members of this house drew from those words the only interpretation that could properly be given to them, that the minister was seriously considering this request for refund and was indicating that there was in his thinking some reason for encouragement. Why otherwise did the minister go on and talk about encouragement being in the mind of the government in relation to the Canadian economy. There is no doubt at all about the meaning the motor car dealers drew from those words.
What I said earlier I now repeat, that if the minister did not intend to give effect to their requests for a refund in some form, then he should not have used words like those. He should have been clear and direct for the purpose I mentioned when I spoke on this matter on June 2.
Just after the minister made this remark one hon. member of this house made a comment to me to the effect that that was not the kind of answer his predecessor would have given. If it was not in the mind of the Minister of Finance to give effect to this request, if the Minister of Finance saw in the way these formidable difficulties to which he has drawn attention this afternoon, then at that time he owed it to the house and to these motor car dealers who were concerned and who were making representations to say that he was sorry, that he would give the best consideration he could to the matter, but the difficulties were so formidable that he could not hold out any hope. He should have told the motor car dealers they must accept the situation, that there would be no refund.
But the minister had not learned how to deal with questions of that kind in that way. I wish to say in all fairness that I hope there will not be a repetition of this sort of thing. Unquestionably the house and the motor car dealers right across Canada were misled by the words which the minister

allowed himself to use on that occasion into thinking there was some form of relief coming to them in response to their requests for a refund.


Walter Edward Harris: I hope this will be my last word on this. There are two things that stand out. First of all, I was not as direct as my predecessor and I accept full responsibility for not saying that the facts of the matter were that before this question was asked I had been asked by the association of motor car dealers if I would reconsider the problem in the light of information which they would send to me. That information had not been received when the question was asked. My hon. friend could hardly expect me to get up in the house and say that my mind was made up, that I would not receive further information, that I would not consider further requests, that I would not see people who wanted to speak to me about this.
I had no intention whatever of suggesting in my answer that I was trying to be devious or to create an impression which was not in fact in my mind. Contrary to what my hon. friend says, no one has spoken to me about this before this afternoon, when it was raised by the hon. member for Eglin-ton. No one has said that my words indicated a favourable outcome to my consideration. No one has suggested that my words meant anything more than the kind of consideration you would expect a government to give to representations that had been made to it. I have not had a single dealer say he thought that my words meant the dealers were going to get a refund.


Donald Methuen Fleming: I think the minister has completely overlooked the discussion we had on this subject on June 2.


Walter Edward Harris: I know what my hon. friend said in the house on that occasion, but I repeat that I have never had anyone tell me they understood from that that they were going to get a refund. No one has approached me and said that was the case. The decision which had been announced on April 5 was still open for discussion, and that is as far as they must have gone.
Apparently my hon. friend feels that my answer was not a correct answer, that I should have said on that occasion that I would not receive further representations, that my mind was closed.


Donald Methuen Fleming: I do not wish to be unpleasant about this, but if at that time the minister had told the representatives of these dealers that he was giving consideration to their representations, I think any answer to the question asked by the hon. member for Kamloops should have been one in which he was
Excise Tax Act
more careful in the use of the word "encouragement" than he was on that occasion. He said:
Encouragement is a word which I think is used on every occasion by this government as to its intentions with respect to the Canadian economy.
It may be that the minister now regrets having used language like that.


Walter Edward Harris: Not a bit.


Donald Methuen Fleming: Then I am surprised at the minister's present statement, because I do not know how he can assume now that his answer did not convey to those who heard it and to those who read it that there were grounds for feeling encouraged as to their hopes that some action was going to be taken by the minister in relation to their requests for refunds.


James MacKerras Macdonnell: Mr. Chairman, I am not sure whether this is a question of privilege, but in connection with tobacco I have a letter here from a person who I think is well informed and who lives in the region down near the border where smuggling is being carried on. He makes the same objection as the hon. member for Peterborough. He says there is a terrific amount of smuggling which would be cured by a reduction in the tax. I put that before the government for consideration.


[Stage Direction]
Clause agreed to.
On clause 2:
Stanley Howard Knowles: Mr. Chairman, what I wish to say now is supplementary to the discussion the minister and I had on second reading regarding the extension of the sales tax exemption to additional drugs and medicines. I was grateful for his assurance that the whole question would be reviewed, and I look forward to that being done at an early date.
The minister indicated that there might be two grounds for considering sales tax exemptions for medicines and drugs. The one was the fact that a drug might be expensive. The other consideration was the nature of the disease for which a particular drug or medicine might be prescribed. I should like to suggest a third consideration which might be taken under advisement when this review is being made.
I would point out that among the list of articles in schedule III which are exempted from sales tax is a fairly long list of foodstuffs, many of which I believe are considered to be healthful and preventive in connection with certain diseases. It seems to me that today many drugs are really in the nature of foods. Medical science has discovered that

Customs Tariff
the use of these things is helpful, and I suggest that in considering drugs and medicines the minister might go even further than he indicated a moment ago.
I am glad to know that the matter is to be reviewed. I hope that review will be thorough and the results encouraging.


[Stage Direction]
Clause agreed to.
Clause 3 agreed to.
Bill reported.
@Acting Speaker: When shall the bill be read a third time; now?


Stanley Howard Knowles: By leave.
Bill read the third time and passed.



CUSTOMS TARIFF

Walter Edward Harris: the second reading of Bill No. 506, to amend the Customs Tariff.


James MacKerras Macdonnell: Will any statement be
made on this?


William Moore Benidickson: Mr. Speaker, both at the resolution stage when the amendment was moved, and again when these items came up for discussion, there was a fairly full discussion, and each tariff change was considered seriatim.


James MacKerras Macdonnell: I wish to make one or two remarks. I suppose it may be said that for almost 15 years we have had an extraordinary absence of tariff problems in this country. We had first of all the war, and then shortly after the war came the Geneva agreement, with GATT and all that it meant. As a result we have had comparatively little discussion on tariff matters. At the present time the situation is not as satisfactory as it has been. The Minister of Trade and Commerce came back from Geneva not too happy about the result.
Although it is perhaps fair to say that progress has been made since then under GATT, and that the situation is somewhat better, nevertheless we cannot say it is wholly satisfactory. For example, it is not satisfactory that up to the end of May our trade deficit with the world was $128 million, most of it, of course, with the United States. I talked the other day with a man recently back from Europe. Taking a long view of the next four or five years, he was greatly disturbed about our competitive position, for our manufacturers particularly, because of the tremendous energy and efficiency that he had seen, in Germany and in Switzerland particularly and elsewhere in Europe. He was asking himself what was going to be our position when

we had to face this competition, which he felt was becoming keener and keener.
At the present time our prosperity in Canada depends to a very substantial extent on huge capital investment, though also of course greatly on our trade. We must remember that in the long run our trade is tremendously important, an importance that it is impossible to exaggerate.
I come back for a moment to the situation vis-a-vis the United States. The United States administration has taken a broad view on trade matters, but has been handicapped and held back from time to time by congress. Therefore it is comforting to remind ourselves that quite recently the President was given by congress a considerable amount of scope and power in his own hands to reduce tariffs; not nearly as much as Roosevelt had at one time, but still much better than nothing.
We have in the tariff measure before us now very few changes. There are one or two increases in tariffs. Those came to us on the recommendation of the tariff board, which we respect. I hope perhaps this may relieve us from that hoary hypocrisy, from which we have suffered for so many years in this house, that the raising of the tariff is not a respectable thing to do and that no Liberal government ever does it. We have suffered from that for a long time. The government has really tried to run with the hare and hunt with the hounds. It has tried to be all things to all men, to face both ways at once, and to make the best of both worlds. I hope we may now be relieved of that. The increase I have particularly in mind, which affects fruit cocktail, comes to us recommended by a respectable source. I hope it may relieve us from being exposed to what I call a hoary hypocrisy.
It is satisfactory to be assured that the increases which are to be brought about have been agreed upon within the four corners of GATT, and we are encouraged in the hope that this useful organization may add further to the substantial measure of success it has had already. There is no doubt that GATT is aiming at the kind of world in which Canada can fare best but, on the other hand, we must try to look at each problem that comes up in a realistic and practical way. The changes which we are to have in the tariff act are, as I have said, moderate. I leave the matter now for the consideration of the sections.


Major James William Coldwell: Mr. Speaker, I should like to say a word on this. I must say that this bill rather surprises me. I do not like its contents. I do not like the idea of raising tariffs, as we do in the

schedule; but more particularly I am wondering why the government is dealing with goods that may be subsidized within the country in the manner which this bill outlines.
This bill adopts a principle, it seems to me, which is quite wrong. It gives the governor in council the power to decide what duty shall be charged in order to offset the subsidy that may be granted in the country of origin of the goods. I do not want to quote the clause because it is not in order at this stage to do so, but in addition you have references	to	dumping. It	seems to
me that the government is taking backward steps in dealing with this whole problem of imports and tariffs.
If I understand the policy of the Liberal party as enunciated from time to time, it is	that we go	in	the direction	of lowertariffs. When I look at this particular bill I	wonder why	we	have not adopted the
method outlined in article XVI, as amended, of the general agreement on tariffs and trade, to which the hon. member for Greenwood referred as GATT, as it is popularly known.
I should just like to indicate what I mean. I	have before	me	the protocol	and the
amendment to article XVI of the agreement on tariffs and trade. Perhaps it will suffice if I just give the amendment. It states:
Article XVI shall be amended as follows:
. . . The following new section shall be added:
"Section B-Additional Provisions on Export Subsidies"
"2. The contracting parties recognize that the granting by a contracting party of a subsidy on the export of any product may have harmful effects for other contracting parties, both importing and exporting, may cause undue disturbance to their normal commercial interests, and may hinder the achievement of the objectives of this agreement.
"3. Accordingly, contracting parties should seek to avoid the use of subsidies on the export of primary products. If, however, a contracting party grants directly or indirectly any form of subsidy which operates to increase the export of any primary product from its territory, such subsidy shall not be applied in a manner which results in that contracting party having more than an equitable share of world export trade in that product, account being taken of the shares of the contracting parties in such trade in the product during a previous representative period, and any special factors which may have affected or may be affecting such trade in the product.
It goes on to say:
Contracting parties shall notify the contracting parties . . .
And so on. Then it says:
(c) The contracting parties may, at the request of a contracting party which has reason to believe that its interests under this agreement are being adversely affected by the operations of an enterprise of the kind described in paragraph 1 (a), request the contracting party establishing, maintaining or authorizing such enterprise to supply information about its operation related to the carrying out of the provisions of this agreement.
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(d) The provisions of this paragraph shall not require any contracting party to disclose confidential information which would impede law enforcement or otherwise be contrary to the public interest or would prejudice the legitimate commercial interests of particular enterprises.
It seems to me that instead of enacting the clause which we have in the bill at the present time, we should follow the method outlined in GATT and should exhaust all the possibilities of GATT before we approve the kind of power which is given to the governor in council in this bill. Of course we also have the dumping act which can be used in addition to anything the governor in council may authorize.
That dumping act itself, it seems to me, has been used in a manner which would discourage the importation of subsidized goods. I notice a short time ago that the Minister of National Revenue-of course I cannot quote exactly what he said-told us that as the result of Bill No. 29 there was a deterrent effect upon importers of certain lines of goods into Canada, because they did not know just what the value would be and what their bill would be for duty purposes.
It seems to me that is a wrong principle. If we are operating under the rule of law, then the House of Commons should lay down what the duty should be and should not leave it to the ministry, or more particularly should not leave it to the guesswork of the importer. He should have some assurance of what conditions he will be required to fulfil in order to import goods into this country. It seems to me that this particular clause of this particular bill, or the part of it to which I have referred, and the dumping act together may be a potent and effective weapon in our tariff and trade policy.
I think we were moving in the right direction when we were reducing the barriers against trade into this country. After all, the goods that flow into this country are in payment of the goods we export. The higher we build the wall, or the more difficulties we put in the way of importers bringing goods into this country, the more difficult it is for us to sell goods.
Looking at this bill, I greatly regret clause 1 which, it seems to me, does something that we should not do. It gives the governor in council more power over the decision as to what tariffs shall be levied against goods coming from a country in which subsidization has been resorted to. It seems to me that the GATT agreement calling for consultation is the method we should use.
Over the last several days we have heard a great deal about the granting of powers to the Minister of Defence Production, and

Customs Tariff
we have heard a great deal of criticism of those powers. I want to say that in clause 1 of this bill I consider power is given as great as or greater than that given to the Minister of Defence Production; not only is that power given, but it is given in a field which I think is indefensible.
I am not going to deal with the defence production bill at the moment. I shall have something to say about it when it comes before the house again. Perhaps I can say this at the moment. I can see the necessity for that particular bill at the present time. But it seems to me that this bill is far more important, because it deals with goods that are imported into this country for the use of Canadians and it gives to the governor in council, in addition to the dumping act, powers which create uncertainty in the minds of importers and which may have the effect, if the government and the minister so desire, of preventing goods from coming into this country and of placing upon them not only a higher tariff but indeed, in some instances, perhaps an effective embargo.
When I look at the schedules-and I shall not deal with that matter; one of my colleagues will do so-I find that you have there a duty placed on a commodity which the Canadian people find to be essential in the colder winter months of the year. I therefore want to protest against this bill because I think it violates the rule of law and I think it violates the responsibilities of this parliament, which should decide what tariffs are to be levied against goods. We are placing in the hands of the ministry a power which, in consideration of the immense power contained in the anti-dumping act which we have on the statute books, in my opinion threatens the whole of our trade policy, if we do not make an effective protest at this time.


Donald Methuen Fleming: Mr. Speaker, there is just one brief remark I should like to make. It is in the same sense as that in which I spoke on June 21, as reported at page 5116 of Hansard. I am moved to make this remark by the presence in the house on this occasion of the hon. member for Churchill (Mr. Weaver), who was not in the house at the moment when I spoke on June 21.
Having regard to what he had to say on May 30, as reported at page 4261 of Hansard, and to the errors he then made in his reference to the trade policies of the parties represented here I should like to draw to his attention, as I did to that of the hon. member for Rosthern (Mr. Tucker) and any other advocates of free trade under the banners of
the Liberal party, the fact that this is a
government measure, one of the effects of which is to introduce increases in the tariff; and that in supporting the bill, as presumably they are, they are giving support to increases in the tariff.


The Acting Speaker (Mr. Applewhaite):: Is
it the pleasure of the house to adopt the motion?


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Applewhaite in the chair.
On clause 1-Additional duty in respect to subsidized goods.
Major James William Coldwell: Will the minister make some sort of statement with regard to clause 1 of the bill, which I view with considerable
misgiving?


Walter Edward Harris: If I may say so, I think my hon. friend has not chosen the correct article in GATT to discuss.


Major James William Coldwell: Article XVI?


Walter Edward Harris: Article VI is the article under which we are imposing this anti-subsidy levy.


Major James William Coldwell: I was looking at article XVI.


Walter Edward Harris: I know that, and I can understand my hon. friend doing so because article XVI is supplementary to article VI. It recognizes the fact that dumping or subsidies are evils against which a certain amount of action might be taken by one of the parties to GATT, and the terms on which those actions may be taken are set down. At least there are limitations on the terms, and we have kept within them. Indeed, some of the wording of our section 1 is taken directly from the wording of GATT.
Admittedly it is an extraordinary power, but it is to deal with a specific course of conduct on the part of another country. I would hope there would hardly be occasion to use the power, and certainly there would be no frequent use of the power because circumstances would only arise on occasion. If my hon. friend will read article VI I think he will see my point.


Major James William Coldwell: I dealt with the amendment:


Walter Edward Harris: Yes. In what I said the other night I think I made it clear that this was for the purpose of adding to the cost of imported goods a sum of money which would, in some sense, offset the advantage conferred upon those goods by the action of the foreign government for the purposes they have in mind in the export. I do not think I can add much to that. I would be glad to discuss article VI with my hon. friend on any occasion he likes.


[Stage Direction]
Clause agreed to.
[Stage Direction]
On clause 2-Schedule A amended.
James MacKerras Macdonnell: Will the minister spell out for me just exactly how these resolutions, the original ones mentioned by him at the time of his budget speech and the four which were introduced later, are covered in the sections of the bill? Will he tell me where I may find the clause with regard to bituminous coal?


William Moore Benidickson: The two sets of tariff items are remaining separate. Those that were referred to on the night of the budget, April 5, are to be found in schedule A at the back oi the bill. Those that were referred to-


James MacKerras Macdonnell: May I ask a question just there? Are those in schedule A exactly the same as in the budget, and contain merely the present rates?


William Moore Benidickson: With the exception of the amendments that were made in committee of the whole on June 21, the items in schedule A are as introduced in the budget. Then with respect to the additional items that were mentioned in the statement of the minister on June 2, those will be found separately in schedule B of this bill. They too were discussed on June 21.


Donald Methuen Fleming: May I ask a question as to how you are going to handle the schedules?
I have points to raise in connection with three of the items in schedule A. If you carry clause 2, presumably you are carrying all the changes in the tariff so far as the items in schedule A are concerned. I do not care how you go about it, so long as I have an opportunity of raising my points before any step is taken by the committee to adopt the schedule in this form.


William Moore Benidickson: Would the hon. member care to indicate his interest at this point?


Donald Methuen Fleming: Yes. I am concerned with three items that were discussed on June 21 and to which the minister then said he would give further consideration. They are items 476d, on page 14 of the bill, 481a on the same page, and 106(d) on page 18 of the bill. The latter item is in schedule B, Mr. Chairman. I can deal with them now, if that is convenient.


Edward Turney Applewhaite: I would suggest to the members of the committee that the discussion of these items is in order either on clause 2 or when the schedule is called, as the schedule will be called-whichever is going to be the most satisfactory method for hon. members to get answers to their questions.


William Moore Benidickson: Probably the hon. member for Greenwood would appreciate a reply from me at this point. With respect to tariff
Customs Tariff
item 426d, where he suggested a comma instead of a semicolon, I think we are prepared to advance that amendment whenever the chairman thinks it is appropriate.
With respect to the sales tax on item 481a,
I do confirm that sales tax would ordinarily apply and it also applies on the other type of special shoe, the custom built shoe under another tariff item which I believe is item 481. I do not think any change in that respect could appropriately be made at this time, but this will be put forward as an item for consideration in connection with the next budget.
In connection with item 106(d) my hon. friend was considering there the phrase "mixtures containing peaches, pears or apricots", and the wording was questioned. This has been reconsidered by a number of officials of the Department of Finance, as well as those in the Department of National Revenue, and they feel that the item is clear and not ambiguous. They feel it is in line with their usual administrative practices and their understandings in dealing with wording of this kind.


Donald Methuen Fleming: The amendment, I presume, will meet my point in connection with item 476d. With regard to item 481a, I am glad to see that consideration is going to be given to the elimination of sales taxes on these orthopaedic shoes and similar appliances. After all, we are moving here in the direction of free entry of these particular aids to persons who require boots and shoes for defective or abnormal feet. I should think that for the very same, or in fact stronger reasons, we should be moving now to eliminate the imposition of sales tax on these so-called orthopaedic shoes.
So far as item 106(d) is concerned, all I can say is that I hope the officials are right in their interpretation of this particular term. The interpretation we were given in discussing this matter on June 21 at page 5117 of Hansard was that as long as there are to be found in the cocktail mixture peaches or pears or apricots, then the tariff of 2 cents British preferential, 2 cents most favoured nation tariff and 5 cents general tariff, would apply. It does not matter how many other ingredients are in the fruit mixture, and it does not matter if only one or two of these designated fruits are in the mixture; the interpretation is that if the mixture contains peaches or pears or apricots, regardless of what else it contains-


James Joseph McCann: "And" instead of "or".


Donald Methuen Fleming: No, that is just where we get into trouble. The Minister of National

Customs Tariff
Revenue, who is going to be interpreting this and enforcing it, has just thrown a wrench into it.


Stanley Howard Knowles: As he did last time.


Donald Methuen Fleming: No, we start again-


Stanley Howard Knowles: Six o'clock.


Donald Methuen Fleming: There is another spanner.


James Joseph McCann: Let us hear what you say.


Donald Methuen Fleming: The interpretation I took from the remarks of the parliamentary assistant on June 21 is that if the mixture contains peaches or pears or apricots, regardless of what else it contains and regardless of the fact it may contain only one of those, then these tariff rates will apply to that mixture. Could we have a categorical answer to that?


William Moore Benidickson: That is correct.


James Joseph McCann: If there is only one, how could it be a mixture?
At six o'clock the committee took recess.


[Stage Direction]
AFTER RECESS

The committee resumed at eight o'clock.
William Alfred Robinson: We were discussing clause 2. Shall this clause carry?


Donald Methuen Fleming: I think before the adjournment we were dealing with an item which does not come under clause 2 of the bill. We had some discussion about several items, two of which are in schedule A and one in schedule B. I think we had just about clarified the interpretation of item 106(d) at page 18 of the bill. The reference to fruit mixtures seemed to be clear enough until the Minister of National Revenue began to stir it up with extraneous ingredients.
But, notwithstanding what was said, I think the interpretation placed upon it by the Department of Finance is clear. I am just hoping it is perfectly clear, and that those who will be in charge of the enforcement of the act, as amended, are going to be quite clear in their interpretation of it and that it will be interpreted to the same effect. Personally I would have liked to see the matter clarified by changes in the wording.
I gathered from what was said before recess by the parliamentary assistant that the view of the minister is that no change in the wording is contemplated. They think it is clear. On the other hand, if they will have regard to what was said by the minister's colleague, the Minister of National Revenue, then personally I am left in some doubt as

to whether the two ministerial minds are at one on the interpretation of this provision.
The parliamentary assistant made it quite clear that, so far as he was concerned, 106(d) will mean any fruit mixture which contains either peaches or pears or apricots. It does not matter what else it contains, so long as it contains one of those. In those circumstances it falls under tariff item 106(d). May I ask the Minister of National Revenue, if he has any doubt about it, to speak now or forever hereafter hold his peace.


James Joseph McCann: 
Donald Methuen Fleming: Oh, this is utterly hopeless, Mr. Chairman. I never did say that peaches were a mixture.


James Joseph McCann: The last words you said before six o'clock.


Donald Methuen Fleming: No. This is just another
lamentable exhibition on the part of the Minister of National Revenue. We have been talking about mixtures all along. And, believe me, it will be a muddled mixture by the time the Minister of National Revenue gets through with it. We have been talking about mixtures. Let us make that clear. I wonder if we can get the Minister of National Revenue back on the rails. We are talking about fruit mixtures. And if-


Walter Edward Harris: May I interrupt, just to save the time of the committee. On three occasions the hon. member has been given the answer to his question. I do not know why he does not accept the answer. Each time he has been given the answer that a mixture of fruits which contains any one of the three named qualifies for the duty which is extended to that mixture. I gave that assurance at the resolution stage, and the parliamentary assistant has given it twice today. Why do we waste more time on it?


James MacKerras Macdonnell: May I interject? I do not believe that the assurance given by a minister or by his parliamentary assistant as to what judges will say is of any value whatsoever.


Walter Edward Harris: That is always recognized in everything we try to do here.


Donald Methuen Fleming: The Minister of Finance has not got the point. I am satisfied with what he has said and what his parliamentary assistant has said. But along comes his colleague and gives us an entirely different interpretation. If he had stayed out of it, or

if he will say that he accepts the interpretation given by the Minister of Finance, I shall leave it at that.


William Alfred Robinson: Shall clause 2 carry?


James MacKerras Macdonnell: I wish to make one more comment. I once knew a lawyer-only one- who was prepared to say there was no other possible interpretation, except the one he favoured. He just said, "There is no other view." 1 never knew another lawyer like that. Every other competent lawyer I have known would say, "Well, if the other view is held, and if it appears to be a reasonable one, then let us try to guard against it. Do not let us head into lawsuits".
I think that is what is wrong in this instance. This could easily be clarified; and I suggest that if the hon. member for Eglin-ton, who is a competent legal authority, raises the question he has raised, then his view fully warrants an effort to make the provisions clear beyond peradventure.


Walter Edward Harris: Well, Mr. Chairman, there is a certain amount of pride of draftsmanship that enters into these things.


James MacKerras Macdonnell: Now we are coming to it.


Walter Edward Harris: And when persons draft a
document that they say will have a given result, I think we should accept their word. Of course they may turn out to be wrong; the courts may so find. But I have often found that when other draftsmen try to add their thoughts in order to clarify, they only give two occasions rather than one for the courts to disagree.


James MacKerras Macdonnell: If draftsmen are so confident of their draftsmanship that they are not prepared to meet a possible other interpretation put forward from a competent source, then my opinion of those draftsmen' goes down.


Stanley Howard Knowles: May I add just a word. I felt reasonably satisfied with the assurances given earlier by the Minister of Finance and his parliamentary assistant. As a matter of fact I still am, except for the fact that the hon. member for Eglinton seems to think there may be some kind of mixture or some sort of cocktail or salad about which there may be some doubt.
I am interested in this because of what happened before. I thought it was clear before that mixed fruit was n.o.p., or not otherwise provided. It turned out, however, that in the view of the department mixed fruit was peaches. So it is possible to become confused.
I should like to ask the hon. member for Eglinton a question. I do not wish to put
Customs Tariff
him on the spot, but I am asking him to help clear this up. Can he think of any fruit concoction or mixture that is not covered by this and, if so, will he name it?


Walter Edward Harris: Do not let us confuse the issue. This is what the government recommends should be done. If we are going to discuss other forms of mixtures of fruit, then of course we would have to take time to consider any suggestion made, but we cannot discuss it tonight.


[Stage Direction]
Clause agreed to.
On clause 3-Schedule A further amended.
Mr. Zaplilny:: Clause 3 of the bill refers to certain tariff items which appear in schedule B, and which are to become part of schedule A to the act, if it is passed. I would refer particularly to item 207c which refers to ethylene glycol and mixtures of ethylene glycol and other glycols in which ethylene glycol predominates, for use in the manufacture of antifreezing compounds. In the rate schedule there is shown a proposed British preferential tariff of 10 per cent, a most favoured nation tariff of 10 per cent, and a general tariff of 25 per cent.
When we were on the budget resolutions a few days ago I raised this question with the Minister of Finance and inquired why he proposed to place tariffs of 10 per cent and 25 per cent on an article or commodity which hitherto has had free entry. As I understand it, if it has been imported for the purpose of making explosives it has been on the free list since 1926. Since 1939 it has been on the free list for both antifreeze and explosive purposes. It is proposed to leave the ethylene glycol to be used in the manufacture of explosives on the free list, but to impose tariffs of 10 per cent and 25 per cent on the glycol used in the manufacture of antifreeze.
When I inquired of the minister as to the reasons for that, he expressed the preference that this question should be left until the bill was before the house. In order to accommodate the minister I did that. Now that the bill is before the house it is important that we give due consideration to this rather major change.
It is a major change in two respects, Mr. Chairman. In the first place it involves a commodity which is very widely used in Canada, particularly in the agricultural parts of Canada and perhaps more particularly on the prairie provinces, where antifreeze is a commodity that is used not only for domestic purposes by those who own automobiles and so forth but is also used in tractors, combines, trucks and all other vehicles that have to be

Customs Tariff
exposed to below freezing temperatures. It is easy to imagine the great effect it might have on the price of antifreeze if this protection gives the Canadian manufacturers of antifreeze, or of the base product, ethylene glycol, an opportunity to raise their prices unduly.
I have gone over the tariff board hearings on this question, as suggested by the minister, and I am not too sure that we come to the same conclusions. Quite obviously we do not, because I am opposed to the imposition of this tariff. Apparently the minister is in favour of it. On going through the hearings before the tariff board we learn that there were originally two companies that made representations calling for the imposition of a tariff. Up until November, 1954, the two companies interested were the Dow Chemical Company of Canada and the Dominion Tar and Chemical Company of Canada. There was a slight change in the line-up in November of 1954, because Union Carbide Canada, which is a subsidiary of Union Carbide of the United States, purchased the plant owned by the Dominion Tar and Chemical Company in Montreal East, and then of course became directly interested in this product.
What is the result? Representations were made actually by three companies, but as a matter of fact there are only two companies now which are in a position to manufacture ethylene glycol in Canada. In addition to that, I am given to understand that Dow Chemical itself is a subsidiary of a United States company, which is Dow Chemical of Midland, U.S.A. So here we have the situation that at the present time two companies, both subsidiaries of parent companies in the United States, appear before the Canadian tariff board to argue for the imposition of a tariff on the base used in the making of antifreeze.
What are they asking? I turn to the evidence again, and I should like to read from the words of their own representative to show what they are actually doing. On page 55 of the evidence of October 5, 1954, Mr. W. T. Wood, who appeared for Dow Chemical Company of Canada, is reported as having given the following evidence. The chairman asked him the following question with reference to the brief which had already been presented:
I see these words "rightful share of the domestic market". If your cost is 17 cents (that is per pound) and the United States is 10 cents, and the tariff were such as to bring the laid down cost of the American product to 17 cents then you would have the entire market.


Mr. Wood:: The entire market, which the present Canadian manufacturer almost requires.


Mr.   Chairman@: So, your meaning of "rightful
share" is the whole market?


Robert James Wood: Yes.
That is clear enough and categorical enough. What those companies are asking is that the imposition of the tariff shall have the effect of handing over to them, both now subsidiaries of parent companies in the United States, the whole Canadian market for ethylene glycol. That to me is a dangerous situation, because when we consider the possibilities of what two big manufacturing outfits of that nature can do, to combine and set up a virtual monopoly in that field and then push up the price of their product to suit themselves, we can see that it certainly would not be in the public interest to take the step which is being proposed.
What about prices? Nowhere in the evidence was I able to find that either of these companies that asked for virtually the whole Canadian market for ethylene glycol presented its balance sheet or statement of profit and loss. At one point there was some question asked as to the financial position of one of the companies, and they declined to answer. Of course it is their own business if they wish to keep their balance sheet confidential. I am not going to argue about that so far as the tariff board hearings were concerned. But certainly when the government proposes an increase in the tariff item dealing with ethylene glycol for the benefit of two companies that are out to get the whole Canadian market, according to the statement of their own representative, then I think we have the right to demand and have the balance sheets of these companies laid before us in order that we might know just what financial position they are in, and whether they are justified in asking for this protection.
As to the retail prices of antifreeze, there is quite a range. I am going to give the figures that were presented by the tariff board itself as the result of a survey that was made in 42 centres in Canada in 1954, as presented in their report. They found that the retail prices ranged from $3.95 to $4.25 a gallon. On going through the evidence further I found that the manufactured cost of ethylene glycol in Canada in 1954 ranged from $1.45 to $1.65 a gallon. That is the same product that, when mixed with a few detergents and other chemicals to turn it into antifreeze, retails at from $3.95 to $4.25 a gallon. That is a tremendous spread, and in itself would indicate that these companies are in a position to make a pretty hefty profit.
I should like to refer to some of the evidence of the representative of Radio Oil Refineries, who have a plant in Winnipeg

and who are in the business of what they describe as canning the antifreeze; that is, they buy the base product and put it through whatever process is necessary and put it into cans for the wholesale trade. They put it through whatever process is necessary in order to prepare it for the wholesale trade. Mr. Hechter, who represented Radio Oil Refineries Limited, was reported on page 74 of the submission as saying:
Today, when you have only two companies in Canada which manufacture ethylene glycol, if you put a tariff on, you set up a monopoly.
That is pretty strong language from one who is so intimately connected with the trade and who I think would be in position to know.
Whether you like it or not that is actually what is happening.
Then on the next page of the submission:
Ethylene glycol brought into this country has to be treated and handled before it is fit for automotive use. Therefore, Mr. Chairman, I am personally very much opposed to the restriction of free enterprise by placing this tariff on and if you place this tariff on you are going to jeopardize us in western Canada by giving us a higher cost.
That is a categorical statement which sets out the opinion of the representative of that company. Of course I have not dealt with all the evidence, in the interests of brevity and in an effort not to hold up the work of this committee. But I submit it indicates that there is a good reason why this committee should be very cautious about allowing this item to slip through at this time. The government has not attempted to make a case for the imposition of a tariff on ethylene glycol, and the companies which appeared before the tariff board certainly made out no case so far as their financial position was concerned.
It is reported that Union Carbide paid in the neighbourhood of $5 million for the plant of Dominion Tar in November, 1954, which would indicate that in making an investment of that size at that time they must have expected to be successful in selling their product. It certainly would not indicate that the market situation was such that these companies were suffering from undue competition from the United States.
As I said, the companies did not make out a case which was satisfactory to me or to anyone who is interested in the consumer of this product. So far the government has made out no case. The statements of the representatives of these companies make it quite clear that the motive or objective is to corner the Canadian market. Under those circumstances I would suggest that we would be wise to leave ethylene glycol on the free list as before.
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If the companies which have made this request will supply us with details of their financial position in an effort to show that they require protection in the future, then the matter can be brought before the house again. But on the face of the evidence given at the tariff board hearing and on the face of a situation where the two major companies in Canada are in position to form a virtual monopoly and restrict competition, I should think we would be well advised not to accept the proposal of the government. That is one ground on which this is a major change of policy.
Before I go on to deal with the other matter I have in mind I should like to mention that the tariff board report was not unanimous. Apparently one member of the board, I believe it was Mr. Leduc, submitted a minority report in which he opposed any change in the tariff items covering ethylene glycol and antifreeze. He stated his reasons for so doing, and that is an additional reason why the members of this committee should not at this time accept the proposal of the government. If one of the members of the tariff board who heard all the evidence given at all the meetings was not convinced as to the wisdom of this move, then certainly the members of this committee should hesitate before-


William Moore Benidickson: He was in favour of the increase; it was the decrease in antifreeze there was some dissent about.


Frederick Samuel Zaplitny: The gentleman who put in
the minority report stated that he was not in favour of any change in the tariff items which would remove ethylene glycol from the free list.
The other matter to which I wanted to refer as a major change of policy is the noticeable trend, to which my leader referred earlier, on the part of this government to-become more and more protectionist, to become a high-tariff government. I say that with a certain amount of sadness rather than anger, because there are many people on the prairies who over the years have been persuaded that the Liberal party is the low-tariff party of Canada. I can remember attending meetings where I heard politicians holding forth on the question of high tariffs or low tariffs. In those days it was quite clear that the Liberals and the Progressives, who later became the Liberal Progressives, were the advocates of free trade or the closest thing possible to free trade; were in favour of removing all restrictions, customs tariffs and so on, and then on the other side were the Conservatives, who were holding out for higher tariffs and greater protection.

Customs Tariff
A sort of pattern or mould was established in western Canada, and I think the government will admit that there was no question as to which political philosophy the people of the prairie provinces favoured. For example, when the Progressive party came out as a strong free trade party, one of the strongest we have ever had since the early days of the Liberal party, they swept the prairie provinces and their representatives in this house did a grand job in trying to remove as many restrictions as possible to international trade. But as time went on and others came along that was brushed aside or forgotten, but there still lingered in the minds of the people out west the belief that the Liberal party was the low-tariff party and the Conservative party the high-tariff party.
That this no longer is the case is quite unmistakable. Going back to 1953 we had Bill No. 29, which was the foot in the door, the thin edge of the wedge. That bill placed the Minister of National Revenue in the position of being able to virtually dictate what the customs duty shall be on particular items attempting to enter Canada. We have had it in his own words that that bill was instrumental in raising the duty on certain items that entered Canada and had prevented perhaps an indefinite volume of goods from entering this country because those who wished to export to Canada, particularly from the United States, could not know just what the duty would be. That uncertainty prevented them from attempting to send their goods into Canada. I hope I am correctly interpreting what the minister said.
As time went on we had another bill passed in the course of this session which gave the Minister of National Revenue some extra power along the same lines. Now we have this tariff item which places an impost upon a commodity which is very widely used across Canada, particularly in the west.
The thing that bothers me is this. Much as I disagree with the philosophy with respect to tariffs of my friends of the Progressive Conservative party, I must admit that I have a little more admiration for the way they go about it than I have at the present time for the Liberal party. I say that not in a spirit of bitterness, but in a spirit of sadness. At least the Conservative members make it clear that they believe in higher tariffs and they have no objection to big business getting bigger and better protection.
That is fine. Even big business is entitled to representation in this house. In a democracy everyone is entitled to be represented. Anyway, they state their case. As I say, I disagree with it most heartily. But what is the policy now of the Liberal party? They

do not come out and say to us, "We have decided to become as conservative as the Conservatives have become progressive. We are now going to take a certain part of the Conservative policy and put it into our statutes by raising the tariffs on seven items, and we are going to stand by it." They sneak these tariff increases in through side doors, through the back door, through the chimney and everywhere except through the front door, with the exception of the one we are now discussing, which gives us an opportunity to face the situation.
For example, clause 1 of this bill, which gives the Minister of National Revenue almost indefinite and infinite discretion, is merely a back-door method-I was going to say a sneaky method, but I do not like to use that word, though perhaps it would be more explicit-of doing the same thing which they have denounced the Conservatives for attempting to do in the last two or three days.
It is time the people of this country knew what was going on and came to the realization that, so far as the party which supports the government is concerned, it is no longer the low-tariff party. Any resemblance between liberalism and the present Liberal party is purely coincidental. It has become a restric-tionist, protectionist, high-tariff outfit and is doing the same things it has denounced the Conservatives for doing, but it is doing them chiefly through the back-door method. However, in this item they are doing it openly.
I say these things because a great deal more than tariffs is involved. What happens when we allow this government to increase the restrictions on imports? They benefit huge industrial concerns like the two to which I have referred, which are in a perfect position to form a combine and monopolize the whole field, and even have the temerity to state before the tariff board that this is their objective. If the government are doing that in order to assist them to corner the market, they are being the handmaidens of monopoly in this country.
That is also a trend which is causing many of us concern. Not long ago the Minister of Trade and Commerce played his part in the setting up of a pipe-line combine, which has been his problem child ever since. Now we have the government assisting in the setting up of an antifreeze combine which, if predictions work out, is going to result in a much higher cost of antifreeze to the consumer in Canada.
On the basis of all these things it is time the private members of this house-and not only those on this side of the house-protested. As a matter of fact I do not expect

much support on this from my Progressive Conservative friends, because I think they are in favour of this tariff. I sensed that; but I shall leave that to them. Certainly my friends to the left, of the Social Credit party, and about 50 per cent of my Liberal friends across the way should be on their feet fighting this instead of sitting back and letting the government assist two big companies, both subsidiaries of companies in the United States, to corner the Canadian market for this commodity and bring the price up to suit themselves.
I should like to hear some of these free traders from the prairies raise their voices. I should like to hear a storm of protest before this session ends, so that for once the private members of this house, regardless of where they sit, will tell the government what they think of its tariff policy.


William Moore Benidickson: Mr. Chairman, may I
reply at once to the hon. member for Dauphin? He has informed the committee that he has read the tariff board report in which these three tariff item changes have been recommended. I am surprised, however, that having read it, he could so badly misread it and particularly misinterpret it to the house. I believe he has the document in his hand, and I ask him again to read the minority report to which he referred.
I would point out to him that the board was unanimous in the matter of recommending a flat 10 per cent on the ethylene glycol in both the pure and the impure type. The board split two to one in favour of the reduction from 20 per cent to 15 per cent on the antifreeze the finished product the consumer uses, which this government has implemented in item 207d. The antifreeze compounds, with which his constituents would be chiefly familiar, were reduced from 20 per cent to 15 per cent.
I would emphasize to the house that there is no net increase of protection in this field. There is merely a rearrangement of a group of rates that previously were rather unbalanced. The tariff board so recommended. This statement can most clearly be substantiated by the fact that these were items that were covered by a GATT agreement.
Hon. members will recognize that the chief contracting party affected in the most favoured nation group would, of course, be the United States. In order to make a readjustment of this item, following the tariff board report, it was necessary to approach the United States and do some negotiating. The United States was prepared to make a trade, under which they accepted an increase in item 207c from the rate of free and 20 per cent to 10 per cent in return for the
Customs Tariff
reduction from 20 per cent to 15 per cent on the antifreeze. In addition to that, I would point out to my hon. friend that there is an additional reduction in tariff of some consequence, in item 207c ethylene glycol and mixtures of ethylene glycol, because when in less than the pure state, there will now be a tariff reduction from 20 per cent to 10 per cent.


Frederick Samuel Zaplitny: Which item was that?


William Moore Benidickson: Item 207c. If he looks at the resolution as presented to the house on June 2 he will see not only the proposed rates but the former rates. As I say, the new tariff has the effect of reducing the rate on ethylene glycol mixtures containing less than 97 per cent of ethylene glycol from 20 per cent to 10 per cent in the case of the most favoured nation, which is the trading area of importance in this field.


Mr. Stewart (Winnipeg North):: Could the parliamentary assistant give me this information? Last year how much glycol was imported as such, and how much of the compound was imported?


William Moore Benidickson: That again is a very interesting figure. I think the figures do not in any way bear out the argument of the hon. member for Dauphin that these changes on balance represent an increase in tariff. With respect to the finished product-and this budget brings in a reduction with respect to antifreeze-our imports last year from the United States were something in excess of $2 million. With respect to ethylene glycol mixtures, with respect to which there is an increase, our imports amounted only to $850,000.
In addition to that, in reading the report my hon. friend pointed to the fact that the producers of this product in Canada went to the board and asked for increases, but he did not tell the committee that one of the companies asked for a tariff of 40 per cent and, as you know, the recommendation of the tariff board and the recommendation of the government on this item is 10 per cent.


William Alfred Robinson: Shall clause 3 carry?


Frederick Samuel Zaplitny: No, Mr. Chairman. I want to thank the parliamentary assistant to the minister for the correction he made. I had referred to Mr. Leduc in the wrong context but, Mr. Chairman, the parliamentary assistant did not reply at all to the argument I made. He pointed out a few of the obvious things. For example, no one argued that there was no reduction on the finished product. I made no reference to that at all, and therefore there was nothing there to argue about.

Customs Tariff


William Moore Benidickson: You ignored it.


Frederick Samuel Zaplitny: We have not yet reached the item, as a matter of fact. I am now speaking of item 207c. The other one is item 207b. I am quite prepared to come to it if that is necessary. As a matter of fact I did not state that there was no reduction in the mixtures he referred to on which the tariff was not increased. What I was arguing about was simply why it was necessary to raise the tariff on imports of ethylene glycol to the extent of 10 per cent, 10 per cent and 25 per cent when it was previously on the free list. I asked the parliamentary assistant to make a case for that. He did not make or attempt to make a case at all on the actual argument I put forward.


William Moore Benidickson: What was the reference of my hon. friend when he refers to an increase from free to 25 per cent?


Frederick Samuel Zaplitny: Ten per cent, 10 per cent and 25 per cent. That is under item 207c.


William Moore Benidickson: My hon. friend when he used the 25 per cent rate is referring to the general tariff under which we do no trade in this item.


Frederick Samuel Zaplitny: Either we are not reading the same document or something is wrong here. I am speaking now of item 207c.


William Moore Benidickson: Yes?


Frederick Samuel Zaplitny: I am speaking of item 207c, in which it is proposed that there be a tariff of 10 per cent British preferential, 10 per cent most favoured nation, and 25 per cent general, in comparison with the rates previously in effect. You will find it was free in all three categories.


William Moore Benidickson: My hon. friend should also note that there are two sets of rates


Frederick Samuel Zaplitny: That is right.


William Moore Benidickson: -with respect to 'a comparison of the rates in effect prior to the budget resolution and the rate in front of him. He had better read both lines. There is one line reading "free, free, free" applicable, under certain circumstances, according to the grade of the product but the proper comparison is the line right underneath that which reads, 15 per cent British preferential, 20 per cent most favoured nation, and 25 per cent general. In any event, any reference to the general tariff on this item is quite academic, because no trading is done with a general tariff country.


Frederick Samuel Zaplitny: I was not wanting to drag in the general tariff. Let us talk about the first

line the parliamentary assistant refers to. I should like to hear the parliamentary assistant make a case and tell us why it was necessary to impose a tariff of 10 per cent, 10 per cent and 25 per cent in that first line he refers to, where it was on the free list before.
In his earlier statement he said these companies had asked for a tariff which would amount to roughly 45 per cent, and the government granted only 10 per cent, 10 per cent and 25 per cent. That is no argument at all. I want to know why they increased it at all, even if it was 1 per cent. What is the case for it?


William Moore Benidickson: I explained that in my first reply to the hon. member. I pointed out that this was a rearrangement of the item with respect to ethylene glycol mixtures and antifreeze and I said that on balance he would find it impossible to say that the balance was in the direction of an increase in tariff. In addition to that, I repeat that when he refers specifically to item 207c, it is not a change from free, free, free to 10 per cent, 10 per cent and 25 per cent, because he is ignoring the fact that in some instances, with respect to ethylene glycol, the rate was formerly 15 per cent, 20 per cent and 25 per cent. In my original statement I also said that with respect to a portion of this product coming in there is a reduction from 20 per cent, which was levied against it previously, to 10 per cent under these resolutions.
In addition to that, on the general challenge on protection in this budget I should just like to point out that there are, I think, four tariff increases when isolated and considered in isolation; but with respect to each of those four items there was negotiation with the United States under which we provided other reductions. In addition to those items of tariff reduction that followed these negotiations, the present resolutions before the house I think provide tariff reductions in about 80 items.


Alistair McLeod Stewart: My hon. friend told me earlier that about $850,000 worth of mixture was imported last year. How much of that came in free?


William Moore Benidickson: While the exact figures are not here with us, I am informed that practically all of it came in under the free section.


Alistair McLeod Stewart: Now you
are saying that this came in free last year. Yet you object to the argument of my colleague the hon. member for Dauphin who in turn objects to your raising the tariff. He says you are raising the tariff to 10 per cent,

10 per cent and 25 per cent. You say you are doing nothing of the sort. Yet on your own admission you most assuredly are doing that. I think we shall have to get a better answer than that before we are through.


William Moore Benidickson: What I said was that we were rearranging these items, and that there were increases and decreases. I said that even the United States, with whom we had to negotiate all the items, was apparently satisfied that on balance the new trading arrangement was fair, because they consented to the increases since they in turn got tariff decreases.


Alistair McLeod Stewart: My hon. friend can rearrange things until he is blue in the face. The fact remains that there is a tariff increase under which the farmers in western Canada will suffer.


William Alfred Robinson: Shall the clause carry?


Frederick Samuel Zaplitny: No, Mr. Chairman. I think this thing should be clarified. The parliamentary assistant pointed out that a certain portion of the ethylene glycol came in on the free list while other compounds or mixtures were subject to a tariff of 15 per cent, 20 per cent and 25 per cent. Would he state what the percentages were; that is, what portion was on the free list before as compared with that which was covered by tariff, so we will know what we are talking about? Was there any ethylene glycol which entered Canada free before this change but will not enter free now, after this change?


William Moore Benidickson: I gave the figure of $850,000 with respect to the imports that came in free. Those subject to duty happen to be divided into two items, item 711 and item 220a. Consequently we have not a recording of the duty value. They are basket items, and we have not a recording of the duty value.


Frederick Samuel Zaplitny: Let me ask another question. If the parliamentary assistant has gone through the evidence that was given before the tariff board I think he will have noticed that in almost every case those who presented briefs predicted that an increase in the tariff on ethylene glycol from the United States would result in a higher price for antifreeze in Canada. Does the parliamentary assistant agree that this will be the case?


William Moore Benidickson: I suggest to my hon. friend that the mere fact that the tariff on the finished product from the United States has been reduced is the protection to the consumer that should perhaps prove important
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in my hon. friend's mind. It is reduced from 20 per cent to 15 per cent.


[Stage Direction]
Clause agreed to.
Clauses 4 to 6 inclusive agreed to.
On schedule A-
James MacKerras Macdonnell: My understanding was that we were going to go over this schedule not as a whole, but page by page.


William Alfred Robinson: Is it agreed that I should call the pages of this schedule for the purposes of discussion?


Some hon. Members:: Agreed.


William Moore Benidickson: I was just going to point out that I made a commitment to the hon. member for Eglinton to alter the punctuation in item 476d. I wonder if the Minister of National Revenue would move the amendment.


James Joseph McCann: I move:
That schedule A, item 476d, be amended by striking out the semicolon and replacing it by a comma.


Donald Methuen Fleming: Just before you put the question, sir, may I ask the parliamentary assistant if he will make it clear that the interpretation that will be applied is the same as if the word "only" were inserted in the clause after the word "foregoing", and that would mean all the foregoing only when lead-impregnated or lead-lined?


William Moore Benidickson: That is correct, Mr. Chairman.


[Stage Direction]
Amendment agreed to.
William Alfred Robinson: Is there any further discussion on schedule A?


James MacKerras Macdonnell: Before we leave that, may I ask the parliamentary assistant one question? I am looking at resolutions Nos. 2, 3 and 4, that is the original resolutions mentioned by the minister in his budget speech. They appear on page 2763 of Hansard. May I be informed as to whether those are covered, and if so where?


William Moore Benidickson: My hon. friend is referring to the drawback items. Yes, he will find those in schedule C. Schedule D is the result of the further resolution that was introduced on June 2.


William Alfred Robinson: Shall schedule A as
amended carry?
Schedule as amended agreed to.
Schedule B agreed to.
Schedule C agreed to.
5480	HOUSE OF
Proposed Senate Reform
On schedule D:


James MacKerras Macdonnell: As I understand it, this introduces a very curious situation. We are having this drawback item restored, though in fact the tariff has been eliminated, because it is the peg on which is hung an allowance payable to the companies engaged in the manufacture of steel in respect of the amount of coke used. It seems a most curious, backhanded way of having legislation introduced. I am not going to take the time to question it now, but may I ask the parliamentary assistant to have this considered within the next year, because it really is an almost grotesque way of dealing with this problem.


William Moore Benidickson: As my hon. friend knows, it is the alternative to presenting an amendment to the Canadian Coal Equality Act. The item became redundant because we provided free entry for coal of this type under tariff item 588d. Because of that it was decided last year to eliminate this drawback, but it was found that the drawback was tied to the Canadian Coal Equality Act. This appeared, for this session at least, to be the most expeditious way of remedying what was done last year.


James MacKerras Macdonnell: I do understand that, and I am not raising the question but asking that it be considered in the light of the rather anomalous situation.


[Stage Direction]
Schedule agreed to.
Title agreed to.
Bill reported.
Mr. Deputy Speaker:: Shall this bill be read a third time now?


Stanley Howard Knowles: No; next sitting, Mr. Speaker.


Mr. Deputy Speaker:: Next sitting.

The house resumed, from Monday, June 27, consideration of the motion of Mr. Harris for committee of supply, and the amendment thereto of Mr. Rowe.



SENATE REFORM

Mr. J. A. MacLean (Queens):: Mr. Speaker, the gist of the motion that is now under discussion with the amendment is that the government should give consideration to instituting the necessary consultation and inquiry in respect to reform of the Senate, so that appropriate steps may be taken, including such matters as the method by which members of the Senate shall be chosen, so the Senate may more effectively discharge
fThe Chairman.]

the constitutional function it was intended to perform as an integral part of our parliamentary system.
This question is not new. From time to time the question of so-called Senate reform has been the topic of discussion not only on the platforms of political parties but in the press of this country. References to debates in parliament going back a good many years have already been made by previous speakers in this debate.
I was interested to note the reprint of a quotation from an editorial that appeared in the Eastern Chronicle of February 17, 1895, about 60 years ago. It said:
There are now 11 vacancies in the Senate, and during the approaching election they will be used to demonstrate the utility from a ministerial standpoint of that effete institution. The promise of an annuity of $1,000 with prestige is most seductive. In fact, it has a cash value. Truly Canadians are a good natured people.
So even back 60 years ago the upper chamber of this parliament was the subject of criticism. But more important, the manner in which vacancies in that chamber were filled or left vacant was under severe criticism.
I think it is important that we should look into this question carefully. If we take a superficial view of it we may say that the upper chamber of this parliament has lost the confidence of the Canadian people, or that the confidence of the people in that chamber is beginning to waver, and that therefore the thing to do is to do away with it. I feel that people who come to that conclusion-a rather shallow one, I suggest-do so for the wrong reason. It is true that at the present time the Senate is ineffective, and that in most cases it is more or less a rubber stamp for government legislation passing through this chamber. But to say that does not mean the institution itself is bad. It has become ineffective because of the method by which its membership has been appointed. And to say that the Senate is ineffective at the present time and therefore it should be done away with, is similar to the reasoning of the man who refused to jump out of the thirteenth story window of a building because he was superstitious.
One must realize that although at the present time the Senate is not fulfilling to the greatest extent the functions for which it was intended, the institution in itself is a good one; and I believe it is a good one, for various reasons. The most important of these reasons is that it is a body whose membership has greater security in office than those in the elected chamber. They can vote against legislation if they think it is in the public interest to do so, even if that legislation has

a passing and transient popularity. Due to the greater stability in office of the membership of that body they do not have to fear reprisals from the electorate at a following election because they turned something down that might have looked good until it was brought into effect and proven bad.
So the Senate is a chamber which, if properly constituted, can take a sober second look at legislation passed by the lower house. In that way it has an inhibiting effect on the lower chamber, if the membership of that chamber should contemplate legislation which would be popular with the electorate for a short period of time, but which those in the lower house may know in their hearts would not be sound or for the good of the country.
Most of our provinces do not have an upper chamber, and most of the colonies, before they joined confederation, had no upper chambers. It is argued by some, and there is justification for the argument, that had Prince Edward Island and Newfoundland had upper chambers in their legislatures they might not have become the victims of governments which, in their efforts to spend money on projects which were in popular demand, put their colonies in debt to a greater extent than they could afford, with the result that those colonies felt compelled to join confederation.
Then, too, in most cases an upper chamber gives an opportunity for various minorities to have stable representation in parliament. There is representation for racial and vocational groups, and representation by various parties, when such a system functions properly. Most important of all is the fact that regional areas have proper representation in parliament. Representation in most lower [DOT]chambers of parliament is roughly by population. In most countries it is recognized, however, that population as such is not the only thing that requires representation in parliament. Areas and natural resources must be represented, and we find recognition of that fact in this House of Commons. Here we have members representing large but sparsely populated areas, and we think immediately [DOT]of constituencies such as Mackenzie River and Yukon. On the other hand we have examples of isolated areas which have representation in the House of Commons although their population does not justify it. And in that category I think of the constituency of Iles-de-la-Madeleine.
In many dominions, such as Australia and New Zealand, that principle is recognized in a regular formula which sets out the unit of representation in rural areas as being smaller than that in urban districts. I think it was the hon. member for Moose Jaw-Lake Centre (Mr. Thatcher) who made the
Proposed Senate Reform observation that he did not think it was reasonable that his province should have only six senators while New Brunswick, with a much smaller population, has ten.
I would point out that the very purpose behind the way in which representation in the Senate was established was that the various colonies which formed the Dominion of Canada in the first instance should be represented in the parliament of Canada. And so their voices would not be submerged to the point where their weight would be almost negligible, the representation was not made strictly on the basis of population. They were independent, but agreed to come into confederation provided they would always continue to have a reasonable voice in the parliament of Canada. On that understanding the maritime provinces were given 24 seats in the Senate; Quebec, 24; Ontario, 24; and the four western provinces between them, 24 more. The number of senators in relation to the population varies greatly, of course. As a matter of fact, in Prince Edward Island there is a senator for every 23,000 people while in Ontario, the other extreme, there is one senator for every 158,000 people.
But I point out that that state of affairs is intentional and exists in practically every upper chamber of every parliament or congress in the world. In the United States, for instance, although their Senate is elected, each state has the right to elect two senators. The smallest state by way of population, namely Nevada, with a population of only 160,000, elects two senators to the United States Senate; while New York, with a population of over 15 million, elects only two senators.
The purpose of that provision, of course, is that these regional districts or states which came into the union shall continue to have a voice which counts in the parliament of the country as a whole. The same is true in Australia. In that country each state elects 10 senators. The population of the Australian states varies from Western Australia with a population of roughly 600,000 to New South Wales with a population of 3,500,000, yet they have the same number of senators.
There is another important factor as far as membership in the Senate is concerned. At the present time this chiefly concerns the maritime provinces of New Brunswick and Prince Edward Island. When the various colonies came into confederation it was agreed, as I have already said, that they should have a certain fixed number of seats in the Senate. It was also agreed that they should have a certain number of seats in the House of Commons at the beginning. The
5482	HOUSE OF
Proposed Senate Reform province of British Columbia had an agreement firmly laid down that it would be represented by six members in the House of Commons, and that its representation in the House of Commons would never fall below six members, regardless of what its population might be. The provinces of New Brunswick and Prince Edward Island were under the delusion that their agreement was of the same kind.
When Prince Edward Island went into confederation in 1873 it was granted four seats in the Senate and six in the House of Commons, and the islanders were under the impression that their membership in the House of Commons would never fall below six. They were rather amazed to find that after the redistribution of 1892 their membership was cut from six to five, and in 1904 from five to four. After the census of 1911 it became evident that their membership in the House of Commons would be cut from four to three if the trend were allowed to continue. The matter was taken to the courts, but after a great deal of litigation the provinces of Prince Edward Island and New Brunswick, which tried to establish their right to the original number of seats in the House of Commons, failed to do so both before the Supreme Court of Canada and the privy council.
I think that was around 1904. They employed as their counsel on that occasion Sir Allen Aylesworth. The two provinces of New Brunswick and Prince Edward Island lost their case. However, in 1905, the following year, Sir Allen Aylesworth became the minister of justice and my province and New Brunswick thought their chance had come, that they were in luck. It was with great chagrin they learned that after their counsel was firmly established as minister of justice he war. dead against the principle of allowing the original number of seats in the House of Commons for those two provinces.
At a later time, after the Borden government had come to office, the British North America Act was amended so the membership of any province in the House of Commons would never fall below its representation in the Senate. In other words the membership in the Senate was to be the floor for representation in the Commons. At the present time Prince Edward Island and New Brunswick are protected by that floor. They also, of course, went on the assumption, when they came into confederation, that one of the terms of the agreement was that they should have a certain number of seats in the Senate. They assumed that those seats would be filled, that they would not remain vacant for long periods of time.


I think this government has neglected its moral responsibility in this regard, and has even neglected its legal responsibility. Section 32 of the British North America Act reads:
When a vacancy happens in the Senate by resignation, death, or otherwise, the governor general shall by summons to a fit and qualified person fill the vacancy.
I would take that to mean that the vacancy should be filled within a reasonable time. I think it is fair to say that this government has repudiated not only its moral obligations in this regard but its legal obligations as well, by leaving a large number of seats in the Senate vacant for long periods of time. As of last December there were 20 vacancies in the Senate. This is a means of sabotaging that chamber.
I have no criticism of the membership of that house as individuals. I think the institution as such is a good and necessary one; but if seats are left vacant for long periods of time, or filled only by men whose prime requisite for membership in that body is that they are unquestioning supporters of the government in power, then it is not good enough. When things are carried on in that way the Senate is bound to be frustrated and rendered almost non-effective.
Some say, of course, that as far as the protection of representation of smaller provinces in the Commons is concerned, arrangements could be made to take care of that, and the simple thing to do is wipe out the Senate and do away with it. I think that is a most superficial way of looking at the matter; I believe that is something at which we should have a second look.
As far as I can learn, almost without exception those countries which have drawn up new constitutions in recent years have provided for upper houses. No doubt they have drawn on their previous experience and felt there was a necessity for upper houses. I have looked up the action taken recently by a number of these countries when they adopted new constitutions. I find that the Irish Free State introduced its new constitution in 1937, and it has a senate. Iceland introduced a new constitution in 1944, and it has a senate. France introduced a new constitution in 1946, and it has a senate. Ceylon and India took this action in 1947, and both have upper houses. West Germany did the same in 1949, and it has a senate.
In fairness I must say that most of the countries in the democratic world have senates. Most South American countries have senates patterned on that of the United States, and the same is true of Australia-

However, there are exceptions. New Zealand abolished its upper chamber in 1950, but that is the only country that has done so in recent years. Denmark has no upper chamber; but it is interesting to note that when Iceland, which is so closely related to Denmark in many ways, introduced a new constitution recently they provided for a senate. I know it can be argued with a great deal of validity that there is justification for a second chamber in this and any other parliament provided it is properly constituted.
That brings us to the methods by which vacancies in a senate should be filled or how that body should be constituted. The Senate of the United States is elected by popular vote but the representation is not according to population; it is by area, as I have pointed out already. The same system obtains in most South American countries, and also in Australia.
In Ireland there is a senate with a membership of 60, 11 of whom are appointed by the president, 3 of whom are elected by the national university, 3 by the University of Dublin, and the remaining 43 are elected from a slate of candidates who in the first place are selected according to vocation in order that labour and the professions will have representation in the senate.
In South Africa some of the membership is appointed by the government but the majority of the membership is elected by the provincial legislature and the members of parliament from that province meeting together and electing the representatives of that province to the senate. In most cases where senates are elected the term of office is longer than that of the lower house, or they are elected a third at a time, or the election takes place at a time which does not coincide with the election for the lower chamber. This is done to give a certain continuity to the parliament of the country.
In Switzerland the senate is elected by the provinces, and the same is true of France and Germany. In the case of France the election is by the various departments, and in the case of West Germany it is by the Lander. The same or a very similar system obtains in Belgium. In the case of the Netherlands the provinces elect their representatives to the upper house. In the case of Sweden the election is by popular vote but the term is twice as long as that for the lower chamber, eight years as compared with four.
In Norway they have a most interesting method of constituting their upper house, and I would be most intrigued with the impact of such a method upon this chamber. There the parliament is elected by popular vote, and
Proposed Senate Reform at the first meeting of parliament the members elect 25 per cent of their membership to constitute the upper house.


James MacKerras Macdonnell: Do they sit in both houses?


John Angus MacLean: No, they sit in only one. Depending upon their point of view, the representatives can elect a man who is popular and highly qualified to the upper house or, on the other hand, I imagine if there was someone who was objectionable they could banish him to the upper house.
I think it is agreed by almost all democratic countries that an upper house can fill a most useful purpose. I agree with that point of view and I think most Canadians will agree with it. But in order that a senate may fulfil the functions for which it is intended, its membership must be selected in some reasonable and workable fashion. I think it is most important that large numbers of seats in the Senate should not be left vacant for long periods of time. As I have said already, I think this government is abdicating its responsibility when it leave seats in the upper chamber vacant for long periods of time.
This creates the impression in the public mind that the Senate is something that does not matter, that the seats there are simply plums to be handed out to followers of the party in power, to people who have consistently followed the party line. If the Senate of Canada is to regain the confidence the Canadian people should have in it, it is essential that vacancies be filled immediately. Also, as this motion says, consideration should be given to the best method of selecting or electing the members required to fill these vacancies. I feel that this government owes it to our country and to our parliamentary institutions to take steps to reform the Senate-and when I say that I mean the method of constituting the Senate-at the earliest possible time.


Mr. H. O. White (Middlesex East):: Mr. Speaker, following the speech of the hon. member who has just spoken, it seems to me that quite a number of things I wanted to say have already been said. However, I am going to be brief, and I am going to remember what you, Mr. Speaker, admonished me about when in the fall of 1953 I rose in this house to say something on this same subject. You said I was to be more careful in how I referred to the upper chamber and its membership.
Over the years since then a great number of editorials have appeared in the press across Canada speculating as to what should, could and might be done as far as the reform of the Senate was concerned. I am going

Proposed Senate Reform to use only part of an editorial that appeared in the Ottawa Journal on the 2nd of June, 1954. I shall read two paragraphs:
And, alter all, what Is it that is wrong with the Senate at this time? All that is wrong-unless we agree that the parliament set up by the B.N.A. Act is not something we want any more-is that the government has been treating the Senate, treating a part of parliament, with disdain, if not contempt.
It goes on to say:
Nor is it a question of the government setting out to appoint Conservatives to the Senate, to redress its existing pitifully lopsided party standing. Such a step would help for the time being at any rate; but the real need is for appointments of men, whether Liberal, Conservative, Social Credit, C.C.F. or of no party at all, who would compel the confidence of the country and know what our constitution, our form of government, and the functions of the Senate are about.
That points out some of the problems the government of today must be facing. I am safe in saying also, from my contact with my own constituents and from these editorials in the newspapers, that the prestige of the upper house at the present time is at an alltime low.
When I mention that and mention Senate reform, I do not suppose any man's name comes to mind more frequently than does that of the late prime minister, Right Hon. Mackenzie King. He used that as a theme through many years, and fairly effectively. The pages of Hansard record Mr. King's speeches fairly liberally, and they are interspersed with promises of reform of the upper chamber from time to time. It would be advisable now if the government of the day were to read, mark and inwardly digest some of the speeches he made through the years when he was in opposition. Having done so, they could then probably arrange a seance with the spirit to try to discover what changes, if any, might be suggested. I am certain that if such a seance were arranged the answer would come back, "Yes, make some changes".
I took the trouble to look up some of the purposes for which the upper house was created. First and foremost, it was to protect the rights of minorities. I ask the present members of the cabinet, how often in the past 10 years has the upper chamber fulfilled that purpose? As far as I can recall, not once in the past 10 years has it tried in any way to protect the rights of minorities.
The second purpose I wish to mention was to protect the rights of individuals, and to protect the people of Canada from radical legislation. If there is one item of radical legislation before us at the present time, it is the question of defence production. I wonder what the upper house might do with that?


Mr. Speaker:: May I interrupt the hon. member just to ask him to be careful, not only when he analyses the past conduct of the hon. members of the other house but when he tries to forecast what they will do in the future. He has made the statement that the prestige of the Senate is at an all-time low. He has said that never in the past 10 years has the Senate ever protected the rights of minorities or the rights of individuals. If hon. members were in the Senate chamber listening to the type of speech that is being made here about the Senate, I wonder what the reaction would be in this house. The courtesy which must be observed between the two houses is such that we should not be saying anything about them that as gentlemen we would not tell another gentleman.


Harry Oliver White: Very good, Mr. Speaker. I think it was an old lady who said, if you could not speak well of the devil, you could at least say he was a busy individual.
The upper chamber was constituted to unite upper and lower Canada; to protect both upper and lower Canada as to their race, religion and language; to maintain a balance as between the maritimes, central and western Canada; to avert and avoid the difficulties the United States of America were experiencing at the very time of confederation, the differences between the north and the south and the weaknesses of the constitution that were evident at that time; and to provide strong safeguards for provincial and sectional interests.
At this point I wish to quote from Mac-Kay's "The Unreformed Senate of Canada". On page 37 Mr. MacKay points out what Sir John A. Macdonald had to say on the second day of the Quebec conference:
The essential features of the proposed upper house were outlined by John A. Macdonald on the second day of the conference.
"Now as to the constitution of the legislature we should have two chambers, an upper and a lower house. In the upper house equality in numbers should be the basis, in the lower house population should be the basis. . . . The mode of appointment to the upper house-Many are in favour of election and many are in favour of appointment by the crown ... I am after experience in both systems in favour of returning to the old system of nomination by the crown ..."
At that time they were pointing out the basis of representation that my colleague so well described a few minutes ago. Other countries have abolished the second chamber. Back in 1953 I suggested that if some constructive action were not taken the demand for abolition would become more vociferous and insistent. That is actually what has

happened, with a greater degree of insistence during the last couple of years. It has become an actual fact.
I need only refer again to these editorials. Back on November 24, 1953, I had this to say; and so far, from editorials that I have read and the statement of the Prime Minister on one occasion, I have not had any reason to change my mind or what I had to say on that date. I am just going to read two paragraphs of what I said on that occasion. It is to be found on page 275 of Hansard for 1953-54:
I am going to suggest, sir, that at no time should the opposition in the other house be lower than 25 per cent of the total membership and that at least one-third and preferably one-half of the members should be appointed by the provincial governments in power-the numbers being in direct relation to the population of the area entitled to representation under the constitution. I suggest that all appointments be for a term not to exceed ten years, or until age 75, whichever shall occur first. If this suggestion were followed, the rise and fall of the fortunes of political parties in the provinces and in the dominion would be reflected in the membership of that chamber.
The government now has a mandate from the people for at least four years before there will be another general election. There will be abundant time in which to give this matter some serious thought, and to introduce the amendments required.
I therefore ask the Prime Minister and his government to give serious consideration to the plan roughly outlined in order to restore the confidence of the Canadian people in the other place, to ensure to minority groups that their rights will be protected, and to ensure to all individuals the most cherished right under democratic government, namely, the freedom of the individual.


Mr. W. G. Dinsdale (Brandon-Souris):: Mr. Speaker, from the tone of the debate thus far I think we can conclude that most hon. members would agree that the second chamber has become an integral part of our parliamentary system. In fact the only dissenting opinion in the chamber seems to be that of the C.C.F. group, who would rather lean in the direction of abolition.
As I have studied this problem over the past few years, I have never found much support for the abolitionist viewpoint. I remember that back in 1952 the Manitoba Tuxis boys' parliament came out strongly for abolition, but I do not think we can take that as a responsible position. However, notwithstanding the fact that we agree on the principle of bicameralism, there always is agitation in this chamber and in the press across the country for reform of the Senate. Therefore, for the first time I want to say just a few words on this important matter.
I believe the whole problem boils down to one major difficulty. That difficulty is the tendency for the upper chamber to take on a lop-sided partisan appearance. This situation, of course, results from the fact that 50433-346
Proposed Senate Reform appointments to the Senate are gifts of the party in power; and down through the years since confederation the Senate has tended to become dominated by the partisan supporters of the particular party in power.
The reason the Senate is basic in Canada has been outlined already by many members in this discussion. The authorities tell us that had it not been for the device of the second chamber, in all probability confederation could not have been achieved. At this point I should just like to suggest that perhaps the function of the second chamber in protecting the rights of the provinces and other minorities is not as important today as it was when Canada first became a nation.
That is mainly because we have other devices for dealing with problems that arise in different provinces. For example, we now use to an increasing extent the device or the machinery of the dominion-provincial conference. By that means, rather than by the action of the Senate, we try to resolve the differences of opinion on various subjects that occur from time to time among the various provinces making up the Dominion of Canada. We must also remember that the Supreme Court of Canada is now the last court of appeal. That fact, to a certain extent, has decreased the function of the Senate of taking care of provincial and minority rights.
Notwithstanding those changes, Mr. Speaker, I feel that the Senate, as I said at the outset of my remarks, is still an integral part of our parliamentary system and that it will continue to be so if this house-and particularly the government-has sufficient vision and energy to carry out the reforms necessary to make the Senate operate efficiently in the changed conditions that surround us today.
More recently the government has been very quiet on the matter of Senate reform. In fact, as I read back through the pages of Hansard covering this debate, I find that we have had only one representative from the government side take any part in the discussion of this important subject. I recall that a few years ago the topic of Senate reform was a lively one in Liberal circles, particularly at election time. Perhaps the reason we no longer hear of this particular issue today is that the government has become so strong in Canada that it hardly needs any election platform any more. As someone has said, so strong is its influence and so thorough is the grip of its various propaganda outlets on the people of Canada that it could win an election on a laundry ticket or on no ticket at all.

Proposed Senate Reform
With the trend toward a one-party state which has been evident in the country, particularly in the years since the war, I feel that the function of the Senate is even more important today than it ever was, particularly the adequate functioning of a reformed Senate. With the trend toward a powerful one-party government there is the tendency toward increasing control on the part of the executive arm of government. That tendency has been evident in recent days in the thrust for power made by one particular member of the cabinet. This danger was seen in Canada by statesmen long before the actual process became obvious.
I should like to quote the words of an outstanding Liberal member of this house from western Canada, who foresaw in very precise terms just the situation that faces the parliament of Canada today. These are the words of Sir Clifford Sifton:
No nation should be under unchecked, singlechamber government. According to my experience, the will of the people is very often better expressed after a check, and after a period of searching and critical discussion which generally arises from such a check, than it is in the first instance. Under our system, the power of the cabinet tends to grow at the expense of the House of Commons. The Senate is not so much a check on the House of Commons as it is upon the cabinet, and its influence in this respect undoubtedly is salutary.
I am sure were Sir Clifford Sifton alive today to see the dangerous proportions that the concentration of power in the hands of the cabinet has reached, he would be doubly emphatic upon the necessity for having an impartial, non-partisan, mature, active and vigorous second chamber to keep the ambitions of the executive under control.
Of course, from the standpoint of practical politics a very simple solution would resolve the major difficulty that confronts us in the second chamber at the present time, that is the trend toward domination by one party. A change of administration in the House of Commons would resolve this problem very easily indeed, as it would resolve most other problems that are facing the people of Canada today. Unfortunately, because of the trend toward the one-party state, because of the apathetic condition of the electorate, we have had one party continuously in office for 20 years. The situation has not been resolved on the level of practical politics.
As a result, Mr. Speaker, in the second chamber we see this trend toward one-party domination almost carried to its absolute limit. There are just seven opposition members surviving in the upper chamber today. Such an unhappy state of affairs can only lead to abuse, to a decline in the prestige of this very important arm of our parliamentary

system. The tragedy of it is that today the Senate, which should be a parliamentary institution held in the highest respect by the people of Canada, has tended to become a laughing matter amongst our people. I have been at public meetings, for example, when just a casual reference to the Senate, followed by a pause, brought loud chortles and guffaws from the assembled electorate; and that is a tragic state of affairs when we have the prestige of an integral part of our parliamentary system descending to the level of a joke and a laughing matter.


Mr. Speaker:: I interrupt the hon. member to remind him again that to say of the upper house that it is a laughing matter and a tragic joke is not perhaps the sort of courteous remarks this house should be making about the other house which, as he said, is an integral part of parliament. I was just going through some of my notes, and I find that in 1887 the matter of Senate reform was being discussed. I see that at one moment Mr. Charlton, as reported at page 200 of Hansard for April 29, had said this:
The people of Canada recognize it as a useless appendage to the parliament of this country, a packed body of partisans-
At this moment a point of order was raised and the Speaker ruled in this fashion:
The question is now whether two new members ought to be added to the Senate and, of course, it is competent for hon. gentlemen to discuss the advisability of such a measure, and even to dispute the usefulness of that honourable body. As to the expressions used by the honourable member for Both well, I consider them rather objectionable, and I do not think such language ought to be used towards a legislative body which forms a part of our parliament and which, as such, ought to deserve the respect of this house.
I am inclined to adhere to the views expressed on that occasion by Mr. Speaker Ouimet. Hon. members may discuss Senate reform, but I do not think they have to indulge in all kinds of expressions which, if they do think the Senate does not enjoy the prestige it should have, would tend to further lower the prestige of that body.
As I say, under our standing order No. 41, and our practice, we do not allow discourteous remarks with respect to the upper chamber, any more than we would like the upper chamber to employ discourteous remarks with respect to the House of Commons. I think we can carry on a debate on Senate reform without using such strong expressions with respect to our colleagues.


James MacKerras Macdonnell: May I venture to point out that the hon. member for Brandon-Souris was not expressing those views himself. He was

quoting the views of other people with regret, and he was not expressing those views himself, as I understood him.


Mr. Speaker:: The hon. member expressed those views as I heard them. He went further to fortify his stand and said that what he was saying was so much a fact that when he used to attend public meetings and mentioned the Senate, he heard laughs in the assembly. His own opinion as he expressed it, coupled with his reported impression of public meetings he has attended and the way those meetings reacted, prompted me to make the remarks I have made and which I believe are quite justified.


Walter Gilbert Dinsdale: Thank you for those comments, Mr. Speaker. Just before I call it ten o'clock, I think Hansard will indicate that I have expressed the highest admiration for the Senate as an integral and important part of our parliamentary system. That is the whole point of my discussion, that it is a vital
Proposed Senate Reform and important part; but unfortunately, as I say, the public does not regard it as such. I am placing a good deal of the responsibility for that situation upon lack of action by the government that is responsible for the condition of the Senate.


Mr. Speaker:: If I misunderstood the hon. gentleman, I can tell him that I am very sorry and apologize, but I am anxious to read Hansard tomorrow.
On motion of Mr. Dinsdale the debate was adjourned.



BUSINESS OF THE HOUSE

Walter Edward Harris: Mr. Speaker, we shall begin with the estimates of the Department of National Defence, then take the estimates of the Department of Justice, public works and veterans affairs.


[Stage Direction]
At ten o'clock the house adjourned, without question put, pursuant to standing order.
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50433-346&
[Stage Direction]

Thursday, June 30, 1955