1959-05-04

[Stage Direction]
Hon. W. Earl Rowe (Dufferin-Simcoe) presented the first report of the special committee on railways, air lines and shipping, and moved that the report be concurred in.
Motion agreed to.


[Stage Direction]
Mr. John Pallet! (Peel) moved that the 24 members of the House of Commons to act on behalf of the house as members of the joint committee on Indian affairs be as follows:
Badanai, Baldwin, Barrington, Cadieu, Charlton, Dorion, Fairfield, Fraser, Gundlock, Hardie, Henderson, Howard, Korchinski, Leduc, Martel, McQuillan, Michaud, Montgomery, Muir (Cape Breton North and Victoria), Murphy, Piekersgill, Robinson, Small, Stefanson.
Motion agreed to.


[Stage Direction]
Mr. John Pallet! (Peel) moved:
That the members of the select committee on radio be as follows: Miss Aitken, Messrs. Bell (Carleton), Bell (Saint John-Albert), Brassard (Lapointe), Campeau, Chambers, Chown, Dorion, Fairfield, Fisher, Flynn, Forgie, Fortin, Halpenny, Jung, Kucherepa, Lambert, Macquarrie, Mitchell, Morris, McCleave, McGrath, McIntosh, McQuillan, Nowlan, Piekersgill, Pratt, Richard (Ottawa East), Robichaud, Rouleau, Simpson, Smith (Calgary South), Smith (Simcoe North), Taylor, Tremblay.
Motion agreed to.


[Stage Direction]
Motion No. 98-Mr. Argue:
For a copy of any letter or letters exchanged since January 1, 1959, between the Minister without Portfolio from Newfoundland and the minister of municipal affairs of Newfoundland, regarding the appointment of federal nominees to the St. John's housing authority.
He said: For the purpose of rewording this motion, I would ask that it be withdrawn.
Order discharged and motion withdrawn.
UNEMPLOYMENT INSURANCE COMMISSION-[DOT] APPOINTMENT OF COMMISSIONER
Motion No. 99-Mr. Martin (Essex East):
For a copy of all communications exchanged between any member of the government on the one hand, and organizations representative of workers on the other, in connection with the recent appointment of a commissioner to the unemployment insurance commission.
Hon. Michael Starr (Minister of Labour):: Mr. Speaker, the motion is agreed to.


[Stage Direction]
Motion agreed to.


[Stage Direction]
On the orders of the day:
Hon. L. B. Pearson (Leader of the Opposition):: Mr. Speaker, I should like to ask the Prime Minister whether the government was consulted by General Partridge or by the United States authorities about the forthcoming retirement of General Partridge as commander of NORAD, a retirement which has been reported to be the consequence of a major policy dispute.


Right Hon. J. G. Diefenbaker (Prime Minister):: Mr. Speaker, I think the answer might well be given by the Minister of National Defence, and I pass the question to him.


Hon. G. R. Pearkes (Minister of National Defence):: Mr. Speaker, according to the NORAD agreement the governments of both the United States and Canada must be consulted before an appointment is made to the post of commander or deputy commander of NORAD. I have reason to believe that the retirement of General Partridge is imminent not because of any dispute as to policy but because he is reaching the period of retirement from his appointment. I have no announcement to make today as to the definite date of his retirement or as to his successor.


Lester Bowles Pearson: Is the minister aware that in a recent press conference the United States secretary of defence said that he expected and hoped General Partridge would continue

Inquiries of the Ministry in his command of NORAD after the normal retirement date, which I think is July 31?



REPORTED STATEMENT BY NORAD COMMANDER RESPECTING BOMBERS

[Stage Direction]
On the orders of the day:
Lester Bowles Pearson: Mr. Speaker, I should like to ask the Minister of the National Defence whether he would comment on a statement that General Partridge, commander of NORAD, made before the United States house of representatives that-and I am going to quote from the report of that statement as it appeared in the press:
-the Russians will still be relying on bombers some years from now, will use supersonic rather than subsonic aircraft for this purpose and that therefore we must continue to have jet supersonic interceptors.
May I also ask the minister whether the Canadian government was consulted or informed in advance by General Partridge before giving this statement to congress?


George Randolph Pearkes: Mr. Speaker, I thank the hon. gentleman for sending me notice of his intention to ask this question. The quotation the hon. member has used is from a newspaper report, and rather than being a direct quotation from the evidence given by General Partridge before the congressional committee it is an interpretation of the general remarks which were made by the general.
Under those circumstances, and in view of the fact that General Partridge is a United States officer called before the United States congressional committee, I do not feel that it would be proper for me to make any comments on the statement which he is alleged to have made last February.



UNEMPLOYMENT INSURANCE


[Stage Direction]
On the orders of the day:
Mr. Hazen Argue (Assiniboia):: I should like to address a question to the Minister of Labour arising out of the controversy surrounding the appointment of Mr. A. F. MacArthur to the unemployment insurance commission. Will the minister comment on the allegation that by proposing the name of Mr. MacArthur as early as January 20 without any prior consultation with organized labour, and by his subsequent appointment without the support of either the Canadian Labour Congress or the Canadian and Catholic Confederation of Labour-


Mr. Speaker:: Order. The hon. member seems to be making more statements of fact


than he is asking questions. I suggest that he ask the question he wishes to ask.


Hazen Robert Argue: I rewrote this three times, Mr. Speaker, trying to condense it as much as I could. I am asking the minister, in view of the foregoing, has the government contravened paragraph 2 of subsection 4 of the Unemployment Insurance Act?
Then there is a further question. In view of the subsequent resignation of three leading trade unionists from the unemployment insurance advisory committee, is the minister prepared to reopen negotiations with the C.L.C. and the C.C.C.L. in the hope of reaching an agreement with these organizations, so essential to the satisfactory operation of the Unemployment Insurance Act?


Michael Starr: The hon. member for Assiniboia was good enough to send me notice of his intention to ask this question about two minutes ago.


Hazen Robert Argue: You have had it for months; you can answer it.


Michael Starr: The question is in two parts, and in order to give a proper explanation I would ask the house to permit me to make a statement which will answer the first part of this question.


Mr. Speaker:: Has the minister leave to make a rather extended answer to this question?


Some hon. Members:: Agreed.


Michael Starr: Last Friday I announced the appointment of Alastair F. MacArthur, former president of the Ontario federation of labour, as labour representative on the unemployment insurance commission. This appointment has since been described by Mr. Claude Jodoin, the president of the Canadian Labour Congress, as "political patronage" and a violation of the consultative clause in the Unemployment Insurance Act.
I deny both these charges, Mr. Speaker. First, on the principle of consultation, I may say I discussed the whole matter with Mr. Jodoin on January 30. Again, I may say there was considerable correspondence on the matter in which I asked Mr. Jodoin for nominations and in which he submitted three names. The names submitted by Mr. Jodoin were presented to cabinet and were given the fullest consideration. In addition the name of Mr. MacArthur was submitted, as I had told Mr. Jodoin it would be. Thus, Mr. Speaker, there was full consultation with Mr. Jodoin all along the line. The principle of consultation was carried out and will continue to be carried out. However, it must

be made clear that no single group will have an exclusive power of veto over cabinet appointments.
As to Mr. MacArthur's political affiliation, Mr. Speaker, I believe he has already made a statement attesting that he has not been a member of any political party. This should be sufficient. I may say that the question of political affiliation was first brought forward not by myself but by Mr. Jodoin. I may say also that I never questioned the political affiliations of his nominees.
I maintain that Mr. MacArthur's record in the labour movement is the best answer to the charge. As president of the Ontario federation of labour from 1946 to 1956 Mr. MacArthur achieved distinguished eminence in the ranks of labour, and in 1954 was one of three candidates for leadership of the Trades and Labour Congress. He was defeated by Mr. Jodoin. As international representative of the office employees he is familiar with the opinions of labour and the needs of labour. I am sure he will serve with distinction on the unemployment insurance commission. Mr. MacArthur's appointment compares favourably with this government's appointment of Mr. Cleve Kidd to the royal commission on price spreads and the appointment of Mr. Eugene Forsey to the board of broadcast governors. Neither of these men could be described as supporters of the Conservative party.
Over the week end I received and accepted, as a consequence of this appointment, the resignations of Mr. George Burt, Mr. A. An-dras and Mr. Jean Marchand from the unemployment insurance advisory committee. Mr. Burt is head of the united automobile workers; Mr. Andras is chief of the legislation department of the congress; and Mr. Marchand is secretary general of the Canadian and Catholic Confederation of Labour. Like Mr. Jodoin's three nominees for this appointment, all have a record of close affiliation with a political group-not the Progressive Conservative party. I say that political considerations were not absent in these resignations.
In conclusion, Mr. Speaker, may I say that Mr. MacArthur was appointed in the sincere conviction that, having in mind the suitability of all the names put forward-and there were five in all-he would do the best possible job in the interests of organized labour. No other consideration was involved. Already I am pleased to say that I have had ample evidence that it is in this light that this appointment is being viewed by representative labour groups in this country.


Hazen Robert Argue: Mr. Speaker-
Inquiries of the Ministry


Michael Starr: I should be glad if the hon.
member for Assiniboia will permit me to answer the second part of this question. The answer to the second part is no.


Hazen Robert Argue: If I may, Mr. Speaker, I would ask the indulgence of the house. Since this was a rather lengthy statement that might ordinarily have been made on motions, I should like to make one or two brief comments.


Some hon. Members:: No, no.


Mr. Speaker:: The house gave consent to a rather extended answer to a question. I consider that it would be appropriate to ask a supplementary question in order to explain it, but if there is to be any debate I think it should be reserved until this matter comes before the house, as it will later this week.


Hazen Robert Argue: Although hon. members opposite may think I might make some comment on the political accusations-


Some hon. Members:: Question.


Hazen Robert Argue: -I do not intend to do that. In my opinion the principle of the Unemployment Insurance Act-


Some hon. Members:: Question.


Mr. Speaker:: I am not sure that the hon. member for Assiniboia understood me. I regard this procedure as a question and an answer. Anything which follows should be in the nature of a supplementary question in order to elucidate some part of the answer which is not clear. Otherwise I do not regard it as a statement which calls for comment.


Hazen Robert Argue: I misunderstood your ruling, Mr. Speaker, and for that misunderstanding I apologize. My question to the minister is this. How can he consider that consultation took place as provided by the Unemployment Insurance Act, when in a private conversation with the president of the Canadian Labour Congress the minister intimated to the president the man the minister wished to nominate to this position? Is it not an absence of good faith when the minister initially says that Mr. MacArthur is the man he would like to appoint, and follows this through by ignoring the names submitted by the Canadian Labour Congress? That is not consultation, Mr. Speaker; that is compulsion.


Lester Bowles Pearson: Mr. Speaker, perhaps I could ask a supplementary question arising out of the minister's statement. Would the minister comment on the following words which appear in the letter from Mr. Jodoin to the minister:
Even before you wrote me on February 5, even before you asked the congress to submit its

Inquiries of the Ministry nominees, you had advised me of your intention to recommend the appointment of Mr. A. F. MacArthur.


Michael Starr: In looking over the various representatives in the labour field who I thought would give leadership in the unemployment insurance commission, I was struck with the qualification of Mr. MacArthur and I submitted his name for consideration by Mr. Jodoin as to whether the qualifications were sufficient in his estimation. We had a full discussion on this matter and I told Mr. Jodoin that along with the nominees who would be submitted by himself for consideration, the name of Mr. MacArthur would be included. In addition to that the railway brotherhood, on their own initiative, submitted another name that was also considered to the fullest extent.


Lester Bowles Pearson: Mr. Speaker, might I ask a further supplementary question. Did the president of the Canadian Labour Congress ask, by telegrams dated March 24 and April 29, for an interview with the Prime Minister and the ministry to discuss this appointment? Was any reply sent to the telegrams and, if so, what was its nature?


Michael Starr: I did receive such a telegram from Mr. Jodoin. I am quoting from memory now, but he did ask at the end of the telegram for an appointment with the Prime Minister, which I did not consider to be necessary.


EXTERNAL AFFAIRS
[Stage Direction]
On the orders of the day:
Hon. Lionel Chevrier (Laurier):: May I direct a question to the Prime Minister. Has the Canadian government protested to the United States government about the interference by United States authorities with Canadian trucks in transit from British Columbia to other parts of Canada via the state of Washington? If so, what was the nature and result of such protests?


John George Diefenbaker: Mr. Speaker, I thank the hon. gentleman for giving notice of this question. I think possibly in order that the record may be clear I might be permitted to refer in general to what actually took place, and also to the representation to the United States which was made by the government.
On February 19, Gill-Pix Express Lines were stopped by United States customs from passing their trucks in bond through the United States because they were suspected of

transporting goods being imported from mainland China. The company made representations to the United States authorities, and at a later date the problem was drawn to the attention of the Department of External Affairs by the hon. member for Vancouver-Kingsway.
A letter was sent from the department to the United States embassy pointing out that the trade agreement between Canada and the United States, that is the general agreement on tariffs and trade, provided that there should be freedom of transit through the territory of each contracting party regardless of the place of origin of the goods being transported. The United States embassy was asked why this provision did not ensure the right of Canadian trucking firms to pass their trucks through the United States in bond regardless of the origin of the goods being shipped.
The United States embassy has since replied to the letter from the department and indicated that since the beginning of the Korean hostilities there had been an embargo by the United States authorities on all commercial relations between the United States and mainland China, including the use of transit facilities for goods from mainland China. It is, I understand, the view of the United States authorities that the action they have been taken is in accordance with the general agreement on tariffs and trade, article XXI, which reads in part:
Nothing in the agreement shall be construed . . . to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests . . . taken in time of war or other emergency in international relations-
That is the end of the quotation, in part, from the general agreement. The emergency which is deemed by the United States to be in existence is the emergency which originated with the Korean war. The wording of this provision of GATT seems to make it clear that each contracting party is the sole judge of what is to be regarded as the protection of its own security interests within its own country.
However, full consideration is being given as to what action can be appropriately taken by the Canadian authorities in the circumstances. The matter has been brought to the attention of the United States authorities and Canada's viewpoint has been expressed. That viewpoint is that while there is in fact the section of GATT on which reliance is placed, it is the opinion of the Canadian government that the action taken does not fall within the ambit of the section in question.


Mr. Harold E. Winch (Vancouver East):: Mr. Speaker, could I ask the Prime Minister a supplementary question. In view of what he has just said in reference to United States security, I think it would be of interest to all of us if the Prime Minister would And out how United States security is involved in transporting in bond from one Canadian port to another soya sauce and shrimps.


John George Diefenbaker: Mr. Speaker, I think the hon. gentleman should be capable of devising his own answer to that question.



FINANCE


[Stage Direction]
On the orders of the day:
Hazen Robert Argue: Mr. Speaker, I should like to direct a question to the Minister of Finance arising out of the unprecedented rise in the Bank of Canada rediscount rate and the chartered banks' very high prime rate of interest. Can the minister say whether or not chartered bank loans under the Farm Improvement Loans Act and the Fisheries Improvement Loans Act at 5 per cent are being made in the same volume as they have been in the past, or are they being curtailed because of more attractive lending rates for other purposes?


Hon. Donald M. Fleming (Minister of Finance):: Mr. Speaker, there has been no curtailment. So far as I am aware the lending operations by the banks are proceeding. I have had no report to the contrary, but I shall be glad to make inquiries.



WAYS AND MEANS

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

[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend the Income Tax Act and to provide among other things:
1.	That for the 1960 and subsequent taxation years each of the graduated rates of tax at present applicable to individuals on taxable income in excess of $3,000 be increased by two percentage points and that for the 1959 taxation year each of the graduated rates of tax applicable to individuals on taxable income in excess of $3,000 be increased by one percentage point.
2.	That with respect to income of corporations earned on and after January 1, 1959 the 45 per cent rate of tax on taxable income in excess of $25,000 be increased to 47 per cent and the 43 per cent rate of tax on taxable income in excess of $25,000 applicable to corporations deriving more than half their gross revenue from the sale for delivery in Canada of electrical energy, gas or steam be increased to 45 per cent.
3.	That commencing January 1, 1959 the definition of medical expenses exclude those amounts
Income Tax Act
which the taxpayer is not required to pay because they are paid with the assistance of the government of Canada under the Hospital Insurance and Diagnostic Services Act.
4.	That amounts paid on or after January 1, 1959 for iliostomy and colostomy pads, crutches! trusses for hernia and rocking beds for poliomyelitis patients be included in the medical expenses that are deductible in computing taxable income.
5.	That for the 1959 and subsequent taxation years an individual be allowed to deduct in computing income, in addition to the amounts now permitted by the act, any amount received by him out of a pension fund or plan upon withdrawal or retirement from employment or upon the winding up of the fund, not exceeding the portion thereof that is paid in the year, or within 60 days after the end of the year, as a contribution to a registered pension fund or plan or as a premium under a registered retirement savings plan.
6.	That with respect to deaths occurring after April 9, 1959 the exemption for a portion of a death benefit paid by an employer upon or after the death of an officer or employee in recognition of his service be changed from an amount equal to the employee's remuneration for the last 90 days in the office or employment to an exemption for an amount equal to the remuneration of the employee for the last 12 months in the office or employment of the amount of $10,000 whichever is the lesser.
7.	That for 1960 and subsequent taxation years there shall be included as income from an office or employment the amount of the benefit which an employee derives by virtue of the payment by his employer of a premium under a group life insurance plan to provide the employee with life insurance coverage to the extent that it is in excess of $25,000.
8.	That the time within which a notice of objection to an assessment issued after February 8, 1959 must be served be increased from 60 to 90 days from the day of mailing of the notice of assessment.
9.	That the privilege of qualifying as a foreign business corporation be withdrawn except for ,„°®e corP°rations that were so qualified for the 1958 taxation year.
The Deputy Chairman:: I believe the committee completed its discussion of paragraph 1 of the Income Tax Act resolutions. Is there any discussion of paragraph 2?


Mr. Howard:: Mr. Chairman, I may be mistaken but I was under the impression that we had not completely dealt with paragraph 1 and I wished to say a word or two on it.


Mr. Pickersgill:: Before the hon. gentleman begins, Mr. Chairman, may I say that my understanding is that paragraph 1 had not been completed by the committee.


Hazen Robert Argue: The chairman has agreed to allow him to continue.


John Whitney Pickersgill: I am sorry, Mr. Chairman, but we could not hear.


Charles Benjamin Howard: Mr. Chairman in listening to the comments the minister made specifically in reply to questions raised regarding income tax deductions for transportation costs and

Income Tax Act
for board and lodging where a person has to work and maintain two homes, and for protective work clothing, I came to the conclusion that the Liberal government was the most inept one we have had for many years. The more I listened to my friend the hon. member for Essex East the more I became convinced that the Tory government is just about as bad, because over the years with respect to these very valid submissions regarding deductions for working people they have replied that the matter was under study, that briefs had already been presented, that they were fully aware of the situation, and remarks of that nature.
The minister made a most astounding comment about this the other day, when he said in effect that as far as deductible transportation costs are concerned the time is not now ripe to do this; that we cannot do it in view of the increase in the deficit, the extended borrowings of the government, the increased taxation it has been necessary to impose, and so on. Because of the inability of the minister and his government to cope with these problems he now says that the working man will have to suffer a little longer because the government cannot do these things now.


Donald Methuen Fleming: I did not say that.


Charles Benjamin Howard: No, the minister would not commit himself in such direct words, but that is in effect what the minister said and that is the interpretation many working people will place upon his remarks. Certainly he made reference to the increase in debt that has taken place under his administration. He made reference to the increased taxation, and that is certainly the responsibility of the minister and his colleagues. He also made reference to the declining economy and the other difficulties experienced since he became minister and his colleagues formed the government. There is no question at all but that the working man will have to suffer a little longer under onerous taxation and will not be able to get these justifiable deductions.
The minister made much use of the word "discrimination" and explained how he and his government were concerned with the elimination of discriminatory taxation measures. The minister was not so careful about the question of discrimination in the session preceding the 1958 election, because at that time under his guidance changes were made in the Income Tax Act which cannot be described as other than discriminatory. The amendments made at that time applied to one group of workers only and not to others. I refer to the changes made with

respect to construction employees. What could be more discriminatory and inequitable than that?
I should like to relate the manner in which these amendments were applied. They relate to construction employees, and this situation could arise and probably has arisen. I refer again to logging camps. An employee driving a cat, a bulldozer, working on construction in a logging camp, could fall within the provisions of the act relating to deductions, exemptions, and so on. Another employee working for the same company, driving exactly the same type of bulldozer, exactly the same size, horsepower and everything else, skidding logs out of the bush, would not be allowed such deductions. What could be more discriminatory than that? Certainly if the minister had been more careful in what he was doing prior to the 1958 election, and had not been concerned so much with gathering votes for the Conservatives, we would not have had this kind of inequality that exists today.
What we are asking him to do is to extend the same principle that he endorsed and adopted just a little over a year ago. We are asking him to extend that self-same principle to other groups of workmen in this country. The answer is that the time is not now ripe. When we take this answer with his answers to other proposals we are not too clear on just what is meant, but it is just not acceptable. Certainly it is not acceptable to the working people involved.
If the minister would consult one of his own supporters-I am not sure whether he is in the committee at the moment-if the minister would consult the hon. member for Comox-Alberni, who also knows the logging industry very well, having worked in that industry for a number of years, he would get a clear definition and a clear explanation of the effect of the taxation provisions that he says he cannot change. He would get a clear explanation of the effects on the loggers. He does not have to take my word for the tremendously high expenses of the loggers. I am referring to them at the moment because of my familiarity with the high transportation costs of loggers. The minister could get from one of his colleagues in his own party a clear explanation of the extra expenses that workingmen have to bear because provision is not made in the logging industry, in the construction and other camps for families. There are members of the minister's own party who will explain to him in a clear and lucid way the necessity of making these particular deductions that I have been advocating.


Mr. McMillan:: Mr. Chairman, in rising to speak on the budget resolutions I want to say first that I think the increased taxes are very high. It we commit excesses in life, whether physical or financial, there comes a day of reckoning, and the day of reckoning for this government has come. This is the second evidence we have of the day of reckoning. The first evidence we had was the increase in the interest rates, and that increase is still going on. Today the minister is handing the Canadian people part of the bill. He is handing them a little less than half the bill, because there is still some $400 million left to pay at some later date.
The minister has said that the tax increases are moderate. They may seem moderate because he has been dealing with billions, but they are very sizable indeed, and they are taking the corporations for a ride. The tax is equal to the highest income tax they have paid at any recent time in peacetime. After all, the extra bill of $352 million is very large indeed. It is equal to about 75 per cent of the total budget in 1939, and over and above that he has $400 million left for which he has given an I.O.U. which exceeds three-quarters of the total budget for 1939.
It is hard to conceive that this government will ever pay any part of that $400 million, because the sum total of the surpluses or savings of the Conservative party since confederation is less than the interest on that $400 million for only one year. In other words, the interest on that $400 million for a year will be $16 million at 4 per cent and their total surpluses since confederation have amounted to only $15 million. The Conservatives have always been the party of debts and deficits, but the old line Tory was a piker when you consider him in relation to the present Diefenbaker Tories, if the present Minister of Finance is to be taken as a criterion. But even he has slowed up lately, and I think he has slowed up because the people have refused to give him money as rapidly as he requires it.
The increase in personal and corporation income tax amounts to $60 million this year, and this is just enough to pay off that part of the conversion loan that did not need to be converted but was converted. Next year the added revenue from the corporation tax and the personal income tax will amount to $110 million. This year it takes $106 million extra to service our debt, and next year nobody knows how much it will amount to. It certainly will be away up. Hon. members can see that the increase in the corporation tax and the personal income tax will not at any time quite measure up to the amount
Income Tax Act
required to service the increase in the public debt. As hon. members know, that has been made up of our deficits and by the minister fooling around with bonds and converting them before they needed to be converted.
We hear all kinds of stories about the minister leaving the portfolio of finance. If he does he will leave this financial mess on the lap of the Prime Minister, and Fleming's folly will become Diefenbaker's debt.


The Chairman:: Order. I must remind the hon. member that we are not talking about taxation in general. At the present time, we are talking about the Income Tax Act. It would be appreciated by the Chair if the hon. member would limit his remarks to the resolution under discussion at the present time and not extend them into something else.


William Hector McMillan: Mr. Chairman, I accept your ruling except that the other night the Minister of Finance, in speaking on this very same resolution, referred to the clearing of brush from land. He referred to housing; he referred to the dark days of the last administration, and he also referred to the high intelligence of the hon. member for Essex East. Certainly the other speakers in the debate were allowed to go on and traverse more than you are allowing me to discuss at the present time. If you say I cannot touch on interest rates I will forgo that.


Donald Methuen Fleming: Mr. Chairman, so the point may be clearly understood and for the benefit of other hon. members who may choose to speak on this resolution, I think while there was a good deal of latitude taken by hon. members who spoke on this resolution on Thursday evening, the hon. member is now going into a field which is quite beyond what would be in order on this resolution, because he is now trespassing on a field on which the house has already spoken at the present session.
You will recall, Mr. Chairman, that a week ago today we had a supply motion and an amendment was introduced, to be found at page 3073 of Hansard, which included among other things the conversion loan, the bank rate, expansion of the money supply, the national debt and public debt charges, and in a vote on April 28 the house dealt with that amendment and defeated it. So it seems to me that for that reason debate on this question is precluded. It is not a question of latitude in debate last Thursday evening. It is a question of this subject, on which the hon. member is now proposing to speak, having been decided by the house six days ago.

Income Tax Act


Joseph Pierre Albert Sévigny: I must remind hon. members that sins of omission committed at a previous sitting of the house would not justify the Chair in allowing debate on the question under discussion at present to become irrelevant. We cannot debate all over again what has already been debated at length in the house. If only for the sake of preventing constant repetition it is quite important that we adhere to the rule of relevancy as much as possible. It is appreciated by the Chair that it is quite easy in a debate such as the present one, involving the discussion of resolutions which offer a great deal of scope and cover all kinds of matters, to wander afield to some extent, but it would be appreciated by the Chair if hon. members would try as best they can to limit their remarks to the resolution under discussion.


Lionel Chevrier: Mr. Chairman, I do not want to dispute the ruling you have made. I agree with your ruling in essence and I do not think the house will want to see a debate on this resolution such as was had on the budget or again on the motion to go into supply. Surely it is not our intention to do that. But may I point out with respect to Your Honour that what the hon. member for Welland was doing was to discuss interest so far as the tax yield is concerned, and if he limits himself to that aspect of the matter I submit that he is perfectly in order.


William Hector McMillan: Mr. Chairman, I intend to go back to the resolution itself, but I just wanted to say that the increases in the income and corporation taxes were almost exactly enough to take care of the increased charges on our national debt. The Minister of Finance has given us three reasons for the rise in interest rates and, in so far as that affects the money that we should raise, I think he should tell us which one is right. In other words, the other night he spent an hour or so telling us that the government had nothing to do with the rise in interest rates. In the budget speech he said that too many bonds on the market created an upward pressure on interest rates. Again, last November he came into the house and said that the government had achieved a decrease in interest rates. He has given us these three explanations. He should get up and tell us which one is right. They cannot all be right.
In my opinion he has lost the art of achievement, and having lost that art I can well realize why the Prime Minister would think he would be a good secretary of state for external affairs. It is unfortunate that the minister has to raise taxes at this time, particularly when the government promised that taxes would be reduced. They went all over the country, certainly all over Ontario, and said they were going to increase social

benefits and reduce taxes. Any time I heard them on the radio that was what they were saying. They said that when the Liberals were in power they were collecting too much in taxes, but now they are collecting more themselves.
The corporation income tax is increased. That was referred to the other night, and if I can close my remarks by dealing with corporation income tax I will not speak on paragraph No. 2 of the resolution unless I am restricted now.


Donald Methuen Fleming: On a point of order, may I suggest to the hon. member that it might be more convenient to discuss the corporation tax on the next item. At the outset it was agreed by the committee, I believe, that it would make for an orderly discussion if the paragraphs of the resolution were called one at a time, and that matter obviously touches on the second paragraph.


William Hector McMillan: I agree.


Joseph Pierre Albert Sévigny: Shall we proceed to paragraph 2?


Mr. Benidickson:: No, I do not think that is fair. I think the Minister of Finance will agree that on Thursday night I was as fair as anybody could possibly be when I suggested that in past sessions on such resolutions it had been indicated by the Chair that in committee we must consider with the strictest of relevancy the individual items as worded in the resolution. In my own remarks I confined myself to items that were enumerated in the resolution. The committee was allowed to wander. I suggested that we do as has been done in past years and that at a certain stage we confine our attention to subsidiary paragraphs in the resolution.
That was not done. Mr. Chairman, you are not the chairman who was here on Thursday night, but because of what went on the year before I did have some words with him after the event which I am sure he will not mind me speaking about. The hon. member for Welland is discussing the proposal that we increases taxes on personal and corporation income, and in subsequent paragraphs there are other forms of taxation all involving a considerable amount of money.
The hon. member for Welland was asserting that had certain improvident actions not been taken these new imposts might not have been necessary, and I say this is a very relevant matter for the committee to discuss because personal income taxes are to be raised by $54 million and corporation taxes by $56 million under these two paragraphs of the general resolution.
I only ask for consistency. If the committee as a whole is prepared to direct its

attention solely to paragraph 1 of the resolution I think that is satisfactory, but the hon. member for Welland has said very properly that one of the reasons for imposing additional taxation is the improvident and unnecessary spending such as occurred with respect to the conversion loan and under other headings.


William Hector McMillan: Mr. Chairman, when the resolution came up the other night the hon. member for Kenora-Rainy River did stick to paragraph No. 1, but no other member who spoke did so. That is why I wanted to get a ruling from the Chair as to whether I can go on and speak about corporation taxes.


Donald Methuen Fleming: May I draw attention to what was said at the outset of the discussion on the evening of April 30, at page 3209 of Hansard. The hon. member for Kenora-Rainy River opened the discussion by asking me if I had any comment to make beyond the budget address. In reply I said:
Mr. Chairman, I think there is nothing new to be mentioned in connection with this opening paragraph. When we come down to paragraph 9, Mr. Chairman, I will have an amendment to propose to it. If I may make a suggestion in the interest of orderly procedure, while there is just one resolution to amend the Income Tax Act it might contribute to orderly discussion in the committee if you were to call the paragraphs seriatim.
Then the deputy chairman said:
Is the committee agreeable that the paragraphs be discussed seriatim?
I understood, Mr. Chairman, that was the basis upon which we proceeded. The hon. member for Kenora-Rainy River then spoke, and on page 3212 of Hansard for that date you will see that the chairman asked:
Is there any further discussion on paragraph 1?
My understanding was that the suggestion of following the paragraphs one by one in the order in which they are printed commended itself to the committee as one that would make for orderly procedure. The first paragraph, of course, relates to the proposed increase in personal income tax, the second paragraph to the proposed increase in the corporation tax. If it is, as indicated, the intention of the hon. member for Welland to discuss the corporation tax, I would think it would contribute to orderly discussion if we could take one paragraph at a time and make sure that before we launched into a discussion of the proposed changes in the corporation tax we had cleared up the proposed changes in the personal income tax. Otherwise, if we are going to scatter our observations widely over the various matters covered by these nine paragraphs I do not think we are going to have an orderly and
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consecutive discussion. This is not a suggestion that will curtail debate.


Harold Edward Winch: May I add that it was the understanding of this group that the paragraphs were going to be taken seriatim, and if any change were made in that understanding then certainly we would like to know about it.


Joseph Pierre Albert Sévigny: It is the understanding of the Chair that each paragraph is to be discussed separately. Actually the Chair does not wish to be too severe on anyone during this debate, but for the sake of orderly discussion each matter should be discussed in separate form.
In answer to the request of the hon. member for Welland I can only say that we should try to discuss each item as it is listed here. In other words, if he would discuss the personal income tax before the corporation tax, then we would have an orderly discussion. Whether or not the Chair rules that what the hon. member is saying is out of order depends entirely upon what the hon. member may say. However, for the sake of orderly procedure we should cover each item thoroughly, and it would be appreciated if hon. members adhered to this ruling.


William Hector McMillan: I shall be glad to delay my remarks, Mr. Chairman; however, I would say that if I had been allowed to go on for two minutes we would have saved time.


Charles Benjamin Howard: There is one question I should like to address to the minister, if I may, before we proceed. It concerns item 1 and is related to the question I discussed the other evening, that is the exemptions or deductions for certain classes of workers. I find in volume 2 of Hansard for 1957-58, starting right at the bottom of page 2004 and extending on to page 2005, there are some remarks by the minister regarding one of the proposed changes in the Income Tax Act as it related to construction employees. I would preface my question by reading the remarks of the minister in explanation of this change. He said:
Briefly it will provide that if the construction site is so distant that the worker cannot reasonably be expected to return daily to his normal place of residence where he maintains a home in which he lives with his wife or some dependent person, then the construction employee will not be required to include in his income for tax purposes the value of the free board and lodging or reasonable allowances paid to him to cover expenses of meals and lodging, or the value of travelling expenses paid by the employer in transporting him to the site and back home again.
I wonder what the present view of the minister would be. In commenting on these proposals the other day he said that the suggestion as to what was required was not

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too clear. Would the minister comment on the difficulties if the provision which already exists in the act with regard to construction employees were to be extended to include other employees who are in precisely the same position?


Donald Methuen Fleming: If the hon. member will read the whole of the debate during the fall session of 1957 he will find that there was quite an extensive discussion preceding the amendment that is now to be found as section 5, subsection 2 of the Income Tax Act. It was quite clear at that time that in the face of the strong representations that had been made and in the light of the history of the way in which the claims of construction workers in respect of travelling expenses had been handled by my predecessors, there was a case for introducing this particular amendment giving the right to construction workers to claim exemptions. The hon. member will see there a reference to the fact that this exemption had been accorded to construction workers until the previous year. We were, in effect, dealing with a situation where a practice which had been in existence for a long time was in the course of being reversed under a decision that had been made before we came into office, and having regard to that long history and the strong representations that had been made, not only by the construction industry but by unions of workers in that industry, we asked parliament to enact a provision which would have the effect of maintaining a practice that had obtained until 1957.
Parliament gave effect to that proposal. The case of the logging workers was raised at that time. I tried to make it very clear that there would be difficulty in applying this new legislation, and that there would be borderline cases which would make it almost of necessity a provision difficult of application and that we would be guided by experience. It was made clear that the position of the logging worker and our experience in the application of section 5, subsection 2 of the act would be studied to see if this matter could be worked out in the end in a way that would avoid any possibility of discrimination.
Now, I might say that in general the view that was expressed at that time has been largely borne out in practice. The section has been widely resorted to by numbers of persons who are construction workers. There have been borderline cases and there have been some difficulties. The Department of National Revenue has proceeded to give a reasonable interpretation to the provisions enacted when this matter was last under discussion.

I must say, Mr. Chairman, that our experience has not yet reached the point where we could undertake to ask that even comparable provisions, let alone similar provisions, could be entertained in favour of certain other groups of workers. The legislation to which I referred does not permit a worker to deduct his own expenses. The legislation rather provides that he is not obliged to bring into his income payments that are provided by his employer for transportation, meals and lodging.


Charles Benjamin Howard: If I may say so, Mr. Chairman, I do not think I was confused over the application of the legislation. That is the way I understood it applied, as just indicated by the minister. But if this provision had been in effect, as the minister said, for a number of years and then was altered in 1957, I take it, and then revised again or revived-probably that is the right word- by the amendment to the Income Tax Act in the 1957-58 session, surely after it had been in effect for that period of time the department should have had sufficient experience to allow them to extend the selfsame principle to other types of employees. I cannot see too much difficulty about it.
I will relate again the instance in a logging camp. Under the application of the section-and I am talking about the west coast of British Columbia again because of my familiarity with the situation there-if a person goes out to work as a bulldozer operator on the construction phase of a logging camp's operation, he then comes within the provision just related by the minister. But if that same person happens to go out to work and drives the same type of bulldozer, exactly the same operation, but performs some other duties such as dragging logs out of the bush, he does not come under it. What could be more discriminatory than that situation?
What would be the difficulty in applying the self-same provision which applies to construction employees to, say, cook and bunk-house workers or cooks, bakers and so on in logging camp cook houses who receive, with respect to free board and lodging, exactly the same consideration as do construction employees, yet have to pay tax on it? What is the difficulty in extending it to a person in a mining camp where there are bunkhouses and so on? I do not refer to some of the more settled camps where large numbers of families live and which in effect are settled cities or towns. I refer to those out in the hills far from community life, transportation and so on where they have bunkhouses, where exactly the same type of situation exists, where a person can be a construction employee and

receive the benefits just outlined by the minister. He may get transferred to another job and be in precisely the same position with respect to board and lodging and transportation, yet not receive the benefits under that provision.
After the many years of experience which the department has had in administering, as the minister said, the application of this arrangement to construction employees, surely they have been derelict in their duty if they have not been able to find out how to apply it to other types of employees. I would appreciate a fuller explanation by the minister as to what difficulties he is talking about which stand in the way of extending this provision to other types of employees.


Donald Methuen Fleming: From the hon.
member's own remarks it is quite evident that he is aware that if it were extended to loggers as a group we could not stop there, but would be obliged to extend it to other groups and it would just go on and on. Where the line would ever be drawn I do not for the life of me know. I referred to a particular situation which gave rise to the amendment that was introduced in late 1957 because of the history that preceded it. Here was a situation in which in the past the act had been administered in such a way that construction workers had not been required to bring into their income payments received by them from their employers by way of transportation, meals and lodging. That was a particular situation. The representations which we had received and which commended themselves to parliament a year and a half ago were put on that basis, namely the construction worker. At that time we had representations made by some hon. members who said, "Why do you not apply this provision to the logging worker?" We went into this matter at some length. The discussion was extended at that time. I would invite my hon. friend to refer to that discussion, where these matters were discussed from both sides of the house.
The fact is that the situation is not any easier from the point of view of enforcement than we contemplated it might be. The immediate context, I would remind the hon. member, was a history under which construction workers had not been required to include in their income transportation, board and lodging. Again that was a situation that had an immediate context as well, because this matter was brought to a head in relation to construction workers employed on one of the defence lines; I think it was the mid-Canada line at that time.
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We had representations after that. Some organizations came to us and said, "If this provision is not capable of general application, then you ought to take it away from the construction workers". We had representations to that effect from some labour organizations. We felt that, parliament having enacted this particular provision, under the circumstances the matter should be given an opportunity for a fair test, and that is the situation that exists now.


Charles Benjamin Howard: If I may, I should like to make one other comment on that matter. The other evening, when the broader application of the suggestions I had to make was being discussed -notably transportation, clothing, maintenance of two homes and so on-for deduction purposes, the minister then said it was impossible to legislate for a select group of workers. He did not want to have any part of that suggestion because that was discrimination. He now turns around and says, "We believe in discrimination; we believe in legislating for a select group of workers as opposed to other workers".
That is precisely what he is saying. He has set up a preferred group of workers in so far as income tax provisions are concerned, notably construction employees. I am not decrying the fact that that should happen. I am merely saying that it does not seem sensible, especially after this provision has been in effect for so many years and especially after the minister said that he does not believe in discrimination and could not possibly make any provision in respect to loggers, miners and all these other types of employees who find that these excessive costs must be met. When he said he could not legislate discriminatorily in that way it does not seem sensible for him to turn around and justify the maintenance of something which has been in effect for so many years and which is in effect discriminatory against all other types of employee.
It is just silly. Surely the minister can apply himself or the officials of his department can apply themselves more directly to this problem in the hope of finding a solution to it. It does not seem impossible. If the minister would sit down and concern himself more with the application of this provision than he does with these other questions, or would get some of the officials in his department to apply themselves to the problem, it is not insurmountable. If that had been done at the time of the reinstatement of the provision for construction employees; if a start had been made on it then, I am sure that at this stage we could have had an acceptably workable statutory provision which would put working class people on a fairly equitable basis, instead

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of setting up a preferred group and discriminating against the rest. The minister speaks out of both sides of his mouth. He says he does not believe in discrimination and cannot legislate for a select group of employees, and then turns around and says that in this case he should do so.


Harold Edward Winch: May I add a word or two. I believe the Minister of Finance is a family man. No doubt he likes to be with his family once in a while, and he realizes the cost of being separated for a long time. As a matter of fact, Mr. Chairman, I think this is perhaps what the hon. member for Port Arthur had in mind the other day when he spoke about salaries for members of parliament, but we are not discussing that matter at the moment.
We are now discussing a situation where, particularly on the west coast of this country, because of our economy workers are separated from their families when engaged in industry and construction, in our fisheries, in logging and in mining. When one is separated from one's family there is a big cost in transportation involved, and one is actually placed in the position of maintaining two homes at one time. He has to maintain the home where his family is and the place where he works and pays board.
That is why I started out by saying that I understood the Minister of Finance was a family man and would like to see his wife and kiddies once in a while. Then as his kiddies grow up and become men and women, he would like to see his grandchildren. Is it not therefore understandable that the people in a province which contributes a good deal in monetary value to the treasury of this country, because they are engaged in logging, mining and construction, also do not like maintaining two family homes and like to be able to get home once in a while? Surely the Minister of Finance will agree that having worked out certain rights for employees in the construction industry two years ago, he should now apply the same general principle to those engaged in the logging and mining industries of British Columbia.
I was going to ask the Minister of Finance if he would just get that red blood flowing a little faster through his veins and see if he could not during the course of this session extend such opportunities to the workers of British Columbia and other provinces to enable them to see their families more often, and grant them some relief by way of a greater deduction if in the course of their employment they have to maintain, as so many do in British Columbia, two homes and not just one.


William Moore Benidickson: Mr. Chairman, on this very subject I recall very well the minister introducing his views on, I think, December 6, 1957 as to the entitlement of construction workers to income tax exemption for expenses while away from home. It may be a coincidence, or just the income tax season, but within the last week I have received two letters from constituents who feel that this thing is not working out as expected, and I hope the minister, who I think has some sincere desire to be helpful in this matter, will really give it a look, because I think he will be impressed by the kind of letters I have received. One reads in this way:
Mr. Diefenbaker, when making his pre-election campaign speeches, made a statement to the effect that effective January 1, 1958, board and lodging paid by men living away from home working on construction jobs would be deductible for income tax purposes. With having tried this deduction before only to have it disallowed, I was very pleased that this one idea had been brought into being.
My husband had been working for the Ontario hydro in the construction division until being laid off last October. He was working away from home.
He received his T4 slips-
Then the writer of the letter goes on to quote from a hydroelectric bulletin sent to employees referring to section 23 with respect to board and lodging receipts, and so on, and there is an inference that the employee must be a householder. But she is disillusioned; the claim for deduction has been denied.
Mr. Chairman, I had another letter, as it happens in the same mail, which reads in part as follows:
I work in the construction trade and am away from my home a great deal of the time. We are required to pay for board and lodgings when away, which is in effect supporting two homes, since I have a wife and family living in Kenora.
Now, my question is this: should not the amount of money deducted from a man's wages for board and lodgings-
In accordance with the intention of the government-
-be deductible by him on his income for tax purposes?
As I say, it may be the season, but it is significant that something is going wrong with the administration. I will be very pleased to pass these letters to the minister, but I think all the fanfare that was made with respect to these matters indicates something should be done. The Ontario hydro has taken great pains to publicize this new concession with respect to tax laws, and these people now find that at the individual tax offices they are not getting the practical result that seemed to be indicated in the announcement of the minister in December, 1957 and in the speeches

of the Prime Minister subsequently during the 1958 election campaign.
I therefore think the matter should be looked into. The other night the minister gave us some advice about the difficulties of the finance minister when he is confronted with discrimination, and he mentioned the possibility that in doing something in one direction he may set a precedent and be obliged to do it in others. This was part of the difficulty that faced the former administration, and I am acquainted with that. None the less the minister advertised his intended generosity to the high heavens in this respect, and it just so happened that within two weeks I have had these two letters from constituents who say that in actual practical experience it does not seem to be working out to their advantage and in accordance with expectations.


Donald Methuen Fleming: Mr. Chairman, the hon. gentleman will agree that never at any time did we make any promise or hold out any assurance or representation that we would go beyond the case of the construction worker.


William Moore Benidickson: These were both letters, I might add, from construction workers. I have not burdened the minister by reading the extract from the official publication of the Ontario hydroelectric commission after the minister made this decision, but I could. It is in the letter which I indicated I would send to the minister.


Donald Methuen Fleming: Mr. Chairman, if reference is had to what I said on December 6, 1957 as reported at pages 2004 and 2005 of Hansard, it is made quite clear there that we were referring to construction workers and construction workers only. The language of the clause that was introduced to carry out the proposal then announced is restrictive in terms. It applies only to the man who has a spouse or a person dependent upon him by blood relationship, marriage or adoption, and who has that self-contained domestic establishment from which his work separates him.
The passages that the hon. member has read from the two letters he has received give no inkling whatever as to the grounds upon which the claim in each case may have been disallowed, but if the hon. gentleman agrees to send the letters we will be glad to make inquiries through the Department of National Revenue to ascertain the grounds upon which it was found that in those particular cases the individuals concerned did not qualify under the terms of section 5, subsection 2 of the Income Tax Act.


William Moore Benidickson: At least one of the writers, Mr. Chairman, has taken the pains to look up the statutes. I have not burdened the committee by reading the letter in full but
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in that letter she has outlined the point that my hon. friend raises; that is, the necessity of there being a householder. In addition, she also outlines that the people for whom she speaks-not only her husband but others- were working in the construction division of the Ontario hydro and have been denied this year the out of town expenses which they thought they would be allowed as a result of the much advertised change made by the minister in December, 1957.


Harold Edward Winch: Mr. Chairman, I hope I may be permitted to ask a question of the Minister of Finance concerning a problem that came to my attention for the first time two or three weeks ago and about which I did not know before. I raise it at this time because we are dealing with the Income Tax Act and this has bothered me for the past few weeks.
The minister as a member of parliament and a man of the world knows that it sometimes happens that a man may be sentenced to prison for life or a person may be insane for life. Under Canadian divorce laws the husband or wife of such a person cannot obtain a divorce in order to live a normal life and it sometimes happens that they become involved in what is known as a common law way of living with a person to whom they are not or cannot be married due to circumstances beyond their control. As far as my knowledge goes a common law wife is recognized in most circumstances under provincial laws. As a matter of fact, I do not know of any law in British Columbia under which a common law wife is not recognized. I do not, of course, mean a common law wife of a few weeks or months; I refer to a common law arrangement over a period of years as a result of which there are children.
I may have been abysmally lacking in knowledge of the federal law but it was not until two weeks ago that I became aware that a common law spouse is not recognized as a dependent of the breadwinner under the Income Tax Act. I believe this places a heavy and unnecessary burden on the person who seeks to live a normal life and for reasons that are perhaps totally beyond his or her control and they enter into a common law arrangement. Under the Income Tax Act he is charged as a single person although he may have lived for years as a married person.
Such a case came to my attention. The Department of National Revenue is seeking back taxation for a period of six years against an individual who has maintained a home with his common law wife throughout that period. The department claims that he filed

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a false return over the years in claiming as a dependent the woman with whom he has lived for six years. He is a working man and is now being hit very hard taxation wise.
I raised this matter in the select standing committee of this house and was told that it is a matter of law. Law relating to income tax is not decided by the Minister of National Revenue but by the Minister of Finance. I should like to ask the minister if it is not possible to recognize common law wives as dependents in reasonable circumstances for income tax purposes. Nearly all provinces recognize common law situations under certain circumstances.
Because I know how some people like to twist things I want to make it clear that I am not advocating common law arrangements but as mature adults we must recognize that these arrangements appear reasonable for those seeking a normal way of life under certain circumstances. Through you, Mr. Chairman, may I ask the minister if it is not possible to give some consideration to this matter. I appreciate that the minister has to deal with important principles in the main but the height and strength of a good man is sometimes measured by his sympathetic attention to minorities and difficult problems. Is there any possible way of some provision being made in relation to the matter which I now draw to the minister's attention?


Donald Methuen Fleming: Mr. Chairman, when the Income Tax Act refers to marriage or spouses or husbands or wives it refers to those who have that quality under the law. This statute does not take account of any illicit relationships in that regard. In the case of children, of course, an illegitimate child could qualify as a dependent under this act, but in the case of the woman in such a relationship she could not be treated as a wife for the purposes of this act. The hon. gentleman asks if this could be changed. Yes, parliament could change it, but that is not proposed.


Harold Edward Winch: I quite understand what the minister says but I do not think he would like the idea to go about that the people involved in these arrangements really wish to live outside the law. I believe the minister knows there are many people in Canada who because of circumstances have to live in a certain way in order to achieve a reasonably normal life. Sometimes I think they are more moral than those who live within the law. If the Income Tax Act is drawn in such a way that it views as illicit anyone who is not married within the law and excludes them from deductibility in terms of income tax, I should like to hear what the Minister

of Finance would say concerning all the provincial laws which recognize the status of people of good morality who are required to live outside the law.


Charles Benjamin Howard: The minister is jumping back and forth between what he classified as illicit arrangements and what I classify as necessary tax arrangements. Earlier I raised a problem about a tax deduction for transportation, board and lodging and the maintenance of two homes and the special protective clothing required by some working men. Could the minister give us an indication of what studies have been made in this respect, how extensive the studies have been and if there is an agency in his department that has studied this question would he tell us the name of the agency? I should also like to know if he is aware of any other studies that have been made and when we might reasonably expect to have a more clear and definite answer regarding the possibility of instituting such taxation deduction arrangements as those to which I referred?


Donald Methuen Fleming: Mr. Chairman, I cannot give any indication to the hon. gentleman as to when, if ever, some proposal may be brought forward in this respect. That would not be proper with respect to any possibility of future tax policy. So far as the question is concerned, we have had some representations, but I must say not very many and not recently, on the subject. Where those representations have been received they have been reviewed to see if there was any new material in them. So far as the application of the present section is concerned as applied to construction workers, of course the Department of National Revenue is gaining more experience all the time with the application of that section and the problems of administration that arise in connection with it.


Mr. Nixon:: Mr. Chairman, may I ask the minister whether any consideration has been given to the exemption of municipal property tax? The minister will recall that some members of the government side when they were in opposition, I think including His Honour the Speaker, advocated that very thing when they sat on this side. I am just wondering whether the minister has given any consideration to such a proposal, or if he will consider it now.


Donald Methuen Fleming: That proposal has been made from time to time over the years, Mr. Chairman. Naturally, all these proposals are reviewed from time to time, but we have not seen fit to bring forward to the house any proposal on the subject.
Pararaph 1 agreed to.

On paragraph 2.


Donald Methuen Fleming: The hon. member for Welland had something to raise on this paragraph.


William Hector McMillan: Mr. Chairman, the corporation income tax is increased by two percentage points, and when you add this increase to the increase of one per cent on the old age pension fund you have a very high corporation tax indeed. My colleagues have put on the record-I think it was the other night-information which shows that these taxes, along with the sales tax, tend to increase the price of production and the cost of living. We have already had evidence of the increase in the cost of living. I know it is always easy to shove extra taxes on corporations because their voices are relatively few. In our free enterprise system we should not tax them out of existence. Every action or tax on the corporation tends to increase the cost of production, and certainly we know now that our production costs in this country are very high and we cannot compete in many competitive markets of the world. In fact, we find that we cannot compete in many instances in our own market. This puts many men out of jobs.
It takes some thousands of dollars in investment to put one man at work at a steady job, and unless we leave our corporations with some money for expansion I would like to ask the minister who is going to invest money to give our unemployed work? Certainly not any program of the government like the winter works program!
The talk and actions of this government have not made a climate favourable for foreign investment and particularly United States investment. Therefore, there is nothing left for us to do but to encourage our industries and to have healthy industries which will produce more jobs with security. I know that our government has about a 50 per cent interest in the earnings of our companies and corporations but it has no interest in any of the liabilities. We note that the other day it was announced that the minister had lost $10 million of the unemployment insurance account by selling bonds at a loss. I predict that the Unemployment Insurance Act will be amended-


Donald Methuen Fleming: Order. Surely, Mr. Chairman, we are not going to go into a discussion of the Unemployment Insurance Act. The committee knows very well that legislation will be introduced on this subject shortly, and surely it is highly improper now to anticipate discussion on the resolution to precede amendments to the Unemployment Insurance Act.


William Hector McMillan: I will leave that act, except to say that I imagine industry and working
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men will be called upon to pick up that $10 million, as well as many others.


Donald Methuen Fleming: There is a resolution on the order paper.


Charles Edward Rea: I advise the hon. member that he is out of order.


William Hector McMillan: I realize that in the past industry has exploited labour but most industrial heads that I know in my part of the country have good labour relations, and they take an interest in the labouring man. I have often got the impression from speeches in this house-and certainly I am not referring only to the government members but to some members on this side as well-that big corporations are something like an octopus; they hold back the development of our country in some ways. Our big corporations pay very high local taxes and high provincial taxes, and certainly they are now paying the highest federal tax. Contrary to the opinion held by many people, many of their shareholders are small shareholders. If you take the Bell Telephone Company, for instance, some shareholders have as low as 25 shares and others as low as 10 shares. I am not taking the part of the corporations here, but in order to save ourselves I think we must help them; we must promote their welfare so that they in turn can provide jobs with the money they make and invest in expansion of their plants.
I think the minister in this resolution is just going in the opposite direction. Our corporations should be left as much money as we can leave them under our tax structure. The minister is taxing them at the highest rate and is leaving a heavy cloud over their heads because they will have to assume their share of the $400 million which is being borrowed and carried as a deficit to be paid in future years. Also, when they borrow money to carry on their operations they must pay more because of the fiscal policy of this government. We know that this government paid 6.6 per cent net to the corporations when they bought their bonds; therefore, industry has to pay a lot-


Donald Methuen Fleming: Surely, we had a decision made by the house on interest rates last Tuesday night. We do not have to have it debated all the rest of the session, surely.


William Hector McMillan: I will close, Mr. Chairman, by saying I regret that it has come to the time when the farmer and the grocer can go to the bank and borrow money cheaper than the Dominion of Canada can.


Charles Edward Rea: Is there any further discussion on paragraph 2?


Donald Methuen Fleming: I should just like to correct the hon. gentleman on two of the

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many erroneous statements he has made. He intimated that foreign capital was not coming into Canada. I would like to remind him that in the year 1958 foreign capital did enter Canada to the extent of $1,112 million. He is also completely wrong in the statement he made earlier that the corporation tax rate now proposed in the present resolution is the highest ever. The highest ever was in 1952 under the previous administration when the rate was 52 per cent.


Lionel Chevrier: I rise on a point of order. The minister has been rising repeatedly to interrupt the hon. member for Welland. When the hon. member rises on a point of order he keeps on repeating exactly what he said before. I think in fairness to the hon. member, when he is on his feet and raises a point of order at least he should be listened to.


Donald Methuen Fleming: I did not hear or see the hon. member rising on a point of order.


Lionel Chevrier: He rose twice.


Donald Methuen Fleming: He did not make himself heard in my hearing on a point of order.


Lionel Chevrier: It is quite clear what he was doing and he was heard in this area.


William Hector McMillan: I said "in recent peacetime history"; at least, I hope I said that.


Donald Methuen Fleming: The year 1952 was recent history and it was peacetime history and that was the year when the corporation rate was the highest, and it was not under the present administration.


John Whitney Pickersgill: Does the hon. gentleman forget Korea?


Donald Methuen Fleming: Let us get the facts straight. The proposal now to raise the rate on corporation income is not the highest in history.


John Whitney Pickersgill: Mr. Chairman, the Minister of Finance pretends to correct the record. Let the Minister of Finance be reminded that in 1952 this country was engaged in an operation that most people called the Korean war. The hon. member for Welland said "in peacetime history" and what the hon. member for Welland said was perfectly correct.


Harold Edward Winch: Mr. Chairman, for purposes of clarification, because I admit my mind is not clear on this matter of the increase in corporation taxes, does it bear any relationship to the dominion-provincial taxation agreements? Does it have any effect on the special sections? What I have in mind particularly is the logging tax.


Donald Methuen Fleming: The answer is in the negative. This does not affect the logging tax. There is no further differential created in any respect.


Harold Edward Winch: Is there no special arrangement on the five-ten basis?


Donald Methuen Fleming: No, this has no effect whatever on the provisions of the Federal-Provincial Tax-Sharing Arrangements Act as to the division of the yield from the corporation income tax or the right of tax abatement in the case of provinces which choose to levy their own corporation taxes.
Paragraph 2 agreed to.
On paragraph 3.


John Whitney Pickersgill: Yes, Mr. Chairman. I must say that when I listened to the budget debate, if it is still proper to refer to the budget debate in the presence of the Minister of Finance, I thought that the provision the minister suggested was not unreasonable, but I have been thinking about it a bit since and it does seem to me that in most of these hospital schemes, including the one in this province, the participants pay a premium. It does not seem to me that there is any difference between paying a premium to the provincial government and paying a premium to Blue Cross. It is money out of your pocket, and I fail to understand why the view should be taken, if the service provided is contributed to in any way by the taxes paid by taxpayers on levies that are imposed by this parliament, that these expenditures should not be counted as medical expenses whereas those people who can afford semi-private or private service, which they get as a result of having paid premiums rather than paying directly, continue to get exemption.
I must say that on further reflection I am very far indeed from being convinced that this is in any way an equitable provision. Moreover, as we all know, the means of financing these hospital schemes vary greatly from province to province, and it does seem to me that the minister should give us a fuller explanation of his reasons than has been given up to now. I am not saying I am opposing this. I am saying I am worried about the equity of it and I think we ought to have a further explanation from the minister.


Donald Methuen Fleming: I gave the reasons for this in the budget speech at page 2421. It is easy enough for the hon. member to pick out the province of Ontario and say that in this province the provincial share of the cost of hospital insurance is contributed by an individual's premium and therefore it is

ascertainable and there is a receipt which can be produced. But we have to have a rule here capable of general and equitable application in all provinces. There are provinces where the provincial share of the cost of hospital insurance is not provided by way of a personal premium. For instance, in British Columbia and Nova Scotia the plan is financed by a sales tax and there is no possibility of isolating for the individual the portion of the tax he pays that is attributable to the cost in his case of the hospital insurance. Therefore, to have an equitable rule capable of application in all provinces we come forward with this proposal.
We examined this whole situation very carefully and because of the diversity of ways in which the financing of the provincial share of the cost of hospital insurance is approached in different provinces the proposal here contained is the only one that was found to be capable of general application on an equitable basis.


John Whitney Pickersgill: I do not think it has general application. That is precisely my point. Even in the province of Ontario if I apprehend the provincial law correctly-I may not but I think I do-hospital insurance is not universal. That means that those persons who are not covered by hospital insurance and who still are subscribers to Blue Cross will be able to count their hospital expenses and the rest of the people who pay a premium to the province will not. If I am wrong about that, I am wrong. I do not pretend to know all the intricacies of all provincial laws. Moreover, I imagine that in some of the provinces this is an even more generalized provision. I can see that the minister might have provided, although I think it would have worked some hardships, that in the case of general ward care or its equivalent the cost should not be deductible but it does not seem to me that the fact that you belong to a private scheme should make it possible for you to deduct and the fact that you come under a public scheme should not because those people who belong to private schemes are still treated in hospitals to which the federal government in most cases makes or has made a contribution.


Donald Methuen Fleming: The situation is clear. What is proposed in this paragraph is that the taxpayer should not be entitled to have the benefit twice. In other words, to the extent that his hospital bill is paid by this scheme of public insurance to which the federal government has contributed he may not claim that portion of his hospital expense for inclusion among his medical expenses to be deducted from his income if in excess of 3 per cent of his income.
Income Tax Act
Never has it been the rule that premiums could be deducted. The only deduction ever permitted was the hospital bill.


John Whitney Pickersgill: Quite. I understand that.


Donald Methuen Fleming: The Department of National Revenue did permit the deduction of the hospital bill that may have been paid by a private insurance company or some other form of insurance coverage. To the extent to which a hospital bill is not paid by or under a scheme of hospital insurance to which the federal government is contributing-obviously that is one under the act-then the individual who is charged still has a right to claim as a deductible medical expense the balance of his hospital account. There is nothing here that takes anything from him in that respect.


John Whitney Pickersgill: I do not think the minister has understood my point at all. I did not say or suggest that the premium should de deducted. I say if you pay a premium to Blue Cross or to some private company-I presume Blue Cross is not involved in this any more so perhaps I should say the Metropolitan Life or some other company that does give this kind of insurance-rather than coming under the Ontario hospital scheme, then if you have a hospital bill you can deduct the whole hospital bill although you may go to the Toronto General hospital and get exactly the same benefit as if you were under the federal scheme. That is precisely the point that I say is inequitable. If the minister will tell me my facts are wrong I will be very quickly convinced but if my facts are right, if my premise is right, the conclusion is that one person has the right to deduct his whole hospital bill and the other person has not. As I say, it seems to me that in these circumstances it is not fair in those provinces where the scheme is not universal. That is the point.


Donald Methuen Fleming: Again I must say that the rule is quite clear. In a province where the scheme is not universal because it is not compulsory the individual who stays outside the scheme and pays his full hospital bill may deduct that full hospital bill just as an individual may in the province of Quebec, a province which thus far has not entered into the national scheme.


Harold Edward Winch: That is the very point; 1 am glad the Minister of Finance got to it. I, too, have been very much disturbed after reading this paragraph 3. The more I have studied it, the more disturbed I have become, and I think the Minister of Finance, a few

Income Tax Act
minutes ago, actually proved that this provision is discriminatory. Paragraph 3 of the resolution reads:
That commencing January i, 1959 the definition of medical expenses exclude those amounts which the taxpayer is not required to pay because they are paid with the assistance of the government of Canada under the Hospital Insurance and Diagnostic Services Act.
The Minister of Finance has made what I consider to be two very important admissions. He says that after a great deal of study and consideration this proposal we now have before us was the only way in which there could be fairness under the Income Tax Act in connection with the deductibility of hospital costs. I maintain, Mr. Chairman, that is not correct. We now have in the majority of the ten provinces a national hospitalization plan under which a certain contribution is paid by the federal government on a varying basis. There are at least two provinces in which there is no such plan. In view of this, the only basis of fairness is to allow deductibility under the Income Tax Act for all hospital costs, whether the person is under one plan or another.
However, I think the major point is that which was mentioned by the minister when he sat down just a minute ago. As I understood him, he made it clear that in the province of Quebec, where there is no contractual arrangement between the federal government and the provincial government, anyone who goes into hospital will be entitled to deduct all their hospital costs for income tax purposes.
However, under paragraph 3, this will not apply to the province of British Columbia because the federal government is paying, if I am correct, 40 per cent of the hospital costs. The people of British Columbia are paying indirectly the entire cost, but directly they are paying 60 per cent of the cost. They are paying directly 60 per cent because the federal government is only paying 40 per cent. No provision is being made, in this proposal, for the people who go into hospital in British Columbia whereby they would receive any consideration for the fact that they are paying 60 per cent, although the proposal would allow 100 per cent deductibility to residents of provinces that have not entered into a contractual arrangement with the federal government under the Hospital Insurance and Diagnostic Services Act. On the basis of the minister's own statement, therefore, this is discriminatory legislation and discriminatory taxation.
Surely, that was not basically in the mind of the Minister of Finance. I know the problems that face the minister as a result

of some provinces entering into contractual arrangements with the federal government under the Hospital Insurance and Diagnostic Services Act. There is a difference in the way the scheme is being handled in each province. British Columbia was the second province to enter into a hospital plan. In the early days the cost of this plan was covered by the payment of premiums, but a later government adopted a two per cent sales tax to cover the cost. We now have a five per cent sales tax in British Columbia, two per cent of which is to pay for the hospitalization plan. May I point out also, that even although the province of British Columbia entered into this arrangement with the federal government, there has been no decrease in the sales tax. The people of British Columbia, therefore, are still paying the full two per cent sales tax to cover the cost of the hospitalization plan.
In addition to that, they have to pay coinsurance in British Columbia, something which I believe is not known in any other province. Even although a person is completely covered by the British Columbia plan, when you go to hospital you can be darn near unconscious but you cannot get into your room or into the operating room until you pay in advance $1 per day. I rather gathered from what the minister said that, because a person going into hospital in British Columbia has to pay this $1 per day, although he is covered by the federal and provincial plan that person can deduct this $1 per day from income tax. British Columbia being the only province that has a system of co-insurance, which means that for every day you are in hospital you have to pay $1 out of your own pocket, will that amount be deductible under income tax regulations?
As I read this amendment, that amount should be deductible. What 1 do want to emphasize, Mr. Chairman, is this:	This
amendment proposed in paragraph 3 of the resolution is discriminatory. I say that the Minister of Finance cannot get away from it because if a province has not any contractual arrangement with the federal government, then anybody going into hospital in that province is allowed to deduct 100 per cent of the hospital costs for income tax purposes. If a person in a province in which the federal government has an agreement goes to hospital, although the federal government only pays 40 to 50 per cent of the cost, that citizen cannot deduct one cent of hospital costs for income tax purposes. If the minister means what he says, that there should be no discrimination, then, difficult as the administration may be, he should allow deductibility for income tax purposes of the 40 per cent or

60 per cent of hospital costs which are not covered by the federal contribution. If that is not done, then there can be no question but that there is discrimination.
Not only is there discrimination in that regard but, in my opinion what is perhaps even of more importance, there is discrimination against the people of the province who are progressive and want to go along the line of a provincial or a federal-provincial hospital plan. This section gives aid, comfort and money to provinces which are regressive and not progressive and makes the progressive people and governments pay a penalty. Surely that is not the view of the minister who talks so much about the vision and the progressiveness of his government.
There can be no question that all the problems will not and cannot be solved until there is a complete national hospital and medical plan throughout the country. But as that matter is not coming up for consideration this year, we are obliged to consider the matter on the basis of section 3 of the present Income Tax Act resolutions. In no way, Mr. Chairman, can I see that there is no discrimination. Discrimination is there. Surely the money in any amount paid as a cost of hospitalization, whether it is a private contribution, a premium contribution or a sales tax contribution within or without a federal-dominion arrangement, should enable the payee to have the hospital bill considered as deductible under the Income Tax Act.
May I also add there something which I think we all know, namely that hospital bills are not the only ones incurred when one is ill. There are other medical bills. If there ever is a time when a person needs help, it is when he is in ill health. Medical bills can actually break a person. Surely we can give them a financial break on a hospital basis and maintain the old system of deductibility-on the present basis there is discrimination and you cannot get away from it- until such time as this government or a future government has the vision and the courage to institute national-provincial medical health insurance coverage for all the people of this nation.


Donald Methuen Fleming: The hon. gentleman has in effect asked the government not to amend this present budget proposal but to undertake the amendment of the Hospital Insurance and Diagnostic Services Act. Let me, if I can, clarify the purpose of the right to deduct expenses incurred by way of medical costs. Here is a sentence I used in the budget speech as found at page 2421 of Hansard:
The exemptions granted under the Income Tax Act for medical expenses are clearly intended to
Income Tax Act
relieve the individual taxpayer who has a burden of unusual medical expenses.
Under the Hospital Insurance and Diagnostic Services Act, under the scheme of federal contribution to the cost, the proportion that the federal government contributes of the total cost in any province varies from province to province. Surely we cannot be expected in a budget resolution to change that situation and place all provinces on an even footing. For instance, I think the highest proportion that the federal government contributes is in the case of Newfoundland which receives from the federal government substantially more than 50 per cent of the cost of the provision of hospital insurance and diagnostic services. Other provinces, such as the one from which the hon. member comes and Ontario, do not receive as much as 50 per cent.
But here we are dealing with a tax resolution and the tax resolution is perfectly equitable in its application. The fact that the people of any particular province as a whole choose to have a greater social benefit is, in my respectful submission, no argument that they should be entitled to claim an income tax benefit when they collect the social benefit. Here we are dealing with a situation created by a federal statute and the method here proposed is an equitable proposal in dealing with the tax problem with which we are now confronted.


Harold Edward Winch: May I ask a question there?


Donald Methuen Fleming: Yes.


Harold Edward Winch: I am speaking of my own province. In view of the fact that in British Columbia the federal government will be contributing 40 per cent, can a person going into hospital in British Columbia claim 60 per cent of his hospital costs as a reduction from income tax-


Donald Methuen Fleming: No.


Harold Edward Winch: -because you are paying only 40 per cent of the bill?


Donald Methuen Fleming: No.


Harold Edward Winch: They lose everything.


Donald Methuen Fleming: The fact that the federal government makes a contribution to that particular hospital bill under the provisions of the Hospital Insurance and Diagnostic Services Act will, under this proposal, have the effect of eliminating that particular hospital account from the deductible medical expenses.


Mr. Robichaud:: I want to join with the hon. member for Bonavista-Twillingate and the hon. member for Vancouver East in protesting strongly against the inclusion of this

Income Tax Act
amendment in the Income Tax Act. The province of New Brunswick will be directly-affected by the amendment. In fact, in order to cover the province's share of the hospital insurance scheme, the citizens of New Brunswick will be obliged to pay $50 per year per family and those who want to retain the supplementary hospital benefits to cover the semi-private rate under the Blue Cross system will be obliged to pay another $30 a year, making a total of $80. Under the old plan before the hospital insurance scheme came into effect, or as it is now until July 1 when the hospital insurance scheme will come into effect in New Brunswick, under the Blue Cross system a family pays a total of $72 a year, which is $8 less than they will be obliged to pay when the hospital insurance scheme comes into force. Under the present scheme they are allowed to deduct medical expenses exceeding three per cent of their net salary, an advantage which they will not have under the new system.
Notwithstanding what the minister has just said, I assert that this amendment is an injustice to the taxpayers of New Brunswick. It deprives them of a privilege which they now enjoy under the present system. If the minister wants to be logical and if he still wants to insist that the share paid by the federal government should not be deductible, the residents of New Brunswick should at least be allowed to deduct 50 per cent of their medical expenses over and above the three per cent of their net salary, which would be the same as they are at present allowed under the Blue Cross system. The present amendment, if accepted, will create an additional burden for a large percentage of the taxpayers of New Brunswick. Again I wish to protest against this amendment. I think it should be withdrawn or at least amended in order to affect only the federal share of the amount paid to hospitals and be in agreement with the arguments advanced by the minister.


William Hector McMillan: Mr. Chairman, I appreciate the difficulty the department has in dealing with paragraph 3. It is pretty hard to see how the department can treat people fairly in all provinces when they pay different premiums. I think the minister announced a while ago, if I understood him rightly, that premiums were not deductible. For example, in Ontario we have to pay a premium, and I would like to ask one question at this point. Supposing a person in Ontario took out an insurance policy for which he paid a premium of $50, the approximate amount he has to pay in this participating scheme. If he had a bill of $200, would he be able to
[Mr. Robichaud.l
deduct it? If it was taken over, he would not be able to deduct it.


Donald Methuen Fleming: Mr. Chairman, the deductibility, where it applies, applies only to the hospital account not to the premium. It has never applied to the premium. If the hospital account is one to which the federal government makes no contributions under the provisions of the Hospital Insurance and Diagnostic Services Act, then of course that hospital account is deductible in full as a deductible medical expense. On the other hand, if it is an account which is paid under the provisions of that act, then it will not be deductible.
As to the point raised by the hon. member for Gloucester, I think it is well to keep a sense of proportion in these matters. The federal government this year is putting up no less than $160 million as its share of the cost under the provisions of the Hospital Insurance and Diagnostic Services Act. This present resolution will take away from the taxpayers this year the right to make deductions which are estimated to be worth to them $3 million; or in a full year, to be worth $9 million. As I say, we must keep a sense of proportion in relation to the situation before we look at this resolution out of all context and perspective.
When the hon. member for Gloucester speaks-


Harold Edward Winch: Could I ask a question at this point?


Donald Methuen Fleming: If I may be permitted to finish first. When the hon. member for Gloucester speaks about the people of his province of New Brunswick being entitled to deduct their hospital premium, I might point out that the people in the adjoining province of Nova Scotia do not pay an individual premium but are obliged to pay a provincial sales tax in order to provide the means of financing the provincial share of the hospital insurance in that province. If the hon. member remembers that he will realize that the scheme we put forward in the present resolution is the only one which is capable of equitable application to all the provinces.


Harold Edward Winch: Mr. Chairman, may I now ask a question. In view of the fact that under paragraph 3 we are dealing with the ill health of people, which means heavy financial responsibilities, could I ask the minister why he deems it necessary to make the scheme retroactive?


Donald Methuen Fleming: Well, you have to have a starting point, and January 1 is the logical starting point. Otherwise you have a broken period during the year. You would

have a year for medical expense deductions different from the year in respect of which you calculate the income.


Harold Edward Winch: Then how does the minister explain that in certain other cases which he has in mind he is starting them in July and not in January?


Donald Methuen Fleming: In the case of commodity taxes they always become effective at midnight on budget night. In the case of income taxes, normally a convenient date is selected, as for instance January 1 or July 1. In the case of some of these income taxes we have made them effective July 1, in other cases January I.


Harold Edward Winch: In view of the fact that the minister is making some effective July 1, as much as I oppose the entire principle here, is there any reason why this one should not be July 1?


Donald Methuen Fleming: Mr. Chairman, this tax applies to the individual, and for the individual the tax year is always the calendar year. Therefore it is only proper that this provision should apply from January 1. We are not going back to 1958. That might have been proposed, but we are proposing rather to start on January 1.


Harold Edward Winch: How about January 1, 1960?


Donald Methuen Fleming: Then you would be carrying on a discriminatory and quite unworkable situation, because in some provinces you have the situation which I talked about where the provincial share is paid by means of a sales tax. In other cases the provincial share is paid by an individual premium, and as the national system of hospital insurance came into effect for most provinces during various periods in 1958, I think it is clear that the convenient, appropriate and proper date to bring this change into effect with justice to all provinces concerned is January 1, 1959.


Hédard-J. Robichaud: Is the minister aware that in the province of New Brunswick after July 1 the residents will have automatically to drop the Blue Cross scheme and will be called upon to pay $8 more than they were paying before this scheme came into effect, and this notwithstanding the contribution of $160 million from the federal government? So it is certainly of no benefit to the residents of New Brunswick who were contributing to the Blue Cross scheme.


Joseph Pierre Albert Sévigny: Does that conclude discussion on paragraph 3?


William Moore Benidickson: Mr. Chairman, I know the Minister of Finance gets as tired as I do about referring to some of our back debates, but the minister was always one who had some doubt as to the merit of even having 66968-9-209
Income Tax Act
in our income tax this 3 per cent saving clause. We apparently will continue to have it, but under new circumstances. I suggest to the minister that perhaps he should look back upon his former pronouncements advocating the elimination of this so-called floor. I am not going to put it on Hansard today but I would like to direct his attention to what he had to say on August 6, 1956 in this regard, where he advocated the elimination of the 3 per cent provision, and also felt that a greater number of particular drug items should be considered by the income tax administration with regard to income tax deductions.
Mr. Chairman, the thing which prompts me to draw this to the attention of the minister at the moment is that I think we should all recognize that if in a majority of cases the actual cost of hospitalization itself is no longer to be regarded as a portion of this over-all cost to the taxpayer on medical expense, perhaps the minister should take a further look at his ideas to the end that with regard to the items of entitlement he should be more generous than he has been hitherto.
I welcome the next paragraph and I do not wish to intrude on the rules by referring to it in detail. May I point out, however, that some items are being added to that restricted list that are entitled to consideration in the matter of an expenditure for health purposes by a taxpayer. If the actual cost of hospitalization is to be disregarded I suggest that this perhaps might reinforce the argument the minister himself used on this side of the house some years ago to the effect that there should not be any restriction at all with respect to the total of medical bills.
When we add under circumstances such as are being advanced to us now the elimination of something very big affecting nearly all taxpayers on the one hand, and then add something applicable to the odd individual such as is the case in the next paragraph, important though it may be, I think we are not arriving at a solution that is realistic. I suggest to the minister that he should have another look to see whether or not the premiums themselves should not be an item that is regarded as a tax deduction in aggregate.
I suggest that the floor of 3 per cent, or whatever it is called, should have another look taken at it. The minister always advocated this over the years. There is all the more reason for doing it if hospital bills are to be disregarded because they are the major item in the calculation of a taxpayer's expenditures in this realm in a calendar year.
I wonder if the minister would care to indicate to the committee whether or not this

Income Tax Act
has been given consideration when he is disallowing the items that would be most important for perhaps 95 per cent of claimants, namely hospitalization charges in provinces which receive some form of federal government assistance in the payment of hospitalization costs.


Donald Methuen Fleming: Mr. Chairman, I should like first to observe that the point raised by the hon. member for Kenora-Rainy River with regard to the 3 per cent has no bearing whatever on the question we have been discussing and which is the purpose of the resolution, namely to determine that certain hospitalization costs to which the federal government contributes under the provisions of the act that is named shall not be deductible.


William Moore Benidickson: Mr. Chairman, may I be permitted to ask the minister if he does not agree that in past years he voted for the elimination of this?


Donald Methuen Fleming: I am coming to the point about the 3 per cent. I am observing in the first place, Mr. Chairman, that the point raised has nothing whatever to do with the question we have been discussing here. It has no bearing whatever on the third paragraph of this resolution or the proposal contained in it.
As to the 3 per cent I would observe this. I have not forgotten what was said in former years but in a year when it is necessary to increase the income tax it is obviously quite impossible to consider changes of the nature proposed by the hon. gentleman.
On the third point, however, I may say that we have been moving steadily last year and this year toward the enlargement of the scope of the definition of deductible medical expenses. Last year you will remember that we introduced three very substantial additions to the list of medical expenses: prescribed drugs, eye glasses and ambulance charges. Three important additions indeed were made to the list and there were included certain other aids required by disabled persons.
In the next paragraph to which I trust we will be coming shortly we are proposing a further enlargement of the definition of deductible medical expenses as applied to certain aids for persons suffering from certain disabilities.


William Moore Benidickson: That was just my point, Mr. Chairman. I have here Hansard of June 17, 1958, including the resolutions that the minister had in mind last year which were in a similar category, at which time there was some enlargement of the particular items

that would be considered for tax exemption in aggregate. My point was that if you take away the base which for most people would be hospital expenses, these resolutions of 1958 and the one contained in paragraph 4 to which we will be referring, really have little point or merit.


John Whitney Pickersgill: Mr. Chairman, the minister said that this paragraph had to be put in and that this change in the act had to be made to avoid discrimination. That is just nonsense. There is no discrimination at the present time. Nothing the minister has said has removed from my mind the feeling that this is introducing a discrimination between the privately insured person and the publicly insured person and I believe the minister confirmed that by his answer to the hon. member for Welland when he said the hospital bill of the privately insured person would be deductible in full and the hospital bill of the publicly insured person would not. This is purely and simply a device for getting extra revenue and it should be recognized as such. All this talk about discrimination has nothing to do with the case.


Donald Methuen Fleming: Mr. Chairman, the hon. member was never more mistaken in his life than in his concluding remarks. This has been approached on the basis of a facing up to a problem which has arisen and which has to be settled now in view of the fact that this federal statute has now come into effect involving various dates with respect to different provinces. The decision has to be made now. It is not made as a means of increasing revenue but as a means of grappling with a problem which if not faced up to would leave a chaotic situation with different rules applicable to different provinces.


John Whitney Pickersgill: That is utter nonsense
and the minister knows it, or at least should know it. If he does not know it he should not be Minister of Finance. There was no discrimination or difficulty so long as all hospital bills could be deducted if they came within the rules. The fact that the scheme started at different times in different provinces has nothing to do with the case and the method by which it is paid for has nothing to do with the case.
Once the principle is admitted that a person can insure against this risk and still submit his hospital bill, then if one kind of insurance enables you to make a claim under the Income Tax Act and the other does not, there is discrimination. It does not matter whether you pay a 5 per cent sales tax as you do in British Columbia where you pay a great deal more for hospital insurance than in some other provinces or whether you pay

your own bills as you do in Quebec, the plain fact is there is no discrimination as between taxpayers as long as everybody everywhere in Canada is allowed to deduct his hospital bill. That is a simple, common, universal rule and that is the law now. The only possible legitimate excuse for doing this is to get more revenue and if it gets no more revenue I think the minister should drop it. I am perfectly sure, however, that it will get considerably more revenue. For the minister to get up and create all these ridiculous smokescreens that have nothing to do with the facts surrounding this situation seems to me to be an insult to the intelligence of hon. members of the committee.
Paragraph 3 agreed to.
On paragraph 4.


Harold Edward Winch: Mr. Chairman, I should like
to have my medical knowledge added to. Would the Minister of Finance be good enough to explain to me what iliostomy and colostomy pads are? I am sorry but I do not know what this is all about.


Donald Methuen Fleming: The iliostomy and colostomy pads referred to here are pads used in the course of post-operative treatment particularly in cancer cases.


Harold Edward Winch: Thank you. I should like
very sincerely to ask the minister to make a change in this paragraph. Part of the paragraph reads: "-and rocking beds for poliomyelitis patients be included". I want to assure the Minister of Finance that those rocking beds are most certainly of great value to those who suffer from poliomyelitis; but because of my interest in these matters I can assure him from my own personal knowledge in British Columbia, and in Ontario, that rocking beds have a most useful therapeutic value and are perhaps used more by those who suffer from rheumatoid arthritis and rheumatic and arthritic conditions. I am sorry that our doctor member from Welland and others are not in the committee at the moment. It is my opinion that these rocking beds are used more by those who have rheumatic and arthritic conditions than they are by those who suffer from poliomyelitis.
I rise, not so much because of my own study of this matter but in the past few years I have had the matter brought very much to my attention. The therapeutic value of the rocking bed to those who suffer from arthritic conditions, and especially rheumatoid arthritis, is a wonderful medical advance which has been made in recent years. I ask the Minister of Finance whether he would bring in an amendment and not restrict the deductibility of the cost of those 66968-9-209J
Income Tax Act
beds. I know that they are expensive and I would ask that he extend the deductibility beyond those who suffer from poliomyelitis and add it to those who have rheumatoid arthritis or something of that serious nature. I hope the minister will take it into consideration.


Donald Methuen Fleming: Mr. Chairman, I wish to be quite sure that the hon. member is actually referring to rocking beds and not to vibrators in various forms. I know vibrators are used in connection with the treatment of certain forms of arthritis; but when this resolution was drafted our understanding was that the rocking bed was used as an ancillary to the iron lung as a means of assisting the breathing of the poliomyelitis sufferer and that is the reason it appears in this form. We can look into it and see whether the rocking bed is used for other patients but our understanding when this provision was drafted was that the rocking bed was used, as I said, for poliomyelitis patients and those alone.


Harold Edward Winch: No sir.


Donald Methuen Fleming: We can look into it, Mr. Chairman, before the bill is introduced.


Harold Edward Winch: I was using the rocking bed as a layman's term. I was not referring to it in connection with the iron lung. I was referring to an actual complete bed which is now available in Canada and also in the United States about which I myself know a great deal. The layman's term is a rocking bed, because it is a full length, stretch out bed. You may call it a vibrator if you like; I do not care what you call it. All I ask is that the minister take it under advisement and include it as an exemption under the Income Tax Act, because I am certain that it is going to come more and more into use and it is going to help more and more those people who suffer from arthritis. I know, sir. My mother died just a few weeks ago and I know what this kind of thing means to many arthritics. They are expensive. I would ask that consideration be given to including it in the deductions.


Donald Methuen Fleming: I have already indicated we will have a look at this before the bill is introduced.


Mr. Mitchell:: Mr. Chairman, I want to commend the department and the minister on adding these five or six further items which are deductible for income tax purposes. I should also like to draw the attention of the department to something else which I think could be included in this same group. As you know, sir, such a medication or preparation

Income Tax Act
as insulin for years has been a deductible product and it still is. Of course, along with insulin a diabetic has to use certain other types of medication, shall I say, or testing apparatus. They have to use this in the control of the disease. I am speaking particularly of testing tablets and testing tapes which are used for the purpose and actually have to be purchased by a diabetic. When they come into my pharmacy they cannot understand why I can give them a receipt for the insulin but I cannot give them a receipt for those testing tapes or testing tablets which they have to use every day in urinalysis tests for testing the albumen as it is deposited. They also have to use a hypodermic needle in the administration of insulin, which they feel should also be deductible. They also go so far as to say that the dietary scale which they have to use to measure their portions of food possibly to even up their intake and also to help in the control of this disease should be deductible. I feel that these people are worthy of consideration because of the types of medication or testing apparatus they have to use. I think I can speak from knowledge. If there were any hon. gentlemen in the house who are members of the medical profession I think they would agree most wholeheartedly with what I have to say. Any preparations along this line, Mr. Chairman; I can think of two-possibly there are more-at the present time, two types of tablets which are prescribed by the medical profession for beginners who may eventually become diabetics. You might say that the beginners are diabetics. The tablets to which I refer, and which are being prescribed by the medical profession to patients who come to me, are called orinase and mobenal. Both appear in tablet form and are taken by mouth.
I can give an insulin user a receipt for income tax deductions but I cannot give a receipt to the users of those tablets for income tax purposes, because the act specifies insulin and insulin alone. I would ask the minister to consider this because I feel it is necessary. The people who take these tablets may eventually have to go on to insulin but at the present time they are helped by the use of these tablets. I bring this to the attention of the minister. I feel it could be easily added or the act could be changed so that the testing apparatus for the diabetic and also the new tablets which are being prescribed could be deducted.


Harold Edward Winch: May I add a word to that? I am glad that a member of the pharmacy profession has raised this because I have also been asked by citizens from Vancouver to raise the identical matter. Medical science

progresses but unfortunately costs in many instances do not come down. There is a trend now from using a needle to taking the medicine orally but it is still very expensive. The diabetic still has to have his dosage whether he gets it by needle or by mouth. I want to add my voice to what has been said by the member who just spoke. Why does the Income Tax Act say that if you take the drug by needle the expense can be deducted but if you take it by mouth, even though it is for the same purpose, it is not deductible? The whole attitude is completely ridiculous and asinine and I hope the minister will bring in the required change. I am certain, as the hon. member has just said and as every medical man will say, that it is a logical and reasonable request.


Donald Methuen Fleming: The remarks of the hon. members have been noted and, of course, these subjects are being studied from year to year. I do point out, however, that with respect to hypodermic needles or some of the other means of administering insulin or other medicaments hon. members will require to bear in mind that these needles are capable of use for other purposes as well quite outside the purposes of this section, and care must be taken in these respects not to introduce into the definition of medical expenses various medical appliances that are capable of other uses.


Harold Edward Winch: I am very sorry that the Minister of Finance spoke in that way because the remarks made by the previous speaker and myself dealt wholly and solely with diabetics. Prescriptions for diabetes must be obtained from a doctor whether the medicine is to be administered by a needle or taken orally.


Donald Methuen Fleming: If it is a doctor's prescription it is within the scope of the definition now, but we have had representations respecting the inclusion of needles and means of administering hypodermic injections and there we have been up against the situation that such appliances are capable of other uses as well. We are considering these matters all the time.


Harold Edward Winch: It takes so long.


David Rodger Mitchell: Objection has been taken to hypodermic needles and I agree with the minister that we sell them for many other purposes as well. But I should like him to consider particularly the testing that is necessary for the diabetic. Without having a test he does not know what is the proper amount of insulin to take. The other point I should like to emphasize has to do with these tablets taken by mouth. They are not deductible

because the act refers to insulin but while they are not insulin they are used for the same disease.


Donald Methuen Fleming: That will be looked into.
Paragraph 4 agreed to.
On paragraph 5.


William Moore Benidickson: I think perhaps it would help us if the minister would amplify his intentions with respect to this paragraph. I know that there will be details in the bill but the language of the bill is always very complicated.


Donald Methuen Fleming: Paragraph five of the present resolution provides that in future an individual will not be required to include in his income any lump sum that he receives out of an employees' pension plan upon severance of employment to the extent that he uses that lump sum payment within the year or within sixty days after the end of the year as a contribution into a new pension plan or as a premium under a registered retirement savings plan. If an employee leaves his employment where he has been a member of a pension plan he usually receives a lump sum representing the return of his contributions into the pension plan. This lump sum payment may also contain all or part of the employer's contribution into the pension plan.
Under the present law this lump sum payment is liable for tax in the year in which it is received and it is because we consider that inequitable that we are moving now in the terms of paragraph five. In those cases where the employee transfers from the pension plan of a former employer to that of a new employer and there is a direct transfer of all the funds to the credit of the employee from the former employer's pension plan to that of the new employer, the Department of National Revenue has not in practice regarded the transfer to be a payment to the employee and consequently no tax problem has arisen. But in cases where there is no direct transfer from the former employer to the new employer it is quite clear that difficulties are going to arise before very long, and that is why we are moving now to make this provision that where, in the terms of paragraph five, an amount is received out of a pension fund or plan upon withdrawal or retirement from employment or upon the winding up of the fund the individual is not required to include in income the portion of the fund that is paid in the year, or within 60 days after the end of the year, as a contribution to a registered retirement pension fund or plan or as a premium under a registered retirement savings plan. In other words, to the extent that he uses the withdrawal from the
Income Tax Act
fund within that year or within 60 days of the end of the year by putting it into a new pension plan, whether it is a pension plan under a new employer or one of the registered retirement savings plans, then that sum withdrawn is not going to be regarded as income.


William Moore Benidickson: That seems to have merit. In addition, has it some element designed to encourage mobility of labour with respect to pension plans and so on?


Donald Methuen Fleming: I will not say that it will encourage mobility but it will mean that an individual who wishes to change his employment will not, to the extent that he brings himself within this new provision, forfeit his tax position. As long as his contribution was in the fund he was not taxable but if on severance of employment he withdrew his share of the fund, which might include something from the employer, and it did not go directly into the new fund, he would be liable to tax on that withdrawal as the act stands today.


Harold Edward Winch: I must say that we most certainly welcome this change in the act as explained by the minister. We sincerely hope that this is only a first step. We trust it is an indication that the department and the government have recognized the importance of introducing new legislation with respect to portable pensions. I have no hesitation in saying that one of the next steps in the realm of security in Canada should be to deal with portable pensions because in some provinces in particular people go from one industry to another, one job to another, and as a general rule they have up till now lost all their pension rights.


Donald Methuen Fleming: Will the hon. member permit me to say that I am afraid this is a matter beyond federal jurisdiction. We can deal only with the question of pension rights so far as taxes are concerned, but when it comes to questions of rights of individuals in pension plans that obviously is a matter of property and civil rights and under provincial jurisdiction.


Harold Edward Winch: I would not deny the influence of the federal government or the Minister of Finance when, in the House of Commons at this session, he introduces an amendment to the Income Tax Act giving an indication that the transference of pension funds is a good thing. He says that under certain circumstances, as Minister of Finance, he is not going to include it for income tax purposes, and this will help a person build up his own future security. I think it is a good rule. I hope it is an indication of the recognition of portable pensions. I hope that since the Minister of Finance has now made his move

Income Tax Act
the provinces will follow suit with the additional legislation required.


John Whitney Pickersgill: I wonder if the minister has any figures to show how many persons are taking advantage of that admirable provision which was made by Mr. Harris in his last budget for these retirement savings plans for the self-employed?


Donald Methuen Fleming: There are no statistics available at the present time. It may be that some will be available by the end of the year, based upon a sampling of the 1958 returns.
Paragraph 5 agreed to.
On paragraph 6.


William Moore Benidickson: On No. 6, Mr. Chairman, would the minister outline to the committee what has been the practice of the administration in the absence of the proposed law?


Donald Methuen Fleming: The current practice simply conforms to the provisions of the old section 139, subsection (1) (j) (ii). This is the provision in the interpretation section of the act that is applied to death benefits, and in effect it permits payment by the employer, without income tax liability, of an amount equal to the remuneration of the officer or employee, to his widow or legal representative of a sum equivalent to his remuneration for the last 90 days in the office or employment. I think my hon. friend is familiar with this provision. It has been in the act for some time. It is the one that was inserted originally to give encouragement to the payment by employers on the death of an employee or officer of a sum not exceeding the equivalent of three months' salary or remuneration as a recognition of services rendered in the lifetime of the deceased employee.


William Moore Benidickson: Now this amount would be limited to $10,000, regardless-


Donald Methuen Fleming: Yes, but we are
proposing to enlarge the three months' period to twelve months. If the house approves of this proposal, we will place an over-all ceiling of $10,000 on the payment so that advantage will not be taken of this in the case of persons with very large salaries. For instance, at the present time it is possible, under this three months' provision, in the case of a senior executive of a large corporation, let us say with a salary of $100,000, to make tax free a payment of $25,000. We are proposing to enlarge this provision laterally in order to benefit more people and encourage the making of provision in proper cases by an employer for the widow or dependents of a deceased employee, up to 12

months' salary, but in doing so we think it proper to propose that a ceiling of $10,000 be placed on the total.


William Moore Benidickson: In other words, if the law was not to be evaded, a retired employee would have to provide evidence of departure from the business concerned-


Donald Methuen Fleming: No, this applies only in the case of his death.
Paragraph 6 agreed to.
Paragraphs 7 and 8 agreed to.
On paragraph 9.


Donald Methuen Fleming: I indicated earlier there would be an amendment here. Several days ago I gave a copy of the proposed amendment to the hon. member for Kenora-Rainy River and the hon. member for Assini-boia. I will ask my colleague the Minister of National Defence to move the amendment, which is as follows:
That paragraph 9 of the Income tax resolution be amended by adding thereto the following words:
"or in the case of corporations incorporated prior to April 10, 1959 that did not have a 1958 taxation year, that so qualify for the first fiscal period ending after 1958."
This paragraph will now read:
9. That the privilege of qualifying as a foreign business corporation be withdrawn except for those corporations that were so qualified for the 1958 taxation year or in the case of corporations incorporated prior to April 10, 1959 that did not have a 1958 taxation year, that so qualify for the first fiscal period ending after 1958.


George Randolph Pearkes: I so move.


William Moore Benidickson: This particular amendment is one about which people with much more knowledge in this field than I have have expressed some surprise after reading about the minister's intention. I think we should have the fullest possible statement from him as to the advantages of the amendment. Even a week ago the Financial Post described this amendment as an enigma; they just could not understand the merits of it. I assure the committee and the minister that I am very naive in matters of this kind.
In order to explain properly to other members of the committee who may have similar difficulties to mine, all I can say is that I am familiar with such well known Canadian corporations as Brazilian Traction and some others who perform no active business in Canada but have their incorporation here in Canada. They have officers and head offices and the like in Canada, but hitherto they have not been subject to the normal rules of taxation because they are not competitive businesses in our country. The thing that has concerned me after a reading of this resolution is that corporations of this kind,

whether on a large scale or small, having their business headquarters in Canada, with personnel who perhaps have a Canadian background and which contribute something to the commercial life of this country but without competing with other Canadian corporations-I can think of accountants, lawyers and even individual employees at the head office level-have been encouraged to establish in Canada.
When I find myself in association with the Financial Post in saying that they are in complete ignorance of any reason for this kind of amendment to the law; when, on the face of it, one would have thought we had some advantages to gain and we cannot see the advantages of changing the past set-up, I think a full explanation is due the committee from the minister and I am sure he will give it.


Donald Methuen Fleming: Gladly, Mr. Chairman. This resolution is designed to introduce changes in the provisions of section 71 of the act. Section 71 of the Income Tax Act provides:
71. (1) No tax is payable under this part upon the taxable income of a corporation for a taxation year when it was a foreign business corporation.
No corporation is incorporated in the first instance, whether under federal or provincial charter or letters patent, which is to begin with a foreign business corporation; but under quite detailed rules that are laid down in section 71 in its various clauses it is possible for a corporation to qualify in a tax sense as a foreign business corporation. If it does so, it obtains great tax advantages under the act. For instance, it has no corporate income in Canada subject to the normal corporation income tax here because its income is earned outside of Canada. In the ordinary case, unless this corporation pays a dividend to a non-resident corporation which controlled its stock-in which case there would be a five per cent tax deducted-there would not be any revenue accruing to the federal treasury from this particular company, expect to the extent to which it may employ a few people in its skeleton organization and some personal income tax is collected upon their salaries. But so far as the corporation is concerned, unless it pays a dividend to the parent corporation abroad, the Canadian government collects no tax from this corporation.
As the hon. member for Kenora-Rainy River has indicated, it is quite true that there are some important and highly regarded corporations which, under the Income Tax Act, are regarded as foreign business corporations. They have qualified. But, Mr. Chairman, we are concerned lest the provisions of
Income Tax Act
section 71 should be used either to create in Canada a tax haven or as a means of tax avoidance. I am not saying that is being done at the present time but from our studies of the section and its quite detailed provisions we are concerned lest in the future advantage should be taken of certain features of the provisions of section 71 for these purposes. Therefore we have approached this matter on the basis of not taking away from any existing corporation any rights it has in this respect. We began by saying that any corporation that had qualified as a foreign business corporation up to the end of 1958 would be entitled to enjoy in the future the same benefits as it enjoyed prior to the budget as a foreign business corporation.


William Moore Benidickson: And you have amended it as of budget night.


Donald Methuen Fleming: Then the question arises as to what happens in the case of a corporation that may not have been incorporated before 1959, or may not have yet qualified in respect of its fiscal period commencing in 1958. That is the purpose of the amendment, namely to make sure that we are not taking away anything that any corporation may have acquired by way of right up to the moment of the introduction of the budget. Therefore, in the result, the resolution in amended form takes nothing away from any existing corporation which may have qualified. Second, it takes away from no existing corporation any right or opportunity that it may have to qualify in respect of the business it was doing up to the date of the introduction of the budget or the next day following. We are therefore taking nothing away from anybody. There is no retroactive operation whatever in this intended provision. By closing the class now under the existing provision we are taking what we regard as a desirable step to prevent use being made of the section in the future for either of the two purposes with which we are concerned.
Our study of the situation is not going to end with the adoption of the resolution or the bill if the committee approves it. We intend to go on studying this situation. But it is requisite, Mr. Chairman, that during this period of study we should make sure that when people are put on notice we do not have a flood of people coming in seeking to qualify in this period while the matter is under study. I think my hon. friend will agree that when we are not taking anything away from anybody, in order to permit unimpeded study of this problem to proceed the class be closed now. I again emphasize the fact that we are not taking away from any corporation anything that it

Income Tax Act
has today. We are taking nothing away from it as to its right to qualify during this period of 1959 up to April 10.


William Moore Benidickson: I appreciate what the minister says when he makes the point that there is nothing retroactively damaging to existing corporations in the resolution proposed. But I again come back to the point that I do not understand the merit to the crown or to the country. What harm are we trying to avoid from past practice? I see nothing but advantage in the few instances that have come to my attention. I think it is a matter of pride for most Canadians that a company like Brazilian Traction calls itself a Canadian corporation. I am not complaining about any of their policies. I am not familiar with them. We know it is a large enterprise abroad. The situation is rather the reverse of one that we sometimes complain of, namely that we have foreign corporations of too much magnitude running things in our country. It shows that Canadians are prepared to invest and take an interest everywhere in the world. I have no intimate knowledge of one or two of these illustrations, but within the last few days or so I have been told that it has been to the advantage of, shall we say, a parent Canadian oil company which has no intention of utilizing its Canadian business operations in world trade; but because of patriotism and connections, shall we say, in some of our cities and associations with lawyers, accountants and professional men expert in the oil business residing in our country, they have felt that if they were to expand it was desirable that they have a Canadian corporation that would be operating exclusively outside this country and entitled to the very thing that has built up some of these other countries. What is the advantage of that?
I have also heard about certain international trading organizations that I think we would want to encourage. We want Canadians to be internationally-minded, and so on, and I am told that some enterprising Canadians who have substantial main enterprises in Canada still, being sufficiently Canadian-minded, decided if they were going to expand their international or worldwide activity they would like to see that new corporations have a Canadian charter, even though its business would be entirely outside of this country. I am persuaded that an enterprise of that kind initiated by Canadians is of benefit to Canada. I am persuaded that it does give employment to a number of ancilliary performers at the head office level, but I just have not had from the minister, as I see it, any explanation of the deleterious effects, if any, which have

come to this country or to our tax position from the companies which admittedly are not going to be affected but which have carried on in this way with Canadian head offices in the past.


Donald Methuen Fleming: I am not suggesting for a minute that any Canadian corporation that has qualified as a foreign business corporation has abused the law in any respect whatever, but I know my hon. friend would not expect me to enlarge on the subject of how this section of the act in its present form might be used by someone as a means of maintaining in Canada a tax haven or as a means of avoidance of tax. I do not wish to enlarge on that subject here at this time; I think the reason is obvious.
Our approach, therefore, is this-and this is repetition. We do not take anything away which anybody has now, but we are saying that in this forthcoming period we are blocking any possibilities of the section being put to a use that parliament may not have intended. In this period we will go further with our studies of the matter.
In the meantime I think my hon. friend will recall that there is no yield from such corporations to the federal treasury whatever. Because their business is carried on abroad in order to qualify as a foreign business corporation there is no corporate income tax payable by them to Canada.
My hon. friend put the case of a Canadian parent corporation setting up such a corporation in Canada. In that case if any dividend is paid by the subsidiary, which is the foreign business corporation, to the parent, there is no tax on the dividend. I put the other case where a foreign corporation-a parent corporation abroad-chooses to form in Canada one of these foreign' business corporations; in that case there would be a 5 per cent tax withheld for the benefit of the Canadian treasury from dividends payable by the Canadian subsidiary to the parent corporation abroad. But if it is a Canadian parent corporation forming this corporation in Canada, there would be no tax deduction at all.
Therefore, this is a very important tax concession. Any corporation can, if it qualifies as a parent business corporation under section 71, derive thereby important tax advantages, and while there may be advantages to Canada in terms of employment of a few people at head office, in many cases simply a skeleton staff and no more, we think that before we should allow this situation to continue where we have concern about the possibility of the section being used in the two ways I have indicated we should close the door now and

leave it closed until another form of legislation is introduced which will not be capable of being misused in either the two ways I have indicated.


William Moore Benidickson: Mr. Chairman, I am by no means satisfied. The minister indicates that anybody who so far is incorporated and given the tax arrangement that he thinks should be denied in the future has not particularly abused the situation, but the minister has given me no instance of where it has resulted in some loss to the treasury. He is now proposing to do something new. Obviously, then, any little advice which he gives to this committee about the opportunities open to these people will not affect them. He has a big majority behind him and he will probably put through this proposed change in the legislation. But I do think that without naming any companies or anything of that kind he should indicate to this committee what is the possible loophole or loss-


Donald Methuen Fleming: Mr. Chairman, I have tried to do that. I say that under the terms of the present act there is a possibility that it can be used as a tax haven with no benefit to Canada, and it may also be used for tax avoidance.


William Moore Benidickson: Taking those last few words and sticking to them, can we not correct our present statute to avoid that without saying we should not have any more Brazilian Traction companies operating in Canada, or should not have any more of the international trading companies which I have heard about out in Vancouver trying to cultivate business in an admirable way for Canada in the Far East, and things of that kind where the operation is under Canadian leadership? That in turn is giving employment at the head office level at least to a great number of Canadians. I have not any personal experience with these corporations.
The minister and I have been engaged in this forum for some years and my experience in business has been as curtailed as sometimes his has been. But I am sure that some of our colleagues in the profession of law and some of the people we know in the accounting profession and others would feel that it is absolutely wrong to think that services which could be performed by companies of his kind who are doing all their business outside Canada would be forced to go, shall we say, to Indonesia or some other place to incorporate and make sure that down in Indonesia they used the accountants and lawyers and the other people. I do not think we have had an explanation from the minister.
66968-9-210
Income Tax Act


Donald Methuen Fleming: Mr. Chairman, I have tried to give it three times now, if my hon. friend will permit me to say so.
At six o'clock the committee took recess.


[Stage Direction]
AFTER RECESS

The committee resumed at 8 p.m.
John Whitney Pickersgill: Mr. Chairman, before this paragraph passes I think someone on this side of the house will have to take some exception to the very extraordinary principle enunciated by the minister in respect to this paragraph. If I may put what he said in my own words, the minister has told us that if the law were left as it is now some dire and dreadful things might happen but that we were not competent to know what those things would be, that they are so secret they must be kept from parliament and that we would have to adopt this recommendation on faith.


Donald Methuen Fleming: That is not what I said.


John Whitney Pickersgill: The minister can reinterpret or tell us what he did mean when he rises to reply. If the Minister of National Defence had come in and said that his department was doing in the national research council or the defence research board some very secret research work into a very secret weapon the committee might have accepted that, but for the Minister of Finance to come in here and say that if the law is left as it is it might result in Canada becoming a tax haven or it might result in tax evasion, and then to say "but I am not going to tell you how that could happen and you will have to accept it on faith", is to propose a doctrine that I believe is quite preposterous.
It is parliament, after all, that is being asked to pass this tax legislation. Surely members of parliament are entitled to know why the minister thinks there is this dreadful danger in leaving the law as it now is. He has told us absolutely nothing, has given us no information. He said we must accept on faith; father knows best.
This all-wise government-and here I am paraphrasing things that used to be said by the hon. member for Eglinton about the former administration-this all-wise, allknowing, arrogant government knows what is going to happen in the future and we are expected to take it on faith. As I understood it, that was the gist of the minister's argument for this proposed amendment. It seems to me that is something parliament should not be asked to do at all. We should

Income Tax Act
be told why this change is proposed. After all, there could be no danger because, as my friend the hon. member for Kenora-Rainy River pointed out before dinner, the government has a large enough majority so that it is quite sure that in the end, if it insists, this resolution will be passed and therefore the law will no longer be, if the minister has his way, in the state it was before. Therefore this argument of secrecy has no validity.
It seems to me that the minister should take parliament into his confidence and give us the information on which he is asking us to change the law that seems to have done no Canadian any harm and that the minister himself admitted has done no harm in the past. I submit it is his duty to inform parliament and that the minister should explain precisely what it is that he fears and what he feels is going to be against the public interest if he wants us to agree to change this part of the law.


Donald Methuen Fleming: Mr. Chairman, we have just heard a very finished demonstration of misinterpretation of what I had to say. I will go over the ground again in the hope that this time my words will be clearer to the hon. gentleman and there will be no possible danger of misinterpretation.
What I said, Mr. Chairman, was that section 71 is a quite complicated section. It has been amended by parliament in the past and the two dangers that after no little study of this question we see are that the section can be used, with no advantage to Canada, as an occasion for making Canada a tax haven for those who wish to come here and use this jurisdiction simply as a tax haven, and on the other hand that it may be used for tax evasion.
I do not think hon. members wish me to point out in this section where we see the possibility of these dangers. On the best advice available to the government and to the Minister of Finance in preparing these budget proposals there are possible loopholes in this section which might be used for these purposes. I do not think it is the wish of parliament that Canada should be used without any advantage to Canada simply as a tax haven for those who do their business abroad or that it should be used in any situation for the purpose of tax evasion. That is the situation expressed quite simply.
The resolution in the amended form that is proposed takes nothing away from any corporation that has acquired rights under it or that has in respect of the period since the first of this year found itself in circumstances where it might qualify in respect of its 1959 taxation period. Those rights remain untouched by this proposed resolution. We are

proposing, however, that the right to qualify as a foreign business corporation should not accrue hereafter to any corporation which has not already entitled itself under section 71 to be treated as a foreign business corporation or in the circumstances in which it has found itself since January 1 of this year has acquired the means of qualifying as a foreign business corporation in respect of this present taxation period.
We are asking the committee for that reason to close the door at that point because there is a very serious question as to whether any more foreign business corporations are going to be of any advantage to Canada anyway. The foreign business corporation by definition is a corporation that simply is incorporated here and carries on its business outside Canada entirely. Hon. members will observe this if they look at the provisions of section 71. Such a corporation becomes subject to no corporation tax here because it does not do any business in Canada but it enjoys the benefit of the laws of Canada and the protection of Canadian laws without paying us any revenue. We therefore think this situation is one that calls for some review and we propose that no more corporations not yet entitled to qualify as foreign business corporations should be in a position to do so hereafter until at least this whole situation has been carefully reviewed. That is the reason, Mr. Chairman, why a resolution is proposed which will if approved by the committee prevent more corporations coming into existence and acquiring these favoured rights under our income tax legislation.


William Moore Benidickson: Mr. Chairman, just before the dinner recess the minister indicated to the committee that from his point of view he thought he had explained to me three times the reasons for this proposal. I am no expert in this field, but during the dinner recess I made a number of inquiries among people whom I regard as having a great deal of experience in matters of this kind. They tell me that they are just as much in the dark as was the Financial Post for any explanation as to the reason for this tax change. I am told that they had the same general impression that I had, that while those corporations do not particularly pay taxes to Canada, they did seem to contribute in a broad way substantial advantages in that their head offices were in Canada. They have employees paying personal income taxes here and they could not think of a thing that was detrimental to Canada in the activities of the corporations that they were conducting.
I still have not got from the minister any indication of what loss, either in revenue, in integrity or in proper activity there is in

adherence to the law as we have had it up to now. While the minister brought up the question of some kind of security and not wanting to indicate loopholes to taxpayers either in the past or to come, he was completely disregarding the fact that every taxpayer of this kind has been protected up to this particular time and other taxpayers from this time on will be denied any right that they will regard as a loophole. What are those loopholes? What are those advantages to the foreign corporations that are disadvantages to the crown?


Donald Methuen Fleming: Let me give an example. Hon. members opposite wish to know the loopholes.


John Whitney Pickersgill: We want to know the reason.


Donald Methuen Fleming: They wish to know the loopholes that we see in this legislation. Let me give you a possible case, Mr. Chairman. Let us take a situation in which natural resources of Canada are involved in export. A foreign business corporation, we will say, is set up as a selling agent in connection with the export of some Canadian natural resource. The foreign business corporation, we will say, purchases from the Canadian producer at the going price and is able to sell at a very much higher price in the country to which the goods are exported because of the particular demand for the product there.
The profit that is made is not subject to tax in Canada and it is not subject to tax in any other country. When the time comes to distribute the profits of the foreign business corporation, let us say it moves its residence outside of Canada so that no tax is payable on the distribution of the profits. If we consider that the general rule is that residents of Canada must pay Canadian income tax on their income from sources in Canada and from sources outside Canada, I put it to the committee that it is just not proper that all taxes should be avoided in this way through resort to the expedient of a foreign business corporation.
Canada has tax conventions with certain foreign countries. In some of those conventions it is provided that selling agents of Canadian corporations operating in those foreign countries shall not be subject to income tax unless there is a permanent establishment such as a selling office or the location of salesmen who have power to contract in those foreign countries. Where the selling agent is set up as a separate company it might qualify as a foreign business corporation, take advantage of the tax convention 66968-9-210i
Income Tax Act
and also be free from tax in Canada. Therefore, you see, Mr. Chairman, that here you have all the makings of a situation in which Canada becomes a tax haven and where Canada derives no benefit whatever.
The hon. member for Kenora-Rainy River asks what harm are they doing if they set up an office here and employ a skeleton staff? They may not be doing any positive harm. The fact is they are enjoying very substantial tax advantages in Canada, and we think it is better, when those corporations in the situation I have indicated do not bring any advantage to Canada, they should not enjoy a special tax advantage. It would be very much better in those cases if such corporations were here not as foreign business corporations but were here and paid taxes in Canada in the same way as other corporations and individuals do.


William Moore Benidickson: Mr. Chairman, I continue to plead no great knowledge of the instances of individual companies but, as I said this afternoon, we do think of a large foreign corporation in Canada with which most of us are familiar, and I think of Brazilian Traction.


Donald Methuen Fleming: This will take
nothing from Brazilian Traction.


William Moore Benidickson: No, it will not because in their case you exempt them. But why are you preventing that happening in the future? I recall that under the Export Credits Insurance Act and some other legislation Canadians have enjoyed a great deal of employment and prosperity as a result of the interest in a company of this kind with headquarters in Canada doing business on foreign soil. This has been a great advantage to our economy. I do not speak at all for any particular officers of the company; they are better known to my friend than they are to me. Is this going to stop this kind of thing happening in the future? A Canadian organization with a Canadian head office formed a company which grew into large size and in recent years bought a tremendous amount of supplies from Canada because of the natural alliance that it had from head office.


Donald Methuen Fleming: May I remind my hon. friend that we are not creating any impediment in this provision in the way of incorporating any company that wishes to do business that way. Any such intended incorporation is as free to proceed to incorporation tomorrow as it was prior to the introduction of the budget, even if this resolution is adopted. But this is a question of whether a corporation in those circumstances shall be entitled to enjoy the very advantageous tax position that foreign business corporations now enjoy under section 71.

Income Tax Act
My hon. friend asks me about making changes. Well, this change that is now proposed in section 71 is not the first time that section 71 has been altered. I remind my hon. friend that an amendment was introduced to section 71 by the former government in 1955 when he was parliamentary assistant to the minister of finance. That amendment had the effect of narrowing the provisions in order to create one more barrier that any corporation must overcome in order to qualify. It was in 1955 that it was provided in clause 71 (2) (d) that the foreign business corporation was to derive not more than 10 per cent of its gross profits from the leasing or operation by it of a ship or aircraft. That is different in kind from what we are doing here but it is a sample of the way
iy>
1	will /\n h n trrt V*An*v nViQMrto^ T t
ill wiliv-ii tnw i uica nave k/ccri tuaii.guU.
cannot be pretended that the rules have not been changed hitherto.


William Moore Benidickson: I am not suggesting that.


Donald Methuen Fleming: What we are doing here, instead of changing the rules that apply to any existing corporation, is to say in effect that we are not going to make any change affecting them but we are going to say that no more corporations may qualify for the tax advantage. They can be incorporated, they can go into business, they can create in so doing any of the advantages to the economy of this country that my hon. friend sees accruing from the incorporation in Canada of a foreign business corporation.


William Moore Benidickson: What would the loss have been to the city of Toronto, from which my hon. friend comes, if Brazilian Traction had not had its head office in Toronto in recent years?


Donald Methuen Fleming: My answer to that is that we take nothing away from any corporation that has qualified.


John Whitney Pickersgill: But you prevent anything like that happening in the future.


Donald Methuen Fleming: Not for all time. There are a number of these corporations in existence now and the issue here is whether a very valuable tax advantage should be conferred on corporations which happen to qualify under section 71 without any return to Canada. If there were some compensating advantage to Canada from the benefit that is extended to such corporations under Canada's laws-protection, indeed, life itself in the case of these corporations-then there might be some point to it, but if corporations in the future are going to be permitted to acquire this favoured position it will have to be on the basis of their being

required to submit to the payment of some return for this advantage.


William Moore Benidickson: You will drive them out.


[Stage Direction]
Amendment agreed to.
Paragraph 9 as amended agreed to.
Charles Edward Rea: Shall the resolution carry?


William Moore Benidickson: On division.
Resolution agreed to on division.


OLD AGE SECURITY ACT
[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend The Old Age Security Act to provide:
1.	That for the 1960 and subsequent taxation years the rate of old age security tax every individual shall be required to pay on his taxable income be increased from 2 per cent with a maximum of $60 to 3 per cent with a maximum of $90 and that for the 1959 taxation year the rate shall be 2.5 per cent with a maximum of $75.
2.	That with respect to income of corporations, other than non-resident-owned investment corporations, earned on and after January 1, 1959 the rate of old age security tax be increased from 2 per cent to 3 per cent of taxable income.
3.	That the rate of old age security tax on the sale price of goods be increased from 2 per cent to 3 per cent and that any enactment founded upon this paragraph be deemed to have come into force on the 10th day of April, 1959.
Charles Edward Rea: Is there any discussion on paragraph one?


William Moore Benidickson: Mr. Chairman, the point
I want to make very evident to the committee is that when this increase is proposed it is contrary to the arrangements that were made in 1951 when this plan was presented to parliament. At that time, particularly with respect to sales tax, the government of the day decided to absorb two per cent of the sales tax rather than see it advance as a consumer cost across the line. That is the point I want to emphasize to the committee tonight.
Despite all the words that we have heard from the Minister of Finance in past years, he is raising the sales tax to a record high. The last time there was an attempt to put the old age security fund into balance between outgo and taxes the government of that day absorbed two per cent of the then existing 10 per cent sales tax, and I think that would have been the proper course for the minister at this time.


Charles Edward Rea: Is there any
further discussion on paragraph one? Is there any discussion on paragraph two? Is there any discussion on paragraph three? Shall the resolution carry?


William Moore Benidickson: On division.
Resolution agreed to on division.


EXCISE ACT
[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend the Excise Act to provide:
1.	That the duty of excise on spirits distilled in Canada be increased from $12 to $13 per proof gallon.
2.	That the duty of excise on Canadian brandy be increased from $10 to $11 per proof gallon.
3.	That the duty of excise on cigars be increased from $1 per 1000 to $2 per 1000.
4.	That any enactment founded upon this resolution be deemed to have come into force on the 10th day of April, 1959.
Charles Edward Rea: Is there any discussion on paragraph one?


Harold Edward Winch: I do not think we can discuss the paragraphs separately because they involve one principle. I should like to ask the Minister of Finance a question that nobody else seems to want to ask. How far does he think he can go with respect to excise duties on distilled spirits? If my memory is correct, the provinces and the federal gov-ernmeint now receive about 80 cents out of every retail dollar spent on distilled spirits. It is my understanding that out of the 80 cents the federal government now receives 43 cents. I believe that somebody should ask the Minister of Finance this question and I am the one who is going to do it. When the provinces and the federal government now receive 80 cents out of every retail dollar, with the federal government receiving 43 cents, how far does the minister think he should go in increasing the tax on distilled spirits when the increase has to be paid by the person who likes to buy a drink?


Donald Methuen Fleming: Mr. Chairman, somone on this side of the house asked what my qualifications were as a witness for the purpose of answering this question. The price at which liquor sells in any province is established, of course, by the provincial liquor outlet, normally the liquor commission of the province. I do not attempt to be able to quote the retail price or to be able to give the hon. gentleman the proportion of tax that is contained in that price. When he says "tax" that would mean presumably both the federal tax and the provincial markup. I can give to my hon. friend the figures as to the amount of tax. I can tell him what the tax will be on a 25-ounce bottle of whisky, 70 per cent proof if it starts with a manufacturer's selling price of $1.40 before any taxes. In recent years this has borne a total of excise duties and sales taxes of $1.58, and under this proposed increase the aggregate excise duty and sales tax will be advanced to $1.73.
In the budget speech I pointed out that the increase in the excise duty would amount to about 12 cents per 25-ounce bottle. The
Excise Act
addition of the increased sales tax will bring the aggregate increase of both excise and sales taxes, according to my calculation, to 15 cents per 25-ounce bottle.


John Whitney Pickersgill: I have a question and I am sure the minister will regard it as a very ignorant question. I am asking it purely for information. I notice that this Excise Act imposes a levy on spirits distilled in Canada and on Canadian brandy. I presume that somewhere or other there is an impost on imports-I would be surprised if a Tory government put an impost only on goods made in Canada-


Donald Methuen Fleming: Yes, there is.


John Whitney Pickersgill: Perhaps the minister
would let me finish my question. My question is, what is the historical reason for the impost on imports being in a different act of parliament from this one, and where is the other impost found?


Donald Methuen Fleming: Mr. Chairman, the corresponding levy on spirits imported from abroad will be found in the Customs Tariff. To answer the hon. gentleman's second question, there are two kinds of duties. There are excise duties and there are customs duties. The excise duties are levied upon certain Canadian products. The customs duties are levied on certain imported products.
As the hon. gentleman knows, the Excise Act is an act which levies excise duties upon alcohol in various forms, and we will be turning to the Customs Tariff for the corresponding levies by way of customs duties on corresponding imports. Then, we come to the Excise Tax Act, and there we have the statute under which the sales tax is imposed.


John Whitney Pickersgill: I wonder, Mr. Chairman- the minister seems in a very amiable mood and I am anxious to continue my education -if the minister would tell me what is the difference between an excise duty and an excise tax? Perhaps I should ask the Minister of National Revenue who collects them?


Donald Methuen Fleming: Broadly speaking, an excise duty is levied at the time that the goods pass out of some form of government control, out of bond, for example. The excise tax is the type of tax that is levied at some stage as the goods pass freely from hand to hand. For instance, the sales tax as we know is levied at the manufacturer's or producer's level. The excise duty is levied before the goods are permitted to move into circulation.


John Whitney Pickersgill: I know that neither the minister or I use cigars or cigarettes, but I

Excise Tax Act
was really puzzled as to why cigars came under the Excise Act and cigarettes under the Excise Tax Act. Is it because cigars go into bond and cigarettes do not, or is there some other reason?


Donald Methuen Fleming: No, cigars and cigarettes are under both acts.


John Whitney Pickersgill: Why has the minister raised the tax under one act for cigars and under the other act for cigarettes?


Donald Methuen Fleming: For the reasons that will appear here, Mr. Chairman; in the one case it is the excise duty on cigars that is being raised from $1 per thousand to $2 per thousand, and in the case of cigarettes it is the excise tax on each five cigarettes or fraction of five cigarettes contained in any package that is being increased from 2 to 2J cents.


John Whitney Pickersgill: I can read just as well as the minister can. What I asked him was why he increased the duty in one case and the tax in another, if they both come under both acts? There must have been some reason?


Harold Edward Winch: May I ask a question here?


Donald Methuen Fleming: It was the simplest way of achieving the increase in revenue that was required, and in the most equitable manner possible.


Harold Edward Winch: I understood we were going through these resolutions paragraph by paragraph, but we have gone from the Excise Act at the top of page 5 to the Excise Tax Act.


Donald Methuen Fleming: The hon. member for Bonavista-Twillingate insisted on a rapid education, so we have been moving forward perhaps a little too swiftly. Perhaps we had better return to the earlier items again.


Charles Edward Rea: Is there any further discussion?


[Stage Direction]
Resolution agreed to.

[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend the Excise Tax Act to provide:
1.	That the excise tax on each five cigarettes or fraction of five cigarettes contained in any package be increased from 2 cents to 21 cents;
2.	That the wording of the exemption from sales tax for "stock conditioners, condiments and feed supplements for addition to poultry, cattle and other stock feeds" in Schedule III be changed to read:
"Feed supplements for addition to poultry, cattle and other stock feeds and materials to be used exclusively in the manufacture thereof";
3.	That the exemption from sales tax for tanks for collecting milk be extended to include complete parts thereof including materials to be used exclusively in the manufacture of such tanks and parts;

4.	That the definition of "producer or manufacturer" be extended to include any person who packages toilet articles, preparations, cosmetics or pharmaceuticals for sale except where they are packaged by a retailer in his retail premises for sale therefrom directly to consumers or users;
5.	That the definition of "manufacturer or producer" be extended to include any person who markets, except by sale at retail directly to consumers or users, toilet articles, preparations, cosmetics or pharmaceuticals manufactured under his own brand;
6.	That the sales tax be imposed, levied and collected on goods purchased or imported by a licensed wholesaler and retained for his own use or for rental to others;
7.	That any enactment founded upon this resolution be deemed to have come into force on the 10th day of April, 1959;
and to provide further for certain changes in connection with the administration of the act.
On paragraph 1.
Harold Edward Winch: My argument is the same as on the previous resolution, but it is a little more emphatic because there are a great many more who smoke than there are who drink. I should like to ask the Minister of Finance -I know he is a non-drinker and a nonsmoker-why he has to penalize those who like to have a smoke.
I have tried to make a study of the situation, and it is my understanding that prior to the introduction of this resolution the federal tax on a package of 20 cigarettes was 17.7 cents or 54 per cent of the ordinary retail price. It is now being increased. I used to roll my own cigarettes many years ago, but I did not like them. I am going to ask the Minister of Finance why, when he is already receiving 17.7 cents per package of 20 or 54 per cent of the retail price, it is necessary to increase this tax. Do not forget it is the average person in Canada who will pay the tax, the men, women-


John Whitney Pickersgill: And children.


Harold Edward Winch: That is right, the men, women and children. Why do you think you need more than the 17.7 cents per package of 20 cigarettes? I know that you are so sacrosanct that I hate even to talk to you. I cannot believe that you have not any sin. When there are other avenues of taxation open, such as income tax on lawyers and others who we know make millions without taxes, why do you increase the tax on men, women and children who smoke?


Donald Methuen Fleming: I am quite overwhelmed by the presentation the hon. gentleman has made of his case. It is extremely touching indeed. The fact is that we must have some additional revenue. Apparently the hon. gentleman regards taxes as a penalty, at any rate if they are levied on cigarettes. By the same token, if that reasoning is sound, I suppose any tax levied on

anything is something of a penalty. Against that argument I have to put before the hon. gentleman the view that however we may look at taxes, whether darkly or otherwise, no one has found a way of financing the services that governments must provide and are expected to provide nowadays, apart from levying taxes for the purpose.
If the hon. member thinks that we should have chosen something else, may I say that I am not aware of anything else in the way of a tax that could be said to be painless. The hon. member speaks about income tax. In the course of discussion on the budget and since then we have been told that there is nothing painless about the income tax. Hence I cannot see a distinction in kind or any fundamental difference between a tax on this particular commodity and other kinds of taxes that may be regarded as necessary for the purpose of raising revenue.
As to the extent of the levy, the proposed increase actually amounts to a bare fraction under two cents a package. With the increase in the sales tax it comes out to 2.2 cents per package. On a package of 20 that means about one-ninth of a cent per cigarette. I cannot really regard this as a crushing imposition. I refer to the addition of one-ninth of a cent on each cigarette.


Harold Edward Winch: Put it on the basis of the tax.


Donald Methuen Fleming: The rate that will be in effect now is certainly not the highest rate that has been levied on cigarettes in the past. During the war the tax on a package of 20 cigarettes reached 21.7 cents. Effective April 10, 1951, it was increased by our predecessors in office to 25.21 cents per pack. I am speaking of taxes only, the combination of excise tax, excise duty and sales tax.


Harold Edward Winch: I thought we were at peace and in Conservative prosperity.


Donald Methuen Fleming: Oh, we are. That is why I think the hon. member can well afford to pay one-ninth of a cent more by way of tax per cigarette. I think he will enjoy it that much more realizing that he is contributing something toward paying the cost of the substantial social security measures which this government has introduced for the benefit of the people of Canada.


Mr. Hellyer:: The prosperity is going up in smoke.


Harold Edward Winch: Do the members of the
minister's own party not also smoke?


Donald Methuen Fleming: As I mentioned, the total of federal tax was advanced on April 10, 1951, to 25.1 cents per pack. On April 8, 1952, a year later, it was reduced, but it remained at 22.1 cents per pack for
Excise Tax Act
another year until the eve of the 1953 election when it was reduced further to 17.7 cents per pack of 20 cigarettes, which tax has been in effect for the past six years. There we have the story, Mr. Chairman.
The tax on cigarettes or cigars is not nearly as heavy in this country as it is in some other countries. There was a time when we, when in opposition, pointed out to the government of the day, with respect to this record high tax they imposed on cigarettes, that they were putting a premium on smuggling. When the cigarette tax was at its peak it was known that there was a good deal of smuggling going on. But the situation has quite drastically changed since that time. In those days there was a wide differential between the price of a package of cigarettes in the United States and the price of a package of cigarettes in Canada. The difference was so wide that there was a great incentive to smuggle. But that gap or that differential has been greatly narrowed since that time as a result of the increase of taxes in the United States. Today the differential is so much smaller that it is not anticipated that this modest increase in the tax on Canadian cigarettes or the cigarettes sold in Canada will be any encouragement to smuggling.
In addition, there are provinces which themselves levy provincial taxes on cigarettes.
All things considered, this tax was regarded as being as painless a way of finding needed revenues as any that could be resorted to. I hope that my hon. friend, in paying one-ninth of a cent additional tax per cigarette, will derive satisfaction from the fact that he is thereby increasing the revenues that will be used for the purpose of sustaining the social security program and other measures of a kind that the people of Canada seem to desire.


Mr. Knowles:: I want to address a few words to the minister with respect to this problem, probably from a slightly different angle. The people in my area who are in the tobacco-growing business are quite concerned about the increase in excise tax. As the minister has indicated, they well remember the results that followed from the increase back in 1951 when the law of diminishing returns set in to the extent that growers in the area suffered a decrease in production of some three million pounds. Of course, as in any other industry, when there is a reduction in production, when you are not working at peak capacity, the result is a certain amount of inefficiency. There again the people are quite concerned lest this condition might set in again.

Excise Tax Act
To many Canadians this increase is just a statistic but to the farmers of Norfolk who grow the crop it is a threat to their maximum production. To many hon. members and people throughout Canada tobacco probably is considered a luxury. I suppose when it was completely an import product brought into Canada it was a luxury. However, today the people in my area who brought a poor sandy soil back into a condition of productivity, so that they are now able to earn a reasonable living, do not consider it a luxury at all. Neither do they consider it a luxury when they compare their income to the income the federal treasury receives from tobacco. Nor do they consider it a luxury when they consider the tremendous amount of capital investment in land and equipment and the high cost of growing an acre of tobacco, which is something over $500 an acre, and also the tedious hours of hard labour. On top of all that, we have many hazards such as wind, hail and frost which in one year can bring total disaster to a season's work.
Therefore we are vitally concerned in it from the standpoint of the economic condition of the area, not only to the farmers but to surrounding businesses as well. The question I wanted to bring to the attention of the minister is that we would like some assurance from him that the law of diminishing returns will not set in.


John Whitney Pickersgill: Mr. Chairman, I would like to add a little to what has been said by the hon. member from my native county of Norfolk. I would like to add a little to the history given to us by the Minister of Finance as well. What the Minister of Finance did not tell us was that the hon. member from Norfolk and the present Minister of Transport attended a meeting in Norfolk county, a meeting which was reported in the Simcoe Reformer on June 5, 1957. The heading of this account of the meeting in the Simcoe Reforvier is:	"Excessive Tobacco, Income
Taxes Blasted by Speaker at Conservative Rally Here." Then the report goes on:
Speaking on behalf of J. Evans Knowles, Progressive Conservative candidate for Norfolk county, George Hees, Member of Parliament for Toronto-Broadview, said that the Conservative party is on the move and going some place, while at the same time the Liberal government was made up of old men in an old party-
"They keep extolling their work of the past"-
And so on. I am not going to read all this stuff because, Mr. Chairman, you will call me to order in a moment. I would like to come to a quotation of Mr. Hees, the present Minister of Transport, where he says:
"Tobacco I am sure is the most highly taxed commodity and has been shown rank discrimination with regard to taxation."

That was the tax which the minister said was low, the Liberal tax. In the light of these remarks, I would hate to think what the Minister of Transport, if he were not bound by cabinet solidarity, would say about this latest increase. I think I had better repeat this for the benefit of the minister and other members opposite as another striking example of the way this government has kept its promises:
"Tobacco I am sure is the most highly taxed commodity and has been shown rank discrimination with regard to taxation."
Then he went on:
If the taxes were lowered on tobacco-
This is the present Minister of Transport speaking in 1957-
-more tobacco products would be sold and therefore the gross intake would be greater.
The Minister of Finance apparently does not believe this and does not agree with the economic philosophy of his colleague, the Minister of Transport.
This has been proved when some time ago the price of cigarettes was raised. You all know what happened. The sales dropped off and consequently the gross intake. The tax was lowered and up went the sales and the intake.
Then the minister went on to hold out the same hopes about automobiles, and you remember what the minister did to them.
That was not the only occasion upon which high hopes were held out, and the Minister of Transport was not the only one who held them out. On February 18, 1958 the Hamilton Spectator carried this account of a meeting the Prime Minister had at Brantford:
Prime Minister Diefenbaker blew a warm blast of optimism over this sub-zero city last night.
I imagine the news that the cigarette tax was going to be raised blew a cold blast over that optimism. I forgot to read the heading of this article, and perhaps 1 should read it for the benefit of the hon. member for Norfolk, the hon. member for Elgin, who is not here, and the hon. member for-


Mr. MacLean (Queen's):: The hon. member for Elgin is here.


John Whitney Pickersgill: Then I beg the hon. member's pardon; I was thinking of the hon. member for Oxford. The hon. member for Oxford is not here.


An hon. Member:: Yes he is.


John Whitney Pickersgill: Well, the hon. member for Kent, who is no doubt here and will speak for himself, and the hon. member for Essex South and the hon. member for Joliette-L'Assomption-Montcalm. I am sure he is delighted with these increases in the cigarette taxes. Now, this report is only a year ago,

before the election. This is the kind of thing that the tobacco growers of this country were being treated to. This is the heading: "Optimistic Prime Minister Hints PC's Would Trim Tobacco Taxes". I imagine the average person on reading that would think by "trim" was meant taking something off. I suppose the word could be used in the opposite sense of putting more trimming on in the form of additional tax.


Hédard-J. Robichaud: Trimming the taxpayers' pockets.


John Whitney Pickersgill: Yes, and also in another sense, as the hon. member for Gloucester has reminded me, of trimming the taxpayer. Perhaps that is what the Prime Minister had in mind. Here is what the Prime Minister is quoted as having said:
"The tobacco industry has asked for some action, and we are having the question looked into-"
You know the way the Prime Minister is always looking into things-
"-to ascertain what action should be taken to assist the tobacco growers to achieve fair and reasonable returns", said Mr. Diefenbaker, who is a non-smoker.
I really do not know what that has to do with the subject.


Mr. Maclnnis:: You are a non-smoker.


John Whitney Pickersgill: Yes, that is true.


Donald MacInnis: Then why mention it?


John Whitney Pickersgill: The hon. member for Cape Breton South like Pontius Pilate stays not for an answer, but I will give one. I mentioned it to show how disinterested I was, because as far as my pocket is concerned it does not matter to me what the tax on cigarettes is. But I am a strong believer in governments keeping their promises and in public men carrying out their promises.


Some hon. Members:: Oh, oh.


John Whitney Pickersgill: There certainly could be no more glaring example anywhere than in this particular case, because if there is one industry which was singled out both in 1957 and 1958 and told the Liberals had discriminated against it, and given the impression, as I have shown here from this article, that this government was going to do the opposite, it was the tobacco growers as the hon. member for Norfolk well knows. I understand he actually had his picture taken with the Prime Minister holding up a package of cigarettes and telling the growers of the wonderful things which would be done for them. But I will stick to the text which I have before me. I have not got the pictures here but I do have these words attributed to the Prime Minister:
Excise Tax Act
"The tobacco industry has asked for some action and we are having the question looked into to ascertain what action should be taken to assist the tobacco growers to achieve fair and reasonable return," said Mr. Diefenbaker, who is a nonsmoker.
He added:	"The tobacco industry has not
received the consideration it has deserved".
Apparently it has now got the consideration which the Minister of Finance thinks it deserves and it has got it in the form of an increase in the tax. I could go through a lot of other clippings. Apparently this hinting went on in a good many places in western Ontario during those two election campaigns, but it does not seem to me that the number of the promises, which were made outside the house and therefore would be the kind of second class promises that the Minister of National Revenue referred to the other day, makes any difference. I am sure that the hon. member for Norfolk and his constituents believed that when the Prime Minister talked about some kind of action, that kind of action was going to be the kind of action that the tobacco growers expected and not the exact opposite.
It is true that you can twist these words around and argue that the Prime Minister was really warning then that the tobacco growers and tobacco consumers were going to have to pay the cost of his extravagance. That is perhaps what he really warned them of in this rather veiled language. I am sure, however, that all the electors in the tobacco districts of Ontario, every constituency of which returned a Tory member, are going to feel pretty disillusioned about any further promises emanating from hon. gentlemen opposite.


Donald Methuen Fleming: Mr. Chairman, I
cannot deny myself the pleasure of saying something in immediate succession in the course of debate to the hon. member for Bonavista-Twillingate. The carpet of the chamber is already wet in front of him with the crocodile tears that gushed forth from his eyes. This outburst has come from an hon. member as spokesman of a party which in 1951 raised the tax on cigarettes to 25.1 cents a package.


John Whitney Pickersgill: During the war.


Donald Methuen Fleming: Under pressure
of demand from the Conservative opposition of that time that government the following year reduced the price to 22.1 cents per package. It was under pressure from the Conservative opposition of that day-


John Whitney Pickersgill: Mr. Chairman, I know
that the minister does not want to be unfair-

Excise Tax Act


Donald Methuen Fleming: -that the Liberal party then proceeded to reduce the price-


John Whitney Pickersgill: Mr. Chairman, I am
rising on a question of privilege.


Charles Edward Rea: Order. The hon.
member said he is rising on a question of privilege.


John Whitney Pickersgill: Mr. Chairman, my question of privilege is that the minister said I was a member of the government in 19511952. I was not a member of any government in 1951-52.


Donald Methuen Fleming: Mr. Chairman, if
I said that the hon. member for Bonavista-Twillingate was a member of the government of that time, of course I overstated the fact.


John Whitney Pickersgill: You misstated the fact.


Donald Methuen Fleming: The hon. member accepted outwardly the role of being a member of the government somewhat later, not thereby evidently increasing his influence. Having regard to the extent to which he seemed to have influenced the strategy of the government in those times I think I am not unfair to the hon. member in ascribing to him a great deal of the responsibility for the blunders and the unjust impositions of that former government even before he accepted a portfolio in the government.
I pointed to the fact that he is spokesman for a party whose government at that time had raised the tax on cigarettes to 25.1 cents per pack and it was the Conservative opposition that demanded that the tax be reduced. Similarly the following year in 1952, and again in 1953, it was the Conservative party, in opposition in those days, which forms the government today that was responsible for keeping up year in and year out the demand that the unfair impositions that the Liberal government was imposing upon the tobacco industry should be eased.


John Whitney Pickersgill: Now you are putting them on again.


Donald Methuen Fleming: I have indicated why in this present situation with the need for finding further revenues to combat the dangers of inflation, to reduce the deficit and to enable the government to go forward with this recovery program that is gaining momentum day by day and bringing more impetus to the Canadian economy as it proceeds, it is necessary that we recommend to the committee certain increases in taxes now.
No one has pleaded in this chamber the cause of the tobacco grower more effectively, more eloquently or more earnestly than the hon. member for Norfolk. He has been ably supported, as I can testify from my discussions with them, by the hon. members

who represent that cluster of ridings in western Ontario in which tobacco is grown on a substantial scale, including the hon. member for Elgin, the hon. member for Oxford and other hon. members whose voices have been heard and listened to on this subject.
The question has been raised as to whether this very modest increase in the tax on cigarettes and the modest increase in the tax on cigars may have the effect of hurting the interests of the tobacco growers. I do not believe that these very slight increases will have any such effect. We are not in the situation we were in a few years ago.
I have pointed to what happened in the smuggling of United States cigarettes into Canada in the days when the Liberal party was boosting the tax on cigarettes to all-time record heights, and the smuggling went on. If we look at the figures of consumption with respect to cigarettes and have regard to the fact that we have not applied the increase in taxes on tobacco in all forms, I believe hon. members may be re-assured in this regard.
We were careful to confine the increases to tobacco in two forms, cigars and cigarettes. As to cigarettes, may I remind hon. members of the fact that a very heavy increase both in absolute consumption and per capita consumption in cigarettes has occurred in these recent years.
In 1952 when the former government was keeping the tax on cigarettes at a substantially higher figure than it will be under this present budget there were consumed in Canada 18 billion cigarettes, to give the committee round figures. It is estimated that in 1958 the consumption of cigarettes in Canada had increased in round figures to 33 billion. In those six years there had been an increase of nearly 15 billion in the number of cigarettes consumed in Canada and in terms of percentage an increase of 80 per cent in 1958 over the consumption in 1952. Those are absolute figures.
Some hon. member may say there was an increase in population in that period, and that is true. Therefore I give the committee, Mr. Chairman, the per capita figures of consumption of cigarettes in Canada for the same period. In 1952 the per capita consumption of cigarettes in Canada was 1,258. By 1958 that had increased to 1,925. This represents an increase of 667 cigarettes per capita and a percentage increase of 53 per cent in 1958 over 1952.
In the light of the harsh treatment they received under the Liberal government I can well understand why tobacco growers should be vigilant and concerned about any change in their tax treatment. I believe that it is undeniable, however, in the light of these figures

that no modest increase of one-ninth of a cent per cigarette is going to make any impression on these growing figures. I think, therefore, that the tobacco growers of this country can feel quite reassured that this increase is so slight so as to not pose any threat whatever to their interests.


John Whitney Pickersgill: Mr. Chairman, I cannot let one or two observations and especially those of a personal nature made by the minister pass without comment. I do not take the slightest exception to these exaggerated and complimentary references the minister pays to the role I occupied in this country before I became a member of the government but as everyone knows I had no responsibility for preparing any budget even when I was a member of the government except at the very last when I took the collective responsibility that all ministers do.
But even if I did, I would like to remind the committee that the prime minister of that day did not go around before the election promising that the taxes would be reduced and then within 13 months increase them. That is the difference between the Liberal government and the Tory government. The minister knows perfectly well why the tax and other taxes were increased in 1951 and 1952. He knows perfectly well it was because this country was engaged in a war in the Pacific and in the vast rearmament connected with the North Atlantic treaty and for no other reason, and he knows that just as quickly as possible those imposts were reduced.
It is not for me to say whether or not it was too high in 1951, and whether the government was wise to reduce it in 1952 and again in 1953. I imagine they were, but I am sure that those reductions in 1952 and 1953 gave a good deal more pleasure to the people of my native county of Norfolk and other counties round about than this increase they have had and, I repeat, after they had been told at Brantford by the Prime Minister when he was Prime Minister-and I shall read from this same clipping from the Hamilton Spectator:
The tobacco industry has asked for some action, and we are having the question looked into to ascertain what action should be taken to assist the tobacco growers.
This is what they were promised only a year ago in order to get their votes, and this is what they are getting.


Harold Edward Winch: Mr. Chairman, I have had an opportunity for over 26 years to listen to ministers of finance, both provincial and federal, and never in those 26 years did I listen to so much financial eyewash as we have had from the present Minister of Finance
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in the past few minutes. It is almost inconceivable that the Minister of Finance would have the temerity and audacity to rise in his place and say what he said a few moments ago. He implied-as a matter of fact I can take no other interpretation from it-that all the great works that the government has in mind with respect to social security are tied to this increase in taxation on tobacco. Well, of course, although in the emotionalism of the Minister of Finance that may have been the point, the fact is we spent this afternoon and part of this evening on the Income Tax Act under which authority has been given for increases in taxation.
Of course, the tobacco tax can have no reference whatsoever to old age pension payments, because that also is very carefully covered in the budget, in the resolution and in the bill which will follow. You know, Mr. Chairman, I will admit I have to admire the suavity and-


Mr. Fisher:: Gall.


Harold Edward Winch: No, I am a gentleman; I would not say gall.


An hon. Member:: Probity.


Harold Edward Winch: I admire the approach of the Minister of Finance. He is one of the most Machiavellian ministers of finance I have yet heard. He can reduce millions of dollars down to one-ninth of one cent. That is very clever, Mr. Chairman, but it is not honesty.


Some hon. Members:: Withdraw.


Harold Edward Winch: One second, now; it is true, but not honest. You know why it is not honest? It is true in the presentation of the increase of taxation on one cigarette but it is not honest because it does not give the real picture as to the taxation. I said I gave all respect to a great Machiavellian Minister of Finance but he has not yet answered and I challenge him to answer why. In about two minutes I am going to go out and give the minister one-ninth of one cent increase in the cost of a cigarette because I am going to have a smoke.


Mr. Monieilh (Perth):: Do you think you have earned it?


Harold Edward Winch: The important fact is that prior to the speech of the Minister of Finance, through the Minister of National Revenue, he was receiving 54 cents out of every dollar spent in the retail market on cigarettes. He now says his increase is only one-ninth of one cent on a cigarette, but up until now he has been receiving 54 cents out of every dollar spent on cigarettes by the Canadian public. Not being satisfied with 54 cents out of every dollar, he wants to raise the tax so that he gets 56 cents out of every dollar

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spent on cigarettes. He speaks of one-ninth of one cent increase on a cigarette. I think the public should know that he is not satisfied with 54 cents out of every dollar; he wants more than that. Surely, there is a limit to what even a minister of finance should ask for as a return.
The minister does not smoke, but the majority of the people of Canada do. Why does he think he has to hit them harder and harder? I do not know why. As a matter of fact, Mr. Chairman, when I see what is happening to the increased taxes on spirits, and to go back to this I must have your permission to speak on what we have already decided, where the government is going to increase the tax so much, I have a dirty, sneaking hunch that very carefully the Minister of Finance is coming pretty close to public ownership because he has taken about everything there is, anyway. He may as well own it and take it all.


Mr. Bigg:: That is your platform, not ours.


Harold Edward Winch: I was hoping somebody would say that, because, having regard to the way liquor and cigarettes are taxed, you may as well take it all and receive it all. That is the actual situation now, but you have not the intestinal fortitude to own up to it. You are taxing so much now on certain items that you may as well take it all anyway. I do want to say most sincerely that the attitude of the Minister of Finance in going so far as to increase the tax on cigarettes is not fair. He should deal with the amount his government is receiving. I say most sincerely that the 54 per cent already being collected on the sale of cigarettes should be enough for a private enterprise government to collect. I would ask that consideration be given to letting the average citizen enjoy his smokes and his liquor too, if you wish, without the government collecting any more unless the government has the fortitude to come out and say that they will take over both of them under public ownership.


John Whitney Pickersgill: I should like to ask one question of the minister. On December 20, 1957 the Minister of National Revenue said that he was recommending a change in the regulations governing the exemption from tax of cigarettes on fishing vessels. Up till that time the tax was not imposed if the vessels were out of port for 15 days and he said he was reducing it to 10 days. This was a pretty slender implementation of the very high hopes held out on the east coast by members of the Conservative party in the 1957 election but one has to admit that they did do a little something about it. I wonder whether the

minister can assure us that at least that small concession is not being taken away at this time.


Donald Methuen Fleming: The proposed
change in the act will not affect the regulations.


John Whitney Pickersgill: I appreciate that but I was asking the minister if he could give us the assurance that there was no thought of changing that regulation.


Donald Methuen Fleming: I certainly have heard of none and I do not believe there is any thought of making any such change.
(Translation):


Mr. Pigeon:: Mr. Chairman, I should like to say a very few words about this matter. As the representative of a constituency which is at the very heart of the flue-cured and cigar tobacco producing area of Quebec, I feel sure that this increase is only temporary and that in the near future, perhaps next year, the minister will reconsider his policy, and cut the excise tax on cigar and cigarette tobaccos.
It is too bad that, under the Liberal administration, the excise tax on cigar and cigarette tobaccos went up by 100 per cent.
I am equally sure that nobody is more anxious than the Minister of Finance to help the tobacco grower. So I would ask him to consider the possibility of raising the tariff on cigar tobaccos imported from the United States or Cuba.
The most unfortunate part of it, under the former administration, was that customs duties on non-manufactured cigar tobacco were considerably lowered. For instance, in 1936, the rate on unstemmed cigar tobacco leaves was 40 cents a pound and on stemmed tobacco 60 cents a pound. On January 1, 1948, the custom duty on unstemmed tobacco went down to 20 cents a pound, and to 30 cents a pound, for stemmed tobacco. On October 17, 1948, duty rates on unstemmed and stemmed tobacco were decreased to 15 cents and 22J cents respectively. On June 30, 1956, the customs duty on unstemmed tobacco and stemmed tobacco went down to 12J and 20 cents a pound respectively.
Mr. Chairman, I may assure you that I have witnessed the effect of those lowered customs duty rates. Cigar tobacco producers in the province of Quebec came to Ottawa on various occasions and made representations to the government of the day, asking that the customs duties be raised. But they were always turned down.

Mr. Chairman, I am asking the Minister of Finance to study the possibility of raising customs duties in respect of tobacco imported from the United States and Cuba.
I know that the excise tax increase on tobacco is only a temporary one. The present government incurred a slight deficit due to the poor administration which preceded it, but I am satisfied that the budgetary position, and the balance of the budget will be restored under the present administration, because we have at the head of the finance department a most able and efficient man.
Before concluding my brief remarks, Mr. Chairman, I again ask the Minister of Finance to consider whether it would be possible to increase customs duties on imported tobacco and within the near future, to abolish excise duties on cigars while lowering the excise tax on cigarettes.


Mr. Denis:: Mr. Chairman, I listened very closely and with much interest to the hon. member for Joliette-L'Assomption-Montcalm (Mr. Pigeon). I noted that the hon. member supported the opposition, in the sense that he was so opposed to the increased excise tax on cigarettes that he had the hon. Minister of Finance (Mr. Fleming) practically promise that the increase was only temporary, which means that it would be removed next year, if we are to believe the hon. member for J oliette-L'Assomption-Montcalm.
Like members of the present government, when the hon. member is in a tight spot, he talks about the misdeeds of the previous government. On the other hand, when he wishes to speak well of his own party, he readily reverts to the times of Sir John A. Macdonald. However, few Conservative members from the province of Quebec will boast of their traditional ties with the administration of the Right Hon. R. B. Bennett.
The hon. member for Joliette-L'Assomption-Montcalm complained of the fact that, under the Liberal administration, some associations asked for a cut in customs duties on cigar tobacco-


Louis-Joseph Pigeon: They asked that the duty be raised.


Azellus Denis: Those associations are said to have asked that the customs duties be raised.
Now, I understand this government has been in power for twenty months. It went through two elections with considerable success. Then, how is it the hon. member for Joliette-L'Assomption-Montcalm, with his influence, has not been able to convince the present government to raise the customs duties? People come here in this house and
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complain, discuss taxation, and quote figures applying to the past five, six and even ten years. They talk about the past, but not about the present-


An hon. Member:: They should be talking about the future.


Azellus Denis: Why does not the government act as if it were alive at this moment and as if it were really running the country, not only in relation to the past, but in relation to the present? When will it finally quit accusing every one except itself? And when will it stop boasting?
The hon. Minister of Finance asked us a moment ago to support this motion, stating that it will only involve a minor increase. The hon. member for Joliette-l'Assomption-Montcalm said there was only a "small deficit". Would you call $617,000,000 a small deficit? As the member who spoke before me has indicated, it is really a 56 per cent tax on the price of cigarettes.
Furthermore, in replying to the hon. member for Bonavista-Twillingate (Mr. Pickers-gill), the hon. Minister of Finance completely evaded the issue. He simply said that the Conservative government had made many promises, and that not only had such promises not been kept but that the government had actually taken opposite steps. We have heard the Minister of Finance say that taxes were raised in 1952, and again in 1953 and 1954. He quoted percentage ratios, etc., and gave that as an answer to the hon. member for Bonavista-Twillingate. In short, I am convinced he spoke for about 15 minutes without replying to the objections and criticisms raised by the hon. member. Every time this government is in trouble, the minister avoids replying to questions. He speaks for three hours, and quotes masses of figures so that no one will be able to make heads or tails out of it. The fact remains that he has raised the tax after promising to reduce it.
Is it not a fact that this famous customs duty is still the same, and that there has been no increase, despite anything the member for Joliette-L'Assomption-Montcalm may say? What is their purpose in accusing the former administration of doing worse, or just as bad, when they had promised to do better? They have been in power twenty months; so they have had time to correct any past mistakes.
This tax increase is the responsibility of the Conservative government. I therefore ask the hon. member for Joliette-L'Assomption-Montcalm to swallow his pill, and if because there is no increase in the customs duty on tobacco, and his constituents have to suffer

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hardship through the fault of his government, let him take the responsibility.
(Text):


Paul Theodore Hellyer: Mr. Chairman, I am considerably surprised that the Minister of Finance would propose this change in the law. I realize that he needs the revenue very much but I thought, in view of what he had said in previous years and what his colleagues had said, he was thoroughly conversant with the law of diminishing returns. I thought he would benefit from the experience of his predecessors who found that sometimes when taxes are increased this results in a lower yield to the government than would have been returned had the taxes remained at a lower level.
It was with considerable surprise, therefore, that we listened to the minister tell us in his budget speech that he was going to repeat something that in earlier years he told us was a mistake and which again tonight he told us was a mistake. This is something about which he spoke very strongly and very vigorously in earlier days and which he characterized as another error and more fumbling on the part of the then administration. Still he walks right into the same trap. We are additionally surprised because of the sentiments expressed by members of the government during the election campaign. The hon. member for Bonavista-Twillingate has mentioned some of the things that were said in the tobacco growing district. I have another quotation here which I should like to put on the record. This is from the Globe and Mail and the dateline is Brantford, February 17, 1958. It reads as follows:
Prime Minister Diefenbaker last night dropped a clear hint that the taxes on cigarettes, cigars and tobacco soon may be cut.
He told an audience of 1,400 that no industry in Canada suffers a greater degree of taxation than the tobacco industry-
To the Brantford audience, living on the northern fringe of Ontario's tobacco belt-where production has jumped from 63,000 acres in 1943 to 120,000 in 1956-the Prime Minister's hint appeared an effective vote catcher.
The Minister of Finance has told us tonight that the hon. member for Norfolk has made representations on behalf of the tobacco growing industry, and that they had listened to him. Obviously he did not speak loudly enough or clearly enough to get through to the Minister of Finance. It is, therefore, necessary for the hon. member for Bonavista-Twillingate and myself, because we are also natives of Norfolk county, to come to his assistance. I should like to move:
That paragraph 1 be striken out of the resolution and that the following paragraphs be renumbered accordingly.


Donald Methuen Fleming: Obviously, such an
amendment is out of order; it is a straight negative.


John Whitney Pickersgill: I should like to say a word on the point raised by the Minister of Finance. The minister says this amendment is a straight negative. The minister knows, of course, quite well that this is a resolution to amend the Excise Tax Act and all these seven paragraphs compose the one resolution. He knows quite well that the effect of striking out one paragraph is not to negative the resolution but is merely to reduce the amount of the total change in the tax, the amount of increase in the tax. I think even the minister will admit that one of the rights of parliament that is perhaps more sacred than any other is the right to vote taxes or to vote against taxes. The suggestion that it is incompetent to any member to vote that a part of the tax be reduced is surely too preposterous for the Chair to entertain. This would be the effect of the amendment. We are not asking the committee to strike out the whole thing; we are asking them to strike out one paragraph to reduce the amount of the increase. I submit, sir, that the amendment is in order.


Donald Methuen Fleming: Mr. Chairman, we have been taking up each of these resolutions paragraph by paragraph. What is before the committee now is paragraph 1 of the resolution respecting the Excise Tax Act. What is introduced now by the hon. member for Trinity is an amendment to strike out paragraph 1 which is now under discussion, and to renumber the balance of the paragraphs. With respect to the matter now before the committee, which is the paragraph, obviously the amendment is straight negative and therefore out of order.


Joseph Pierre Albert Sévigny: The amendment moved by the hon. member for Trinity is that paragraph 1 be striken out of the resolution and the following paragraphs be renumbered accordingly. After consulting Beauchesne's fourth edition, page 221, citation 265, I find it reads:
No member other than a minister of the crown may introduce a bill for the reduction of duties. The government must take full responsibility for the taxation levied to provide the revenue. But the house enjoys complete freedom to make every representation possible to the government with regard to the manner in which the ministers discharge this responsibility. This duty the members may perform by moving amendments to reduce the taxes proposed by the administration.
If the purpose of the amendment moved by the hon. member for Trinity is that taxes may be reduced, then in my opinion the amendment is in order. If the purpose is that the tax may be removed altogether by removing paragraph 1, then the amendment is not in order.


Paul Theodore Hellyer: If I may say a word on the point of order-


Joseph Pierre Albert Sévigny: The hon. member for Trinity should explain more clearly the purpose of his amendment.


Paul Theodore Hellyer: Yes, Mr. Chairman, this
amendment does not remove or eliminate the tax on cigarettes. All it does is to reduce the proposed increase in taxes contained in this resolution, and as such it is merely part of the proposed total increase in taxation presented to the committee by the minister. Consequently it is in effect a reduction in taxation and therefore clearly falls within the last part of the citation from Beauchesne, and is in my opinion in order.


Mr. Aiken:: May I refer you, Mr. Chairman, to paragraph 202, page 170, subsection (15):
(15) An amendment approving part of a motion and disapproving the remainder is out of order.
I would submit that in this particular case to agree to this motion would be to split the motion and thus be in breach of this particular clause.


John Whitney Pickersgill: On that point, may I say that this amendment does not say anything about the other paragraphs, whether they are approved or disapproved. The resolution before the committee is a single resolution. The word "resolved" appears only once. The hon. member for Trinity has moved that the first paragraph, which is a part and only a part of the total increase in taxes proposed, should be stricken out. He is not moving that the rest of the taxes be stricken out. It therefore seems to me that it is in strict conformity with the citation that Your Honour read:
This duty the members may perform by moving amendments to reduce the taxes proposed by the administration.
The administration has proposed to increase the excise tax in a number of ways. We are suggesting that in one of these ways the increase should not take place and therefore the total should be reduced.


Donald Methuen Fleming: This is an extremely ingenious argument that has just been addressed to you, Mr. Chairman. You invited the hon. member for Trinity to explain the purpose of his amendment. He says that he wishes to eliminate the proposed tax increase in paragraph 1. He does not deal with his attitude toward the remaining paragraphs in the resolution. Then along comes the hon. member for Bonavista-Twillingate and says, "Oh, this is just one resolution. We are just dealing with one change in one aspect of the resolution". But,
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Mr. Chairman, this is intended to evade the point of your question. Unless the purpose of the amendment is to adopt the balance of the resolution, there is no escape from the point I have addressed to you, namely that this is in effect a negative because we are dealing only with the first paragraph thus far. That is what was called.


John Whitney Pickersgill: Oh, no.


Donald Methuen Fleming: If this can be done on the first paragraph, then when we come to paragraph 2 the hon. gentlemen could move to strike out paragraph No. 2 and rearrange the numbering. Then when we come to paragraph 3, they could move to strike it out and renumber the other paragraphs. Then when we come to paragraph No. 4, they could move to strike it out and renumber the balance. Then when we come to paragraph 5, they could move to strike it out and renumber the remaining ones. They could do the same with regard to paragraph 6 and paragraph 7. In that way they would have established seven different negatives. Obviously that procedure defies reason. It defies the rules of the house.
The plainest rule of the house is that no amendment can be introduced which is in effect a negative to a motion. It is a most ingenious argument to say, "We are dealing only with one part of this resolution and the rest of it stands". But, Mr. Chairman, the rest of it does not stand. They are reserving the right to come along and do the same thing with regard to every other paragraph. Surely that is the answer to what they are saying.
I give you the citation in Beauchesne's fourth edition at page 222. It is citation 266 subparagraph (4) which reads as follows:
(4) It is not in order to move the deletion of a particular clause in an excise tax resolution because it alters the balance of ways and means. Chairman's decision confirmed by the house on a division-
That was in 1951. I well remember the case because the situation there was that an opposition member moved to strike out a certain proposed tax and the motion was ruled out of order. Then an attempt was made by an ingenious member to overcome that difficulty by saying, "Oh, we will take this tax off and we will put on another in its place so that the balance of ways and means shall not be disturbed." That procedure was ruled not to save the situation. It was ruled out of order. I suggest that this amendment, a much clearer case than that in 1951, is out of order because it is clearly a negative.


Lionel Chevrier: If I may be allowed to reply to what my hon. friend has said, Mr. Chairman, I should like to bring to your attention

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the fact that if the minister's argument were to be accepted, we on this side of the house could at no time move to reduce a tax as has been done by the hon. member for Trinity. After all, surely there are still some rights left on this side of the house. What we are doing in effect is making a motion to leave the tax exactly where it was before this resolution was introduced and to leave the remaining paragraphs of that resolution exactly as they are, renumbering them as the amendment states. I think the situation is covered clearly, not only by citation 265, the latter part of which you have brought to the attention of the committee, but also by citation 244, subsection (2), where motions and amendments of this nature have been held to be in order. If the argument of the minister were to be accepted, we on this side of the house could never make a motion to reduce a tax; and I am sure that is not the intention of those who made the rules of the house.


Donald Methuen Fleming: If my hon. friend wishes to establish the fact that he is against the proposed increase, then under the rules of the house he divides the house on this motion. There is no excuse whatever for introducing an amendment that is in effect a straight negative.


Lionel Chevrier: I do not like the division. That is the trouble.


Mr. Lambert:: With respect, Mr. Chairman, may I point out to hon. members opposite that we are here dealing with a ways and means resolution. They have been quoting from Beauchesne on matters dealing with other types of motions. I would respectfully submit that citation 266 is the only one that is germane. We are dealing with a ways and means resolution. Therefore citation 266 (4) as cited by the minister is completely applicable and that should be the ruling.


John Whitney Pickersgill: On the point made by
the hon. member for Edmonton West, may I say this. The only way in which a tax change can be made is by a ways and means resolution. What the hon. member is saying is that the citation which Your Honour read as the most relevant one does not mean anything at all. It is impossible that Your Honour could have been so mistaken.


Mr.   Chairman@: Order. This point of procedure has somewhat complicated my existence tonight. Many points of view on this matter have been expressed. It is my opinion that, in accordance with paragraph 265 (1), this duty members may perform by moving amendments to reduce the taxes proposed by the administration. Actually, it is my personal opinion that the amendment moved by

the hon. member for Trinity has been badly framed and is not explicit enough. For instance, it is quite obvious that if paragraph 1 were eliminated by the committee, the succeeding paragraphs would move up one, that paragraph 2 would become paragraph 1 and so on. If actually the desire of the hon. member for Trinity and his colleagues in the opposition is that the taxes be reduced to their former level, their amendment should have been written in such a way as to imply as much.
As I understand it at present, there have been many decisions on this matter of an amendment in the past which are similar to this one. I have in front of me a ruling which was made in the House of Commons in Westminster, and there are other rulings available which may be somewhat contradictory. Therefore, if it is agreeable to the house I would like to consult over this matter and render a decision tomorrow based on the various facts and authorities which will be collected. Shall we then proceed with paragraph 2 and revert to paragraph 1 tomorrow when such decision will have been reached?


Paul Theodore Hellyer: That suggestion will be agreeable to us, Mr. Chairman.
Paragraph stands.
Paragraphs 2 and 3 agreed.
On paragraph 4.


Joseph Pierre Albert Sévigny: Is there any discussion on paragraph 4?


David Rodger Mitchell: Mr. Chairman, I would like to reiterate what I said in the budget speech about the changing of the tax level from the manufacturer to the packager, and about the discrimination between certain types of retail outlets. With this in view anything I may say refers to the cosmetic field, the same as it does to the pharmaceutical field. A level of the tax where you put the packager into the manufacturers' level is creating discrimination between retail outlets. Should a retailer be able to buy in sufficient quantities from the manufacturer and pay the sales tax at his level, he would naturally be paying 11 per cent tax. But when the packager who is now classified as a manufacturer buys the same product from the manufacturer and turns it out to his retail outlet plus his own costs, he would have to include it in his costs and turn it over to a retail outlet not within his own company. I am speaking of a wholesaler when I say this. He must take into account in his packaging the cost of his bottle, his label, his labour and his control. I am advised by one of the largest retailing and wholesale outfits in Canada, certainly

one of the largest under the same roof in the North American continent, that the cost to his retail outlet will be exactly doubled. For argument's sake, if the cost of tablets, say, at the manufacturing level, was $1, by the time he would receive and package them the cost would increase to $2. Therefore the pass-on would be 22 cents as against 11 cents in the case of $1.
I am reiterating what I said, Mr. Chairman, in the budget debate, that this tax is discriminatory as between certain types of outlets. I am now speaking about where there is no wholesaler in between a manufacturer and his retail outlet. In other words, certain large organizations would buy in the necessary quantities required from the manufacturer. They could do their packaging in their own warehouse or in their retail store, it would make no difference. It would still be under the same organization, and they in turn could sell to the consumer at manufacturer's cost or his 11 per cent mark-up. He would have an advantage over the packager, whom I will call the wholesaler, who would have to add the extra tax to his cost of doing business before it is passed on to his retail outlet over which he has no control.
I claim that this is discrimination and is to the advantage of the larger organizations, and certainly to the disadvantage of the smaller retailer. Any way you look at it, Mr. Chairman, the cost of this merchandise to the eventual consumer is increased. If it goes through a wholesaler who is now classified as a packager and in the same category as a manufacturer, the tax is collected at a higher level. Therefore the tax being passed on naturally has to be at a higher level to the person who is retailing it to his customer.
I do not think the minister feels this is the proper approach to this, because it is favouring some sides of the retail outlet and is discriminating against others who have not
Business of the House
the in-between facilities, shall I say, that the larger retailer would have. There is many an outlet from coast to coast, Mr. Chairman, which has one purchasing unit and does not need to pass on the tax through a wholesaler but instead passes it on through its own organization, whether they package it in their own warehouse or in their own retail outlet, be it at Vancouver or Halifax. They are not in the same category as the so-called packager who is being classified as a manufacturer, but the tax is assessed at the manufacturers' or packagers' cost rather than at the retailers' cost, which seems to me is an increase in tax of over 100 per cent.
Progress reported.
Resolutions reported and concurred in.



BUSINESS OF THE HOUSE

Lionel Chevrier: May I inquire of the house leader what the business of the house is for tomorrow and the rest of the week.


Mr. Green:: Tomorrow we shall continue with the discussion of budget resolutions, and then take item No. 13, which is a resolution preceding a bill to amend the Unemployment Insurance Act. Then we will take the two veterans affairs bills which have come back from the standing committee on veterans affairs, items Nos. 2 and 3 on today's order paper. Then we will take item No. 8, the second reading of an act to amend the Federal-Provincial Tax-Sharing Arrangements Act; items Nos. 11 and 12, two resolutions, one having to do with the Defence Services Pension Act, and the other with the pensions of the Royal Canadian Mounted Police. I think we will be taking labour estimates on Thursday.


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