1963-07-19

Mr. Stanley Knowles (Winnipeg North Centre):: Mr. Speaker, I rise on a question of privilege. Yesterday afternoon when the Minister of National Health and Welfare was speaking in committee of the whole she asked permission to table what was referred to as a white paper on the Canada pension plan, and that it be printed as an appendix to Hansard. Mr. Deputy Speaker, who was in the chair at that time, said this at page 2346 of Hansard:
The document to which the minister refers, of course, cannot be tabled now in committee. It can be circularized and left informally at the table, but official tabling for the purpose of insertion in Hansard could be done when the Speaker is in the chair.
Later, as reported at page 2350, Mr. Speaker, who I believe was the same Deputy Speaker, said:
Has the Minister of National Health and Welfare leave to table the documents to which she referred in committee of the whole?


Some hon. Members:: Agreed.
I am sure we all believed that as a result the white paper referred to would appear as an appendix to yesterday's Hansard. Unfortunately it does not. I am sure the minister will agree that there was even more in the white paper than in her speech, and that it should be made an appendix to Hansard. I hope the house now agrees that it be made an appendix to Hansard for today.


Mr. Speaker:: Is it agreed?


Some hon. Members:: Agreed.
lEditor's note: For text of document referred to above, see appendix.]
(Translation):



REFERENCE TO ARTICLE IN NEWSPAPER

[Stage Direction]
"LE devoir"
On the orders of the day:
Mr. Gerard Girouard (Labelle):: Mr. Speaker, I rise on a question of privilege. An editorial published in this morning's he Devoir reads as follows:
In the Commons, a spokesman for the Social Credit party stated bluntly that if Ottawa takes the lion's share of taxes, it is quite natural that the federal government should shoulder heavier responsibilities.
Mr. Speaker, to the knowledge of all members of our party, no one ever made such a statement in the house. Indeed, it would be in contradiction with our policy. I wanted to call that fact to the attention of the house and of the press.
(Text):



FINANCE


[Stage Direction]
On the orders of the day:
Right Hon. J. G. Diefenbaker (Leader of the Opposition):: Mr. Speaker, in the absence of the Prime Minister would the Acting Prime Minister say what action, if any, the Canadian government has taken since the announcement yesterday of President Kennedy's new system of taxation on securities? Do the government realize today what it did not realize yesterday, that what is being done affects Canada to a tremendous degree, and beyond any other country?


Hon. Lionel Chevrier (Acting Prime Minister):: Mr. Speaker, my understanding of a question is that it is to seek information and not to make statements such as the Leader of the Opposition has made on a matter which is of tremendous importance to the economy of this country. Now, to deal with the question which the Leader of the Opposition asked me, ah I can say at the present time is that the minister of external affairs has had a discussion with the ambassador for the United States. Since the minister is not in the house, as he and the Prime Minister are both at the airport at the moment, I am not able to give to the house the result of those conversations.


John George Diefenbaker: Mr. Speaker, in response to the gratuitous remarks of the minister may I say this. Yesterday, as reported at page 2331 of Hansard-


Some hon. Members:: Order.


John George Diefenbaker: - I asked the Prime Minister this question:
Is it not a fact that Canada is the one nation that will be directly affected to a greater extent than any other?

Inquiries of the Ministry
The answer to that question was no, with qualifications. Now today it is shown that Canada is the nation most affected. I now ask the Acting Prime Minister, who I think gave a most off-hand answer to a matter which affects Canada as this does, has consideration been given, or is consideration being given, to Canada taking the initiative and proposing a conference on investment and finance attended by the 22 countries affected, four of which are commonwealth countries? Canada more than any other nation is going-


Some hon. Members:: Order.


John George Diefenbaker: I am asking-


Some hon. Members:: Order.


Mr. Speaker:: Order. The Leader of the Opposition I think is coming to his question now.


John George Diefenbaker: Mr. Speaker, I was
diverted from it as a result of the answer I received. I am asking the minister whether he does not think parliament should be given more information than he or anyone has yet given. Particularly I ask whether consideration is being given to such initiative being exercised.


Lionel Chevrier: Mr. Speaker, the prime minister-


Some hon. Members:: Oh, oh.


Lionel Chevrier: -the Leader of the Opposition, who evidently thinks he is still prime minister because of the manner in which he poses his questions, makes speeches when he knows full well that he has no right to do so having risen to say it is in response to the reply received from me. Then he went on in the manner in which he has, and I think he should be treated in the same way as any other member of this house.
In so far as the question is concerned, I shall see that it is brought to the attention of those under whose responsibility it comes, and he will get his reply in due course.


John George Diefenbaker: Petulance is no substitute for information.


Lionel Chevrier: We got an example last night of what the Leader of the Opposition can do.


John George Diefenbaker: Peevishness and petulance are no substitute for information, Mr. Speaker.


Lionel Chevrier: Neither is arrogance on your part.
(Translation):


Mr. L. J. Pigeon (Jolielle-L'Assomplion-Monlcalm):: Mr. Speaker, I should like to direct a question to the Acting Prime Minister. Following the announcement made by President Kennedy which will affect the Canadian economy, does the government intend

to open negotiations for the installation of a direct telephone line between the Prime Minister's office and the White House so that there may be more frequent consultations?
(Text):


Mr. Speaker:: Order. I hope hon. members are not going to begin a practice of asking supplementaries which are in effect new questions. It would lead to all sorts of confusion.


Mr. Gilles Gregoire (Lapointe):: I wish to direct a question to the Minister of Finance. Is the Canadian government taking any steps to provide Canadian capital to replace United States investment which will be coming here in decreased amounts in the next few years?


Hon. Walter L. Gordon (Minister of Finance):: This question has been under study for several months now, and it is still under study.


Mr. T. C. Douglas (Burnaby-Coquitlam):: wish to ask the Minister of Finance whether he anticipates that the tax on foreign securities suggested by President Kennedy will have an adverse effect on Canada's exchange position. If so, what steps does the government intend to take to safeguard Canada's exchange position?


Walter Lockhart Gordon: As I said yesterday, I think it is too early yet to speculate or guess what may be the full implications of this proposal of the President. I am not in a position to answer the hon. member's question directly, but I can assure him that this matter is being carefully watched-I was about to say hour by hour, but perhaps I should say it is being watched almost continuously.


John George Diefenbaker: I should like to ask the
affable Secretary of State for External Affairs what representations have been made to the government of the United States. Have there been any discussions following the astounding announcement made yesterday by the president?


Hon. Paul  Marlin@Secrelary of Slate for External Affairs: Mr. Speaker, may I say to the affable Leader of the Opposition, about whose position in this house, as he knows, I never really had any doubt, that I did see the United States ambassador last night. As the prime minister knows, it is not the custom nor would it be desirable-


Some hon. Members:: Oh, oh.


Mr.   Marlin@Essex Easl: -and I am sure the Leader of the Opposition knows too- that it would not be appropriate to reveal discussions between the ambassador of another country and the government. The Leader of the Opposition may assume that this matter

which obviously deserves attention was carefully and usefully explored between the ambassador and myself on behalf of the government.


Hon. Leon Balcer (Three Rivers):: Mr. Speaker, I should like to direct a question to the Prime Minister. In view of the fact that in the first half of 1963 new Canadian securities floated in the United States amounted to $590 million, representing 67 per cent of all new foreign securities purchased by Americans during that period, would the Prime Minister agree that Canada is going to be more affected than any other nation by the new tax imposed by President Kennedy?


Right Hon. L. B. Pearson (Prime Minister):: Mr. Speaker, the effect of this move on Canada is now being considered, and it would be idle to speculate as to the extent to which it affects Canada in comparison with the other 21 countries.


Mr. Eldon M. Woolliams (Bow River):: should like to address a question to the Minister of Finance. Due to the fact that yesterday the Prime Minister left the impression that a messenger came from the United States treasury department to discuss with the government the implementation of the new United States tax, can the minister give us the name of that messenger?


Walter Lockhart Gordon: Mr. Trued.


Mr. G. L. Chaiierlon (Esquimalt-Saanich):: Mr. Speaker, I have a question for the Minister of Finance. In view of the reported statement by the premier of British Columbia that the new United States tax would not affect the Columbia river development, has the minister been able to establish whether the new tax, if approved by congress, would apply to United States investment in the Canadian downstream benefits?


Walter Lockhart Gordon: I am very sorry, Mr. Speaker, but I have not seen the statement by the premier of British Columbia.


George Louis Chatterton: A supplementary question, Mr. Speaker. Would the minister be good enough to have his officers look into the question as to whether this tax would apply to United States investment in the Canadian downstream benefits?


Walter Lockhart Gordon: I would be glad to do this, Mr. Speaker, but I think hon. members will appreciate that all that has happened so far is that the president has made certain proposals. These proposals are not even going to be considered by congress for some weeks, until some time in August and-
Inquiries of the Ministry


An hon. Member:: He may have to withdraw them.


Walter Lockhart Gordon: As the hon. gentleman has just said, he may have to withdraw them or make some changes in them, as sometimes happens.


Hon. George C. Nowlan (Digby-Annapolis-Kings):: Mr. Speaker, I would like to ask the Minister of Finance whether the tax proposals of the United States President to congress become operative as from the time of his statement, as they do here in the House of Commons, or does he have to wait until congress actually passes the legislation before they become effective?


Walter Lockhart Gordon: As I am sure my hon. friend knows, Mr. Speaker, they become operative when they are passed by congress.


Thomas Clement (Tommy) Douglas: Might I ask a question of the Minister of Finance. A few moments ago he said that the legislation proposed by President Kennedy may not pass congress for some time. That is true, but is it not equally true that the tax will be due and payable, in the event that the legislation passes, as of today, July 19?


Walter Lockhart Gordon: Mr. Speaker, that was in the proposal of the President but I assume it can be changed by congress. If congress passes the legislation in the form requested by the president, then it will be effective as from July 19.



INQUIRY AS TO DATE OF APPOINTMENT OF SPECIAL ASSISTANT

[Stage Direction]
On the orders of the day:
Stanley Howard Knowles: Mr. Speaker, is the Minister of Finance yet in a position to answer my question of Wednesday as to how it was that Mr. Conway started to work for him the day before the hon. gentleman became Minister of Finance?


Walter Lockhart Gordon: Mr. Speaker, I was going to answer this question. I have not read the material before me but I will do so as I answer the question.


George Clyde Nowlan: That is dangerous.


Walter Lockhart Gordon: I had this prepared by treasury board. The hon. member for Winnipeg North Centre asked how it was that Mr. Conway was appointed or commenced work on April 21, the day before the government itself was sworn in.
Under the financial arrangements made with Mr. Conway he was entitled to a living
2386	HOUSE OF
Inquiries of the Ministry allowance for each day he was absent from his normal place of residence, and a professional fee for each day he was engaged in his duties with the Department of Finance. In addition, he was entitled to receive transportation expenses.
The pertinent regulations provide that entitlement to a per diem living allowance commences when a person leaves his normal place of residence en route to the new location where he will be performing his duties. Mr. Conway left his normal place of residence, which was Boston, by air at 7 p.m. on Sunday, April 21, in order to start work in Ottawa on Monday, April 22. Mr. Conway was entitled to, and received, for April 21 reimbursement of his transportation expenses, which commenced with his journey from Boston on April 21, and reimbursement for one half day's living allowance for April 21. He had to spend the night here. His professional fee did not commence until April 22.
Because Mr. Conway was entitled to, and received, reimbursement for travelling and living expenses incurred on April 21, that date was given as his commencement date. I would just add that perhaps it would have been more correct to have inserted April 22 rather than April 21, in reply to question No. 877, asked by the hon. gentleman, but that was the point. I was not prepared to say definitely with regard to that because I had not had the chance to review the question.


Stanley Howard Knowles: On a question of privilege, may I point out that the treasury board minute, the validity of which I question, under which Mr. Conway was appointed was not passed until May 2. That raises some question about Mr. Conway and the others working with the Minister of Finance before that date. I think a very serious question now arises as to how Mr. Conway knew before the present minister became Minister of Finance, which was on April 22, that he was to be required as an assistant to the minister and thus made the decision to leave Boston the day before.


Walter Lockhart Gordon: All I can say is that perhaps on Sunday, the 21st, I had some premonition that I might become Minister of Finance on the following day.


Stanley Howard Knowles: Had the Minister of Finance authority to provide payment to an assistant who was an outsider covering the day before the present Minister of Finance was made minister?


Mr. Pickersgill:: On a point of order, Mr. Speaker, I wonder if that question is not more proper for the Auditor General than for orders of the day?


Mr. Horner (Acadia):: Something should be looked into here.


Mr. Speaker:: I suggest to hon. members that perhaps we have pursued this subject far enough at this time.
Some hon Members: No.


Mr. Speaker:: I think the proper place would be on the discussion of the various resolutions, but certainly on the question period it seems to me we have had a full enough discussion.


Thomas Clement (Tommy) Douglas: Mr. Speaker, on the point of order surely this is not a matter for the Auditor General; it is a matter for the house if the treasury board, which at that time had not met, is faced with having the responsibility of paying someone who was hired by the minister prior to his taking office.


Walter Lockhart Gordon: I think we have had a fair amount of discussion about Mr. Conway and the other three gentlemen I got to assist me, but I wonder whether I might say this about Mr. Conway's position. Mr. Conway is a student at Harvard. I asked him to come up here to do a job.


An hon. Member:: What a job.


John Whitney Pickersgill: Let him finish.


Walter Lockhart Gordon: If his appointment had not been approved in the proper way by treasury board then either Mr. Conway or I would have been responsible for travelling expenses incurred. I really do not think any member of this house would expect a Harvard student to pay his own way up from Boston. He is not in a position to do so. He came here to work for this government and he did work for this government. He is still working for it indirectly, through the tax commission. I do not think we should get into too much of a discussion as to the propriety of treasury board paying this man's travelling expenses from Boston.


Gilles Grégoire: I should like to ask the Minister of Finance how come he hires students to help prepare 'the budget.


Walter Lockhart Gordon: Because in my opinion young men and women are usually pretty bright.


Mr. Valade:: Does the Prime Minister intend to have this student run in the next election in place of the present Minister of Finance?



UNITED NATIONS


[Stage Direction]
On the orders of the day:
Hon. Marcel Lambert (Edmonton West):: should like to direct a question to the Secretary of State for External Affairs. I wonder

if the minister is in a position to advise the house as to the government's reaction and proposed policy in regard to a recommendation by a committee of the United Nations that an embargo should be imposed against South Africa.


Hon. Paul Martin (Secretary of State for External Affairs):: This question is under consideration. As the hon. gentleman perhaps knows, the security council will be meeting some time next week, I believe, when certain aspects of this question will be discussed. The Canadian government is following this subject with careful attention. Its policy will be announced at the appropriate moment.



COLUMBIA RIVER


[Stage Direction]
On the orders of the day:
Mr. H. W. Herridge (Kootenay West):: Mr. Speaker, I wish to address a question to the Secretary of State for External Affairs. In view of the fact that the deputy minister of northern affairs and national resources and several officials of the water resources branch have been circulating an article on the Columbia river power plan written by Mr. Paddy Sherman, a journalist for the Vancouver Province, as an objective and accurate report in all important respects to persons seeking information from that branch about the Columbia river treaty, will the minister inform the house if the circulation of Mr. Sherman's article has been authorized by the minister? If so, will the minister assure the house that the government considers Mr. Sherman's report objective and accurate in all important aspects?


Paul Joseph James Martin: Mr. Speaker, the government, of course, is not responsible for the circulation of newspapers from or to any part of the country, including the excellent newspaper in Vancouver for which my hon. friend apparently does not have the same regard that I have. I can only say that Mr. Sherman's article is, in its essentials, an accurate account of the situation.



PASSAMAQUODDY


[Stage Direction]
On the orders of the day:
John George Diefenbaker: Some days ago I asked the Prime Minister whether the Passamaquoddy project was discussed at the Hyannis Port conference, and also whether there had been any discussion between the governments of
Inquiries of the Ministry Canada and the United States prior to the announcement made by Mr. Udall.


Lester Bowles Pearson: I think I told the right hon. gentleman I would look into this matter. I regret I have not done so, but my recollection is that what I told the Leader of the Opposition is correct, namely that there was no discussion. I am sorry I have not confirmed that impression, and I will do so at once.



INQUIRY AS TO INITIAL PRICE

[Stage Direction]
On the orders of the day:
John (Jack) Henry Horner: Mr. Speaker, I should like to direct a question to the Minister of Trade and Commerce. It stems from the report issued by the Canadian Press that the wheat board has announced that payments on the new crop after August 1 will perhaps be deferred and cash storage tickets will be issued because the initial payment has not been announced by the government. Is the minister now in a position to announce the initial payment for the coming crop year?


Hon. Mitchell Sharp (Minister of Trade and Commerce):: Mr. Speaker, as I said in the house the other day, initial payments will be announced within the next few days. I would remind my hon. friend that last year initial payments were announced by his government on August 6.


John (Jack) Henry Horner: July 6.


Mitchell William Sharp: August 6.


John (Jack) Henry Horner: July.
(Translation):



DIVORCE


[Stage Direction]
On the orders of the day:
Louis-Joseph Pigeon: Mr. Speaker, may I direct a question to the Secretary of State? With reference to the question I put to the Minister of Justice (Mr. Chevrier), I wonder whether the Secretary of State intends to consult the government of the provinces of Quebec and Newfoundland, as well as the religious authorities of those provinces, before introducing legislation with a view to preventing divorce bills from being submitted to the house, or is he contemplating another course of action?
(Text):


John Whitney Pickersgill: Mr. Speaker, the government has no thought or intention of presenting any legislation
2388	HOUSE OF
Inquiries of the Ministry whatever on this subject, therefore the question does not arise. The question of what should be done with these private bills is a matter for both houses of parliament. The members of the government have no more responsibility in that matter than any other member of parliament.


EXTERNAL AFFAIRS
[Stage Direction]
On the orders of the day:
Hon. J. A. MacLean (Queens):: I should like to ask the Secretary of State for External Affairs if he has any statement to give to the house on the preliminary talks which are reported to have taken place between Canada and the United States and some other countries with regard to the historic fishing rights which those countries claim in the waters adjacent to Canada's coasts?


Paul Joseph James Martin: There have not been any such talks as yet. It is possible that talks on the 12 mile limit and on the negotiations with regard to historic rights may take place some time toward the end of August.


John Angus MacLean: The press reports to the effect that preliminary talks have already taken place are not correct?


Paul Joseph James Martin: I cannot add anything to what I have already said.


Mr. D. V. Pugh (Okanagan Boundary):: May
I ask a supplementary question. Are nationals from other countries still fishing within the 12 mile limit of Canada's coasts, according to historic rights?


Paul Joseph James Martin: Perhaps my hon. friend will allow me to take that question as notice, and I will give an answer later.


[Stage Direction]
On the orders of the day:
Stanley Howard Knowles: Mr. Speaker, may 1 direct a question to the Secretary of State for External Affairs. Could the minister tell us whether the United Kingdom and the United States have asked Canada to join in air exercises or air protection for India; can the minister say whether a decision has been made and, if so, when the decision was made?


Paul Joseph James Martin: Mr. Speaker, I thank my hon. friend for giving me notice of his intention to ask this question. There have been


discussions on this subject between the governments of the United States and the United Kingdom. There have been a number of reports from abroad which were highly inaccurate, particularly in their references to the possible role of Canada in relation to this matter. It has in fact been well known for more than six months that for a number of reasons, including the lack of appropriate equipment, Canada would not be making its contribution to India's defence needs in the way suggested by these reports from abroad.
This decision was taken by the former government in January of this year, and it was reaffirmed by Canada to the United Kingdom in the month of June. As I indicated on July 16, our contribution has taken other forms which we have reason to believe were most welcome to the government of India. I can assure the house that the military, political and economic considerations were exhaustively studied by the Canadian government before it reached the decision and before there was confirmation of that decision. The Canadian government is fully aware of its commonwealth responsibilities and has kept in close touch with the government of India and other governments concerned with that country's defence needs; and we will continue to do so.



OLD AGE SECURITY


[Stage Direction]
On the orders of the day:
Stanley Howard Knowles: Mr. Speaker, I should like to direct a question to the Secretary of State. In view of the very definite announcement that was made on the C.B.C. news at eight o'clock this morning that Deputy Speaker Lamoureux would today give his ruling on the proposed amendment regarding the $10 increase in old age security payments, will the Secretary of State say whether house business for today is being arranged so that the C.B.C.'s information will turn out to be correct?


John Whitney Pickersgill: I heard the news report to which the hon. gentleman referred, and I wondered whether perhaps it did not suggest that at times it would be useful to have someone to advise on parliamentary procedure even in places other than parliament.



DECISION TO POSTPONE PAYMENT OF INCREASE

[Stage Direction]
On the orders of the day:
Mr. George Muir (Lisgar):: Mr. Speaker, I wish to address a question to the Minister of Finance. Would the minister tell us whether the government's decision to repudiate its

commitment to increase immediately old age pension by $10 a month was made before or after the budget fiasco?


Walter Lockhart Gordon: The government has not repudiated any commitment, Mr. Speaker.



AGRICULTURE


[Stage Direction]
On the orders of the day:
Mr. C. S. Smallwood (Battle River-
Camrose): On July 16, Mr. Speaker, I directed a question to the Minister of Agriculture, and asked him if he had issued an order that anyone wishing P.F.A. work in Alberta must apply to the office in Regina. He informed me he would let me know the next day. On Wednesday he was not in the house, and I received no reply yesterday. Being a very patient man, I wondered if I could expect a reply today.
Hon. Harry W. Hays (Minister of Agriculture):: In reply to the hon. member I would inform him that I have had a reply here for a couple of days, but each time I stood up he was momentarily out of the house.
The policy regarding applications for work with P.F.A.A. in each of the three prairie provinces is that these are to be directed to the director, P.F.A.A., who supervises the administration of the program and whose office is located in Regina. Instructions to the director of P.F.A.A. to follow this procedure were sent to him by officials in Ottawa. I might say that this was done on my direction, and I have impressed upon the department that all these appointments must be made on merit because we also have a responsibility to the taxpayers.


Mr. Smallwood:: I rise on a point of privilege, Mr. Speaker. The Minister of Agriculture said I was not in the house momentarily. He was not in the house all day on Wednesday, and I have been here all the time.


Mr. Speaker:: Order. I think the hon. member has received his answer.



INQUIRY AS TO PROGRAM FOR SCHOOL


[Stage Direction]
On the orders of the day:
Mr. S. J. Korchinski (Mackenzie):: Mr. Speaker, I have a question for the Minister of Agriculture. Is he in a position to advise what progress is being made in the milk program for school children, and whether this program will be in effect for the coming school year?
Inquiries of the Ministry


Harry William Hays: We are working on this program, Mr. Speaker, and we expect to make an announcement fairly soon.



FORT ST. JOHN, B.C.    REPORTED REQUEST FOR ASSISTANCE

[Stage Direction]
On the orders of the day:
Mr. Bert Leboe (Cariboo):: Mr. Speaker, I would like to address a question to the Minister of Agriculture. I believe Mr. Frank Ward of the farmers' union of British Columbia has written him concerning the crop situation in the Fort St. John area and asked that it be declared a disaster area. Has the minister anything to tell the house at this time in that connection?


Harry William Hays: Mr. Speaker, I have been in touch again with the minister of agriculture for British Columbia, and he is watching the area. Anything in this regard will have to be initiated by him. He is aware of this, and we are in consultation with him.



ADVERTISING


[Stage Direction]
On the orders of the day:
Mr. David Orlikow (Winnipeg North):: Mr. Speaker, I wish to address a question to the Prime Minister. Is Mr. Keith Davey an employee of the government of Canada and, if so, in what department? I ask this because in this morning's Globe and Mail Mr. Davey is reported-


Some hon. Members:: Order.


David Orlikow: -to the effect that government expenditures on advertising-


Mr. Speaker:: Order. Would the hon. member please come to the question? Preliminary statements should be short and to the point.


Lester Bowles Pearson: Mr. Speaker, the answer to the first part of the question is no.


David Orlikow: Then a supplementary question, Mr. Speaker. How could Mr. Davey announce what government expenditures on advertising are to be, if he is not an employee of the government, as reported in the Globe and Mail?


Mr. D. M. Fisher (Port Arthur):: A supplementary question, Mr. Speaker. I would like to put it to the Prime Minister that we desire an answer to the question relating to the statement of Mr. Davey setting out the advertising expenditures of the government.

Inquiries of the Ministry


Lester Bowles Pearson: Perhaps he has read the estimates.


Douglas Mason Fisher: Could the Prime Minister explain how the firms are listed in the estimates? It is a mystery to me, and perhaps the Prime Minister could tell me.


Thomas Clement (Tommy) Douglas: Mr. Speaker, may I direct a question to the Prime Minister. Is the announcement by Mr. Davey regarding the various advertising allocations by different departments and the firms who are to receive the very large sums of money an accurate report? If so, who authorized Mr. Davey to make it?


Lester Bowles Pearson: I have not seen the report, Mr. Speaker, so I cannot comment on its accuracy, but I will be glad to look into it.


Hon. Michael Starr (Ontario):: 
Douglas Mason Fisher: Mr. Speaker, I should like to ask the Minister of Trade and Commerce a question in his capacity as the minister responsible for the Canadian government travel bureau. I would like to ask the minister whether he approved the switches in the large advertising accounts put out by the Canadian government travel bureau to McLaren's and Colliers, as announced by the national director of the Liberal party?


Mitchell William Sharp: Mr. Speaker, I approved the appointment of the advertising agencies in the areas for which I have responsibility, including the travel bureau.


Douglas Mason Fisher: A supplementary question, Mr. Speaker. Could the minister indicate whether he forwarded the information about his approval to Mr. Davey and thus led to this unusual announcement?


Mitchell William Sharp: Mr. Speaker, I do not know whether this is unusual or not. I think these things are fairly well known. I did not personally forward this information to Mr. Davey. However, it is the sort of information that must be pretty well known by now, since I have changed the advertising agencies responsible for the work in my department.


Gilles Grégoire: I have a supplementary question, Mr. Speaker. I would

like to ask the Minister of Trade and Commerce whether he changed the advertising agency because the former one was not a good agency.


Mr. Speaker:: The hon. member for
Burnaby-Richmond.


Gilles Grégoire: Mr. Speaker, I think there must have been some reason for changing the advertising agency.


Some hon. Members:: Oh, oh.


Mitchell William Sharp: I think the advertising agencies that I appointed will do the work very satisfactorily indeed.


Gilles Grégoire: That is not the question I asked the minister.


Some hon. Members:: Oh, oh.


Gilles Grégoire: The question was, were there any reasons for the change?


Lester Bowles Pearson: Mr. Speaker, perhaps I can answer that question by saying that the reasons were the same as those which inspired the government in 1957 and 1958.


Gilles Grégoire: Mr. Speaker-


Mr. Speaker:: Order. I am sorry; we are entering upon a debate, and I think we have gone far enough.


Gilles Grégoire: Mr. Speaker, on a point of order-


Mr. Speaker:: The hon. member for
Burnaby-Richmond.


Gilles Grégoire: On a point of order-


Mr. Speaker:: Order. I am sorry, but the rules of the house apply to the hon. member also.


Gilles Grégoire: On a point of order, Mr. Speaker, I did not make any debate about it; I just asked a question, and because of the answer of the Prime Minister I think we are entitled to more explanation than we have had. The fact that the previous government did that is no reason for doing it any more. I would like to ask the Prime Minister whether this is what is called good patronage.


Mr. Speaker:: The hon. member for Burnaby-Coquitlam.


Thomas Clement (Tommy) Douglas: A supplementary question, Mr. Speaker. Could I ask the Prime Minister whether any of the advertising companies which have now been selected are those companies which handled the Liberal party's election campaign.


Lester Bowles Pearson: Mr. Speaker, I am not well informed on those questions.


Some hon. Members:: Oh, oh.


Stanley Howard Knowles: Mr. Speaker, 1 should like to direct a question to the Secretary of State. Is it the intention of the government to propose an amendment to the Canada Elections Act requiring that political parties show the sources of their contributions, including those from advertising firms?


John Whitney Pickersgill: Mr. Speaker, I have never been more grateful to have a question than I am to the hon. member for Winnipeg North Centre who, it seems to me, at times almost reads my mind; because I have been seeking-


An hon. Member:: It won't take long.


Some hon. Members:: Oh, oh.


John Whitney Pickersgill: As a matter of fact, if something is clear it never takes long to understand it. The reason I am grateful to the hon. gentleman is that I have been seeking, through consultations with hon. gentlemen opposite, to get agreement to having a motion made to refer the report of the Chief electoral officer to the committee on privileges and elections, without debate, so we could get that committee set up at once to consider these proposed amendments to the elections act. If it would be agreeable to the house we could perhaps revert to motions and I would make that motion now; it could be adopted at once, and then the hon. gentleman's curiosity could be satisfied.


Some hon. Members:: Hear, hear.


Stanley Howard Knowles: Mr. Speaker, we do not need to revert to motions. The notice of the motion is already on the order paper; it is a government order. When we reach government orders today the minister could call it, and I can say that we are prepared that the motion pass without being debated. May I ask the minister if he will now answer my question as to whether, when these matters go before that committee, there will be a recommendation by the government that the contributions of advertising firms to political parties should be reported.


John Whitney Pickersgill: Mr. Speaker, I would not seek to anticipate at this time any of the recommendations that might be made by the government in regard to a bill to come before this house, because I am sure the hon. gentleman would be able to find in some corner of the commentaries on the rules some exception that could be taken to that.


Gilles Grégoire: Mr. Speaker, I should like to direct a question to the Minister of Trade and Commerce and ask him whether there
Inquiries of the Ministry are some French Canadian advertising agencies among the new agencies of his department?


Mitchell William Sharp: Mr. Speaker, I should like to have some notice of this question. I am not certain as to how the advertising agencies which have been appointed are handling their business. It is my understanding that there are some sub-agencies involved, but I am sure that there would be provision in the agencies for handling the business in the French language in an adequate manner.


Thomas Clement (Tommy) Douglas: Will Mr. Davey make an announcement regarding this?
(Translation):


Mr. Marcel Lessard (Lake St. John):: Mr. Speaker, I should like to direct a supplementary question to the Minister of Trade and Commerce. Are government publicity contracts awarded after tenders have been called?



DOMINION-PROVINCIAL CONFERENCE ATTENDANCE OF MEMBERS OF OPPOSITION PARTIES

[Stage Direction]
On the orders of the day:
Gilles Grégoire: Mr. Speaker, I should like to put a question to the Prime Minister. Could he tell us whether he has approached the provincial premiers on the subject of admitting members of opposition parties, as observers, to the federal-provincial conference which has been convened for July 26 and 27 next?
(Text):


Lester Bowles Pearson: No, Mr. Speaker, I have not taken any such steps.



WHEAT-REPORTED SALE OF REDUCED QUANTITIES TO RED CHINA

[Stage Direction]
On the orders of the day:
John (Jack) Henry Horner: Mr. Speaker, I would like to direct a question to the Minister of Trade and Commerce. Can the minister confirm the report in today's Globe and Mail that Canada is finalizing a sale half the size of the original wheat sale to China, which was something like 74 million bushels of wheat, over the next two years?


Mitchell William Sharp: No, Mr. Speaker, I cannot confirm that.


John (Jack) Henry Horner: Mr. Speaker, I have a supplementary question. I did not quite get the minister's answer, but I think I understand it now. Can he assure the house that every effort will be made, in view of the
2392	HOUSE OF
Inquiries of the Ministry prospective crop in western Canada, to make this sale at least half the size of the original sale?


Mitchell William Sharp: Mr. Speaker, in all these negotiations there are two sides that have to be satisfied. I could not possibly give any assurance like that. I can, of course, give an assurance that the Canadian wheat board, which has the responsibility in these matters, will make as large a wheat sale to China and our other customers as is possible. I am sure the hon. gentleman will agree that the wheat board is doing its best on behalf of the western producers of wheat.


John (Jack) Henry Horner: I realize the wheat board is doing its best to sell Canadian wheat, but is the government prepared to facilitate the wheat board by providing the necessary credit to make these sales as large as possible?


Mitchell William Sharp: The answer to that question is yes.
(Translation):



NATIONAL DEFENCE


[Stage Direction]
On the orders of the day:
Louis-Joseph Pigeon: Mr. Speaker, I should like to direct to the Associate Minister of National Defence a question which follows from a conversation I have had with him. Does the government intend to provide for a complete course at the Royal Military College of St. John such as the one now given at Kingston?


Hon. Lucien Cardin (Associate Minister of National Defence):: Mr. Speaker, that question has been under consideration for some time within the department. My hon. friend is aware that, in the course given in Kingston, students specialize in the field of engineering. On the other hand, an inquiry is now being made to determine whether a course other than that of engineering could not be given at the Royal Military College of St. John.
(Text):



ATLANTIC DEVELOPMENT BOARD


[Stage Direction]
On the orders of the day:
Mr.  R. Gordon L. Fairweather@Royal: Mr. Speaker, I have a question for the Secretary of State. Will he undertake to better define the scope of the Atlantic development board immediately, as requested by the four Atlantic premiers at their meeting in Fredericton this week?


John Whitney Pickersgill: Mr. Speaker, I wonder if I could ask the hon. 

gentleman to repeat his question. I was; listening as attentively as I could but I did not hear it all.


Mr. Fairweather:: I am sorry I did not make myself clear. Will the minister undertake to better define the scope of the Atlantic development board, as requested by the premiers of the four Atlantic provinces, who-met this week in Fredericton?


John Whitney Pickersgill: Mr. Speaker, the premiers made no such request to me. The premier of New Brunswick telephoned me, as I already told the house, and asked to have a meeting, which has been arranged for next Thursday at five o'clock. The purpose of the meeting is to discuss the methods by which all governments concerned can co-operate in carrying out these aims, and the premiers are naturally anxious to know what is in mind. In order to make the conference more successful I have asked my hon. friend the Minister of Defence Production who, as is understood by the house, will be in charge of the department of industry, and therefore, of the area development agency, to be present at the meeting.
(Translation):



WORLD FAIR


[Stage Direction]
On the orders of the day:
Georges-J. Valade: I should like to direct a question to the Prime Minister, Mr. Speaker. Has he been informed, officially or otherwise, by the chairman of the world fair corporation of his intention to resign?
(Text):


Mr. Speaker:: Order.


Georges-J. Valade: On a point of privilege, Mr. Speaker, the Prime Minister was rising to answer the question when he was interrupted by Your Honour, and I think you should give him time to reply.


Lester Bowles Pearson: All I was going to say, Mr. Speaker, is that this is not a question that could be answered on orders of the day in any event.


Mr. Speaker:: I was about to add that I think that question had been asked yesterday.
(Translation):



LABOUR CONDITIONS

[Stage Direction]
REPORTED INCREASE IN NUMBER OF UNEMPLOYED On the orders of the day:
Marcel Lessard: Mr. Speaker, my question is directed to the Minister of Labour.

Considering that the number of unemployed increased last month, could the minister give us the special reasons for that increase in unemployment or tell us it is the result of the budget announced on June 13 last?
(Text):


Hon. A. J. MacEachen (Minister of Labour):: Mr. Speaker, the joint press release was made public yesterday, and the factors occasioning the changes in employment and unemployment were fully set out in that document.



ARTS, LETTERS AND SCIENCES INQUIRY AS TO APPOINTMENT OF ROYAL COMMISSION

[Stage Direction]
On the orders of the day:
Mr. R. W. Priltie (Burnaby-Richmond):: Mr. Speaker, I wonder whether the Prime Minister is now in a position to tell the house on what date he will announce the appointment of the royal commission on biculturalism.


Lester Bowles Pearson: Mr. Speaker, I had hoped to do it today but I was not in the house when motions were called. I will certainly do it on Monday on motions.



AIRPORTS


[Stage Direction]
On the orders of the day:
Robert William Prittie: Mr. Speaker, I wonder whether the Minister of Defence Production is in a position to answer my question of July 15 with regard to allegations concerning the sale of an airport hangar at Boundary Bay, B.C.


Hon. C. M. Drury (Minister of Defence Production):: Mr. Speaker, at Boundary Bay, British Columbia, a synthetic trainer was constructed in 1941 at a cost of $150,000. This was used continuously for some time, but this type of training facility has since become obsolete. In October last year the building in which it was housed was severely damaged by a thunderstorm, as a consequence of which it was decided that the building, a frame structure, was of no further use. It was stripped and the shell offered for sale by tender on the understanding that not only would the building be sold but that it would be removed from the site.
A number of bids were received from some 80 invitations to tender which were sent out, the most satisfactory of which was an offer from a general contractor of a sum in excess of the amount mentioned by the hon. gentleman. This sale was made. The sale terms included the acquisition of the frame structure,
Customs Tariff
its removal, and the restoration of the site, when the removal had been completed, to its original condition. The next best offer was an undertaking to remove the building at a cost of $5,000 to Crown Assets Disposal Corporation. This second best bid was not accepted.



HIGHWAYS


[Stage Direction]
On the orders of the day:
Hon. J. P. Deschatelets (Minister of Public Works):: Mr. Speaker, last Wednesday the hon. member for Cariboo asked a question concerning rights of way for trunk highways through national parks. This is a matter which might be appropriate as a subject of discussion with the provinces when we meet with them next fall. It is, of course, a matter I would consider in co-operation with my colleague the Minister of Northern Affairs and National Resources.



CUSTOMS TARIFF

Walter Lockhart Gordon: that the house go into committee to consider Bill No. C-87, to amend the Customs Tariff.
Motion agreed to and the house went into committee, Mr. Lamoureux in the chair.
On clause 1-Schedule A amended.


Gilles Grégoire: Just one word. I do not intend to start any debate; just one word.
In this resolution-


Some hon. Members:: Just one word.


Gilles Grégoire: One word; one minute. There are provisions here affecting advertising agencies, photographic material, cameras and so on. I would just like to say we protest against the changes which have been made affecting advertising agencies because they constitute what we call patronage.


[Stage Direction]
Clause agreed to.
Clauses two and three agreed to.
Schedules A and B agreed to.
Title agreed to.
Bill reported, read the third time and passed.

[Stage Direction]
The house in committee of ways and means, Mr. Lamoureux in the chair.
["Six o'clock, Mr. Chairman.\nProgress reported."]
John Whitney Pickersgill: 1 wonder whether in view of the fact that the committee has before it a resolution on the Income Tax Act of which

Income Tax Act
notice was given on June 13, and that on July 8 the Minister of Finance gave notice of a resolution modifying it in some particulars, there might be an agreement in the committee to substitute consideration of the notice which was given on July 8 for that given on June 13 without further formality. If this could be done by consent of the committee it would avoid a lot of technical difficulty and expedite the work of the committee.


The Chairman:: Is that agreeable?


Some hon. Members:: Agreed.


Mr. Churchill:: Without restricting debate?


John Whitney Pickersgill: I think it was clearly understood that this would still permit any debate which would be possible on the other resolution. That is the understanding of the government, and we shall not seek to be technical about it.



[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 with respect to new depreciable property of a prescribed class acquired in the period of 24 months commencing June 14,	1963 capital cost
allowances be computed on a straight line basis at a prescribed rate not exceeding 50 per cent per annum if the property has been acquired by a taxpayer in a taxation year for a manufacturing or processing business in Canada and the taxpayer is
(a)	an individual who was resident in Canada for a period of not less than 183 days in the year, or
(b)	a corporation that in the year had a degree of Canadian ownership and control;
and for the purposes of this paragraph,
(c)	a corporation has a degree of Canadian ownership and control in a year if the corporation throughout the 60 day period immediately preceding the year (or if the corporation did not have a preceding year, throughout the 60 day period commencing on the first day of the year) complied with the following conditions:
(i)	the corporation was resident in Canada,
(ii)	either
(A)	not less than 25 per cent of its voting shares were beneficially owned by one or more individuals resident in Canada, one or more corporations controlled in Canada or a combination thereof,
or
(B)	the voting shares of the corporation were listed on a recognized stock exchange in Canada and it is established, in prescribed manner, that no one non-resident shareholder owned beneficially, together with any other person associated with him at any time in the period, more than 75 per cent of the voting shares of the corporation, and
(iii)	where the year commences after December 31, 1964, the number of directors of the corporation who were resident in Canada was not less than 25 per cent of the total number of directors of the corporation;
or complied with the conditions specified in clauses (i) and (iii) and was a wholly-owned subsidiary of a corporation that throughout the 60 day period complied with the conditions specified in clauses (i), (ii) and (iii); and

(d)	a corporation is controlled in Canada at a particular time if at that time it complies with the following conditions:
(i)	the corporation is resident in Canada, and
(ii)	not less than 51 per cent of its voting shares are beneficially owned by one or more individuals resident in Canada, one or more corporations controlled in Canada or a combination thereof.
2.	That a taxpayer whose business in a prescribed area of Canada has been certified to be a new manufacturing or processing business that commenced commercial operations in the period of 24 months commencing with the date on which any enactment based on this paragraph is assented to be exempt from tax on the income from that business for a period of 36 months from the date certified to be the date of commencement of operations, and that the rate of capital cost allowances for new depreciable property of a prescribed class acquired by the said taxpayer in the said 24 months period for such business be computed on a straight line basis at a prescribed rate not exceeding 50 per cent per annum.
3.	That with effect for 1964 and subsequent taxation years section 40A of the act, which provides for a deduction from the tax otherwise payable by a manufacturing and processing corporation, be repealed.
4.	That with respect to expenses incurred after June 13, 1963 a corporation whose principal business is operating a pipe line for the transmission of oil or natural gas be allowed to deduct in computing income the drilling and exploration expenses, including all general geological and geophysical expenses, incurred by it on or in respect of exploring for petroleum or natural gas in Canada and the prospecting, exploration and development expenses incurred by it in searching for minerals in Canada.
5.	That for the 1963 and subsequent taxation years a dividend received by a person resident in Canada from a corporation that throughout its taxation year in which the dividend is paid or credited
(a)	is taxable as a non-resident corporation carrying on business in Canada,
(b)	derives substantially all of its income from sources in Canada, and
(c)	has its shares listed on a recognized stock exchange in Canada be deemed to be a dividend from sources in Canada paid or credited by a taxable corporation within the meaning of section 38 of the act.
6.	That the 15 per cent rate of tax payable by a non-resident person on dividends paid or credited to him by a person resident in Canada be reduced to 10 per cent with respect to dividends paid or credited after June 13, 1963 by a corporation that in its taxation year in which the dividend is paid or credited has a degree of Canadian ownership or control within the meaning or paragraph 1.
7.	That the 15 per cent rate of tax payable by a non-resident person on dividends paid or credited to him by a person resident in Canada be increased to 20 per cent with respect to dividends paid or credited after December 31, 1964 by a corporation that in its taxation year in which the dividend is paid or credited does not have a degree of Canadian ownership or control within the meaning of paragraph 1.
8.	That where a corporation resident in Canada that in any year before 1967 was not a corporation that had a degree of Canadian ownership and control, within the meaning of paragraph 1, becomes a corporation that in 1967 has such a

degree of Canadian ownership and control, a non-resident person shall be entitled to a refund equal to
(a)	5 per cent of any dividends paid or credited by the corporation to him after June 13, 1963 and before January 1, 1965, in respect of which he has paid a tax of 15 per cent to Canada, and
(b)	10 per cent of any dividends paid or credited by the corporation to him after December 31, 1964 and before January 1, 1967, in respect of which he has paid a tax of 20 per cent to Canada.
9.	That where a corporation (other than a nonresident-owned investment corporation) paid or credited dividends during the period commencing on June 14, 1963 and ending on December 31, 1964 in taxation years in which it did not have a degree of Canadian ownership and control within the meaning of paragraph 1, the amount of which dividends exceeds five fourths of the amount of dividends paid or credited by the corporation during that number of days immediately preceding June 14, 1963 that is equal to the number of days in the period commencing on June 14, 1963 and ending on December 31, 1964 that were included in taxation years in which the corporation did not have such a degree of Canadian ownership and control, the corporation shall, on or before January 31, 1965, pay a special tax equal to 5 per cent of the amount of the excess.
10.	That with respect to income earned after December 31, 1964 the 15 per cent tax imposed by part IIIA of the act on a non-resident corporation carrying on business in Canada be 20 per cent.
11.	That with respect to income of a non-resident-owned investment corporation earned after December 31, 1964 the present 15 per cent rate of tax be 20 per cent.
12. That any amount paid or credited after June 13, 1963, by a person resident in Canada to a non-resident person, as or on account of a management or administration fee or charge, be subject to the 15 per cent tax on income from Canada of non-resident persons.
13.	That with respect to interest paid by a person resident in Canada to a non-resident person on any obligation issued after June 13, 1963, if the nonresident person
(a)	is exempt from income tax in the country in which that person is resident; and
(b)	has obtained a certificate of exemption from the minister,
the non-resident person be exempt from the 15 per cent rate of tax imposed in respect of such payment.
14.	That for the taxation years ending after November, 1965 a corporation shall during the 12 months period ending 4 months after the close of each taxation year, pay to the Receiver General of Canada
(a)	on or before the last day of each of the first 10 months in that period, an amount equal to one twelfth of the tax as estimated by it at the rate for the taxation year
(i)	on its estimated taxable income for the year, or
(ii)	on its taxable income for the immediately preceding year,
(b)	on or before the last day of the eleventh month in the period, an amount equal to one half of the remainder of the tax payable as estimated by it on its taxable income for the year at the rate for the year, and
(c)	on or before the last day of the period, the remainder of the tax
and that for the taxation years ending after November, 1963 and before December, 1964 a corporation shall, during the 11 month period ending 5 months after the close of its taxation year, pay to the Receiver General of Canada
Income Tax Act
(d)	on or before the last day of each of the first 9 months in that period, an amount equal to one twelfth of the tax as estimated by it at the rate for the taxation year
(i)	on its estimated taxable income for the year, or
(ii)	on its taxable income for the immediately preceding year,
(e)	on or before the last day of the tenth month in the period an amount equal to one half of the remainder of the tax payable as estimated by it on its taxable income for the year at the rate for the year, and
(f)	on or before the last day of the period, the remainder of the tax, and that for taxation years ending after November, 1964 and before December, 1965 a corporation shall, during the 11 months period ending 4 months after the close of its taxation year, pay to the Receiver General of Canada
(g)	on or before the last day of each of the first 9 months in that period an amount equal to one eleventh of the tax as estimated by it as the rate for the taxation year
(i)	on its estimated taxable income for the year, or
(ii)	on its taxable income for the immediately preceding year,
(h)	on or before the last day of the tenth month in the period, an amount equal to one half of the remainder of the tax payable as estimated by it on its taxable income for the year at the rate for the year, and
(i)	on or before the last day of the period, the remainder of the tax.
15.	That the return of income for a taxation year that is to be filed with the minister in prescribed form and containing prescribed information by or on behalf of a corporation be filed
(a)	for taxation years ending after November,
1963	and before December, 1964 within 5 months from the end of the year, and
(b)	for taxation years ending after November,
1964	within 4 months from the end of the year.
16.	That with respect to amounts received after June 13, 1963, where a taxpayer has received an amount in a taxation year,
(a)	as consideration for the sale or other disposition of any shares of a corporation or of any interest in such shares,
(b)	in consequence of a corporation having
(i)	redeemed or acquired any of its shares or reduced its capital stock or
(ii)	converted any of its shares into shares of another class or into an obligation of the corporation, or
(c)	otherwise, as a payment that would, but for this provision, be exempt income,
which amount, in the opinion of the minister, was received by the taxpayer as part of a transaction or series of transactions whenever effected or to be effected, one of the purposes of which was or is to effect a substantial reduction of, or disappearance of, the assets of a corporation in such a manner that the whole or any part of any tax that might otherwise have been or become payable under the act in consequence of any distribution of income of a corporation has been or will be avoided, the amount so received by the taxpayer or such part thereof as may be specified by the minister shall, if the minister so directs,
(d)	be included in computing the income of the taxpayer for that taxation year, and
(e)	in the case of a taxpayer who is an individual, be deemed to have been received by him as a dividend from a taxable corporation within the meaning of section 38 of the act.
[Stage Direction]
Income Tax Act
17.	That for the 1964 and subsequent taxation .years where, in the case of two or more corporations, the minister is satisfied
(a)	that the separate existence of those corporations is not solely for the purpose of carrying out the business of those corporations in the most effective manner, and
(b)	that one of the main reasons for such separate existence is to reduce the amount of taxes that would otherwise be payable under the act the two or more corporations shall, if the minister so directs, be deemed to be associated with each other.
18.	That upon any appeal to the Exchequer Court of Canada from an assessment in such case the court may confirm or vary any direction given by the minister as provided in paragraph 16 or 17, [DOT]or may vacate any such direction where it determines that
(a)	none of the purposes of the transaction or series of transactions referred to in paragraph 16 was or is that specified in that paragraph, o-
(b)	none of the main reasons for the separate existence of the corporations referred to in paragraph 17 is that specified in subparagraph (b) [DOT]of that paragraph.
19.	That for the 1963 and subsequent taxation years
(a)	a business loss incurred in a previous year by a corporation may not be deducted in a taxation year if
(i)	the business in which the loss was sustained by the corporation was not carried on by it in the taxation year, and
(ii)	in the period between the end of the year in which the loss was sustained and the end of the taxation year control of the corporation has changed hands, and
(b)	a business loss incurred by a corporation in a taxation year may not be deducted in computing the income of the corporation for that taxation year if the business in which the loss was sustained by the corporation was wound up or discontinued, and after such winding up or discontinuance control of the corporation passed to a person or persons who did not control the corporation in the year at any time when the business in which the loss was sustained was carried on; but this paragraph is not applicable where the change of the control of the corporation occurred prior to June 14, 1963.
20.	That for the 1963 and subsequent taxation years section 18 of the act, which provides rules in the case of any lease option agreement, hire purchase agreement or other contract or arrangement for the leasing or hiring of property, be repealed, and appropriate transitional provisions be enacted in respect of any such contract or arrangement.
21.	That for the 1963 and subsequent taxation years the benefits received by an employee from his employer's contribution to a group life insurance plan that are at present excluded from income be excluded only if such contribution is in respect of group term life insurance.
22.	That, with respect to any annuity contract entered into after June 13, 1963, that part of the proceeds of the contract that consists of interest accumulated prior to the date on which the annuity commences be included in computing income of the recipient unless such proceeds are received as a life annuity or as a refund of premiums upon the death of the holder of the annuity contract.
23.	That for the 1962 and subsequent taxation years the manner of taxing a bankrupt corporation, a bankrupt individual and a trustee in bankruptcy be revised and in particular
(a) that the trustee be deemed to be the agent of the bankrupt person for all purposes of the act; [Mr. Pickersgill.l
(b)	that section 63 of the act not apply in the case of any income of the trustee from dealing in the property of the bankrupt person or from carrying on the business of the bankrupt person;
(c)	that the income of the bankrupt person be computed as if upon the occurrence of the bankruptcy the property of the bankrupt person did not pass to and vest in the trustee; and
(d)	that the trustee be liable for payment of any tax payable by the bankrupt person to the extent of the property of the bankrupt person in the possession of the trustee.
George Clyde Nowlan: I wonder it before the minister makes his statement-I presume he intends to make a statement-he will give consideration to dealing with the Excise Tax Act rather than the Income Tax Act today in view of the development which took place yesterday and the uncertainty of the situation. It might be better if we had more time in which to consider these income tax resolutions, because they go to the very root of the question of Canadian ownership.


Walter Lockhart Gordon: I appreciate the suggestion made by the hon. gentleman. I am prepared to go on now with the income tax resolutions. The officials who are familiar with that side of things are here. I suggest that with any luck we will get through the income tax resolution very quickly, and then we will be in a position to go on with the excise tax resolution this afternoon.


George Clyde Nowlan: You are a great believer in luck.


Walter Lockhart Gordon: I don't know why. The income tax resolution sets forth a number of proposals which are now to be considered in turn on the basis of their individual merits. These were described in the budget speech. Although the measures were amended and clarified by the statement made on July 8, the basic principles and purposes are unaltered.
Since there are 23 numbered paragraphs it may assist hon. members of the committee at this stage to recapitulate in a few sentences the broad areas of subject matter to which the proposals are directed. Substantial tax incentives to encourage industrial growth and employment in the country at large and additional incentives for particular designated areas of slower growth are set forth in paragraphs 1 and 2. The repeal provision in paragraph 3 may be considered in connection with these.
An incentive measure affecting drilling and exploration for gas and oil is summarized in paragraph 4. Measures designed to exert an influence on the ownership of Canadian industry are set forth in paragraphs 1, 6 and 7. Other paragraphs which are either consequential or closely related to these are Nos. 5 and 8 and Nos. 9 to 12 inclusive.

A measure designed to encourage certain non-resident institutions to invest in Canadian bonds is contained in paragraph 13. If the hon. member will wait a moment, I was just going to add that this, of course, will be partially but by no means wholly upset, in fact not to more than a degree, if the present Kennedy proposals are passed by congress. The provision still offers a very important inducement to certain investors in the United States to buy Canadian bonds.
A measure to obtain earlier payment of corporation income taxes and to enhance the flow of revenues during the next two years is contained in paragraphs 14 and 15. Measures to achieve greater equity by closing loopholes and by improving the administration of the Income Tax Act are set forth in paragraphs 16 to 23 inclusive, and I expect that hon. members of the committee will be very interested in those proposals.
I will, of course, give an introduction to each of the main paragraphs in the resolution when we come to them, and with the approval of the committee I should like to begin with an introduction to paragraph 1. This paragraph provides a tax incentive for manufacturing and processing businesses with a degree of Canadian ownership and control. The paragraph proposes that accelerated capital cost allowances be granted in respect of certain new depreciable property acquired in a 24 month period for use in manufacturing and processing businesses by individuals resident in Canada or by companies resident in Canada that have a degree of Canadian ownership and control.
A taxpayer acquiring new machinery or equipment that would otherwise fall in class 8 of the Income Tax Act regulations for use in a manufacturing or processing business will be allowed to claim capital cost allowances in respect of that machinery or equipment at the rate of 50 per cent on a straight line basis. This 50 per cent rate is a maximum rate. Taxpayers may spread the deduction of capital cost allowances over a number of years if they so wish.
When capital cost allowances are calculated on a straight line basis a fixed percentage of the original capital cost may be deducted each year until the total capital cost has been deducted for tax purposes. For example, under the concession referred to here 50 per cent of the capital cost will be deducted in the first year and 50 per cent in the second. This method compares with the diminishing balance basis which is the general rule under Canadian tax law.
The normal capital cost allowance for machinery and equipment is 20 per cent on the diminishing balance basis; that is, if a machine costs say $1,000 an amount of $200
Income Tax Act
would be deductible in the first year, and in the second year 20 per cent of the remaining balance or $160 would be deductible. In the third year $128 would be deductible, and so on. Under the proposed incentive the cost of machinery may be deducted over a period of two years whereas under the normal rules only about two thirds of the cost of the machinery would be deducted by the end of the fifth year.
I mention this because the extent of this incentive is very great indeed, and in the opinion of the government it will mean a great speed up in investment in the private sector of the economy in the next two years. In order to qualify for the accelerated allowance-


Eldon Mattison Woolliams: That is the thing; qualification.


Walter Lockhart Gordon: It is not qualification. I think the word "qualify" is clear enough. In order to qualify for the accelerated allowance the machinery and equipment must be acquired by the taxpayer in the period commencing June 14, 1963 and ending June 13, 1965. That is the nature and the extent of the incentive, and I think it is fair to say that this incentive is greater and will probably have more important results than any other incentive that I can recall of this kind.
The requirements which a company must meet to have a degree of Canadian ownership and control are contained in detail in the resolution. First, the company must be a resident of Canada. Second, there are certain requirements concerning ownership of the company's shares which must be met. On this point companies have a choice between two tests. Test A is that no less than 25 per cent of the company's voting shares must be beneficially owned by one or more individuals resident in Canada, one or more corporations controlled in Canada or by a combination thereof. Test B is that the voting shares of the company must be listed on a stock exchange in Canada, and a non-resident company or an individual alone or with associated persons must not beneficially own more than 75 per cent of the voting shares of the company. In other words there will be at least 25 per cent of the stock available for Canadian investors.
The third condition is that at least 25 per cent of the directors of the company must be resident in Canada, but this requirement does not apply until 1965, the purpose being to give companies a chance to meet the requirement. It is not normal to change directors in the course of a year.
This portion of the reference also provides that a company which is the wholly owned subsidiary of a company that qualifies as

Income Tax Act
having a degree of Canadian ownership and control shall also qualify, provided it is resident in Canada, and four years commencing after 1964 at least 25 per cent of its directors are resident in Canada. Now, obviously a time must be established for measuring or determining whether a company has a degree of Canadian ownership and control. A company will be regarded as having a degree of Canadian ownership and control during a taxation year if, during the period-this is the whole period-of 60 days immediately preceding that year it meets the stipulated requirement. For the first taxation year of a new corporation, its period is the first 60 days in that taxation year.
Subparagraph (d) of the first paragraph defines what is meant by a corporation controlled in Canada for the purposes of this provision.


John George Diefenbaker: Mr. Chairman, I think it is generally agreed, and it is a course that has been followed throughout the years on the first item of the resolution in committee stage, that a general discussion is permissible not only of the particular section but also of the entire field. Then as time goes on the individual items are dealt with as they come up. I mention that because the minister spoke with bland optimism of the hope that if we could get through this measure this afternoon we could proceed with other items. I would think this particular resolution is one that, on the basis of the reaction of Canadians generally and people abroad, deserves the fullest consideration and examination by parliament. Naturally the official critic of the opposition, the hon. member for Digby-Annapolis-Kings, will deal in detail with these various matters.
However, I thought that it might be appropriate, in order to get a background for the discussion, to consider the courses that were outlined by the minister in the budget and the reaction that has resulted therefrom, not only within our own country but particularly abroad. I mention this because you will recall that for several years the Liberal party, then in opposition and also during the two recent elections, spoke most critically of the attitude taken by the previous government. They said we were anti-American when we took the stand we were pro-Canadian. Never in the widest stretch of our imagination would we have thought of bringing in the kind of legislation suggested by the present government, knowing full well the detrimental effect such would have not only on Canada and its economic advancement but as well on our relations with the United States.
The purpose of several of these resolutions is to interfere in Canada with foreign investment. Never did we at any time take

such a stand. We wanted to see as many as possible Canadian industries Canadianized. We wanted as well to assure that United States business subsidiaries coming into Canada should adopt an attitude of responding to Canadian objectives rather than having their course determined in a foreign country, however friendly. But they said we were antiAmerican when, in taking a stand on behalf of Canada, we endeavoured to bring about generally by conversations or arguments the objectives that the present government now says can only be brought about by legislation so drastic that already Canada's economy has been aversely affected.
You will recall, sir, the manner in which the various members of the present government maligned us, condemned us, pilloried us as anti-American. Never at any time did we even consider the possibility of going as far as this government has gone, because we had received our advice from trained civil servants. We knew what the effects would be. However, for some reason this government rushed in. I am not placing responsibility on the Minister of Finance. He is just the tribune for the rest of them. He gave them the plan and that plan has had, as I said a moment ago, a tremendously detrimental effect upon Canada's economy and upon Canada's image abroad. I intend to refer later to some of the recent editorials. I was pictured as one who would bring about a disruption in the wonderful relations with the United States that the previous government had enjoyed. Read the editorials today. All over the United States they are saying, in effect, nothing could be worse than what we have today in Canada. We are surprised; we are shocked. The Hyannis Port honeymoon is apparently over.
There was to be a new field of operations, a new spirit of Canadian-United States relations. They spoke of these things. In the budget they did everything they could to undo the possibility of good relations with that country. We believe in a strong Cana-dianism. We have said that. But, sir, what has been the effect? Does anyone think President Kennedy did not have before him a plan when he made the announcement yesterday? Had not Canada given him ample proof of ways that could be followed to bring about not an expansion of trade but a reduction, not an expansion of investment but a grave diminution?
As a matter of fact, on the basis of President Kennedy's message yesterday I do not think the Minister of Finance could have brought about the objectives he enunciated in the budget speech as effectively as the Kennedy plan will.

I wonder to what degree yesterday's drastic action on the part of the United States was in some way made excusable by the inexcusable measures that were proposed by the Minister of Finance in the budget. We believe in the objective of Canadian owned industry. We have taken that stand throughout, but these provisions as to the percentage of voting shares beneficially owned by one or more individuals resident in Canada, and one or more corporations controlled in Canada, are as ineffectual in the administrative field as was the 30 per cent securities tax of unlamented memory.
They called it a face the facts budget, and now Canada faces the music as a result of the action taken yesterday. I do not know what manner of men brought about the various items in this connection, and I am referring particularly to those that deal with the need of Canadianizing Canadian industry; but on the basis of the last few weeks there is no Canadian who can deny that the chronology of the budget has been a continuing record of disaster unparalleled in Canada's parliamentary history.
It is a record of haphazard incompetence. The budget, and a number of these sections to which particular reference will be made, are the product of a government without a plan and without direction. The budget has been called everything, including a blunder budget and the vanishing budget. There are various sections in the Income Tax Act resolutions that I believe should also be withdrawn. They should be reconsidered, because they represent ill digested economic consideration of the effects that would follow such drastic, and in part quite ineffective, legislation.
When strong protests were made there was retreat. There are equally strong protests being made against various sections of these resolutions, and on the basis of those objections I think it would have been infinitely better for the government not to have engaged in a series of irresponsible declarations, followed by irretrievable retreats, but to have proceeded slowly and with full consideration. The government wanted to do all these things in a matter of a few days, but it was not the speed with which it operated that brought these economic monstrosities into being, because all of them were set forth in the book written by the minister.
But, sir, what has been the effect? Yesterday the President of the United States, in a special message to congress, asked for an immediate new excise tax ranging from 2J per cent to 15 per cent on the purchase of securities issued in 22 industrialized countries, and this tax is to remain in effect until
Income Tax Act
December 31, 1965. Yesterday the Prime Minister said he did not accept the suggestion on my part that Canada was the most affected country, but all across the nation, yesterday and this morning, the stock exchanges have indicated that Canada is the one nation most affected as a result of this action.
Where was this wonderful spirit of consultation that was developed at Hyannis Port? Yesterday the Prime Minister said "Oh, Canada was put in a special position; Canada was advised yesterday morning as to what was going to be done." Well, Mr. Chairman, the pressmen of the United States were given full information at least 12 hours before Canada was even considered.
What was Canada's reaction? What did the government say to the United States in the face of this drastic plan? What will be the effect? One of the principle items in United States newspapers over the last few weeks has been a suggestion that in view of the unbelievable action taken by the Canadian government, which was supposed to be superfriendly to the United States, retaliatory measures would have to be taken by the United States. I am not saying that what has been done is in that classification, but I recall the fact that in 1962, in the month of May, when we found it necessary to take economic action in regard to our foreign exchange, and when in June 1962 we borrowed from the international fund and took drastic action because of our international exchange difficulties, these magicians opposite said that what was being done represented the results of incompetence on the part of the then government.
What do they say about the United States now? Is this the result of incompetence? Is it the dilatoriness of the Kennedy administration that brought about the situation in respect of which action was taken yesterday? How they talked about incompetence on the part of the former government, but do they apply the same adjectival exaggeration to the Kennedy administration which had to take action yesterday, and which sees the most powerful nation in the world having to secure a grant of $500 million from the international monetary fund?
What is Canada's position now? Can she raise any objection to what is being done in the United States Can she argue that there should be some alleviation? Can she point out that we have the greatest trade with the United States, both ways, of any country in the world, and that therefore there should be some consideration given to Canada? No one would now advance that argument after the attitude implicit in the action taken by the government in its budget.

Income Tax Act
I would very much like to know the degree by which American antipathy has been materially increased as a result of the proposed 30 per cent tax on stock sales to foreign investors. Even though ridiculed by members of the present government, our relations with the United States over the last few years were on good terms, but we did not bow to demands on the part of the United States as to what we should do, and we did not fly in the face of the United States as did this government. I cannot understand why these supermen who sit opposite, these workers of economic magic, had no idea what the consequences would be of the totally inexcusable action taken in the budget in various particulars. That it was inexcusable is shown by the fact that the government turned tail and ran for cover on its 30 per cent takeover tax. I am hoping that the minister and the government, having established an unenviable record of declaration and retreat, will even now before this debate is over be prepared to suspend consideration of several of these items which cannot but have a detrimental effect on Canada's economy.
What is going to be the result of this? Administratively it will create chaos. I would like to know how the 25 per cent is going to be determined, on which day of the year it will apply. How are we going to police this without a tremendous bureaucracy? The very thought answers itself. I submit that in the philosophy of the budget, instead of it being one to provide for an expanded economy it has been a crippling one, slowing down economic activity. As a matter of fact only yesterday Mr. Kierans, the president of the Montreal stock exchange, had something to say about this. He is no friend of this party, but is close enough to the Liberal party to be a prospective Liberal candidate for election to the legislature of Quebec in support of Mr. Lesage-


An hon. Member:: Another honeymoon
ended.


John George Diefenbaker: That may not mean that he has too close a relationship with the government. He said that the action taken yesterday by President Kennedy, if it is approved and adopted by congress, will slow down economic activity, will hinder ready access to United States capital markets and will bring about higher interest rates. What happened yesterday was an understandable consequence of the government's attitude in this budget.
I am not saying it was the result of it at all; far from it, but it gave to the United States an object lesson as to what could be done between friendly nations. I repeat what I said earlier-


Mitchell William Sharp: Mr. Chairman, could I ask the right hon. gentleman a question. Is this the explanation that he thinks the United States will make to the United Kingdom?


John George Diefenbaker: I do not care what explanation they may have made to the United Kingdom. I am thinking of Canada-United States relations.


Some hon. Members:: Hear, hear.


John George Diefenbaker: I am glad to see this. It is one of the first times that the United Kingdom has been brought into debate in this house by representatives of the Liberal party as an example of what Canada should do.


Some hon. Members:: Oh, oh.


John George Diefenbaker: I am dealing with Canada. The United Kingdom had nothing to do with the kind of nonsense that was embalmed in these resolutions and in the budget. I am speaking about what this government did by way of providing an object lesson to the United States as to action that might be taken. It is the most serious situation, according to John Meyer, that we have ever faced in this nation; and he is one who is quoted with respect, his opinion at all times being given full regard.
I know the government will not like my saying this, but I think I may generalize, without going into particulars, by simply saying that they instituted measures in the budget with no idea, apparently, of what the consequences would be. They instituted measures that were completely oblivious of the possibility of retaliatory measures being instituted. We cannot say anything to the United States now; we cannot say "Well, now, this thing is wrong; this is unfair; this is going to have a detrimental effect upon our economy". Five hundred and eighty million dollars have been invested in Canada by the United States since January 1 this year. That investment will certainly be materially reduced. Municipalities across Canada desiring to borrow in New York will find themselves unable to do so. Yet when the question was asked yesterday it was brushed aside as if it were of no particular consequence. Furthermore I suggest that in what is being done in general there is a violation by the present government of the spirit of the tax convention. What we have done by the threat inherent in the budget is to compromise Canada's position.
I am going to leave in a moment, Mr. Chairman, because I have a luncheon engagement. I simply summarize what I have been trying to say. The philosophy inherent in this budget is not in keeping with our relations with the United States. It is dangerous to the economic strength of this country; nobody can deny that. No matter how they would salve it over, the fact remains. I believe

in Canada determining its own destiny, in a Canada in which investment coming into this country shall be used for the purposes of Canada and not on the basis of the determination of any other country, however friendly. I say that when this is taken together, the whole philosophy, the packet plan as it were, it is a philosophy that cannot but have the effect psychologically and economically of interfering with Canada's growth and expansion. Instead of being a budget to help us develop, to give Canadians a new sense of adventure, to build up equality of opportunity in all parts of Canada, the philosophy in the 1963 budget is the antithesis of the idealistic objectives that were set out by the Minister of Finance.


Walter Lockhart Gordon: Mr. Chairman, as the Leader of the Opposition has dealt with a number of subjects in a rather general1 way and has sought, it seemed to me, to suggest that the particular budget resolutions which we are considering had such far reaching effects that they influenced President Kennedy in making his statement to congress yesterday, I thought it might be helpful to hon. members of the committee and to the public, perhaps through the press, to remind hon. members of just what this message from the President deals with and what it is trying to accomplish.
It seems to me that perhaps some hon. members have not had an opportunity to read and fully study the message, and there were moments when I wondered whether the right hon. gentleman opposite had really fully appreciated the implications of what the President was setting out to do. The message the President sent to congress is entitled "Special message on the balance of payments". The proposal for an interest equalization tax is only one of ten points that he brings to the attention of congress, and I would point out that he devotes only about one tenth of his message to this particular subject. It is one of a number of means by which the U.S. administration hope to improve their over-all balance of payments.
There can be no argument, of course, that the U.S. balance of payments has been weak and that it needs to be strengthened. In his message the president, as always, outlines various weaknesses and various means to overcome them. I suggest to all hon. members that we in Canada can be glad that the United States is taking steps to improve its international position and to ensure the continuing strength of the United States dollar. The greater part of world trade, after all, is conducted in United States dollars, and it is by far the world's major reserve currency. Anything that may disturb the flow of world
Income Tax Act
trade or may undermine international confidence is bad for a country like Canada with such a huge stake in international trade and international investment.
The United States balance of payments has in recent years been weak in an over-all sense, and it has been weaker in some directions than in others. While the United States has been running a substantial deficit, certain other countries have been running a corresponding surplus. While the United States has been losing gold reserves, other countries have been acquiring them. The major surplus countries are those in western Europe, and they include France, Germany and Italy in particular. It is in these countries that interest rates are substantially higher than they are in the United States.
In his introductory paragraphs on the interest equalization tax the President refers- and I quote his words-to-
-the wide differential between long term interest rates in the larger industrial countries and the United States.
Then he goes on to refer to the inadequate capital market mechanisms in many foreign countries. These remarks are clearly not intended to describe the Canadian situation. Nor would it make sense, I suggest, if they were so intended to apply to Canada, because the fact of the matter is that Canada, so far from being a surplus country in this context, is as we all know, and we know it with regret, a deficit country. This country has run an international deficit for more than a decade, I think entirely with the United States. The deficit which we run bilaterally with the United States is even larger than our over-all deficit, because in our case we happen to run a surplus with overseas countries. Year by year we paid over to the United States foreign exchange that we had earned overseas. In other words the United States, far from running a deficit with Canada, has in fact been running a substantial surplus with us, and year in and year out we have used capital that we have raised in the United States to pay that country for the surplus of goods and services which we import from them.
Actually, as I have indicated, the capital we have raised in the United States has fallen short of their surplus with us. The governor of the Bank of Canada pointed out in his annual report for 1962 that:
While the net capital inflows from the United States to Canada in recent years have been very large, they have been less than our current account deficits with that country.
Under these conditions the United States would surely not wish to cut down their capital exports to this country.

Income Tax Act


Mr. Mariineau:: May I ask the minister a question at this point?


Walter Lockhart Gordon: I would be glad if the hon. member would wait until I have finished my remarks. We do not, to speak broadly, raise any more capital from the United States than we need to pay for the very large bills that we run with them. We have raised capital, as I have said, in the United States to pay the bills which we have incurred there. It was the temporary failure to raise capital which brought so many undesirable consequences a year ago, including the Canadian tariff surcharges which were, if possible, even more unpopular in the United States than they were in this country, and that is saying quite a lot. It is not credible that the United States administration would be trying to incur a repetition of this situation.
Our early studies of the proposed United States tax which we have been discussing reinforces the opinion that it could have important effects, and I am confident unintended effects, on this country. As was stated earlier today, the Secretary of State for External Affairs has already advised the ambassador of the United States that we have serious worries about the tax proposal and that we shall want a discussion of this matter with United States authorities. The right hon. gentleman was careful in the words he chose .and in the way he would make a statement and then qualify it. I say this in no-


John (Jack) Henry Horner: In admiration.


Walter Lockhart Gordon: I do not say it in admiration, but I do say it in no critical sense. He left certain impressions which I think it might be desirable to clear up, because I am sure he would not wish to leave any impression which was not strictly accurate and true.


An hon. Member:: I would not be too sure of that.


Walter Lockhart Gordon: I say that in all sincerity. I am sure that anyone who has been in a position of responsibility in this country, as the right hon. gentleman has, would not wish to say anything or give any impression that would in any way worsen a situation which at the moment is a little delicate. I do not think it is too delicate. I think we will get out of it all right, but I am sure the right hon. gentleman-


Mr. Monieith:: Who left the impressions last June?


Walter Lockhart Gordon: -would not have wished to do anything which would aggravate the situation. If I may call it one o'clock, Mr. Chairman, we might all go and have some lunch.
At one o'clock the committee took recess.


[Stage Direction]
AFTER RECESS

The committee resumed at 2.30 p.m.
Walter Lockhart Gordon: I was saying, or suggesting, at one o'clock that while I was sure the Leader of the Opposition had not made any such suggestion the suggestion has been made that this proposed tax which was recommended by the President of the United States stems from, or is even in retaliation against, the alterations in the withholding tax which this committee is about to discuss.
This suggestion, if there is such a suggestion, can only be based on a misunderstanding of the nature of the alterations which the government is proposing. On balance, what we propose involves a substantial reduction, not an increase in our resident withholding tax. The tax is reduced immediately from 15 per cent to zero in relation to Canadian securities purchased by tax-free bodies in the United States and elsewhere. It is reduced immediately from 15 per cent to 10 per cent on income paid by corporations offering to Canadians at least a 25 per cent participation in their equity and directorate. The increase from 15 per cent to 20 per cent would only apply to corporations which, after the lapse of two and a half years, still do not offer Canadians that degree of participation. On balance, I repeat, we are proposing to reduce, not increase, our withholding tax.
Even if the United States were considering retaliation, and even if there were something to retaliate against, which of course there is not, I cannot conceive that any great and responsible nation would take measures against 22 countries, including its principal allies in the free world, in order to affect only one of them. To suggest any such thing would be the height of naivete, as the hon. member for Nanaimo-Cowichan-The Islands aptly pointed out yesterday.
In his message, the President indicates the priority to be given to the United States interest equalization tax. I quote:
I have been assured that the house ways and means committee will be prepared to give high priority to this proposal after action has been taken with respect to the over-all program of tax reduction and reform now before it.
On this basis, having in mind that congress will be considering this proposal after it has dealt with this somewhat controversial question of tax reduction, it is my understanding that it will be weeks, perhaps months, before action can be expected on this measure. In the meantime, we shall have ample opportunity to discuss with our United States friends the possible effects of the interest equalization tax not only on the Canadian financial system but also on our economy as a whole and on our balance of trade and

payments. In this connection I should like to quote a paragraph from the joint communique issued on May 11 at the end of the Hyannis Port meeting to which the right hon. gentleman referred earlier between the president and our Prime Minister.
The President and the Prime Minister stressed the interest of both countries in the balance of payments between them and with the rest of the world. The Prime Minister drew particular attention to the large United States surplus in the balance of current payments with Canada and noted the importance of allowing for this fact in determining the appropriate policies to be followed by each country. It was agreed that both governments should always deal in a positive and cooperative manner with developments affecting their international trade and payments.
I suggest to you, Mr. Chairman, and to the members of this committee that this is the spirit in which we should approach this particular measure which the president has proposed and put before congress.
(Translation):


Gilles Grégoire: Mr. Chairman, 22 countries of the world are being subjected at the moment or at least in the future to that tax on imports of American capital into their countries. That 15 per cent tax was announced yesterday and we learned about it in the house yesterday afternoon. Today we could witness the reaction. However, the amazing thing is that we only know the reaction of the Canadian government. The countries of the world who are proud of their liberties and of their national sovereignty did not see lit to express the reaction that we, in Canada, have displayed.
I would compare the situation to that of a new born infant. For some time, he thrives on his mother's milk but at a certain age, he is considered old enough to feed himself and he is weaned. Then he is left to develop by himself through his own efforts. Our country, the product of the confederation pact sealed 96 years ago, is still today like a child as it is entirely dependant for its subsistence on a foreign country.
The president of the Montreal stock exchange, Mr. Kierans, himself, said yesterday that Canadians have always depended on the tremendous savings generated in the United States to finance at an ever-increasing rate our Canadian economy. Canadians did not finance their economy, that was done rather by savings coming from the United States. We were not capable of financing our economy.
And yet, if we go back over 300 years, we will find that the first settlers came to both countries about the same time. How is it then that they have been able to grow, survive and 28902-5-153
Income Tax Act
build an enormous industrial empire without help, when we are still dependant on American finance?
Mr. Chairman, contrary to what others may think, in view of the fact that we have been unable to fend for ourselves, I personally rejoice that the country that has been nursing us is doing us the great service of forcing us to stand on our own feet. I welcome that and I hope that from such facts, we will learn to find our wings, to find our own feet in the development of our economy, which can be done, because we have in Canada businessmen and industrialists just as clever and bright as those of any other country in the world.
Today, we are taught a hard lesson which had to come, and I hope it will teach us to find our own feet. For too long, we have depended on decisions taken in other countries. Today, we can now start taking our own decisions. We are in a too large degree the victims of foreigners or of American capital. We can free ourselves, so let us take advantage of the situation. This should be an opportunity to reconsider our economy and all our finance structures in such a way that we will become our own masters in our own land, controlling what we did not control heretofore, that is the capital needed for our investments.
In the sentence I quoted a while ago, Mr. Kierans said:
The tremendous savings generated in the United States.
Why does not the Minister of Finance reconsider our monetary system, so that we too can generate the capital and the credit we need for the development and the progress of our economy?
I think that the present Minister of Finance, being a good accountant, would be able to father that new economy which would make enough capital available to enable us to develop ourselves a Canadian economy. As a matter of fact, we do not need foreigners to do this. We are able to do it ourselves.
Let me give you an example. Only recently, the sales tax on building materials was increased. In this connection, I read in today's papers that according to some municipal authorities, interest rates will rise and it will be harder to obtain capital on the American market, precisely because of this new tax.
Mr. Chairman, it is Canadian citizens who are responsible for the development of municipalities, because they are the ones who

Income Tax Act
manufacture and assemble the materials used in the construction of public buildings or of public services in Canada. In fact, there is only one thing which our Canadian citizens have not made up to now and that is cheques and coupons, the bits of paper which are used to carry out that development.
Mr. Chairman, the Minister of Finance does not seem interested, even if he is in a predicament today, to hear the suggestions that are made to him, so that he may really become the Minister of Finance.
What is he doing at the present time? He is still trying to solve the problems resulting from the decisions of foreign capitalists. Yet, the solution is simple. It would merely be a matter of seeing to it that the creation of the credits necessary to the development of our country is resumed, for and by the Canadian people, as at the present time, such credits are controlled and created in most cases by foreign bankers.
It is a very simple suggestion, Mr. Chairman.
As the hon. member was saying, credit accounts-


Mr. Habel:: A subject that seems easy enough.


Gilles Grégoire: But it is easy to those who want to understand. On the other hand, those who do not want to understand may find the matter difficult.
But the Minister of Finance should endeavour to realize that our country is able to develop itself and that it is not only on account of our lack of capital that it is not doing so, for capital can be more easily built up than our country.
In fact, it is easier for the Minister of Finance to try to build up the required capital for our country's development than it is for all our manufacturers, workers and farmers to achieve actual production in the country.
This lesson should help us find a new orientation for our economic system.
These days, we are considering the establishment of an economic council. It is sought to develop our industries by means of an economic development council. The government wants to develop our country but it forgets one thing, namely that that cannot be done without the consent and support of American capitalists and financiers. Even if Canada has the required workers, industrialists and producers, it cannot put them to
EMr. Gregoire.]
work because it does not have the permission of a few financiers.
Under those conditions, and in view of the restrictions imposed by a handful of small American or foreign financiers, I wonder what a group of members of parliament who have been democratically elected by the people, can decide.
I am also wondering what is the meaning of democracy in our country. And what can the Canadian people say if all those decisions are subject to the approval of foreign financiers?
The Minister of Finance is no longer the minister of finance. He cannot control his finance because he is always the victim of decisions made by foreign financiers who control everything. A case in point, the moment he announces that a tax will be levied he has to withdraw it because a certain stock exchange president has come to see him.
Indeed, I should like to know why the Minister of Finance does not hasten to inform President Kennedy of all the administrative difficulties he himself had to face when he imposed his 30 per cent tax. He should even lose no time in sending Mr. Kierans to Washington to explain to them the administrative difficulties facing the Canadian government. I think President Kennedy would withdraw his tax since we are told it is for that very reason that our Minister of Finance had to withdraw his. But let me tell you that, for my part, I never believed that administrative difficulties had forced the Minister of Finance to withdraw his 30 per cent tax on the sale of Canadian shares to non-residents. In fact, I can give him examples of many other taxes which have given rise to more serious administrative difficulties, not only to the Minister of Finance, but to all Canadian taxpayers. In my opinion, if there is someone who should meet with difficulties, it should be the Minister of Finance and not the taxpayers.
Nonsense. Has not the sales tax on building materials given rise to administrative difficulties for those who are in the building field? One needs merely to look over the letters of protest sent to the minister to see that my contention is right.
In fact, have we ever heard in Canada of a single tax with which Canadian taxpayers had no difficulties? I challenge the Minister of Finance to name one tax that did not result in difficulties for Canadian taxpayers. Yet they were never withdrawn. Quite the contrary, they were increased as much as possible.

All levels of governments increase those taxes, and the Minister of Finance is anxious to make us believe he withdrew his 30 per cent tax because he was faced with administrative difficulties. Nonsense.
All taxes cause difficulties. The true reason is that the United States wanted to establish its own tax.
It is well known that the American under secretary of state exerted pressure. The Minister of Finance gave in and, less than a month later, the American government levied exactly the same tax, except that its rate is 15 per cent instead of 30 per cent, and that the profit goes to the American government instead of the Canadian government.
Mr. Chairman, as I said a moment ago, I did not take the floor to protest against the 15 per cent tax proposed by President Kennedy. On the contrary, it has my full approval, and if the President of the United States wants to increase it to 75 per cent, so much the better. This tax will prove that we cannot rely on American capital, on American investment to ensure the growth of our economy and that if we want to survive in the world's economic struggle, we must act as the United States did when they wanted to develop their country, we must create our own capital.
As a matter of fact, they were successful in that field. They created the necessary capital to establish the whole industry they have at present, and they went even further. They created additional capital to develop Africa, South America, and other countries and to invest in Canada.
Would anyone try to make us believe that Canada is not able to do the same? If the Minister of Finance is prepared to accept a shortage of capital because the Americans want it that way, I am against it, I cannot accept the situation and I tell the Minister of Finance that he must assume his responsibilities, since it is his duty and he must set up a monetary system in order that Canadians be the masters of their capital and this not only as far as administration, but also as far as creation is concerned, because money, capital and credit are created some place; they do not fall like manna from heaven, they do not grow in potato fields, they are created some place.
Capital is created by men, by individuals. There has not always been a monetary system; it is a human invention. Men have invented
28902-5-153J
Income Tax Act
it because they felt the need for it. When there was no money, Mr. Chairman, I must say it was most inconvenient.
In stories about pre-historic times we read how the citizens of that era walked about with an axe on their shoulders. At that time, there was no monetary system, and no money, there were no "quarters" and it was most impractical.
If the Minister of Finance had lived at that time, and had wanted two eggs for breakfast, when getting up in the morning, but having no eggs available and nothing but a camel, for instance, he would have had to barter his camel for two or three cows, then one cow for two or three sheep, and again one of those sheep for a couple of pairs of footwear, only to barter one of them for two or three chickens, and one of those chickens for a dozen eggs. By that time it would have been midnight before he could have had his scrambled eggs for breakfast.
At that time, Mr. Chairman, there was no monetary system, and it was really most inconvenient. Nowadays, men have set up a monetary system. It is a human invention. If man has been bright enough to invent a monetary system, I wonder, Mr. Chairman, why at this time he has not enough brains to improve it when it is defective, as it is now the case in this country.


Louis-Joseph Pigeon: Set up the printing press.


Gilles Grégoire: I see that the hon. member for Joliette-L'Assomption-Montcalm (Mr. Pigeon) has again interjected one of his whimsical remarks, though he has been put in his place several times. And I remember that the present Prime Minister told him before that his interruptions were not always clever. Now, I believe that the Prime Minister was righti because, when somebody does not want to understand, he does not.
In my office, I have a painting which I could show to the hon. member for Joliette-L'Assomption-Montcalm; it represents two feet.


Louis-Joseph Pigeon: After the next election, you will not be in this house.


Gilles Grégoire: Mr. Chairman, I continue my remarks to say that, today, we have an example which shows us that at this time we must endeavour to reorganize our finances and our system in order that we may take action and develop by ourselves.
Since the Bank Act and the Bank of Canada Act are to be amended next year, I think a study and an analysis should be undertaken right away of the transformations and amendments which should be brought forward so

Income Tax Act
that the Minister of Finance, the government and the Bank of Canada can create in our country the capital needed for our own development, without having to toady or to grovel before foreign investors as we have been doing since confederation.
Mr. Chairman, it is urgent to develop a new school of thought in our country: the finance separatist school. We must separate from our continuous dependence on foreign investors, and such a project would be Canadian from sea to sea. The ten provinces could set up an arrangement to see to it that our country would become independent from foreign capital. It is simple, Mr. Chairman.
I ask the Minister of Finance to think it over. Let him pay a visit to his bank manager. Let him go and get a loan from him. We saw him lately pass a resolution to borrow $1,500 million, but let him ask his bank manager what he does when he grants a $100,000 loan to a friend. The bank manager will tell him that he takes his pen and writes some figures in a bank book. At that moment, he is creating new credit which will represent the wealth of the nation.
Why should we leave that in the hands of one individual only? Why should not the wealth of the country instead be represented by assets and credit which would belong to Canada and be under the "control" of the Bank of Canada instead of remaining under the "control" of a few investors? The Minister of Finance should consider the way the necessary credit for the development of Canada can be built up, and then, he will not complain, as he did today, about the American government levying a new tax that will slow down our country's business.
Is it not amazing, Mr. Chairman-and serious, in my opinion-that a mere statement by the president of another country is enough to bring about on the Canadian stock exchange fluctuations as the ones we have witnessed yesterday and today. A mere statement by the president of another country is enough. If we were really controlling our economy, we would not be the victims of those decisions made outside of Canada.
If the minister accepts this situation, we do not. We have to learn to become an adult nation, capable of governing ourselves without being continually in bondage to foreign governments and dependant on their decisions as far as our economy, our policy or social system are concerned.

Mr. Chairman, it is a lesson for us. Let us try to profit by it and to improve our legislation in order to become truly independent in our own country.
(Text):
Mr. B rewin: Mr. Chairman, I should perhaps first state that I propose to discuss the income tax resolution. This may limit my rhetorical style, but that is the subject upon which I propose to address the committee.
I hope you will pardon the personal note when I say I rather regret that my first contribution to either the budget debate, or the discussion on the resolutions arising from it, does not take the form of being complimentary to the Minister of Finance and of commending the resolutions.
I would very much like to have done so for the personal reason of long friendship with the minister and a great admiration for his attractive qualities. Also I would like to have gained a reputation for originality, because I have not noticed anybody either in the house or in the committee saying a kind word to the minister or about his budget. But unfortunately, Mr. Chairman, the fact of the matter is that candor compels me to say this is an extremely bad resolution, and I propose to try to say why I think so.
The purpose of the resolution, as announced by the minister, is to advance Canadian control of our economy. That is indeed a very laudable objective; but it is my view, on looking at this actual resolution, that it will not only fail to fulfil that purpose but, on the contrary, the natural result of the effects of this particular resolution will be to do precisely the opposite and minimize the degree of control which Canadians will have over their economy. I shall later give my reasons for saying that.
In my view, and I summarize what I am going to say before I say it, the resolution is administratively inept. It will succeed in irritating foreign investors and completely frustrate the good intentions it is supposed to serve. This resolution is both delusive and deceptive to anyone who believes it is likely to increase Canadian control of the economy.
The minister announced that its purpose was to deal with the problem of non-resident ownership and control of Canadian industry. He gave us some of the figures in his budget speech, and pointed out that in 1959 57 per cent of the manufacturing industry in Canada, 75 per cent of the petroleum and natural gas industry, and 61 per cent of the other mining and smelting industry were controlled

by non-residents. The resolution we are discussing was designed to deal with this problem, and I can say that no one in this corner of the house, or in this party, is likely to quarrel with that purpose or disagree with it as an attempt.
We are all facing this problem of foreign ownership and control, but in my submission it is not enough to have good intentions. We have been told that the road to hell is paved with good intentions, and I suggest that the road to political disaster can also be paved with them.
Let us examine the particular resolution in question. It provides, as the minister has told us, a form of incentive or a benefit, by way of accelerated write-off of depreciation, for corporations which are described in the resolution as having a degree-and I ask the committee to mark these words-a degree of Canadian ownership and control.
These corporations with this degree of Canadian ownership and control are to receive the benefits of the incentive in this accelerated write-off, and in another section of the resolution, in the diminution of the withholding tax.
Let us examine what corporations with a degree of Canadian ownership and control will so benefit, and what will be the result. There are two groups. I leave out some of the unnecessary additional classifications, but basically there are two groups. One is a corporation of which not less than 25 per cent of its voting shares are beneficially owned by one or more individuals resident in Canada, or one or more corporations controlled in Canada, or a combination thereof. In other words an incentive is to be given to corporations, which are owned by foreign investors, to divest themselves of 25 per cent of their stock, and presumably to sell that stock to Canadians so that they will qualify for this particular incentive. This is one way in which they will qualify for the incentive.
I am not going into any elaborate discussion of the matter, but I say it is a perversion of language to suggest that a 25 per cent ownership of a wholly owned American subsidiary amounts to any control whatsoever. I know in law no less controlling situation than to be a minority shareholder where you have unified majority ownership on the other side. You have no control whatsoever. The very best you can do is make a nuisance of yourself under certain limited circumstances by seeking to get the corporation wound up and its assets sold. You do not control action in any shape or form by this 25 per cent ownership.
But, Mr. Chairman, that is not the real difficulty here. The real difficulty is that this will work this way: It will give an incentive
Income Tax Act
to the American corporations to try to divest themselves of part of their share capital to a minority of Canadians, and it may in turn give an incentive to Canadian investors to invest in these minority interests in foreign controlled corporations. Again I emphasize I am talking largely of wholly owned American subsidiaries.
I am fully aware of the fact that 25 per cent of ownership may give a control in certain circumstances, where the remaining ownership is widely diffused, but with a wholly foreign owned subsidiary this 25 per cent amounts to nothing that would in any circumstances be called control.
What will be the result of this provision? It is that Canadian investment funds, that might be available for investment in truly Canadian corporations, and which would give some real measure of control, will be drawn into this phoney sort of control, namely into minority interest in a wholly-owned subsidiary of a foreign corporation.
There is only a very limited amount of Canadian capital available for investment and it has been estimated-I do not know how accurately-that to acquire a 25 per cent interest in these foreign owned investments in Canada would require $4 billion. Even if a small percentage of that $4 billion, available in Canadian savings for investment, is channelled into this minority control by reason of this incentive, by so much will Canadian control in its own equities and ownership be divested from Canadian owned and controlled companies, and Canadian control will be diminished, rather than advanced under the terms of this resolution. Indeed the situation is worse than that because the second part of this resolution envisions that not even a minority interest will necessarily be Canadian.
Under clause (B) of the resolution it is provided that a corporation is deemed to be by law, under this resolution, to be a corporation with a degree of Canadian control-and I presume the statute will follow the same terminology-if:
-the voting shares of the corporation were listed on a recognized stock exchange in Canada and it is established, in prescribed manner, that no one non-resident shareholder owned beneficially, together with any other person associated with him at any time in any period, more than 75 per cent of the voting shares of the corporation,
There is an element of Canadianism in the fact that the shares have to be listed on a recognized stock exchange in Canada. I presume that means, under the regulations that apply to recognized stock exchanges, a certain amount of shares would have to be offered on that exchange for purchase by Canadians. But it is perfectly possible, under

Income Tax Act
this regulation, that a corporation would qualify for these incentives when, say, 74 per cent of the shares were owned by a syndicate in New York and 26 per cent of the shares were spread around amongst foreign investors in Philadelphia, Boston and what have you. Yet if the terms of this resolution were carried into the legislation this would be deemed to be a corporation with a degree of Canadian ownership and control. It certainly will have very little Canadian ownership, and I venture to suggest it will have practically no Canadian control.
Therefore the clause, if it is used as the basis of granting the incentive the minister speaks of as being an effective incentive-and that is how he opened his remarks-that particular incentive will be given to someone on the basis of a supposed "degree of Canadian ownership and control" when there is in fact no control and very little ownership. I say it will utterly fail to achieve the supposed purposes of the minister and the supposed purposes of this particular resolution. In fact, it aids precisely the opposite development; that is, the abstraction of Canadian investment funds from availability for investment in the ownership of their own equities.
Mr. Chairman, I had intended to spend a little time reading from various quotations in the financial press-I do not always get the opportunity to cite them in support of my own arguments and theories. These quotations point out the administrative weaknesses and difficulties of this proposed resolution. They are many and varied. The assessment of beneficial ownership is an extraordinarily difficult task and the possibilities for corporate manipulation are infinite. The administrative difficulties of applying this regulation will be tremendous, as has been pointed out by qualified financial advisers in the press. I think that part has to be looked into very carefully.
Then you get strange phrases like this, "One qualifies"-I think these were the minister's words-"for these incentives if there is not a non-resident shareholder, together with any other person associated with him who owns more than 75 per cent of the voting stock". It is true, Mr. Chairman, that this is not the legislation and is only the resolution, but what does a phrase like "any other person associated with him" mean? It is the vaguest, loosest sort of language, impossible to administer, with no real meaning. The ability to conceal the fact that a person is associated with you is the simplest thing in the manipulations of the financial world at the present time, and I defy the minister or his advisers to

produce legislation that will make that part of the resolution administratively workable or intelligent at all.
I just want to add this, Mr. Chairman. In my view the whole philosophy that underlies this resolution is punitive. When saying that, I think I speak for the party I represent in this house. The whole philosophy is one of punishment; it is punitive; it is gimmicky; it is not really tackling the problem that is involved. As I say, it will have the effect of irritating foreign investors who, as the minister says, we still need for the development of this country. But it will do nothing whatever to meet the real need, which is to promote and give leadership to the investment of Canadian funds in Canada, to mobilize Canadian resources for the development of our own country. The positive, and not the punitive, approach is the one that is necessary if this problem of foreign control is to be solved. Let us give up these punitive gimmicks of which this resolution is a sample and, I would say, a very poorly drawn and inadequate sample.
In conclusion, Mr. Chairman, in other circumstances I would have liked to conclude my remarks by urging the minister to withdraw this particular resolution. But I realize that unfortunately from his point of view the room for retreat and manoeuvre is limited at this stage; therefore I can hardly hope to persuade him to withdraw this resolution. But whether it is withdrawn or not, I say to him and to this committee that the excellent, well intentioned purposes which were announced for this particular resolution will not be served by the resolution and the legislation proposed, and that in actual fact it will defeat, rather than assist, the solution of the problem with which we are all concerned; that is, the problem of domestic, Canadian control of our own economic destiny.


Walter Lockhart Gordon: Mr. Chairman, I would like to reply very briefly to my friend the hon. member for Greenwood. As he said at the opening of his remarks, we are very old friends, and I can assure him that nothing he has said today will change that by one iota. He was kind enough to tell me last night that he might have something to say on the resolutions today and that he might have occasion to disagree with me in some respects. I would remind him that our friendship has not been weakened in the past by disagreements on a number of occasions, and I see no reason why it should in the future. I would remind him, though, that when this matter was being discussed in the first place, in the budget speech, at page 1001 of Hansard for June 13 I did not refer to the control of these companies. What I said was that a 25 per cent

interest is, in most cases, appropriate to ensure that a Canadian point of view is always available when company policy decisions are arrived at.
The hon. member may disagree with that. I have had the kind of experience he has had with some of these companies, and I do know that if a Canadian point of view is available to management when they are making decisions, it makes quite a difference. I suggest to him that there is quite a difference between the policy decisions of wholly owned Canadian subsidiaries and those where there is an important and legitimate minority interest. There has to be. In discussing this matter during the budget speech I went on to say that a smaller percentage than, say, 25 per cent would probably not be sufficient for the purpose; that a larger percentage would neither be necessary nor, in many cases, practicable. I think the latter part was the point I had particularly in mind, because I agree with him that we are not in a position in this country to find all the capital that we need for all the purposes that are crying out for it. At this stage I do not think I wish to get into a debate with the hon. member on the particular criticisms that he offered. I think I will just leave it by saying that I was not completely convinced by all his arguments.


George Clyde Nowlan: Mr. Chairman, this first paragraph deals with two different facets. It deals, in the first place, with an accelerated depreciation, which is one matter on which one could have a discussion and a debate and there might be differences of opinion as to the effect and the benefits derived therefrom. But I would suggest that this is perhaps the minor facet at the moment, despite what the minister said this morning about its importance. I think perhaps this is a minor part of the resolution, because when you adopt this resolution you are also adopting the definition of the Canadians of this corporation who, under certain circumstances, will be entitled to this accelerated depreciation.
I could not agree more with what was said a moment ago by the hon. member for Greenwood with regard to this matter. I agree entirely. It is a rather welcome relief that I do so because we cannot agree entirely on some of these matters. So far as the inadequacy of the definition, its purpose and its futility is concerned, that is something which goes to the root of the resolution. It is the reason why we should not allow the resolution to go through at this stage. The incentive or the depreciation in itself is not so important. It plays a part, of course; but once you adopt this paragraph you are adopt-
Income Tax Act
ing the same definition so far as the withholding tax is concerned, and when you are dealing with the withholding tax you are dealing with what I think is a particularly vicious and wicked section of the resolutions which should not be considered at any time.
What we are really doing here, as I see it-and if I am wrong I am sure the minister will correct me-is defining the good boys and the bad boys. The good boys are going to get cookies and cake by way of incentives; the bad boys are going to get hit over the head. I suggest that this is the first time in the western world which I can recall where there have been incentives for the good and not the bad, where there have been carrots and clubs for a given taxation period.
If I read the definition aright, the minister was faced with a very difficult administrative problem. There is no question about that; he admitted it. When he first brought in his bill he provided for 25 per cent Canadian ownership, although I think he faced the fact that this was probably impossible to administer. Anyway, he withdrew it and now you have a situation where a company must be listed on the Canadian stock exchange and not more than 75 per cent of such company can be owned by an individual or by associated companies. In other words, a small group. Let us take Ford of Canada, for example. If 74.89 per cent of Ford of Canada is controlled by the Ford family, shall we say, the other 25 per cent listed on the Canadian stock exchange could be-and in some other corporations they might be- owned by people in Ghana, in Holland, in Germany, in France, in Switzerland and in England, and not one single share owned in Canada. As long as the Canadian directors who are officials of the company are resident here and it is called a Canadian corporation, we are going to give it tax incentives and benefits. Let us take another example. My hon. friend for Ontario has a corporation in his constituency, General Motors, which employs a few dozen Canadians-14,000. General Motors, as I understand it, is a wholly-owned United States subsidiary. Whether that is right or wrong is a matter one could debate for some time. But we were told by the government that the fundamental problem was that of employment, of ensuring employment. I think a man who could get a job with General Motors would be just as happy as if he had got a job with Ford of Canada. Yet General Motors cannot qualify for these incentives, if they want to put in new equipment, because they are not in that category where they have a few resident

Income Tax Act
Canadian directors. They are the bad boys, whereas some other corporation would be a good boy.
I suggest, Mr. Chairman, that undoubtedly if there are shares listed on the Canadian market there is bound to be the odd Canadian investor. Surely this was not the intention of the minister when he wrote his first book. Surely this was not the intention of the minister when he wrote his second book. And surely this was not the intention of the minister when he wrote his budget. Then we were going to have at least 25 per cent Canadian control. How utilitarian that would be is debatable, yet it was a major objective and something which, if it could have been administered, might have been a success. But that has gone, and now you have left the 75 per cent ownership. As long as it is not more than 75 per cent owned outside Canada by associated companies or a family or group of that kind, then the other 25 per cent may be owned by Canadians in whole or in part, or may not be owned by Canadians at all. As long as you have the requisite number of Canadian directors who may now be officials of the company, which was precluded before-they may not even be Canadian citizens, but as long as they are Canadian residents-this qualifies the company for preferred treatment. As I have said, I do not think this is so vitally important in this case where we are dealing with depreciation, although that in itself is important. But it is of vital importance when we are going to deal with the withholding tax. Once we adopt the definition in this section, the position will be the same as when we are dealing with the withholding tax.
For that reason, particularly in view of what happened yesterday in the United States when we did not know, as the minister said, what the reactions would be or what results would flow from the presidential message, this is not the time to be adopting definitions or passing laws which will further complicate our relations with our investors in other countries. I would urge that the committee not pass this paragraph this afternoon but that it be stood over until such time as the situation is clarified. We think that the committee, the house and the country should have more opportunity to consider it and then deal with it concretely.
There are many other things which one could deal with, Mr. Chairman. I have a dozen questions which can be asked but I am sure others have too. All I want to do for the moment, in support of the hon. member for Greenwood, is to point out what

to my mind is the absolute futility and inconsistency of this definition. If there was ever a case of gimmickry on gimmickry, then this is a gimmick to outdo all the gimmicks in creation.


Marcel Joseph Aimé Lambert: Mr. Chairman, as we are now discussing paragraph 1 of version 2 of the fourth edition of the budget I feel we must have some sympathy with the hon. member for Greenwood. I also have some sympathy with the Minister of Finance in the position he finds himself as minister. We all recognize the need for revenue, and one point which is so often missed by those who would comment on the federal financial scene is that the Minister of Finance has control over but one third of the expenditures which are within the four corners of our federal budget expenditure, because there are so many statutory items over which he has no real control. One can recognize that in this day and age the Minister of Finance requires extra revenues, in addition to which, of course, not only has he to meet the level of expenditure which existed prior to his assumption of office, but we have been given notice of a veritable flood of expenditures which are to come. Of these a good number will be statutory items or of a nature over which the minister will have no future control. So he has his problems.
The budget, the minister told us on opening night, was to be a budget which would stimulate industry and provide employment. Then on the famous Monday night when we had the explanations we were told that the purpose of the budget was to provide more revenue. Then, of course, we know that there was another objective in this budget, and this was the implementation of the philosophy of Canadianization of companies or Canadianiza-tion of foreign investment in Canada. But what has been the result? I would suggest to the minister this will have the contrary effect. We were told, with respect to the removal of the 30 per cent takeover tax, that this was being done because of administrative difficulties. I can understand the views of the minister in this regard and disagree heartily with the opinion expressed by the hon. member for Lapointe whose knowledge in this field is, I suggest, in inverse proportion to his volubility when he talks about there being an absence of administrative difficulty. I have heard it said in Ottawa-it is notorious-that the people in the Department of National Revenue responsible for these matters were consulted somewhat late in the day and that the difficulties were therefore not apparent until the minister was committed to the budget and had announced

his plans. Then he was obliged to say: we planned to do this but we now find it is impossible.
This provision was, we were told, an attempt to get United States investment out of equities and into bond holdings. I have no quarrel with the proposal made by the United States President. He and his government are facing a serious and complicated problem. They are taking action and it will affect us. But the effects of this proposal, if the proposal is implemented will, I suggest to the hon. gentleman, be the reverse of what he wished to accomplish by means of his budget. The heaviest incidence of the proposed United States tax will be on longer term investments and bond holdings. Instead of United States money coming into Canada and flowing into the bond market rather than into equities, the reverse is likely to happen because the United States proposal would subject investments in bond holdings to the heavier tax rate. Admittedly this is what appears on the surface of the president's proposal, and we do not know how the measure may be amended by congress. However, this is what I gather from the face of it and I intend to leave the matter at that point.
Now we come to the purpose of these resolutions, which is to provide an incentive for certain categories of companies which have a so-called Canadian content. They are told that at least 25 per cent of their directors should be resident in Canada in order to qualify for these benefits or, as was explained by the hon. member for Digby-Annapolis-Kings, there must be some odd combination in relation to the holding of voting shares. On this point, the resolution is far from clear. It says-"And it is established in prescribed manner". I realize, of course, that we cannot expect to have the details with regard to this at the resolution stage but it would be most interesting to know what the prescribed manner will be to establish that-
-no one non-resident shareholder owned beneficially, together with any other person associated with him at any time in the period, more than 75 per cent of the voting shares of the corporation.
Then we come to this business of the number of directors. No doubt it is felt that by this provision a certain Canadian content would be given to a corporation or business. I do not know what type of corporation the minister has been accustomed to deal with, but I can tell him that there are a number of jurisdictions in this country where it is possible to establish corporations in which the directors need hold no shares at all. It is possible to do that today in the province of Alberta; it merely means the inclusion of an appropriate clause in the articles of association. I myself, as a solicitor, have often par-28902-5-154
Income Tax Act
ticipated in such arrangements merely to comply with certain provisions and regulations of this particular kind. I would strongly suggest to the minister that this requirement is a hollow one. It means nothing. There could be compliance with the letter but not with the spirit of the law. Companies can get away with it, and it means absolutely nothing.
I am puzzled, too, by the procedures to be used to determine the ownership of shares where the Canadian resident holds shares in a mutual fund. When these funds are then put into equity shares in a Canadian corporation how do we arrive at a true appreciation of the share holding? We are getting down to certain situations where there will have to be knife edge decisions.


Walter Lockhart Gordon: Not under this provision.


Marcel Joseph Aimé Lambert: Well, I should like the minister to consider this. There may be an appropriate answer, but where one has this 25 per cent Canadianism, or anywhere where there is a percentage requirement of shareholders, what does one do where there are holdings in a mutual fund?
There is another point. I suggest the requirement that a certain number of directors should be residents of Canada can be readily defeated as far as Canadianization is concerned. There are hundreds of companies in Alberta, for instance, which are involved in oil field supplies and in the oil business. Their directors are, for a good part, United States citizens, residents of this country who are shuttled back and forth by their parent corporations in the United States. These men may live for two, three, or five years in Canada, but they are here to carry on the business of a subsidary company according to the dictates of head office policy, which is American. They have done a tremendous job for the industry, but I say to the minister that as far as introducing an element of Canadianization into these companies is concerned, the requirement in these regulations means nothing. It will not introduce that element. If the government intends to introduce Canadianization in this way, let these men be domiciled in Canada or I should say become citizens of Canada. I admit it will be much more restrictive, but it is a restriction to achieve a particular purpose or advantage with respect to investment in new equipment and new plant. It is a restrictive rule, so if it is the intention of the government to give an advantage to the Canadian element why not provide that it shall be a Canadian citizen who shall be a director?
There is one further point on which I would quarrel with this resolution. I do not think that the allowance of up to 50 per cent

Income Tax Act
ior depreciation in a year, particularly in new business, means anything except in the odd case. If you are establishing a new business you must look to the long pull. You are not necessarily going to make money in the first two years of business. It is only the rare bird who is able to operate in the black in the first two years. Yet this individual or company is being given the advantage of a write-off of up to 50 per cent for depreciation in those two years. What good is it to him if he is already in a loss position? The purpose of this depreciation incentive is so that he will have less taxes to pay and more money available for further investment or to recover for himself.
I also suggest to the minister that even if he did avail himself of the 50 per cent, or whatever lesser percentage he chose to take, all he would be doing would be to hasten the evil day when he would have no further allowable write-off. Therefore in the third year, or whatever subsequent year it may be, he will then be bearing the full impact of the tax on income which has been established at a certain figure because there is no more depreciation allowance. You cannot escape it. You are not giving 150 per cent depreciation in this instance; you are limiting yourself to 100 per cent. Whether you write it off in two years, four years or ten years you are still going to be limited to the cost that you are going to depreciate. It is true that you are advancing it now, but three years hence you are going to be hit with the whole burden.
There are other things I should like to say with respect to other paragraphs in the resolution, particularly as to related companies. I think that is a pernicious provision. I have fought against it and there are others present who know how I have fought against it. I think it is induced by a rather illogical division between small businesses and large businesses and I hope the minister will look at it because I think there is room here for manoeuver. There is room to do something constructive with regard to corporate income tax. I agree with my colleague, the hon. member for Digby-Annapolis-Kings, that this provision has too many hooks and unknown dangers for us to pass it immediately, and I would prefer to see this item stand so that we can go on with others that are less controversial.


Walter Lockhart Gordon: Mr. Chairman, I think that is a good suggestion. I would suggest that we leave the discussion of this particular paragraph, not the resolution, move on to other paragraphs and then come back to it. I thought that the main point made by the hon.

member for Edmonton West was in connection with the depreciation or capital cost allowance of 50 per cent. It seemed to me that he was thinking primarily of new businesses; at least, that is what he talked about. With great respect to him, I would think that this provision would prove to be a tremendous incentive to many established businesses to expand. It has been in the past when people have been offered accelerated depreciation. It proved to be very effective, and I have no doubt in my mind that this will prove to be a very great incentive to increased capital investment in the private sector of the economy. But I agree with the hon. member that this will apply perhaps especially to established companies rather than to those that are not yet established.
I do not think I have anything more to say except that I agree with the suggestion that it might be a good idea if we went on with some of the other paragraphs and came back to No. 1 later.


Bert Raymond Leboe: I have some questions I should like to ask the minister in connection with the depreciation allowance. Would it not be possible for a person to acquire a debt as well as a depreciable piece of machinery costing several hundred thousand dollars? In other words, the piece of machinery might not be needed now but rather six, eight or ten years from now and in order to take advantage of this provision the company would buy a piece of equipment for installation at some later date. The depreciation allowance would be granted, even though the company had made the purchase on the time payment plan with only a small down payment.
I have one or two other points. I was interested in the remarks of the minister about the incentive for expansion. He did not refer to expansion to meet certain markets in his remarks. I am wondering whether or not we are trying to entice people to expand their plant where markets do not exist. In my business experience, when the market was there the money generally was readily available to go ahead and expand. I am wondering, however, about creating an incentive just for the sake of expansion without knowing whether or not there is going to be a market for the product, be it a machine or something else, that is going to be made. Would the minister care to comment on these points?


Walter Lockhart Gordon: As to the first point, Mr. Chairman, it would be possible, of course, for a business to buy a piece of machinery for $300,000, or whatever the figure was that the hon. member suggested, that it would not need for some years and claim this depreciation. However, I cannot imagine many companies doing that because, after all, they would get

certain tax advantages, but only up to 50 per cent and not many people will invest in machinery and have to spend at least half their own money for that purpose unless they are going to use it. There might be the odd case but I suspect only on the part of some company that had so much money that it did not know what to do with it.
On the second point, I quite agree that most businessmen are not likely to expand their operations unless they are satisfied that markets are available. But I think we all know that in Canada we have many businesses that have not kept themselves as modern and up to date as they perhaps would like to have done. I think we know that there is a great deal of obsolescent machinery in Canada and that the prime need in this country is to make our businesses efficient and modern in every sense of the word so that they can face up to the kind of competition with which they are now confronted. The purpose of the incentive is to encourage companies to modernize, to scrap obsolescent machinery and to replace it with the most modern machinery it can acquire.


Bert Raymond Leboe: I should like to have the minister relate what he has said to the remarks of the Minister of Defence Production the other day when he said we must temper our efficiency with the idea of providing jobs. It seems to me there is a direct conflict here. In essence, we are saying we must modernize, get more up to date machinery, which will bring about automation to a greater degree, provide a greater degree of efficiency and a better product; yet the Minister of Defence Production, if you will refer to his speech in Hansard, said we must temper our efficiency, our automation, with the idea of providing more jobs. I should like to see if the minister can relate the two objectives because there seems to be a conflict.


Walter Lockhart Gordon: I am afraid I was not in the house when the Minister of Defence Production made the remark to which my hon. friend refers.


Bert Raymond Leboe: You will find the remarks there, all right.


Walter Lockhart Gordon: I will have to look them up. I am pretty sure the Minister of Defence Production would agree with me, however, when I say that in general terms, and certainly there may be some exceptions, if Canada is to prosper, if we are going to compete with other countries as we must, we shall have to do everything we can to modernize our industry in this country. I do not think there can be much quarrel with that. The hon. member used the word "temper", and 28902-5-1545
Income Tax Act
there may be occasions where other considerations have to be taken into account for a while, but by and large if we do not keep up to date in this country then we are going to get into a great deal of difficulty.


Bert Raymond Leboe: I agree with you, and I disagree with the Minister of Defence Production.


Eldon Mattison Woolliams: Mr. Chairman, I should like to divide my remarks into three parts this afternoon. I understand we are still dealing with paragraph 1. In particular, I should like to say a few words in a general way as a member of the House of Commons, a person who lives in the city of Calgary and represents the riding of Bow River which contains about one third of the people in the city of Calgary. I believe that in the city of Calgary, on a per capita basis, we have more people from the United States than we have from any other part of Canada. We have, in a city of 235,000, at least 35,000 or 40,000 people from the United States.
In fact, recently I was talking with the United States consul there, Mr. Madill, who has just been moved from the city of Calgary to New Zealand. He says it is one of the busiest consulate offices in the whole of Canada. I refer to those facts because I should like to mention certain things which took place during the campaign. I do not want to flog a dead horse, because the campaign is over, but these events set the whole tone of the resolution, the whole tone of the budget. If we look back at the campaign for a moment we find, and I say this without any equivocation, that far more irresponsible than any taxes that may have been imposed or attempted to be imposed by the former government, was the budget. Yet, when we tried to develop a plan, when we encouraged Canadians to invest more money in their own business, we were then labelled antiAmerican.
I am going to go further. I did not intend to go that far this afternoon, but there was a most vicious attack made because they labelled us anti-American. They labelled the leader of our party anti-American. I say that I do not blame the newspapers in the United States for writing that kind of propaganda: I blame the people now sitting on the treasury benches. I believe the kind of publicity that Canada is getting is probably the result of that situation that developed. The people of the United States generally are beginning to realize that probably their true friends after all were the members of the Conservative government and not the present Liberal government. I think we should always remember, and I think we should remember it outside of the house particularly, that when

Income Tax Act
you attack the Prime Minister of your country, then you are attacking your country as a whole. This is something that was accomplished by those people who now sit on the treasury benches.
As I have said, I come from the city of Calgary which does contain many people from the United States. I am going to be personal for a moment. I am married to a person who is a fifth generation American. During the campaign, because we were pro-Canadian, propaganda was poured out to the effect that we were anti-American. This was false; it was deceitful; it was wrong, and it was irresponsible to the country.
I was interested in the minister's last remark before he sat down concerning competition, and how Canada must compete with other countries industrially. One of the problems of competing is, of course, modernizing our plants. One of the phrases we have heard quite often lately is to get the economy rolling in order to increase productivity. I have said over and over again when I have spoken on this side of the house, and when I sat on the other side during the time the Conservatives were in office, that we should honestly try to reduce taxes.
I believe, in that regard, I should put an interesting story on the record. We are always bringing forward programs or attempting to bring forward programs, it seems, in order to win votes. These programs increase the taxes and take taxes from private industry and from the wage earner and, as a result, increase the cost of production. Then, we are not able to compete with some of the other countries, particularly the communist countries who say their economic penetration into the western world is greater than any other kind of penetration.
I should like to put this story on record with regard to taxes before I speak to the resolution. It is a story that is reported in "Vital Speeches of the Day", for March, 1963, at page 346. This is the report of a speech on "Our Most Precious Possession", by Mr. Doan. This is what he said:
There is a story of an old Indian who owned some oil land. He sold it for quite a sizeable sum of money. Soon thereafter the internal revenue service sent a man to see him for he had never filed a tax return. He asked why he should give 25 per cent of this money he had received to the government. The tax agent patiently explained that the government did a lot for him. It protected him from his enemies, it cared for him when he was sick, it gave him dams which made huge lakes for him to fish, and power for lights for his hut, and free money when he grew old, and for these purposes it needed money.
This is the reply the Indian gave to the man from the internal revenue department:
Yes, I understand. It is like this: I have a dog and the dog is hungry. He comes to me and begs
[Mr. Woolliams.l
food. I say to him, "My dear faithful dog, I see you are very hungry. X am sorry for you. I shall give you meat." I then take my knife, cut off the dog's tail, give it to him, and say, "Here, my faithful dog, be nourished by this nice piece of meat."
This is exactly the kind of tax system we have in this country. This is exactly what we are trying to do so far as the tax structure of this country is concerned.
I should like to spend just a few moments in referring to the new tax that has been implemented by the United States. I should like to quote something which appeared in this morning's Gazette, July 19. I quote from the article.
Eric W. Kierans, president of the Montreal and Canadian stock exchanges, noted that "Canadians have always relied on the large pools of savings generated in the United States to finance a higher rate of growth in Canada, at cheaper cost, than would have been possible otherwise."
With Canadians cut off from a ready access to American markets, "higher interest rates seem inevitable."
It goes on to say:
As a result, we can expect a slowing down of economic activity at a time when we already have high unemployment.
I do not think anyone would suggest that that tax was implemented because of what has taken place in what I classify as an irresponsible budget, but I do say that Canada should have been left out of the list of 22 nations mentioned, or at least our Minister of Finance should be in a position to negotiate on behalf of Canada. But, when one looks at the terms of the budget and at what he tried to do in it, but which he withdrew and retreated from like Napoleon, one cannot except the Minister of Finance to say, "Go easy with us. We are Canadians. We do not want that kind of tax. It is going to hurt our economy, and it is going to mean maybe another	100,000 men unemployed next
winter."
We cannot negotiate in that fashion because we have put our worst foot forward and the chickens have come home to roost; and this was done by people who said we were antiAmerican and they were pro-Canadian.
An increase in interest rates could easily develop. I am not a student of this, but I question whether the minister has really completely conceived of the situation between Canada and the United States economically, and what this might mean to our exchange problems. We may face tighter money, and tight money brings back many problems and will increase the number of our unemployed.
The whole background of the budget, and the whole principle behind the books written in the past by the minister, was that if we

followed certain steps, laid down in the budget, it would mean full employment for Canadians, whatever that means-when you have less than 4 per cent unemployed. Then of course you have full employment, according to him.


Walter Lockhart Gordon: Would the hon. member permit a question?


Eldon Mattison Woolliams: Certainly.


Walter Lockhart Gordon: I do not remember making that statement. I wonder if the hon. member would give the reference?


Eldon Mattison Woolliams: I have not got your book with me. It may be 3 per cent. What did you say?


Walter Lockhart Gordon: Mr. Chairman, I have said this on several occasions and I am delighted to repeat it. In my opinion we have full employment when jobs are chasing men instead of men chasing jobs.


John (Jack) Henry Horner: Read your book. Somebody else must have written it.


Eldon Mattison Woolliams: I would say this with the greatest respect to the minister, as I understood it and maybe I misinterpreted it, I think he went so far as to say that where there is only 3 per cent, or 3J per cent, of the people unemployed, you have full employment in Canada, and I am ready to read that paragraph into the record whenever this debate comes on again. I am quite confident the minister made that statement. He has written three books and he has written one budget, and maybe he has talked so much about this matter that he has overlooked this particular item; but nevertheless that was my interpretation of his book and the interpretation of many Canadians who read it.


Walter Lockhart Gordon: You have read it?


Gilles Grégoire: I would like to ask a question-


Eldon Mattison Woolliams: Certainly.


Gilles Grégoire: -of the Minister of Finance. Could that level of employment be achieved in my constituency?


Lucien Lamoureux: Order. Do I understand the hon. member for Bow River has completed his remarks?


Eldon Mattison Woolliams: No, I have not, but I thought it was in relation to something I was saying. My hon. friend has always been so polite and kind to me that I would not want to deny him the right to anything, but if you would permit him to put the question I am willing to yield.
Income Tax Act


Gilles Grégoire: I have put my question to the minister.


Walter Lockhart Gordon: Nothing would make me happier than to have all the people in the constituency of the hon. member for Lapointe in the position where they had lots of jobs to choose from. I am sure he would agree that would be just fine.


Eldon Mattison Woolliams: I am glad to hear the Minister of Finance say that, because I do not think any member of parliament presently sitting in the house, or any former member, has said he did not want full employment. Every government that sat over there has striven for the same thing. After all, governments may make mistakes innocently and logically, but every government that sat on that side worked for full employment.
However the point I want to make is that when there was unemployment in 1957, when the Conservatives were in office, to listen to hon. gentlemen opposite one would think we had invented something new in the political world.
Coming directly to paragraph 1 of the resolution, I am inclined to agree with our financial critic that what is so strange about the resolution is that it puts one group of people in one pen and another group in another pen. You have the bad boys in one pen and the good boys in another, and one of the difficulties is to differentiate between the good and the bad by reading the resolution itself because, when you approve of the first part of the resolution, as other hon. members have said, you have then approved of the definition of what you mean by a good boy and what you mean by a bad boy.
But even if one were to take that part out and looked at the resolution as it reads in reference to the 50 per cent depreciation, what does this really mean? Applying it to new companies going into areas where there are surplus labour pools, and there is one in my own riding, Drumheller, most of these companies which start out, buy new machines and new processing equipment and would not show a profit for a number of years; so that actually the resolution as it stands is really superfluous. It really does not mean anything even if applied to companies now in operation that are showing a good profit, because if you write the depreciation off for the first two or three years then it is gone and they are going to pay this taxation on profits in later years.
The minister has already changed one of the provisions of the budget, cutting the 11 per cent sales tax back to 4 per cent and amortizing it over a period of years, but this

Income Tax Act
is going to be dangerous and the full tax will be paid in a number of years.
With reference to the definition of what is a Canadian corporation and what is not, it seems to me we could have a situation, as pointed out by the financial critic of our party, where Canadians would not own any part of a company but it still could be categorized as a Canadian company. Where does that put us? It merely discriminates as between one company and another. Of two companies having almost the same identical structure, one may comply with this provision and the other may not. A definition of that nature is very dangerous and it is certainly a new type of thinking in discriminating in favour of one company as against another.
If it applies to the Ford Company and not to General Motors then it is unfairly discriminatory and unjust. On that ground I support my fellow colleagues in their contention that the resolution should be stood; but I go further and say not only should it be stood but it should be withdrawn, as the minister did with other portions of the budget, in his retreat like Napoleon from Moscow.


David Vaughan Pugh: I want to clear up just one point. Would the minister give a definition of residence?


Walter Lockhart Gordon: Mr. Chairman, unfortunately I am not a lawyer. I gather this is a legal question and I am not in a position to give the answer.


David Vaughan Pugh: If the minister backing this resolution cannot give a definition of residence, how then is it to be interpreted? Surely there must be some definition. Does it mean the residence of domicile, or does it mean ordinary residence? How long must the residence be, for instance, in Canada? Also, if the minister can give us a definition of "resident"-and I am sure he can-would he give statistics to-


Walter Lockhart Gordon: I am informed, Mr. Chairman, that there is nothing in the Income Tax Act, or very little, defining "resident" but that it is to be found in the common law of the country. That is why, not being a lawyer, I am not prepared to give a snap decision; I do not think I am qualified to do it.


David Vaughan Pugh: Then without the definition at all, and referring to the common law of Canada, has the minister any figures to show the number of non-Canadians resident in Canada who are at the present time directors of a corporation subsidiary wholly owned other than in Canada? I am asking the minister this question because there must have

been a reason for putting this residence qualification into the resolution. First of all, apparently the question has not crossed the minister's mind as to what is the definition of a resident of Canada for the purposes of this measure. Second, in putting this qualification into the resolution he must have had some object in view. There have been a great many "airy fairy" decisions on the budget already, and if this is going to be carried into this budget resolution, surely it should be stood over right now until such time as this normal type of question can be answered.


Walter Lockhart Gordon: Mr. Chairman, I have in mind "resident" in the general understanding of the word, but I am not in a position to give the hon. member a legal definition of it. My hon. friend may be a lawyer-he probably is-and if so, his knowledge of the common law would be very valuable to the committee, I am sure. I was not quite clear about the hon. member's second question with regard to the number of directors of various Canadian companies. There are no statistics at all on that.


David Vaughan Pugh: The question is this. The minister must have had something in view when he started talking about residence as being a qualification for a director of a corporation which was wholly owned in the United States, or a subsidiary. Has he any idea as to how many non-Canadians would fit into this category at the present time, because if they are resident in Canada, according to the common law or any other definition set up by the regulations which will come into effect with the passing of these resolutions, surely that fact would qualify them under this paragraph and they could be non-Canadians.


Walter Lockhart Gordon: That is correct.


David Vaughan Pugh: In fact, they would be in no different category than prior to the passing of this resolution?


Walter Lockhart Gordon: This resolution contemplates that directors will qualify if they are ordinarily living in Canada and therefore familiar with Canadian points of view.


David Vaughan Pugh: Then there could well be figures in the department at the present time which would indicate how many non-Canadians who are resident here are directors of corporations wholly owned outside Canada.


Walter Lockhart Gordon: Mr. Chairman, I am sorry to have to tell the hon. member that there are no such statistics.
(Translation):


Léon Balcer: 
Mr. Lamonfagne:: Just like France.


Léon Balcer: Indeed, I could point out to the President of the Privy Council that, according to today's newspapers, during the first half of 1963, Americans bought $590 million worth of Canadian bonds, that is 67 per cent of the over-all amount of foreign bonds purchased by United States citizens. Mr. Chairman, Canada, which sold nearly 67 per cent of all foreign securities bought by the United States during the first six months of 1963, will be the first country affected by President Kennedy's plan. I feel it is our government's duty to suggest to the United States a preferential treatment for Canada, based on a good neighbour policy.
After the hullabaloo of Hyannis Port, and in spite of the outcry directed against the previous government during the last election campaign, the present government has done nothing, and Canadians feel disappointed.
The Minister of Finance urges us not to exercise ourselves unduly, as the proposed legislation has yet to be approved by the United States congress, and this may take several months. We are told that even if the measure were passed in the fall, it might find itself seriously amended.

Income Tax Act
The Minister of Finance thus tries to bring us some comfort, but actually we are left dangling in mid-air. Our financial circles find it much worse to remain in such state of uncertainty, than to know hard facts.
Mr. Chairman, it does seem rather childish to try and seek solace in the thought that the legislation has not yet been approved by congress, for we know, through the president's statement, that the proposed measure would become retroactive as from yesterday July 18, and we are aware that the Canadian stock exchanges have already been affected by the United States proposal.
Besides, one has merely to study the stock exchange to appreciate the effect of the new measure taken by the United States on the Canadian market.
Mr. Chairman, bearing in mind the action taken by the United States against Canada, we should consider very carefully the resolutions under study.
I believe also that the warnings given by the members for Digby-Annapolis-Kings (Mr. Nowlan), for Bow River (Mr. Woolliams) and for Edmonton West (Mr. Lambert), should be taken into serious consideration by the house before taking actions that would be merely aggravating, inefficient and would cause uneasiness in Canada itself. These measures, instead of stirring up industry and trade, will result in a more serious decline in business.
Mr. Chairman, we must be very careful when we are dealing with our neighbours to the south. We can see the extent to which what is going on south of the 45th parallel can affect our economy. That is why I believe that, if the Minister of Finance wants to promote Canadian economy, he must find perfectly accurate means which leave no room for doubt, in order that there be no discrimination between investors residing in Canada and those who invest money in Canada, that is foreign investors and Canadian investors. There should be no discrimination between them.
A climate of prosperity must be restored in Canada. We should welcome foreign capital to a certain extent, and that is what must be determined with the greatest care.
Let us not forget that, in all Canadian cities, from the smallest to the largest, municipal councils are spending vast sums of money to bring in new industries. I might point out
[Mr. Balcer.l
that it makes very little difference to those municipal councils whether the funds are American, French, English or Canadian. What they want is work for the Canadian people.
I realize we could go too far in that direction, but nevertheless we must make sure that all steps taken to curb foreign investments are capable of having beneficial results and do not constitute an obstacle to the development of our country.
That is why I feel those resolutions, as drafted, do not suit that purpose and why I agree with the views expressed by the hon. members I have mentioned at the beginning of my remarks.
(Text):


Mr. Nugent:: Mr. Chairman, after quite a number of people have spoken on these resolutions it might be rather difficult to sound original, but perhaps something is to be said for expressing a somewhat similar idea in a different way; and sometimes the purposes of emphasis might be served by repetition by a number of people. On the question of emphasis, for example, it is not too often that I have heard in this house speeches made by hon. members on the left hand side of these benches quoted with approval. However, I did think that the speech of the hon. member for Greenwood touched upon what I consider to be one of the most fundamental faults in the budget presented by this government, namely the concept of the punitive aspect of taxation as compared to the encouragement of Canadians to achieve what the government is setting out to do. Certainly nothing could be more unsettling to the country as a whole, or more discouraging to investors both here and abroad, that the wild gyrations of the minister in withdrawing so many of the budget items. But it was not just the fact that these items had to be changed which was so bad; it was the fact that they were so startling and severe. The takeover tax, which was so quickly withdrawn, in itself could have done very little harm in a very short time if it had not been such a rude departure from all that had been expected of this government. While nothing may be gained, in some instances, from refighting the last election, I think that in order to appreciate the impact which this action had on the country, the effect it has had on the budget, and how it is affecting the confidence of investors and businessmen in this country, we should look again at the situation.
The fact is that the Conservatives had been branded as anti-American. They had been branded as anti-American by the concerted

efforts of Liberal propaganda over a considerable period of time. I would say that for political purposes the Liberals had gone far out on a limb on this and had played the theme that they are the friends of the Americans, and had stressed the importance of having a government friendly to the United States. They had sold the country on that, and sold the Americans to quite an extent on the idea that they would be that government. They had sold the people of this country on this, that if they came into power their mere assumption of office would restore the confidence of the business community. Here would be a government which would get along well with the United States, and in this way it would restore the confidence of the United States investors and Canadian investors and smooth the path toward economic well-being.
It is against this background that we must consider the action of the government. In addition to the budget as originally presented there were the items which have now been removed from it, and the budget resolutions are before us now; all are inextricably woven together. Certainly I thought there was some justification for the early Liberal propaganda when the change of government first came about, and that there might be something to the fact that the business community now had more confidence in the government than they had when the Conservatives were there. Certainly, all the organs of propaganda, the press in this country most of which had been favourable to the Liberals, as well as most of the press in the United States immediately began to hammer home the theme that now we had a government which understood cooperation, a government which was steady and reliable, a government which would take the commonsense viewpoint which this country needed if it was to meet the challenge ahead. I think the tide of propaganda which poured out did, for a little while begin to have an effect. Businessmen began to feel that at least the situation had stabilized, that we had a government which could swing the country behind it and that we would enjoy a period of stability, if nothing else. When we measure these expectations against the dismay brought about by the punitive measures announced by the Minister of Finance, we begin to understand the degree of shock felt by our friends in the United States who had hoped for so much. Had such a measure been introduced by a Conservative government which, through constant propaganda, had been branded as anti-American, it might have been considered in a different light. It might have been resented to a certain extent, and those who had been influenced by propaganda might have tried to make something
Income Tax Act
more out of it; but I believe it would have been considered fairly objectively. However, it was presented by a government which had done nothing but stress the importance of friendship with the United States, a government which had made so much political capital out of our balance of payments difficulties. When we appreciate this fully, we begin to realize why there was so much consternation at the hon. gentleman's announcement, not only in this country but throughout the United States.
We in this house have begun to recover in the last day or two from the shock we felt at President Kennedy's message to congress about the contemplated tax on shareholdings abroad. It should be remembered that the position of the United States in this regard is very different from our own. Canada is almost completely dependant on outside capital for its continued economic expansion. President Kennedy could implement a step such as this knowing that its results, while they might annoy foreign institutions, would not affect him too adversely, because United States generates more than sufficient capital within its own borders for its own needs. For anyone to suggest that if President Kennedy can do it a nation such as ours can do it, is to miss the point completely. Canada is just emerging from its position as a supplier of raw materials. We are only beginning to find our real stature as a manufacturing nation and we have a long way to go before we achieve the industrial capacity we must have if wTe are to overcome our employment difficulties. There is no suggestion that in the near future we are likely to become independent of outside sources of capital for investment. For a long time we shall need substantial sums to build up the industrial complex for which we must strive.
Since we are today so extremely dependant, we are therefore extra sensitive to the reactions of our friends, not just to friends in the United States but to those of potential investors around the world. This is what makes the budget resolutions so important. It is this extreme sensitivity which has led to so much consternation throughout this country. It is this extreme sensitivity, this extreme reliance on the confidence of other investors, which I suggest must make us extra cautious and extra critical with regard to the remaining budget resolutions. To begin with, we must see if there is in the remainder of these resolutions the same sort of punitive attitude which has been taken with regard to almost every item so far. I am suggesting we should look at each item on the basis of asking ourselves whether we find an attempt to drive people into doing what we want them to do, to punish them if they do not react in what we consider to be

Income Tax Act
the proper way, or whether we find an honest attempt to encourage them to invest their money in ways which will best help this nation. If we do this we will be looking at the resolutions in a manner which is most likely to help both the government and the country.
I am not at all encouraged by what I see on a quick review of these resolutions. I am not happy with the provisions made for judging what is Canadian ownership. To begin with, it seems to me we find here a preoccupation with surface appearances rather than with what really happens down deep. In fact, mere window dressing and bookkeeping effects are, I suggest, what we have here. Certainly, anyone who is at all conversant with Canadian affairs is aware of the necessity to overcome our balance of payments difficulties. These difficulties are, I suggest, tied to the fact that we are so dependant on outside capital. Canada, as I said, a minute ago, is only now emerging as a manufacturing nation but Canadians are not heavy investors. It does seem to me that where one has a country which is so much in need of capital for its development and where the inhabitants are perhaps the most cautious investors per capita of any in the world, what we should most look for in budget resolutions is a way in which we can change Canadians into investors rather than savers.
It does not make sense to punish some people for transferring shares-to discriminate between one class of shareholders and another by means which, I suggest, are artificial, particularly at a time when we are overlooking at least one most obvious source of capital. There is nothing in these budget resolutions, I suggest, designed to encourage Canadians to invest more. There is nothing in them designed to encourage Canadian companies to get Canadians to buy more of their shares. I suggest it would be hard to tag a scheme as being mere bookkeeping or more propaganda if there were solid tax incentives allowed to a company which could say that a larger percentage of its shares was actually held by Canadians. We should not look only to the Canadian financial community or to the major trust companies for funds. It does not take a lot of arithmetic to consider that we have four or five million working people in this country and if we could encourage each of them to invest $100 in Canadian companies we would almost halve our balance of payment difficulties.
It may be I am too pessimistic when I suggest $100 per year, or maybe I am too optimistic. I am suggesting that this would provide a large untapped pool and that in the budget resolutions there is not the slightest attempt to get at it. I am aware that the Liberals during the election campaign had

a scheme to set up an investment pool owned by the government with the idea of selling bonds to the Canadian people. I am opposed to that for many reasons, one of the principal ones being that I think it would place a large amount of money in the hands of the government which could be manipulated by government advisers to the detriment or disadvantage of industries and businesses in a way I should not like to see. In addition, it smacks to me too much of socialism.
Certainly there is nothing wrong with trying to convert the Canadian workingman into more of a capitalist by encouraging him to own a good percentage of Canadian industry. If I am right in my modest estimate of $100 per person invested by four or five million Canadians and if I am correct in my simple arithmetic that this means an investment potential of $400 or $500 million, and having in mind the apparent cure that this would be for most of our balance of payments problem, I may be forgiven for being somewhat critical of the government for not giving any consideration whatsoever to this in the budget resolutions.
To come back to where 1 started, I do not know where the minister got it but this conception of punitive measures to try to force people to hold shares rather than encouraging them through incentives is where we go wrong. I do not want to belabour the point too much. However, I suggest to the committee that my idea of trying to get Canadian working people to invest has one more aspect to it in that it does avoid the difficulties of anti-Americanism that showed up in the budget resolutions before, or the suggestion that might now be made that because the Liberals were so silly about putting this in in the first place they cannot now adequately make representations to the United States government to save us from the possible harmful effects envisaged in President Kennedy's message to congress.
We will be much less dependant on the inflow of foreign capital if we generate a lot more of our own. More than that, I suggest that we are going to earn the respect of other countries throughout the world if we learn to stand on our own two feet a little more. The simple fact is that today Canadians are spending a higher percentage of their wages on daily consumption than are most other people. To put it bluntly, Canadians are much more selfish as a people than the people of most other countries in the world. If you want to get ahead and stand on your own feet you must be prepared to make sacrifices. It is the duty of the government to encourage the Canadian people to make these sacrifices. It is the duty of the government to point out

to the Canadian people how helpful this would be, that all they have to do is to invest a little more.
I suggest that any scheme devised to get Canadians to invest more is bound to meet with failure if in the budget resolutions no encouragement is given to them and if in fact this aspect is ignored completely. How, 1 ask you, are Canadians to understand the basic difficulties of finance in this country if the government is going to ignore them in a budget which they themselves so loudly proclaim is to get the wheels of industry moving again.
I intend to speak on several items where specifically I think the opposite effect is achieved to what is desired. I believe that what is desired is to encourage more Canadian control of industry. It is not my understanding that this is a simple bookkeeping entry or that it is simply to discourage foreign investment. I believe that what the Minister of Finance had in mind was to bring in resolutions which would result in more Canadians investing money in Canadian industry, more Canadians owning Canadian industry, Canadians having a bigger share in Canadian industry, and making it more attractive to companies which now have money invested in Canada to have Canadians taking a bigger part than they now are. But I suggest this is unrealistic unless Canadians are going to dig into their own pockets and buy that percentage of industry. There is no such thing as holding a percentage in a different way in different companies. You might be able to influence things slightly but, boiled down, control and ownership in order to mean anything to the Canadian economy is investment control, the actual number of shares controlled and held by Canadians. We cannot do this until Canadians dig into their own pockets, and I suggest that we take another look at this resolution and encourage the Canadian workingman to start investing more.


David Vaughan Pugh: Mr. Chairman, I am still a little worried about the use of the words "resident" and "non-resident" as they apply to shareholders and directors in this resolution. When I first asked the minister for a definition of "resident" he said he really did not know. He said later that it would be as the common law would indicate. This would seem to indicate that there must have been a tremendous amount of indecision in actually drawing up the budget resolutions. Since last speaking I have had a chance to look at some legal dictionaries and I should like to quote from The Dictionary of English Law by Earl Jowitt who was lord high chancellor of
Income Tax Act
Great Britain from 1945 to 1951. Under "residence" we find the following:
This word is used in law to denote the fact that a person dwells in a given place, or, in the case of a person, residence connotes the idea of carried on there: thus, if a company is formed in England for the purpose of carrying on a trade (such as mining or manufacturing) in a foreign country, but its business is under the control of a board of directors in England, the company is said to have its residence in England. In the case of a person, residence conotes the idea of home, or at least of habitation, and need not necessarily be permanent or exclusive. The word denotes the place where an individual eats, drinks and sleeps, or where his family or his servants eat, drink and sleep.
In another volume, Stroud's Judicial Dictionary, third edition, page 2569, the words "reside", "residence" and "resident" are dealt with, and I find the following:
"Residence" signifies a man's abode or continuance in a place. What is the meaning of the word "resides"? I take it that that word, where there is nothing to show that it is used in a more extensive sense, denotes the place where an individual eats, drinks and sleeps, or where his family or his servants eat, drink and sleep. A man's residence is where he habitually sleeps. "Residence" has a variety of meanings according to the statute or document in which it is used. It is an ambiguous word and may receive a different meaning according to the position in which it is found. The words "residence" and "place of abode" are flexible, and must be construed according to the object and intent of the particular legislation where they may be found. Primarily, they mean the dwelling and home where a man is supposed usually to live and sleep; they may also include a man's business abode, the place where he is to be found daily.
Then, there is a reference on page 2571 which refers to residence as regards income tax acts. There are a number of citations given there. I quote:
Domicil has here nothing to do with the meaning, for a man can have two or more residences in two or more different countries, but can have but one domicil; "residence", as regards income tax acts, has much the same meaning as in the Representation of the People Acts-
Then, farther along I find this:
Residence does not only mean residence on land; a residence, even by a foreigner, on his yacht anchored in English waters, suffices for liability to income tax; so also a man employed in Africa whose wife and family in Scotland received the bulk of his salary, was held to be a person residing in the United Kingdom, for purposes of income tax.
What I am suggesting to the minister is that the intention of this act, as expressed by other members, is in all probability to give greater preferment to Canadian investors and also to Canadian directors. I am satisfied that the way the provision is drawn now, without any definition coming from the minister as to residents or residence, practically any person who resides in Canada for even a short time could qualify for the purposes of the provision as it is now set out. The same situation

Income Tax Act
applies to a director. I feel that the definition which was previously requested should be given. If the words residents or residence are not sufficient, then some other words should be set forth. Would the minister now do so?


Walter Lockhart Gordon: I should like to thank the hon. member for what I feel is a very valuable contribution. I feel it is very helpful to have this explanation. I think perhaps he will agree that I was not too far off when I said this was a rather complicated subject. There is a lot of law on it with which I am unfamiliar, not being a member of his profession. I thank him for his contribution.


David Vaughan Pugh: May I follow that up? The whole question is, do we get a definition or do we not? What was in the minister's mind when he introduced this in the budget, and also in the budget resolutions? We are today supposedly ready to pass this resolution, yet we have not got a definition. What I am suggesting here, as I have said before, is that Canadians get no preferment in any way, shape or form in so far as investment in Canada is concerned. In other words, practically anyone can qualify as long as he has a residence in Canada for ever so short a time.
I believe the same situation applies to a director. I asked the minister before if he had any figures as to the non-Canadian directors now resident in Canada and who are directors of firms which are controlled within the United States wholly or as subsidiaries. It is quite obvious that unless we do get some form of definition of residents or residence, or some binder on that in point of time, then we do not know where we stand at all.


Walter Lockhart Gordon: Mr. Chairman, I think the hon. member knows, in fact I am sure he does, that the Income Tax Act has been based on the concept of residence ever since it was first introduced in 1917. It has never been formally defined in the Income Tax Act, but it has been developed through a series of decisions. So far as I know, the whole act is based on this concept and this particular proposed resolution, which will be followed by a bill, follows the conception that has been developed. I suppose I should not say that it was the original concept when the income tax was introduced. There is no difference between residence in this case and residence under the Income Tax Act.


Mr. Macdonald:: If I might add to what the minister has said, I would refer the hon. member to section 139, subsection (3) of the Income Tax Act. There has been considerable jurisprudence developed on this particular section and also under the general law. It may be found in the Commercial Clearinghouse Service on Canadian Income Tax, in

McDonald on Canadian Income Tax-no relation-and the Deboo service, as well as many other services. Not only does the statute provide for this situation but defines the particular situation where a person is resident or non-resident, and that has been fully gone into by the Canadian tax courts. I think the answer to the hon. member's questions could be found there.


Walter Lockhart Gordon: I should like to add a word of apology, if the members of the legal profession in the house will not misinterpret it. I understood that the hon. member was a member of the legal profession. I understand now that he is not. If he is not, I apologize for any misunderstanding.


David Vaughan Pugh: Still a member of the profession, but not practising.


Eldon Mattison Woolliams: In so far as subparagraph A is concerned, I should like to put this question directly to the minister. In view of what has been said by other members, under formula A, if you can call it a formula, is it not possible for a foreigner or a group of foreigners residing in Canada, taking the idea of residence from other hon. members, to own a 25 per cent block of shares bought by foreign capital and qualify under formula A? In other words, a person may not be a Canadian citizen, but so long as he is residing in Canada and owns 25 per cent of the voting stock, even if it were brought with foreign capital, he could qualify under formula A. Is that not correct?


Walter Lockhart Gordon: Yes, that is correct.


Eldon Mattison Woolliams: Well, I put the next question to the minister. Does the same situation not apply to formula B? In other words, is it not possible for a person residing in Canada to own these shares bought with foreign capital, and still qualify under formula B? In other words, this really does not encourage Canadians to make Canadian investments. Is that not the answer?


Walter Lockhart Gordon: All I can say is that it is based on residence and not citizenship.


Mr. Lamberf:: If that is the situation, then I fail to see what the minister is trying to get at with this particular clause, this provision in the budget. If the purpose of the budget is to encourage Canadian participation, Canadian investors, in equity stocks, then residence, I put to the minister, is not the criterion. There are too many loopholes. All you have to do is have a company, a foreign company, and this applies whether it is British, French, Belgian or otherwise, or even in the West Indies where you have income tax at 2 per cent, and have the officers of the company residing here to

carry out the functions of directors. I know some companies that are domiciled there, and how they invest in Canada. The capital comes from there. All they do is send out officers of these companies who are residents while they are carrying out the functions, and the instructions come from the foreign firms; but they own the shares in the provincial companies that are established here, and these particular companies qualify for these exemptions.
It is true enough that the minister is encouraging investment in new facilities. That may be an incentive, but on the other hand I tell him in all sincerity that I do not think with this provision he will encourage Canadianization of equity capital if he is going to limit it to a residence qualification, because a residence qualification means nothing.
I suggest that if he wishes to guarantee the same end by introducing the concept of citizenship, then we would get somewhere more in keeping with the stated objectives of the budget.


Walter Lockhart Gordon: That is a point of view. My own view is that that would be going too far at this stage.


Eldon Mattison Woolliams: I would like to put the
same question once again to the minister. Under formula A is it not possible for a foreigner, or a group of foreigners residing in Canada, who own a 25 per cent block of the voting shares bought by foreign capital, to qualify? In other words, that section does not mean anything so far as the objective of the budget is concerned.
First of all, it does not encourage Canadians to invest. It does not have to be Canadian capital. A foreigner residing in Canada can buy shares with foreign capital from another country, and he qualifies. Surely that is not the spirit of the budget?


Walter Lockhart Gordon: In the first place, as the hon. member will see if he reads this carefully, under A it must be beneficially owned; so if people buy these shares with money supplied by a foreign corporation they would not be beneficially owned. Second, under B the point is very simple, that this gives all Canadians a chance to buy these shares, if 25 per cent are available and are listed on a stock exchange. They will not have to buy them, but they will have a chance to do so.


Eldon Mattison Woolliams: They have a chance to buy the shares now.


Walter Lockhart Gordon: No.


Eldon Mattison Woolliams: They have the chance to buy the shares in the gas line company in Alberta.
Income Tax Act


Walter Lockhart Gordon: It was the hon. member for Edmonton-Strathcona, I think, who referred to General Motors of Canada. I would like to know who has a chance to buy a share in General Motors of Canada?


Eldon Mattison Woolliams: A lot of Canadians own General Motors stock.


Marcel Joseph Aimé Lambert: The minister has referred to stocks that are listed, but there are a lot of companies in Canada that are private companies. I will not say there is a majority, but this applies to private companies as well. I would suggest that the real equity development in this country comes first of all from privately owned companies.


Walter Lockhart Gordon: That is a matter of opinion, and if you took the totals your opinion might not be supported, but the private companies come under clause A.


John (Jack) Henry Horner: There has been an interesting discussion with regard to this resolution and we have dealt in general terms with the budget. In the last few minutes I think my cohorts got down to the gist and the meat of what is meant by this resolution, but first of all I would like to say a word or so of general comment with regard to the whole aspect of what we thought might be in the resolution and of what we had hoped would be in it.
The people of Canada were led to believe that our economy was stagnating in 1962 and early 1963. This is what the Liberal party told them, and the members of that party said they had to get the economy rolling again. I looked for something in the budget that would stimulate the economy and not hinder it, not drag it back, not control it and not limit it. To my amazement I found controls, limitations and hindrances and now, in dealing with this particular resolution, we see a great deal of nonsense because all the differentiating between paragraphs A and B is causing concern among companies and will accomplish very little for Canadians.
In 1962 we had a growth rate of 8 per cent in the gross national product. We were told this was not enough. We were also told unemployment was too high, and when the budget came along we looked for something which would increase Canada's growth rate and decrease unemployment, which were the announced intentions of the budget. But what do we see? We see an idea that Canadians should re-invest in Canada.
There are two ways through which this can be effected-through incentives and encouragement, or through controls and force. It reminds me of the old saying that you can lead a horse to water but you can't make him drink; and this is something of which the

Income Tax Act
minister should be well aware, because he tried several ideas in his budget. He has withdrawn some of them, and he is finding out that others will accomplish very little.
We see a great deal of confusion on the part of the government this afternoon with regard to the actual interpretation of the first part of the resolution. I think the hon. member for Bow River was quite correct when he said all one has to do is reside in Canada and own 25 per cent of a company to get the advantage of this part of the resolution. One does not have to become a citizen and take an active part in the development of the country, and there is no specified length of time for residence. As the hon. member for Bow River pointed out, many Americans are already residing in the city of Calgary.
The minister, when he was asked how the differentiation would be made, said 25 per cent of the voting shares would have to be beneficially owned. As I interpret this, it means it will be his decision to determine whether they are beneficially owned, and certainly if a person, company, association or group of persons have 25 per cent of the voting shares of a company operating in Canada we would hope it would be operating beneficially for Canada, and of course beneficially for themselves. These two tests, differentiating the way in which shares are held, actually amount to no real test. They give the minister very little guidance in using his judgment as to whether or not any given company is beneficial to Canada.
This is the way I interpret his remarks in this regard. He has tried to explain resolution No. 1 to the committee. He has done nothing but confuse the issue by perhaps not knowing just how these two tests will apply. The examples of Ford and General Motors have been used. One of these companies, under his category, is a good company and the other is bad. Surely the workers at General Motors feel they are getting paid just as well as those at Ford. In fact, perhaps there is more employment with General Motors than there is with Ford. They are both competing and making the same type of product, and surely if we are to tax either, they should be taxed on an equal basis. These companies are in the same business, employing the same number of people. I am sure the hon. member for Ontario, in whose city General Motors carries out its business, would have to say- and I am sure most of the residents of the city of Oshawa would have to say-that General Motors is very beneficial to Canada, Ontario and Oshawa.
How can the minister justify trying to bring about legislation and enactments under the Income Tax Act which will create in his

mind the good and the bad boys, and then it will be left to him alone to determine which company is good and which is bad. There is no real difference, as the hon. member for Bow River pointed out, between A and B, in a sense, in many cases. It is solely up to the minister to decide who is good and who is bad. I can remember that a few years ago, when there was certain legislation which the government was attempting to enact, with regard to which the minister was given discretion, the then opposition took strong exception and said the minister was given too great a prerogative. This resolution certainly gives the minister a far greater prerogative. All these resolutions hinge upon the minister's decision as to what is beneficial and whether or not a company meets his two tests, which are in a sense one test.
It was suggested earlier that resolution No. 1 should be stood. I wholeheartedly agree, because even the minister and his officials are not clear as to how it would apply; they are not clear about its administrative effects. This is not the first time the minister has brought in items which he has not thoroughly thought out. The whole budget of June 13 has become a shambles because this has been withdrawn this, that and the other have been changed. We have seen that on June 13 he made part of paragraph 4 retroactive to April 10, 1962. Now he takes the retroactive part away. He says, "We have to take this away now; certain companies might benefit". At page 1498 of Hansard he said they had to make it retroactive to April 10, 1962 because some very complicated drafting would have to be carried out if it were to be made effective on the day of the presentation of the budget. He now makes it effective on June 13. I did not see any of the complicated drafting that he said was necessary on June 24. However, the minister seems to have that faculty which is given to most of the fairer sex, of being able to change his mind at will and often enough to keep everybody in the country, including the officials, in a state of flux, in a state where they hardly know where they are with regard to the budget, with regard to these income tax resolutions, with regard to whether or not the economy is being asked to forge ahead or stagnate.
I suggest, Mr. Chairman, that these resolutions, together with other parts of the budget, will do nothing to stimulate the economy or promote employment in the country. They will cause unemployment and bring about a loss of investment in the country, which will come anyway because of the recent announcement by President Kennedy as to taxing investment in Canada by United States persons. Certainly we see nothing in this particular resolution which will aid the economy. I agree with other

hon. members, and particularly the financial critic of the opposition, who said that this resolution should be stood at least until the minister becomes clear as to where he is trying to go with this basic idea that Canadians should invest in Canada. We certainly agree with the principle that Canadians should invest in Canada, but you cannot force them to do so; you can create the incentive for them to invest. Without fully thought out suggestions, without fully thought out budgets, without fully thought out income tax resolutions this house can hardly be asked to pass these measures when the minister and the officials are not certain what they mean by them. I suggest that this resolution be stood at least until the minister becomes clear on it and can clarify the position to the house and the country with regard to where he wants this particular theme of his projected across the country.


Douglas Mason Fisher: Mr. Chairman, I wanted to raise a very small difficulty or problem that has been put to me and ask the Minister of Finance something about it. I have had complaints from several small accountants, people who do work in smaller towns for individual taxpayers in preparing their income tax returns and also do considerable work for small businesses which happen to be incorporated companies, that one of the effects of these regulations will be to deprive them of a considerable amount of work, in that it will concentrate in the same season of the year, the same time, the activity that in a sense they have been carrying on throughout the year for these small business organizations.
I do not know how important this is, but it was put to me that it was another example of the kind of regulation that will cause no immediate hardship, after the first instance, to the large corporation which has at its disposal a well geared financial reporting organization. It will cause no disadvantage, and indeed it will be of assistance, to chartered accountant firms which are large in size, which have a number of employees, juniors and people whom they are training. But for the individual accountant, or the person who may not be qualified as an accountant but is making his living through doing this kind of work, usually with some kind of banking or clerical experience, this is going to be a very severe blow, the kind of blow that perhaps will not be felt in the big cities but, let us say, amongst the small business people across the country.
I do not know how significant is this criticism, but the bitterness with which it was expressed suggests to me that perhaps the minister could give some indication as to
Income Tax Act
whether the effect of this has been considered and just how important or telling the criticism may be.


Walter Lockhart Gordon: Mr. Chairman, the point the hon. member has raised has to do with paragraph 15 of the resolution. I have received a number of representations on this point. The objective of the clause, as the hon. member pointed out, is to get the money in earlier rather than to make life complicated for the people who make up the return. I am looking into the matter and hope to be able to do something about it.


Jay Waldo Monteith: Mr. Chairman, on the issue of the small town accountant to which the hon. member for Port Arthur referred-I think I know to what he was referring-I was pleased to hear the minister say that he proposes to do something about it. Also, as a small town accountant I have come to one very sincere conclusion, and that is simply that ownership cannot be legislated for. I do not believe it is possible to do so.
There are one or two questions I should like to ask the minister concerning the actual application of this section. For argument's sake, let us say some machinery or plant is purchased within the two year period. The company is to be limited to writing off this machinery and plant over a period of two years. I think the minister said this morning that it would not be necessary for the firm actually to write it off over a period of two years; but 1 am wondering, for argument's sake, if a new firm, which normally would not show a profit in the first year or two, chose not to write it off, what would happen at the end of the two year period? Would they then be able to write it off under the terms of the act as they now exist, or could they write it off at 50 per cent a year, presuming that they did not wish to start writing it off until after the end of the two year period?


Walter Lockhart Gordon: Mr. Chairman, I was interested in hearing the hon. member refer to himself as a small town accountant, or an accountant from a small town. I seem to remember that at one time he and I were students in the same firm and he did not give any indication then that there was anything "small town" about him at all. In fact, just the reverse.


Jay Waldo Monteith: Do not give away secrets.


Walter Lockhart Gordon: I will not give away any more secrets, but I remember that life was very pleasant in those days. Let me assure him on that point. As I said to the hon. member for Port Arthur, this matter is under study, and probably before the bill comes along we may be able to do something about it. With

Income Tax Act
regard to the second point he raised about the depreciation or the capital cost allowance, it somebody does not choose to write it off at that rate over the first two years then they can write it off as fast as they like afterwards.


Jay Waldo Monteith: They can still write it off at the end of the two year period, and following the end of the two year period?


Walter Lockhart Gordon: Yes, as long as the investment has been made in this period.


Mr. Greene:: Mr. Chairman, on the point made by the hon. gentleman opposite with respect to changing the concept of the Income Tax Act from one of residence to one of domicile or citizenship, I would point out that this would also involve persons who were resident in Canada but were not citizens or domiciled here, but who would be able to live here, earn their incomes here and pay no income tax. I trust that our hon. friends opposite are not trying to create a state of preferred citizens in this way.


Marcel Joseph Aimé Lambert: In reply to that, I think the hon. member for Renfrew South was referring to my observations in this regard. I am not suggesting that under the general concept of the Income Tax Act we should remove ourselves from the residence provision, which says that everyone who is resident in Canada for a period of 183 days or more is thereupon subject to income tax. There may be some other exceptions in the fine print of other regulations which may catch other persons; but what I am concerned about is this: Bearing in mind the objectives of the budget, the incentive to invest in new facilities can apply to anybody. That I accept. But the further objective of encouraging Canadian investment I do not think is accomplished by the wording of this resolution or this requirement. You could have a person who was a citizen of the world who could bring in capital, which capital could be hidden. I noticed that the parliamentary secretary was dubitant, shall I say, that the matter of beneficial ownership would cover this. But let me assure him that it is quite easy to hide true ownership. Certainly from my three years connection with the Department of National Revenue I know that the minister and his able senior civil servants in the department had not the personnel to delve into all these cases and really track them down. As a lawyer I can assure the hon. member that capital can be hidden. Remember that we are giving certain people an advantage in the act. In order to qualify for this advantage, why would you not require that it be limited to citizens if your objective is the Canadianization of equity holdings in Canadian corporations? In order to gain this

advantage, surely to goodness one has to put up something too. That is my point.


Jay Waldo Monteith: I should like to ask the minister one further question on this business of the actual write off. Frankly, not having been in practice for some years I have forgotten the appropriate term, but I will put it this way. When you have written off a new piece of machinery in two years and you then choose to sell that piece of machinery or trade it in, what happens to the capital value?


Walter Lockhart Gordon: It is subject to recapture. I do not know whether that is the term that is used, but that is what it means.


Jay Waldo Monteith: One other question on paragraph 1(b), which says:
-a corporation that on the last day of the year was a corporation with a degree of Canadian ownership and control.
Then it goes on to explain the ownership and control, and so on. What would happen if, for argument's sake, a company which had been a United States partnership were in Canada and it was not a corporation?


Walter Lockhart Gordon: That would be dealt with under 1(a).


Eldon Mattison Woolliams: Mr. Chairman, there was
some discussion between the minister and myself this afternoon with reference to the statement that if we had less than 3 per cent unemployment he would take issue with me. I should like to put on record what his exact words were in "Troubled Canada". I might say in respect to the minister that he showed me what he said in the Gordon report.


An hon. Member:: Who is the author?


Eldon Mattison Woolliams: The author, of course, is the present Minister of Finance. Starting on page 3 he says:
Our primary aim, therefore, which for the time being should take precedence over all other objectives no matter how desirable they are, must be to stimulate and encourage economic activity throughout Canada, to re-establish a satisfactory rate of annual growth, and to restore high levels of employment.
All those aims are very honourable. Then this is the paragraph:
This does not mean that every single man and woman in Canada would be employed every day all through the year.
There will always be some people who are in the process of changing jobs or who are engaged in seasonal pursuits or who have decided not to work for a few months for some reason or another, or who come under the category of "unemployable".
After, saying that he said this-and I think you have to read that with this:
If the number of people without jobs for these reasons could be reduced to even 3 or 4 per cent

of the total working force, this would mean that only half as many people would be out of work as in 1960. This would be a great accomplishment.
In other words, he says there will always be people who are changing their jobs, who are out of work because they follow seasonal pursuits or who refuse to work for one reason or another. For example, a man may have worked on a big construction job in the summer and decides to draw unemployment insurance in the winter. Note what the hon. gentleman says, that it would be a great accomplishment if the number of these people were reduced by half. In other words, if this could be done he would be satisfied.


Some hon. Members:: Oh, oh.


Eldon Mattison Woolliams: Well, if he does not say that, it is a matter of interpretation. I have at least put on record what he said in his book, "Troubled Canada".


Walter Lockhart Gordon: I am delighted to have it on record. What I was saying at that time was that if unemployment could be reduced by 50 per cent it would represent a great improvement. If it could be reduced by 75 per cent it would be a still greater improvement.
I wonder if I might refer to something which was said earlier about any possible connection between the budget resolutions we are now discussing and the recent proposals of President Kennedy. I think all hon. members would like to know that the state department has formally denied today that President Kennedy's proposed tax on the purchase of foreign securities by United States citizens and residents is a retaliatory measure against Canada. Mr. Robert J. McCloskey said that in Canadian circles there had been some suggestion that the Kennedy measures were directed specifically at Canada or had been taken in retaliation for the action proposed by the Canadian authorities earlier. This is absolutely not the case, Mr. McCloskey said.


Lucien Lamoureux: The hon. member for Port Arthur.


Eldon Mattison Woolliams: I should like to make one remark to the minister with reference to what he said about unemployment.


Douglas Mason Fisher: I will yield to the hon. member if continuity requires it.


Eldon Mattison Woolliams: Actually, I had two things I wished to say. I heard over the radio today that there are 30,000 more people unemployed in Canada today than there were a year ago. That information seems to have come from the dominion bureau of statistics.
With regard to the position some of us took on this side on this question of possible
Income Tax Act
retaliation as far as the United States administration is concerned, what I, myself, said was that the action taken by the hon. gentleman would make it more difficult to negotiate with the United States administration with reference to the new proposed tax. Having taken the position we did in the budget we can hardly go along and say to the United States government: This measure is going to make it very difficult for Canada; it is likely to increase unemployment here and make it harder for us in one way or another. There is no doubt it will be more difficult for us. For example, we only have to look at what happened to bond issues today. I think they fell four points. It will be much more difficult now for the Minister of Finance to negotiate with the administration and say: please take this tax back. After all, we planned to do to them something which was worse than what they now plan to do to us.


John James Greene: May I suggest that the hon. member's party is hardly the party to tell us how to negotiate with the United States.


George Clyde Nowlan: The hon. member for Renfrew South obviously does not know what he is talking about.


Douglas Mason Fisher: I wanted to ask the minister a question about the over-all intention of these resolutions in trying to do something about Canadian ownership. I have not been able to find any statement by the minister regarding the problem raised by mutual funds and mutual fund companies, so many of which are operating in Canada with aggressive sales forces under United States control. The principle which seems inherent in mutual funds operations is that because of the need to keep shifting and balancing their portfolios and also because of certain regulations it is not the policy of mutual fund groups to exercise any ownership claim in respect of their shares in terms of controlling management policy.
As I understand it, these groups are becoming increasingly important in the investment market and their business has been expanding rapidly in Canada. I wonder whether the minister or his officials have considered at any time in the preparation of this budget whether this denial on the part of mutual funds or holding companies of their right to exert in certain circumstances their ownership privileges is, at the same time, a denial of the intent inherent in this legislation. Also, is it not the case that here the government has perhaps an opportunity to find a vehicle which might be used for Canadian ownership purposes as seems to be intended by this act?
I am interested in this matter because we advocate some kind of Canadian development

Income Tax Act
fund which, I understand, is within the framework of the thinking of the minister himself. In essence, if we have a development fund we are tapping the potential for equity investment in Canada today and doing it through these mutual investment funds, and it would seem to me there is an opportunity here, and I should like to have the minister's comments.


Walter Lockhart Gordon: I am afraid I am not clear what the point of the hon. members question is. If he is talking about mutual funds, they would qualify under this proposal if 25 per cent of their stock was listed and available for purchase by Canadian investors. I do not know if that was his point or not.


Douglas Mason Fisher: That was part of it, but my point was that these companies are important and also vulnerable, since ownership does not mean anything in terms of the actual management of companies. What they are interested in is the income, not management policy.


Walter Lockhart Gordon: I am not sufficiently familiar with mutual funds to know what the significance is of the difference between the ownership and the management contract. I presume that in the final analysis the owners must be able to change the contract unless it is a very long term contract. I just do not know. I would be glad to talk to the hon. member later or now, but I do not think there is very much more I can add at this moment.


Marcel Joseph Aimé Lambert: On this particular point, I am rather pleased that we have come back to the question of mutual funds or the participation of Canadian investors in American or foreign controlled mutual funds which have investments in Canada. This is a point which I think creates some difficulty, and it is quite conceivable that the minister may have the answer.
Let us assume that company X is a public company resident in Canada and operating in Canada, and it desires to avail itself of the benefits proposed in the first paragraph with respect to depreciation. Part of the shareholdings are taken up by a mutual fund in which Canadians participate. However, the mutual fund is an American or foreign investment group. How does this company qualify under this provision? I do not know whether you are going to go one step beyond by looking at the ownership of the mutual fund.


Walter Lockhart Gordon: It qualifies under section B if its stock is listed on a Cnadian stock exchange, irrespective of who owns the stock. It does not matter who owns it. If it is listed on a Canadian stock exchange, then Canadians have an opportunity to buy the stock at some

price, and under those circumstances it qualifies. But it does not matter whether there is a mutual fund or any other owner of the shares.


Marcel Joseph Aimé Lambert: In other words, it is the listing that counts.


George Clyde Nowlan: Is that not the solution to the minister's problem? Is it not the listing which will accomplish almost as much as any of these other qualifications? I was rather intrigued a moment ago by his reply to the hon. member dealing with when this depreciation should be taken. Frankly, I thought it had to be within the first two years. I guess I have not read the section very carefully.
I listened to the minister this morning and he said, I think quite properly, that there was need for the improvement and modernizing of industrial plant and equipment and that this was an incentive to that end. It was my impression that the incentive was going to be on a do it now, do not wait, basis. But now we are told that, provided they buy up, they can take the depreciation at any time. Obviously the provision is not an incentive for employment because the only people who can get the benefit of this are those who qualify under these technical provisions in so far as control is concerned. It is not to improve over-all employment as it would be if we gave an incentive to General Motors and Ford, such as I mentioned a few moments ago.
Frankly, I am wondering now just what the intention of the section is after the dialogue, shall I say, that we have had back and forth during the day. I am not clear in my mind as to what the intention is. As the hon. member for Edmonton West said a moment ago, could not the same thing be achieved by saying that the company must be registered or listed on a Canadian stock exchange? I think the minister would accomplish almost as much as he would by these various qualifications.


Walter Lockhart Gordon: I am sorry if I did not make it clear to the hon. member. The incentive and the urge are to encourage these particular companies to increase their investment in plant and machinery, and naturally in the process to do two things, to modernize their plants and to provide employment either in the primary or secondary sense, either in their own plants or for the people who build the plants or produce the machinery. The objective and intention are to get this work done within the next two years. The purpose of that, of course, is to provide more employment within the next two years. The incentive that is offered is a 50 per cent

write-off, but the date when the write-off is taken does not make much difference as long as the work is done within the first tew years. That is the first point that the hon. member raised.
As to the second point, the people who qualify for this will be either, under A, those companies where there is a 25 per cent beneficial ownership in Canada or, B, where Canadians have the opportunity to acquire up to 25 per cent. That means that the stock must be listed on an exchange and that no single parent company or groups of parent companies should control more than 75 per cent. The theory behind this is that if there is 25 per cent around, Canadians can buy it at some price.


George Clyde Nowlan: Could I ask the minister a supplementary question in connection with depreciation? Was consideration given to allowing the special depreciation write-off for machinery or equipment of a class or kind made in Canada rather than on the very general basis set out here? I suspect there might have been some consideration given to that and I am wondering what comment the minister has to make.


Walter Lockhart Gordon: It could be done that way, but if one of our objectives is to see that Canadian industry becomes as efficient and modern as possible I think it perhaps would be unwise to limit this incentive just to machinery of a class or kind made in Canada. I should like to see more machinery made in Canada, as I am sure the hon. member would; but there are some kinds of machinery that we all know are not obtainable in Canada and yet our industry will need the best machinery in the world if it is going to be able to compete with other countries in the world.


Marcel Joseph Aimé Lambert: With regard to the acquisition of plant or equipment, does this mean a firm contract for purchase and delivery maybe two years and six months hence, or must it be delivered and installed before the second anniversary? You can enter into a firm contract for the erection of a very complicated industrial plant, say an oil refinery or something of that nature, which takes more than two years to plan and instal.


Walter Lockhart Gordon: I think the test is the acquisition of title.


Terence James (Terry) Nugent: Mr. Chairman, if I can change the point a little, the minister mentioned the statement by the United States state department that their action was not a retaliatory measure. The mere fact that they should feel it necessary to issue such a statement rather alarms me because I am one of those who talked about the effect our proposed action
Income Tax Act
might have had on the Americans, and I certainly did not want anything I said to be construed that way by the Americans or anyone else. I know that my leader took the same position and I am sure from what he said that it was not to be construed that this could by any stretch of the imagination be taken as a retaliatory measure or that the Americans were being accused of this.
When there is this sort of misunderstanding I think it is necessary that I should say something about it, because I know that too many statements made by this party have, in some inexplicable way, been construed as anti-American when they were not intended to be. Just to set the record straight I should like to explain to the house and to our American friends that the action taken by them is not considered by us or anyone else, I am sure, as retaliatory. I wish to make it clear that my remarks about the action we took having misled the Americans in some way meant only that I can understand that the government, having brought in such measures, might have misled the Americans to believe they could have been mistaken about any harmful effects they might have foreseen in their legislation, or we would not take this sort of action. The United States may say we prepared for this sort of thing. My hon. friends may say to the United States, we are going on a new facet of investment handling on both sides. We have our own reasons, which again mislead the United States into believing that these harmful effects would not prevail.
Then, next, I made this point very clear, for which I hope I may be forgiven, that the government, having made an initial mistake and having put in this measure originally, and then having to withdraw it because it was going to be so harmful to us and because it caused so much resentment in the United States, just indicates that this government had so little understanding or was so callous of the effect it had on the United States that this government was put in the position where it had practically tied its hands in trying to explain to the United States how harmful President Kennedy's proposal might be.
This is so on the following grounds; One, that this government had no hesitation in doing something similar and, two, this government had so little understanding of it that it would do it anyway. Therefore, any protest made by this government might arise out of that same sort of ignorance of the consequences, and this could have done nothing but weaken the position of this government in making its protestation. I am sure that in all of this there is nothing our United States friends can construe as any accusation whatever that it is retaliatory. In fact, I thought

Income Tax Act
the explanation we made was explanatory of the United States action, and how the action of this government could have resulted in what might, at first blush, be taken to be a sort of anti-Canadian action by the United States. We did not call it anti-Canadian; we were merely explaining what this government might have done to lead the United States into thinking this would not harm us, and why this government is not now in any position to adequately explain our position to the United States.


Walter Lockhart Gordon: I wish to assure the hon. member for Edmonton-Strathcona that I did not mean to imply that any of his remarks had made a particular impact on President Kennedy or even on the controller of the treasury. I do remind him that just before one o'clock I went out of my way, in referring to the remarks of his leader, to say that I was quite certain that the Leader of the Opposition had not in any way said anything that could have been interpreted in that way, or if he had, he had not meant it. I think perhaps, therefore, we can let the matter rest there.
I suppose that by this time most hon. members know that there have been reports from Washington, I do not know how authentic they are, that the treasury has said the measure will not come into effect now until August 16.


Jay Waldo Monteith: You have company.


Walter Lockhart Gordon: There are various suggestions that the measure will be modified, changed, clarified or amended as sometimes happens with complicated measures of this kind. I think, too, hon. members will know by this time of statements made by the state department in answer to any suggestion that this measure was in any way retaliatory. I can assure my hon. friend from Edmonton-Strathcona that this government is in an excellent position to negotiate with the United States on this and all other matters.


George Clyde Nowlan: Obviously, Mr. Chairman, they have so much in common in shifting and changing their ground with respect to financial matters that they are, perhaps, in a very good position to negotiate on these things.
I should like to go back to a question I raised with the minister a few moments ago. I gathered from him that the primary objective of this measure was the renovation of Canadian plants and equipment. I did not have that impression when we started. I thought the objective was to increase employment and to provide for Canadianization. I understood that it was, also, indirectly to provide for the renovation of plants and equipment. Then, the minister made it very plain, I think, that the primary objective of

the provision in question, as he told me a few minutes ago, was the renovation of plant and equipment.
If that is the case, I cannot understand why it is tied up with the necessity for a degree of Canadian ownership. It may be, of course, that the subsidiaries are so wealthy that the parent company need not put up the money. However, I believe there are a good many here who cannot. I do think it is unfortunate as a matter of tactics, and I do not say this critically, that so far as the incentive is concerned the depreciation is tied up with Canadian ownership. We could have dealt with it much more quickly than we have if the depreciation had not been tied to a degree of Canadian ownership. The minister says the purpose of the section is simply the renovation of plant and improving the efficiency of Canadian industry. If it is, then the provision should apply to all companies in Canada, whether they are owned by people in the United States, the Dutch, Germans or Canadians.
I suggest again that there must be a dual purpose in this provision. If a company obtains what we term a degree of Canadian ownership, then it is going to get this and if it does not it will not. This vitiates entirely the argument of the minister that the primary purpose of this provision is to improve efficiency. If you are going to Canadianize these firms, that is one thing. Let us say so. Let us not say it is to increase renovation, and then tie that up with this other matter which, so far as I am concerned and a good many others on this side, is not a happy move. We do not like to accept it. If it had been purely a matter of depreciation, and if it had not been tied up with this description of Canadian ownership, then the provision would have gone through much more quickly.


The Deputy Chairman:: Does this complete discussion on paragraph 1?


Jay Waldo Monteith: Six o'clock, Mr. Chairman.
Progress reported.



BUSINESS OF THE HOUSE

Gordon Minto Churchill: Will the house leader let us know what the program may be for next week?


John Whitney Pickersgill: Mr. Speaker, I think perhaps I can put it very simply; budget resolutions and still more budget resolutions and then the bills. When these have been completed, I will be able to satisfy the hon. gentleman's curiosity about other matters.


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

[Stage Direction]
Statement By
The Minister of National Health and Welfare, Honourable Judy LaMarsh Respecting the Canada Pension Plan
July 18, 1963
The purpose of the government's proposed legislation is to ensure that, as soon as is possible in a fair and practical way, all Canadians will be able to retire in security and with dignity.
The advantage of a federal plan is that it is the only type of pension plan that can be made available comprehensively to all Canadians. This was recognized in 1951 when the British North America Act was amended. The Canada pension plan is comprehensive in this sense. It will mean that a contributory program is available to Canadians to provide for their old age. Coverage will be compulsory for, broadly, all employees; such exceptions as are made will be for those types of employment in which the collection of contributions is not administratively feasible. Most other people having earned incomes- broadly, the self employed and the majority of employees not covered compulsorily-will be able to belong to the plan voluntarily. If a provincial government wishes, its employees will be covered.
The Canada pension plan is not intended to be comprehensive in any other sense; it is not designed to provide all the retirement income which many Canadians wish to have. This is a matter of individual choice and, in the government's view, should properly be left to personal savings and to private pension plans, subject in the latter case to such degree of supervision as the provinces may think appropriate. The recent Ontario legislation is the first example in Canada of an attempt at close supervision of private plans.
The purpose of the Canada pension plan is to make reasonable minimum levels of income available to all Canadians at normal retirement ages. There will be scope for the continuation and extension of private pension plans to provide benefits over these minimum levels.
The present minimum provided in Canada is the old age security benefit of $65 a month from age 70. Unfortunately many people are unable to go on earning until they reach age 70.
Realistic minimum levels of pensions cannot be achieved, in a country like Canada, simply by increasing the flat rate pension. Living costs vary greatly between town and country, and between different regions of Canada. What people need, in order to make satisfactory provision for retirement, is related in part to the level of earnings to which they have been accustomed. The Canada pension plan will therefore both increase the flat rate benefit and provide new levels of pensions related to previous earnings.
Main Features
The Canada pension plan will make these main changes in the provision of pensions:
1.	The flat rate pension will be raised to $75 at age 70 for everyone who meets the residence requirements of the Old Age Security Act.
2.	People whose pensions begin after the plan is in operation will receive, if they have made contributions under the plan, a further pension in proportion to the earnings on which they have been contributing. The scale of pensions will rise during a ten year transitional period.
3.	The increased flat rate pension and the earnings related pension will both be available at any age between 65 and 70, according to the preference of the pensioner. The amount of both pensions will be graduated so that anyone with average life expectancy will receive the same total payment, from the age he starts his pension to the time he dies, whatever starting age he chooses.
The main features in the financing of the plan are:
4.	Since the new benefits will be related to earnings, the Canada pension plan will be financed by contributions of a percentage of earnings. The rate of contribution during the ten year transition period will not exceed 2 per cent of the earnings on which contributions are made. For wage and salary earners, the employer will be required to pay a half of this contribution.
[Stage Direction]
5.	Initially contributions will be made, and benefits will be paid, on the first $4,000 of annual earnings. This level will be raised in line with any increase in average earnings.
6.	Contributions will be deductible from taxable income. This is the same as for private pension plans.
7.	The Canada pension plan will be entirely self financing. The contributions are designed to cover all pension costs over and above the continuation of the existing $65 pension at age 70. The cost of administration will also be covered from the contributions.
Timing
It will take a good part of a year to set up satisfactorily the administrative machinery for collecting contributions under the plan. Graduated pensions cannot be paid until the contributor has a record of earnings as the base for determining the rate of benefit. Graduated pensions will therefore begin in January 1966. Contributions before this date will be used to finance the earlier addition of $10 to flat rate pensions.
In January 1966 two things will happen. The plan will begin to provide pensions related to earnings. People will become able to start drawing pensions, both flat rate and earnings related, before age 70.
Until the plan is ten years old, pension rates will build up steadily. In 1966 the graduated benefit at age 70 will be $10 a month for anyone who retires after contributing on earnings of $4,000 a year. For anyone retiring in 1967 the maximum will be $20 a month, and so on until the top rate of $100 a month is reached after ten years. For people with lower earnings, the benefits will be proportional to these. The flat rate pension of $75 will, of course be available in addition to the graduated benefit. The amounts available in total pensions will therefore rise from $75 to people already retired to $175 for contributors with average earnings of $4,000 in 1975.
Financing
The Canada pension plan will not build up a huge investment fund in the hands of the federal government. Instead, it will be financed on a pay as you go basis. The money received in contributions will in most years approximately match the money paid out to pensioners. While the program will operate with a contingency reserve, in order to avoid short run fluctuations in contribution rates, this reserve will normally be small by comparison with the size of the annual payments.
This method of financing is a fundamental difference between a public pension plan and
private plans. While full funding may be provided under private pension plans, it is not the practice in government old age insurance programs. Indeed, full funding on the scale of a nation-wide plan would be a quite excessive form of saving enforced by the state.
The practical consequence is that this plan can provide benefits within a few years-to people whose working lives are already well advanced-whereas a private plan ordinarily provides good pensions only to people who join the plan when they are quite young.
Contributions under the plan will not be required before the age of 18. They will stop at whatever age, between 65 and 70, a pension benefit is taken.
The initial contribution rates will be adequate for the financing of the plan through the transition years. The rate will slowly rise for about a generation afterward, as the plan matures and an increasing proportion of people have retired at the full rate of graduated pension.
The ratio of benefits to contributions is especially favourable for those who retire during the transition period. It is therefore reasonable during this period to assess the voluntary contributor at or close to the combined employer and employee rate. However, after the program has been in operation for a period of time and adjustments have to be made in contribution rates, the rate paid by voluntary contributors may be less than the combined rate for employer and employee.
Calculation of Benefits
Pensions are to be 30 per cent, adjusted if the starting age is before 70, of "what a man has been earning."
This obviously cannot mean what the pensioner earned in, say, the last year or even few years before beginning the pension. That would be very unfair to the man who suffered sickness or unemployment in the last few years before retirement. On the other hand, the pensioner cannot be allowed to pick the best year or few years of his earnings record; that would excessively favour the man whose earnings have been erratic and it would tempt voluntary contributors to contribute only in good years.
The pension benefit will therefore be based on the man's average earnings from the effective date of the plan to the time when he starts to draw his pension. These earnings cannot, however, be used without adjustment. To do so would mean that, as the general level of earnings rises over the years, there would be a widening span between earnings recorded in the early years and those shortly before retirement. The pension benefits paid

would therefore be a declining proportion of "what a man has been earning" shortly before retirement.
Accordingly, for calculating pensions, earnings will be adjusted in line with changes in the general level of salaries and wages. The current average of salaries and wages in Canada is about $4000 a year, the ceiling chosen for earnings under the Canada pension plan. This ceiling will also be adjusted with changes in the general level of wages and salaries. The pension program will therefore permanently provide a satisfactory standard of pensions for people with earnings up to the average level.
If a man starts his pension in, say, 1970, "what he has been earning" will be calculated by averaging his actual earnings in 1969 and, for each earlier year, his earnings adjusted by the change in average salaries and wages between that year and 1969. In other words, all his earnings will be put on a 1969 equivalent.
The use of average earnings would excessively penalize people whose earnings in some years are abnormally low because of sickness and unemployment. This will be overcome, to a reasonable degree, by excluding a man's years of lowest earnings from the calculation of his average earnings. Also, for each year beyond 65 that a man continues to work, he will be able to exclude, from the calculation of his average earnings, an additional low year. This will provide quite a powerful incentive to go on working after 65 for the man who is able to do so, without any large reduction in pay.
The graduated contributory and flat rate universal pensions will be paid to beneficiaries in one cheque. At existing wage levels the total pension available to a single person at age 70 will range from $75 to $175 monthly, as indicated in the following table:
Combined Pensions Available to Single Contributor at Age 70, by Average Monthly Pensionable Earnings Average	Monthly Pension Payable
[Stage Direction]
Pension-
[Stage Direction]
Grad-
[Stage Direction]
Flat-
[Stage Direction]
Comable
[Stage Direction]
uated
[Stage Direction]
rate
[Stage Direction]
bined
[Stage Direction]
Earnings
[Stage Direction]
Pension
[Stage Direction]
Pension
[Stage Direction]
Pension
[Stage Direction]
$
[Stage Direction]
$
[Stage Direction]
$
[Stage Direction]
$
[Stage Direction]
100
[Stage Direction]
30
[Stage Direction]
75
[Stage Direction]
105
[Stage Direction]
150
[Stage Direction]
45
[Stage Direction]
75
[Stage Direction]
120
[Stage Direction]
200
[Stage Direction]
60
[Stage Direction]
75
[Stage Direction]
135
[Stage Direction]
250
[Stage Direction]
75
[Stage Direction]
75
[Stage Direction]
150
[Stage Direction]
300
[Stage Direction]
90
[Stage Direction]
75
[Stage Direction]
165
[Stage Direction]
333
[Stage Direction]
100
[Stage Direction]
75
[Stage Direction]
175
[Stage Direction]
Adjustment for Age
Pensions drawn before the age of 70 will be reduced by a small percentage for each
month between the date when the pension starts and the date of the pensioner's seventieth birthday. For anyone who takes his pension at the earliest opportunity, when he reaches 65, the pension received would be 32.5 per cent less than the pension he could have claimed at age 70. This reduction at ages between 65 and 70 would be proportional to this.
Anyone who is eligible for both the flat rate and the graduated pension must choose the same age for starting both.
There will be no retirement test. A man may start drawing the appropriate rate of pension at any time between his 65th and 70th birthdays, whatever his other earnings. Once he elects to draw his pension he cannot go off pension for a while and then come back on at a higher rate.
At existing wage levels the total pension available to a single person at age 65 will range from $51 to $118 monthly, as indicated in the following table:
Combined Pensions Available to Single Contributor at Age 65, by Average Monthly Pensionable Earnings
Average	
Monthly	Monthly
Pensionable	Combined
Earnings	Pension<'>
$	$
nil	51
100	71
150	81
200	91
250	101
300	111
333	118
<*) Rounded to nearest dollar for illustration. Widows and Widowers
The income available to the surviving partner of a marriage will be rather more than half the previous combined income of the couple. To achieve this, since the flat rate pension is halved, the income related pension available to a widow will be 60 per cent of the benefit available to the couple.
This provision will apply with equality to the sexes. That is, it applies equally to either a widow or, if a deceased wife had earned income entitling her to a pension, to a widower.
A widow or widower will be entitled, from age 65, to whichever is the larger of either
(a)	her or his own combined pension, or (b) her or his own flat rate pension plus 60 per cent of the combined-earnings related pensions of the couple-subject, however, to the maximum which applies at the time to the total pension of any one person.
[Stage Direction]
Administration
The Department of National Health and Welfare will administer the Canada pension plan. The contributions under the plan will be collected by the Department of National Revenue. Employers will be responsible for deductions from their employees and will then remit these deductions monthly, together with their own contributions, to that department. Voluntary participants will make annual payments to the department.
The Department of National Health and Welfare will maintain an index of contributors, and will be responsible for the payment of benefits. The Department of National Revenue will forward to the Department of National Health and Welfare the record of pensionable earnings so that this information can be credited to each individual contributor's account. The maintenance of the records and the calculation of benefits will be achieved through the use of modern data processing equipment.
The necessary provisions will be made for appeal procedures to ensure that contributors, beneficiaries and employers may have an impartial review of any disputes which may arise in relation to the program.
Authority will be provided to work out reciprocal agreements with other countries for the coverage of people who move between countries.
Relation to Other Pension Plans
A great contribution to old age security has been made, and will continue to be made, by the considerable growth of private pension plans, which now cover more than 1,800,000 people in Canada. Not all of these plans, however, provide sizeable pensions, particularly for workers who do not join the plan early in life. Also, since vesting is rarely complete, private plans have operated as a growing restraint on the mobility of labour.
Several provinces are interested in lessening these and other problems connected with private pension plans, particularly by the establishment of rules for portability and solvency. These are, in the view of the federal government, useful steps forward.
However, since such private plans would be funded, even their compulsory extension cannot make possible retirement at an adequate standard for people now in their forties to sixties who have not been covered previously. Moreover, self employed people cannot have access to such plans.
The Canada pension plan not only provides early benefits but also automatically provides Canada wide portability of pensions for people with earnings up to an average level. It is thus designed for those whose needs
cannot be fully met by the extension of private pension plans under provincial supervision. It will be available comprehensively and it will quickly provide fair sized pensions to those who retire in the next decade or two.
The plan is designed to meet these needs of the Canadian people while helping to establish a pension system which, through the combination of private, provincial and federal action, will be sound and satisfactory in the long run.
The Adjustment Period
The adjustment of private pension plans to a public program with graduated benefits cannot be altogether easy. However, this does not appear to have been a deterrent to private plans in the United States. Since the American Old Age, Survivors and Disability Insurance program was established there has continued to be a substantial growth in private pension plans. The number of employees covered by private pension plans, expressed as a percentage of the wage and salary workers in private industry, rose from 31 per cent in 1954 to 45 per cent in 1961 in the United States.
The Canada pension plan has been designed to ease as fully as possible the adjustment of private pension plans to the developing public program. The fact that the Canada pension plan will be financed on a pay as you go basis, with a small contingency reserve, ensures that contributions in the early years of the program are at a very modest level. The absence of large reserves means that there will not be large transfers of funds from the private sector to the public sector of the economy. Transfers will be from the working population and employers to retired people, who will spend their benefits largely on consumer expenditures. It is not proposed that large reserves be built up as a vehicle for federal debt management and public investment.
Some employers and employees will no doubt wish to revise existing pension plans by reducing contribution rates approximately in line with their contributions under the Canada Pension Plan. The ten-year transitional period means that such adjustments can be made carefully and gradually.
In sum, the advantages of the fairly lengthy transition are:
1.	To provide adequate time for existing pension plans to be adjusted to the federal plan;
2.	To enable contribution rates to begin at a low level and rise fairly slowly, so that companies and individuals not now paying into pension schemes will have time to adjust to this new financial situation;

3.	To avoid too sharp a contrast between people who have already retired-who will get the new $75 minimum pension-and people who start drawing pensions only a few years later.
Economic Progress
In the government's view, the great merit of the Canada pension plan is that it is a social security program which is realistically geared to the growth of the economy. It can help to provide a foundation for their social programs, notably for those who are disabled, for widows with dependant children and for orphans. In itself, it quickly makes modest pensions available. These benefits will grow until, in ten years, an adequate scale of pensions is available for people of low and moderate incomes. As such incomes grow, with economic progress, the scale will rise in a way which ensures that people who make contributions now can be assured of pensions which will still provide a secure retirement in line with the economic conditions of the time.
In the growth of the economy, importance is rightly placed on the role of private pension plans in providing savings to finance investment. All pension arrangements, of course, require payments out to the beneficiaries as well as savings by those who are now working. In a static economy no mature pension plan would be in itself a source of savings. The net saving through private pension plans arises from the growth of the plans as the population increases and income levels rise.
Such growth is of continued importance. The Canada pension plan will provide, on a permanent basis, the scale of pensions for low and moderate incomes which is an appropriate first charge on a society that values the security and dignity of those whose working life is past. But there will remain full scope for private saving above this minimum. The scope will be enlarged with economic progress. The individual, in association in many cases with his employer, will remain responsible for the saving which a rich and growing country needs for its further economic development, and by which more and more people can afford to provide for themselves a truly comfortable retirement.
International Comparisons
Since their inception, pension programs in many countries have changed greatly. Although a number of older systems date back to the late nineteenth century, the majority of the programs were initiated in the decades immediately preceding or following world war II.
The programs in effect in Great Britain and France were extensively revised in 1946
28902-5-155
and 1945, respectively. Revisions occurred in the West German program in 1957 and in the Swedish program in 1959.
It is of significance that the programs in Great Britain and Sweden were both revised in 1959, for the purpose of adding graduated benefits to the existing flat rate benefits. Most pension programs now in operation relate the rates of pensions in some way to the pensioners' prior earnings.
The benefits under the Canada pension plan will inevitably be compared with those available under the old age, survivors and disability insurance program in the United States. Set out below are the rates of benefit payable to workers with no dependants but with various average monthly earnings, up to the maximum under the United States program. The minimum pension under the United States program is $40, compared with the flat rate $75 at age 70, or $51 at age 65, in Canada.
Pensions (including flat rate benefits) if earnings levels in Canada remain unchanged and if the U.S. program is unchanged
[Stage Direction]
Average
[Stage Direction]
Canada
[Stage Direction]
United States
[Stage Direction]
Monthly
[Stage Direction]
Benefits
[Stage Direction]
Benefits Ben. at age
[Stage Direction]
Earnings
[Stage Direction]
at age
[Stage Direction]
70
[Stage Direction]
at age
[Stage Direction]
65 65 or 70
[Stage Direction]
$
[Stage Direction]
$
[Stage Direction]
$
[Stage Direction]
$
[Stage Direction]
100
[Stage Direction]
105
[Stage Direction]
71
[Stage Direction]
59
[Stage Direction]
150
[Stage Direction]
120
[Stage Direction]
81
[Stage Direction]
73
[Stage Direction]
200
[Stage Direction]
135
[Stage Direction]
91
[Stage Direction]
84
[Stage Direction]
250
[Stage Direction]
150
[Stage Direction]
101
[Stage Direction]
95
[Stage Direction]
300
[Stage Direction]
165
[Stage Direction]
111
[Stage Direction]
105
[Stage Direction]
333
[Stage Direction]
175
[Stage Direction]
118
[Stage Direction]
112
[Stage Direction]
400
[Stage Direction]
175
[Stage Direction]
118
[Stage Direction]
127
[Stage Direction]
RELATED PROGRAMS Survivors and Disabled Pensions
A full program of social insurance would provide benefits for survivors and disabled persons who have not reached an age at which benefit would normally be considered an old age pension. Doubts have been expressed whether such benefits are within federal jurisdiction under the existing provisions of the British North America Act. Certainly such programs as now exist for these people are provincially administered. This is, accordingly, a subject which requires full consultation and discussion between federal and provincial governments to ascertain the wishes of the provinces and to determine whether a mutually satisfactory approach can be worked out.
The persons who might be covered under wage related pensions for survivors and disabled persons would be as follows:
[Stage Direction]
(a)	Widows with dependant children
A pension payable from the date of the death of a contributor to his widow, if she has one or more dependant children, until the youngest child reaches age 18.
(b)	Orphans
A pension payable in respect of the orphans of a contributor from the date of death of the last surviving parent until the youngest orphan reaches age 18.
(c)	Disabled Persons
A pension payable to a contributor under the program who suffers such a prolonged disability that he is unable to secure gainful employment.
If such coverage were to be provided as an additional part of the Canada pension plan, the scale of pensions would be related to the benefit otherwise available to the contributor at age 65, and the cost of the benefits would be financed as a part of the contributory program.
Federal-Provincial Shared Programs
Another related matter concerns federal-provincial assistance programs. The introduction of an adjusted pension at age 65 will
reduce federal-provincial expenditures under the old age assistance program. Once the Canada pension plan is in operation many persons in the 65 to 69 age group will not have to seek old age assistance because the adjusted benefits will be available. Similarly, if a disability pension is subsequently included as a part of the Canada pension plan, many persons who would otherwise have sought assistance through blind persons or disabled persons allowances will find their needs met under the new program.
Since payment of old age assistance, blind persons and disabled persons allowances is made by the provincial governments and the cost is shared, it is important that any federal plans for future improvement of the provisions of this legislation should be the subject of consultation between the federal and provincial governments. If the provinces will agree to share the additional cost the federal government is prepared to increase the maximum assistance payment under the federal legislation to $75 a month. One question of special interest to the federal government is whether the age of eligibility under the old age assistance program can be lowered from 65 to 60 for widows and unmarried women.
[Stage Direction]
Monday, July 22, 1963