Right Hon. W. L. MACKENZIE KING (Prime Minister):: As today has been set apart for the celebration of His Majesty's birthday in Canada, I would suggest that, before beginning the day's proceedings, hon. members rise and sing God Save the King.
The members rose and sang God Save the King



CRIMINAL CODE


[Stage Direction]
Right Hon. J. L. ILSLEY (Minister of Justice) moved for leave to introduce Bill No. 337, to amend the criminal code.
Mr. KNOWLES:: Explain.


Mr. ILSLEY:: Mr. Speaker, this bill contains forty-six sections, some of them merely correcting errors, some of them improving language, it is hoped, and some of them making relatively unimportant changes in procedure. There are, however, at least half a dozen sections of considerable importance. One is the section providing that the rules relating to place of trial of a defamatory libel published in a newspaper are to be made applicable to the place of trial of a conspiracy to publish a defamatory libel. Another provision is to the effect that the term "culpable homicide", instead of including as at present only murder and manslaughter, is to include a third offence to be known as "infanticide".
Another provision is that there shall be a minimum penalty of one year's imprisonment for stealing from the mails. Then there are amendments to prevent the fraudulent manipulation of transactions on stock exchanges, and otherwise to facilitate the curbing of security frauds.
Part XVI of the code is completely withdrawn and changed in important respects. The changes are so important that it would not be prudent to bring the new part XVI into force
on the passing of the act, and therefore it is proposed that it come into force on the first day of October, 1949. The reasons for that postponement will appear when the bill is discussed.
Provision is made for a jury trial continuing by consent of both the crown and the accused, even though one or two jurors, through illness or other causes, are unable to continue to act.
Provision is made for indeterminate sentences of not less than two years upon the trial of persons charged with certain sex offences, if these persons are found to be criminal sexual psychopaths.
These, I think, are the most important amendments. Perhaps there are other amendments which will strike some hon. members as having considerable importance, and which can be discussed at a later stage.
I should like to say also that no attempt has been made to amend the gambling sections, although we have had strong representations, particularly from the attorney general's department of the province of Ontario, in favour of so doing. It would be idle for me to deny that the gambling sections need amending, but the only province that has made definite and comprehensive proposals for amendment is Ontario. In a matter of this importance it was finally decided that the suggestions of the attorney general's department of the province of Ontario, together with the modifications of these suggestions suggested by the Department of Justice, should be laid before the commissioners on the uniformity of legislation, criminal side, next August for their consideration so that the views of all the departments of the attorneys general in Canada might be obtained before amendments are introduced. It is realized that this delay will be a disappointment to the department of the attorney general of Ontario, but, on the whole, it seemed to be the wisest course to take in the circumstances.
Motion agreed to and bill read the first time.



PRIVATE BILLS


[Stage Direction]
Bill No. 336, for the relief of Paul Charbon-neau.-Mr. Maybank.
Questions

[Stage Direction]
(Questions answered orally are indicated by an asterisk.)

Mr. CHURCH:: 1.	Will anything be done this session by way of providing free passages for British exservicemen and their dependents who wish to settle in this country on the same basis as- the Australian government is now doing?
2.	Will any action be taken in the matter, and an announcement be made before the house concludes this month for the year?


Mr. MacKINNON:: This deals with a matter of government policy. The decision, if any, will be announced in due course.


Mr. SPEAKER:: Answered.


CANADIAN ARMED FORCES-PAY, PENSION AND INCOME TAX
Mr. HERRIDGE:: 1.	What is the monthly basic pay for single
(a)	army privates; (b) ablebodied seamen; (e) aircraftman 1?
2.	What is (a) monthly pension deduction;
(b)	monthly income tax deduction from each of the above?
3.	On what basis is income tax collected?


Mr. CLAXTON:: 1.	(a) Private (monthly) $58 on entry; S62 trained; $69,1st class. (Relative ranks: Navy- Ordinary seaman; Air-Aircraftman 1st and 2nd class.)
(b)	Able seaman (monthly) $69. (Relative ranks: Army-Lance corporal; Air-Leading aircraftman.)
(c)	Aircraftman 1st class (monthly), $62.
(Relative ranks:	Navy-Ordinary seaman;
Army-Private.)
2.	(a) Private (monthly), S6.71 on entry; $7.56 trained; S7.98, 1st class. Able seaman, $7.98; Aircraftman, 1st class, S7.56.
(b) Private (monthly) S2.80 on entry; $3.20 trained; S4.30, 1st class. Able seaman, $4.30; Aircraftman, 1st class, $3.20.
3.	Income tax is deducted at the source on the basis on Department of National Revenue table of income tax deductions.


QUESTION PASSED AS ORDER FOR RETURN
Mr. CHURCH:: 1. What was the total cost to Canada for its participation in the world conference at San Francisco?

2.	What has been the total cost to Canada of the united nations organization at Lake Success for (a) capital account; (b) maintenance by years; (c) the total cost by years of Canada's representatives there (permanent and temporary) and of all delegations to it?
3.	What sums of money were spent on entertainments, hotel bills, dinners, banquets and other forms of entertainment for each year at the united nations organization at Lake Success?
4.	Who composed these delegations each year, what were their expenses, and who appointed them?


FLOOD CONDITIONS
[Stage Direction]
On the orders of the day:
Mr. J. L. GIBSON (Comox-Alberni):: Mr. ' Speaker, I should like to direct a question to the Minister of Transport. I sent him notice of it on Friday last. Can he make a statement as to the probable extent of the damage to the trans-continental railway lines through British Columbia, and when it is expected that rail communication will be reestablished with the Pacific coast?


Hon. LIONEL CHEVRIER (Minister of Transport):: Mr. Speaker, I am able to make a statement concerning the two railways, the present condition of their lines, and the extent of damage to each.
The management of the Canadian National Railways inform me that on the line to Vancouver communication has been re-established as far west as Boston Bar. The expectation is that emergency restoration on the line as far west as Hope will be completed by June 10. Intermediate communication is being established at Hope in the expectation that emergency restoration from Hope to Chilliwack will be completed by June 8. Thus, by the combination of forces working concurrently west from Boston Bar and west and east from Hope, it is expected that communication as far west as Chilliwack will be completed by June 10. The line beyond Chilliwack to Port Mann is still inundated, and it is quite impossible to forecast the extent of damage in this section and the probable date of restoration of the line.
On the Prince Rupert line, Canadian National communication will be re-established as far as Tatlow, which is six miles east of Smithers, by tomorrow. With restoration of damage at Tatlow by about June 10, the line will be open as far west as Kitwanga, which is seventy-three miles west of Smithers. Concurrently, working crews from Prince Rupert have reached Salvus, sixty-five miles to the east. The condition of the section from Kitwanga to Salvus is still indeterminate, especially

Excise Tax Act
*because of conditions immediately west of Kitwanga which appear to be serious. More definite predictions as to the reopening of the line through to Prince Rupert will depend on more detailed inspection and the more authentic information as to conditions between Kitwanga and Salvus. It is not possible at this time to estimate the cost of restoration work, but we know it will be heavy and will probably involve several millions of dollars.
I am advised by the president of the Canadian Pacific Railway that they are hopeful of having, and expect to have, a complete line to Vancouver by June 15, with a complete restoration of service shortly thereafter. The line from Calgary to Hope is expected to be open any time now', and if the highway from Hope to Vancouver is opened to traffic, it would then be possible to transfer passengers and their baggage from railway to buses at that point, thus providing a combination rail-highway service from Calgary to Vancouver early this w'eek. The company at this time, without having received full engineering estimates with respect to certain parts of their line which are still badly inundated, estimate that the cost of rehabilitation of their lines in the British Columbia region will amount to slightly less than $1,000,000.
In conversation with the Canadian National this morning I was advised that their line is open as far as Kamloops from which point traffic is detoured to the Canadian Pacific line as far as Hope. Passengers, mail and express are then moved by highway from Hope to Vancouver. Yesterday the Canadian National transferred to highway services nine carloads of emergency food and supplies for Vancouver destination.
Both railways are endeavouring to ascertain that the Great Northern is in a position to handle Vancouver traffic before issuing instructions to reroute all of this traffic over the Great Northern.
Just before I came into the house I spoke to officials of the Canadian Pacific Railway, who report that 50 carloads of freight, including foodstuffs, have already been rerouted via the Great Northern to Vancouver. It is expected it will take seven days to reach its destination.



EXCISE TAX ACT

[Stage Direction]
Hon. DOUGLAS ABBOTT (Minister of Finance) moved the second reading of Bill No. 332, to amend the Excise Tax Act.
Motion agreed to, bill read the second time, and the house went into committee thereon, Mr. Mutch in the chair.
On section 1-"Minister".
Mr. DIEFENBAKER:: Not having had anything to say on the budget, because I was absent when the matter was before the house, I w'ish to ascertain the minister's views on one question to which I shall refer now.
A major source of criticism on the part of the people at all times has to do with payment of taxes, and at the present time their complaints are certainly not unjustified. I realize, as the minister said in his budget speech, that the larger proportion of government expenditures consists of uncontrollable items. Social security items amount to 16-25 per cent of the total budget; veterans' pensions, 14-85 per cent; national defence, 8-87 per cent; interest and carrying charges on the national debt, 21-21 per cent. I feel that the time has come for the assumption by parliament of responsibility for the careful examination of expenditures. The suggestion has been made before, but in general terms. As I see the expansion of government expenditures from year to year, it occurs to me that the policy of the government is to spend and spend, and to tax and tax. Parliament has not taken a strong stand against over-expenditures; the result is the present situation.
If you look at Hansard over the last twenty-five years, Mr. Chairman, you will find that immediately before and after the first world war there was on the part of the House of Commons a definite desire to reduce expenditures and definite activity in the challenging of items that might be reduced; whereas in recent years parliament in the last two or three weeks of the session has passed innumerable items running into millions and tens of millions, without any examination whatsoever on the part of the house.
Throughout the country there is strong resentment against parliament because of its failure to reduce expenditures recommended by the government; for unless there is reduction in expenditure there will not be reduction in taxation. A number of years ago Sir George Foster, one of the most outstanding parliamentarians of 'his time-and his viewpoint was subsequently reinforced by an independent research investigation-suggested that there be set up a special house committee on estimates. Today we find ourselves in the position of making general attacks on every expenditure. Regardless of economic experimentation by theorists who advise the government, parliament accepts their suggestions and does little toward endeavouring to reduce expenditures. Two years ago Mr. Watson Sellar, the auditor general, asked for the setting up of special committees to comb the estimates-and I direct
Excise Tax Act

attention to the word "comb"-before they are submitted to the house as a whole. I ask the minister if such a committee would not be helpful. The other day he told us that the treasury board discharges that responsibility. Indeed, if I remember aright what he said, he actually told the treasury board that only they would in the end determine the extent of expenditures and the economies that could be effected.


Mr. ABBOTT:: No, I did not tell treasury board that. I told the various departmental officials coming in with their estimates.


John George Diefenbaker: Yes. That statement, made the other day, impressed me, indicating as it does that the House of Commons is not discharging its responsibilities. Here we have a statement by the Minister of Finance, after a year's experience in office, that the heads of departments alone act as a deterrent against over-expenditure, and that upon them alone it depends.


Douglas Charles Abbott: Not upon them; treasury board is the only one that really scrutinizes the items.


John George Diefenbaker: I am not playing with words. I am stating in substance what the minister has placed before the house. I ask him whether consideration has been given to Mr. Sellar's suggestion and if so, why it has not been carried beyond consideration. Why should members of this house not be divided into committees, as suggested by Mr. Sellar, to the end that expenditures shall be reduced where they ought to be reduced. Unless something is done, there will be no improvement. If the heads of departments, as a result of the failure of the House of Commons to challenge the estimates, are unable to resist the demands made upon them, they are given an incentive to increase expenditures; they realize that the house as a whole will not challenge their recommendations to treasury board, which recommendations are passed on to the house.
On a previous occasion, when mention was made of a suggestion not the same as this, the minister passed it off in a manner which, while it could not be described as flippant, did not do justice to the seriousness of the problem. To continue to tax and tax- with the load that today rests on the person in the low-income brackets, caught as he is between the rising cost of living, about which little or nothing has been done by the government, and an income little increased since the end of the war-is a policy against which resentment is generally felt. We in this house should do our part to be of assistance 
to the minister in reducing unnecessary expenditures and preventing administrative officials from joining in what finally becomes an orgy of over-expenditure unless departmental officials and others feel that their estimates will be challenged by the house as a whole.
This is not a new suggestion. It was made as far back as 1910, when expenditures totalled about $100,000,000. Today, with expenditures amounting to many times that total, the necessity of some such action is even more apparent. In reading Hansard for those days, as no doubt the minister has, one is particularly struck by the fact that then, and indeed until about 1925 or 1926, the House of Commons as a whole in committee seemed to be seized of its responsibility toward the people to pare down if possible and challenge where necessary over-expenditure or over-generous expenditure.
Is the minister prepared to consider the setting up of committees along the lines suggested by Mr. Sellar? If he is, parliament would not have to sit as long, and the house would be discharging its major responsibility, that of acting as watch dog of the treasury. The advantage would pass to the taxpayers in the reduction of controllable expenditures.


Douglas Charles Abbott: I did not want to interrupt my hon. friend, because I know he was not able to be here during the main budget discussion. It is customary to permit general remarks on the first section of a bill, but I think the ordinary rule is that they should relate to the bill in question rather than to broad topics. However, I did not interrupt my hon. friend because I realized that in the circumstances it was desirable for him to make his remarks; but I hope the practice will not be followed by other hon. members, and that my failure to raise any protest will not be treated as acquiescence in a complete revival of the budget discussions.
I should like to reply briefly to one point raised by the hon. member, in connection with the committees he mentioned. I have done so before, I think on an earlier occasion this session. I believe the view I expressed was that the creation of functional committees of the kind is foreign to our parliamentary system. Whether or not that is true, my personal view is that the job of scrutinizing the detailed estimates is one which should not be delegated to a small committee of the house. Traditionally this House of Commons has considered it to be its right to discuss each item of the estimates. As I said before, my own experience has been that discussion does not always relate directly to the item of expenditure which is under consideration, but frequently to general matters

Excise Tax Act
having to do with the department. I may be wrong, of course, but I question very much whether the adoption of the system which has been suggested by Mr. Sellar, high though my respect is for that very capable official, would result in any reduction in expenditure. After four or five years of close association with the Department of Finance I have come to the reluctant conclusion that the only real check on expenditures lies with the Minister of Finance first, and the treasury board second. I hope I am wrong in that, but I do not think I am. Human nature being what it is, I believe the general tendency on the part of members of parliament and a great many others is to be generous with the public money. They know the Minister of Finance has to be tough in these things, and that treasury board has to look pretty carefully at the larger expenditures; and in my not too lengthy experience here I have not heard many suggestions for a reduction in expenditure.
I do not believe the formation of such committees would really produce the result I know we would all desire, the elimination of unnecessary expenditures. I am afraid that is a responsibility which must be assumed primarily by the government, with parliament discharging its traditional responsibility by looking at the items of expenditure and deciding whether or not it wants to approve them.
I point out, too, as I have done before, that the estimates are brought down early in the session, with itemized details showing exactly how it is proposed that the public money be spent. These are before the house for months. It is true that in some respects the formality of passing some of the expenditures item by item is left until late in the session, but that does not mean every member of the House of Commons has not ample opportunity to give careful scrutiny to all proposed expenditures.
I am completely out of order in discussing this matter here, I am afraid; but since my hon. friend brought it up, and since it is a very important question, I felt that I should be permitted to answer his statement.


Mr. HACKETT:: I should like to add just a few words at this point concerning a matter on which I have said something on two or three previous occasions. The day will come when spending on the basis on which it is now proceeding will come to an end. I do not think there is any doubt about that. At present we are indulging in the experiment of management, and for the time being we are producing that which enables us to spend accordingly; but some day soon a re-establishment of real values will take place. When that day comes, reductions in taxation will have to be made; and I am asking the minister,
as I did the other night, to set up a committee or to cause his officials to study the matter with a view to bringing about reductions without great and irreparable loss. When taxes are imposed on commodities, they are collected and received by the government. When taxes are taken off, however, the purchaser or consumer will not pay them, even though they may have been paid by the manufacturer or importer. I suggest to the minister that it is the part of prudence and justice to examine carefully the procedure which should be followed when war taxes are abandoned, as they must be, in order that their abandonment may not cause grave and unnecessary harm to the people who paid them in the first place and who must recoup themselves or be greatly injured. I would therefore ask the minister to have the question examined by his departmental officials and, if possible, to provide an opportunity to members to assist the government in the study of a measure which is bound to have such far-reaching consequences.


Douglas Charles Abbott: May I again point out that there is little use in setting up a committee of the house to revise the rules if we are not prepared to stick as closely as possible to the rules we already have. I submit it is completely out of order to discuss topics relating to general taxation when we have before us section 1 of a bill to amend the Excise Tax Act. I would ask hon. members to co-operate in this regard and to stick to the section. We have had a pretty full discussion on general topics.


The ACTING CHAIRMAN (Mr. Mutch):: When the minister rose I was on the point of saying that this discussion has been of a general nature, and that a general debate on the budget is not in my view permissible in respect of this specific bill. I have desired not to be hasty, but the statement I have made indicates no temerity on my part. Shall section 1 carry?
Mr. DIEFENBAIvER: No. With all due respect, we are discussing taxation. This bill has to do with amendments to a taxing act known as the Excise Tax Act. When the minister talks about getting along, may I point out to him that this year he has got along so fast that a record has been established. I believe that in the last twenty-five years no finance minister has had his budget resolutions considered as quickly as they were this year, having regard to the resentment felt by the people of Canada against high taxation.


Douglas Charles Abbott: Order. Can we not abide by the rules of the house?
Excise Tax Act


John George Diefenbaker: Since when has a minister been able to say that to condemn a government for high taxation, when a discussion of excise tax amendments is in progress, is against the rules of the house?


Douglas Charles Abbott: I do not mind how much time we take, and I was endeavouring to be courteous. However I must insist upon strict enforcement of the rules. The rules with respect to consideration of a bill in committee are quite clear. Discussion must be relevant to the clause before the committee-not the whole bill, but the particular clause. By a sort of tradition, general discussion has been allowed on section 1. But that is only through tolerance; it has no support in the rules; indeed it is an infraction of them. I do not wish to raise any disturbance, but when my hon. friend asks me to be patient I would answer that I have listened without interruption; and I think, you, sir, should enforce the rules.


John Thomas Hackett: Let us not get into a discussion about how we are going to proceed. We are anxious to get on with the work, and the best way to get on with it is to proceed in the manner to which we have become accustomed. Discussion of the general terms of a bill has always been allowed on the first section. If the minister would smile, perhaps we would get on faster.


Leslie Alexander Mutch: The rule respecting speeches in committee is clear. Throughout this session a serious attempt has been made by the committee of the whole to get back to something more closely resembling the rules than the practice which prevailed during the difficult war years, when general discussion was permitted to a greater extent. As hon. members are aware, I do not ordinarily preside over the committee, and for that reason I hesitated at the beginning to rise or to interrupt, or to have my first words a reference to the rules. The rule, however, is specific in this matter, and if I am required to do so I shall have to rule to enforce it.


Douglas Charles Abbott: Mr. Chairman, I am usually pretty fair in these matters. In my earlier remarks I appealed to the committee to stick as closely as possible to the rules. I would ask hon. members not to renew the budget debate. It would be completely out of order. We have set up a committee to revise the rules of the house. We have a clear cut rule already established, the infringement of which is one of the greatest time-wasters in the carrying on of business of the house.


John George Diefenbaker: That committee is getting on about as fast as we are.


Douglas Charles Abbott: That is right.


[Stage Direction]
Section agreed to.
Section 2 agreed to.
On section 3-Tax on matches.
Mr. PROBE:: The revision of the excise tax structure on matches brings up the question whether matches are bearing an undue proportion of the revenue load the government derives from various sources. Matches are not a luxury item in most homes. Those of us who smoke might be considered as contributing an extra quota because of the number of matches we burn when smoking our pipes.


Mr. McCANN:: Try smoking tobacco.


John Oliver Probe: The fact is that it is a necessary commodity and should not be subject to so high a tax. Will the minister tell the committee what revenue was derived in the past year from the excise tax on matches, and what is the administrative set-up by which the tax is collected? Most match packages do not bear a revenue stamp which is affixed, but have a stamp printed, on them. There must be some process of checking up.


Douglas Charles Abbott: The revenue in the last year from the match tax was 13,499,661. The tax is collected on domestically produced matches by means of an imprint on the container. This is placed on by a machine, to which is attached a tabulator which keeps count of how many times the printing operation is repeated. On imported matches an adhesive stamp is attached to the box. I suggest therefore that the process of collecting the tax accurately is an efficient one.


Mr. LOW:: Does the minister mean to say that we import matches?


Douglas Charles Abbott: I do not know that we do at the present time, but in the past we have imported them from Sweden. On these, stamps were affixed.


[Stage Direction]
Section agreed to.
On section 4-When tax not payable.
John Lambert Gibson: This is an instance in which a tax is being reduced. Will this saving be passed along to the consumer, or is it something the provincial governments will absorb in their liquor stores, with prices kept, the same?

Excise Tax Act


Douglas Charles Abbott: I am told that in fact this is a tax which has not been collected. It has been, remitted. This section i3 to make the law conform to what has been happening for some time.


[Stage Direction]
Section agreed to.
Section 5 agreed to.
On section 6-Certificate before distribution of assets.
John George Diefenbaker: What does this section, as revised, mean?


Douglas Charles Abbott: I am told it is more in the nature of a drafting change. As my hon. friend will see from the explanatory note, part XV of the act is to be repealed, and it was considered that the section should be brought up to date and other parts brought under its provisions.


John George Diefenbaker: What are the other
parts?


Douglas Charles Abbott: They thought it advisable to provide that parts could be added to or taken from this act without having to change this section each time such a change was made. It is more in the nature of a drafting change than a change in substance.


[Stage Direction]
Section agreed to.
On section 7-Prosecutions.
John George Diefenbaker: The same applies here?


Douglas Charles Abbott: The same applies here.


[Stage Direction]
Section agreed to.
Sections 8 and 9 agreed to.
On section 10-Tariff board to settle doubts and differences.
John Thomas Hackett: Will the minister explain the meaning of the second subsection and state whether or not there is an appeal from the declaration of the tariff board?


Douglas Charles Abbott: I am informed that that question has never been raised departmentally and I am afraid I am not in position to answer it offhand. One of the principal purposes of amending section 10 is to remove the word "war". The new act is to be known as the Excise Tax Act instead of the Excise War Tax Act. In section 115 the reference to the board of customs is deleted, because it was replaced a good many years ago by the tariff board.


John Thomas Hackett: I have become accustomed to seeing orders in council take on the power and effect of statutes, but it has never before
come to my attention that an independent irresponsible body named as the tariff board is named has the power to enact legislation which is the law of the land to the same extent as if a bill had been brought into the house, debated, read three times, passed and sent to the senate and finally given the royal assent. Of course I may not be fully informed, but this is a startling provision because it says that a declaration by the tariff board under this section shall have the same force and effect as if it had been sanctioned by statute. I am aware that a declaration by the board of customs had a somewhat similar effect, but the board of customs was a slightly different organization, and I believe there was always an appeal from that board.


Douglas Charles Abbott: Of course whatever remedies there are would lie here. The board of customs was replaced years ago by the tariff board. As my hon. friend will see on looking at the section, it relates largely to an interpretation of descriptions in the tariff schedule. The tariff board may declare what amount of tax is payable thereon, or that the article is exempt from tax under this act. Before the creation of the tariff board apparently that was the function of the board of customs, which consisted of officials in the government service. For many years past-since 1933 at any rate- the responsibility for performing these functions has been vested in the tariff board. I am informed that this is simply to bring the law into conformity with what has been the practice during those years.


Mr. SMITH (Calgary West):: I should like to know how this will work out in a practical way. As I understand it, when there is doubt or dispute with respect to the amount of duty to be paid on any article reference is made to the tariff board, which may in its uncontrolled discretion make a declaration as to the result, when-and I quote from the section:
-there is no previous decision upon the question by any competent tribunal binding throughout Canada.
I do not know what that means. It cannot mean any of our courts except the Supreme Court of Canada. I should like the minister to explain that.


Douglas Charles Abbott: Perhaps we could let this section stand. I have asked the commissioner of tariff's to come down.


Arthur Leroy Smith: Suppose I bring an article into Canada and I am told by the customs officers at the boundary that the duty is $100. I do not think it should be that, so I come within the section because there is disagreement as to the amount of
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the duty. The only way I can get the article into Canada is to pay the $100 on the barrelhead. I take it that I then go to the tariff board and say, "I have paid $100; I think the amount of duty should be only $50, and I want you to decide." I hope I am right as to the matter of procedure so far as I have gone. Is there any provision in the act which, granted that I succeed and the tariff board says the duty should be $50-


Douglas Charles Abbott: This relates to excise tax, not customs duties.


Arthur Leroy Smith: Let us say excise then; the case would still be the same. Is there any provision in the act for the return to me of the $50 which I have overpaid?


Douglas Charles Abbott: I am told that there is.


Arthur Leroy Smith: There should be a specific provision. I want to avoid the difficulty the ordinary man would have in dealing with the crown through his inability to bring an action to get his money back. Would the minister mind pointing out the section?


Douglas Charles Abbott: It is section 105. Would the hon. member like me to read it?


Arthur Leroy Smith: Is it a long section?


Douglas Charles Abbott: 
Arthur Leroy Smith: These are all refunds.


Douglas Charles Abbott: I had not read the section before. The section reads:
A deduction from, or refund of, any of the taxes imposed by this act may be granted:
(a) where an overpayment has been made by the taxpayer.
Just as a matter of historical information, may I say I am told that subsection 2, which we are now discussing, has been in the act since 1917. It was put in in 1917 and the only change here is that the tariff board was substituted in 1933, as the hon. member for Stanstead will recall, for the board pf cus-

toms. The tariff board is now the tribunal to decide whether refunds may be made.


John Thomas Hackett: I began my question by asking whether there was an appeal. I understood that there was not. I am going to ask the minister to bear with me just a moment while we consider section 115, which reads as follows:
Where any difference arises or where any doubt exists as to whether any or what rate of tax is payable on any article under this act and there is no previous decision upon the question by any competent tribunal binding throughout Canada, the tariff board constituted by the Tariff Board Act may declare what amount of tax is payable thereon or that the article is exempt from tax under this act.
Then follows the section which says that the declaration of the tariff board has the same effect as a statute. What happens when there is a dispute as to whether or not there is a previous decision? My hon. friend, who has spent long years before the courts, knows that sometimes lawyers cannot agree whether a case is pertinent or not, whether it applies or not. Even courts have been known to disagree as to whether or not they are bound by a certain decision. Who is to be the arbiter in these cases? Is the tariff board to determine once and for all, and beyond all possibility of appeal, that a case does not apply, when others, possibly entitled to an opinion equally respectable, feel that it does?


Douglas Charles Abbott: That is an interesting question. I have never considered it before, and the senior official of the Department of National Revenue, w'ho is sitting in front of me, tells me it has not come up. My opinion, for what it is worth, would be that the question whether or not there has been a decision by a competent tribunal is a question of fact; and if the tariff board, or any other body, purported to declare that there had not been when in fact there had been, then clearly there would be an appeal from that finding, I would think. But I am talking at odds. It is a question of fact as to whether there has been a decision.


John Thomas Hackett: I think it is a question of law. Would the minister not go so far as to say that it is a mixed question of law and of fact?


Douglas Charles Abbott: That may well be.


Arthur Leroy Smith: I want to know' who this competent body is. I asked that a moment ago. Who is the competent body that is going to set this precedent?


Douglas Charles Abbott: I am afraid I cannot answer that question at the moment. The exchequer court is the body which in general deals with all appeals on matters of the kind. As I say,

Excise Tax Act
this section has been in the statute for thirty odd years. Perhaps the question should have been raised before. It was enacted by a government of which my hon. friend was a supporter. The tariff board was substituted for the board of customs in 1933 when my hon. friend's party was in pow'er. There is no change in the law. The same body has the power to declare that it shall have the same force and effect as if it had been sanctioned by statute-that has been in the law for a long time-instead of a board of officials. It is now the tariff board. As to the question whether there is an appeal from that tribunal, I -would have to give it consideration. I am afraid I cannot answer it at the moment. It is an interesting question, and frankly it has caught me by surprise.


John George Diefenbaker: The minister says that this provision has been in the statute for a long time. It is illustrative of the removal by administrative bodies of the right of the individual to recourse to the courts in order to protect his rights. The tendency in that direction has been accelerated during the last few years. Up to 1923 there were three or four statutes which denied the individual the right of recourse to the courts. Since then they have been increased in number, to an extent not known in any other of the British dominions. As a matter of fact it was the denial of the right of the individual to recourse to the courts that caused Mr. Justice Angers of the exchequer court to make a protest against the infringement by the executive on the rights of the judiciary.


Douglas Charles Abbott: This is not an action of the executive.


John George Diefenbaker: No, but it is the type of legislation to which Mr. Justice Angers made -reference in these words:
There are, in my judgment, far too many encroachments from ministers, deputy ministers and functionaries in the judicial as well as the legislative field.
In the last few years statute after statute has been enacted which has placed the average citizen in such a position that he may be ordered, directed or pushed around by administrative officials, while at the same time he is denied the right to appeal to a higher authority to protect him from the actions of officialdom. As a matter of fact, the whole essence of the right of appeal is that the intemperate or arbitrary action of the crown, or its officials, shall be reviewed by the courts. This section in its present form simply means that whether a tax applies or not, whether under the law it can properly be applied, when the tariff board
makes its declaration the matter is final, and regardless of the law, that declaration shall have the same force and effect as if sanctioned by statute. That is going a long way. It may have been on the statute book for years.


Douglas Charles Abbott: Put on by a Conservative government.


John George Diefenbaker: No, put on by a mixture-and by the way, sir, this is the first time I have heard my hon. friend endeavour to get out of his responsibility by saying that what w^e have before us represents in part a statute passed by a Conservative government. Regardless of who put it on, or when, the present government, relying on one or two statutes passed prior to 1922, has accelerated the tendency in that direction. The result is that our statutes are replete with the type of legislation which denies to the individual the right of appeal to the courts that he may obtain the king's justice, that right being withheld regardless of unfairness or of the injustice that is done.


Douglas Charles Abbott: Perhaps I should have pointed out that the taxpayer has the option of appealing to the tariff board or to the courts. He can take his choice. I had always understood that the tariff board was a semijudicial body. If the taxpayer is dissatisfied with the ruling of the departmental officials he can appeal, I am told, to the courts or to the tariff board.


John George Diefenbaker: But the alternative is not provided by section 115. "Where any difference arises"

that would be as between the crown and the individual-"or where any doubt exists as to whether any tax is payable on any article under this act," then the tariff board may make its declaration. It not only exercises discretion in determining the rate of tax, which is administrative, but it also has the right to make a judicial declaration as to whether any tax is payable. That section provides two things: first, an administrative right, namely, the determination of the rate of tax payable where dispute takes place-and I can understand such an administrative board so determining; but it also has the judicial power of determining, regardless of the law, whether any tax is payable. In that case the decision is final, regardless of whether parliament ever intended that the item in question should be subjeot to tax.


Stanley Howard Knowles: Mr. Chairman, may I say a word with respect to the issue that has been raised between the Minister of Finance and the hon. member for Lake Centre as to the origin of this piece of legislation. I do so by
Excise Tax Ad

quoting one sentence from the Regina Leader-Post of Tuesday, June 1, 1948, just a few days ago:
"I have been searching for a long time," said Mr. Embury, "for a difference in the policies of the Liberal and Progressive Conservative parties. I must confess that so far I have found none."


John George Diefenbaker: I appreciate the help from my hon. friend. Let me tell him this, that his government in Saskatchewan has accelerated the tendency shown by the present federal government, and over and over again denies an individual in that province the right to appeal to the courts against unfairness and injustice perpetrated by administrative officials.


Stanley Howard Knowles: That is Tucker's line in Saskatchewan. You are all the same.


Leslie Alexander Mutch: Order. I should like to hear what the hon. member is saying.


John George Diefenbaker: I am glad my hon. friend brought that up.


Solon Earl Low: Good help.


John George Diefenbaker: That does not apply, may I say to the leader of the Social Credit party in Alberta. In Saskatchewan, though, the socialists have taken advantage of the trend in this direction to deny the courts the right to decide the rights of the individual against the supremacy of the state-


Solon Earl Low: That is right.


John George Diefenbaker: -to such an extent that an individual in that province may have a determination made against him by a body composed of party friends, and that individual, regardless of injustice done to him, is denied, under statute, any appeal to the courts of the land.


Arthur Leroy Smith: I want to get on with my ideas about this section. I was hoping that it would not become political, but apparently the hon. member for Winnipeg North Centre (Mr. Knowles) insists on that. If we wanted to be smart we could say equally that we know of no difference between them and another party in this country, but I will not say that.


Stanley Howard Knowles: This is one of your own men saying it, your own candidate in Regina.


Arthur Leroy Smith: I know him very well and I knew his father before him, and if you had the brains that young fellow has you would go somewhere too.


John Oliver Probe: Where?


Arthur Leroy Smith: I don't want to say where, because it would be unparliamentary.


Stanley Howard Knowles: You're much better when you are funny.


Arthur Leroy Smith: All right; let us get on with this. I am inclined to think the minister may have been wrong with respect to the advice he got as to the alternative procedure, but if he is right about that, then consider the anomaly that can be created. Assume that you go to the courts and they decide one way. The provincial court decides one wray-


Douglas Charles Abbott: It would have to be the exchequer court.


Arthur Leroy Smith: Well, the
exchequer court. Then you go to the tariff board, and you could easily get opposite decisions on the same matter. This act says that the tariff board's decision has the force of a statute. However, that does not matter much. The point I first raised was this. With respect to the return of money, would the minister have someone go through the section with a view to providing that where overpayment has been made it will be refunded forthwith, or something of the kind? If I am right, it might be worthwhile adding such a provision before third reading.


Douglas Charles Abbott: I will have that looked into. I am told that under section 105, which I mentioned, refunds are made every day where taxes are paid in error. Section 115, which is not taken advantage of too often, relates to disputes as to interpretation of the statute in some cases, or the question whether taxes are really payable. I am assured that the taxpayer has the option of going to the exchequer court if he wishes to do so and fighting it there. He used to go to the old board of customs.


John Thomas Hackett: If the minister is sure there is appeal-


Douglas Charles Abbott: I am assured by the officer in front of me, who has 'been in the Department of National Revenue for many years and has charge of this division, that that is and has been the practice. The taxpayer, if dissatisfied with the decision of the department, has the option of appealing to the exchequer court or of going to the tariff board. It used to be the board of customs. The main difference between the board of customs and the tariff board is that the board of customs was a purely administrative body composed of officials, whereas the tariff board is a semi-judicial body. I did not expect this discussion. The section has been in the act for thirty years, and has caused no real dissatisfaction, otherwise we

Excise Tax Act
would have heard about it long since; and the purpose of the amendment was to make the wording of the law conform to what was the fact.


John Thomas Hackett: The minister recalls that the counterpart of this section in the Income Tax Act was taken before the courts and it went to the privy council. I am speaking of the Pioneer Laundry case, where the department was acting as court of appeal on an appeal from itself. The minister is familiar with the finding there.


Douglas Charles Abbott: I know that case very well. That was an exercise of discretion.


John Thomas Hackett: By the same person who had rendered the judgment.


[Stage Direction]
Section agreed to.
Section 11 agreed to.
On section 12-Parts repealed.
(Translation):
Air. BEAUDOIN:: With reference to section 12, can the hon. minister tell me if, to his knowledge, certain provinces have levied the taxes which are given up by the federal government through the repeal of Part XY and XVI of the act?


Douglas Charles Abbott: Yes, some provinces have done so. '
(Text):


[Stage Direction]
Section agreed to.
Section 13 agreed to.
On section 14-Schedule III repealed and new.
Douglas Charles Abbott: I would ask my colleague, the Minister of National Revenue, to move an amendment to insert the word "glucose" in this schedule. Glucose is used in the same way as sugar is used, and it seems appropriate to exempt that as *well when used in jams or bakery products. It is used extensively in bakery products, which are being exempted from sales tax.


James Joseph McCann: That schedule III of this act be amended by inserting in the second line thereof after the word "yolks" the word "glucose."


[Stage Direction]
Amendment agreed to.
Mr. PEARKES:: It is with regret that I notice that the act of last year still carries discrimination against a certain type of farm produce. I refer to the last section of the last paragraph on page 5, in which "farm produce sold by the individual farmer of his own production" is free from sales tax, with the exception of "flowers, flowering plants or bulbs" when the sales of such articles exceed 8500
per annum. I submit that in certain parts of the country, particularly the district which I represent, flowers, flowering plants and bulbs are regarded as farm produce. The farmers are growing those plants and bulbs out of doors and shipping them to the markets of eastern Canada. To give some idea as to the extent of those shipments, at Easter time this year 72,000 dozen daffodils were shipped out in one week from the Saanich peninsula to eastern Canada. These articles are definitely farm produce. They are produced by literally hundreds of small farmers who grow either the blooms or the bulbs. These people feel that they are heavily discriminated against when these articles are regarded as the only farm produce which should be made subject to sales tax.
I know that during the war these things were regarded as a luxury. We have heard a great deal about other kinds of farm produce being luxuries, such as asparagus, tomatoes, and so forth. I contend that these flowers and bulbs which bring pleasure to thousands of invalids and decorate the churches of eastern Canada at their festivals, should no longer be put in a class by themselves. The amount involved is not large, but the tax causes a great deal of inconvenience to the co-operatives and bulb growers' associations in trying to sort out the produce that comes from the bigger and smaller farmers. I would ask for the total removal of this tax; but if a tax is necessary, could the amount of exemption be raised from say $500 to $1,000 a year? It would help a great many of these smaller farmers who grow flowers and bulbs out of doors. Will the minister give consideration to that?


Douglas Charles Abbott: Yes. We considered again this year, Mr. Chairman, whether any change should be made in this sales tax exemption. Sales tax has been imposed on cut flowers and bulbs for a great many years. The exemption of $500 is in to take care of the small individual grower. Representations were made by the professional growers that it should be made still smaller-that it should be cut down to $100.


George Randolph Pearkes: Those representations were made by -the hothouse growers.


Douglas Charles Abbott: By the growers, yes. They said that a great many veterans were getting into this business, not in a large way but in a fairly substantial way, and that the competition was keen from the ordinary farmer. They wanted it reduced. We decided against making any change. As the committee knows, the principal and virtually the only change in sales tax this year is in regard to staple foodstuffs. I shall be glad to take into
Excise Tax Act

consideration the representations made by my hon. friend; and when a general revision of the sales tax schedules is being considered, I can assure him it will receive consideration.
Mr. I3NOR: I was on my feet when section 13 passed; perhaps the committee would be good enough to revert to that section. It deals with the 16-millimetre projector. The 35-millimetre parts are exempt as I understand it.


Douglas Charles Abbott: Parts for the 16-millimetre projector are exempt, not for the 35-millimetre.


Mr. ISNOR:: It is only the 35-millimetre which is exempt?


Douglas Charles Abbott: No. I am told not. The 35-millimetre projectors are taxable, I am informed.


Gordon Benjamin Isnor: What is the position with regard to the 8-millimetre projector, the one that amateurs use? For educational purposes I believe it is of real value to us, in Nova Scotia. The use of the 8-millimetre projector in Ontario gives the people in this part of the country an opportunity to see the beauties of the maritime provinces. I have particularly in mind the 8-millimetre projector, the item that is exempted.


Douglas Charles Abbott: No. The only exemption is on the 16-millimetre. I am advised that the reason was that the 8-millimetre projector is the amateurs' type. Broadly speaking, the 35-millimetre is the commercial type of projector. The 16-millimetre projector is the one that is used in churches, schools, and the like. It is for that reason that exemption was proposed for the 16-millimetre projector. It is a complete exemption. It does not involve only 16-millimetre projectors used in churches and schools although our information is that they are the major users of this type of projector.


Gordon Benjamin Isnor: I do not wish to pursue the matter further, because I did not get an opportunity to speak on the item when it was before the committee. But I feel that a great many more 8-millimetre projectors are used than 16-millimetre projectors. I would ask the minister to look into the matter.


Douglas Charles Abbott: I will look into it for next year.


Mr. McLURE:: In schedule III, section 14, at line ten, under "fruit, fresh, canned", and so on, tomatoes are included?


Douglas Charles Abbott: That is right.


Leslie Alexander Mutch: We had not come to the consideration of the schedules. We are on section 14.


Winfield Chester Scott McLure: The hon. member for
Nanaimo was speaking on the schedule.


Douglas Charles Abbott: Canned tomatoes would come under vegetables.


Winfield Chester Scott McLure: That is what I should like to know, whether you consider a tomato a fruit or vegetable.


Douglas Charles Abbott: I do not know that I have any strong views on the matter. I am fond of them. In any case, both fruits and vegetables are exempted here.


Winfield Chester Scott McLure: As long as you have it in one way or the other, it is all right.


Douglas Charles Abbott: We have.


Winfield Chester Scott McLure: Of course a tomato is a fruit, not a vegetable.
Some hon. MEMBERS. No.


Winfield Chester Scott McLure: Those who have studied
botany will find that anything produced from a flower or a flowering plant, such as a tomato, is a fruit.


Douglas Charles Abbott: A potato too?


Winfield Chester Scott McLure: A potato is not -a fruit.
Section as amended agreed to.
Section 15 agreed to.
On section 16-Schedule VI repealed and new.


John Oliver Probe: I want to state briefly my regret that the minister has not enlarged the exemptions under this section. We were talking about 16 millimetre projectors for use in schools, and that is the one point in the whole budget on which some of us should pay tribute to the minister for his generosity. I take this opportunity of thanking him for having listened to the representations made by some hon. members in that regard. In the schedule coming under section 16 there is a slight relief, in that the exemption is extended to cover certain types of watches used by railway men, watches designed for use by the blind-that is, Braille watches; alarm clocks selling for not more than $10, and plated tableware. These exemptions are now effective; but before this section passes I must say I feel the minister has somewhat gone back on the intention expressed when the legislation was passed during the war, placing a tax upon the business of the small independent jeweler, on whom I think it falls more heavily than any other class.

Excise Tax Act
As lias been pointed out by other hon. members, there has been a falling off in the business of these people which I think might have been avoided by a reconsideration of the items which should come under this 25 per cent tax. If the minister had considered exempting all articles sold for less than $5 or $10 in these jewelry stores he would have made it much easier for them to carry on, and there would have been much less cause for complaint.
There is the other point in this connection. His department has not evolved a foolproof scheme of collecting the tax. It is collected at the retail level, and there is opportunity for manipulation or evasion on the part of some dealers who may not be as scrupulous as most of them are.
I just want to put on record a final plea or complaint which I think represents the stand taken by most of these small independent merchants. This letter comes from one of them in my own city. I do not intend to mention his name, but he states:
I was disappointed at the government not removing the 25 per cent tax on jewelry, silver hollow-ware, glassware, and many other lines in a jewelry store while they let many other luxury lines go tax free, such as oil paintings, expensive rugs, yachts, and many other lines.
The jewelers of Canada realized that this original law was one of discrimination as a war measure, which was what we were told it was put on for, but, now that the war has been over for a few years we think that it should be removed. I hope you will do all you can to assist in its removal.
While I suppose it is too late for the minister to change his mind in that respect for this year, I want to tell him emphatically that he is making it very difficult for dealers in the smaller jewelry items. I have no quarrel with the 25 per cent tax on expensive items, but it is these $5 and $10 items that for these small people represent the difference between making a living and possibly going out of business. I want to repeat my protest in that regard.


Douglas Charles Abbott: I shall take my hon. friend's representations into consideration.


[Stage Direction]
Section agreed to.
On section 17-Coming into force.
Arthur Leroy Smith: What is the reason for this date, May 19?


Douglas Charles Abbott: This is the customary budget provision, that the new rates of tax or exemptions are effective the day after the announcement of the budget.


[Stage Direction]
Section agreed to.
On schedule 1.
Winfield Chester Scott McLure: I should like to refer to one item I am afraid I neglected when we were going through the sections; that is, internal combustion engines, traction engines and so on. Does this include engines for the boats of fishermen, or are they already exempt from taxation? It is a very important matter at the present time.


Douglas Charles Abbott: I am told they are exempt under another section. The only change in the law here is with respect to a certain type of engine used in agricultural machinery, such as tillers, where the engine and the body and seat of the machine are all together. The exemption to which my hon. friend refers comes under the heading of marine and fisheries, and it reads:
Boats bona fide purchased by fishermen for use in the fisheries, and articles and materials to be used exclusively in the manufacture, equipment or repair of such boats.
That includes the engines.


Winfield Chester Scott McLure: But these are not specified on page 7, which just mentions "boats purchased by fishermen for use in the fisheries". To clear up the point I think engines should be mentioned, so that they will know this includes the gas engines in the boats.


Douglas Charles Abbott: It has been interpreted in that way for years, and I am told the tax is never collected on those engines. Both the boat and the engine in it are exempt from tax, and have been for years.


Gordon Benjamin Isnor: If the minister would be good enough to turn to page 7, I should like to ask a question with reference to rope. Does this apply to all rope and twine used by fishermen?


Douglas Charles Abbott: I am told all that is involved here is a broadening of language in order to enable dealers to buy it exempt from sales tax. Heretofore it had to be bought direct by the fishermen, and that introduced complications.


Gordon Benjamin Isnor: I want to ask another question on that, because I am anxious that the fishermen should clearly appreciate how they stand. From now on there will be no need for fishermen to make application for refunds or drawbacks, as in the past?


Douglas Charles Abbott: That is correct.


Gordon Benjamin Isnor: Even if the fisherman buy* direct instead of through a dealer, he will be entitled to the same treatment?

Dominion Succession Duty Act


Douglas Charles Abbott: That is correct.
First schedule agreed to.
Second schedule agreed to.


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

[Stage Direction]
Hon. DOUGLAS ABBOTT (Minister of Finance) moved the second reading of Bill No. 331, to amend the Dominion Succession Duty Act.
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Macdonald (Brantford City) in the chair.
On section 1-"Aggregate net value".
Arthur Leroy Smith: Has any study been made with the provinces in connection with these changes? This is a field in which the provinces have functioned for a long time, namely the field of taxation by way of succession duties. Has there been any communication with the seven provinces which are a party to the agreement, where it is said that the field has been rented by the dominion government?


Douglas Charles Abbott: There have been no such communications.


Arthur Leroy Smith: Does the minister not think there might have been?


Douglas Charles Abbott: I do not know what purpose would have been served by that. It is a relief in taxation, and I cannot conceive of any province objecting to it. The thought never occurred to me. It is true,.of course, that in the matter of succession duties the element of surprise does not make much difference. However I did not think of communicating with the provinces.


Arthur Leroy Smith: Everyone seems to use the word "rental" with approval. It is stated that the provinces have rented certain taxation fields to the dominion government. It strikes me that if I had been a party to an agreement in which I had rented something to someone else I would be interested in any changes made.


Douglas Charles Abbott: We have also rented the fields of personal and corporation taxes, if one cares to look at it in that way. I do not suppose the provinces would feel that we should have consulted them in the event of our deciding to reduce personal and corporation taxes. It never occurred to me that we could not reduce or increase, without consultation.

We have taken over the field for the time being, temporarily, and I assumed that we had freedom of action in that field.


Arthur Leroy Smith: If I rented you a field you would have no right to tear down my fences.


John Thomas Hackett: I take it from the minister's answer that the vexed question of jurisdiction, as to whether or not the dominion has power to determine what is or is not a succession, has not been discussed with the provinces?


Douglas Charles Abbott: There is nothing new in that respect. The dominion has been in the succession duties field since 1941. There has been no change in that respect. The only substantial effect of the proposed amendment this year is to relieve certain taxpayers or those who would otherwise be taxpayers, from the necessity of paying succession duties. No other change is made in the act.


John Thomas Hackett: The debate on this fundamental question has not been pursued during the year?


Douglas Charles Abbott: Not so far as I am aware.


[Stage Direction]
Section agreed to.
On section 2-Situs of shares.
Douglas Charles Abbott: I have an amendment which I shall ask my colleague to move.


James Joseph McCann: I move:
That clause 2 of bill 331 be amended by adding the following proviso to subsection 2 of section 6 set out therein:
"Provided that this subsection does not apply in respect of shares that were the property of a deceased person in the capital stock of a corporation -whose business operations are of an industrial, mining, commercial, public utility or public service nature and are, except for management and the designing, purchasing and transportation of goods, carried on entirely in the country of domicile of the said deceased, either directly or through ownership of shares in, or through control of, subsidiary or affiliated corporations."


Douglas Charles Abbott: May I explain this by saying that the amendment is to cover what are known as 4-K companies which, although incorporated in Canada, have most of their property and assets outside Canada. As an example I would mention Brazilian Traction. There is no doubt it is desirable that it should encourage the holding of shares by residents of Brazil. But it is felt that there might be resentment in Brazil if Canada were to impose succession duties with respect to the shares of a company whose entire assets, virtually, are situated in Brazil. It seemed desirable, therefore, to make this provision. The reasons

Dominion Succession Duty Act
which I have given for putting this rule in are to provide that shares of Canadian incorporated companies owned by non-residents shall be taxable in Canada and the tax will be paid to the country of source. We have conventions with the United Kingdom and the United States which conform to this rule, there is reciprocal provision whereby credit can be taken for taxes paid here.


[Stage Direction]
Amendment agreed to.
Section as amended agreed to.
On section 3-Exemption.
John George Diefenbaker: Upon what basis was the amount of $50,000 arrived at? Then, would the minister tell us the proportion of estates which have come before the department in the last two years wherein the amount devolving has 'been less than $50,000 as compared with those between $5,000 and $50,000, and those over $50,000?


Douglas Charles Abbott: Answering the last question first, I am told that, in number, about 90 per cent of the estates fall within this category.


John George Diefenbaker: Have you the exact figure?


Douglas Charles Abbott: I have not the exact figure, but it is about 90 per cent. These are the figures given me upon which I prepared my budget proposals. I must take primary responsibility for the selection of this amount. The decision has to be taken at some point. It seemed to me that, in these days, with the somewhat diminishing value of the dollar, a $50,000 estate could still be considered as a pretty small estate, particularly if the widow or the beneficiary has to live on the income. However, that is a matter of opinion.


John George Diefenbaker: I was not quarreling with the decision.


Douglas Charles Abbott: I appreciate that. I would answer frankly that the figure of $50,000 was one I suggested. I discussed the matter with my officials, at which time different amounts were mentioned. This, however, seemed to me the satisfactory one. As I said in my budget speech, it docs constitute a great administrative saving. It means that we are out of 90 per cent of the estates, and at a comparatively small loss in revenue. The total revenue from succession duties last year was about $32 million. My officials estimate that the loss of revenue from the proposed exemption will be about $5 million, or a little less than a sixth.


Stanley Howard Knowles: Although 90 per cent of the estates covered are between $5,000 and $50,000; the bulk, in terms of taxable income, must be above $50,000.


Douglas Charles Abbott: And in taxable rates; the rates go up rapidly as the amount goes up.


John George Diefenbaker: Would the minister place on Hansard, the different groupings as between $5,000 and $10,000, $10,000 and $25,000, and $25,000 to $50,000?


Douglas Charles Abbott: Perhaps I have that information right here. It is published in the taxation statistics, and it is broken down as to provinces. That is not given yet for the current year. It was published in September, 1947, and the information comes out each year.


Stanley Howard Knowles: But is for the taxation year, 1946?


Douglas Charles Abbott: That is right. The similar statistical publication for the current year is now in process of preparation, and will be ready in August or September.


John George Diefenbaker: I would ask for the information for the current year.


Mr. HAZEN:: I should like to refer to the second part of section 3, which refers to charitable bequests. Why was that change made?


Douglas Charles Abbott: I believe it was last year I received a delegation from the various Protestant churches at first, headed by my old friend, Mr. Hamilton Cassels. It was urged that in Quebec and Ontario, where succession duties are still imposed, there had always been complete exemption for charitable bequests, and that this constituted discrimination on the part of the dominion in allowing an exemption for only 50 per cent. I had similar representations from the Roman Catholic church, from heads of universities and others, and I came to the conclusion that the revenue implications were not great. I think I mentioned that it amounted to only $300,000 or $400,000 a year. It seemed to me that our law should conform to the existing provincial law.


Douglas King Hazen: Is there any definition of the word "charitable"?


Douglas Charles Abbott: No, there is not. This has been pretty well established as a result of a long line of cases, principally English cases, going back a good many years. It is pretty well known now what is charitable. I know there has been some discussion in connection with income tax matters as to whether such things as community halls and so on would come within the definition. It is some time since I have looked up the cases, but I understand it has been pretty well established by
Dominion Succession Duty Act

jurisprudence as to what is covered by a charitable bequest.
Mr. HA'ZEN: The legal definition is quite broad and includes a great deal. I think it would include a society for the promulgation of a particular political doctrine or principle, such as socialism or Conservatism-


Stanley Howard Knowles: That last one is charity.


Douglas King Hazen: -combined with moral or moral improvement. That is going pretty far.


Douglas Charles Abbott: I agree if that is the case, but I do not think it is the case.


Douglas King Hazen: I understand that a gift to increase the efficiency of the army would be regarded as charitable at law, or a gift providing for the improvement of agriculture; any gift of that kind might be charitable at law and come within the legal definition. It seems to me that the government might be losing revenue it should have if it regards gifts of that kind as charitable and has no restrictive definition.


Douglas Charles Abbott: Those are some interesting cases put forward by my hon. friend. I am afraid that no attempt has ever been made in any statute to define what is a charitable bequest or a charitable gift. I think this is one of the cases that could best be left to the courts. I am sure the hon. member for Lake Centre will agree with that.


Stanley Howard Knowles: Would the same definition of "charitable" apply in this case as applies to the ordinary annual income tax return?


Douglas Charles Abbott: Exactly the same.


Stanley Howard Knowles: A very interesting suggestion has been made by the hon, member for St. John-Albert.


Gordon Benjamin Isnor: I should like the minister to advise me with respect to the interpretation of "institution", such as applying to a school for the blind.


Douglas Charles Abbott: I would say that it would clearly come under it.


Gordon Benjamin Isnor: If that is the case in this particular act, would it also apply as far as the sales tax is concerned? A recent inquiry was made by the Halifax school for the blind, which is one of only three schools of its kind in Canada, as to whether or not it could be exempted from the payment of sales tax in connection with food and supplies for its pupils. No favourable decision has as yet been given. I am hoping that in the light of the statement made today by the minister,

his officials will in future be able to exempt this school from the payment of sales tax.


Douglas Charles Abbott: The Excise Tax Act is the statute under which the sales tax is imposed. Exemption from sales tax depends upon the type of institution to which the material is supplied. If it is an institution approved by the Department of National Health and Welfare it would be entitled to sales tax exemption on materials purchased.


[Stage Direction]
Section agreed to.
Section 4 agreed to.
Bill reported, on division.
Mr. ABBOTT moved the third reading of the bill.
Stanley Howard Knowles: On division.
Motion agreed to on division, bill read the third time and passed.



CUSTOMS TARIFF

[Stage Direction]
Hon. DOUGLAS ABBOTT (Minister of Finance) moved the second reading of Bill No. 333, to amend the customs tariff.
Motion agreed to, bill read the second time, and the house went into committee thereon, Mr. Macdonald (Brantford City) in the chair.
On section 1-Duties of customs schedule A.
Douglas King Hazen: I have not had an opportunity to read this bill and I do not know what it contains. However, if I am in order I should like to ask the minister a question. I understand that a certain automobile of British manufacture is sold in the United States for $1,300, whereas the same car sells in this country for $1,800. How is that difference in price explained? Why do we have to pay so much more for that car in Canada than they do in the United States?


Douglas Charles Abbott: I am not familiar with the particular case to which the hon. member for St. John-Albert has referred. There is a provision in this bill in connection with the rigid requirements of the dumpting duty clauses which enables the relaxation of those clauses where no industry in Canada will be hurt and where the article to be admitted is needed in the Canadian economy. It may be selling in the country of origin for a higher price than the export price to Canada. It may be that the case to which the hon. member has referred is the result of the mandatory provisions of the dumping sections in our customs tariff as they now stand. I could not answer the question offhand, but I will most certainly look into it.

Customs Tariff


Mr. BRACKEN:: Since this bill has just been distributed, is there any particular reason for bringing it forward this afternoon? The hon. member who has just spoken said he had not read the bill, and I think that is true of all hon. members. If there is some particular reason for proceeding with it I shall not object.


Douglas Charles Abbott: There is no particular
reason, and if the committee would prefer I would be glad to hold it over. I would point out that the full content of the bill was printed in the resolution. The reason it was not distributed a bit earlier was the complication in the printing bureau. The schedules are long. With one exception, the amendment I proposed the other night, they are exactly the same schedules as were printed in Hansard on May 18, and printed again in the ways and means resolutions. I am sure that the full text of the bill has been available to hon. members for a couple of weeks. I should like to get ahead with it because we have a heavy schedule of work ahead of us. If I thought there was any possibility of hon. members being taken by surprise I would not insist on it for a moment. If the committee prefers I will still put it over, but I think we can usefully proceed this afternoon, because, as I say, all the material in it has been before us for some little time.


John Thomas Hackett: I have not had an
opportunity of looking at the bill. Is this not the bill concerning which discussion of the resolution was deferred because it purported to change the British preference? On that result it may be well that we should discuss first the Geneva agreements.


Douglas Charles Abbott: No, that is another bill
which was put forward the other day in my absence, and my colleague, the Secretary of State for External Affairs, agreed that it should be allowed to stand. This bill merely implements the budget resolutions with respect to the tariff changes. It is not the bill to which my hon. friend refers.


John Thomas Hackett: What I am anxious to know is this. If we pass this bill, are we not putting an end to the British preference?


Douglas Charles Abbott: No, that is not the case. As a matter of fact, one effect of the amendment which I proposed the other night, when the resolution stage was being considered, maintained the existing tariff rates in regard to this bill, and not the tariff changes proposed under the Geneva agreements. In this bill there is no giving effect to any of the Geneva rates, none whatever.


John Thomas Hackett: No other changes?


Douglas Charles Abbott: The only changes we are proposing here are permanent tariff changes, in so far as any tariff change is permanent.


John Thomas Hackett: I recall that at the time of the Ottawa agreements an arrangement was made whereby the preference should work both ways. Canada was given a preference in the British market ; and, as a consideration for that, the preference that Britain had in our market passed out of the jurisdiction of the governor in council and became a matter of rigid law which could not be changed except by parliament. I notice in this bill that there are several references to the British preference. It would be unfortunate if, after passing this bill we found out that we had done something which we did not wish to do. I suggest to the minister that he defer consideration of this bill.


Douglas Charles Abbott: May I say a word? I am assured by the commissioner of tariffs, who is sitting in front of me, that there is no such change as that suggested by my hon. friend. The Customs Act, which was before the house the other day, is the act which was deferred. This is the Customs Tariff Act. The changes here are simply changes in rates. It is true that there is one other change. We are using the description ''most favoured nation" for "intermediate" because, in fact, that is what it has been called for a number of years. That is the only change. There is no implementation of the Geneva agreements as a result of these amendments to the customs tariff.


John Thomas Hackett: Will the minister look at section 2, which substitutes a new section 4, paragraph (b) of which reads as follows:
Withdraw the benefit of the British preferential tariff, in whole or in part . . .
And so on. I dislike speaking without more opportunity for verifying the accuracy of my recollection, but it is my memory that by the agreements of 1932 we are unable to do exactly what we are purporting to do by this new section 4. paragraph (b). For the reason I suggest to the minister that he afford the committee an opportunity of acquainting itself with the bill.


Douglas Charles Abbott: To clear up that point, may I say that the new section 4 is a repetition of section 4 as it now stands in the customs tariff, but where the words "intermediate tariff" appear in the section we are substituting the words "most favoured nation". That is done throughout the section. It seems simpler to do it in that way than to repeal the section and re-enact it. We could have put in the rather complicated amending technique and say , "By substituting the words 'most favoured nation'
Customs Tariff

for 'intermediate' I give my hon. friend the assurance that that is the only change of substance, if it can be called a change of substance, in the existing section.


Stanley Howard Knowles: I share the concern of the hon. member for Stanstead with respect to the point we came up against the other day in dealing with Bill No. 229. If I thought this bill was asking us to brush off that problem I would support him in asking that consideration of Bill No. 333 be delayed, but I am satisfied that such is not the case. Bill No. 229 has still to come up, and we on this side would like it to wait until the discussion on the Geneva agreements is out of the way. But this bill-Bill No. 333-is clearly just the statutory implementation of the provisions of the budget resolutions with respect to the customs tariff.


Douglas Charles Abbott: That is correct.


Stanley Howard Knowles: There is at least one section in this 'bill with which I do not agree; there may be more, 'but at least it does not take me by surprise. We were given all this information in the course of the discussion on the budget resolutions preceding the customs tariff. I think we would be well advised to go ahead and deal with it today.


Douglas King Hazen: Does this bill reduce the tariff on a good many items?


Douglas Charles Abbott: Quite a number of items, which I outlined in my budget speech, mostly production items.


Douglas King Hazen: Under the Geneva agreements, if we reduce these tariffs we can never put them back again as long as the agreements are in force.


Douglas Charles Abbott: We can put them back up to the rates fixed under the Geneva agreements. I think I answered that the other night. We could not put them above the Geneva agreements. If in some cases here, I cannot answer offhand, we have reduced the rates below those stipulated in the Geneva agreements we can put the rates back up to the levels established under the Geneva agreement rates, assuming we approved them, but we could not go above them.


Douglas King Hazen: Have we reduced some below the rates agreed upon by the Geneva agreements?


Douglas Charles Abbott: I am told that there are a few incidental ones. It was possible to get them down, but they are not very many.
[Mr Abbott.]


Mr. MACDONNELL (Muskoka-Ontario):: Does this mean that if, in fact, the Geneva agreements are not eventually approved we would have taken an action which would limit our future action in respect of them? That is what I took from what the minister said. I took it that we would have limited ourselves.


Douglas Charles Abbott: The action we have taken here does not affect us one way or the other, whether we approve or disapprove the Geneva agreements. If there happened to be tariff changes below the rates stipulated in the Geneva agreements, and we confirmed the Geneva agreements, we could not put them back up again higher than the tariff rates in the Geneva agreements. If the Geneva agreements are not confirmed, our tariff position is exactly the same as it was before the negotiations of the Geneva agreements. We could change our rates up and down as we saw fit.


John Thomas Hackett: I understand that, and I do not wish to restate my position. It does seem to me strange that we should take an attitude on these articles in the tariff before we consider the Geneva agreements. My hon. friend has said that he would have brought forth these reductions in tariff even if there had been no Geneva agreements and that by this legislation he is merely implementing the terms of his budget speech. It is common ground and we should all like to make as much progress as possible, with due respect to the importance of the matters with which we are dealing. But does the minister consider it imperative to proceed with the consideration of this bill before dealing with the Geneva agreements? There is bound to be debate on them; it is just possible that the government, as a result of that debate, might come to a different view with regard to some of the items which are in the bill under discussion. Would it not be wise to discuss and dispose of the Geneva agreements before dealing with this bill?


Douglas Charles Abbott: The tariff changes here are pretty minor as compared with the proposed changes in the Geneva agreements. There are some changes here which could not wait until the Geneva agreements were disposed of. We are not deprived of our freedom of action, and if it is desirable in the interests of Canada to change the tariff rates under the Geneva agreements we can deal with them. For instance, the rate on mining machinery, face-loading machines, belt trough conveyers and so on is fixed at ten per cent, and after considering tariff matters we concluded that it would be desirable to make that free.


Mr. BROOKS:: If you reduce the rates under this bill, are you compelled later on, under the

Income War Tax Act
Geneva agreements, if they are approved, to raise them again?


Douglas Charles Abbott: My hon. friend was not in his place when I answered that question, which was asked by the hon. member for St. John-Albert. I repeat, we have complete freedom of action. Certain types of mining machinery which, under the agreement, carry ten per cent we are putting on the free list. If the time comes when we do not want to continue that, and the mining industry is loaded up, we can go back to the ten per cent rate.


Alfred Johnson Brooks: There is no compulsion?


Douglas Charles Abbott: No. Our freedom is complete. The proposed changes I am making here are desirable, no matter what happens to the Geneva agreements, and for that reason I submit we should proceed with them.


[Stage Direction]
Section agreed to.
Sections 2 to 6 inclusive agreed to.
Bill reported.
James Horace King: When shall the bill be read the third time?


Douglas Charles Abbott: Next sitting.



INCOME WAR TAX ACT

[Stage Direction]
Hon. DOUGLAS ABBOTT (Minister of Finance) moved the second reading of Bill No. 330, to amend the Income War Tax Act.
Mr. T. J. BENTLEY (Swift Current) :: Mr. Speaker, I shall have quite a few words to say on this motion, as the minister no doubt expects. Neither the budget nor this bill provides relief, except in one point which I shall mention, in respect of the taxation of cooperatives or the co-operative set-up.
I point out to the house that a submission was made to the government on behalf of the co-operative congress of Canada in March of this year. I wish to quote from that submission or brief for the benefit of the house and so that I may have it on the record. It is a long brief and I will not quote extensively from it, but there are several paragraphs which in my opinion are worthy of being incorporated in the record. I quote:
This submission is made jointly on behalf of the co-operative union of Canada and le eonseil canadien de la co-operation, and at the specific and unanimous request of the Canadian cooperative congress which wras held in Saskatoon on March 9, 10 and 11, 1948.
The congress which is the annual meeting of the co-operative union of Canada, was attended by representation from all provinces. Official representatives of le eonseil canadien de la cooperation, the French-language national association of co-operatives, were in attendance and gave approval to the resolutions passed by congress.
It also should be emphasized once again that the organizations we represent are neutral as to party politics, racial divisions and religious denominations. Because of this fundamental principle, _ common to both organizations, they are, working together, an effective and increasing influence in promoting national unity in Canada.
That should never be forgotten. Two other sections, in my opinion, should be mentioned at this time. In the submission they point out that co-operatives have been a useful and stabilizing influence during these years of rising living costs, and in that connection they state:
The past year has been one of rising costs of living. The one and one-half million people whom we represent, grouped in more than 4,500 co-operatives, have been working hard in their co-operatives attempting to maintain fair prices, and in particular they have been effecting savings for consumers of low and moderate income groups. It is submitted that they have also been a check on monopolistic practices and have been of general economic benefit to the country as a whole.
Further on, following the same line, they
say:
Two dangers which are very real today are avoided or at least minimized'-on the one hand, private profit monopoly, and on the other, excessive state control.
With these sentiments I agree most heartily, and I wish to go on now to quote from the actual resolution. The resolution consists of ten paragraphs with which I shall deal in turn. Before doing so, however, I should like to put the preamble on record:
Whereas the Minister of Finance stated in the House of Commons in 1947 that if the amendment to the Income War Tax Act did not work out equitably to co-operatives, consideration would be given to amending the act;
And whereas the co-operative movement is satisfied that the present act is impractical and inequitable;
Therefore be it resolved:	That this congress
urge upon the government of the Dominion of Canada to implement the following amendments to the Income War Tax Act and to the proposed revision thereof known as Bill 454. That is to say:
And I start with the first paragraph:
(1) That the 3 per cent provision be removed.
On other occasions I have spoken of this particular provision in the co-operative field of taxation and pointed out that it was unfair and worked a hardship on the co-operatives themselves.
I want to quote again some statistics that are embodied in the brief presented by the co-
Income War Tax Act

operative union, and I am reading from page 5 of their brief:
A year ago we submitted that certain provisions of the present Income War Tax Act were serious hindrances to co-operative enterprises and we dealt at some length with the three per cent feature of the act. It will be recalled that this provides for a minimum income tax on an amount equal to three per cent of capital employed subject to certain deductions. Co-operatives regard this provision as inequitable and it has been the cause of widespread and sustained criticism. It has been suggested to us on various occasions when we asked for the repeal of the three per cent provision that it should be given a fair trial and that we should then report on our experience. We can report that the dissatisfaction has increased and the impracticability of this and other features of the present legislation has been
Net savings
Down to $10,000 or over (10) $10,000 to $7,500 (12)	
7.500	to 5.000 (19)	
5,000 to 2,590 (43)	
2.500	to -0- (89)	
General average (173)	
demonstrated. Statistics have been compiled. These support the contention made a year ago that the three per cent provision discriminated against small co-operatives.
To prove that contention, they have given a table of findings after very careful consideration, and I will quote that table. The table is headed and is well set out. The brief goes on as follows:
Records of 224 co-operatives in the province of Quebec were studied. Of these, 173 showed a net saving. Analysis proved that when minimum taxable income was computed in accordance with the three per cent provision, its ratio to net savings increased as net sayings decreased; in other words it bore more heavily on small co-operatives, as shown in the following table:
per cent of min. tax.
		Min. tax-	income
Average	Average	able income	to netTotal	Net	(3 per cent	sav-Sales	Savings	Clause)	ings$	$	$	per-cent480,940.00	28,062.92	562.51	2-00243,132.13	8,719.77	651.92	7-48224.077.94	6,025.78	490.31	8-14149,679.07	3,625.95	333.17	9-1979,845.8G	1,020.34	164.77	16-15147,502.63	4,314.99	304.37	7-05
That bears out the statement which this brief presents when they said, as I quoted before, that they have given it a fair trial and find it has caused wide-spread and sustained criticism.
In dealing with that particular section I want to point out, as I have stated many times in this house, that the provision to tax cooperatives on three per cent of the capital employed is arbitrary and unjust. In fact it is a deliberate move to prevent any attempt on the part of people to establish non-profit businesses. I think it was the bon. member for Danfort.h (Mr. Harris) who the other day accused the minister of not having intestinal fortitude. I do not make that accusation against him. I think he has plenty of it, with a capital "G". However I think it is his judgment that is at fault. I think it is a lack of wisdom or a lack of wise advice that is causing him to take this unfair action with regard to co-operative associations.
I just want to analyse for a minute or two, if I may, the sources of capital employed in a co-operative association. It is money invested voluntarily by the members in one of three ways. It may be (a) share capital or membership fee; it may be (b) loan capital supplied by the member; or it may be (c) money borrowed from any other money-lender

to carry on the business. With respect to (a) and (b) there is no justification for any government to make a law enforcing a free people to declare a profit on money invested by themselves for the purpose of doing business with themselves. If the investors wish to declare a profit to themselves, that is their affair; and, conversely if they do not, that is also their affair. But this government has arbitrarily forced them to declare a profit. It has done so solely for the purpose, in my opinion, of pacifying its big business friends, the income taxpayers' association and their members.
I want to point this out. The Minister of Agriculture (Mr. Gardiner) of this government and the hon. member for Rosthern (Mr. Tucker), who are not here today, who profess affection for the co-operatives on every occasion on wrhich they can give lip service to them, have failed to intercede on behalf of the co-operatives, even though they claim to espouse their cause. There can be nothing but condemnation for them, this government and the Liberal party if this is not changed. I want to say to my hon. friends over to my right, the Progressive Conservatives, I sincerely hope that the hon. member for Lake Centre (Mr. Diefenbaker) will be able and willing to persuade his party to oppose this type of

Income War Tax Act
law. I hope that some of the Liberal members for Quebec will oppose it when they realize that their French-speaking organization in Quebec has also joined with the other co-operatives in the country in the presentation of this brief.
With regard to money borrowed from other sources-that is, the money which is not provided by the members themselves-it is borrowed on the open market. The price to be paid for it in the form of interest is agreed upon at the time the transaction is made. Therefore it should have no place in the statutes of this country as providing a basis for taxation. The co-operatives pay all the other taxation levied. They pay all their property and service taxes, licence fees and everything else in the localities and provinces in which they are located; but to say deliberately they are profit-making institutions when the people who put their money into them say they are not profit-making institutions, that their profits are distributed among themselves as they save money in the operation of their business; and to pass a law saying they cannot do that in this country, is, in my opinion, a direct negation of democratic procedure and free enterprise.
The next resolution reads:
That co-operatives of the type described in section 4(p) of the Income War Tax Act (section 64 of Bill 454) irrespective of the date of their incorporation, in computing taxable income be permitted to deduct from undistributed surplus limited contingency reserves which are required to be set aside by provincial law; not exceeding 10 per cent of the net earnings in one fiscal year.
That seems to me a reasonable request. The co-operative laws in our province, at least, require certain reserves to be set up for the protection of the membership. It is purely to ensure that the equity and interests of the membership are at all times protected. They do not ask for large reserves. All they ask in this resolution is that up to ten per cent of their earnings may be set aside as non-taxable; and they agree that if the amount of the reserve they desire to set up is larger than the minister feels necessary, any other reserves may be taxed. So I think the request contained in this resolution is reasonable.
Then resolution No. 3:
That the definition of "payment" 'be extended to include the application of patronage dividends on account of loans or shares or other obligations pursuant to by-law where such amounts are authorized to be applied by the by-law.
It should not be necessary to ask for this. Many members of co-operative associations do not have large sums of money at their disposal.
They wish to join the association and partake of what they believe will be the benefits. So they make a commitment; they buy a share, or so many shares, and commit themselves to lend so much capital for the operation of the business. But they cannot pay it all in cash, so they say the balance may be deducted from any patronage dividends payable to them in future as a result of the business they do with their own association. If the by-laws permit this, we consider it only fair that the minister should allow these payments to be made, and that this amount of money should not be taxable in the hands of the co-operative. If the goods bought which created the patronage, however, were used for productive purposes, that would become income in the hands of the individual when he received it.
Resolution No. 4 states:
That in view of the impossibility of estimating taxable income until after the deduction of patronage dividends, co-operatives be not required to pay income tax on the instalment basis.
The instalment payment of taxes may have been a good provision for some. The minister knows, however, or should know-and if he does not I am going to tell him as often as opportunity presents itself, until I am convinced that he does know-that patronage dividends are not declared until the annual meeting. The fiscal year must be completed. Stocktaking must be carried out. There must be an audit of the business. The reports of the stocktaker, the manager and the auditor must come before the board of directors, who, on the basis of those reports, prepare their annual reports to the shareholders. The annual meeting may be called at any time within three months after the end of the fiscal year, depending on when these reports are ready. Of course the directors may recommend certain patronage dividends, but they cannot say those will be paid until the annual meeting has received the reports, analysed them and agreed to or altered the recommendations of the directors. So it is absolutely impossible for the manager of a co-operative association to make an instalment payment on patronage dividends in the middle of the year with any degree of accuracy. Therefore I believe this provision should be included in this bill, or in any other bill the minister may bring in, preferably right away, to get it over with.
Resolution No. 5 reads:
That the term of exemption of new co-operatives be extended from three to five years.
That is not an unreasonable request. It is something the minister should be more than willing to grant. Before the war, three years
Income War Tax Act

was a reasonable length of time. All the best people were not employed; you could find competent people, or get those who could be rapidly trained. Material for building and goods for stocking the shelves were not in short supply, as they are now. As a result, a co-operative could establish itself fairly well in a three-year period. Certainly today, however, it requires at least five years; so I believe the minister should bring in the necessary amendment to give them five years free of tax in order to get themselves established.
Then resolution No. 6:
That new co-operatives, in order to have the benefit of said section 4 (p) (section 64 of Bill 454) be permitted to have np to 10 per cent of its membership persons other than individuals.
We appreciate the concession the minister has made in this respect in the bill now before us. We are very glad of that, because many local groups such as the board of a community hospital, a school board, a municipal council, or other little organizations, may wish to avail themselves as units of the benefits of co-operative enterprises operating in their areas.
Resolution No. 7 states:
That religious and educational institutions be specifically included in the list of corporations which may be members of a tax exempt cooperative credit society.
This is extremely important. Many churches in our province, of various denominations, give a great deal of time and study to the operation of credit unions and societies. Having certain financial obligations of their own, they not only set an example by helping to form these associations but wish to patronize them as units. I do not think the minister should have difficulty in finding it in his heart and in his mind to embody this resolution in the income tax laws.
Then resolution No. 8 reads:
That associations incorporated or registered under provincial co-operative legislation, or incorporated as a co-operative under dominion authority for the purposes of providing medical and hospital services, telephone services, distribution of electric power, be exempt from income taxes.
Resolution No. 9 is very similar:
That associations organized under provincial statute for providing co-operative housing ibe exempt from income tax.
Everyone knows we need an extension of hospital services. Only a few days ago the Prime Minister (Mr. Mackenzie King) gave an indication of what the federal government was prepared to do in connection with this and other social services, in co-operation with the provinces. Telephone service is necessary 
in this country now. The way business is done today, the way affairs are carried on, a telephone is no longer a luxury. The supply of electric power is expanding as rapidly as material, power sources and labour can be found. The demand is there. Many local associations like to do these things on a co-operative basis.
The same is true of housing. My goodness, we have had so much discussion of housing in this chamber that no one can be unaware of the great need for it. Many people believe, as they have a right to believe, whether or not others agree with them, that a co-operative housing enterprise can do certain things better than they are being done by other agencies in this country. And if we call this a free country, with the right of free association, free enterprise and everything else, there should be no hesitation on the part of the government in granting this request.
The last resolution, No. 10, states:
That the section dealing with credit unions be clarified to permit societies not incorporated or organized under provincial co-operative statute, but which are registered thereunder or subject thereto, to be members of co-operative credit societies without endangering the tax-free position of the latter.
That is a simple request. There may be an agricultural society registered in a locality, but not incorporated under any act of incorporation. There may be several small local bodies which have local community interests they are trying to promote and develop for the good of the community in which they operate. They may wish to make use of credit unions and credit societies. Yet at the present time they may not become members as units of that credit union or credit society because they endanger the tax structure of the society of which they propose to become members.
I have spoken as briefly as I could, but I do not want it to be felt that, because I have been brief, I am not sincere in what I have said. I have been as emphatic as I could be. If we do not get some relief we shall have to continue this fight both in and out of the house until we get it. Everything asked for in this resolution is justifiable. It hurts no one in Canada, although it may hurt the feelings of those people who think they have the God-given right to run this country entirely by means of profit-making enterprises. If some of us feel that we want to get together and operate our affairs without making profit for anyone, but that we wish to pay decent wages to our personnel, no man in this country should come along and say.

Income War Tax Act
You are going to be a profit-making institution first, and a patronage dividend1 cooperative distribution institution afterwards. So far as we can see, what we ask for is nothing but fair, if we believe in our democratic, social and economic institutions. I should like to see the minister accept these amendments at the present time, and bring every one of them forward.


Mr. ANTHONY HLYNKA (Vegreville):: Mr. Speaker, I wish to take only a few moments of the time of the house to place before the minister a certain problem arising in the Leduc area of Alberta, and in other areas where drilling for oil is taking place.
As the minister is aware, under the Income War Tax Act anyone receiving a royalty from the drilling of oil has been subject to high income tax, whereas those who sell their lands to oil companies for lump sums are not taxed because they are considered to have accumulated capital gain in the process. This definitely works against those who have sold their land on a royalty basis.
Representations have been made to me to place this matter before the minister so that relief may be granted to those farmers who may have been ill-advised in selling their land on a royalty basis. In considering this problem it may be well to keep in mind that farmers who may receive royalties for one or two years may not receive any more at the end of that time. If their present income is taxed away from them they will not be able to provide for their families in the future. I would suggest that the minister fix a certain sum for each child-perhaps $25,000, or something of that kind-at which point a tax could be applied. This would bring the procedure more in line with present-day conditions in connection with people who sell their lands to oil companies for lump sums.
I did not know under what section of the bill this matter could be discussed properly, but I was anxious that the minister give the matter serious attention. I would direct the minister's attention particularly to sections 3 and 32 of the act. I am sure if this matter is given consideration many people around Leduc and Lloydminster would be most grateful.
Mr. GORDON B. ISNOR (Halifax): Mr. Speaker, I should like to deal briefly with what has been said by the hon. member for Swift Current (Mr. Bentley). He, along with other members of the house, received the resolutions passed by the Canadian Co-operative Union of Canada, and he has read them into the record in detail. Then followed the arguments as advanced by the union in respect of the various recommendations.
5849-308J
The hon. member was scarcely correct in his explanation of the method followed. If he was, then I would say it was the same practice as carried on by every incorporated company doing business. The same thing applies to the individual under the system of private enterprise, which he has condemned. It is because of my keen interest in private enterprise that I propose to answer the hon. member briefly. I would begin by asking him if, in a country such as Canada, he feels satisfied that we should give extra benefits to any particular class doing business. He states that profit-sharing dividends could not possibly be sent out other than at the close of 3'ear's business, and gives as his reason that it is impossible to estimate profits.
They must be in business for profit, the same as are people who operate on the system of free enterprise.


Thomas John Bentley: I never used the word "profit". I referred to the surplus amount.


Gordon Benjamin Isnor: That is the same thing. Where do you get your reserve? You get it from the profits you make during the year.


Thomas John Bentley: We call them savings, because they are our own.


Gordon Benjamin Isnor: The hon. member may call
them what he likes. That is immaterial. Every hon. member realizes that when you set up reserves from a co-operative, or anything else, they must come from the year's business operations. You are setting aside that surplus, if you wish to call it that-I call it a profit-and you wish to transfer it into a reserve. Then, the hon. member says to the government, "You must not charge income tax on that surplus"-or, as I say, on the profits. In my view that is a clear case of discrimination.
In addition, the hon. member says that a co-operative should not be obliged to do what every taxpayer in business is asked to do* namely, forward an estimate of his profits for the ensuing year. He does that in advance, and makes his payment in advance. Because of that estimated profit, the companies declare quarterly or half-yearly dividends, and pay these amounts out in advance. If at the end of the year they are unable to pay the stipulated amount, the situation is corrected; in the same way the co-operatives would have to do it, if they followed that procedure.
I say what applies to one person doing business under our system should apply to all.


Mr. BLACKMORE:: They are not in the
same class at all.


Gordon Benjamin Isnor: The hon. member for Lethbridge is an exceptionally fine talker. I am
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sure he will listen to me with the same attention I always exercise when he speaks with respect to these matters. I am making the point that if one group of people doing business are obliged to pay income tax out of profits or surplus, then all should do so. There should be fair competition. The group represented by the hon. member for Swift Current is always advocating freedom to carry on business, and I am asking for the same freedom with respect to all business and the manner in which we should pay our taxes.


John Horne Blackmore: I should like to have the hon. member's opinion on this. Supposing he had an income of $2,000 upon which he would have to pay income tax. Then, supposing he wished to buy $500 worth of goods, but by particularly good management he was able to obtain them for only $400, thereby saving $100. Would he favour paying additional income tax on the $100 along with the tax on his $2,000 income?


Gordon Benjamin Isnor: As well as I could follow the hon. member in his remarks I would say that if a businessman or a co-operative under free enterprise invested $4,000, $5,000, or $6,000 in stock and made a profit, after operating expenses were deducted, the remainder should be subject to income tax.


Thomas John Bentley: The hon. member did not catch the question. He does not understand anything about it, so he cannot answer.


Gordon Benjamin Isnor: The hon. member for Swift Current states that I did not get the question. I said I could not follow the hon. member's rambling remarks.


Thomas John Bentley: The question was concise, it was not rambling.


Gordon Benjamin Isnor: I have given a concrete case. It is quite possible that the hon. member for Swift Current cannot follow the clear example I have given.


Thomas John Bentley: I can follow it quite clearly. I hope the hon. member sends a copy of his speech to Walter Tucker and Jimmy Gardiner.


Douglas Charles Abbott: I hope you send a copy of yours to Tommy Douglas.


Thomas John Bentley: I will.


Gordon Benjamin Isnor: I am always glad to send out my speeches, because I have been complimented on the fact that they contain common sense.


Stanley Howard Knowles: This is a matter of dollars and cents.


Gordon Benjamin Isnor: Let me say for the benefit of the hon. member for Swift Current that there are a number of co-operatives or credit unions in Nova Scotia and they are headed by exceptionally able men. The fact of the matter is that the gentleman who signed the brief sent to the hon. member was Professor A. B. MacDonald, who recently came from Nova Scotia, as the hon. member probably knows. Professor MacDonald was head of the movement in that particular part of Canada. As I say, he is an able man and he understands this, but that does not prevent me from expressing what I consider to be an honest opinion in regard to discrimination between the two systems, the one advocated by the hon. member for Swift Current and the other by myself.
He has stated that free enterprise does not pay decent salaries because the men in it want to make millionaires of themselves and so on. He said that in his usual flippant manner, but I want to say that I believe the average retailer operating under free enterprise pays as good salaries, if not better-I am inclined to think they are better-than those paid under any other system.
I have often made the statement that my employees cannot be coaxed away from me because I pay the highest salaries in my particular line of business. I do not think remarks about those salaries enter into this picture at all. It is a matter of operating expenses which are deducted from the gross profits. That gives you the net profit at the end of the year, and the government expects that out of that net profit you pay a fair share of the cost of keeping up this country. I think that is a fair statement in regard to the position.
The hon. member contends that all should not be taxed alike. He says that if a certain group gather themselves together and form an association they should be exempt from all taxes, not just for the first three years as at present but for another two years. He says that they should have five years in which to establish themselves in business without having to pay taxes. But in the meantime their competitors are paying toward the upkeep of our country. That is the position, and I leave it to the hon. member to satisfy himself as to whether that is a fair stand to take.
I think I have dealt with paragraph 4. Under that provision the merchant must make a quarterly report, and then he must make a complete return at the end of his fiscal year and pay his income tax on that return.
At six o'clock the house took recess.

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After Recess
The house resumed at eight o'clock.


Gordon Benjamin Isnor: Mr. Speaker, when the house rose at six o'clock I was replying briefly to the remarks made by the hon. member for Swift Current in his representations for certain changes with regard to co-operative taxation. I had dealt with various suggestions advanced by the hon. member, and I propose now to touch on the recommendation that the term of exemption be extended from three years to five years. I wish to say that the government went exceptionally far in its original bill in permitting the extension for a period of three years, quite apart from the further extension of five years.
May I briefly illustrate what I consider the unfair position in carrying on a business in Canada at the present time. Mr. A may be doing business under what we term the free enterprise system as we have it at the present time. He buys $100,000 worth of stock and marks it up 25 per cent, which gives him a gross profit of $25,000. From that is deducted his operating expenses of $15,000, which gives him a net profit of $10,000. On the basis of our taxation today he pays into the exchequer 30 per cent, or $3,000, permitting him either to invest in his business or to set aside the balance of $7,000. That is the situation of one merchant, Mr. A.
Mr. B, who is just down the street in the same community, is operating under a cooperative scheme. He is just starting out, or the co-operatives may have come along and said, We will buy your business and put you in as manager. Under that arrangement he buys $100,000 worth of stock and marks its up 25 per cent and makes his 125,000. His operating expenses will be the same as those of the other merchant, giving him the same net profit as the other merchant. Under the present government co-operative taxation scheme he is permitted to put that whole reserve of $10,000 aside. That goes on for two, three, four or five years, and the only charge against it is the three per cent on the increased capital.
To be fair to both men, my contention is that they should enjoy exactly the same system of taxation. My whole case is built on that. Instead of giving the new co-operative store the advantage of three years' exemption, I say it should be put on the same footing as the merchant who operates his own store. Instead of that, the hon. member for Swift Current asks for a further extension from three years to five years. Naturally, on general principles, I am opposed to any such further extension.
In closing, I wish to repeat what I said before. I have no objections to co-operatives forming themselves into groups to purchase for the benefit of their members. If they can effect a saving for their members, that is fine; but I do say that they should carry on business in the same way as the ordinary merchant and not create unfair competition.
May I enlarge on the reserves? In a short time they would have sufficient funds in their reserves to put in a new attractive store front, rearrange their lighting and make a very much more attractive store than the other merchant. If that were done it would be only natural for customers, whether members of the co-operative union in that particular group, or non-members, whom they are permitted to serve, to patronize them, and they will increase their business to such an extent that finally they will drive the other man out of business, although he may be giving just as good service, but because of the increased benefits which co-operatives have they would be in a very much favoured position.
I say to the Minister of Finance (Mr. Abbott) that is my objection to any extension of the exemption from three to five years.


Mr. H. W. HERRIDGE (Kootenay West):: Briefly I want to support the arguments presented by the hon. member for Swift Current (Mr. Bentley) and the hon. member for Lethbridge (Mr. Blackmore), and to reply for a moment or two to the senior hon. member for Halifax (Mr. Isnor) who, I know, has presented sincerely his argument from his point of view. His argument and his point of view are conditioned by traditional business practice and by his failure to appreciate the social dynamic of the co-operative movement in this country which is moving toward that new social order so widely advertised by his party during the last election.
In my constituency I have one of the largest co-operative developments, based on population, of any in Canada. We have consumer cooperatives, service co-operatives and producer co-operatives. Consumer co-operatives, Mr. Speaker, are simply groups of people, a mutual association of people, who have joined together in order to purchase goods at cost. After the services are provided for, the profit that the hon. member refers to which is not a profit; but simply an overcharge, is returned to members in the form of patronage dividends. These people are shareholders. The owners and the customers are almost identical. They are not in business to make a profit. They are simply a mutual association of people organized to purchase goods at cost.
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With regard to service co-operatives, in my constituency we have a number of co-operatives that have been organized to provide transportation services, to which thousands of men belong. Fewer than ten years ago these men were paying for transportation to work in the plants of the Consolidated Mining and Smelting Company nearly twice as much as they pay today. They decided to join together to reduce costs. They are mutual associations of working people, joined together to provide transportation at cost, and therefore any patronage dividends which may be obtained at the end of the year is simply a return of an overcharge retained till then in order to make for the.sound operation of the business.
With respect to the producer co-operatives, exactly the same situation applies. Groups of fruit growers joined together for the better *marketing of their products, not with the idea of making a profit, but for the more efficient marketing of the things that they have to sell. In their ease what is actually termed a dividend, is the balance due on previous underpayments. That is the main point. A co-operative is not formed for profit. It is a mutual association for the advantage of those concerned, who are actually doing business with themselves.
Then there is the other aspect of the question. Not only is there an advantage to individuals in savings and service costs, such as in transportation, and more efficient marketing in producer co-operatives, but there are tremendous social services that are rendered by co-operatives in Canada. In my own constituency the co-operative movement has been of great service to the district as a whole. It has done a great deal to improve the morale of the working people in that district.
This association, this working together with a common objective, not with the idea of profit or gain from the ordinary business angle, but with the idea of co-operating for the common good, which characterizes these consumer service co-operatives and producer co-operatives is rendering a great service to the community at large. This is true not only in the economic field but in the field of education as well. All true co-operatives live up to the principles of the association and set aside a certain amount of reserves for educational purposes. I maintain, therefore, that, apart from the opposition economic argument, which I fully appreciate, as presented by the senior hon. member for Halifax, the social desirability of co-operatives justifies the government, even from the free-enterprise point of view, in removing this three per cent tax on reserves, and thereby giving the cooperatives every opportunity to function, not

as strictly business organizations but as mutual associations operating to the advantage of the community as a whole.
Mr. JOHN T. HACKETT (Stanstead): I wish to ask the minister a few questions-


Douglas Charles Abbott: Do that in committee. This is second reading.


John Thomas Hackett: I beg your pardon. I thought we were in committee. I wish to make it clear that I am opposed to income taxes at this very high rate. I think it is detrimental in many ways and unfair.
During the war, men were giving up their lives; people generally gave up their comfort and possessions, and it behooved those who were not in the fighting line to make every sacrifice to ensure victory. The war is over, and while we still labour under a heavy burden of taxation, it is not well that that burden should be continued at the present rates.
The minister has found it convenient to produce a table which gives the impression that the income tax in this country, in the lower brackets at any rate, is less burdensome than it is in the United States. The question which I wished to ask the minister was whether or not there are any states in the union which have a higher income tax than the state of New York. I have not his facilities for obtaining information, but I am informed that no state has a higher income tax than the state of New York and that many states have a much lower income tax than that state. Even so, even though the income tax of the state of New York which he has added to the federal tax to arrive at an American total were the average income tax of all the states of the union, I doubt very much whether the comparison would be complete and entirely reliable.
We have a range of taxation, a spread of taxation which is not equalled in the United States. We have taxed almost every commodity which it is possible to tax, and I doubt very much whether the United States shows an equally broad range of taxation.
The effect of taxation is far-reaching indeed. In some cases it stifles initiative. It tends to reduce the energy and interest of the individual and it also tends to practices which possibly are legal but- not commendable.
I have a pronounced feeling that the continuation of high taxation after the end of the war is but a phase of a malady which afflicts the present administration. They have administered the affairs of everybody so successfully, if one listens to their own account of their administration, that they feel it is almost their duty to continue to devote

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their paternal inclinations to the welfare of the Canadian public at large.
They cannot give back to the people the administration of their own affairs, because they do not consider that the people are quite capable of administering their own affairs.
I have noticed that the minister stated at one point in his speech, as reported at page 4056 of Hansard, that it is the policy of the government to revert to free enterprise as soon as possible. The words to which I refer are these:
The policy of the government has been to return to a free system and to moderate the inevitable increases in prices at this time by whatever fiscal and other methods are possible under such a system. Neither this government nor this parliament has either the political mandate or the constitutional power to maintain indefinitely in peace time a strait-jacket of controls over prices, production and distribution. Our whole economy has been organized to operate on a price basis by private incentives and private initiatives, not by centralized direction.
Each year the minister, whether it is the hon. gentleman who now holds that high office or his predecessor, has made statements of this kind. But, as the late A1 Smith used to say, what does the record show? The record shows that we are still in a strait-jacket. In the month of December, 1945, we enacted legislation which continued controls; and I include taxation as among the most burdensome of controls. It takes taxation to manipulate, operate and feed controls. We passed an act which made it possible to continue the controls in operation. A little later, in 1946, we passed another act called the transitional powers act. Then, in 1947, we passed another act or continuation of the act. Again in 1948, we passed another act. When I say "we", I mean parliament. The House of Commons and the Senate passed those acts. We are still a long way from a free economy and free enterprise. What is the result? The result is high taxes.
We all remember very well-at least I do- that at the first session there was a good deal of boasting done because we had emerged from the war with relatively low prices; that is, it was said they were low compared with those that applied at the end of the first great war. I do not think the government can say much today about the success of its attempt in this field. Prices are higher than they have ever been and there is little indication that they will recede. This is a result of the managed economy; and again, managed economy depends for its life and vitality upon high taxation. The government has tried about everything. The rental of houses in which we live is under control; the money which we
need to travel is under control; and the things we wish to purchase are under control; the ambit of our activity is restricted and restrained by what I will call, without any disrespect, this mania of the government to manage the affairs of the individual. Everything has been tried but the old-fashioned remedy of letting people mind their own business and affairs. If the government, in its search for some way out of the difficult general situation in which we find ourselves-and we are short of dollars; we are short of commodities; we are short of freedom-


James Horace King: Order. I am sorry to interrupt the hon. gentleman, but I must call his attention to the fact that we are on the second reading of a bill entitled "An Act to amend the Income War Tax Act." I believe that he should confine his remarks to the principle of the bill which is before the house.


John Thomas Hackett: Thank you for your suggestion, Mr. Speaker. I was merely seeking, in the broad field which I was covering, to show how universal is the malady which attaches to the practice, a shining example of which is the burdensome income tax which is now under discussion.
I had hoped that the government would reduce the income tax for the people in the lower brackets and for the people in the higher brackets. The people in the higher brackets are not suffering because they have not enough to eat, enough with which to clothe themselves or because they are not able to house themselves ; but the general business of the country is suffering through the restrictions that are put upon the normal activities of normal people by burdensome and almost punitive taxation. I had hoped that, in this third budget which has been introduced after the war, some relief would be afforded to all those who suffer under all these taxes, and especially under the income tax act.


John Horne Blackmore: Taxes in the country, Mr. Speaker, are dismaying our people. In moving around among the people in the city of Ottawa-and I refer to ordinary people like streetcar conductors and other men with about the same standard of living-I find that they are completely dismayed at the situation which confronts them by reason not only of the income taxes which are being levied but also by the property taxes and the sales taxes levied on foods and other things which they must have. Therefore they feel that they are threatened with being crushed under the burden of taxation. May I tell the minister that I realize, as I believe he does, that he is getting the stage
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all set for communism when he gets the people in despair; and he has the people throughout this country in despair.


Mr. HANSELL:: Preparing for revolt.


John Horne Blackmore: He is absolutely driving the people till they simply do not see how they will make ends meet at all. As has been said many times in this house, present prices are completely disheartening, and many kinds of goods are of poor quality. They do not last. Only this morning I was thinking of the matter of shoes. When I was a small boy if my parents were willing to forgo high-class attractiveness in shoes and buy what we might call stogies, they could get a pair of shoes that would stand up for a good many months rough wear on the part of a youngster. You cannot get shoes like that now. You get what apparently are stogies, and in about a month you find your child has gone through a lot of paper and his feet are on the ground. That is a serious matter which must be kept in mind.
Incomes generally are too low. That has been stated a good many times; but in this chamber we must keep constantly before us, and the minister in particular must keep before him, what must be the point of view of the average mind, the average industrial worker, or white-collar w'orker, as he contemplates the economic situation. We are railing against communism, as though we had an idea that merely railing against a thing would do away with it. Meanwhile we are adopting exactly the policies which must have influenced the people of Czechoslovakia, for example, when they permitted the iron curtain to descend upon them. Those people found themselves confronted with a situation which confounded them, and they said, "Nothing could be any worse than this. Let us give communism a try".


John Lambert Gibson: They tried the socialists first, did they not?


John Horne Blackmore: I suppose they did. Certainly they tried something. With the lack of information prevailing throughout the dominion today, people are just as likely to try communism as anything else, because, after all, they just do not know enough about economics to be able to tell one ism from another.
In addition, there is a great deal of worry about the coming of a depression. I find that the ordinary person with a little money invested or a little property is almost paralysed with anxiety. He asks, "Why is it we must have these depressions? What is the matter with the people in charge? They wring their hands and shrug their silly shoulders and act

as though depressions were a sort of act of God and they had nothing in the world to do with them. Well, what is the good of a government if it cannot control depressions? What is a government for if it is not to control depressions, and what is it doing to try to control depressions?" These are the questions that are in the minds of ordinary men.
All these things, Mr. Speaker, have an important bearing upon the measure now before us, which proposes to levy such a heavy rate of income tax on those in the low-income brackets. May I earnestly submit to the minister that there simply must be a change. We just cannot go on as we have been going on. Other conditions are changing. There must be a change in our way of doing things. If the minister can find out what that change should be and propose it, we will listen to his proposal. If he cannot find a suitable change, then I submit that he should be listening to us. And if he does not have a change there will be either communism or chaos; the result will be the same in either case.
In my judgment a change in our financial system will remove the bottleneck which is obstructing a solution of our problem. I have served on committees at various times during the last few years. I am deeply impressed with the feeling of impotence and utter helplessness that seems to prevail among the members of committees. It is as though they were trying to make headway against a hurricane or a giant flood or something of that sort.
Our present financial system provides abundantly for the creation of money to lend for production. Our financial system refuses to create money to spend for distribution. I point out to the minister that in my judgment this is the fundamental fallacy in our financial system today.
Let me repeat that, not only for the benefit of the minister but also for the benefit of the men who are advising the minister. I sometimes get the impression that the minister has so many problems confronting him that he is unable to give these matters the thought and study he would like to give them, and that as a result he has to depend upon the men who are advising him. Then we must talk to the men advising the minister, and they are the ones to whom I am talking now; not only to the minister but, through him, to the men behind him all the way down from the deputy minister to those members of the finance department who are in the galleries here tonight. I am warning them that if they do not make this country's financial system work, they will be to blame. They just cannot tinker around with the sort of financial system we have had during the last century and a half. We are in

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a world of change. It is their business to find out the kind of change that is necessary in our financial system to meet changed conditions, and to make recommendations to the minister in accordance with their findings.
May I point out again that our financial system readily creates money to create debt, but that it refuses to create money to retire debt. The result is that debt is accumulating throughout the country in every direction; not only nationally, provincially and municipally, but on the part of corporations and other organizations. This kind of thing obviously must not be permitted to go on. Surely our generation has not been brought into being to be crushed by debtl Surely the mere fact that we have had to go through a number of wars ought not to condemn us forever to debt or to taxation that will destroy us in order to pay off that debt. We should be able to pay off debt with goods; and if this country can produce enough goods it should be able to pay off its debts. I give that to the members of the finance department who are advising the minister. If you have not a system under which the production of goods and services in Canada will pay off Canada's debt, then you have a financial system that needs serious revamping.


John Lambert Gibson: The hon. gentleman should address the Chair.


John Horne Blackmore: Very good; I am
addressing Mr. Speaker. In my judgment our financial system must be geared to create money adequately to distribute goods and services, as well as to produce them. It must be geared to produce money adequately, gradually to liquidate our debt in a sound way, not by taxing the people into complete despair but by changing the goods-producing power of the people into money. Therefore, Mr. Speaker, seconded by the hon. member for Peace River (Mr. Low), I move this amendment:
That this bill be not now read a second time but that this house do resolve that the federal government should consider the advisability of setting up a royal commission on banking and currency to ascertain to what extent it might be practicable to finance the affairs of Canada by means other than taxation or debt.
I have no desire to detain the house unduly, but I wish to lay down simply and straightforwardly to the house and the minister nine reasons why I believe it is appropriate that we should propose this amendment, that the house should vote for it and that the government should act upon it.
In the first place, the soundness of the principle of creating money debt-free is recognized by the best informed economic thinkers in the world today.
May I, as one illustration, cite the Right Hon. Reginald McKenna, chairman of the Midland Bank in Britain, in a speech he delivered on January 30, 1936, to be found in an article in the London Times of that date, at oage 23. In that article he states:
Additional currency however can now be furnished by the authorities, if they choose to exercise their powers, without reference to the Central Bank's holding of gold. Thus the 19th century which brought into general use a means of payment hitherto scarcely known outside London, brought also the machinery whereby it could be subjected to intelligent control.
That statement, coming from a responsible man like Reginald McKenna, constitutes a challenge to every man who has anything to do with the financial affairs of the Dominion of Canada or any other state in the world, and it constitutes a challenge to members of this House of Commons.
May I submit, following that quotation, that our age must adopt this new.means of payment, or perish. It must adopt also the machinery for controlling that new means of payment.
There are other outstanding men whose opinions must be respected. I have in mind, for instance Doctor William A. Shaw. We do not hear a great deal in Canada about Dr. Shaw, and since he made the remarks I am going to quote, perhaps it is easy to understand why.
One thing which I find quite astonishing is that the governments of Canada and the United States, and of various other members of the commonwealth, seem deliberately to ignore the great vital modern truths concerning money. Let us see who Doctor Shaw is. He is editor of "The Calendar of Treasury' Records" at His Majesty's public records office; author of the "History of Currency"; author of "English Monetary Writers"; author of "Currency, Credit and The Exchanges during the Great War", published in 1926; "The Coming Reaction: by Legislator"; "Theory and Principles of Central Banking", published in 1930.
I would submit that if a man was able to write as many books as that without falling from grace entirely, and still have a reputation, it might be worthwhile to give some attention to what he has said.
We have also Vincent Cartwright Vickers writing in "Economic Tribulation", which I cited and quoted from on May 24, as recorded at page 4336 of Hansard. Then there is Professor Paul H. Douglas, Professor of Economics of the University of Chicago, from
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whose work entitled "Controlling Depressions", published in 1935, I quoted on that same date, and it is recorded on the same page of Hansard.
State money has been used successfully, as I argued on May 24, and do not propose to re-argue at this time. The Guernsey island undoubtedly used state money, with success, as I developed on May 24, and as reported at page 4337 of Hansard. Canada, in world war I used the state money principle successfully. Around 1917 she printed 126 million and spent it without increasing the debt or taxation, or the interest load of her people.
How is it we have done nothing of that kind during the recent war? The principle worked well at the time of the first world war. Those who wish to look into the matter and get authority on it will be able to find it in the proceedings of the royal commission of 1933 on banking and currency for Canada. They will find the transaction reported particularly at page 22, paragraph 47. They will find some very interesting material concerning money in that document immediately preceding paragraph 47.
The Bradbury's in England were a form of state money. Doctor William A. Shaw has directed his attention to a discussion of the Bradbury's in several of his books, particularly in "The Theory and Principles of Central Banking", published in 1930, and "Currency, Credit and the Exchanges", published in 1926. Here are some of the things Doctor William A. Shaw says about the Bradbury's; but before quoting that, may I say the Bradbury was nothing but a treasury note. It was printed by His Majesty's treasury, just as the Minister of Finance of Canada might print a $5 bill. The Bradbury's went into circulation in Great Britain and replaced the specie money there, thus enabling Britain to finance a terrific effort to win a war.
Why should people disregard the discovery made in those Bradbury's? This, I repeat, is what Doctor Shaw says at page 72 of the "Theory and Principles of Central Banking":
By some process of evolution as yet unexplained Great Britain during the years 1945 and 1916, discovered the true principles of state issue of paper money, and benefited! unspeakably by it all through the great war. But so little did she understand what she had done that after 13 years of the practice of an automatic self-regulating issue of full price state paper money she surrendered the right once more to a monopoly bank in 1928. A fresh conception of finance and a different type of currency doctrine must emerge before the evil of this retrograde step can be removed.
And at page 75 he says:
Similarly -with regard to the treasury note issue, whilst it was in existence. There was no reason why the individual joint-stock banks

should not have gone directly to the inland revenue office for the purchase of supplies of such notes as they required, or for the surrendering of such notes as they no longer required. It would have been quite easy for the separate banks to keep each a separate account at the inland revenue offices for the purpose, and if this had been done the automatic nature of the treasury note issue would have been much more widely understood. It was only as a matter of convenience and economy of working that the treasury decided that the inland revenue should have only one account, namely with the Bank of England, and that the Bank of England should act as the wholesale house for the sale of currency to the retail banks, and for the repurchase of currency from them of such currency as they wished to surrender. So long as the treasury note was in existence, the Bank of England was not an issuer of that currency, any more than it was an issuer of gold coins when our currency consisted of gold. It was only a distributor of the one as of the other. But when the treasury note -was suppressed by the amalgamation operation of 1928 the Bank of England became once more the issuer as well as the distributor of the paper money of the nation, and the two quite separate functions of issuing and distributing currency became once again confused.
I realize that hon. members will find it somewhat difficult to follow those passages, but they have a profound meaning right now for us in this parliament and for our government. May I go on?
We create money to lend for the production of goods and services. How freely we create that- money may be learned by reference to a book in our own library called "The Canadian Banking System" by James Holladay. I refer hon. members to chapter 10, page 140. I do not quote that, because hon. members may turn to the book themselves.
What we are told there is that the Canadian banking system can take one dollar of gold and on that one dollar of gold create four $1 bills. The chartered banks can take the four $1 bills and create $20 of credit expansion for each $1 bill. This means that on the basis of $1 in gold we can create $84 of currency and credit in the Dominion of Canada. This house passed that law giving that power to the banks and showing that we have no concern at all, no fear at all of the danger of creating too much money so long as the money is created to lend for production.
Why should we be in such mortal terror- we and the members of the finance department *

of creating some money to spend for consumption, for distributing goods? Why should we consider it completely sound to create money to lend; yet consider it completely unsound to create money with which to distribute? We must create money to spend for distributing goods.

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Every proposal that we increase wage rates in Canada fills the Minister of Finance, every member of the finance department and practically every leading individual in Canada with concern. Their thought is that the minute we raise wages, we increase prices. So we try to keep wages down. The result is that we keep wages so low that it is impossible for the people to buy the share of our goods which they ought to be able to buy and which we know they ought to be able to buy, right from the Minister of Finance down. We know it is absolutely absurd to have people working in this Dominion of Canada, in coal mines, steel factories and other important basic industries for a wage of $2,500 a year and less when we are able to produce goods to permit them to buy $3,500 worth a year if we only knew how to give them the wages with which to buy. But we do not know how to give them those wages, because we now pay increases in wages through the industry which thereby increases the cost of production and the prices of things go up.
I was able to see through that when I was sixteen years old. There must be something really wrong with the mentality of t'he members of the finance department if they cannot see it at the age of maturity which they have reached.


John Lambert Gibson: They have never grown up.


John Horne Blackmore: I suggest to the minister that he should send out a questionnaire to the members of his department, and if he finds that they do not have the capacity to see through that situation and understand how serious it is, and find a real remedy for it, that he hire two or three first-rate economists, not from the London school of economics, to try to show them how to face realities realistically.


Douglas Charles Abbott: From the Social Credit party.


John Horne Blackmore: That is exactly right; the minister is learning. I tell the minister here and now that I challenge him personally to debate the fundamental principles of social credit any time he wants to do so in this house or anywhere else in Canada. I will defy him to disprove a single fundamental principle of social credit. He just cannot do it.


Douglas Charles Abbott: Too hard to understand.


John Horne Blackmore: That is right. The minister had better hire somebody who can teach him and not be stupid enough to imagine that, because he does not understand it, it cannot be understood.


James Horace King: I would suggest that the hon. member address himself to the Chair, and I do not think he should use the word "stupid" when referring to any other hon. member.


John Horne Blackmore: I will withdraw the word "stupid" with apologies.


Douglas Charles Abbott: Not necessary at all.


John Horne Blackmore: I am glad the minister acknowledges it.
I go on with the second main reason why this amendment which I have moved is worthy of the most careful consideration of members of the house. The second main reason is that the principle which determines the amount of money that can be safely issued and employed is now pretty accurately understood. That principle is: the amount of money that can be safely issued is the amount necessary to effect the exchanges which require to be effected in the state. May I quote eminent authorities to support that statement? This is a new principle, having been discovered within the last twenty years. It is laid down definitely in William A. Shaw's work, "Currency, Credit and the Exchanges," published in i926, which I quote from page 66 as follows:
The episode of the British treasury note experiment transcends in importance any other event in the economic experience of the modern world.
I pause there while the solemnity of those words sinks in:
On the practical side it has emancipated us from the grip of an imperfect gold currency system and of a costly and cruel hank rate system. In comparison with such an achievement the erection of the federal reserve system in the United States is halting and imperfect. But the treasury note episode has not merely this practical value. It has an equally significant import in the domain of theory. By its means we have evolved the true theory of money, and in the light of this theory our currency and hanking legislation need no longer be the process of blindfold groping and experimenting which it has been in the past.
This theory of money rests upon one basic principle, viz., that goods purchase goods. In this axiom the word "goods" is used for brevity's sake as comprehending all economic goods or services which, as possessing economic value, possess thereby exchange value.
These words will repay going over about three times a day for a month or two until their importance sinks right into the thinking of the people of Canada, particularly those in authority in these troubled times.
Again on page 71 of that book he uses the following words:
By such a chain of reasoning I think it will be clear that a community's purchasing power
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is the totality of its exchangeable goods, and that in the case of a paper currency the community's currency is simply a function and not a value or an addition to total values.
Once more I do not stop to discuss the meaning of that passage. I turn it over to the men charged with responsibility who are in the Department of Finance of the Dominion of Canada and in the departments of finance of other nations. They are now trembling at the prospect of depression on one side and at the prospect of war on the other, and have no constructive suggestion whatsoever to deal with either one of the two problems. Yet they cavalierly try to laugh off any suggestion of change in the monetary system with some such unbecoming remark as the minister made a moment ago about its being too deep for him to understand. Well, if babes and sucklings like me can understand it, surely the minister ought to be able to understand it and those high-class professionals he has in the Department of Finance.
The third reason supporting my amendment is: Gold backing has been proved utterly unnecessary in our day. That is shown in the Right Hon. Reginald McKenna's statement which I read a moment ago. It is shown in the statement [DOT]which I have read from Doctor William A. Shaw concerning the Bradbury experiment. It is established by Canada's world war II experience. May I pause a minute? The minister can tell me whether I am wrong and the members of his department can tell me. Was not every dollar of gold in Canada taken from behind the Canadian financial structure during the war and placed behind the foreign exchange equalization fund? In other words, did not the Dominion of Canada run its whole financial structure all through the perilous time of the war without a single dollar of gold behind its financial structure as far as the domestic economy was concerned? And if they did it in the war, will they tell me why they cannot do it in peace? These questions have to be answered. They must be asked by responsible men and they must be answered by responsible men. There is only one answer, and that is in favour of the proposals of social credit, state money.
Now, Canada's Bank Act, according to a quotation to which I referred from "The Canadian Banking System" by James Holladay, shows the unimportance of gold. When a nation can take one dollar of gold and expand S84 of currency and credit for use in the nation, gold has become an extremely insignificant matter as far as domestic affairs are concerned in that nation. Then again, the suspension of the gold redemption clause by order in council on April 10, 1933, which made it illegal to have gold in the possession of the ordinary individual,

proved that there was no gold backing necessary for Canadian money; that its value did not depend on gold backing. We will find an account of that suspension in the Report of the Royal Commission on Banking and Currency in Canada, 1933, at page 22.
Again, it has been and will be argued that the introduction of state money will cause inflation. I do not propose to go into details concerning that matter, because I went into details in my speech on May 24; but let me point out to the minister, as the fourth reason supporting my proposal, that today the nature and the cause and the means of the prevention of inflation are now well understood. This last war finished giving us the information on that matter, and showed beyond a doubt that inflation does not depend on money so much as it does on goods. What I said concerning that matter will be found in the 1948 Hansard at pages 4332 and 4333.
The fifth reason is that successful price control is an established fact. This was demonstrated clearly during world war II in Britain, in the United States and in Canada. It has been said several times that, whereas price control was possible during war, it is impossible during peace, but it has never been proved. Will anyone pretend to me that if the United States, Canada and Great Britain together had decided to use the measures of control of prices which they used during the war, they could not have succeeded in peacetime, especially if they had liberated and stimulated the productive capacities in these nations? I will grant that the necessities of sending very great quantities of food and other goods to western Europe have had a considerable effect, but we could have overcome the ill effects of that sacrifice of goods had we only had wisdom enough to stimulate the productive capacities of this nation, of the United States and of other nations, instead of discouraging our farmers until they disposed of their milk cows, their swine, their beef cattle and their sheep. Whose fault was it that they disposed of all these animals? It was the fault of the governments of Canada and the United States. Surely measures could have been taken to avoid that loss of production which we have had. I say that successful price control is an established fact.
A sixth reason in supporting my proposal is:	Devices are now understood for withdrawing surplus money, redundant credit, as Social Crediters call it, from circulation when it is no longer needed in the economy. Two devices are sufficient; one is the taxation device, which is used rather too much today; the other is the just price mechanism as proposed by social credit, into which I shall not

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go at the present time. Let it be understood that the device is known and understood. It will not be advocated by the London school of economics. That unfortunate organization was never designed to cause men to face facts. It was designed to turn men socialists in the world and prepare the way for communism; to think in terms of scarcity and restriction everywhere instead of abundance and freedom.
Since the six statements I have laid down as reasons are true, we must agree that, as a seventh reason, there can be therefore no conceivable excuse for disregarding longer the systematic scientific use of national money, created by the state and employed by the state.
The eighth reason is: There is a grave reason why we need to be developing national money on the American continent, in Canada and the United States particularly, at the present moment. The need for national money is greater than it has ever been before, for two main reasons. In Canada and the United States we are faced with a problem which thus far our governments have never even attempted to solve, namely the problem of internal distribution. See what the situation was in the United States. I wish we had more detailed facts concerning Canada's situation.


Louis-René Beaudoin: Order. May I remind the hon. member that his time has expired. Has the hon. member the unanimous consent of the house to continue?


Some hon. MEMBERS:: Agreed.


John Horne Blackmore: I thank you,
Mr. Speaker, and hon. members. In 1940, according to Chester Bowles in a very fine, illuminating book called "Tomorrow Without Fear", which hon. members will find in the House of Commons library, the lower one-third of the United States people received only nine per cent of the total national income of $76 billion: see page 68. In 1940 the second third of United States people received only 24 per cent of the national income: see page 69. In 1940 the top third received the balance of 67 per cent of the national income: see page 71.
Socialists will say, "Well, let us just swat that upper standard and take the money from those people and distribute it among the people in the lower income bracket". But immediately they will be faced with the problem that the moment they remove the motivation for production, they will encounter production difficulties; they had better face that. There is no use in the C.C.F. indulging
in mere fancies until the C.C.F. get into power in Canada and then find themselves faced with grim realities which will cause them to go back on all the promises which they have held out to the people.
The income in the lowest third in the United States, in 1940, was only $527 per family: see page 68. The income of the middle third was $1,311: see page 69. The income of the top third was $3,722: see page 71.
The obvious fact therefore is that the United States had not learned how to distribute goods within their own country. If they knew how to use debt-free money judiciously and to put it into the hands of purchasers in the lower income brackets, giving those people sufficient money to allow them to secure the standard of living to which United States citizens were entitled, they would be able to solve their internal distribution problem.
We have a serious distribution problem internationally; as soon as I have mentioned the details in that connection, I shall close. The fundamental problem which confronts the world at the present time, as every hon. member from the Minister of Finance outward knows, is a shortage of United States dollars. It is thought that we shall be able to solve the difficulty of the shortage of United States dollars by entering into some such agreement as the Geneva trade treaty. Let us not delude ourselves.
There was a shortage of United States dollars during the twenties and that shortage hadi to be made up by United States foreign' lending. Billions a year were lent by the United States to the nations of Europe to enable them to buy United States goods until the people of the United States discovered that it was not a sound method. That is the clearest kind of evidence that there was a shortage of United States dollars during the twenties.
We shall never get the world on a Sound economic basis internationally until men learn how to overcome the United States dollar difficulty. If the United States were using the debt-free money system, national money, it is conceivable that she could render available to the nations of the world the United States dollars which she herself needs to make available to them, and Canada could do something similar. If we do not have that system, then there is no use in trying to get the other nations of the world into a position where they can buy our goods, because they will only go into debt, and we shall tax our people and borrow them into debt to buy the goods to lend or give to other people, which unquestionably is an unsound proposal. I will say no more at present concerning this matter.
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Let me emphasize in closing, however, that these two great -fundamental problems which confront our generation

internal distribution and international distribution-simply defy solution on any other basis than on the basis of state money debt-free.
The ninth -and final reason is the urgent need of distributing food among less fortunate peoples. We hear a great deal now about the need of increasing the production of foodstuffs. Sir John Boyd Orr and others speak in anxious tones and terms about that need. I ask hon. members this question. Even if we did increase food production tremendously ih Canada, producing twice as much as we require, would that guarantee that the needy people of India, Siam, Java, Malay, China and Japan would get that food? If the United States increased their production of food, under the present system, with- orthodox ways of looking at things, it would be impossible for the producer's of the -food to get it into the hands of the needy, because the needy -would not have anything with which to pay for it.
We have to face this fact. While Sir John Boyd Orr and other gentlemen talk about converting us to the idea of increasing the production of food, let us be at work discovering means of distributing the food after it is produced-. I submit that no proposal has come to my attention anywhere which will solve that problem except the proposal of state money debt-free.
Therefore, Mr. Speaker, for these nine reasons I do not hesitate for a moment to propose the amendment which I brought -forward -at the beginning of my remarks, that we set up a royal commission to examine into the possibility of financing the affairs of Canada by means other than taxation and debt.
Mr. SOLON E. LOW (Peace River): Mr. Speaker, as the seconder of the motion moved by my colleague the hon. member for Lethbridge (Mr. Blackmore), I have no doubt I shall be expected to say something. At the outset, I should like to assure the Minister of Finance (Mr. Abbott) that it is not with any intention of holding up the passage of the bill that I speak. I do not often intrude upon the house. As a matter of fact, I think I have held my peace perhaps a little too much this year. I believe, -however, there is something of great importance which I should bring to the attention of hon. members in connection with the principle of income tax.
The bill that is now before us is designed to render the collection of income tax much more efficient on the part of the department, but it holds out no hope whatever of any easement of

the burden of taxation. I merely wanted to mention to the minister, for whom, as I have said time and again, I have the highest regard, a number of things which he and his colleagues are doing to the people of Canada and to Canada generally through the taxation policies they are following, more particularly now the income tax.
I realize, of course, that the minister is in a tough spot, a very tough spot. Under present circumstances he has to exact taxes in order to finance Canada. Evidently he and his colleague the Minister of National Revenue (Mr. McCann) think they must raise more taxes than they at present need in the government so as to reduce inflationary pressure from more money in the pockets of the consumers than there are goods to buy. The process is like the cat trying to catch its tail. The thing goes round and round and up and up. High taxation inevitably slows up production; slowing up of production inevitably increases prices, and increasing prices inevitably depress the value of wages and salaries earned by the people, so that they have a terrible time trying to catch up, just as the cat has in trying to catch its tail.
Perhaps the ministers do not agree with that; perhaps they do. If not, I suggest that they go among the people or send out reliable experts among them to make a survey of the opinions of farmers, big and little, businessmen large and small, fishermen, workers of all kinds. I will guarantee that the ministers will find that all producers agree that the present level of taxation is about the most effective deterrent to maximum production that could be devised. I have talked to these people and I know that is their opinion.
Perhaps my opinion does not matter, but there are opinions that do matter, and I wish to quote briefly one or two little things mentioned by James F. Lincoln in his book, just recently published, "Lincoln's Incentive System". If some hon. members have not read it I would highly commend it to them.
James F. Lincoln is the president and owner of one of the greatest electrical welding machinery manufacturing concerns in the world, if not the greatest. He ought to know something about incentive and something about taxation, and the picture he presents is very similar to the picture that any good businessman or industrialist in the country would present. On page 39 he makes this statement:
The attitude of our government has been largely the regimentation of its people in all matters in which it took action. It has also more recently by taxation, which is steeply punitive to effort and ability, not only removed the

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incentive to develop but made the penalty so great that no one would dare develop to his limit.
I have constantly claimed in this house that the government had not begun to explore the possibilities for increased production. This extract which I have read from "Lincoln's Incentive System" bears out that contention. He said, and I will read it again:
It has also more recently by taxation, which is steeply punitive to effort and ability, not only removed the incentive to develop but made the penalty so great that no one would dare develop to his limit.
Then again on page 71 Lincoln said this:
There must be a new approach to this matter of taxation. We must see it in its true relationship. Taxes are the greatest of all reducers of purchasing power. As a matter of fact, at this time taxes are largely the reason for much of the misunderstanding on wages between the industrial worker and his employer. The worker sees his standard of living going down. His only reaction is that his employer is not paying him enough since he cannot live as he did before. He is working as hard but he is not enjoying the same kind of living.
Those are words that ought to sober a person in a consideration of this whole situation. Again on page 73 Lincoln says:
In a free competitive system, government will have one function and one only, namely, to guarantee the freedom of the individual from foreign and internal aggression. That is the primary reason for the formation of government. If it were not for this need, governments as -we know them would not exist. The greatest problem that all peoples have had from the beginning of recorded history is to hold government to its primary function.
And continuing, he said:
History shows that the greatest threat to mankind's freedom has been government. It has always been man's most dangerous foe. People do not usually lose their freedom to a foreign aggressor but to their own government. Confiscatory taxes are always the tool used.
Those things ought to be given most earnest consideration when we think in terms of taxation, particularly of income taxes and the hidden taxes. That is the reasoned opinion of one authority in the United States where the weight of taxation is not as great as it is in Canada, in spite of some opinions that have been expressed to the contrary. My own experience in talking with people in all pursuits of life verifies what I have already said, namely, that high taxation levels definitely discourage production and unduly stretch out the time of danger of inflation.
On other occasions, Mr. Speaker, I have tried to indicate what I have found, by talking amongst the people, is the inevitable result of the continuation of high levels of income
tax and others. I could enumerate a good many evils of high taxation such as we have in Canada. Amongst them would be such things as the discouragement of production, which I have already mentioned, and the elimination of private enterprise. Private enterprises simply cannot continue to operate if the product of their own labour is consistently and constantly taken over by government, leaving them with no reserves to meet exigencies as they arise. That is'one of the great reasons that socialism is growing, because the state becomes powerful and leaves the individuals weak. I could speak of economic slavery, of the impoverishment of the people and a good many other results of high taxation if I had the time. However I have not the time in which to deal with them now.
I want to repeat what I have said on other occasions by way of emphasizing another evil which is rarely considered as a result of heavy taxation. I refer to the softening of the moral fibre of the people as the growing power of taxation in the hands of a state transforms a social government, as it was in the beginning years ago, into an anti-social state. Those things should be thought over carefully.
In my opinion here are the steps by which that transformation takes place. In the first place, as more and more of the individual's production is taken by the state in the form of taxes, the less he has for his own enjoyment and the greater effort he must make to maintain himself or to better his circumstances. The government for many years have operated on a steadily-increasing tax scale. This has resulted mainly from the fact that they have persisted in following what my colleague the hon. member for Lethbridge so well described to the house tonight as an outworn and thoroughly discredited policy of finance. As long as we persist in following such a policy, then taxation taken as a percentage of the gross national income will continue to go up.
I can remember the day in my own life when taxes in Canada represented less than seven per cent of the total national income. Today they represent somewhere between twenty-five and thirty per cent of it. The tendency is always upward. If the amount of taxes that we were taking from the people continued to rise, and at the same time our gross national production continued to rise in as great proportion or greater, I would not be so much worried about the weight of the burden of taxation. But when the proportion of national production that is taken by taxation by our government continues to increase, then I become concerned.
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The second step is this. As ever-increasing proportions of the production of a person's own efforts are taken from him in taxes, the more the dignity of the individual disintegrates under the hammering of want and the fear of want. Anybody knows that is only sound reasoning, because so many of our people are forced through heavy taxation to live on the borderline of poverty or below it, not able to accumulate any reserve to meet the crises in their lives. On the other hand, the power of the state in the process, grows greater in proportion to the wealth it absorbs through the power of taxation. As it grows in power, history has shown that it has become less concerned about the individual welfare of the human resources that it governs.
In the third place, as economic power is transferred by taxation from the individual to the state, the individual often is pressed by circumstances such as illness in the family, crop failure or some other tragic circumstance, into bargaining for some of what was properly his by right of production. In the bargaining process, when he goes to the government for help he is often forced to surrender what has been considered for many years his inalienable rights, and he has to bargain with these for a hand-out from the government, because his independence is gone. The hand-out might be in the form of relief-I have seen it happen- it might be in the form of unemployment insurance; it might be a place on the public payroll or a subsidy of one kind or another. Whatever it might be, Mr. Speaker, the uneven bargain demonstrates that the non-productive state has gained economic strength and great political power through the taxing authority, while the productive individuals in the state have become merely supplicants with caps in hand, and with no spirit left. All too often that is the net result. Everywhere moral disintegration has inevitably followed upon the heels of continued high taxation. I think we saw the ultimate of this disintegration of the individual in Germany, in Russia, in Italy, in Japan, where the power of taxing made a shambles of all the property rights of the people. For further evidence we might go back in history and take a look at what happened just before the fall of the mighty Roman empire sixteen hundred years ago.
The power to tax is the power to destroy human dignity. Unless that power is used wisely and with restraint, it will destroy the moral fibre of the people. We have been witnessing that very process in this country for some time now. Never before in our history has the government of Canada been so nearly

an all-powerful state. I suggest, Mr. Speaker, that this represents the government; an allpowerful state. Never before has such a large portion of the wealth produced by individual Canadians been confiscated by the state. What seems to me ominous about the whole matter is that there is a growing public acceptance of the doctrine that has been preached into our people, that high state taxation is an instrument for social good. I suppose we have the Marxists and socialists, or at any rate those who call themselves such, to thank for that.
I said a moment ago that the most pressing reason why the present government thinks it has to continue this high rate of income tax is that it has created a bad situation for itself by its persistence^ following a thoroughly discredited financial policy. I am prepared, as my colleague the hon. member for Lethbridge demonstrated he is prepared, to debate that proposal in detail, namely, that the government of Canada has persisted in following a thoroughly discredited financial policy in this country. I do not think anyone here would wish me to go into the matter tonight, but I plead with the minister as a fair-minded man, and with his colleagues: come out in debate at an early date and show us, if you can, where we are at fault. I do not want to go on year after year advocating and propagating a philosophy or policy that is not right. If we are attempting to propagate a fallacy, let us know about it. We can only know about it if some of the wise men of this country come out and attempt to show us that we are wrong. I am prepared to debate this whole policy. I shall put the ministers right on their own ground by saying the greatest difficulty we face in Canada today arises from the fact that they persist in using, year after year, a thoroughly discredited financial policy; and in giving the Canadian people government, year after year, under it.
If the minister wishes us to support that statement with evidence we are prepared to do so. All we ask is that he come out and meet us; that he and his colleagues come to grips with this situation at the earliest possible moment. Let us settle it once and for all. Take a look backward to the 1930's. The financial policy in effect then was essentially the same policy as we are attempting to follow today. What did it cause? Trade stagnation; unemployment; bread lines; unhappiness; trade war, and general economic paralysis, not only here but in every country that attempted to follow the same policy. Is it reasonable to suppose, Mr. Speaker, that the same system which gave us all those things in the thirties can possibly give us prosperity, peace, business stability and widespread happiness now that

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the war is over? It is high time we began to ask ourselves these questions and to seek the answers.
I wonder if we can forget the huge debts and the heavy taxes, of a confiscatory nature, that Canadians have to pay under our debt system of finance. And I ask another question: Where is the freedom of the people? I would say a financial system or policy that is worth a hoot ought to guarantee the freedom of the people; but there can be no freedom when the people are forced to come to the government with their caps in their hands, and then to bargain away their freedoms and liberties for a handout, as I have seen them do. Every country in the world that has continued its worship of the debt dollar has been forced to impose very heavy income taxes, such as those being provided in the bill now before us. That has been because of the fundamental and crippling fault in the policy and system itself.
The financial structure we have today has failed for many years to distribute to the people the goods they can produce. My colleague, the hon. member for Lethbridge, mentioned Chester Bowles, a man of some authority, held in high regard to certain circles, and I should like to emphasize one thing Chester Bowles said. He spoke of the income of the lowest third of the people in the United States; and I quote him only because there is no similar work in Canada. We need one, and in times past I have advocated that we have something of the kind of survey done by Mr. Bowles, but it has not been done. According to Chester Bowles, the income of the lowest third of the people in the United States in 1940, which in the aggregate was nine per cent of the total, was an average of $527. That was in 1940, a war year. Can anyone say that the financial policy being followed by the government of the United States, which is essentially tfie policy followed by the government of Canada, was doing a good job of distribution in getting to the lowest third of the people in that country an average of only $527 a year? That would not give them protective foods such as citrus fruits, milk, eggs, butter and meat. Even the middle third of the people, according to the charts on page 69 of this book, had an average income of only $1,311. How could they possibly live and give their children anything like a decent opportunity for education, cultural growth and moral standing with an income of that kind? The average income in the top third was $3,722. That is getting more like it.
I mention these matters merely because here we have evidence that the financial policies being followed both in Canada and in the
United States have failed. Therefore it seems most pressing that we effect a change. When I say it is time to effect a change I should like for a moment to examine two or three statements made in this remarkable little document which was mentioned by the hon. member for Lethbridge, and which, as a matter of fact, I read on his recommendation in the first place. It is called "The United States in the World Economy," and is written by eminent authorities in the department of commerce of the United States. It is issued under the name of Jesse H. Jones, secretary of commerce and O. P. Hopkins, of the bureau of foreign and domestic commerce; and was written by Hal B. Lary, with a foreword by Wayne Taylor, under-secretary of commerce.
As I read this book all the way through.
I found time after time these men emphasizing one important point, and I wish to refer to just one or two places where this particular point is emphasized. At page VI of the introduction to the book, these men have this to say:
The functioning of the American economy as a whole presents some of the most baffling problems. On the solution of these problems, through maintenance of a high and reasonably stable level of economic activity in the United States, the interests of this country and of other countries are most clearly and indisputably united.
Then again at page 200 in a final word, they have this to say:
Whatever may be the other requirements, stability in international economic relations generally and in foreign exchange rates in particular cannot be assured1 solely or chiefly through technical financial arrangements-
Such as Bretton Woods, and the like.

but must be firmly based on a vigorously and regularly functioning domestic economy.
That is about the fifteenth time I have noticed the same emphatic statement throughout this work. What does it mean? It means simply this; it is a warning by these men who issued the work in 1944 that there could be no hope whatever for a world peace, and for that ideal condition of world trade, unless and until the United States itself began to bring order into its own internal economy and make it work smoothly. The same can be said of Canada also.
And, Mr. Speaker, other experts such as Beardsley Ruml. Professor C. E. Ayres and others have pointed out that the only way in which the internal American economy can be made to work smoothly is to see to it that the financial system is changed, that the financial policy is altered so that the
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full production of the United States can be distributed in their own land to all of the people.
I was interested in an editorial which appeared not long ago-as a matter of fact, on May 5-in the Montreal Star, criticizing my colleague the hon. member for Lethbridge. The editorial is headed "Discredited Critic". I wish to refer to only one thing the Montreal Star did say. It said:
We shouldn't like our American friends to think that when John Blackmore gets up in the House of Commons and criticizes the United States he speaks for any substantial body of Canadian opinion. He doesn't. Mr. Blackmore is one of the small Social Credit group whose ideas revolve around a thoroughly discredited theory of funny money.
That represents the expression of a mischievous editorial writer who likes to stick his nose into other people's business and make categorical statements with little possibility of ever having to be called to account. He is one of the type of petrified pip-squeaks-if that is a parliamentary expression-who know nothing whatever about economics, but who are so inflated with the idea that they are qualified to mould public opinion on any subject whatever, that they rush in at every opportunity to make the world think they know something.
This fellow was no exception. I do not know why this editorial writer did light into my hon. friend the member for Lethbridge, but I am sure it was not because anything the hon. member for Lethbridge had said was disproved; because all the hon. member for Lethbridge said on this particular occasion he quoted from authorities in the United States-and from this book, "The United States in the World Economy."
But the Montreal Star comes along and says that the hon. member is a thoroughly discredited critic, and that it does not want people in the United States to think that what the hon. member has said represents a large body of Canadian thought.
I just wish to say this to the editorial writer of the Montreal Star, that I should like to have him produce the evidence that Social Credit is thoroughly discredited. I will be prepared to have him conduct in his own paper a thorough discussion of social credit principles.
I will guarantee, Mr. Speaker, that he will demonstrate he has never read them and does not know anything about them. And I shall answer him here from the floor of the House of Commons, or in his own paper.
I am reminded of one of the proverbs that says this:	"Who condemns ignorance is
twice accursed." That often is the condition of mind exhibited by these so-called author-

ities who sit in armchairs in newspaper offices and attempt to mould public opinion.
Whoever did discredit the social credit philosophy? I would like to find him. I would like him to trot out his stuff. And if he has not discredited it, then I would like him to keep quiet. But for my own peace of mind I would like to see one real, honest effort made; one that gets down to details and comes to grips with the true facts; one which takes consideration of scientific argument, logic and reason, in an effort to show to the world that social credit principles are discredited. But until that does happen no editorial writer has a right to claim that this philosophy which we advocate is in any way discredited. I say to this editorial writer that, by making sweeping categorical statements in ignorance, he is thoroughly discredited.
In closing, let me say to the minister that I have a full appreciation of what he is up against. As long as he is operating under the present financial policy he cannot do very much more than he is doing. I know that. I know, too, that he is a bright boy; and I know, further, that if he would take just a little while and examine the amazing array of evidence we have already placed upon the record here, I am satisfied he would soon come to. a conclusion. Then, if he would step into the House of Commons and give us his honest decision, his honest opinion as a result of having examined those things and of having weighed them carefully, I would be a very happy man.
If I am found wrong, I will be the first to admit to the Minister of Finance that I was wrong. But I must be shown; and until I am shown, I shall continue to advocate the policy in which I believe. I favour the amendment moved by my colleague, the hon. member for Lethbridge, because I feel sure a careful, honest investigation by a royal commission will reveal that there is a better way of financing our government than by continued debt and high taxation.


James MacKerras Macdonnell: Mr. Speaker, I addressed the house at some length on the resolution stage of the bill; therefore I have only one or two observations I wish to make at this time.
In the first place, I wish to recall to the mind of the minister that when previously I spoke on the resolution I suggested to him that there were certain reductions and reliefs which he might give. I pointed out that I did believe that budgeting for a certain amount of surplus was sound budgeting, because I believe in the repayment of debt. I suggested, however, that the amount which he contemplated was an unnecessarily large amount; I pointed out that

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in the year just past his actuality had exceeded his estimate by about $460 million; and while I did not suggest there would be any such overrun this time, I did suggest that I thought it was extremely likely that he had budgeted very conservative, and, further, that the surplus of nearly $500 million which the minister estimated for the forthcoming year was unnecessarily high.
I do not propose to traverse that ground again, but I merely wish to point out one thing. The minister indicated that there were two reasons for this surplus: one the repayment of debt and the other perhaps exceptional defence measures. I do not accept the second one as a proper reason, but I do accept the first, subject, as I said, to the proper amount.
But I wish to make one point. We are now budgeting for a surplus of some $500 million. I think I am correct in saying that the hands of the minister and of the government are not tied in any way, shape or form as to what they shall do with it. 1 think that was the reason why, when the budget speech was completed, there was apparent unanimity in this house that it indicated clearly one thing, namely, that there would be no election before there was another session of parliament.
We all know why that was. Everyone felt that this was a means of keeping a bonanza, so to speak, available for the electors and to be disclosed to them before the next election. I do not think it can be said that our electors will suppose that this is an act of benevolence on the part of the government, nor will they believe that this is the government's money. Of course they will not believe anything of the kind; nevertheless there is an advantage psychologically in a government being in a position to suggest or to bring forward large taxation reductions and other popular measures just before an election.
Therefore I suggest that it is improper that this large surplus should be left lying about loose, so to speak, when there is no tie-in in any way as to how it is to be used. If the minister refuses to accept my proposals that there should be substantial reductions in taxation at the present time, first, through an increase of the exemptions in the lower income brackets and, second, by way of tax assistance to smaller companies, then there should be some definite and binding indication as to where this money will be spent, so that the government shall not have a fund of $500 million which can be used for what we shall call election purposes.


Douglas King Hazen: Mr. Speaker, the Income War Tax Act has been amended nineteen times since 1927, and if this bill passes it will be the twentieth amendment of the act. That makes for cumbersome legislation, and a revision is badly needed. Three years ago the then Minister of Finance (Mr. Usley) said in his budget speech that a revision of the act was overdue. Last year we were presented with Bill No. 454, to amend the Income War Tax Act.
When that bill was up for first reading, I think it was July 12, 1947, the minister said that it was not intended to proceed with the bill at that session, that it was being introduced for study and suggestions. He said that the main part of the act was cluttered up-I think those were his words-with provisions dealing with exceptional cases which had been gathered together.
He went on to say that, under the law, the minister had discretion in forty-three cases, but in the bill presented last year there were to be only two cases where the minister would have discretion. An income tax appeal board was to be set up to deal with matters in dispute, and that board would be a court of record. He intimated that the bill would come before us this year and said that it would be dated back to January 1, 1948.
For some reason or another that bill has not come before us. I notice in the bill now before us, as well as in Bill No. 454 presented to us last year, there is no mention of increased penalties to be imposed upon those people who are not able to pay their taxes on time, nor is there any provision about people who have reached the age of sixty-five years. I think we should have some explanation from the minister.


Douglas Charles Abbott: That bill will be introduced tomorrow. The resolution has been on the order paper for two or three days.


Douglas King Hazen: That is why I rose.


Douglas Charles Abbott: I announced in my budget speech that a tremendous amount of work has been done on the bill. We have had representations from all the associations. The bill is ready and, as a matter of fact, I was hoping to introduce it tomorrow at the latest.


John Horne Blackmore: With the unanimous consent of the house I would be glad to withdraw my amendment in order to save the time that would be needed to take a vote.


James Horace King: Has the hon. member unanimous consent?


Some hon. MEMBERS:: Agreed.
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Amendment (Mr. Blackmore) withdrawn.


[Stage Direction]
Motion agreed to, bill read the second time and the house went into committee thereon, Mr. Mutch in the chair.
On section 1-Co-operatives.
John Thomas Hackett: Can the minister state if the income tax of the state of New York, which he added to the federal tax in order to compare the United States income tax with the Canadian income tax, is the highest of all state taxes? If not, what states have higher income taxes than the state of New York, and what states have lower income taxes?


Douglas Charles Abbott: I do not have the information with me, but I will bring it down when the other bill is brought in. The official who was in charge of that is not with me this evening. My understanding is that it is a fair average of the state income taxes in the United States. That is my information. I am relying on that.


John Thomas Hackett: I thought the matter was of such grave importance, and the assertion was made with such care and precision, that it would be well to find out how many states in the union have a higher income tax than New York, and how many states have a lower income tax than New York.


Douglas Charles Abbott: I shall be very glad to get that information. I am introducing, I hope tomorrow, the Income Tax Act which we were discussing a moment ago with the hon. member for St. John-Albert, and I shall have that information available and perhaps give it then rather than hold up the committee this evening. I shall have to get the information and give it to the committee when we have the big bill before us, if that meets with my hon. friend's wishes.


John Thomas Hackett: I do not want to delay the bill, but I am going to suggest to the minister that he pick out some clauses which will stand and on which I can get the information. If that is agreeable, we can go on with it.


Douglas Charles Abbott: I had rather hoped that we would be able to conclude consideration of these clauses this evening. If we cannot, of course we cannot; but I shall certainly get the information for my hon. friend and put it on Hansard, I hope within the next day or two, which I take it is what he wants. He is seeking information. He has no other purpose in his questioning.


John Thomas Hackett: I do not say that I am actually seeking for information alone. I am

under the impression that we have an income tax that is higher than the income tax in the United States. I wish to investigate that question rather closely, because I am one of those who feel that the country at large is suffering from an over-burden of taxation, and if it develops that our income taxation is higher than the income taxation in the United States it would be an added reason for a reduction.
I would call to the attention of the minister that a great point was made of the fact that our taxation was lower than the taxation in the United States.


Douglas Charles Abbott: Only in certain brackets.


John Thomas Hackett: I concede that. I do not want to take in more territory than is necessary, but it was a great source of astonishment to me, and when I am astonished I like to find out whether my feeling is based on fact or whether it is just an impression that I had built up out of inadequate information. It would be a matter of great interest to the public at large to know whether income taxation in this country is lower than it is in the United States.
I am going to make this suggestion to the minister. I suggest that he let the section stand; that he do his utmost to get the information tonight, and if we get to the end of the bill and the information is not here I might wait until tomorrow.


Douglas Charles Abbott: Perhaps we might continue to deal with this bill section by section, and when we get toward the end of it we shall see how we are getting along. I have given my assurance to my hon. friend and to the committee that I will get the information just as promptly as I can. I think I should be able to have it by tomorrow. I will give it to the house; if not on this bill, on the main income tax bill for which I have a resolution on the order paper. I will give it just as fully as I can get it.


John Thomas Hackett: I wish to make it quite clear that the information will come down in such form as can be readily used in debate.


Douglas Charles Abbott: Yes. The main income tax bill will have to go through the regular stages, resolution, first reading, second reading and so on. I hope it may go to the banking and commerce committee, and then come back here for consideration in committee. The information which I shall give my hon. friend will be available for debate in the house.


[Stage Direction]
Section agreed to.

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On section 2-Exemption for taxpayer of age sixty-five.
James MacKerras Macdonnell: I want to raise a point which will be very familiar to everyone in the committee. Here again we run into our old friend the question of regulation by order in council which appears in subsection 2. I wish the minister would tell us something about the regulations and the way in which this has been managed up to now. Is there a well recognized procedure, or is the thing just dealt with more or less by guess and by God when each point arises?


Douglas Charles Abbott: The language here has always been:
Such amount as the governor in council may, by regulation, allow . . .
It used to be by discretion. The amendment proposed here is to cover the case of taxes on income imposed by municipalities.


James MacKerras Macdonnell: I appreciate that.


Douglas Charles Abbott: My hon. friend appreciates the reason why this amendment is being made. Our agreement is that we will extend it not only to taxes imposed by provinces but also to such taxes imposed by municipalities. As I understand it, the regulations have recently been published. Work has been proceeding on them for some time, and it is part of the practice which is being followed in the new Income Tax Act, of doing certain things which require some flexibility by regulation rather than by ministerial discretion. The regulations are made and published in the Canada GazeMe. They are available to the general public and, of course, being regulations they may be amended from time to time. Broadly speaking, that is the reason for the use of regulations as distinct from ministerial discretion. When we come to the main Income Tax Act my hon. friend will see the number of cases where we provide that certain things may be done by regulation. In almost all these cases some relief is being given to the taxpayer.
I may say that one of the suggestions we have had from the accountants' association and others is that we may have to return to this much maligned system of discretion. We are trying out now the rather more formal method of regulation passed by order in council and published; but I have quite a lot of reservations myself, that in the effective administration of the Income Tax Act we may at some time have to return to some
of these discretions. However I want that to be proved by the process of trial and error, and to show that all discretions are not as bad as they have been painted. That is the reasoning here.


John Thomas Hackett: I want to say to the minister that, while I intend to keep my powder dry, I have not believed that all discretions were irretrievably and hopelessly bad. Somebody somewhere sometime has to make a decision, and with all deference to other systems and to other officials in other countries, such limited experience as I have had in at least two other countries has made me not too prone to criticize my own. For my own satisfaction I should, like the minister to tell me just what the difference is between leaving the discretion with the minister, which meant the commissioner, or deputy minister, or the executive head, and the governor in council, because, after all, the governor in council, the cabinet, will not go into these questions. They are going to deal with them very much as a matter of course, and it seems to me that we are getting back to the discretion of the departmental head. I am not terribly disturbed by that, but I am asking the minister if there is any difference between Tweedledum and Tweedledee. That is, between the decision of the governor in council and of the minister.


Douglas Charles Abbott: The difference is this, that the ministerial discretion was exercised as discretion in individual cases, and it might, perhaps it did, vary from case to case. Where it is provided, as in this section, that a regulation is to be adopted by the governor in council, there must be formal government action, an order in council passed approving the regulation, and the regulation is published and is available to everyone. That is the difference and I think it is a very real one. In some cases it may prove to be cumbersome. In some cases there might be ministerial discretion which could be exercised as pure discretion and vary from case to case. These have been pretty well eliminated from the new act. That is what I find some difficulty in.


John Thomas Hackett: Suppose the governor in council passed a regulation-I will not attempt to define the type of case-wherein the minister should have complete discretion. Where would we land then?


Douglas Charles Abbott: I do not know whether the power to delegate would exist there. It would be a delegation to someone else of powers specifically conferred by the statute on the governor in council, and offhand I would ques-
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tion whether such delegation could be exercised. I think it would have to be spelled out in the regulation. The particular one here relates to taxes which the provinces may continue to levy, although they entered into an agreement with the dominion.


John Lambert Gibson: Can the minister tell me what provinces now impose income tax on logging and mining companies?


Douglas Charles Abbott: Ontario and Quebec. I am informed that they have such taxes. British Columbia has a tax, and while I do not know what it is, I am told that it used to be an alternative to income tax and is a tax on gross output. My hon. friend is probably familiar with that.


John Lambert Gibson: It must be a royalty.


Douglas Charles Abbott: I am not personally familiar with the tax. I am relying on information given me.


John Lambert Gibson: Do Ontario and Quebec impose a special tax on mining and logging companies apart from royalties?


Douglas Charles Abbott: Mining only. In the case of logging companies, I suppose the taxes are in the nature of stumpage dues and are probably not income tax. Those taxes are in lieu of royalties.


John Lambert Gibson: They must be royalties. I do not think they are income taxes in the seven provinces.


Douglas Charles Abbott: Probably not. In the case of mining companies in three provinces they are.


John Lambert Gibson: But that is a royalty per ton, I should think.


James MacKerras Macdonnell: I want to come back to the question of regulations. As I understand it, the minister says regulations are in existence and have been published in the Canada Gazette.


Douglas Charles Abbott: I am told they were completed within the last month or so on this particular section.


James MacKerras Macdonnell: Am I correct in thinking that those regulations, as they have been described by the minister, really become by incorporation a part of the statute law for the moment?


Douglas Charles Abbott: That is a fair statement, yes.


James MacKerras Macdonnell: Then should we not know what they are? Are we not in effect approving this when we pass this section? Is it not just as if it were virtually a part of this section?


Douglas Charles Abbott: This section has been in existence for some time, and in passing a provision of this kind parliament authorizes the governor in council to adopt regulations. The only amendment here is to extend the purview of the section to cover municipal cases. We are not putting in any new principle. The regulations have to be made public and parliament can get them in the Canada Gazette, or individual members can read them. It is not, however, customary to debate regulations in parliament. I shall be glad to provide them. All regulations of this kind are made public and this is not a new departure in this act. It is a fairly common practice, and has been for years, for parliament to authorize the governor in council to make regulations on certain specified subjects.


James MacKerras Macdonnell: Like the hon. member for Stanstead, I will not take a fanatical position with regard to the regulations. It does seem to me, however, that you might have a situation where, when a section of this kind is passed and the operation has to be worked out, you might need to give a considerable amount of discretion at the outset for operation by regulation; nevertheless you may reach the time when you have worked out a technique and do not need to go on in that way. I should like to know what the regulations are, to see whether that time has arrived, or whether it is perfectly clear that the regulations are still needed for operation. I do not wish to be sticky and to hold the thing up. Perhaps this might be left and dealt with later. I do not mean for the bill to stand, but-


Douglas Charles Abbott: I understand that in the case of this particular type of income the definition is complex. Under the old system it would read like this: "Such amount as the minister in his discretion may allow in respect of taxes on income for the year from mining or logging operations." That would have been the old system, because those are taxes which, if the provinces see fit to do so, they can continue to impose, although in some cases they turned over their taxation rights to the dominion. It is obvious that there must be some protection there for the dominion treasury. It is a concession that is being given. We would not have to allow this as a deduction if we did not want to do so, and nearly all these things are concessions to some taxpayer. The technique, for what it is worth, of regulation rather than ministerial discretion has been adopted, and in the larger act which will be before the house and the committee shortly, as those who examined Bill 454 last year will

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see, there are many cases in which provision is made for the adoption of regulations by the governor in council to cover what was previously handled by straight ministerial discretion.


John Thomas Hackett: I suggest to the minister that he has made a statement which may prove troublesome to him. I do not think the minister wished to say that it is a matter of concession, it should not be. It is a matter of equity, of justice, of balanced treatment between all concerned. I know the minister is capable of stating his own case.


Douglas Charles Abbott: I will not quarrel with my hon. friend about language, but it is permitting deductions from what would otherwise be income. It is allowing the taxpayer to deduct, from gross income at any rate, certain items which would otherwise not be allowed as deductions.


John Thomas Hackett: But it is not because the minister likes the taxpayer, or because of this or that accident. It is to do fundamental justice.


Douglas Charles Abbott: Of course. I do not quarrel for a moment with my hon. friend on that. He is absolutely right.


James MacKerras Macdonnell: There is something else about which I am not clear. Is the reason why this cannot be stated definitely, the fact that the department is dealing with a situation which may change by reason of changes made by other jurisdictions?


Douglas Charles Abbott: It is because these taxes can be as varied as the colours of the leaves in the fall.


James MacKerras Macdonnell: Perhaps the minister would explain that.


Douglas Charles Abbott: It is within the jurisdiction of the provincial legislatures to impose any sort of tax they like on matters within their jurisdiction. We allow a deduction from future income tax for taxes on income for the year from mining or logging operations. One does not allow deduction of provincial income taxes on other types of operation, as my hon. friend knows. It is only in these special types of businesses. Ordinary provincial income taxes are not and never have been deductible from income for the purpose of dominion income taxes. That is the position. It is pointed out to me that in mining operations it is necessary to distinguish between milling profits, which is a form of industrial operation, and mining profits derived from getting mineral from the earth.


James MacKerras Macdonnell: Is the minister saying then that if I wish to go
into this business or to set myself up in business, I am absolutely at large with regard to taxation? Is the minister saying that I do not know what my provincial tax will be or what my federal tax will be? Or have I misunderstood the minister? Is that what he said?


Douglas Charles Abbott: No. If my hon. friend is in the logging business or the mining business, he knows exactly what his provincial taxation will be. But in order to determine how much of those provincial taxes, if any, he can deduct from his income in computing his federal income tax liability, he must look at the federal regulations. In the case of mining those may and do set out the rules to determine what portion of the profits are derived from milling operations in the case of a mine and what are derived from the mining operations. As my hon. friend knows, the reasons for allowing this deduction in the case of mining or logging operations are that those are the development of national resources within the provinces. They are the only two types of operations where income tax imposed by the province is deducted from income tax before federal taxes are computed. In no other type of business is that allowed.


John Lambert Gibson: I think the difficulty is that you call a royalty an income tax. It does not strike me that the wording is quite correct. It appears to me to be a kind of checkrein that the federal government has on our provincial governments.


Douglas Charles Abbott: Royalties have always been deductible.


John Lambert Gibson: I think this must be a royalty. I cannot understand how we can pay a provincial income tax. What is the machinery to collect that? I know we used to have it, but actually I do not see any machinery for collecting it.


Douglas Charles Abbott: Ontario collects one, and has for years. It collects a tax on mining profits.


John Lambert Gibson: It does not single them out specifically, does it? These two businesses are not singled out specifically?


Douglas Charles Abbott: Under their mining tax act, I am told they do.


John Thomas Hackett: At the risk of trying the patience of the minister, I intend to ask him to take a concrete example in either mining or lumbering, whichever industry he feels better able to deal with, because to some of us it is not quite clear what is the basis of the difficulty which makes the discretion so indispensable in these two cases.
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Douglas Charles Abbott: The regulations set out a formula as -to what constitutes mining profits as distinguished from milling profits. Some concerns operate mines and do not do any milling at all but ship all the ore to another smelter in order to have the minerals refined. Other mines combine the operations. Some formula must be determined for establishing what portion of the total profits of that second type of mine is true mining profits and what portion is profits derived from the operations of a smelter. I am told that is a fairly technical and complicated job. I know' that discussions have been going on for some time with the department of mines and resources of the various provinces, particularly I think with-


John Thomas Hackett: Quebec, Ontario and
British Columbia.


Douglas Charles Abbott: -Ontario and British Columbia, to work out that formula. It is to put that in a formula that it is considered necessary to have this power of determining it by regulation. I think it is reasonable. It could have been by discretion. As I said before, it could be that the minister should allow as a deduction only such portion of the profits as he in his discretion might determine. But following the regulation principle which we are incorporating in the big act, and which I have discussed before, it was put in in this case as well. I think it applies particularly to mining companies, because I do not know that at the moment there is any specific income tax imposed upon logging operations. But it is perfectly open to any province to do so if it wants to, since in our offers to the provinces we have specifically said that income tax with respect to mining and logging operations may be deducted from income for purposes of computing dominion tax. I repeat what I said before, that it is only with respect to these two types of businesses that that special provision applies.


John Thomas Hackett: I can understand that there may be an arbitrary determination that mining and lumbering shall be subject to a tax, but until I have further information I have difficulty in distinguishing any ground for particular treatment of mining, let us say, as compared with wheat growing, other -than the aspect of depletion. I am not dealing with depletion at the moment, because that is dealt with in a particular way and according to arbitrary regulations which are applied. A mine brings up its ore, and the rough ore goes through a preliminary refinement which permits the unrefined metal to be shipped to the smelter. There is the mining operation;

there is the preliminary milling operation. The smelting is done elsewhere. If it is lead, it is done in Belgium or in one of the remote states of the union. We have no lead smelter in Canada at the present time. How does that differ from -the growing of wheat, leaving aside the matter of depletion? The wheat is grown on the land. It is a natural resource. It is mined. Later it is milled and refined. What is there in those two operations that is so entirely different as to make it necessary to enact particular rules in the one case, whereas general rules apply to the other?


Douglas Charles Abbott: There may be some similarity. One can grow another crop of wheat or crop after crop of wheat, but one cannot grow another crop of ore.	Once the mine is
exhausted, there is no more mine.


John Thomas Hackett: Another crop of timber can be grown.


Douglas Charles Abbott: It is true that another timber crop can be grown if one follows a suitable reforestation policy, but it is a longterm matter. As my hon. friend knows, depletion is allowed in connection with timber limits and it is not allowed in connection with wheat fields. There is the general principle. It is probably not relevant to this discussion, but in the dominion-provincial discussions this provision was asked for by all the provinces, particularly by Quebec and Ontario where there are large mineral and lumber resources. It seems fair that in the case of taxes imposed with respect to these great natural resources of minerals and timber it should be allowed; and I think one province, Ontario, has urged that the royalty tax in these matters is an unfair and unsatisfactory method of collecting revenue from these resources. Ontario has urged that it should be in the nature of an income tax, and that a mine should not pay anything unless it was making a profit out of its operation. There is a good deal to be said for that point of view. A royalty is paid whether or not the mine is a profitable operation, whereas a form of income tax, because it is a tax on income, is payable only if the mine makes a profit. That was urged quite strongly, and that view has been recognized in permitting a deduction of what is an income tax from the dominion tax, in the case of these two types of natural resources.


James MacKerras Macdonnell: I thought I understood this at one stage, but I have slipped back; and I am going to put part of the blame on the minister, rightly or wrongly.

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Douglas Charles Abbott: These are complicated and technical matters. I do not wonder that my hon. friend is confused.


James MacKerras Macdonnell: I may not understand it now, but I want to understand it; and I want to recall to the minister two things he said. At one time I asked if the need for this rather flexible arrangement resulted from the fact that he had to deal with unknown and perhaps unpredictable tax situations in other jurisdictions, and I think the minister said yes. Then I asked whether that meant anyone going into a business of this kind is at large with regard, first of all, to the provincial tax and, then, the dominion tax; and, as I understood him, the minister said, "Oh, no. Everybody knows what the provincial taxes are."
iMr. ABBOTT: If they do not they can find out.


James MacKerras Macdonnell: But if that last statement stands, if I have stated it correctly, I am still in the difficulty mentioned by the hon. member for Stanstead, in failing to understand, why, if you know the conditions, if there is no unknown as far as your imposition of the tax or your relief from the tax is concerned, it has to be left discretionary. I am still perplexed about that, as to why you cannot state now what it is.


Douglas Charles Abbott: Well, the provincial authorities may impose a tax on mining companies. They do that under the mining tax acts. They may do that instead of royalties, they impose what is in the nature of an income tax. As I understand it, that is a tax on all the income of the mining company including refining profits as well as mining profits. So the dominion government, in allowing a deduction from its own tax in this case, confirms by regulation a formula which we recognize for the purpose of determining the allocation as between mining profits and refining profits. The section must be made general because, if a province does not have such a law now, it may have one after the next session of the legislature. So we must have an enabling law here which will apply to all provinces; and that is what we have. I have not heard that there is any difficulty in working this out in practice. I am told it is workable, and I believe it to be. The regulations I have been referring to have been worked out as a result of discussions with the mining departments of the different provinces, particularly Ontario, and I am told they are
now in very satisfactory shape. I cannot say that from personal knowledge; I am only going by hearsay.


John Thomas Hackett: I am not complaining of
any dissatisfaction; I am trying to ascertain where the necessity arose from an understanding between the provinces and the dominion.


Douglas Charles Abbott: I am told there was a great deal of discussion in working out the formula. That took quite a little time. There was a great deal of discussion with the officials of the provincial governments in working out a formula, and it may vary a bit, I am told, according to the different types of mining operations. But that is now completed, and I am informed that a reasonably satisfactory formula has been worked out and incorporated in these regulations, which were formally adopted about a month or so ago. One of the practical advantages of the regulation method is that if, in practice, defects are found in this formula, or if they find bugs in it, to use the colloquial phrase, it can be quickly changed.


John Thomas Hackett: There is one other aspect of the income tax act which applies to natural resources, about which I should like to ask the minister. I believe that in the United States the royalties accruing from owners' shares of oil stocks are free from taxation, and that here they are not. I understand that the minister's predecessor had some opportunity of discussing this matter, and I should like such enlightenment on the point as the minister may be able to give.


Douglas Charles Abbott: I have not that information available just at the moment. I did not know that in the United States the entire amount of royalties received was free from tax.


John Thomas Hackett: Only that portion which the owner gets.


Douglas Charles Abbott: My hon. friend is referring to what are sometimes known as head royalties?


John Thomas Hackett: Yes, that portion which remains with the owner of the service.


Douglas Charles Abbott: I am surprised to hear that they are free of taxation, but certainly I shall look into the matter and see what the situation is.


Stanley Howard Knowles: Before this section carries, I should like to repeat our opposition to what the government has done under the provisions of paragraph (cc). As we have said previously, we wholly agree with the idea that assistance
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should be given to Canadians in advanced years. But we feel that if the government is going to give such assistance to the tune of an extra $5,000,000 a year it should have been done in some other way than by this provision. As the minister knows, this gives assistance to those who have sufficient income to be required to pay taxes, and the more taxes they pay, the greater will be their benefit. We feel that, instead, this $5,000,000 should have been given to those on old age pension. An alternative suggestion of considerable merit was made a few days ago in the editorial columns of the Ottawa Citizen, namely, that if the government wants to help people help themselves to a more comfortable old age, some of this money might well have been spent in lowering the rates of government annuities.


John George Diefenbaker: I want to ask one question on a matter which is of general interest in connection with the determination of income and the investigations that are carried on in arriving at that income. To what extent are safety deposit boxes searched without court orders? That is a matter on which there is considerable interest throughout the country, and I should like a statement from the minister. This is the first opportunity I have had to bring the matter to his attention in order to ascertain whether or not secret investigations do in fact take place without court orders and without notice to the taxpayers.


Douglas Charles Abbott: Officials in front of me say they know of no case in which a safety deposit box has been investigated without a court order. I certainly know of none. Of course it is not in my department; it is in the Department of National Revenue. I have officials of that department in front of me, but they do not know of it.


John George Diefenbaker: I have a point to mention in connection with the determination of income. It concerns farmers' income. I would bring to the attention of the committee a situation which is quite general in Saskatchewan where the Minister of Agriculture on April 2, addressing a Liberal caucus-
-rapped political informers in income tax hounding.
I shall now read from a letter from a constituent which, if he wishes, I can send to the minister. The letter reveals a situation unfair to farmers. It states:
I made out my income tax forms. I totalled the whole crop that was threshed on the farm, including wheat, oats and barley; valued it at the market value, and stated the amount in the income column.

In other words, this man gave a complete and full statement. The letter continues:
Then I deducted all seed and feed which was fed and seeded on the farm, and showed that amount over in the expense column. Now I am told that I cannot be allowed because I actually did not buy the feed and seed.
Now, sir, that mistake has been made by numbers of farmers. The ruling of the department is that, because a farmer made a mistake such as that, there is no remedy. After all, we cannot expect farmers to be bookkeepers. I do not know many lawyers who can fill out their income tax returns with any degree of certainty. We have to go to the accountants to find out how to make out those returns.


Mr. BURTON:: And you have to check their figures.


John George Diefenbaker: I never got that far, because I never got my return back in sufficient time before I had to file it.
But here are farmers in Saskatchewan and elsewhere in western Canada who, because of their mistake in entering all their production, are being told that, having made that mistake, they have no recourse, and they must pay the full amount of the income tax. I point this out because it is the general condition. It is a complaint I have received from at least half a dozen farmers; and it is one which indicates a position under which officials rely too strongly upon the letter of the law, rather than upon the spirit of the law. I believe something should be done by the minister to tell officials that conduct of that kind can have but one result, andt that is the building of a feeling of oppression among the farmers affected. I hope the minister will do something about it. If a farmer is honest in making his return, and over-states his income by placing the total amount of his crop in the income column, then by reason of that mistake in bookkeeping he should not be denied the right to have his assessment made on a proper basis.


Douglas Charles Abbott: My colleague the Minister of National Revenue is not in his seat at the moment, but I shall see that my hon. friend's remarks are called to his attention.


[Stage Direction]
Section agreed to.
Section 2 agreed to.
On section 3-Deduction by employee for expenses while travelling on employer's business.
James MacKerras Macdonnell: May I ask that we go back to section 2? I should like to ask a question in respect of subsection 3. What is the meaning of the

Income War Tax Act
introduction of the reference to an employee as a full-time servant in a self-contained domestic establishment.


Douglas Charles Abbott: The effect of the provision is that only one claim for exemption can be made in respect of the same dependent.


James MacKerras Macdonnell: I read that, but it does not seem to explain anything.


Douglas Charles Abbott: If a man who comes within this category is supporting a child in his residence he can claim marital status and a deduction for the child as a dependent, if he employs a full-time servant or housekeeper. If he does not employ a full-time servant or housekeeper he can claim only marital status. He cannot get the full benefit of the marital status and also a deduction for a dependent child unless he is employing someone to take care of the house and look after the child.


James MacKerras Macdonnell: The hon. member for Winnipeg North Centre makes a suggestion to me privately concerning the effect of that section, but I shall not put it on record. It does seem to me that it is not very clear.


Douglas Charles Abbott: It is not new. It was in there before. It was there for years and was omitted last year.


James MacKerras Macdonnell: It was not very sensible to omit it last year.


Douglas Charles Abbott: I think it would be most inequitable to omit it.


James MacKerras Macdonnell: In other words, you force a man who has lost his wife to incur additional expense because he no longer has a wife. That seems to me a most extraordinary suggestion.


Herbert Wilfred Herridge: This provides that a married man who can afford to have a housekeeper the year round will have an exemption. I have a case in mind of a man whose wife was ill for six months. He employed a nurse to care for her, but because she was employed for only six months he was not allowed any exemption. On the other hand, had he employed the housekeeper for a year he could have had the exemption. Surely that is not logical.


Douglas Charles Abbott: Let us take the case of a widower with one child. He has a home. He is entitled to claim marital status because he is maintaining a self-contained establishment, and he has someone depending upon him in that establishment. That gives him an exemption of $1,500. He can also claim an additional $300, or whatever the amount is, if he maintains someone there to look after the child. If he is not maintaining someone to look after the child, then he cannot claim for the child as a dependent.


James MacKerras Macdonnell: I still think the result of it is that you are giving to the man who is much better off an exemption which you will not give to the man who is much worse off. Is that not the plain fact?


Mr. GIBSON (Hamilton West):: No.


Leslie Alexander Mutch: Shall section 3 carry?


James MacKerras Macdonnell: No; just a minute. We were still to get an answer to a question on clause 2.


Leslie Alexander Mutch: We carried clause 2 and then by consent a question was asked. I again asked if clause 2 should carry, and it was carried.


Douglas Charles Abbott: This has been the law for a long time. I must confess that I think it is equitable. It is not a question whether a person is better off or worse off; it is a question of what exemption one should get for a certain status. That was the law for a long time.


Stanley Howard Knowles: May I take a hand in this? If you had not this section it would mean that a married man with one child would get an exemption of $1,500, plus the exemption for the child, and-


Douglas Charles Abbott: This does not apply to a married man.


Stanley Howard Knowles: But what I have said would apply anyway. A married man with a wife and one child gets an exemption of $1,500 plus $300 for the child. Without this new section, a widower maintaining an establishment and having one child, but not having a wife, would also get an exemption of $1,500 for maintaining the establishment, plus $300 for the child. In that sense you would be giving the widower with one child the same exemption that you give to a man with a wife and one child.


Douglas Charles Abbott: That is correct.


Stanley Howard Knowles: This is an attempt to straighten it out?


Douglas Charles Abbott: If he has someone who cares for the child as a wife would, then he gets exactly the same exemption.
Income War Tax Act


Stanley Howard Knowles: I have known of cases like that of a widower with a child who employs a housekeeper. He feels that he should get the same exemption as a married man with one child, and this would do it.


[Stage Direction]
Section agreed to.
Section 4 agreed to.
On section 5-Conditional exemption.
Douglas Charles Abbott: I think in fairness I should make a brief explanation with respect to this section, and I hope I can get it through before eleven o'clock. Subsections 5 and 6 of section 9 are repealed. As I explained, and as is stated in the explanatory note to the bill, the present averaging provisions in the Income War Tax Act will be replaced by new provisions in the Income Tax Act which will shortly be considered by the house. However, in asking the house to repeal the present measures I should make a statement at the same time outlining the new provisions and explaining how they will differ from the present ones.
First of all, I might explain the reasons for making the change. They are twofold. The change is an attempt to meet the requests of farmers and farm organizations that the averaging should cover a period longer than the present three-year provision. The second purpose is to remove some of the complexities involved in fitting a moving average into a system which at the same time allows the carry backward and forward of losses.
It is proposed that the present three-year moving average be replaced by a five-year averaging on what might be called a "block system". Under the so-called "block system", a farmer may average income for a five-year period and follow it subsequently with a second five-year period, and so on. The averaging periods do not overlap under the block system as they do under the moving average introduced two years ago.
Under the proposed system, the farmer will continue to use the one-year carry back and three-year carry foward of losses. He will then be permitted to average on a five-year basis the incomes as they stand after adjustment for losses.
One of the objections to a period as long as five years was that a farmer would have to wait for this period before securing any benefits from it. It is proposed, therefore, that a farmer may at his option average at the end of four years in the first instance. Thus, the first period for which averaging may be adopted will be 1946, 1947, 1948 and 1949. In

the meantime the farmer will be able to take full advantage of the carry backward and forward of losses.
I believe the new system outlined retains all the benefits which could properly have been obtained under the moving average. In addition, and I regard this as perhaps the greatest advantage of the new system, the new system will be simple to understand and use. I am afraid that the present law providing for a moving average to operate in conjunction with the carry forward and backward of losses might have been too complex for successful operation.
I make that explanation now, because the new bill will contain a provision for the five-year average, and I felt that I should not repeal the existing sections in the present act without making that explanation.


John Lambert Gibson: Would that apply also to fishermen?


Douglas Charles Abbott: Yes.


[Stage Direction]
Section agreed to.
On section 6-Tax on non-residents in respect of patronage dividends or premiums paid to non-resident on redemption of shares.
Thomas John Bentley: I want to see if I can get to the bottom of the fairy tale which begins in the middle of page 4 of the bill at line 18. I do not know who wrote this, but it was not Shakespeare. I have been trying to understand this ever since the bill came to me in the mail. Does it mean that patronage dividends apply to the entire balances of shares or capital and that they shall be considered as income in the hands of the member at the time of such application and shall not be taxable again when redeemed? Is that what it means? I want to see if I have interpreted aright this terrible collection and conglomeration of words. If anyone wanted to bring about confusion he has certainly done an excellent job.


Douglas Charles Abbott: This is an amendment to sections 9B and 9C and relates to non-residents. This section will have no application to recipients of patronage dividends in Canada. It is being inserted in the non-resident taxing section which, as I explained at the resolution stage, is to impose a fifteen per cent tax on non-resident recipients of patronage dividends. Non-resident recipients of patronage dividends which take the form of an issue of certificate and not cash will be taxed at the time they get the certificate, but not when the certificate is redeemed.

Business of the House


Thomas John Bentley: The minister's explanation would apply to the new subsection 14.


Douglas Charles Abbott: That is correct.


[Stage Direction]
Section agreed to.
Sections 7 to 16 inclusive agreed to.
Bill reported, read the third time and passed.

Mr. FOURNIER (Hull):: Tomorrow we shall take up the third reading of Bill No. 333, to amend the Customs Tariff. Then the two resolutions standing in the name of the Minister of Finance, being Nos. 16 and 17 on the order paper of today. We shall then move to go into supply, but we perhaps shall not continue in supply because we would like to take up the two resolutions in the name of the Minister of Mines and Resources, being Nos. 10 and 11 on the order paper of today.


Stanley Howard Knowles: Before the house adjourns, may I take just a few seconds to do what I think hon. members would like to have done, namely, express a word of thanks to the Canadian Press for the splendid service they have given us tonight in making known the returns of today's election.


James Horace King: Is the hon. member rising on a question of privilege?


Stanley Howard Knowles: Yes, on a question of privilege. We of the house are grateful to the Canadian Press for the service they have given us tonight. The returns that they have sent in every few minutes have pleased some of us more than they have pleased others, but at any rate it has given us a very interesting evening.
I am neither a prophet nor the son of a prophet, Mr. Speaker, but I find that last Monday evening when the hon. member for Peel (Mr. Graydon) made a certain interjection in something I was saying I replied in this short sentence with reference to the returns of June 7, "That may be the end of Drew."


James MacKerras Macdonnell: Don't you ever think that 1


Alphonse Fournier: Before we adjourn, I should like to say that when these resolutions are carried we shall take up supply, and I believe it will be Justice, Secretary of State and Transport.


[Stage Direction]
At eleven o'clock the house adjourned, without question put, pursuant to standing order.
[Stage Direction]
Tuesday, June 8, 1948