[Stage Direction]
Mr. ALPHONSE FOURNIER (Hull) presented the first and second reports of the standing committee on miscellaneous private bills, and moved that the second report be concurred in.
Motion agreed to.

[Stage Direction]
First report of the standing committee on banking and commerce.-Mr. Moore.


[Stage Direction]
On the order for motion:
Hon. R. B. HANSON (Leader of the Opposition):: By leave of the house, Mr. Speaker, and under this heading, which I presume to be the appropriate place, I should like to make some observations with respect to the proposals made by the Prime Minister (Mr. Mackenzie King) earlier this week.
On Monday last, in the course of his statement on the reorganization of his cabinet, the Prime Minister made a proposal which has 
been given widespread publicity and has attracted a great deal of attention. He stated that realizing the importance of increasing public confidence-meaning, in my view, public confidence in himself and his government- through bringing to the aid of the ministry all points of view and opinions, in addition to other means to which he had alluded he had considered inviting leading members of the opposition to become associate members of the war committee of the cabinet, to share in its deliberations and to assist in the formation of its proposals to the cabinet. He then stated what of course is fundamental, that in the last analysis the government must take tne responsibility for whatever is done or left undone. That responsibility could not be escaped or evaded, and of course with that I am in complete agreement.
He then went on to enumerate what he considered would be the advantages of having members of the opposition join the war committee in an advisory and associate capacity. Those advantages, as I appreciate them, were two in number. In the first place the government's policy would be shaped and made effective under the open gaze of the opposition and with their assistance, experience and counsel. In the second place, in all major matters of defence, internal security and international cooperation, the leading members of the opposition would be fully informed. He then went on to state that as at present constituted, that is to say, a purely party government, one of the greatest difficulties confronting the government lies in the fact that many matters of which the government has knowledge, and many actions the government plans, in the very nature of things are highly confidential and must remain so indefinitely. That, of course, is a very significant statement, to which I shall allude later.
Then the right hon. gentleman observed that this obstacle would be overcome, at least in part, by the proposed associate membership of opposition leaders in the war committee of the cabinet, where our experience, advice and point of view would be of value, and added that in his belief such a step would be of real assistance to the government in the discharge of its responsibilities. He then invited my colleague the hon. member for Yale (Mr. Stirling) and myself to become associate members of the war committee of the cabinet. If the invitation were accepted we were to be invited to be present at all meetings of that war committee and to take part in its proceedings.
Right here I should like to interject that neither my colleague nor myself ever contemplated such a course until the Prime Minister mentioned it to me some days ago.

The Ministry

Mr. Hanson (York-Sunbury)
Neither did we-and I desire to emphasize this point-at any time wish to enter the government. I say that because a dispatch-I think it was a Star Syndicate press release- appeared in a newspaper published in my own city, to the effect that I was anxious to join the government. Anyone who knows me knows that nothing has been further from my thought, and I think I can speak also for my colleague. Speaking for myself, at any rate, such a course was never contemplated.
In the next paragraph of his statement the Prime Minister took what to me was a rather inconsistent position which, in my view, needs clarification. If the proposal were accepted, he said, the country would have the benefit of our wisdom, advice and experience. The government would retain responsibility for the direction of Canada's war effort. Then he added:
It would also be understood that members of the various opposition groups in this house would continue to be free to criticize the administration as they think fit, and to vote and act with complete independence.
It will be observed, however, that he did not include myself and my colleague, or members of other opposition groups who might join the war committee of the cabinet, in this category. On this theory we would not be free to criticize the administration as we thought fit, or to vote and act with complete independence. No other logical inference can be drawn from that statement, and in my view that is the inherent weakness of the whole proposition. I shall refer to this matter later.
It has been suggested to me that a proper reaction to this proposal by the Prime Minister is contained in the words of Solomon as they appear in the book of proverbs, chapter 1, verse 17:
Surely in vain the net is spread in the sight of any bird.
As an alternative the Prime Minister suggested that if we should feel unable to accept his invitation on the basis stated, which I think I have accurately and fairly described, be was prepared to make yet another proposal, the acceptance of which he thought would not occasion embarrassment. In brief this second proposal was that while parliament was in session there should be regular weekly conferences between the war committee and the members of the opposition, with similar conferences held at intervals while parliament was not in session. At such conferences the government would be prepared to disclose, but in confidence, full and detailed information both as to its actions and the considerations upon which those actions were based. He added that the effectiveness of the opposition, far from being impaired, would be greatly increased by the knowledge gained by their leaders in such conferences, and that members of the opposition, as regards their right of criticism, would have only the limits imposed by their personal sense of responsibility as citizens and members of parliament.
I shall refer to this proposal a little later on in my remarks.
Now, as I intimated to the house on Monday, the Prime Minister, in the course of a private conversation with me on June 28 last, to which allusion has been made by him, suggested to me that I and my colleague should sit in with the war committee of the cabinet in an advisory and consultative capacity. On Monday last, when making this statement, the Prime Minister interjected the words "associate members". I have no recollection of the word "associate" having been used, and I am very firm in my own memory that the word "associate" was not used but that the term "advisory and consultative" was used, and that it was in that capacity and in that capacity alone that we were to sit in at the meetings of the war committee. I am borne out in my recollection because, with the permission of the Prime Minister, I had a word with my colleague and these words "advisory and consultative" were the words I used to him in reference to the matter. In my view, sitting in in an advisory and consultative capacity is quite distinguishable from the idea of being an associate member of the war committee. The latter goes much farther than the former. However that may be, that was and is my interpretation of the Prime Minister's suggestion of June 28. His direct proposal of July 8 goes much farther than that.
Now, what is his proposal? It is that myself and my colleague-leaders, if you will, of the Conservative party in this house-are being asked to join the war committee of the cabinet as associate members. We are to assist the government in the formulation of war policy and assume all the important responsibilities which attach to such a position, and we are to be absolutely without power to carry out the policies agreed upon or arrived at, whether suggested by us or not; and if we suggest policies and they are not agreed upon and another course is adopted, we shall be expected to support such policies, although they do not meet with our approval, otherwise we must resign.
What is the essence of this new proposal? The very essence of it is responsibility without power; and because that is so, the acceptance of the proposal is impossible. I want to make it quite clear that at no time have I ever sought to become either a member of the
1516	COMMONS
The Ministry-Mr. Hanson (York-Sunbury)
administration or to be charged with the responsibility of formulating its policies. I was elected to oppose this government, make no mistake about that. My fellow members of the National Conservative party honoured me by electing me their leader in this house.


An hon. MEMBER:: National government
party.


Richard Burpee Hanson: To do
what? To follow out the mandate which we as a party had received from those who elected us to oppose this government. One of the chief duties imposed upon us by force of events and patriotic duty from the beginning of this session down to this last minute has been to aid and assist to the very best of our ability and power in carrying on Canada's war effort. We have done this by cooperating with the government fully in advancing those war measures which have met with our approval. We have, I believe, materially assisted the ministry by constructive suggestions with respect to Canada's war effort and, at the same time, we have reserved to ourselves the right and operated on the theory that it was our duty to oppose certain measures offered by the ministry which did not meet with our approval, and generally to perform the constitutional functions of an opposition- not, however, what may be termed the partisan function of an opposition, which is to oppose.
The setting under which this proposal of the Prime Minister was made should not be lost sight of. What was the position? The Prime Minister, confronted with a demand from this party that his ministry should be reconstructed along national lines, confronted by that demand also from a very substantial portion of the public, and being under the necessity of reconstructing his government, took weeks in an endeavour to induce gentlemen of the Conservative faith to enter his ministry. He failed, and he failed dismally, for reasons which he has indicated, and, more important, for reasons which I have indicated and to which I alluded in the statement I made in this house on Monday last, which I shall not repeat now.
Frustrated in this attempt to give a national colour to his ministry, he was forced to fall back on the inevitable. He was obliged to repair his fences from within his own party, and, with one notable exception, from within the membership of this house. In other words, he resorted to what I shall describe as a multiple shuffling of portfolios. A chain is no stronger than its weakest link, and altering the position of the links does not strengthen the chain but renders it just as weak and ineffective as it was before the changing process began. This ministry to-day, large as it fMr. R. B. Hanson.]
is in numbers, has no more strength or capacity to meet the situation which confronts the government and Canada than it had before the Prime Minister spoke on Monday last. With the one exception to which I have alluded, the gentlemen who sit on the treasury benches to-day are no better and no worse than the gentlemen who sat on the treasury benches last week. They are the same men who were guiding the destinies of Canada at that time and their strength is neither increased nor diminished by the rearrange ment. I make no reference to the inclusion of the new Minister of National Revenue (Mr. Gibson) and the new Postmaster General (Mr. Muloclc. They have yet to prove their strength and their usefulness to the country, and it would not be fair to judge them in advance of their performance.
That is the setting under which the Prime Minister made his offer to me, and I am bound to say that I believe his offer was induced by reason of his frustrated attempt to strengthen his ministry by the introduction of new blood from outside in a vain effort to bolster up the shattered fortunes of his party in the country. I am bound to say that that was my first reaction. As a matter of fact, the announcement of his repaired but not rebuilt cabinet on Monday last has confirmed that reaction.
Now it is quite plain that I have decided to reject the Prime Minister's proposal to join the war committee of the cabinet, and the primary reason is that already indicated, namely, that I believe it violates a cardinal and fundamental principle of government, that there should not be responsibility without power.
Just what would our position be if we entered this committee? My position, I believe, would be wholly inconsistent and incompatible with my present position. How could I, as the leader of this party, charged with the heavy responsibilities which that involves-and no one is more conscious of them than I-sit in on the war committee of the cabinet, take part in its deliberations, offer my advice and counsel and, in a given case, if I felt very strongly, urge upon the government the adoption of a certain course or courses, and then find myself, in case my advice were rejected, in the position of coming back to this seat in the house and either supporting proposals which I did not approve, or opposing them? Having sat in the council,
I would have to support the proposals of the government or I would have to oppose them. To support them against my better judgment would be dishonest, and to oppose them would render my position in a war committee impos-

The Ministry-Mr. Hanson (York-Sunbury)
sible. In either event either I would have to resign from the war committee or I would have to resign from this position. Frankly I cannot for a moment imagine myself in such a position.
I believe with all my heart that I can do better service to Canada-and I put that first -I can do better service to the people whom I represent-and I put that second-by remaining in the position which I at present occupy, reserving to myself, with the advice of my colleagues, full liberty of action and judgment, and continuing to pursue the course which I adopted at the beginning of the session and which I have consistently followed, of supporting and cooperating with the government in those measures which I believe are essential and necessary for the aid of the mother country and for the defence of Canada, and offering such constructive criticism to the government as I am capable of from time to time, and, above all, urging speed and action in connection with our war effort.
I believe that I have made progress, not only in this house but in the country, in pursuing that course; and I believe it is a course which has commended itself to all the thoughtful elements of our population, at least to all those who believe that Canada's war effort is the one vital consideration. I care not for the opinions of those who think we should adopt a middle course, for the opinions of those who think we should have a temperate and moderate participation in this war. My whole heart is in the winning of this war, and any other course, for me at all events, is unthinkable. To those who have a different idea I desire to say that I accord to them their right to hold the views which they entertain, but I claim for myself the same liberty of judgment, to pursue such course as I consider is in the best interests of our country at this critical time. I have never been one of those who would seek to temporize or to compromise with a great principle, and I do not intend at my time of life to begin now, no matter what the fleeting advantage or the temptation of the moment may be. I can do no other.
I stated on Monday last, when I heard the Prime Minister's proposal made, that the suggestion was one which I could not lightly refuse at this critical time in Canada's history, nor was it one which I thought I ought to accept without the gravest reflection; and I want to tell the house and the country that, in arriving at the conclusion which I have arrived at, I have reflected and reflected gravely. I have sought the advice of those whose opinion I value; above all, I have
sought the advice of my colleagues in the House of Commons, and I have no hesitation in declaring to the house and to the country that we are unanimous in the conclusion I have announced.
Furthermore, it is my belief that public opinion will sustain me in the course that I intend to pursue. Of all the editorial opinion, as expressed in the public press, which has come to my attention since the Prime Minister's announcement, only one newspaper has expressed the view that the Prime Minister had made a fair offer, and that was the Toronto Star in its issue of July 9. It will be observed that the writer did not express the opinion that I ought to accept. All the other leading organs of public opinion in this country to which my attention has been directed and which have expressed any view at all, have taken the stand, in effect, that the Prime Minister's primary proposal should be rejected; some of them have even intimated that it should be rejected with scorn. I have not so treated it, although I perhaps would be justified in so doing. One editorial writer has suggested that if we accepted the proposal we would have about as much authority as an anti-nazi would have as an associate editor of one of Herr Goebbel's newspapers; that the sole effect of such an association would be at least partially to close our mouths, and it would certainly have the effect of lessening that good hard criticism of which parliament already has too little.
Now these statements are based on the theory that Canada's war effort is being guided and directed on a party basis, and that is true. The Prime Minister made some attempt to alter that position, but it has not been altered. The position remains as it was. This is a party government, actuated by the party spirit, dictated and motivated by the party system and, may I say, subordinate to partisan consideration. Protest as the ministry may, this is a Liberal government.


Some hon. MEMBERS:: Hear, hear.


Richard Burpee Hanson: I have no objection to the applause; I am simply stating a fact which proves my thesis.


An hon. MEMBER:: Has the hon. member just discovered it?


Mr. HANSON (York-Sunbuiy):: No, I have known it always. Protest as the ministry may, this is a Liberal government; the war effort of the government is necessarily a Liberal party war effort, and is quite oblivious to the fact that, while the other half of the population is being called upon to pay, to
1518	COMMONS
The Ministry-Mr. Hanson (York-Sunbury)
fight and, it may be, to die, that half of the population will have absolutely no responsibility for the conduct of Canada's war effort.


Some hon. MEMBERS:: No, no.


Richard Burpee Hanson: I now refer to the Prime Minister's second proposal, that of conferences with members of the opposition. The Prime Minister stated that at such conferences the government would be prepared to disclose, but in confidence, full and detailed information both as to the government's actions and the considerations on which those actions were based, and he added that the effectiveness of the opposition, far from being impaired, would be greatly increased by the knowledge gained at such conferences.
I may say to the Prime Minister at once that there is not the same objection to this proposal. There is not the underlying principle of responsibility without power, which is my main and principal objection to his first proposal, but the difficulty as it presents itself to me lies in his statement that all the information, both as to the government's actions and the considerations on which these actions are to be based, is to be given to us in confidence, and from that standpoint it is objectionable. The older I get, the more circumspect I am with regard to confidential communications made to me. Sometimes things are said to us in confidence which we wish we had never heard. They may prove a source of embarrassment later on; there is always a very grave danger of unwittingly violating a confidence. The government, of course, must determine what is confidential-that is the very essence of the Prime Minister's statement in that regard. The government may say to us, "we did thus and so, and we did it on the basis of certain conditions, facts and theories which are secret; so that it can not be discussed publicly, and you may not criticize it." The conditions, facts and theories discussed may not necessarily be confidential, but only in the opinion of the government confidential, and probably should not be so regarded. Nevertheless, we, unless we are prepared, to be faithless and to break an honourable understanding, would be tied, would be bound hand and foot, and on a given occasion our position might be wholly untenable. We could, of course, always retire, but that would end the arrangement. Moreover, an unscrupulous government could, if it so wished, use the plea of confidence to shield itself from criticism. I do not for a moment allege that this government would do that, but the possibility is there.
The Prime Minister, in the course of his remarks on Monday last, alluded to the difficulties of government at such a trying time

as that through which we are passing, and to the difficulties he had encountered in endeavouring to strengthen his cabinet from without. I do not intend to revert to the reasons for his frustration, but the situation remains that the Prime Minister has determined to carry on on a party basis. That means a continuation of our peace-time form of government in Canada; and what is the basis of the protection of the people under the two party system? In my view the basis of protection against things that ought not to happen is the system of wholesome parliamentary checks and balances. We have built that up over a long period of years, and experience has proved that on the whole it has worked well. Therefore, having regard to the duty of the opposition to the public, I am of the opinion, which is concurred in by all my colleagues, that we will show more practical allegiance to our public duty by avoiding acceptance of the Prime Minister's second offer.
In peace time I am aware that there is not much consultation between the Prime Minister and the leader of the opposition. There are, or should be, consultations from time to time to expedite the public business, and then there are those amenities which should be shown at all times, but which I regret have on occasion, in former days, been lacking and which must necessarily involve consultation from time to time. They are part of the unwritten law of parliamentary procedure; but the sharing of confidential information, which is the basis of government action, is an entirely different matter in peace time as well as in war time, and I do think that a different practice must prevail in war time from that prevailing in peace time.
In war time, when we are all concerned with the safety of the state, I lay it down as an axiomatic principle that as leader of the opposition I am entitled to information with respect to the war situation and with respect to the government's proposals, and that I am entitled to it as a matter of course. If my right hon. friend disagrees with this, let me point out to him that in Great Britain, both before and after the declaration of war, Mr. Chamberlain consulted with Mr. Attlee and other members of the labour party forming the official opposition; he must of necessity have given them confidential information, and I believe, of necessity, they were entitled to demand confidential information. I may say to the house and to the country that I have not heretofore taken that position, but I do so now and I believe I am on safe ground. We, as representing a great body of public opinion in this country, have a right to know

The Ministry-Mr. Stirling
what is going on. The use which we make of that information is an entirely different matter; we must be guided by tihe wisest possible judgment which we can bring to bear with respect to its use.
It is well known that from time to time the Prime Minister has asked myself and my colleague to meet with him, sometimes alone and sometimes in the presence of the war committee of the cabinet, including at times certain Conservative privy councillors from the other place. On those occasions there has been no consultation. What has happened is that the Prime Minister 'has given us, in confidence, information as to the trend of events in the theatre of war on the other side. No pledges have been asked and none has been given. No advice has been sought and none has been offered. Personally I have been grateful for the opportunity of having such information, from time to time, as the Prime Minister has seen fit to give me. On occasion I have asked him privately with respect to certain situations, and such information as he has given me I have received in the strictest confidence. I think that course was the proper one for both of us. But I do go further to-day and say that I think as a matter of right he ought to tell me from time to time what is going on, not only for my personal information, but for my guidance in the responsible position which I occupy. I shall have to be the final judge as to the use I make of such information, but I think the experience of the past will be the best evidence to the Prime Minister that I am to be trusted, and certainly no one can say that at any time during the past eight weeks I have used for party advantage any information which he has given me. Any such thing has been most remote from my thoughts; it has not been given any consideration at all.
In conclusion, let me say this, as I have said from the very beginning in this house: We in this party hold very definite views as to our obligations to the country at this time. We believe in a united war effort on the part of the people of Canada. That united effort cannot be given by a party government. The Prime Minister has rejected the theory of a national government, although he has declared on more than one occasion that his government was a national government. That statement was negatived by his efforts to bring in gentlemen from outside the limits of his own party, efforts that have failed. But notwithstanding all this, his decision is to continue the party system and to play the party game and to carry on a national war effort under party auspices. Much as we regret it, it will not alter the course of cooperation with the
government, backed by constructive criticism, which I marked out for this party from the beginning of the session, and which I have endeavoured to carry out consistently from that moment to this. In addition, we shall never lose the opportunity to urge upon the Prime Minister and the ministry the absolute necessity of speeding up all the war activities of Canada.
I am now again renewing the pledge of willingness to cooperate for the national good.
Finally, let me repeat what I have said, that this country needs leadership, leadership which has not been given since war was declared, leadership of the highest character, leadership which cannot be given under the party system.
The Prime Minister has rejected my suggestion. The responsibility is his. We shall help him as opportunity offers, but we, in common with the people of Canada, will hold him and his ministry ^strictly accountable for the measures which he will advance for the safety of the state, and, in particular, for the manner in which he will utilize the extraordinary powers conferred upon him by the parliament of Canada in connection with the mobilization and utilization of the man-power and the natural resources of the nation.


Hon. GROTE STIRLING (Yale):: Mr. Speaker, with the indulgence of the house I crave permission to add a very few words to what my leader has said.


Mr. SPEAKER:: There is nothing before the house. On a former occasion a statement was made by the Prime Minister and replied to by the Leader of the Opposition. If there is an endeavour to make this a general debate I must call the attention of hon. members to the fact that there is nothing before the house. Otherwise the Prime Minister will reply, I presume, and a general debate might follow.


Mr. MACKENZIE KING:: I have no objection, Mr. Speaker, to my hon. friend speaking.


Georges Parent: The hon. member may proceed, with the consent of the house.


Grote Stirling: As my leader has said, he has been expressing his own opinions and those of the rest of us whom he leads. But as I have been mentioned in this connection along with him, I have put together one or two thoughts which I should like to lay before the house.
On the 8th instant the Prime Minister extended an invitation to my leader and myself of a twofold nature.
The first suggestion was that we should become associate members of the war com-

. mu
The Ministry-Mr. Coldwell
mittee of the cabinet to share its deliberations and to assist in the formation of its proposals to the cabinet.
The very fact that I belong to a different party from the government means that I have disagreed with that party's policies, and it is evident that the direction of Canada's war effort now and in the future is related to the course followed by the government in the past. An associate joining the war committee now would therefore be informed on the state of affairs as it is to-day, and any advice he might tender would of necessity be considered by the large majority of that war committee in the light of decisions in the past.
The Prime Minister says that his government cannot evade full responsibility for Canada's war effort. It is very evident that whatever success may be attained is most likely to be claimed for the government; but when difficulty arises, as in my opinion it surely will arise, efforts will not be lacking to spread the blame of it on the associates who have come in to work with the members of the war committee at this stage. The extent to which that blame would attach to me, the individual, is a very small matter, but it will not be a small matter so far as the Conservative party is concerned, and those opposed to us would build up an edifice of blame.
It appears to me that the proposal is clarified if we turn back the pages of history for seven years and imagine the answer that the Prime Minister would have given had he, as leader of the opposition, been asked by the then prime minister to come in with one of his colleagues and act as an associate on an advisory committee at the time of an emergency. It appears to me certain that his answer would have been a refusal of the invitation because "they would be expected to share the responsibility without being accorded an equivalent share of power".
The second suggestion which the Prime Minister makes is contained in these words:
I believe that this situation could be remedied, at least in part, while parliament is in session, by regular weekly conferences between the war committee and the members of the opposition, and by similar conferences held at intervals when parliament is not in session.
This is but amplification of what has happened on three occasions this session when the Prime Minister has asked the Conservative privy councillors to meet him and his colleagues. Each such meeting lasted but a few minutes, during which the Prime Minister imparted to us items of the latest information to reach him.
It is always open to the leader of the government to call in members of his majesty's privy council for consultation. Indeed it is one of the functions of that council. Such

meetings would be profoundly interesting, but the extent to which secret information is imparted to such privy councillors in opposition is the measure by which their lips are sealed, not only to their colleagues, but in their public utterances, with the result that constructive criticism and suggestion are gravely hampered.
If the Prime Minister chooses to consult the Conservative privy councillors during a session of parliament, it is of course his prerogative to do so.
The official opposition intimated early in this session its intention to assist the government of Canada to put forth the country's full effort. I have rigidly adhered to the words I uttered on that occasion. I propose so to continue, but, for the reasons I have given, I cannot consent to the kind of cooperation contained in the Prime Minister's invitation.


Mr. M. J. COLDWELL (Rosetown-Biggar):: Mr. Speaker, with your permission and that of the house I would like to speak, very briefly, and, necessarily, extemporaneously.


William Lyon Mackenzie King: Yes, certainly.


Georges Parent: Reference was made to the hon. member in the speech of the Prime Minister, and he is quite in order in taking the opportunity to reply to it. If the hon. member for Lethbridge (Mr. Blackmore) also wishes to speak, he is, I think, entitled to that privilege.


Major James William Coldwell: The invitation extended by the Prime Minister to the leader of the opposition and the hon. member for Yale has been rejected. The invitation to the leaders of the other groups was conditional, and its rejection by the official opposition makes it unnecessary for me at this time either to accept or to reject it.
I should like to say this, however, that in consultation with our group we came to precisely the same conclusion as the leader of the opposition and the hon. member for Yale, that this would involve responsibility without power and therefore could not be acceptable from any point of view.
May I add also that we were sent here to represent a particular social and economic philosophy and that now and throughout the war it is essential, in our opinion, that we shall represent that point of view in this house. Perhaps it is more important that we should represent it here than that it should receive representation in Great Britain, because, while in Great Britain the leading members of the party holding views similar to our own have united with the new Prime Minister of Great Britain to prevent the

The Ministry-Mr. Blackmore
spread of fascism and to destroy autocracy and dictatorship throughout the world, we find that in Canada, for example, in a recent *by-election in the province of Saskatchewan, one of the aims of the Liberal party was given as the annihilation of communism, nazism, fascism and socialism. Consequently it would be manifestly impossible for those of us who hold' the point of view of the socialist leaders who now constitute so large a part of the British government to associate ourselves with those who intend to destroy the very philosophy which we hold.
In my opinion the Prime Minister as leader of the government has the right to consider at this time that within comparatively recent weeks he was accorded the support of the Canadian people in carrying on the government of this country, and that he should carry on that government. I do not wish to see laid in Canada the foundations of a totalitarian state. The purpose of our British parliamentary procedure is that there shall be an alert, well-informed opposition, not opposing in a carping manner the policies which a government introduces, but bringing constructive criticism to the measures suggested by the government. I believe that we should preserve that free democracy both in war and in peace. For that reason I conceive it to be part of my duty to give all the attention I can to the affairs of the country, with the idea that constructive, alert opposition is almost as great a contribution to the common cause as the business of government itself.
I am still of the opinion which I expressed earlier in the session, that the members of this parliament are not well-informed regarding the war and the defence of Canada. We have hesitated, I believe, in all quarters of the house, including the government side-


Mr. TOMLINSON:: Speak for yourself.


Mr. COLD WELL:: -about asking questions which might embarrass the government's war effort or divulge information which ought not to be divulged.


Richard Burpee Hanson: Quite
true.


Thomas Miller Bell: But I am still of the
opinion that before this parliament is prorogued or adjourns we should have in this house a frank and free discussion regarding the defence of Canada, both now and in the months that will follow.
I wish to thank the house for having granted me permission to express this point of view, and in doing so I am speaking also for the group with which I am associated.


Mr. J. H. BLACKMORE (Lethbridge):: Mr. Speaker, as has already been pointed out, the refusal of the leader of the opposition (Mr. Hanson) to accept the offer of the Prime Minister (Mr. Mackenzie King) has really, so to speak, let us out, so that any remarks of mine might be regarded as unnecessary. Nevertheless it seems wise that I should say just a few things.
I should like to reaffirm the statement I made the other day, that neither I nor any member of my group seeks or shirks responsibility. We are all eager to win the war, and have very definite ideas as to how we can greatly add to the efficiency of Canada in the conduct of the war. But I am still not satisfied with the Prime Minister's offer, because of the vagueness of his proposal. I am unable to see anything definite about what our opportunities for service would be, or just exactly what our responsibilities might be, if we accepted it. I have wondered frequently since the offer was made just why it was made. Is it the desire to give the parties in opposition additional information? That might be a most commendable desire on the part of the Prime Minister. And I think I may safely say that if that is the object of the offer, the offer is somewhat overdue. We had one or two little conferences not long ago, in which the Prime Minister invited the leaders of the opposing groups to come to his office. I had the impression that there was a frank and kindly and agreeable understanding on all those occasions, that he was not embarrassed or annoyed by truculence of the members he brought in; and also I had the impression that we completely kept faith with him, that we did not divulge anything which he bade us look upon as confidential. I have wondered since why it was that he did not continue to call us in.
Even on the conscription bill, about which the Prime Minister found himself in great perturbation, he did not bring us in and tell us why he was so eager to pass the conscription bill or give us any hint which would help us in determining to what extent we should oppose or should not oppose it. Because of this I cannot quite see why this suggestion is made, considering the fact that the Prime Minister could have called me in, and the other leaders, I am sure, at any time and we would gladly have come and he could have given us all the information there was to be given quite as well, it seems to me, as under this proposed set-up. If not, then there is something about the proposed set-up and its possibilities which I have not yet learned. So far as I can recall we have not used any

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of the information given us on those occasions to embarrass the government, or compromise the war morale or will of the Canadian people, or in any way to do that which we ought not to do. Therefore it seems to me the way is completely open for an informal conference at which the leaders of the parties could be completely informed with respect to the grave matters confronting this government from day to day.
Does the Prime Minister wish suggestions? Is it the desire to get suggestions which has led him to make this offer? If so, may I point out that we have never been reluctant to offer constructive suggestions; in fact we have rather obtruded our ideas on the ministers and the government, so that there is no reason for suspecting us of over-reluctance or over-delicacy or over-restraint.
Another thing to which I think I can safely lay claim is that when we have made suggestions it has always been with a cooperative and sympathetic attitude. We have endeavoured to avoid anything in the nature of carping criticism or cavilling or truculence, any of those elements which are offensive to people having suggestions made to them. Therefore it seems to me that there is no danger of the government being unable to get assistance or suggestions from us as to how it might better its war effort. We are always available for advice and consultation. I say this because it might seem to hon. members, and .perhaps to people in the country who may take the trouble to observe the matter, that in hesitating to enter into this proposal of the Prime Minister social crediters might not be ready to cooperate with the government. To allay any possible anxiety on that score I assure the government that we are ready to cooperate with them in every respect for the winning of this war. But we do want to know where we are going; we want to know that our efforts will not be entirely in vain; we want to know something about the responsibilities we have to assume.
I am just going to make one more statement before I close. We believe that the chief thing that is causing the government embarrassment to-day is the method by which they are endeavouring to finance the war. Unless the government will adopt a different method of financing the war-


Some hon. MEMBERS:: Oh, oh.


Georges Parent: Order. I think the hon. member in replying to the statement made by the Prime Minister is not in order in referring to the methods of carrying on the

war. Will the hon. member confine his remarks to the offer made by the Prime Minister and his reasons for declining it?


John Horne Blackmore: I am not sure yet whether I have understood what you said, sir, because there is such a buzz and hum in the house; there are so many hon. members who apparently think they know all about what should be said that I could not hear what you said. But I shall not offend against your ruling.
I just want to finish the statement I was making, that unless there is a change in the method of financing the war-


Some hon. MEMBERS:: Order.


John Horne Blackmore: -I do not know that any group of people whatsoever could carry on the war any more effectively than the present government are doing. Consequently I say that unless the government are prepared to accept suggestions regarding the financing of the war I really do not see that we would have any suggestions that would be worthy of their consideration, therefore I do not see that they will be deprived of very much if they are deprived of our advice. I think I have made our stand quite clear.


William Lyon Mackenzie King: Mr. Speaker, on Monday last when I extended to my hon. friend the leader of the opposition (Mr. Hanson) and to his colleague (Mr. Stirling) an invitation to become, if they thought it advisable so to do, associate members of the war committee of the cabinet, I was met by my hon. friend with the charge that I had not spoken to him privately about these matters before, but had suddenly sprung the invitation openly in this house; and if I gathered aright, he thought that was a somewhat improper method of proceeding. Well, if there has ever been any doubt in the mind of anyone as to whether the method was a right or wrong one, I am sure what my hon. friend has said to-day will remove all doubts on that score. My hon. friend has referred to what he said was a private conversation that we had together a week before I made the announcement publicly. I referred to that conversation when I spoke on Monday last and said that, extending the usual courtesy that I thought would be expected in a matter of the kind, I had indicated to the leader of the opposition the direction in which my mind was tending on this matter and had given him an intimation of it so that he might have the opportunity of turning it over in his mind. To-day he has spoken of one or two words that I used

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in the course of that private conversation and has sought to convey the impression that I had said one thing to him in private conversation and then when I made the announcement the other day was seeking to say something quite different. He said I had spoken privately of having members of the opposition, or rather himself and his colleague, come in a consultative and advisory capacity, while the other day I had said they were to be associate members. I ask hon. members, if one is seeking for designations that are brief and appropriate, could one get any more appropriate designation of one who is to come into a committee along with others in a consultative and advisory capacity, than the word "associate" implies? I had no thought of adding to or taking away from any responsibility which hon. gentlemen would be assuming, if they acted together with the committee, by using the word "associate." What I said as to responsibility in the statement I made was clear enough, and any designation that might be given could not alter that aspect of the matter one way or the other.
What has surprised me, I must confess, in what my hon. friend has said is the way in which he has received the proposals I made to hon. gentlemen opposite. One would have thought that my sole motive was one of intrigue; that all I had been seeking to do in what I put forward was in some way or other to place hon. gentlemen opposite in an embarrassing position, to rob them of some of the rights which at present they possess, and to do that all for my own personal glorification. Well, if that is my hon. friend's view, I do not think anything I can say to him to-day or at any other time could change it. But I did hope and believe that he knew me better than to assume that to be the attitude I would take in a matter so grave as our country's war effort at this period of the world's need.
May I say I believe the house generally will agree that if I have stood for one thing above another in this parliament during the years I have been a member of it, and more particularly in the years I have held leadership either of the opposition or of the government, it has been for maintaining the fundamental principles of responsible and representative government. That is the thing for which I have stood above everything else. When my hon. friend talks about a party system of government may I say to him that as far as this government is concerned we are seeking to uphold not a party system but the parliamentary system of government as we have had it in Canada from the time of confederation down to the present; every move I have 95826-964
made as leader of the government in matters affecting government has had in view maintaining that system of government. Criticism, when I have made it in relation to matters of government, has been made in reference to any departure from the system of parliamentary government as I understood it.
Now what is the parliamentary system under the British system of government? It is-and according to our constitution it is so stated-that periodically there must be appeals to the people. Five years is fixed as the limit beyond which we must not go without having such an appeal. That is based on the right of the people themselves to say periodically what particular government they wish to have in power. The only way in which it is possible to present to the people policies which they are to be asked to support is in the name of some party that supports and upholds those policies. A party is not an end in itself. A party is a means to an end, a means whereby men and women who feel and think alike with respect to great questions of government may bring their combined force to bear with a view to making their views ultimately prevail. My hon. friend has some views; he has his party. This afternoon others have spoken with some emphasis with regard to the importance of the views of their parties. Our whole parliamentary system is based upon the party system. We are not seeking to maintain party for the sake of party; we are seeking to uphold the parliamentary system of government, which is based as all know upon the party receiving the support of the majority of the people. When I asked His Excellency the Governor General to dissolve the previous parliament in January last, it was because I felt the time had come when the people were entitled to say whom they wished to carry on the government of Canada during this period of war. Dissolution was carried out on those grounds; the appeal was made on those grounds, and this parliament as it is here to-day represents the views of the people of Canada as to the particular government they wish to have to carry on the affairs of this country at this time. We are here to-day not as a party government but as the government the people of Canada sent here; we are here by their authority, with a trust to carry on government in this great crisis in the affairs of our nation.
With every word that has been said by my hon. friend the leader of the opposition as to what would impel him and others to support the view of responsible and representative government, I am in entire accord; but may I say that he has gone very far afield to misconstrue my purposes and intentions in the
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proposals I made. They have not been proposals to depart from our system of parliamentary government. They have been proposals -surprising, perhaps, as being quite unnecessary in order to maintain parliamentary government, but made nevertheless with a view of seeking to meet the wishes of hon. gentlemen opposite, as they have expressed them over and over again in this house; wishes which, if I were to express them in words as I have interpreted them all along, were to ;he effect that public confidence in the administration of affairs in time of war might be strengthened by having in the government some individual or individuals who would represent political opinions known to be other in some particulars than those of the individuals who form the present administration. That is the point of view that has been put forward by hon. gentlemen opposite. They have put it forward in one way; their press has put it forward in another. They have talked mostly of individuals outside parliament, their press mostly of persons in the opposition in parliament. They have said, *"Bring into your government leading men who will help establish this confidence." That confidence does not mean, as my hon. friend says, confidence in the Prime Minister as an individual or confidence in his government as a Liberal government. Just read what I said in this very connection:
Realizing the importance of increasing public confidence through bringing to the aid of the ministry all points of view and opinions, I have considered yet another means by which this end might possibly be attained.
What I have sought to do, consistent with representative and responsible government, has been this. I have not tried to free the government of any of its responsibility; nor have I asked others to assume responsibility without power. I believed that it would help to satisfy a large volume of sentiment in this country to have associated with the government one or two outstanding persons of the type my hon. friend mentioned who were known to represent a shade of opinion other than that held by this party, but who nevertheless I believed were persons who shared generally the point of view of the administration on its war activities and in its determination to win the war, not by partisan means but by straight, open means; frank, honourable, honest methods of government. Such persons I felt, unless prevented for other reasons, would not, whatever their political opinions on other matters might be, hesitate for a moment to come into the administration. The other day my hon. friend held up the example of the United States to me as something I should seek to follow. He mentioned that 
Mr. .Knox and Mr. Stimson had been brought into President Roosevelt's administration. By making that reference he was indicating, and in fact he said, that these gentlemen represented another political party than that at present in office in the United States. That is true, but there is also something about Mr. Stimson and Mr. Knox which is equally true and which accounts for their being in President Roosevelt's administration to-day. That is, their views with respect to present world conditions, their views with respect to policies which may be essential to enable the United States to follow what Mr. Roosevelt believes to be the right course, are in accord with the views of Mr. Roosevelt himself. That is borne out by the sort of criticism which has been expressed by some of those who belong to the party to which Mr. Knox and Mr. Stimson belong, on their entering the government at all. But the ground on which they have come in to the government has been to associate themselves with war policies in the United States in connection with which their views are the same as those held by the administration.
May I now make clear what has been governing me in my own thoughts, the genesis of my seeking to meet my hon. friend's wishes in connection with bringing into the government one or two gentlemen known to be members of the Conservative party-yes, outstanding members of the Conservative party.
In the general election of 1917, when an appeal was made to the country by the national government of Sir Robert Borden, Sir Wilfrid Laurier opposed that national government, and I was one who stood by him in that attitude. I opposed national government. I had at the time many confidential talks with Sir Wilfrid Laurier in reference to the very matter which we are considering, and ought to be considering at this time. We discussed the subject of how in the event of the Liberal party being returned to power, persons of other shades of opinion might come to be satisfied in their own minds that the government in a time of war was going to be actuated by something other than mere party motives.
I was intending to speak in North York, in which constituency at the time I had the honour of being the Liberal candidate. I asked Sir Wilfrid, "Have you any suggestions to make, or do you wish me to express any view on this matter?" We had, as I have said, been discussing it together. I believe I may now feel free to disclose what happened on that occasion. It is interesting in itself and a matter of public interest at this time.

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Sir Wilfrid said, "If I am returned and the Liberal party is returned I propose to bring into the administration one or two outstanding Conservatives, simply to satisfy a feeling which may exist on the part of a number of people in the country. That action will stand before the public as a guarantee that proceedings inside the council are not being conducted on mere party lines, but are being conducted solely on great national lines." It must be remembered that at that time there was only one opposite party in the house. We had not the groups in those days that we have to-day. Sir Wilfrid said to me that one of the gentlemen he .proposed to take in,, or had in mind to invite to come in was Lord Shaughnessy, who was then pretty well known as a Conservative, and was president of the Canadian Pacific Railway Company. He said to me on that occasion, "I will ask Lord Shaughnessy to become minister of railways and canals, because I think he will be very helpful to the administration in transportation matters."
That fact may not be publicly known, but I can vouch for it to-day. That was what was said on that occasion. When I was discussing the matter of taking into this administration an outstanding Conservative with members of my own party, I mentioned that circumstance to them. That was before I extended any invitation to my hon. friend. I made it clear to my own party that if in any way we could help to satisfy the public mind as to the disinterestedness of the government in all matters of conducting the war in the most straightforward manner possible, that this would be most desirable, and that if I could attain that end by bringing into the ministry from outside one or two outstanding persons, I was prepared to bring them in, and was prepared to trust their loyalty and their integrity in respect to all matters the government would be obliged to consider.
It was in that frame of mind that I did approach one or two gentlemen. I might say I approached four or five gentlemen, and extended an invitation to them to come in. I did not intend that that number should come in, but I did intend that one or other of them, or two or more might be brought into the administration. And I might say to my hon. friend the leader of the opposition and say it most emphatically, that not one of those gentlemen declined to come in because it was a Liberal government. I wish to make that as strong as I can; and if my hon. friend doubts- my word for one minute, and suggests that it is not true, I will ask him whether he got from the lips of any of those gentlemen word to that effect.


Richard Burpee Hanson: I interviewed only one, who was not a Conservative, and then only over the telephone.


William Lyon Mackenzie King: I am glad to
hear my hon. friend say that, because he has told the house and the country that the reason why these gentlemen would not come in was that they had been asked to come into a Liberal government. My hon. friend said that the other day. He said it was because I had laid down some doctrine about loyalty to myself which made it impossible for them to come in. Now he says he has not had conversation with anyone, except one over the telephone, who was a Liberal.


Richard Burpee Hanson: Who was not a Conservative.


William Lyon Mackenzie King: I say to the
house, I give to the house my word, that I extended the invitation I did without any kind of restriction, without imposing any condition, or without any consideration other than that of saying that I was desirous to bring into the ministry one or two persons outstanding in the industrial and financial life of the country who would help to satisfy the kind of desire which I thought was being expressed from the other side of the house, namely that there should be some evidence before the country that it was not some Liberal monopoly that was seeking to carry on the government, but that we were prepared to have associated with ourselves for the greater confidence it might give in the ministry's integrity of purpose in the winning of the war, other shades of political opinion.
I believe I may leave that matter there. I wish now to discuss the invitation itself. What has happened to-day does show one how much thanks one gets for trying in an open way to meet hon. gentlemen opposite in connection with the administration of the affairs of the country. In the course of years I have learned a great many lessons. I have learned many lessons while I have been in public life, and I think I have learned another lesson within this last week which I shall perhaps remember for the rest of my days.
I had thought I had so phrased the invitation that no possible exception could be taken to it on any of the scores which my hon. friend has cited. Let me read what I said before in extending the invitation I did, and see if it is capable of the kind of interpretation the leader of the opposition has sought to place upon it.
Before, however, reading what I said, may I repeat what I said a moment ago. I have maintained the position that in fighting the war, we should seek, as we do in times of peace, to maintain our free institutions; above

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all, that we should not permit the war, if it were at all possible for us so to do, to cause us to lose the slightest measure of the political freedom we have in Canada. That is why, at great risk of being misunderstood, and all the rest of it, I asked his Excellency the Governor General to dissolve parliament, notwithstanding the country was at war. 1 believed that the people had a right at that time to declare themselves, and that a war should not be made the excuse for men to sit indefinitely in this House of Commons or to perpetuate themselves either as a government or as members of parliament for a time beyond that permitted by the constitution.
X have maintained throughout that the government must take full responsibility, and that it cannot evade its responsibility in any way. I thought that in that particular I had made the invitation very clear, and that my proposal had been framed in a manner which would not admit of the slightest reason for the public believing that as a government we were seeking to evade our full responsibility. I put positive words into the invitation so that it could not be misconstrued. If I had invited persons to come to be associate members of a war committee of the cabinet, and had left it at that, they might have put their own interpretation upon it, or have thought that they were being asked to assume responsibilities without equal power. A government also has questions of responsibility and power to consider. Under a system of responsible government we cannot divest ourselves of responsibility if we take power, nor if we are to carry the responsibilities of office can we be without full power. The two go inextricably together. That is why I took particular care to see that both responsibility and power continued to rest upon the administration, and that in extending the invitation I did we would not thereby be changing in any particular the fundamental character of the administration. If they wished to avail themselves of the opportunity, we were prepared to give to hon. gentlemen opposite the kind of assurance to which I have referred, and which I at least conceived was what they had in mind, namely evidence of the government's bona fides in every particular with respect to the manner in which they wished to see the war effort of Canada carried on. My invitation was in these words:
Realizing the importance of increasing public confidence through bringing to the aid of the ministry all points of view and opinion, I have considered yet another means by which this end might possibly be attained. I have thought of inviting leading members of the opposition to become associate members of the war committee of the cabinet, to share its deliberations and to assist in the formation of its proposals to the cabinet.
fMr. Mackenzie King.]
"To share its deliberations." They would come and meet there as members of that committee and share in everything that was being discussed. As proposals were put forward they would be given the opportunity of discussing their merits or demerits. All that would be expected was that they would do their part, of helping to see that proposals were along the right and best line.
Regardless of what course may be adopted, the government itself must, in the last analysis, take the responsibility

There I was relieving my hon. friends at once, if they accepted the invitation, of any responsibility. I was placing it solely and wholly upon the government.
-for whatever is done or- left undone. That responsibility cannot be escaped or evaded. It is difficult even to share it.
I had not been oblivious to the fact that there were difficulties, and I had been trying to meet the difficulties by which hon. gentlemen might be faced. I knew at once that the relationship between responsibility and power would be the first question to arise in their minds, and I sought to anticipate that by saying what I said. I was seeking to meet any objection that might arise and remove it if at all possible.
it is difficult even to share it. It would not be my idea, in case members of the opposition became associate members of the war committee of the cabinet, for the government by that means to seek in any way to evade full and final responsibility for Canada's war effort.
Then I gave the reasons why I thought it would be helpful to the government, to the country and to hon. gentlemen themselves if they joined in that association.
But the presence in an advisory and associate capacity of members of the opposition would have a number of advantages. While their addition to the war cabinet would leave unimpaired the requirements of responsible government, it would mean that the government's policies were being shaped and made effective not only under the open gaze of members of the opposition, but with the assistance of their counsel, experience and advice. It would mean that in all major matters of defence, internal security, international cooperation, the leading members of the opposition, chosen to act in association with members of the war cabinet, would be fully informed.
At the present time, one of the great difficulties of government lies in the fact that many matters of which the government has knowledge, many steps which the government takes, many actions which the government plans, are, in the very nature of things, highly confidential, and must remain so for varying periods of time.
That is inevitable in this period of war. I have here on this table communications that have arrived to-day, one of which I regard as so serious that I propose to show it to my hon. friend this evening. I think he ought to know of it at once; I think his party ought to know of it. It is the only

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way in which I can impart this information to them. It is the only way in which I can impart the information 'because I am asked specifically in the communication to be very careful about making any public statement on the matter referred to therein. I shall show it to my hon. friend afterwards and he will see that what I am saying now is borne out by the contents of the communication. The government cannot help getting confidential information. I can assure hon. members that no one has been more embarrassed by having to carry information from day to day and say nothing about it than I have myself. I know the embarrassment it is to the government to have to say, "We cannot give you this information because it is confidential." Every time that is said the government's word is discounted to some extent, or it is assumed that there is some reason other than the one given for withholding the information.
These are times of war when things are happening the like of which never happened in the world before. Events are happening to-day with a rapidity never known before. Some of the things that are 'happening involve to meet them a certain course of action which, if disclosed, would preclude or destroy the full effect of the action proposed to be taken. It has been with a desire of seeing that embarrassment removed as largely as might be possible that I have felt it would be helpful to be able to communicate some of these confidential matters in a confidential way. I shall read this last paragraph:
Were the invitation accepted, it would be my wish that they should be present at all meetings of the war committee and take part in all its proceedings. I am prepared, also, if this invitation is accepted by my hon. friends opposite, and if it is agreeable to other political groups in the house, to consider the extension of the invitation also to their leaders.
If the house and the gentlemen whom I have invited look upon the proposal with favour, it would mean that the country would have the benefit of their wisdom, advice and experience, the government would retain the responsibility for the direction of Canada's war effort, with which it has been charged. It would also be understood that members of the various opposition groups in this house would continue to be free to criticize the administration as they think fit, and to vote and act with complete independence.
My hon. friend the leader of the opposition has said that if he and his colleague came in he would be prevented from criticizing. Is he not a member of the opposition? It was never intended to exclude him, or to exclude his desk-mate. That is why I cannot understand the attitude of my hon. friend. Unless he has approached this whole proposal as
having been made in a spirit of intrigue, I cannot see how he can have placed the interpretation he has upon those words.
It would also be understood that members of the various opposition groups in this house would continue to be free to criticize the administration as they think fit, and to vote and act with complete independence.
That language cannot be gainsaid. It is there exactly as it was said, and it stands as a permanent record of what was intended.
I do not know that I need say much more, except perhaps this further thought. Assuming that I had not made this invitation, assuming that I had said nothing to the opposition about the readiness of the government to have hon. gentlemen from the other side come and share in some of its deliberations, what would my hon. friend have been saying to-day to this house and to the country? He would have said at once: "Mr. King has taken great care in what he has done to see that no one but a dyed-in-the-wool Liberal is going to have anything to do with this war, or to know anything about it; he has not given to the opposition or to any members on the other side of the house an opportunity of knowing anything about some of these confidential things he talks about; he has not given us an opportunity to know the position of Canada in relation to the dangers which the country is facing at the present time." I would have been wiped off the slate as the greatest Liberal isolationist that ever held a position in public life.
I am speaking to men who are accustomed to public life and I think all hon. members will realize that what I am saying is utterly true. To sum up, may I say that while I did not expect this discussion to take the turn it has, while I did not expect that the invitation would be refused, not merely in the summary way in which it has been refused and in the manner and with the words which have been used, I do believe that this attempt of the government to bring the members of other political parties and groups into its confidence has helped to demonstrate the dangers there are once one begins in any way to depart from what has been the general practice of our parliamentary system of government as carried out under British institutions. That parliamentary system of government is based upon the view that what the majority of the people in the country have expressed at the polls as their will must prevail in matters of policy, and that the government of the day must continue to have that will as the power back of it to enable it to do what it does. I think it has been shown conclusively this afternoon that so far as the

The Ministry[DOT]-Mr. Mackenzie King
administration or to be charged with the responsibility of formulating its policies. I was administration of this country is concerned, great as the responsibility is, we cannot hope to share that responsibility with anyone else without appealing to the people in the first instance. The people have put us here with the majority which we have. They have placed upon us a responsibility which we must assume. I take it, from what hon. gentlemen opposite have said, that they prefer that we should assume that responsibility in its entirety, which is right, and not seek in ways which might seem even indirectly to do so, to evade the full responsibility we have.
My hon. friend speaks about the government representing fifty-five per cent of the people, while the other forty-five per cent are represented by the hon. members on the other side. He has implied that the voices and the opinions of this forty-five per cent should also govern during war time. May I point out to him that of that forty-five per cent, only thirty-five per cent represents what he might claim as the voice of the Conservative party in Canada. I am treating hon. gentlemen opposite very kindly when I say the Conservative party, because it was not under that name that they ran in the last election. If we are a Liberal government in office we were at least not ashamed of our name when we went before the people of this country and asked them to give us their confidence. That is more than hon. gentlemen opposite can say. There are other groups in this house that help to account for the numbers in opposition, and taking them as one sees them from this side there is very great difficulty in seeing how they could be regarded as being completely of one accord in anything, because they represent as many different sets of views as there are groups or parties opposite. I think I have made it clear that my hon. friend, when he speaks of his present party, can speak of not more than a certain percentage of the opposition.
Is there, may I ask, anything to prevent gentlemen who are not represented on this side of the house from maintaining an attitude of helpful cooperation in every way with the government under our party system, if you wish to call it so, although I prefer to call it the parliamentary system?
I should like before coneludng, because I think they are worth repeating, to quote to my hon. friend and the house the words that were used by Sir Wilfrid Laurier when he was similarly circumstanced to my hon. friend at the moment. When the war came on in 1914, Sir Wilfrid Laurier was the leader of the opposition, and he had to state on behalf of his party what their attitude would be towards

the government of the day. It was a party government; a Conservative government. Did Sir Wilfrid Laurier begin by saying: We want to come into your party; we want the people of our opinion to be represented and share in the government? Or did he say, as my hon. friend ventured to say in the course of his remarks, that the opposition had a duty to perform as well as the government and that he intended to perform his duty as leader of the opposition? This is what Sir Wilfrid Laurier said. On August 19, 1914, as reported at page 8 of Hansard, he said:
Speaking for those who sit around me, speaking for the wide constituencies which we represent in this house, I hasten to say that to all these measures we are prepared to give immediate assent.
That was after the government of Sir Robert Borden had announced the measures which they thought necessary for the winning of the war.
If in what has been done or in what remains to be done, there may be anything which in our judgment should not be done or should be differently done, we raise no question, we take no exception, we offer no criticism, and we shall offer no criticism so long as there is danger at the front. It is our duty, more pressing upon us than all other duties, at once, on this first day of this extraordinary session of the Canadian parliament, to let the friends and foes of Great Britain know that there is in Canada but one mind and one heart, and that all Canadians stand behind the mother country, conscious and proud that she has engaged in this war not from any selfish motive, for any purpose of aggrandizement, but to maintain untarnished the honour of her name, to fulfil her obligations to her allies, to maintain her treaty obligations and to save civilization from the unbridled lust of conquest and domination.
I ask hon. members to re-read those last words and see if there is a scintilla of difference between the fundamental aims for which we are all fighting to-day and those we were fighting for in the last great war.
But Sir Wilfrid Laurier did not confine his attitude to one session of parliament. He maintained his attitude throughout. When the next session of parliament opened, Sir Wilfrid Laurier said:
Let me say at once that we who sit on this side of the house and who represent bis majesty's loyal opposition took our course at the outset of hostilities when we declared that we would support the government in their war policy. We conceived that it was our duty to do nothing to embarrass the government, but on the contrary to do everything in our power to facilitate the task, the heavy task which had been placed in the hands of those to whom, for the time being, the Canadian people had entrusted their fortunes. We have acted upon this principle all along, and again we are prepared to act accordingly. We meet the summons of his royal highness in the same spirit to-day, in the month of February, as we met it in the month of August last. We are pre-

The Ministry-Mr. Mackenzie King
pared to give to the government, to those who for the moment have the confidence of the Canadian people under our constitutional system, the support to which they are entitled for the attainment of the great end which we all have in mind.
There is the true attitude of an opposition at a time of war as Sir Wilfrid Laurier conceived it. I think I can say that a more loyal attitude to the country itself could not possibly have been expressed. I believe that attitude is one which commends itself to my hon. friends opposite.


Grote Stirling: Will the Prime Minister not agree that that is the attitude which has been taken by this party, both in September and again this session?


William Lyon Mackenzie King: May I say to my hon. friend that there have been many expressions of attitude on the part of hon. gentlemen opposite. Some of them have been that the members of the cabinet ought to be changed; others that the leader of the government ought to be changed, and others that there should be a change of government itself. There have been as I have said all kinds of attitudes expressed by hon. gentlemen opposite. One of them has been an attitude similar to that which I have just read. I believe that represents the view of my hon. friend himself, and represents equally the view of the leader of the opposition. But I must say this, that so far as the attitude as a party of hon. gentlemen opposite towards the government is concerned, it has not been a consistent attitude along that line but, as I have said, many attitudes, some of them of very considerable embarrassment to the government, much greater perhaps than hon. gentlemen may have realized.
Speaking of attitudes, may I say further that there is in more than one matter one attitude maintained by certain hon. gentlemen in this House of Commons, and another attitude outside, expressed very strongly against the government by their press, and when we speak of attitudes, it is necessary to speak of both. The leader of the opposition has said to-day: I did not ask to come into any national or union government; I would not go in; I have a duty to perform; I did not ask to come into a national government and neither did my colleague. But their organs of opinion are not taking that attitude. They are putting it the other way, and at times in violent language, in their editorial columns, day after day. Their demand is for national government, meaning thereby union government. The Conservative party cannot have it both ways, one way in this House of Commons and another way in its press. If
it wishes to take a particular attitude and have that attitude known and respected, it must take it consistently both inside parliament and outside parliament.
While I am speaking of national government I think I had better say one word in conclusion with regard to some statements made with respect to national government. The argument has been made and may be made again that because the United Kingdom has what is termed a national government, meaning a government of members representative of different political parties, therefore we in Canada should have a similar government. But the position in England is entirely different from the position here. The position in England is that they have not had a general election since 1935 and the period has expired in which they would normally have had an appeal to the people. Obviously there are reasons why that appeal cannot be made in Great Britain at the present time, and therefore the. government has found it necessary, in order to get certain measures through, to bring other gentlemen into association with itself in that particular relationship. Fortunately we have been able to put through our different measures by reason of our own majority. We have not been driven to the recourse of having to appeal to other groups and parties in the house in order to get through the important measures which have been put through the house this session. May I cite one example, to illustrate exactly what I mean? The government regarded as a most important measure the National Resources Mobilization Act which we put through. I can conceive of circumstances in which if that measure had been introduced at an earlier period of the war we would have had no end of opposition in this House of Commons.


Mr. HOMUTH:: Before the election.


William Lyon Mackenzie King: Yes, before the election, if my hon. friend likes to put it that way. My hon. friend has his mind on elections most of the time. If we had tried it before the elections, this house would probably have been divided, and the government itself might not have been able to carry on.


Karl Kenneth Homuth: It would not have been in.


William Lyon Mackenzie King: But let me say this to my hon. friend, that if I had regarded that procedure as necessary before the election, I would have taken it and gone down with the government in defeat if I could not have got the necessary support from some part of this house rather than have failed to endeavour to put it through. That is where a national government of the different political



The Ministry-Mr. Mackenzie King
party type may become necessary-where a government which has been entrusted with power by the people feels that some measure is essential to its war effort, and cannot get the support that it needs from its own party but finds it can get it out of the total membership of the House of Commons. That is the final test of everything-the support which a government may count on from the people's representatives in the House of Commons. The leader of a government who has the responsibility of deciding what measures shall be taken has always to consider whether he can get the support which is needed, and if he cannot get that support from his own people, if there are others in the house who are prepared to support a particular measure, and he deems it absolutely essential that that measure shall be carried through, he should either seek their support, or go at once to the people to obtain the backing of the people themselves. It is the majority of the country, the majority in this parliament, which governs, and so long as an administration is supported by the majority it has both the power and the responsibility. When it loses either, it loses both.
We have had talk about the government in Australia. What is the position there? They had three groups in the commonwealth parliament. Two minority groups have joined together to form a coalition, but the opposition which is the largest of the three groups, is still there as an opposition to-day. There is no "national government" about that, in the sense in which hon. gentlemen have been referring to it in this house and referred to it throughout this country in the last general election.
So far as national government in Canada is concerned, what is the position? Before confederation there was, under the Union Act, a parliament composed of representatives from Ontario, or what was then Upper Canada, and representatives from Lower Canada. Their numbers were fairly evenly balanced. Those who were from Lower Canada were mostly French and Catholic and of one party and those who were from Upper Canada were mostly Protestant and English-speaking and of another party, and the parties were so evenly balanced that whenever they became opposed it was impossible to carry on government itself. Leading members of the parties, recognizing that government could not be carried on unless some of their number united on some great principles other than those of race or language, took that particular stand A coalition was formed to make government itself possible, and out of that coalition

ultimately came the confederation of Canada. But it was a coalition to enable government to be carried on.
Come to 1917 and the formation of the union government at that time. Why was it formed? For one reason, and one only; not that the government of the day could not carry on the ordinary business of government, but that it was determined to introduce a measure of conscription which it knew it could not put through unless it got from different parties men who were prepared to support that particular measure; and the coalition was formed in order to put conscription through.
We fortunately have not been and are not driven to a necessity of that kind with respect to any of our measures. Such legislation as we have brought forward has been passed with the cooperation of hon. members opposite, but unmistakably we put it through primarily in virtue of the majority the people of this country have given us.
I hope that in the course of these remarks I have not said anything which can be in the least either offensive to or misunderstood by any hon. member. It is perhaps just as well that we have completely threshed this question out, so that there will be no misunderstandings from now on. We as a government will continue to govern under the British parliamentary system whereby the majority in parliament are given that duty and that responsibility. We shall look to the leader of the opposition as one who by statute is entrusted with the duty of being the leader of the opposition, not of coming into the government or having any members of his party come in, but of remaining where he is as the leader of the opposition performing a great function, a duty second only to that of the Prime Minister himself. Criticism can be constructive, it can be helpful, and it should where necessary be availed of at all times. I hope that my hon. friend will exercise his functions in that way, in the light of his sense of responsibility, just as freely and completely as he possibly can.
There are only two things I would like to say in conclusion. A great deal has been said about my having made some comment upon the attitude of hon. gentlemen on the opposition front benches whose loyalty to myself, it was said, I was inclined to question. I hope that if I have said anything which has hurt the feelings of hon. gentlemen opposite- I am speaking now of the colleagues of my hon. friend the leader of the opposition-or has given rise to misunderstanding, as to an unwillingness on my part to share with them to the full necessary public confidence, or as to a sense of their loyalty and the

Questions
rest of it, they will accept my assurance that I had no intention whatever, in the remarks I made the other evening, of referring to myself in a personal way. I was speaking of the conception which I had of the leadership of a government and of the kind of association which must belong to men who compose a ministry and are closely related in that association to the Prime Minister.
My last word is to my hon. friend the leader of the opposition. I want to say and say publicly that my hon. friend has been most helpful to me through this parliament. He has been critical, but critical in a fair way, with the single exception that, at times, I think, he has been unduly suspicious, and probably has let his suspicions override a sense of trust which I hope, with time, may become stronger even than his supicions.



QUESTIONS

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

Mr. CHURCH:: 1.	What mail rates per pound are paid on publications such as the Saturday Evening Post, and what is the estimated annual loss per annum to the departments concerned?
2.	Do the reduced rates amount to a large subsidy to such papers from the people of Canada?
3.	Have any objections been received to this low rate per pound, and, if so, from whom?
4.	What is the annual estimated loss to the departments concerned for carrying papers of all kinds through the mails by the government?


Mr. MULOCK:: 1.	Two cents a pound. Not practicable to keep cost of handling United States publications separate from cost of handling Canadian newspapers and periodicals.
2.	No. If American publications such as the Saturday Evening Post were mailed in the United States, Canada would continue to handle the same volume as at present without remuneration, as postage would be paid to the United States administration, resulting in a loss of revenue of approximately $400,000 per annum.
3.	Yes. Circulation manager, the Toronto Star.
4.	$4,500,000.


BACON EXPORTS TO GREAT BRITAIN
Mr. SENN:: 1.	How many grades or classifications of Canadian Wiltshire sides are being shipped to the British market?
2.	What percentage of our total shipments to Great Britain in 1940 fell within each of the above grades or classifications?
3.	What was the average price per pound realized for each grade or classification in the year 1940, to date?
4.	How many pounds of Canadian hams and box cuts have been shipped to Great Britain?
5.	Have any pork products imported from the United States, either as fresh or cured pork, been shipped to Great Britain by the bacon board or any Canadian exporter?


Mr. GARDINER:: 1. Two grades-A and B. Three selections: No. 1 (leanest); No. 2 (lean); No. 3 (prime). Six weight ranges of five pound spreads, covering a range of 45-80 pounds.
2. Grade	Selection	45-50	Percentage of weight 50-55 55-60 60-65	ranges 65-70	70-up	Total per centA	No. 1	. 1-2	90	20-5	19-1	7-8	2-1	59-7A	" 2	[DOT]1	2-1	6-5	9-3	4-1	1-4	23-5A	" 3	[DOT]3	1-9	3-7	2-5	11	9-5B	" 1	[DOT]2	1-1	2-1	1-7	[DOT]6	[DOT]1	5-8B	" 2	*1	[DOT]3	*5	[DOT]2	[DOT]1	1-2B	" 3	[DOT]1	[DOT]1	[DOT]3Totals all	selections..	.. 1-5	12-6	31-3	34-4	15-4	4-8	1003.	Under the agreement the British Ministry of Food pays the bacon board for all Grade A bacon, $20.18 per 112 pounds f.o.b. Canadian seaboard, and for all Grade B bacon, $19.29 per 112 pounds f.o.b. Canadian seaboard.4.	January to June, 1940, inclusive-56,184,-610 pounds.5.	No.


TORONTO POSTAL TERMINAL
Mr. CHURCH:: Has the government come to any decision yet regarding completion of the Toronto postal mail order building?


Mr. CARDIN:: It has been decided to proceed with this building sufficiently to ensure its protection and make it available for war purposes.
Passports and Visas

^NATIONAL HOME GUARDS


Thomas Langton Church: Will consideration be given to the formation of national home soldier guards in Canada and to amending the Militia Act, the War Measures Act and the criminal code accordingly, to define their powers and duties as an auxiliary to home defence and protection to the civilian population of Canada.


Mr. RALSTON:: Speaking in the house yesterday I think I indicated the answer to this question, namely, that the Department of National Defence desires to pursue the policy of having military units organized and dealt with through the Canadian active service force and non-permanent active militia, and not by way of special forces such as are suggested here.


STATEMENT OF MR. SPEAKER RESPECTING TOURISTS AND OTHER VISITORS TO PARLIAMENT BUILDINGS
Georges Parent: Before the orders of the [DOT]day are called I wish to make a statement to the house. In the Ottawa Morning Journal of to-day there is an article with regard to the *exclusion of tourists from the centre block. I shall not read it all, but the last paragraph says that the police at the doors of the Commons and Senate have been instructed not to allow tourists to enter. That is far from being the case. Those who are charged with the responsibility for this building, realizing that in 1916 the parliament buildings of that day were destroyed by fire during a time of war, have placed restrictions upon the entry of visitors to the building because of dangers that might arise.
I have been informed that in the course of their peregrinations through the building some members of a party accompanied by our guides have become separated from the party, with their whereabouts or destination unknown. This is something that the officers of the building wish to prevent, but I wish to state definitely that instructions have been given, as far as the House of Commons is concerned, that visitors will be permitted within the building provided that they are accompanied by someone who is responsible, someone who is well known, or who is in a responsible position, and that the members of the party shall be known to those who are leading or guiding the visitors through the [DOT]*Mr. Cardin.]
building. Notice of the numbers in these parties must be given to the officers in charge and to the acting sergeant-at-arms, who is now the clerk, and the party will be given permission to enter the building.
I may also say that in connection with the entry of visitors to the building we find that some hon. members have received visitors who have not been allowed to enter the centre door. Where they have come from we do not know. I wish to ask the cooperation of all hon. members receiving visitors here in notifying the officers at the door. No one will be allowed in the building unless with the knowledge and consent of the officers.


UNEMPLOYMENT INSURANCE
[Stage Direction]
On the orders of the day:
William Lyon Mackenzie King: I wish to place on Hansard the record of the action of the British parliament in amending the British North America Act.
The address of the Senate and House of Commons of Canada requesting the introduction of a measure in the parliament of the United Kingdom to amend the British North America Act by adding unemployment insurance to the powers enumerated in section 91 was duly submitted to his majesty. A bill providing for the amendment was introduced on July 3 and, after passing the House of Lords and the House of Commons, has now received the royal assent.


PASSPORTS AND VISAS
[Stage Direction]
On the orders of the day:
William Lyon Mackenzie King: I wish to say a word with regard to passports. The hon. member for Lincoln (Mr. Lockhart) asked a day or two ago a question to which I have not had an opportunity of replying since,	[DOT]
When we were definitely informed by the United States authorities that the general application of the order relating to passport and visa requirements could not be postponed as we had urged, the arrangements which had

Sockeye Salmon Fishery
been prepared for dealing with a greatly increased demand for passports were at once put into force. At the outset it was considered desirable to continue to issue all passports from the central office at Ottawa rather than strip that organization of the limited number of trained men available by sending them out to open branches at other points. Later it was found possible to open temporary branch offices at a number of points, as men became available who were competent to supervise the issue of passports and to deal with the questions of nationality which arise. The first point at which a branch was opened was Windsor. A survey had indicated that a particularly large number of local applications was to be expected there from persons working or having business relations across the border. The officials in charge of passport work recommended that a branch office be opened in Windsor, and that was done. I make this special mention of Windsor as my hon. friend in a letter he sent to me asked that I would inform him as to who made the recommendation regarding the office there, and this is the reply I received from the department. Last week other offices were opened at Vancouver, Winnipeg, Toronto, Montreal and St. Stephen. The question of opening additional offices is receiving consideration. It may be noted that there are now three offices in Ontario, at Ottawa, Toronto and Windsor. It will probably be found necessary to cover Sault Ste. Marie immediately, on account of the special travel problems which arise there. The decision as to additional branches will depend partly on the availability of trained men. In this connection I may say that very valuable assistance has been given by the customs and immigration as well as other departments. It will depend on the need. While there is still a considerable measure of congestion, the applications for passports are rapidly declining, and the numbers issued rapidly increasing, so that the situation will soon be in hand.


SOCKEYE SALMON FISHERY
[Stage Direction]
On the orders of the day:
Mr. A. W. NEILL (Comox-Alberni):: I should like to ask the Minister of Fisheries (Mr. Michaud) a couple of short questions. Yesterday in answer to the hon. member for Vancouver South (Mr. Green) he made this statement: .
The matter of the sockeye salmon fishermen on the Pacific coast has been referred to us and has been submitted to the war-time economic committee for study and report, and I expect that the report of the committee will be ready for release this evening or to-morrow morning.
I should like to ask the minister if the report has been received, and if it will be laid on the table for the information of the house.


Hon. J. E. MICHAUD (Minister of Fisheries) :: In reply to the hon. member's first question, the report of the advisory committee has been received and has been considered. Whether it will be laid on the table is a matter which has to be considered, because the committee was not a committee of the house but simply an advisory committee to the government or any department thereof on questions of economics arising out of the war. Personally I see no objection to making the contents of the report public, but I shall inform the hon. member later as to whether it will be laid on the table.


Alan Webster Neill: I must tell the Prime Minister (Mr. Mackenzie King) that a dangerous situation out there is imminent, and as to whether there will be a very serious strike depends on the report of this committee, and if we are not to get the benefit of the report what is the use of referring it?


Richard Burpee Hanson: Is this not a public document? If it is asked for, it should be put on the table without any question.


William Lyon Mackenzie King: I am sorry that I did not follow closely just what was being said, but I understand that the report referred to is one made by the economic advisory committee, to which the cabinet refers certain matters for confidential expressions of opinion to the cabinet itself. The reports of the economic advisory committee are confidential reports to the cabinet for examination by the cabinet in considering the particular matters which have been referred. They are not reports which obligate the cabinet to accept the views therein expressed, but are intended to help its members adequately appraise the different factors which should be taken into account in arriving at decisions or determining policy on certain matters. If it once became the rule that reports of a committee chosen especially for the purpose of confidentially advising the cabinet before it makes a decision were to be made public, I am afraid there
Sockeye Salmon Fishery

would be very few references to the committee. The whole purpose would be destroyed, and I believe we would not get in the reports the valuable expressions of opinion that we now receive, not always unanimous opinions, but opinions that enable the cabinet, in considering important matters, to have before it a reflection of different points of view. The government of course have to take the responsibility for the ultimate decisions made.
If this report is of that kind then I think it is not a public document in the sense in which my hon. .friend thought it was.


Alan Webster Neill: Then I desire to move the adjournment of the house to discuss a definite matter of urgent public importance, namely, the situation in the sockeye salmon fishing industry of British Columbia where some 9,000 men are likely to go on strike because of price conditions. They have been held back by the advice of their leaders, also of some members of parliament, who have stated that this matter has been submitted to this economic committee where it is possible to receive favourable consideration. I think the matter is of sufficient importance to justify its debate now.


Georges Parent: I am afraid the hon.
gentleman has made his motion too late. We are through the routine proceedings and have reached the orders of the day.


Alan Webster Neill: It is possible to make this motion during the routine proceedings. We are now on routine proceedings; we have not reached the orders of the day.


Georges Parent: Yes, we have reached the orders of the day.


Mr. REID:: I would urge upon the Prime Minister the advisability of giving the answer of the economic committee as soon as possible, in view of the seriousness of the matter and the delay that has occurred already.


Mr. CHAMBERS:: I desire to support the remarks of the hon. gentleman who has just spoken.


William Lyon Mackenzie King: My reply was in reference to reports in general, and had to do with a principle. It does not relate at all to this question. I quite agree with the hon. gentleman who brought up the matter that the condition to which he refers is one which should receive and will I may say receive the .immediate attention of the government.


INTERNED ALIENS
[Stage Direction]
On the orders of the day:
Mr. G. H. CASTLEDEN (Yorkton):: I
should like to ask whether the government will make a statement with regard to a startling article which appeared on the front page of the Ottawa Journal this morning, to the effect that the Under-Secretary of State for Home Affairs told the House of Commons that 6.700 prisoners of war and internees of the most dangerous class had been sent to the dominion, and further that the home office retained the power to order aliens sent to the dominions to be released in suitable cases.


William Lyon Mackenzie King: Obviously I cannot be
expected to answer a question based upon a newspaper article which appeared this morning and which I have not seen, particularly one purporting to give some expression of view by the under secretaiy of state in London. I would wish to communicate with London to make sure the report was accurate, and to look into the matter carefully. I shall be glad to regard my hon. friend's question as a notice, and if I can give him any information later on I shall do so.


BRITISH CHILDREN
[Stage Direction]
On the orders of the day:
Mr. JEAN-FRANCOIS POULIOT (Temis-couata): The Montreal Gazette of this morning contains a Canadian press dispatch from London dated July 9, and reading in part as follows:
The plan to evacuate 20,000 children was criticized in a recent Daily Mail editorial. It argued that while the government was arranging to evacuate that number, rich parents were able to evacuate their children independently, with the result that poorer parents feel a grievance.
The dispatch also states:
The Mail went so far to-night as to say that the government "may abandon their plans to evacuate children to Canada and the other dominions as well as the United States."
My first question is: Was not the unduly wide publicity given by some press magnates, and particularly by the Montreal Star, to the coming of titled guest children to Canada largely responsible for this possible change of Britain's policy? The second question is: Is it the intention of the government to take

Excess Profits Tax Act
all necessary steps to stop at once such unwise and uncalled for publicity which, if it satisfies the stupid vanity of parvenu newspaper owners, is against the best interests of the children concerned?
William Lyon Mackenzie King: I am afraid my hon.
friend's question is of the kind I mentioned the other day, intended more to express views and convey information than to acquire knowledge. With respect to any matter concerning British policy I should say that is something the British government should answer itself, and I would not attempt to interpret the British policy or what occasioned it without first receiving some authority to do so. As to my hon. friend's observations with respect to the publicity given certain matters, I think he has already served his purpose by making the statement in the form he has.


Mr. POULIOT:: Yes, sir.


TRANS-CANADA HIGHWAY REQUEST FOR FEDERAL ASSISTANCE IN RECONSTRUCTION OF CUSHING BRIDGE AT CALGARY
[Stage Direction]
On the orders of the day:
Mr. C. E. JOHNSTON (Bow River):: Would the Minister of Mines and Resources (Mr. Crerar) care to answer the question I asked
him yesterday?


Hon. T. A. CRERAR (Minister of Mines and Resources):: Yes. My hon. friend's question had to do with whether or not the government would give assistance towards the reconstruction of a bridge on the trans-Canada highway, I believe in his constituency. It is not the intention of the government to give such assistance. As I intimated yesterday, the construction of bridges and of roads is a matter of provincial concern. The federal government has given some assistance to the provinces in the matter of developing tourist highways, but, as my hon. friend is probably aware, there is no vote in the estimates this year for any assistance to the development of these highways. Consequently there is no money available, in any case, for the purpose to which he has referred.


Charles Edward Johnston: Is there no tourist road vote this year?


Thomas Alexander Crerar: No. I have just stated there is not.



BUSINESS OF THE HOUSE


[Stage Direction]
On the orders of the day:
William Lyon Mackenzie King: I had intended to call the order for the second reading of the bill respecting the Department of National War Services, but I understand the leader of the opposition (Mr. Hanson) would rather proceed with it to-morrow. In the circumstances, I have sent for the Minister of Finance and we shall continue in committee of ways and means. I hope the postponement of consideration of the other bill until to-morrow will not affect the possibility of getting it through in time for royal assent before the end of the present week.


Richard Burpee Hanson: We will try to expedite it. I am very much obliged to the Prime Minister for the consideration he has shown.



WAYS AND MEANS

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

[Stage Direction]
3. That the rate of tax on the excess profits be increased from fifty per centum to seventy-five per centum.
Richard Burpee Hanson: This proposal is a change in government policy, as that policy was stated last September. I feel that in addition to the statement made by the former Minister of Finance (Mr. Ralston) when the budget was introduced, in which statement he offered justification for the change and for the theory that we should not take 100 per cent of the profits, we ought at this time to have a statement from the present minister.
If I have understood correctly the proposal of the government, a firm is to be permitted to earn the average of a standard range of four years, and in respect of any excess, heavy taxes to the extent of 75 per cent are to be imposed, after making provision for a minimum income tax: first, under the Income War Tax Act, a tax of 18 per cent, and, second, under the Excess Profits Tax Act, a tax of 12 per cent. Therefore in any event that tax will always be paid. If the profits exceed that amount, companies will automatically come under the Excess Profits Tax Act. Then, to the extent of the excess, less the deductions to which I have referred, profits to the amount of 75 per cent of the total will be taken.
Excess Profits Tax Act

I am wondering why 75 per cent has been chosen in preference to 50 per cent or 100 per cent. If in the four-year period companies have been making substantial profits, and if because of the country's war activity and because of work on war contracts a company earns a sum substantially in excess, in view of the fact that in the previous four years such company has operated successfully and ha3 made substantial returns I am wondering why the government should not take the whole thing, as has been done in England.
I know that in England there is no corporation tax. Under the theory they follow, a company over there pays no corporation tax whatever. The principle followed in England is that the government takes all, over and above the best year in a range of years. I am not trying to be explicit, realizing fully that the minister will probably have more detailed information in the matter than I have. I would point out, however, that in the old country, they are taking it all. I believe we might give careful consideration to that fact. Probably in passing I should point out that that is the reason why I voted for the amendment offered by the leader of the Cooperative Commonwealth Federation.
I can understand, of course, that special consideration might be given to those companies which have not been doing very well in the past four years, and that they might be permitted to participate in profits which might arise as a result of war activities. I am referring to a company which may have been part of a depressed industry, and I am speaking only in terms of policy. But in respect of those companies w'hich in the past have received substantial earnings, I cannot see why we should not take the whole thing. I have in mind particularly a company which has been most prosperous. In fact it has advertised its prosperity to the extent of giving out figures as to earnings. Those advertisements have appeared in the public press, calling attention to the fact that distribution of wages has greatly increased while dividends have not been increased, despite the fact that the company might be entitled to increase those dividends. The company in question has made substantial progress in recent years, and I can see no reason in the world why it should not pay the whole of any excess profits it may have, and still be doing pretty well.
I realize that probably the government's policy is conditioned upon a survey of the whole corporate field, and certainly the commissioner of income tax charged with the responsibility of administering the measure would have much greater knowledge of the field than I could have. I am prepared to 
admit that immediately. I am not going to make the demagogic appeal I have heard from various quarters; I am not going to say we should not have any new war millionaires, as a result of this war-


An hon. MEMBER:: Why not?


Richard Burpee Hanson: -although I feel that way. I am not in any business likely to become very prosperous. But I believe that the people in Canada who are going to bleed, the people who are going to pay will expect that those who are engaged in industry and are assured of a decent return on the risk involved should not go beyond that. That is my considered judgment, after giving careful thought to the matter.
I suggest to the minister that he might consider the matter further. I know it is involved, and I realize that the situation here is not the same as it is in England. We have a corporate tax which they have not. In addition we have an income tax which is in effect double taxation. We have a corporate tax, and then a tax on dividends. I have always been opposed to the principle of double taxation. I think it is wrong, and imposes a penalty. I argued with the former minister who imposed it that it was unjust.
Of course, it was not imposed during war time, and I am not going to make any further argument now because we are at war and the country needs the revenue. However, I have always felt that it was a distinctly discriminatory tax. I do not know of any other double tax such as that. There may be one, but I cannot think of it at the moment. I am not going to labour this question of double taxation now. Rather I am going to take the other tack, that at this time when all of us are called upon to make sacrifices, the big corporations should be ready to make their contribution, provided they are allowed to make a moderate return on their investments. They should be asked to contribute to the revenues of the country all the excess profits they make.
I have not arrived at this position hurriedly. I know some will say that I have developed into a socialist, but that is not the case. I have taken this position having regard to the time and the situation, having regard to the fact that we are fighting a war. I think the government would be justified in going even further than they have. Last September the government apparently took the position that they were going to take half the excess profits, but public opinion or something has caused them to recede from that position and to take away the option provided in the previous act. I think I know why that was done; it was

Excess Profits. Tax Act
because the act was found to be unworkable from an administrative point of view. But this is a matter of principle, not of administration.
I feel that the government should go further and I believe that patriotic industry in the country will sustain the government. I was impressed the other day with the statement of the hon. member for Victoria, B.C. (Mr. Mayhew) who had just returned from a meeting of the Canadian Manufacturers Association held in Winnipeg. He was filled with patriotic fervour and he made a declaration on behalf of industry, of which I was quite proud. I am connected with industry in my own province. We want to make our contribution, but unfortunately I do not think we shall have any great amount of money to give to the government because we are not engaged in war work. One particular industry has had some stimulus from the effects of the war. Competition from the United States has been cut off, which will help this industry considerably. In my judgment the administration should give further consideration to taking a larger measure of these excess profits.


Mr. ILSLEY:: Perhaps I should take this opportunity to say a few words about the Excess Profits Tax Act, and the reason why the act of last September is being repealed and this bill substituted therefor. When we were here last September we did not have much time to draft a bill and the bill which was drafted was found to be faulty in some particulars. As hon. members will recollect, each industry was given by that measure the option of two rates of taxation, rate "A" and rate "B." Rate "A" adopted the principle of the capital standard. That is, a company was permitted to earn, first, the amount of its income tax and, next, 5 per cent upon the capital employed in the business before taxation began. If the company earned between 5 and 10 per cent on the capital employed, the amount over 5 per cent was subject to a 10 per cent excess profits tax; if it earned between 10 and 15 per cent, the amount over 10 per cent was taxable at the rate of 20 per cent; if it earned between 15 and 20 per cent, the amount over 15 per cent was taxable at the rate of 30 per cent; if it earned between 20 and 25 per cent, tiie amount over 20 per cent was taxable at the rate of 40 per cent; if it earned over 25 per cent, the amount over that was taxable at the rate of 60 per cent.
Rate "B" was based upon a different principle. Under that rate the excess profits were taxed without reference to the fairness of the rate of return upon the capital employed.
If a company elected to be taxed under that rate, it was taxed 50 per cent of the excess amount earned in the taxation year over the average of the amount earned during the last four years. The theory of the act was stated to be that a company should pay a tax on the excess profits, that is, the profits greater than those earned in a normal period or, in other words, on excessive profits or profits which were more than a reasonable rate upon the capital employed. If we had been setting out to tax both excess profits and excessive profits, as the case might be, we would not have allowed an option at all, we would have taken the higher of the two taxes. Then a company could not escape, it would 'be taxable if it made more than a reasonable return on its capital, or it would be taxable if it made an excessive profit. On the basis of abstract principles it was a little difficult to justify that act.
It was a little difficult to justify the act as a matter of practice because there was so much discrimination as between companies. A company which had had small earnings during the past few years, if it happened to move into a profitable period during the war years, it would presumably elect to be taxed under rate "A" and would have only five per cent of its capital exempt from taxation. However, that company might be in competition with another company in the same industry which had had good years before the war and had continued to have good years, but no better years, during the war.


Richard Burpee Hanson: That is rather an anomalous position.


James Lorimer Ilsley: Not at all. There are all kinds of companies which are not making more during the war period than they made before the war period.


Richard Burpee Hanson: As I understood the minister, he was referring to companies in the same line of business.


James Lorimer Ilsley: It may be that I put a rather rare case. I do not need to take companies in the same industry necessarily, it would be sufficient to take them in the same country. There are many companies which are not earning any more during the war than they did before. They would have no excess, yet they would have a high return. Thus certain well-established and prosperous companies would get off without any taxation except the ordinary corporation income tax.


Richard Burpee Hanson: Which is 30 per cent.
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James Lorimer Ilsley: We raised it from 15 per cent to 18 per cent last September. The result was that there was a great deal of dissatisfaction in industry with the act passed last fall. It was known in September that when we came to get reports from business and industry it would be necessary to make amendments to the act. We have worked on those amendments from that time to this, and what we have evolved is the legislation now before the house, which I think is as fair as can be produced.
The hon. gentleman has made reference to the taxation in England. He has been very fair and accurate about that. But I want perhaps to repeat what he has said about the rate of tax and the system of taxation in England. In England there is an income tax, but the income tax is on individuals. Corporations pay a tax to the government but they pay it on account of the individuals, so that there is really not a corporation tax at all in England in the sense of corporation income tax as we have it and understand it in this country.
In England there is an excess profits tax based on the principle of this act. The base of it is far more favourable to business, at least I should think it was, than the base we have taken here. Here we take the average for 1936, 1937, 1938 and 1939, or of the fiscal periods ending in those years, which means that for some companies we take as the base a large part of the year 1935, when a great deal of business in Canada was more or less depressed. In England they take only three years, 1935, 1936 and 1937.


Richard Burpee Hanson: Do they not give them a choice?


James Lorimer Ilsley: Yes, I am coming to that. They take 1935, 1936 and 1937 as a base. There are no options under this act, but in England they have four. They can take 1935 alone-that would be a tremendous privilege if they could do it in this country-or they can take 1936 alone or the average of 1935 and 1937 or the average of 1936 and 1937, whichever gives them the most favourable base. They have that advantage to start with. So when one considers that advantage over the system here and that they have no corporation tax, while we have a 30 per cent corporation tax even if there is no excess profit whatever over the pre-war period, I do not think there is any doubt that our excess profits tax, plus our income tax is harder than the tax that business in England is called upon to pay. The tax is based upon a different principle. Under the English system, starting as they do with probably a higher base than ours, fMr. R. B. Hanson.]
thereby giving a smaller amount of excess profits to be taxed, it is true that the government takes 100 per cent of that excess while we take only 75 per cent. But hon. members should remember that we are not by any means into full industrial employment in this country, and there must be, we think, some profit incentive for the expansion of industry. It might be, as the hon. gentleman says, that the great majority of manufacturers are so patriotic that they will expand just as much as they possibly can and produce to the utmost, and not curtail at all, if there is no profit incentive.


Richard Burpee Hanson: I did not say that. It was the hon. member for Victoria, B.C. (Mr. Mayhew); I was quoting him.


James Lorimer Ilsley: I understood that the leader of the opposition adopted the position that a great many of the manufacturers would do that. We have something over four billion dollars of United States capital invested in Canada, and we have thousands-I speak loosely and subject to correction-of plants which aTe owned wholly by United States capital. It may be that United States owners of industry in this country are prepared to run the risk of losses, because there is always that risk, there being a fair casualty list in industry and business. It may be that they are also prepared to take into account the certainty that if they make any profit, even if it is only 2 per cent, they will have to pay a corporation income tax of 30 per cent, and have to pay after that either an individual income tax if they are resident here, or a withholding tax if they are not resident here, and be prepared also to pay 100 per cent of excess profit to the government. That may be so, but I do not believe it. It may be that people should be that way, but I do not believe they are that way. I think many of them are that way, but I do not think all of them are that way by any means, and I do not think this country, situated as it is, with such a large amount of foreign capital invested in it, is in a position to rely on the patriotic motive for the expansion of industry. So we are allowing them 25 per cent.


Richard Burpee Hanson: You are allowing them a great deal more than that.


James Lorimer Ilsley: Twenty-five per cent of the excess, without taxing it.


Richard Burpee Hanson: There is another feature that is not excess.


James Lorimer Ilsley: We leave 25 per cent of the excess to them without taxing it. That, it seems to me, is the case for this type of legislation. We are harder on the companies,

Excess Profits. Tax Act
generally speaking, no doubt, but we are leaving that element in there, and it is a small one.


Mr. HARRIS (Danforth):: In making his statement the minister rather left the impression that in England there were four optional bases on which the tax would be calculated, and only one base here, namely, the average for the four years that he mentioned. But we Still have in the act section 5A, which provides for industries which have come through depressed years. I should be glad if the minister would make his statement complete and not leave the impression that we have in Canada only one alternative, because the fact is that we have access to the provisions of section 5A.
While I am on my feet, in reply to the last sentence which the minister uttered with regard to the 75 per cent clause, I would point out that in comparison with the September legislation section 5A definitely provides for a return of a minimum of 5 per cent and a maximum of 10 per cent on the total investment, as determined by the board of referees.


James Lorimer Ilsley: That refers to depressed businesses.


Joseph Henry Harris: But the September legislation did not provide for a range of from 5 to 10 per cent, and so as I read this measure, industry is in an even better position, apart from the fact that the tax is raised from 50 to 75 per cent. So far as the base is concerned, they are in an equally good position, with alternative "A" and alternative "B". I have no objection to that. I am rather in accord with the idea which is carried out in section 5A. I would ask the minister to make it clear that we still have two alternatives.


James Lorimer Ilsley: I shall do that, but I point out, as I pointed out to the hon. gentleman who questioned me yesterday, that section 5A is designed to apply only to exceptional cases, and these exceptional provisions are contained also in the English legislation. There might be cases of extreme hardship. A company through misfortune of some kind might have made losses and have no standard at all, and if we had no such provision as this it would mean that we .would have to take 75 per cent of the total profits. Therefore provision has to be made. But I want to make it clear that we do not intend this to apply to normal cases.


Richard Burpee Hanson: Where they have been making profits?


James Lorimer Ilsley: No. They may have been making fairly small profits. But I do not anticipate that the minister or the board
is going to apply this 5A to a large range of industry. If so, the act could never be administered. The point I want to make is that these exceptional provisions have counterparts-they are not exactly the same-in the English legislation. They are not for the ordinary run of the mine case at all.
The other point of criticism is that we started with 5 per cent and we now have 5 per cent to 10 per cent. The answer to that is that under rate "A" the tax was a graduated rate. Now you jump to the 75 per cent after you leave the 10 per cent, or 7 per cent; under the other act you went up very slowly; for a while it was 10 per cent, then 20 per cent, then 30 per cent, and so on.


Joseph Henry Harris: The minister spoke about industry having the "misfortune" to have a loss. All industries over the period of a decade expect losses in some years. It is part and parcel of the operation of running an industry.


James Lorimer Ilsley: I agree.


Joseph Henry Harris: So I do not like the word "misfortune". As regards those who have been unfortunate enough to have two years of profits and two years of losses, first, would they come under section 5A; second, would their losses be deductible from the profits in getting the average for the four-year period, or would only the two years in which they had a profit constitute the base period on which the excess would be figured?


James Lorimer Ilsley: I cannot say whether they would come under 5A or not. That is a matter which would have to be looked into. We would have to see what the general conditions in that industry were, and so forth.


Joseph Henry Harris: Could the minister answer the other question?


James Lorimer Ilsley: If there were losses for two years and profits for two years, four years would be considered. You would take the profits for the two years of profit, put down zero for two years of losses, add them up, divide them by four, and get your average in that way.


Joseph Henry Harris: That is most unfair. I think it should be divided in that case by two.


James Lorimer Ilsley: That would be too favourable.


Mr. MAYHEW:: I wish to make a suggestion to the minister, and I think I shall not overstep the mark if I take a minute or two to do it. I would have supported the amendment to the resolution, because I believe in it in principle, but I know that it is not
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practical. In the first place, you cannot take all the profits from industry unless you are prepared also to socialize practically every philanthropic undertaking in Canada. Organizations in this country such as hospitals and the Red Cross must get their support through voluntary contributions, and those contributions can come only from profits. Therefore it is quite impossible, even in war time, to take 100 per cent of the profits from any industry.
I believe, however, that this government could take more of the profits than they are taking if they did so in a different way. When this war is over, the country will probably revert to conditions similar to those we experienced after the last war. We shall have a period of depression, when industry will not be able to take care of itself unless it has some surplus from which to draw. I would therefore suggest to the minister that he borrow from industry, without interest, that remaining surplus of which he is thinking, and return it to industry a year after peace has been declared. In that manner industry will have something of a credit on which its business may be run, and something to tide itself over in the period of reconstruction. Many of those of us who are in industry to-day will have to entirely reshape our businesses, when the war is over, to take care of peace-time requirements-much as we have had to readjust our organizations in the last ten months to war-time demands. The readjustment of the whole economy of our industrial life will take a considerable amount of money. I am therefore of the opinion that the government should be careful not to take from us more money than is needed to maintain our plants in the best condition we possibly can. They should be liberal as to the amount allowed us for repairs, for renewals, also for advertising. It must be remembered that advertising is an expense which will justify itself to the advantage of the government as well as of business. I believe the government should also be liberal in its appraisal of our plants so far as obsolescence is concerned so as not to cripple us when we shall have this struggle to meet the costs of reconditioning. But it can take more of our profit to-day if it is taken in the form of a loan without interest, so we shall have a backlog with which to build not only to-day's business but business in the future.


Richard Burpee Hanson: The minister spoke about two depressed years and two earning years. But what is he going to do in the case of three years of depression and one of net earnings?


James Lorimer Ilsley: We cannot lay down any technical definite rule about that.
fMr. Mayhew.]


Richard Burpee Hanson: I believe the minister will be faced with some such situation. I am connected with a company- we will call it the F company; I hope too many people will not recognize it under that initial. We have had three bad years out of four. In one year our head was above water,, and then came a bad year, and now this year. I have not been to a directors' meeting for a. little while, since I came here. As a consequence of a recent crisis in the United States wherein, due to the war and the situation on the high seas, there has been no export of sulphite pulp from certain countries, we are getting good prices and good volume-the first time for years that we have had volume. How is the minister going to treat that situation? The question is an important one to the company, for it must have some profits, and even the 75 per cent provision would mean treating it very harshly. I think 5A is going to help.


James Lorimer Ilsley: One hundred per cent would be treating them worse.


Richard Burpee Hanson: Yes. The point is just this, that you cannot dogmatize for any general class or group of companies. Each company, after all, must have consideration on its own merits; and if you are taking 100 per cent profit, excess profit, it would be on certain other theories. I do not entirely agree with the theories of the leader of the Cooperative Commonwealth Federation on the basis he has set up, but I think that in the given case you could take 100 per cent of the profit. But I admit that would work very harshly in certain cases.
I have made my general statement; now I am asking for information on a concrete case. What about the case of a company that had three bad years and one moderately good year, and is now facing a very good year? And they need a great deal of that money to put back into the plant. What is the minister going to do in a case like that?
It is six o'clock, he can think it over.
At six o'clock the committee took recess.
After Recess
The committee resumed at eight o'clock.


The CHAIRMAN:: I should like to inform the committee that I made a mistake when we took up these resolutions before six o'clock. I find by the scroll and by Hansard that yesterday we passed resolutions 1, 2, 3 and 4, and that when we adjourned last night we were on resolution No. 5,

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5. That a board of referees (hereinafter called the board) be established with discretionary power, subject to the approval of the Minister of National Revenue (hereinafter called the minister), to ascertain a standard of profits for new businesses or businesses depressed during the standard period subject to the following:
(a)	in the case of a business depressed during the standard period the minister may direct that the board ascertain a standard of profits at an amount which they think just, being a return of not less than five nor more than ten per centum of the capital employed;
(b)	in the case of a new business other than that of the operation of a gold mine or an oil well, if it has been commenced since January 1, 1938, the minister may direct that the board ascertain a standard of profits at an amount which they think just, provided that the said amount represents a rate of return on the capital employed by the taxpayer equal to the average rate of return of taxpayers in similar circumstances engaged in the safne or analogous classes of business;
(c)	in the case of a taxpayer engaged in the operation of a gold mine or an oil well which has come into production since January 1, 1938, the minister may direct that the board ascertain a standard of profits at such an amount which they think just on the basis of a presumed volume of production during the standard period equal to the volume of production, in the taxation year and a presumed selling price for the product during the standard period equal to the average selling price of the said product during the standard period.


Mr. GREEN:: Last night the minister said he would explain the taxation on gold mines under these new provisions. I wonder if he would do that this evening.


James Lorimer Ilsley: The provisions regarding gold mines and oil wells are different from the provisions regarding other industries. This will be a very difficult matter to deal with at all adequately, and perhaps after a little while I shall have to stop and just let hon. members ask questions.
With regard to gold mines let us take first the example of an established industry; that is, a mine which has been in operation for more than four years. I am taking this just at random, not because it is the best instance that could be selected for purposes of explanation. In this case the general provisions of the act apply, with regard to 75 per cent of the excess being taxed, with a minimum of 12 per cent additional income tax or 30 per cent income tax in all, depending upon the way you express it. Those provisions apply. But there is a somewhat artificial way of arriving at the profits of the base period. The volume of production is taken into account. We will take the volume of production in the taxation year, I would say either the number of ounces of gold or the number of tons of ore produced. I anticipate it will be the number of ounces of gold produced.


Howard Charles Green: The minister is still speaking of the old mine?


James Lorimer Ilsley: Yes, I am keeping strictly to the instance of the old mine. It will be considered that the mine produced, in each year of the standard period, that number of ounces, which will be multiplied by the profits per ounce which actually were made during the standard period. The result will be taken as the earnings or profits of the average year of the standard period; in other words, the standard profits. Then that will be subtracted from the actual profits of the taxation year, and the result will be the excess, which will be taxed according to the provisions of the act, 75 per cent of the excess being taken.
Now let us say we have the case of a new mine, which comes into operation after January 1, 1940. In that case there is no experience to go by; there is no standard period at all, because it has not been in operation. We propose to take the number of ounces of gold produced in the taxation year and assume that this number of ounces was produced in a year before the act came into force, and that the price obtained was the average price during the four pre-war years. The subtraction will then be made, and the result will be the excess which will be taxed in accordance with the provisions of the act. It will be seen that in all probability the excess tax in that case will be the premium on the price of gold, the difference between $35 an ounce and S38.50 an ounce. That approximately will be the result.
I have described two cases. Now let us take a third case, that of a gold mine which came into operation some time in the calendar years 1938 or 1939, since an arbitrary date has been fixed as January 1, 1936. That mine has some experience; it was in operation for a year or two before this act came into effect. But we do not consider that to be a fair experience, because when a mine is in the early stages of development, production is very small. Therefore we regard that mine just as we regard a new mine, and to mines that came into operation after January 1, 1938, we apply the same rule that we apply to mines coming into operation after January 1, 1940.
The principle underlying the gold taxation, as distinguished from the taxation of other companies, is that the excess profits per unit of the product produced, that is per ounce, are taxed, while in other industries it is the excess profits per dollar invested that are taxed. There is a complete difference in principle as between gold mines and oil wells on the one hand and all the other industries
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of the country on the other. What I have said about gold mines applies in its entirety to oil wells. I need not repeat anything I have said in dealing with oil wells. I want to say that the case seemed to be conclusive for placing the taxation of gold mines on the unit basis, on this profit per unit produced basis, as distinguished from the profit per dollar invested basis.
But there was a very difficult question as to whether we should draw the line between gold mines and all other industries, or whether we should draw the line between gold mines and oil wells and all other industries. There was a question as to whether oil wells should be treated in the same way as gold mines or in the same way as other industries. After careful consideration and much discussion we decided that the reason was sufficiently strong for putting oil wells in with gold mines.


Howard Charles Green: In connection with new
mines is it the idea of the government to take 75 per cent of the premium? Is that what it amounts to?


James Lorimer Ilsley: Yes, that is what it amounts to.


Howard Charles Green: That would not be the case with the old mines, or does it work out the same way with the old mines?


James Lorimer Ilsley: No, it is not.


Richard Burpee Hanson: This is an involved matter. At the risk of worrying the minister I would ask him to be good enough to make that explanation with respect to the two classes, because I apprehend a 1938 mine and a new mine are on a par. There are just two classes?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: Would the
minister make that explanation again? Then, he made a statement of principle to the effect that gold mines were taxed on a per unit produced basis, and. that other industries were taxed on a per dollar invested basis.


James Lorimer Ilsley: That is correct.


Richard Burpee Hanson: Is that last statement exactly correct? Is it correct to say that they are taxed on a dollar invested basis? Is that the way to put it?


James Lorimer Ilsley: Yes, I believe it is.


Richard Burpee Hanson: Well, I do not know about that; I will have to think about it. I have no doubt the minister has thought a good deal about it, but that principle was never laid down to me before as a basis upon which industry is being taxed.


James Lorimer Ilsley: I shall explain it.


Richard Burpee Hanson: I submit it is not an exactly correct statement of the position.


James Lorimer Ilsley: I think it is pretty nearly
correct.


Richard Burpee Hanson: It may be,
if it is explained.


James Lorimer Ilsley: I shall try to explain it.


Richard Burpee Hanson: Would the minister first refer to the gold?


James Lorimer Ilsley: I would prefer to take this case first.


Richard Burpee Hanson: All right. It will be satisfactory if the minister refers first to my last statement.


James Lorimer Ilsley: We start our statute on this basis, namely, that we take standard profits. We had some discussion this afternoon as to how standard profits are ascertained. It is the profit in the average year of the standard period. We subtract this from the profits of the taxation year, and take 75 per cent of the difference. That is the basis of our excess profit taxation.


Richard Burpee Hanson: With one
exception: you make certain allowances, to which you have alluded.


James Lorimer Ilsley: What allowances?


Richard Burpee Hanson: An allowance of 12 per cent.


James Lorimer Ilsley: Oh, that is a minimum. It must be over that.


Richard Burpee Hanson: We are at cross purposes; we do not mean the same thing.


James Lorimer Ilsley: It has to be more than 12 per cent; otherwise we take 12 per cent. That is an income tax. But I am talking about the excess profits tax. The excess profits tax is 75 per cent of that difference. The profits of a standard year are subtracted from the profits of a tax year, and 75 per cent of the difference is taken. That is on the assumption that the capital remains the same. But in respect of a company which has changed its capital there must be an adjustment of those figures. If the capital of the company is changed, or if, for instance, there were $2,000,000 invested in a tax year and $1,000,000 in the standard year, then it would not be satisfactory to make that subtraction, because your taxation would be oppressive, and entirely unfair. In other words, you would not be comparing like with like.
Probably I should not say this without further consideration, but it is possible that you would divide your profits in the taxing year in two, so as to get your profits on the

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51,000.000 invested, or what presumably would be the profits on the $1,000,000 invested, and compare that with the profits on the $1,000,000 invested in the standard period. But there might be some cases where the profits of a standard period would be doubled, and subtracted from your new profit. You would have to get them on a comparable basis. When you do that you are doing that to which I refer. You are taxing the increased earnings per dollar invested, because you are relating it to the capital. That is what I meant when I said that that is the principle underlying the taxation of ordinary industries. You are taking 75 per cent of excess earnings per dollar invested.
When you come to gold mines you are not doing that. You are operating on a different principle. That is the place where you take 75 per cent of excess earnings per ounce of gold produced. Oil wells are placed in the same category as gold mines, and the reason is this -I am sure hon. members will be interested in the reason.


Richard Burpee Hanson: It does not mean a thing to me, unless I understand the underlying reason.


James Lorimer Ilsley: I do not know, from personal experience, anything about the gold-mining industiy, but I am told that the normal experience in that industry is something like this: In the first year of operation a comparatively small number of ounces of gold is produced. In the second year a larger number of ounces of gold is likely to be produced, without any increase in capital. Then in the third year perhaps a larger number of ounces is produced, and then the mine settles down-[DOT] if something does not happen to it. The idea is that there is a slow period of development.
Therefore, if you were to take a mine with two or three years experience before the taxation year, and subtracted the profits from the profits earned in the taxation year, on the same capital, there would be a tremendous increase due, not to increased investment, but simply to the slowness of the mine coming into operation, and to the great jump in volume. Therefore it is deemed harsh to go on the basis that is applicable to other industries.
That is one reason, but there are others. This is giving the gold mines more favourable treatment, generally speaking, than is given to other industries. It may be argued that this should not be done. However, on the basis I have outlined it seems only fair that it should be done. Gold is in a category different from that of other products in Canada. It is a most essential commodity in supplying us with foreign exchange, and the encouragement of its production is extremely
important. It is one product for which there is always a market, and a market at a certain price.


Richard Burpee Hanson: You have only one buyer, have you not?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: And he
may stop, after November?


James Lorimer Ilsley: I do not know about that; all the more reason, if he does.


Thomas Alexander Crerar: Not likely.


James Lorimer Ilsley: I do not think it is likely,
but that is all the more reason for selling as much as we can. However, I do not think there is any real reason for saying that. In the gold-mining industry high returns must be possible. It would be foolish to say that high returns must be guaranteed. They cannot be guaranteed, but high returns must be possible.


Richard Burpee Hanson: I agree with that.


James Lorimer Ilsley: They must be possible, because the capital asset may disappear. You may operate for a certain period, and then find there is nothing more available. It is useless to try to get capital into a business as risky as the production of gold, unless there is some possibility of high returns.


Richard Burpee Hanson: That is
the reason why they go into it.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: I still
do not quite understand the other principle.


Olof Hanson: Mr. Chairman,
I have in mind a gold operation in my constituency which the minister must agree is a very important one. This company produces between $500,000 and $700,000 worth of gold a year, and for some time it has been trying to get a post office. The minister is trying to encourage gold production, and in view of the fact that last March this company employed 115 men, which number has been increased to 125 men to-day, I think its application for a post office should receive consideration. This request should be granted by the Postmaster General (Mr. Mulock) without having to go through too much red tape. It would cost only a nominal figure to carry the mails to where this Surf Inlet Consolidated Gold Mines Limited is located.


Thomas Vien: I am afraid the question raised by the hon. member would be more properly raised when the estimates of the Postmaster General are before the committee of supply.
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Olof Hanson: The minister has said that gold production is essential, and I am simply contending that consideration should be given to those who are producing gold. I think this company should be given reasonable facilities in order that it may be able to produce this essential commodity.


Richard Burpee Hanson: I am inclined to agree with the hon. gentleman. I may say to him that his argument is just as relevant as many others I have heard in this house. Both the Minister of Finance, who controls the purse-strings, and the new Postmaster General are here and I think they should give some heed to this plea. I am going to back up the hon. member's demand. However, that is not my purpose in rising.
With the permission of the committee I should like to revert to resolution 4 in order to see if I understand just what this tax is. The minister made a statement a short time ago as to this tax; no doubt he is right and I am wrong, but I just want to see how nearly right my understanding is. One of the accountants of the department was good enough to come up to see me, and I think I understand this tax. However, when I consider it in the light of what the minister has said, I am not so sure. As I understand it, the best year within a determined range is taken by the department as the standard or base period.


James Lorimer Ilsley: The average, not the best.


Richard Burpee Hanson: I am sorry; I was referring to the British act. Under that act they take what is presumed to be the best year as the basic period, and then they take everything else, there being no corporate tax. In the case of a Canadian company earning 8500,000 of taxable income, under the budget of last spring the income tax would be 15 per cent, or $75,000. That was raised to 18 per cent by the September budget, which would amount to $90,000. Assuming that the average profit for the previous four years was $100,000, there would be an excess profit of $400,000. I think these figures are easy to follow. Even if there were no excess profit for the four previous years, under this system the company would pay 12 per cent in addition to the 18 per cent?


James Lorimer Ilsley: That is correct.
Mr. HANSON (York-Sunbury); So that irrespective of any excess profits, the company will pay 30 per cent?


James Lorimer Ilsley: Correct.


Richard Burpee Hanson: The income tax under this proposed statute would be 30 per cent on the $500,000-the total income for the coming taxable year-or
[The Chairman.]
$150,000. But before paying the 75 per cent rate on the excess profits of $400,000, there would be deducted the normal company income tax of 18 per cent-this is the deduction to which I referred a little while ago- which would amount to $72,000. So that $328,000, the difference between $72,000 and $400,000 excess profits, is all that would be liable to the 75 per cent tax or excess profits tax. This would amount to $246,000. Therefore the total liability of this company for income tax and excess profits tax is $246,000. There would be this 75 per cent on the $328,000, plus 18 per cent on $500,000, or $90,000, which would make a total liability of $336,000. With profits of $500,000 this would leave the company $164,000. As this amount of $164,000 is greater than 30 per cent of $500,000, the larger amount is payable.


James Lorimer Ilsley: Should not my hon. friend have said that as $246,000 is greater?


Richard Burpee Hanson: I do not suppose it makes any difference for my purpose. I have had it worked out in the form of a sum and I think I understand it now.


James Lorimer Ilsley: The hon. gentleman understands why we deduct the income tax?


Richard Burpee Hanson: Yes, I think I do. Possibly we were at cross purposes a little while ago. The minister may not have understood that I was speaking of the 75 per cent being assessed, not on the whole excess profits but on the excess profits less the deduction of 18 per cent.


James Lorimer Ilsley: We take it on all that is left after paying the income tax. Before six o'clock we were speaking as though 25 per cent of the excess profits would be left to the company. That expression was used a number of times.


Richard Burpee Hanson: It is more than that.


James Lorimer Ilsley: It is less; it is only 20-5 per cent. Let me get that straight, because I am sure my hon. friends in the Cooperative Commonwealth Federation group will be interested in this. We have been talking about 100 per cent versus 75 per cent, but that is not quite the comparison. If the excess profits are $100, income tax at 18 per cent must be paid on that excess, which leaves taxable excess profits of $82. Then 75 per cent of $82 is taken in excess profits tax, which amounts to $61.50. Subtracting that from $82 leaves only $20.50 which the company has left out of its $100 excess profits.


Richard Burpee Hanson: But the company I instanced has earned $100,000 of

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standard profits and $500,000 in the taxable period, and will still have left 32-8 per cent, of its earnings.


James Lorimer Ilsley: I am speaking of the excess.
Mr. SLAGHT. Could we have a blackboard, Mr. Chairman?


James Lorimer Ilsley: The hon. gentleman is talking about the percentage of earnings and I am talking about the percentage of excess profits.


Richard Burpee Hanson: Two different things.


James Lorimer Ilsley: Yes, that should be understood clearly. When we take 75 per cent of the excess profits under the excess profits tax, strange as it may seem we are not leaving 25 per cent in the hands of the company but only 20J per cent.


Richard Burpee Hanson: Of the excess?


James Lorimer Ilsley: Of the excess.


Richard Burpee Hanson: 
Howard Charles Green: With regard to the tax on gold mines, why was it not possible in the case of new mines simply to tax 75 per cent of the premium?


James Lorimer Ilsley: In effect that is what was done.


Howard Charles Green: Why was the act not worded in that way?


James Lorimer Ilsley: It was not just a choice of wording. It keeps it consistent with the whole taxation scheme.


Howard Charles Green: Just where does the board of referees fit into the picture with regard to these gold mines?


James Lorimer Ilsley: That is provided for by paragraph (c) of resolution 5. I need not read it; it is there.


Howard Charles Green: Perhaps I should explain why I asked the minister that question. Apparently some concern is felt as to the effect of this taxation provision on United States capital which might otherwise come into Canada to develop new gold mines. Apparently in the United States the boards of referees in connection with taxation are not held in very high esteem, and it is felt that if it were possible to have a set tax on these mines instead of leaving it all to a board of referees, United States capital would be much less likely to be kept out of Canada. It is for that reason I should like to know
just how the board of referees fits into the picture, and whether the board is actually to fix the tax. Has it that extensive power?


James Lorimer Ilsley: The basis on which they fi} the standard of profits is set out so clearly in the act that they cannot go astray, whatever "astray" would mean.


Howard Charles Green: They really have not much discretion?


James Lorimer Ilsley: Very little in regard to gold mines.


Howard Charles Green: Is the exemption in regard to new gold mines under the Income Tax Act itself to remain, or is that being taken away?


James Lorimer Ilsley: That remains.


Richard Burpee Hanson: With
respect to well-established gold mines, I have always understood that taxation in South Africa is very much more drastic than in Canada. I assume that their mines are richer even than our richest mine. I am not sure that that is correct, but I have heard that said. Is the minister able to give us a comparison between taxation imposed in South Africa and in Canada on established mines?


James Lorimer Ilsley: No, I am afraid I cannot.


Richard Burpee Hanson: Perhaps that is not a fair question to ask the minister without any notice, but I have been told that in South Africa they take more than half the profits of these old-established gold mines, but the companies still have enough left to make their stocks very valuable, as anyone who follows the quotations in the London papers will know. I remember that in 1934, during the depression, and after the price of gold had been raised to $35 an ounce, it was considered that this rise was an unearned increment, the increase being due to purely fortuitous circumstances to which neither the gold producers nor this country had contributed anything, and that the state might well get a share of that increase. That raised a great row. Talk about vested interests! I never saw anybody who raised such a row as we had on our hands at that time. If the minister cannot give me a comparison with South African taxation, perhaps my point in rising is useless, but I have always understood that our established gold mines were treated most liberally in the matter of depletion, and that a tremendous allowance was made to the dividend receivers. While of course it is necessary to encourage the production of gold in the country from the point of view the minister has mentioned, there is I think a corresponding obligation on the part of the gold mining people to make sacrifices just like any other class which has the ability to pay.
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I am wondering if the minister is not perhaps treating them just a little too leniently. I do not know; I am asking for information. What portion of the $35 an ounce for gold would come into the treasury on this basis? Take Lake Shore, for instance. It is publicly-owned, or the public are interested in it at all events.


Mr. SLAGHT:: Mr. Chairman, referring to paragraph (c) of resolution 5, to which the hon. member for Vancouver South (Mr. Green) referred a moment ago, I would suggest that the wording there is disturbing and I would ask the minister whether he would consider revising it. It directs the board to
. . . ascertain a standard of profits at such an amount which they think just-
I emphasize the phrase "which they think just." Then it proceeds:
-on the basis of a presumed volume of production-
And so on, completing the yardstick which the board are supposed to use. I suggest to the minister that he eliminate the phrase "which they think just" and leave the clause so that parliament provides the yardstick instead of providing that it shall be fixed at what the board think just. Why leave the margin of discretion in a board to think something, just when you are defining the method they must adopt? That may perhaps seem hair-splitting, but I suggest it is not, for this reason. In taxation of any kind, and particularly just now in the matter of taxation of gold mines, it is desirable to have certainty rather than uncertainty; it is desirable to have a fixed basis which the proposed investor may read, know and understand, instead of indicating to him that if he brings his money into Canada, or if he is a Canadian, invests his money here, he is going to be subject to taxation at the discretion or whim of a board who may think something is just. I can see a real distinction there. All hon. members are agreed, I think, upon the importance of encouraging gold production to the nth degree. If the minister can see no strong reason for maintaining the phrase I have mentioned, which indicates a leeway of mere thinking, by a board whose personnel will change and is not known to the intending investor, we shall have a sounder, safer basis of taxation, under which men may more confidently embark upon the investment of their money.


Mr. MacNICOL:: May I ask the minister if these proposed taxes very greatly increase the present tax on gold production?


James Lorimer Ilsley: Most companies will pay 30 per cent of their income in taxes, while now they are liable to pay 18 per cent. Most companies will pay on the 30 per cent basis instead of the 75 per cent basis of their excess basis.


Richard Burpee Hanson: They will not come under the excess profits provision?


James Lorimer Ilsley: Most of them will not, no. The bill to be founded on the resolutions meets, I think, the point raised by the hon. member for Parry Sound. My personal view is that a change such as he suggests might be to the disadvantage rather than the advantage of the mines. However, I am not just clear about that. Perhaps I should undertake to say why I think so. The principle which is laid down is that the department will take the volume of production in the taxation year and assume that there will be a similar volume of production in the previous period, in the average year of the standard period, and presumably this production will be taken as at the same cost as the cost during the taxation year. That is, there will be the same cost; therefore the increased profit could be nothing but the increased return per ounce, that is the $3.50 premium. That is what is anticipated. But I should think there might be a case where costs of production would rise in the taxation year, and it might be unfair not to give the board the right to say that they should take costs of production which actually have obtained in the standard period. If they did that, there would be a smaller excess. Perhaps I am not just clear about that, but there may be some reason, from that point of view, why that period should be given. I do not know whether I should read the bill now, but I think it makes the matter quite clear. The bill has this proviso:
Provided however that in the case of taxpayers engaged in the operation of gold mines or oil wells which have come into production since January 1, 1938, the amount of standard profits shall be ascertained on the basis of a presumed volume of production during the standard period equal to the volume of production of the taxpayer in the taxation year, and a presumed selling price during the standard period for the product equal to the average selling price of the said product during the standard period.
That is, the proviso is absolutely definite.


Arthur Graeme Slaght: I think, Mr. Chairman, that the minister, by giving us the language of the bill, has set at rest the doubts that I had, working from paragraph (c) of the resolution, because it does not say anything about what

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the board may or may n-ot think. The provision just read is a definite fixing of a yardstick of taxation, and that was all that I was seeking.


Richard Burpee Hanson: Just one word more on gold mines. The minister said -and I quite appreciate it-that the tax most of them will pay will be 30 per cent-


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: -because,
I assume, the price is more or less fixed and the production over this period of years is more or less constant. Therefore there will be no excess profit unless they were to cut down the cost of production or had an unusually high yield. I should like him to tell the committee and the country just what allowance the income tax officials make on gold mines for depletion of ore reserves, and, second, what the allowance is in the hands of the shareholders. I regard it as important that this information should be made public.


James Lorimer Ilsley: The allowances for depletion have not been changed since we took office in 1935.


Richard Burpee Hanson: I am not suggesting that they have been. Pretty liberal, are they not?


James Lorimer Ilsley: It just depends on the point of view. I think these allowances are sufficient and I have repeatedly said so, but that has not prevented many representations being made to the effect that they are not sufficient. The depletion allowance to corporations is 33i per cent.


Richard Burpee Hanson: For depletion?


James Lorimer Ilsley: For depletion; and the allowance to shareholders is 20 per cent. As I said, we have not changed those figures, although we have been repeatedly urged to do so on the ground that the allowances are inadequate.


Richard Burpee Hanson: That is all I wanted to know. I do not know whether they are sufficient, or too liberal, or what they are. But let the fact be known that there is a depletion allowance of one-third and an allowance to the shareholder of one-fifth. There is not any other class in the world, as far as I know, which gets as large an allowance as that.


Thomas Alexander Crerar: I should like to make a slight contribution to this discussion by replying to one or two remarks made by the leader of the opposition. Concerning the depletion allowance, I agree with the Minister of Finance that, taking everything into consideration, the depletion allowances to-day are fair.
I do not think they are too generous. After all, the gold mining business differs from most other businesses. There has been a lure about gold from the earliest records of history. When there was a gold discovery in the Yukon, as in the closing years of the last century, people flocked from all parts of the world to the scene in the hope that they would make a stake. The history of the world is replete with instances of that kind. That means that the business of gold mining is very risky. I have had an opportunity to gain some knowledge in that respect during the last four or five years. It is a risky business because there may be excellent surface showings and an individual or a company may spend $10,000 or $20,000 or $50,000 or $100,000 in work to discover what there is behind the surface showings, and it may all be lost. This is not an uncommon experience.
Then there is another aspect. A gold mine or any other kind of mine is a wasting asset. It has a limited period of life. For instance may my hon. friend have, say a million dollars to invest-I am paying him I hope not too great a compliment. He looks round for a place to invest it. He may say, "Here is an opportunity to start a newspaper", and he buys equipment and plant. Or he may say, "I will go into business with this"; and if he is a prudent, skilful manager, as I am sure he would be, at the end of twenty years or so he not only has his capital intact but may well have created a good-will that is worth as much as the capital he invested.
On the other hand my hon. friend the Minister of Finance may invest his capital in a gold mine. He has satisfied himself that there is a sufficient body of ore, so he buys machinery and equipment, goes to all the expense of opening up the workings, setting up a community for his workmen, and of course he expects to make a profit out of his venture or he would not go into it. But at the end of twenty years the mine may be exhausted, and his capital has gone, unless he had some opportunity to get it back. That is the purpose of the depletion allowance, and I do not think it is too generous.
When speaking of this matter, may I refer to the price of gold. It is true that in the public estimation, when the price of gold was raised from $20.67 to $35 an ounce, it was regarded as a tremendous gain to the gold mines. As a matter of fact, it was not. All that the increase in price did was to make ore out of what had until then been waste rock.


Richard Burpee Hanson: All of it?


Thomas Alexander Crerar: Practically all.


Richard Burpee Hanson: Oh, no.
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Thomas Alexander Crerar: Absolutely. The hon. member for the Yukon, who is familiar with gold mining, will corroborate that.


Mr. BLACK (Yukon):: Certainly.


John Ritchie MacNicol: Only the low grade mines.


Thomas Alexander Crerar: No; take a mine like the Lake Shore, which has high grade ore so-called; it has ore all the way from perhaps $20 a ton in value down to 50 cents a ton. When the price of gold rose from $20 to $35 an ounce, all that happened in the Lake Shore mine was that more tons of ore were made available; the life of the mine was lengthened; greater stability was given to employment in the mine, and greater security to the general business of the community. I confess that I did not appreciate that fully in all its aspects until I made a study of this matter, but what I say in that respect is literally true, as any person who has been associated with gold mining in any way whatever will confirm. It is an illusion when the impression goes abroad that because the price of gold was increased from $20.67 to $35, gold mines had an opportunity thereby greatly to increase their profits. A gold mining company is interested in extending the life of its operations as far as it can. I venture to say that in most mines the average return per ton of ore has risen very little since the increase in the price of gold took place.
The gold mining industry is making a very important contribution to Canada at the present time. It made a great contribution throughout the depression years, because the mining industry was the one industry that from 1930 to 1940, irrespective of general business conditions prevailing, improved and increased its scale of operations and gave new employment to thousands of additional men; and not only did these benefits extend to the men working in the mines, but many of our industries in a score of cities and towns in Canada were kept going at a better pace because of the supplies and equipment which the gold mines and other mines were buying every week in the year. Consequently it is not an overstatement to say that our metal mining industry made a great contribution to Canada's economic well-being in the period I have just mentioned. And at the present time the fact that we had increased our gold production to almost $185,000,000 last year and may well reach $200,000,000 this year is one of the strongest sheet-anchors our country has in these difficult days in the matter of its foreign exchange.


Richard Burpee Hanson: I agree
with what the minister has said, and I also agree that there should be a large allowance for depletion; that is elementary, and
IMr. R. B. Hanson.]
applies to any mine. I am interested in a coal mine; we have to have a depletion charge every year, although of course the life of a coal mine is longer than that of some gold mines. But what I want to know is, does the experience of the department over a period of years bear out the statement of the minister that the depletion charge is fair?
The Minister of Mines and Resources left the impression in my mind that the increase in the price of gold from $20.67 to $35 an ounce has not proved of any appreciable benefit to the mines, but I suggest to him that on the high grade ore it has been of great benefit, as well as making ore of low grade material that otherwise would not be worked.


Thomas Alexander Crerar: May I interrupt my hon. friend there? Let him examine the records of milling of almost every gold mine in this country and he will find that the average extraction per ton has increased but little, if at all, with the increase in the price of gold. Why? Because they have diluted the more valuable ore with the low grade ore.


Richard Burpee Hanson: And that is good business.


Thomas Alexander Crerar: That is good business
because it extends the life of the mine.


Richard Burpee Hanson: But on
the high grade ore it has been of great advantage to the gold mines because it has made it possible to work low grade ores and average the thing up, just for the purpose the minister has stated, namely, extending the life of the mine. They are to be commended for that. I am not condemning the gold mines, but am wondering whether in these days of sacrifice they are bearing their fair share of the burden along with the rest of us. That is my only point. I leave it there.


Mr. DOUGLAS (Weyburn):: I should like to ask two questions of the minister. First, if I understood him correctly, the tax will be on the increase in the value of the unit of the commodity. That is assuming a price of $38.50. In the event of the price going back to $35, how would the tax be assessed?


James Lorimer Ilsley: There would be no excess
profits tax then. In the case of these new mines the corporation would be subject to the 30 per cent corporation tax on the income.


Thomas Clement (Tommy) Douglas: Yet in that
period there might have been a great increase in volume and in profit, but no extra tax would be levied over and above the minimum?


James Lorimer Ilsley: Yes, there may have been
an increase in volume, but in that case we would be thrown back on the 30 per cent corporation tax.

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Mr. DOUGLAS (Weybum):: Under paragraph (a), as I understand it, a firm that had gone through a depressed period during the standard years could make application for a board of referees, and the profit could be set at not less than 5 per cent and not more than 10 per cent. Why could not the same principle be applied to a firm which had obtained an exceptionally good return during those standard years? For instance, a firm producing minerals or metals used in the rearmament programmes of the different countries during the last five or six years would have had very high profits, which they would not be likely to exceed during the present period. Why could not the same principle be applied to them? If you are setting up a minimum, why not set up a maximum also?


James Lorimer Ilsley: That would involve the
setting of a fair rate of return on the capital of every business in Canada, which would be beyond the realm of possibility of administration, for the reasons I gave the hon. gentleman yesterday. There are too many businesses in the country to permit of that being done. In that instance the application would not be made by the company; it would be made by the crown. We would be going to companies and pulling down their maximum, and we never could get through with it. Even if we did, we would not know whether or not we had arrived at a fair result. For the reasons I gave the hon. gentleman yesterday when I was speaking of this, we have to take as the standard something that is accomplished, namely, what they have earned in the great majority of cases, the normal run of cases, during the pre-war period. We have taken a fair period; we have run back into some fairly bad years, so we have not been unduly favourable to the companies. Certainly the hon. member would not think so if he heard some of the representations we have received from them.


Thomas Clement (Tommy) Douglas: I am inclined to think that the minister probably is making it appear more complicated than otherwise it might be. If it is going to be possible for this board to handle the representations of firms who claim these years represent depressed years for them, I see no reason why the crown could not make applications to deal with firms which had experienced extraordinarily large profits during that same period. It would not mean going into the affairs of every firm; it would only mean dealing with those above a certain maximum of, say 15 or 20 per cent. There would not be many firms running above that. Some maximum could be set, and application could be made to review those firms.


James Lorimer Ilsley: We would have to examine the balance sheets and probably the income tax returns of every business in Canada if we undertook to do that; and then we would have to decide whether the earnings were fair, having in mind all the attendant circumstances, the degree of risk involved and so on. There would be all sorts of things to consider; we simply could not do it. Instead, we have set this 30 per cent minimum, which is a powerful provision. If they pay that much they are paying a good deal, and they will have to pay that regardless of whether or not they have any excess profits. When, you set a sufficiently high minimum return, it is just a waste of time to run around trying to fix a fair return and take a portion of the excess.


Mr. SENN:: Paragraph (c) provides special treatment for gold mines and oil wells, probably because they are hazardous and speculative enterprises. In Ontario there is quite an industry in connection with the production of natural gas, which is also highly speculative. I was wondering if the minister intended to include natural gas wells with the oil wells, or if it is intended to neglect the claims of that industry.


James Lorimer Ilsley: There may be many rather small industries like that for which some sort of case can be made. As I have said, the place to draw this line is the most difficult thing in the world to decide. There is, however, this to be said about gold mining and the production of oil. In the one case the production and export of gold brings a large amount of foreign exchange to this country, while the development of oil wells helps avoid the necessity of exporting a great deal of exohange. From the financial point of view these are two powerful reasons for making this concession; or perhaps I should not put it in that way. They are two powerful reasons for treating these companies in a different and perhaps somewhat more favourable way than we treat other industries to which these considerations do not apply.


Mark Cecil Senn: I should like to point out
that this industry is highly speculative and that it serves a useful purpose in providing fuel for a large section of Ontario and, I believe, other parts of the country as well. If it is too highly taxed, the effect will be to limit production, thus removing any possibility of supplying this fuel to any greater area. I would suggest that the minister give this question careful consideration.
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Mr. ROSS (Calgary East):: The minister has stated the depreciation allowance in the case of gold mines. Would he be good enough to state the depreciation allowance in regard to oil wells and also gas wells?


James Lorimer Ilsley: The allowance we have been discussing is the depletion allowance. It is 25 per cent in the case of oil wells, I think, and 10 per cent for the shareholders. I should like to verify that, however; I am not prepared on that phase of the question, which is not germane to the measure under consideration. That question came up more by inadvertence than anything else, but I shall verify what I have said and give the hon. gentleman the information.


George Black: This resolution provides for the establishment of a board of referees. Could the minister give us any idea of how that board will be selected, from what walks of life they will be chosen, who will appoint them and what their qualifications will be?


James Lorimer Ilsley: I have given some consideration to the question of their qualifications, but the government has not done so as a government. They will be appointed by the Minister of National Revenue, not by the Minister of Finance. They will have to possess very high qualifications. That is about the best I can say. They will have to discharge a difficult task, and it will be most important to get the best men in the country for this work. Great care will be taken if I have anything to do with the matter.


George Black: Will it be a stationary and fixed board in Ottawa, or will the board travel over the country, to the mines of the west and north, for instance?


James Lorimer Ilsley: Those matters have not been decided. Consideration has been given to the possibility of having a board with panels; perhaps a board of six, with three panels of two each, but I do not know whether we shall do that or have a fixed board of three in Ottawa. I am afraid we shall require more than one body sitting at the same time; otherwise the business will not be overtaken. I am afraid of that, but these are matters for the consideration of the hon. gentleman who occupies the position of Minister of National Revenue.


George Black: Could the minister give the committee any idea as to just what will be the rate of taxation on a new gold mine, for instance? This resolution states that a board of referees is to be established to ascertain a standard of profits for new businesses, and then continues:
(c) In the case of a taxpayer engaged in the operation of a gold mine or an oil well which has come into production since January 1, 1938,
[Mr. Senn.l
the minister may direct that the board ascertain a standard of profits at such an amount which they think just on the basis of a presumed volume of production during the standard period equal to the volume of production in the taxation year and a presumed selling price for the product during the standard period equal to the average selling price of the said product during the standard period.
How is a mine operator or a mine owner to know what his taxes are to be? Does the minister not think it would be better to fix a rate of taxation, a percentage of production or a percentage of actual profits, so that they would know what to meet? Under the resolution, as I see it, it is left to the decision of the board of referees or to the opinion of the minister, and they may differ entirely in different cases.


James Lorimer Ilsley: No, I do not agree with that. Nothing could be more definite than the taxation that is to be imposed on a new mine. It is to be 75 per cent of the premium on gold, or 12 per cent on the profits of the mine, whichever may be the greater. That is what it will be, because if there are new mines they are going to have exemption from income tax. Nothing could be more definite than that.


George Black: What does the minister mean by 75 per cent of the premium on gold?


James Lorimer Ilsley: There is a premium on gold. Gold was worth $35 an ounce before the war, and it is worth $38.50 now. When we are setting up an artificial period there, we are assuming that the mine is producing the same number of ounces as it produced before, selling them at $35 instead of $38.50 an ounce. The matter of assumed cost of production is not fixed here; that is left to the board, but normally one would assume that they would take the same cost of production in the assumed period and in the taxation year. And if they do take the same cost, it brings the matter down to a simple arithmetical computation-75 per cent of $3.50 for every ounce produced. It is either that or 12 per cent on the income, whichever may be the greater.


Arthur Graeme Slaght: Just a further word respecting taxation on gold mines, before we leave the item. A few minutes ago the leader of the opposition, while not desiring to disturb the proposed tax, as I understand him, indicated just before he took his seat that perhaps this industry was better treated than almost any other. I should like to explain for his benefit and for the benefit of other hon. members of the committee why I suggest that this is not a correct review of the position. He asked, and was informed that on his gold

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stocks the shareholder in his income return is exempted to the extent of 20 per cent of the revenue he receives from gold mines.
I do not know in what particular manner the leader of the opposition may have invested his surplus goods in this world. He may have invested in real estate or in houses. But let me illustrate to him why it is extremely just that on revenue from gold mines there should be at least a 20 per cent exemption from taxation in respect of income tax. I believe I can illustrate it in this way: We shall assume that a company is engaged in building and selling houses. That is their business. We shall say that in one year they have completed the building of one hundred houses at a cost of $1,600 each. In one year of operation we shall say that they sell five houses at $2,000 each, bringing them in $10,000. So far as income tax is concerned, that company would pay taxes only upon the difference between $1,600, the cost of each house, and $2,000, the selling price of each house, because that difference would be their profit on the transaction, and, if you like, their income for that year. In other words, they would be taxed on $2,000 instead of on the whole $10,000 they received for the five houses.
Let us now turn to the man who has a gold stock. We shall suppose that in one year he receives a dividend cheque of $1,000 from that gold stock. On that he is given an exemption of 20 per cent. We say to him, "Instead of taxing you as having received an income of $1,000, we tax you as having received an income of only $800, and we exempt you from taxation on the remaining $200". Why do we do that? I believe the reason, if properly understood, shows the fairness of it.
A gold mine is only so much gold beneath the ground. Every year you take out a portion of that gold, sell it and return it to the shareholders by way of dividends, you have depleted the capital of your asset and the value of your property. The cheque for $1,000 which goes to the shareholder is, in one view of it, only a procedure of handing him back his capital asset.


Richard Burpee Hanson: Or part of it.


Arthur Graeme Slaght: Yes, or part of it. Assuming that that mine could be worked out in one year, and that the $1,000 was all he would ever get-and I am afraid there have been mines which have worked out in one year-


John Ritchie MacNicol: Some of them never work at all.


Arthur Graeme Slaght: That is even worse. But, of course, they never paid at all if they have not received any fruits. However, this is a
serious matter, and, if properly understood, I believe the people will appreciate to the full the fact that gold mines are not being given preferential treatment. If, as I was pointing out, his whole capital was worked out in one year, and the shareholder in question received $1,000, all his capital would be handed back to him, and there would be no more. No one would suggest it would be fair to tax him on that $1,000 capital, as though it was all income for the year.
That explains the exemption of 20 per cent which, in my view, is not too liberal. In fact, I believe it is illiberal and does not really cover the situation. However, I believe the goldmining industry in Canada is quite prepared to bear its full share of the burden of taxation, and the question of the increase in the price of gold from $20 to $35 has been looked upon as though it were some favoured treatment which this government or perhaps the Great Architect of the Universe has bestowed upon that industry as a special favour. Neither situation is true. The government of Canada, despite all the many good things it has done, had not one thing to do with that increase in the price of gold, nor had the Creator, nor was it mere luck.


Richard Burpee Hanson: It was Santa Claus.


Arthur Graeme Slaght: Our friends in the United States, by fixing the price of gold at $35 and by being prepared to buy all the gold offered to them on all the world markets at that figure are the good Samaritans who have given Canada the resulting benefit. We have benefited because we are a gold-producing country. So I say that neither this nor any other government has bestowed that favour upon the gold-mining industry of Canada. It came to us in that fortuitous way. That is the second point to remember.
Therefore we do not want the people of the country to think that this great industry, now so important, is being favoured by any government. It is being given its full share of taxation. and I believe the industry is prepared to absorb it, adapt it and pay it.
Mr. HANSON (York-SunbupO: I had not any intention of going farther into the matter, but I should not like the impression to go abroad that I am attacking the gold-mining industry. I just wish the facts to be known. I do not think the public have known. Down in my country we have no gold mines, but we have some low grade coal mines. They do not know anything about depletion allowances. I simply wanted to get it on the record that there was such a thing as a depletion allowance. I understand the principle upon which. it is based and also the
Excess Profits, Tax Act

principle upon which allowances made to the shareholders are based. I am prepared to accept the decision of those in the department who are experienced, because I do not know. Of course, the hon. gentleman does know, I assume because of his connection with the industry. If he is prepared to argue the case, I am not. I only want the known facts to come out. Do they have a board of referees in England?


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: What type of men make up the membership of that board? I have the idea that they do this sort of thing much better in England than we in Canada.


James Lorimer Ilsley: I am told it has not been appointed, but it is provided for in the new legislation.


Richard Burpee Hanson: I hope,
when the government come to appoint this board, they will make it understood that the membership must be made up of the best men that can be found, men who are above reproach.


James Lorimer Ilsley: It may be unnecessary to say it, but I want to say that I hope to have as members of this board men possessing the highest talents, the widest experience in business life, and perhaps some legal training as well. I hope they will regard this work as being a war service because it will not be possible to pay what I hope they will be worth.


George Hugh Castleden: I followed what the minister said with regard to gold production, but it seems to me that in the production of oil we have an almost opposite condition. When an oil well comes into production it usually starts off at capacity, and there is no premium paid for the production of oil. I understand that at the .present time there are prorating regulations in effect in the largest oil producing field in the province. Would the minister mind explaining how this policy will apply to the oil industry?


James Lorimer Ilsley: I understand that there may be two or three years' operation before there are any profits. In any event, I come back to our minimum of 30 per cent. I believe that is going to prevent a great deal of criticism.


Mr. ADAMSON:: I should like to associate myself with what the Minister of Mines and Resources and the hon. member for Parry Sound have said. I do not think it is generally realized to what extent the gold mines of

Canada are being taxed to-day. They are paying at the rate of about 45 per cent in Ontario; that is, with provincial and dominion taxation. They are not complaining, but they want it known that they are being taxed quite heavily. I think it is necessary to have some flexibility in the administration of these taxes, and this may be provided by the board of referees. I should like to refer briefly to the Omega and Howey mines. The latter is only a salvage proposition at the present time, the value of the ore being something like SI.85 a ton with costs running around $1.73 a ton. To impose extra taxation on a mine like that will prevent the production of any gold still underground. This board of referees is most essential in deciding a case like this.
In the case of the Omega mine, the profit is around 31 cents a ton. The government is taking 24 cents a ton, which leaves only seven cents. Under this system it is quite possible that this mine will not be able to continue in production and the country will lose a further source of production of gold.
Base metal mining has not been referred to, but I should like to tell the committee that at the beginning of the war the base metal industry undertook to supply copper, nickel, lead and zinc at prices which were under Canadian and the United States market prices. These contracts were for long periods so that Great Britain and her allies would have a secure source of base metals at a fixed price. The International Nickel Company, Consolidated Smelters, Flin Flon, Hudson Bay and Noranda all entered into these contracts to provide metals at prices which in many instances gave them a lower profit than they had been getting. I suggest to the minister that this is a matter of great importance. Any suggestion that these mines are not taxed sufficiently is dangerous. Any loss of production means a loss of foreign exchange, and this matter should be handled with the greatest care.
It should be understood that we had nothing to do with raising the price of gold. We are a gold producing country, and the price of that commodity went up because of world conditions. It would be just as wrong to say that because we produce a great volume of wheat, we are to blame for the decrease in the price of that commodity. It must be understood that this was due to world conditions beyond our control. I want to make that point quite clear so that the committee and the country will realize that it was not this government or the government of the United States that put up the price of gold. They simply found themselves in a position where they could not pay their bonded indebtedness with the then price of gold.

Excess Pro jilts Tax Act
They had to undertake a certain measure of inflation, and the run on the banks in the United States was due simply to their inability to meet their contracts with the old price of gold. That is what it boils down to.
I should like to say a word about the suggestion that the increased price of gold makes mining more profitable. The McIntyre mine has discovered a vein of high grade ore which will run over an ounce per ton and is a good width. The increased price of gold and the discovery of that vein had a similar effect upon the mine. In other words, they were able to mine immense blocks of ore which they could not have taken out profitably before. They did make a profit, but their profits have not increased greatly. The important point to the country is this, that the production of that gold gave us foreign exchange; further, it provided work, and work in the mining industry during the past ten years was vital to Canada. Had not gold been discovered, gold mines developed and the price of gold increased, we would not have had men gainfully employed all over our great north country, but instead they would very likely have been on relief and relief taxation would have mounted even higher than it did in that period.
Australia imposed extreme^ heavy taxation on gold, so much so that it practically killed the gold mining industry at Coolgardie and Kalgourlie, and then when they found they needed gold in the worst way they had to pay a bonus over the world price for gold produced in Australia. They had practically killed the goose that laid the golden egg. Gold production is absolutely vital to our foreign exchange, and one of the most dangerous things we can do is to interfere with its production.
In South Africa two considerations have to be borne in mind. Gold there is deposited differently. It is found in reefs, and if you discover a gold reef you are almost sure to find the gold carried through down to a great depth. Once you discover your reef of gold you can get your company floated and a mine is assured. You drill through the conglomerate and you are almost certain to find a gold deposit.
But in Canada nothing is certain. Only one out of every 600 gold mining prospects ever comes into production. I do not mean the dividend-paying stage; I am speaking of the producing stage. Geological conditions in Canada are extremely difficult to understand and they vary frequently as between one end of a camp and the other. To find a goldmining prospect that will prove to be a gold producer is one of the most difficult things to do, and a system of taxation that takes practically 45 per cent of the profits is very likely
to kill the incentive to the discovery and production of gold. It is an important matter, and a serious decision that we are asked to make to-night on this question.
One other thing has happened in South Africa. In some instances the government owns the reef where the gold was discovered. The government owns part of the Witwaters Rand, for instance, and hon. members will see quotations under the name of Government Areas, a well known mining stock quoted in London. The land over the mine belongs to the government, and the government exacts a royalty on the gold produced. That is why in many instances the rate of taxation in South Africa is apparently higher than it is in Canada. But that will not be the case if this new taxation goes into effect. Even in South Africa the government had to revise their taxation downwards because they found they were destroying the incentive to produce gold. The one thing we have to worry about in Canada is to get your ounce of gold into a bar and sell it to the United States for urgently needed war materials.


[Stage Direction]
Resolution agreed to.
Richard Burpee Hanson: Before
we go any further, may I suggest to the minister that it is the practice that when a certain set of resolutions has passed the house, the Income War Tax Act resolutions, for instance, the minister introduces his bill before proceeding to the next set of resolutions, so that the members may have it before them and have an opportunity of studying its provisions. That is the common practice, I understand, and I think it ought to be followed.


James Lorimer Ilsley: I have not quite got it ready.


Richard Burpee Hanson: If the bill is not ready, that is a complete answer, but I should like to see the bill brought down as soon as possible.


James Lorimer Ilsley: I think I shall be in a position to introduce it to-morrow.


Richard Burpee Hanson: That will be all right.


James Lorimer Ilsley: I could introduce it formally to-night without having it ready, but you would not be any further ahead.


Richard Burpee Hanson: It would not help us any if we could not peruse it.
G. That the minister may adjust the standard profits so as to ensure -the comparison of like with like in the following cases:
(a)	where the accounting peripd in the taxation year is longer or shorter than the standard accounting period:
(b)	where the capital employed in the taxation year has been substantially increased or decreased over that of the standard period by the contribution or withdrawal of capital;

Excess Profiits Tax Act

(c)	in the case of gold mines and oil wells where the volume of production in the taxation year has been substantially increased or decreased over that of the standard period.


[Stage Direction]
Resolution agreed to.
7.	That there be exempted from the tax imposed under the said act:
(a)	small businesses where the profits before any salary or drawings by proprietors or shareholders do not exceed five thousand dollars per annum;
(b)	personal corporations which act solely as investment-holding agencies of individual Canadian taxpayers;
(c)	non-resident-owned investment corporations.
Richard Burpee Hanson: Does paragraph (b) which refers to investment-holding agencies apply to investment trusts or just to pure holding companies? Just what is the position with respect to investment trusts? I ask simply for information. I have no instructions at all in the matter, but I should like to know.


James Lorimer Ilsley: Investment companies are taxable and subject to the provisions of the act.


Richard Burpee Hanson: And they are going to pay 30 per cent.


James Lorimer Ilsley: We are getting plenty of representations about that, which we are considering, but at the moment investment companies are subject to the legislation as drafted. This relates only to personal corporations.


Richard Burpee Hanson: I am
interested only in a limited way. My experience with investment trusts has not been any too good, and if the government takes very much more in taxation I shall not get anything. Some of these companies have been through hard times, and 30 per cent strikes me as a considerable tax on investment trusts.


James Lorimer Ilsley: The hon. gentleman understands that it does not apply to dividends received from Canadian companies. If the investment company holds Canadian securities only, to the extent that its income is in dividends from Canadian companies it is not subject to taxation.


Richard Burpee Hanson: Share
dividends, but not bond interest?


James Lorimer Ilsley: Yes.


George Black: Why are non-resident-owned investment corporations exempt?


James Lorimer Ilsley: Their status is essentially that of non-residents. They are owned wholly by persons who reside outside the Dominion of Canada. The theory underlying the present

taxation provisions relating to non-resident-owned investment corporations is that they should be taxed only approximately the amount of the withholding tax, that is 5 per cent, and the act is framed accordingly. It requires a very good lawyer to take that out of the act, but that is what it comes to in the end, and that was in the mind of the draftsman of these provisions, in the beginning. I know, because they were introduced by way of amendment in 1937. Now, to subject these non-residents-essentially non-resident even though they have formed themselves into a company, with an office in Montreal or Charlottetown or some other place in Canada-to the same tax as resident-owned companies, would not be in keeping with the purpose of the provisions relating to non-resident-owned corporations.


Richard Burpee Hanson: The minister would not say, I suppose, that these companies are here because they are tax-dodgers in their own country? Nor am I saying it, but-


James Lorimer Ilsley: I did know more about them than I do now. I have forgotten a great deal of the information I had about these companies.


George Hugh Castleden: Are the profits of these corporations not made on Canadian transactions? Then why not tax them?


James Lorimer Ilsley: They may hold either Canadian securities or foreign securities, but they are not residents. The company is here, in form, but it would not be here but for the fact that we tax these companies only 5 per cent.


George Hugh Castleden: They come here for protection.


James Lorimer Ilsley: They come here for various purposes. As I say, I really forget the reasons; I could not make a complete statement as to why they come here.


George Hugh Castleden: The minister might
make one later on.


Mr. JACKMAN:: I hope the minister will give full consideration to including as exempt under resolution 7 investment companies other than the personal corporations which are mentioned in the resolution. I should like to point out to him what a serious disability these investment companies labour under at the present time in connection with the corporation tax. Let me give an illustration. A trust with a capital of $1,000,000 invested, say in bonds at 5 per cent, has an income of $50,000. The management fee, which is the charge for the only value added t-o it, repre-

Excess Profiits Tax Act
senting an item which might be equivalent to value added in manufacture if one were processing goods, is half of one per cent, namely, $5,000. Yet if this company receives $50,000 of income through holding bonds, the tax on that under the present schedule would be 30 per cent, or $15,000. Here we have the absurd situation of a company, on the one hand, merely charging $5,000, which is all it can obtain for having rendered the service of looking after these investments, and then the government, on the other, for doing nothing at all in this particular instance, charging 30 per cent on the $50,000, or $15,000, which is three times the management fee. The two things are not comparable. All that an investment company does is to act as a conduit between the earning corporation and the ultimate recipient, so there is no service to be rendered to the company by the government. For its small service the management is entitled to only $5,000, yet the government charges $15,000.
The minister mentioned that stocks of other Canadian corporations were tax free in the hands of an investment trust company operating under a Canadian charter. That is quite so, and on investigation he will probably find that a goodly portion of the securities these investment companies hold are not bonds, but shares in other Canadian companies, because the onerous taxation of the last ten or fifteen years has driven investment companies into acquiring shares of other Canadian companies rather than buying the bonds of the government or of other corporations. We have there a situation which is virtually killing the business. If it were better known how serious the taxation burden was, I do not think a justification for most investment trusts could be made.


[Stage Direction]
Resolution agreed to.
8.	That sole proprietorships or partnerships be allowed to claim as a reduction such reasonable amount for salaries paid to the proprietor, or partners as the minister may determine, not to exceed five thousand dollars per year for each.
Agar Rodney Adamson: Would the clause under resolution 7, relating to non-resident-owned investment corporations include a man owning an oil well abroad, say in Venezuela?


James Lorimer Ilsley: The shareholders must be resident abroad.


Richard Burpee Hanson: Would the minister say why the limit of five thousand dollars is placed? I do not know whether it is reasonable or not. I should like to know.


James Lorimer Ilsley: 
Richard Burpee Hanson: That may be sufficient. I would not suppose it was. It would depend entirely, of course, on the size of the partnership, the nature and volume of the business, how successful it was and all that sort of thing. There are a great many factors to be taken into account. This is, of course, the most which may be allowed.


James Lorimer Ilsley: Yes.


Richard Burpee Hanson: It seems to me that a fixed arbitrary maximum is not based exactly on principle.


James Lorimer Ilsley: Under the Income War Tax Act no allowance at all has been made.


Richard Burpee Hanson: That is true. But this is under another act.


Mr. GRAHAM:: Just one more question on resolution 8. Why should the proprietor of a small business probably requiring much more attention and as much executive ability as the operation of a large corporation, be discriminated against, if there is discrimination, as against a mere executive officer of a corporation?


James Lorimer Ilsley: This does not really make very much difference. If I had an instance worked out I would give it to the hon. gentleman. That is, it does not make much difference whether you put $5,000 there or $20,000, except under certain exceptional circumstances. It would take too long to go into that now. That $5,000 seems more like a normal salary for a small business than $15,000.


Roy Theodore Graham: But sometimes a fairly
large business is conducted by an individual or a partnership. It seems to me that this leaves the possibility of discrimination against a substantial business that may be conducted by a partnership or an individual..


James Lorimer Ilsley: It is only in rare instances
that it makes any difference whether this is $5,000 or $20,000, because the amount is allowed in the base period as well as in the taxation year. So if the 75 per cent-not the 12 per cent-is applied, it does not make any difference; the result is going to be the same. It is only in a small class of cases that this has any relevancy. If the hon. member will see me about that, I shall explain it further.


[Stage Direction]
Resolution agreed to.
Excess Pro flits Tax Act
[Stage Direction]
9.	That in the ease of a taxpayer who acquired a business as a going concern since January 1st, 1938, the minister may direct that the standard profits of the predecessor may be added to those of the taxpayer if the minister is satisfied that the trade or business of the predecessor and the taxpayer is not substantially different.
Resolution agreed to.
10.	That the definition of average profits during the standard period be revised to provide that only the profits of the standard period shall be taken into account when determining the average of the years during the standard period when the taxpayer was in business.
Resolution agreed to.
11.	That, in order to prevent evasion, power be given the minister to:
(a)	disallow the deduction of disbursements by the taxpayer which the minister in his discretion may determine to be in excess of what is reasonable and normal for the business;
(b)	assess without regard to specious transactions or reorganizations which the treasury board has found to have no reasonable business purpose other than that of avoidance or minimization of taxation.
Richard Burpee Hanson: In reference to paragraph (a), I suppose the department has to be on guard all the time against attempts to evade the tax by writing up expenses and disbursements. But after all this is an arbitrary power for the minister to have. This principle is new, I assume. Have we this in the income tax?
. Mr. ILSLEY:	It is the same thing we
were discussing the day before yesterday.


Richard Burpee Hanson: Perhaps
I was not here. I hope that there would not be arbitrary action by the Minister in regard to this sort of thing, because if the taxpayer is a reputable man he should know more about what is necessary than any departmental official. If a certain outlay is a little higher this year than last year, or higher next year than this year, that should not bar him out; he should be allowed to make his case. It is the old case of the minister being judge and jury. I do not like that principle; it seems to me there ought to be some other system. I do not know that there has been any abuse, but we might not always have such a fine Minister of National Revenue as the hon. member for Hamilton West will, I hope, prove to be, a man of such high character. We might have an arbitrary minister; I have seen such. I wish the department could set up some other principle than this of having the minister the taxing authority and then the judge of the justice of the assessment. I am not going to say any more about the matter; the statement is there and if it falls on deaf ears .1 can do no more.
{Mr. Ilsley.]


Mr. MARTIN:: It may even be dealt with by officials who have no experience at all.


Richard Burpee Hanson: I have found most of the officials very good, but there is some truth in what the hon. member says; sometimes you find an arbitrary official who has had no practical business experience.


Mr. EDWARDS:: Does the phrase "in excess of what is reasonable and normal for the business" mean for that particular type of business, or for the business being operated by the taxpayer? If it has no relation to similar lines of business in the same locality, there is no standard whatsoever.


Richard Burpee Hanson: It is open to two interpretations.


Manley Justin Edwards: I should like to get that clear. If a standard is to be arrived at by comparison with the same or similar lines of business in that locality, I can see that you could arrive at some fair or reasonable measure. But if it is the old story of just taking that particular business and the minister determining what is fair in so far as that particular business is concerned, without relation to what proprietors in the same or similar lines of business would do, a manifest injustice comes in there in connection with this resolution as it did in connection with the similar section in the Excess Profits Tax Act.


James Lorimer Ilsley: No one could fix what is reasonable or normal in the business carried on by the taxpayer without some inquiry as to what is reasonable and normal in similar businesses in the locality, although I must say that it is what is reasonable and normal for the particular business.


Richard Burpee Hanson: That is the intention?


James Lorimer Ilsley: That is what is said, what is reasonable and normal for the particular business. But I do not think the minister could possibly decide what was reasonable and normal unless he took into account what was paid in similar businesses.


Grote Stirling: In other parts of the country? Suppose it is a bakery business, does it mean that the conditions of the bakery business in that piece of geography will be considered, or the bakery business all over Canada?


James Lorimer Ilsley: I would think in that district. There must be some latitude allowed in order to arrive at what is reasonable and normal. I would not want to specify here exactly what factors would be taken into account or what would be left out of account.

Excess Profiits Tax Act


Mr. POTTIER:: Under this section apparently the minister has discretion to determine the amount. Is there any appeal from the minister's determination, or it is final? Under the Income Tax Act I believe there is an appeal. Is there an appeal here?


James Lorimer Ilsley: There is the same appeal here that there is under the Income War Tax Act. That is, the appeal provisions of the Income War Tax Act apply to the Excess Profits Tax Act, but I think I should say that I am not satisfied that there would be an appeal where the minister exercises his discretion. I gave that opinion the other night and it has been doubted since. I have not come to any hard and fast conclusion about that.


Mr. TUSTIN:: What do these disbursements include? Do they include repairs and such matters?


James Lorimer Ilsley: Yes.


George James Tustin: Then this seems to go rather far. How will the department arrive at an average with regard to a manufacturing concern, for instance? This year expenditures for repairs may amount to 5 per cent, while next year they may amount to 15 per cent. How is the minister to arrive at a reasonable rate for any particular year?


James Lorimer Ilsley: As a matter of practice, no disbursements or expenditures would be interfered with unless there was something manifestly wrong with them or unless something made the inspector of the department suspicious. If something stood out which appeared as though the taxpayer were padding his expenses in order to keep down his excess profits, it would be inquired into. Normally that would not be necessary at all, but we want power to look into it. In the income tax administration we have had instances where businesses undertook to pay very large salaries to several members of the family of the controlling shareholders, obviously in order to reduce the corporate profits, so they would not have to pay as large a tax on those profits. The object of this resolution is to enable the minister to cut down such expenditures. I could give the committee instances which would shock hon. members and cause them to say, "Why, certainly; the minister must have power to slash those costs." There have been instances where salaries of $10,000 or $15,000 have been paid to persons not even working there, perhaps a son who was away or working somewhere else.


George James Tustin: Undoubtedly the minister requires power to deal with such instances, but I am sure the minister can quite readily see that there may be a wide variation in the legitimate cost of repairs. That cost might
be 5 per cent this year and perhaps 20 per cent next year, and in both instances it might be strictly legitimate. But there might be a tendency on the part of the department to say that the cost this year is far in excess of what it was last year, and that the expenditure should be cut down, while it may be an absolutely legitimate expense. Yet the minister takes power under himself or under his department not to allow that expenditure if he wishes to do so.


James Lorimer Ilsley: I would expect the department to be reasonable in a case of that kind.


Mr. KINLEY:: It must not be forgotten that he can write off depreciation also.


[Stage Direction]
Resolution agreed to.
12.	That capital be redefined having regard to the cost price of the assets presently employed by the taxpayer less depreciation or depletion thereof, and deducting borrowed money and debts, with a proviso that non-productive assets, assets not actually employed in the production of profits, and assets producing tax-exempt income, shall not be included.
Harry Rutherford Jackman: Where you are redefining capital and fixing the amount on which you are going to allow a profit of from 5 to 10 per cent if an application is made under resolution 5 for special treatment, something is mentioned about the cost of the asset. Would that be the cost to the reorganized company, assuming it had taken out a new charter within the last three or four years, or do you go back to the original cost? I wonder if we could have some clarification of what is meant by "cost"?


James Lorimer Ilsley: There is a lengthy definition of capital in the schedule to the act, and I think it would be better to wait until we reach that definition. T-he hon. gentleman will have the same rights there that he has here. When he sees the schedule his questions may be answered; if they are not, he can put them again.


[Stage Direction]
Resolution agreed to.
13.	That there be allowed a tax credit in respect of the amount of excess profits tax or similar tax paid to the government of the United Kingdom or to the governments of other members of the British commonwealth of nations or to the governments of allies of the United Kingdom, if such governments allow a reciprocal credit for Canadian-paid excess profits tax.
Resolution agreed to.
14.	That the act shall apply to the profits of the year 1940, and in the case of a fiscal period ending in 1940 prior to December 31, that the act shall apply to that proportion of the profits thereof which the number of days of the said fiscal period in the year 1940 bears to the total number of days of such fiscal period.
Excess Profiits Tax Act
Harry Rutherford Jackman: I should like to ask one or two questions in regard to the whole subject matter of the excess profits tax, which perhaps might better have been asked at the beginning rather than at the end. In his budget speech I understood the former Minister of Finance to say that this excess profits tax would bring in approximately $100,000,000. That was the estimate for a full year. The ordinary corporation tax is virtually, or in effect, raised from 18 per cent to 30 per cent, so that now our normal corporation tax is 30 per cent and the excess profits tax, properly speaking, is any sum which may accrue to the government over and above this normal rate of 30 per cent. Has an estimate been made as to how much of that 8100,000,000 it is estimated would accrue merely from the operation of the increased normal corporation tax, leaving aside any excess profits tax?


James Lorimer Ilsley: I really do not know whether that estimate was made. Whether or not the previous minister considered that is something I shall have to find out from him. I have not given any consideration to it myself. I suppose that if one doubled the present return from the corporation tax, that might be a basis from which to start.


Harry Rutherford Jackman: The present 15 per cent brings in about $80,000,000?


James Lorimer Ilsley: Yes.


Harry Rutherford Jackman: I am asking these questions because I feel that the increase in the normal corporation tax to 30 per cent will bring into the treasury probably 875,000,000 of the estimated $100,000,000 for the full year. That brings us, then, to the name of this tax, which I think is extremely unfortunate in the eyes of most people. Certainly I feel that is so with regard to my hon. friends to the left. They do not like the word "profits," and even more do they dislike the words "excess profits." I think it should be explained to the people of Canada that this is not really an excess profits tax, but a straight boost in the corporation income tax from 18 per cent to 30 per cent, which will bring in three-quarters of the total amount the minister expects to get by virtue of this taxation. In other words, of the 8100,000.000 only $25,000,000 will come from the profits on war contracts or from industry which has been stimulated by the government's spending of money on the war. In his budget speech the then Minister of Finance said:
In order to ensure that no profitable business will escape taxation, it is proposed that in no case of an incorporated company shall the excess profits act, when combined with the corporate income tax, be less than 30 per cent tMr. Tlsley.]
of the company's total profits, whether or not such profits exceed pre-war profits.
Not only did he need to say "no profitable business," but he might have said "no business making a profit," which is slightly different. That means that companies which do not make a cent more than they did before must pay a great deal higher rate of taxation; and that certainly is not in the nature of excess profits.
I suppose this terminology has been borrowed from the English act, although I am not certain of that. But it does seem to me that where three-quarters of the tax is nothing more or less than a straight boost in the corporation tax, even though not a cent more is earned, surely a more fortunate name might be chosen for it. Many of these companies will not earn as much money, and certainly a great many of them will not have as much to distribute after this 30 per cent tax is taken off.
I would suggest to the minister that perhaps it might be called an excess tax on profits, as it really is, something which is quite different from an excess profits tax. Despite the humour of it I think the minister will agree with me when I say that my suggested nomenclature more exactly describes the situation than does that suggested by the minister. It is in fact an excess tax on profits, and not an excess profits tax. Or, if I may make it more definite, it is really a special shareholders' tax, because with regard to this conception of a corporation as being some entity in itself, while it is true that it has a legal entity it is, for the most part, nothing more or less than a group of humble shareholders.
In the public press we are used to seeing the statement that some few individuals may own a large proportion of this or that concern. It must be realized, however, that the general run of shareholders probably do not own more than a thousand dollars in any particular company. Those are the people who are being taxed by this excess tax on profits, as I shall call it.
Then, getting back to the root of the tax on corporations, I should like to read a short paragraph from this morning's issue of the Montreal Gazette, abridged from the monthly letter of the bank of Nova Scotia. It is as follows:
By all previous standards the new taxes and the increases in the old ones appear to be heavy. But because the national income is rising they are not an unduly heavy load for the Canadian people as a whole. Indeed, judging by the minister's estimates, the increase in tax revenues this year, estimated at $225,000,000, is equivalent to no more than one-third of the probable increase in the national income.

Special War Revenue Act
That is to say, when the previous Minister of Finance brought down his budget he said that last year's national income was approximately $3,800,000,000 or perhaps more nearly $3,900,000,000, and that this year the tax estimates were based on a national income of $4,500,000,000. There is a spread of $600,000,000, and the total increase in tax is only $225,000,000 on the estimated full year's programme. That is only one-third of the addition to the national income which the minister expects in 1940.
But this government is now bringing forward a measure to place a tax of 75 per cent on corporations which produce only one small part of the total national income. Yet we are to have an increase in the total national income of $600,000,000 where the increase in taxation is only $225,000,000. On the other hand, because a corporation happens to be easy to get at the government is going to take 75 per cent. We have heard a great deal about corporations not being permitted to make money out of the war; yet it is a fact that the people of Canada will be able to increase their income some $600,000,000 during the next year, and only one-third of that will be taken in additional taxation. So I point out that really what might be called an excess tax on war industry, stimulated by government spending of money on the war effort is only one-third, or 33 per cent, whereas the tax the government wishes to place on industry or on a corporation is no less than 75 per cent.


Paul Joseph James Martin: The hon. member is overlooking the factor of the ability to bear, and in that respect I think his argument is unfair. In respect of those who are covered by the general volume, is he not overlooking the question of ability to bear the tax?


Harry Rutherford Jackman: It is ability to bear the tax that is worrying me, and I am not overlooking it. I think it is extremely onerous on a certain class of citizens, and I have already pointed out that the shareholding class in the community is a broad class indeed. When we tax the corporation we are taxing the small man, and this is done because of the idea held by some people, and the public generally, that corporations are associated with wealthy individuals. However, I think the hon. member will bear me out when I say that the typical shareholder holds only a small amount. I say, therefore, that the tax is unduly heavy, and that the whole excess profits tax as now designed does not bear out the dictum of the minister who introduced the budget, when he stated in effect that his budget should have in it, as its first principle, equality of sacrifice.


[Stage Direction]
Resolution agreed to.

[Stage Direction]
Resolved, that it is expedient to introduce a measure to amend The Special War Revenue Act, and the amendments thereto and to provide,
1.	That section seventy-six of the said act be repealed and the following substituted therefor:-
"76. (1) Except as hereinafter provided, every manufacturer and every importer of matches shall affix to every package of matches manufactured by him or imported into Canada, an adhesive or other stamp of the value of one cent for each one hundred matches or fraction of one hundred matches contained in such package.
(2)	When matches are put up in packages containing not more than fifty matches and not less than thirty-one matches each, the tax shall be payable at the rate of one-half of one cent for each package, and when matches are put up in packages containing not more than thirty and not less than twenty-six matches each, the tax shall be payable at the rate of three-tenths of one cent for each package, and when matches are put up in packages containing not more than twenty-five and not less than twenty-one matches each, the tax shall be payable at the rate of one-fourth of one cent for each package and when matches are put up in packages containing less than twenty-one matches each, the tax shall be payable at the rate of one-fifth of one cent per package.
(3)	No manufacturer or importer shall sell or import matches unless they are in packages."
John Ritchie MacNicol: Are special stamps to be printed, and if so, where are they to be purchased?


James Lorimer Ilsley: Usually a stamp is not used; there is printing on the box.


John Ritchie MacNicol: There will have to be a rubber stamp then, will there not?


James Lorimer Ilsley: It is printed.


John Ritchie MacNicol: Printed on the box when purchased?


James Lorimer Ilsley: Yes.


Grote Stirling: What sum does the minister expect to collect from this tax?


James Lorimer Ilsley: It is expected that it will provide an additional $500,000 of revenue in a full year.


[Stage Direction]
Resolution agreed to.
2.	That subsection one of section seventy-seven A of the said act be amended by providing that the excise tax on packets of cigarette papers be increased from two cents to five cents for each one hundred leaves or fraction thereof contained in such packet.
Grote Stirling: What will be the increased revenue here?
Special War Revenue Act


James Lorimer Ilsley: Along with the tax on
tubes, it is expected that the revenue will be increased by about $4,500,000.


[Stage Direction]
Resolution agreed to.
3.	That subsection two of section seventy-seven A of the said act be amended by providing that the excise tax on packages of cigarette paper tubes be increased from two cents to five cents for each one hundred cigarette paper tubes or fraction thereof contained in each such package.
Resolution agreed to.
4.	That subsection four of section eighty-six of the said act be amended by increasing the tax from eight per cent to twelve per cent upon the current market value of all furs dressed and/or dyed in Canada.
Resolution agreed to.
5.	That the said act be amended by adding thereto after section eighty-eight the following section:
"88A. (1) In addition to any duty or tax that may be payable under this act, or any other statute, there shall be imposed, levied and collected a war exchange tax of ten per cent on the value for duty of all goods imported into Canada, payable by the importer or transferee who takes the goods out of bond for consumption at the time when the goods are imported or taken out of warehouse for consumption.
(2)	The tax imposed by this section shall not apply to any goods imported into Canada,-
(a)	which are entitled to entry under the British preferential tariff, or under trade agreements between Canada and other British countries;
(b)	Which are entitled to entry under Customs Tariff items 360, 460, 690, 690a, 696a, 700, 700a, 701, 702, 703a, 704, 705, 705a, 706, 707, 708, 709; or to fish caught by fishermen in vessels registered in Canada or owned by any person domiciled in Canada and the products thereof carried from the fisheries in such vessels.
(3)	Where the war-time prices and trade board reports to the governor in council that any producer or producers of goods have taken advantage of the tax imposed by this section to increase the price of such goods by an amount greater than is justified by any increases properly arising from such tax in the cost of materials or parts entering into the production of such goods or to maintain prices of such goods at levels greater than are so justified, the governor in council may, upon the recommendation of the said board, impose upon all or any of the products of any such producer an excise tax at a rate not to exceed ten per cent of the selling price of such products for such period of time as he may determine, remove or induce customs duties applicable thereto for such period of time as he may determine, fix the prices thereof and/or take such other measures and impose such penalties as he may determine."
Grote Stirling: I think this is the resolution the leader of the opposition was rather anxious about.


James Lorimer Ilsley: We will let it stand.
Resolution stands.
TMr. Stirling.]
6.	That the provisions of section eighty of the said act levying taxes on articles manufactured or produced in Canada enumerated in schedules I and II to the said act be amended to provide that the taxes mentioned therein shall apply at the time of delivery.


Mr. WOOD:: I am informed that importations of live stock made for the purpose of improving the breed will come under this resolution and be taxed 10 per cent. Up until now these animals have always been allowed in free, and as a consequence the Canadian farmer has developed a much better class of live stock. He has had free access to the United States supply. Now, when he purchases a sire in the United States, he must pay 11 per cent exchange and this special war revenue tax of 10 per cent which must be paid on delivery. There are many transactions which were entered into prior to the date of the budget. I think the imposition of this tax should be considered carefully because, after all, the income of our farmer is largely dependent upon the quality of his live stock. The Canadian farmer is considered to have the best live stock on the American continent. We go over to the United States and take the major share of the prizes, despite the fact that we are the smaller country. The imposition of this tax will have a far-reaching effect upon the quality of our live stock.
In 1939 we exported nearly 100,000 dairy cows to the United States. These exports were possible because we had better cows than they had in the United States. Because of the free exchange and free entry of these animals our farmers have been able to build up a high quality live stock. The amount of money that will be obtained from this tax will, I am sure, be quite small, and I ask the minister to give the matter his special consideration.
This tax is to apply on delivery. There are many instances where deals have been negotiated for the purchase of sires at the time of birth, but delivery is not to be taken until a year afterwards. The tax will have to be paid on delivery although the transaction was completed almost a year ago. As against this, many large companies have imported tremendous quantities of coal from the United States. It was pretty generally known that a tax would be imposed, and the harbours of our great lakes are now piled up with coal which was imported before the imposition of the tax. Are these companies which have escaped this tax by importing coal to be allowed to pass the tax on to the consumer? On the one hand, the farmer is to be taxed for a transaction which he completed some time ago and, on the other, these coal companies have been able to escape the tax.

Special War Revenue Act


James Lorimer Ilsley: If live stock is imported
after June 24, it will be subject to the 10 per cent war exchange tax, unless it is exempted as the hon. gentleman suggests. I am afraid it would be dangerous to start making exemptions. I would point out that this question would more properly come under resolution No. 5 which has been allowed to stand at the request of the leader of the opposition. If there is to be a debate on that resolution it will take place when the leader of the opposition is present.


[Stage Direction]
Resolution agreed to.
7.	That schedule I to the said act be amended by repealing section 1 thereof and substituting therefor the following:
"1 (a) Automobile adapted or adaptable for passenger use, with seating capacity for not more than ten persons each, valued at $700 or less, 10 per cent.
Over §700 but not more than $900, 10 per cent on $700 plus 20 per cent on the amount in excess of $700.
Over $900 but not more than $1,200, 10 per cent on $700 plus 20 per cent on $200 plus 40 per cent on the amount in excess of $900.
Over $1,200, 10 per cent on $700 plus 20 per cent on $200 plus 40 per cent on $300 plus 80 per cent on the amount in excess of $1,200.
(b) Automobiles adapted or adaptable for passenger use with seating capacity for more than ten persons, 5 per cent.
Provided that the tax collected under paragraph (b) above shall in no case exceed $250 per automobile;
Provided further that the tax on automobiles shall apply on the total price charged for such automobiles, which price shall include all charges for accessories, optional equipment, servicing, financing, warranty or any other charge contracted for at time of sale, whether charged for separately or not, but not to include heaters or radios;
Provided further that the tax on automobiles shall apply to any such vehicles in transit to dealers or others;
Provided that if a new and unused automobile is on the twenty-fifth day of June, one thousand nine hundred and forty, in the hands of a dealer and not delivered to another purchaser the tax shall be paid by such dealer when such automobile is delivered.
Provided further that the tax shall not apply to automobiles imported:
(i)	Under customs tariff items 702, 706, 707 and 708;
(ii)	By a bona fide settler on a first arrival;
(iii)	By a beneficiary resident in Canada, under the terms of a will of a person dying in a foreign country."
John Ritchie MacNicol: Since I have not the customs tariff before me, would the minister indicate the significance of tariff items 702, 706, 707 and 708.


James Lorimer Ilsley: These four items refer to
automobiles of travellers, representatives of foreign governments or of his majesty's governments, automobiles of the governor
general and automobiles included in military equipment, the property of the imperial government.
I am going to ask my colleague the Minister of National Revenue (Mr. Gibson) to move an amendment to the fourth proviso of resolution 7. The proviso as drafted requires dealers who had new and unused automobiles on hand on June 25 to pay the taxes imposed on automobiles under this resolution. Many representations have been made, and upon consideration we have decided that it would be too harsh to impose the full tax, particularly because dealers in the higher priced automobiles will have their business rather hard hit by this measure. Therefore it is proposed to reduce the amount of the tax payable by these automobile dealers to a flat 10 per cent. It may not give relief to dealers in the lowest priced cars, but it will give relief to dealers in cars from those prices up. The amendment reads:
That paragraph 7 of the resolution proposing amendments to the Special War Revenue Act, notice of which was given on June 24, 1940, be amended by striking out the fourth proviso reading as follows:
"Provided that if a new and unused automobile is on the twenty-fifty day of June, one thousand nine hundred and forty, in the hands of a dealer and not delivered to another purchaser the tax shall be paid by such dealer when such automobile is delivered." and substituting therefor the following:
"Provided that in the case of every new and unused automobile in the possession of an automobile dealer on the twenty-fifth day of June, one thousand nine hundred and forty there shall be imposed, levied and collected an excise tax of ten per cent based, in the case of an imported automobile, on the duty paid value and, in the case of an automobile manufactured in Canada, on the sale price of the manufacturer to the dealer payable at the time of the delivery by such dealer of such new and unused automobile to a purchaser: And provided further that the minister shall have power to define for the purpose of this section what constitutes a new and unused automobile: And provided further that a refund or deduction may be granted to an automobile dealer liable to pay excise tax under this provision in respect of an automobile, of the amount of excise tax previously paid in respect of such automobile under the provisions of this part."


John Ritchie MacNicol: Why should the amendment not apply also to the proviso immediately preceding, relating to automobiles in transit? The sale of these cars would be equally affected by the new taxation schedules, and should not the dealer who has ordered several high priced cars which happened to be in transit before the budget came down also be entitled to consideration?

Special War Revenue Act

i


James Lorimer Ilsley: If he has not received them, there is no hardship. We do not go into the terms of the transaction between the dealer and the manufacturer.


John Ritchie MacNicol: I see no difference in hardship to the dealer between an automobile which is in transit, say from Windsor to Montreal and happens to be only half a day away from the dealer's showroom, and that same car arriving in the showroom the next day. In each instance the sale would be affected by the increased tax on the higher priced cars. The higher priced car in transit would not likely be sold any more easily than the car in the showroom.


James Lorimer Ilsley: The manufacturer is responsible for the tax if the car is not in the hands of the dealer, and there is no occasion for relief in the instance put by the hon. gentleman.


John Ritchie MacNicol: If a Montreal dealer purchases one of the higher priced cars in Windsor, and the car is being driven to Montreal and is therefore in transit, whereas another Montreal dealer has the same model on the floor of his showroom in Montreal, and they are both trying to sell to the same prospective purchaser, I would think the dealer with the car on the floor of his showroom would have, if anything, a better chance of selling than the dealer whose car was in transit.


James Lorimer Ilsley: I am under the impression that the previous answer I gave is correct, but I will look into the matter further. Perhaps we had better leave that point in abeyance, because I do not want to give the committee any wrong information.


Mr. ESLING:: I sent to the office of the minister some time ago particulars in the case of a dealer in my district, and I take it for granted that the same thing applies to dealers in all the lower priced cars who had received from certain customers down payments on cars as early as May 11. For some reason the manufacturer was unable to deliver and the cars are now in transit. When the budget came down, the purchasers indicated their refusal to accept the cars were they compelled to pay the increased price. I wonder if the minister would indicate the status of such a transaction.


James Lorimer Ilsley: If the automobile were not delivered before the budget, they are subject to the tax imposed on June 24.


John Ritchie MacNicol: That refers only to the fourth proviso?


Thomas Vien: Yes.


Mr. CRUICKSHANK:: I want to ask the minister much the same question. What happens in the case of a car which is ordered but which the company cannot deliver prior to the budget?


James Lorimer Ilsley: It is subject to the tax.


George Alexander Cruickshank: I ask that from the point of view of information, because I have been asked that question by constituents.


James Lorimer Ilsley: It is undoubtedly subject to the tax.


William Kemble Esling: Does the minister not think there is just a little difference in a situation wherein a purchaser has made payment or a portion of the payment? It seems like an unreasonable burden on the dealer, for the reason that he would not have ordered the car had the customer not made a payment. The delay is occasioned at the plant; the car comes; by reason of the increased price the purchaser refuses to accept, and that loss rests upon the local dealer. Does the minister not think there is room there for some consideration as compared with the case of the dealer who merely orders cars to place in stock?


James Lorimer Ilsley: Whenever a duty is imposed there are likely to be some persons who suffer as a result of it. For instance, some importers ordered goods before the war exchange tax was imposed and those goods will come in after the tax is in operation. Perhaps the importers had sold before the tax was imposed, upon the assumption, although unwarranted, that there would be no tax. Nevertheless they must pay the tax. That is the general rule when duties and taxes are imposed. To make exceptions or to start a new practice would be contrary to the usage which has been established in this country for a great many years. Everyone knows that he must look out for the budget. A good manjT people plan their business with the budget in view. I do not know whether that is the case in the instance which the hon. member presented, but it might well have been. It might have been that the person buying the car had in mind that he had better get it as soon as possible, but the delivery was delayed until after the budget, and unfortunately the tax attaches.


William Kemble Esling: The minister's statement is perfectly clear, but the point in this case is that the payment had been made on the car. In the case to which the minister referred, in ordering goods it is not general that there should be prepayment. In the case I have mentioned prepayments were made as far back as May II, some time before the budget

Special War Revenue Act
was brought down, but the manufacturer was unable to deliver the car. In many instances delayed delivery may be due to preference being given to orders closer at hand.


John Ritchie MacNicol: And to war orders.


William Kemble Esling: Yes, orders for war purposes. These cars go to British Columbia, which is quite a distance. There is not a word to be said in the matter beyond the fact that in this case, contrary to some others, payments had been made on the purchase price and had delivery been made in the regular course, had it not been impeded, perhaps by war orders, the cars would have reached the dealer and been delivered to the purchaser before the budget was brought down.


John James Kinley: The minister was referring to cars in the possession of a dealer, on his premises. I take it that cars which are in transit are the property of the dealer, because all cars in Canada are shipped f.o.b. plant, and when once the manufacturers have shipped a car and sent the bill of lading forward to the bank, they claim they have made delivery. I believe that what the manufacturer will do is to telegraph his bank not to deliver the bill of lading until the extra tax is paid, so that the dealer will pay the tax on a car which is in transit. That is what happened the last time there was a tax on automobiles. We must not forget that in Canada this transit business is quite important, because cars rolling to the maritime provinces will take from eight to ten days, and to British Columbia, quite a while, whereas in central Canada delivery will be made in one or two days. Therefore the dealer in the maritime provinces is always a couple of weeks behind in his deliveries, and he is taken at a disadvantage, especially by this provision. The point is, it seems to me, that it is hard to make a distinction between cars which are in transit and cars which are actually in possession of the dealer, because he has given a firm order for them to the manufacturer on account of sales to persons in his district. It is not usual for dealers to order many cars unless they are already sold. It is likely that a dealer will get a signed order at a certain price before he orders the car from the manufacturer.


Roy Theodore Graham: I assume the minister would agree with me that in ordinary times this particular section of the Special War Revenue Act would offend the political principles of a goodly number of hon. members on this side. I recall that the former Minister of Finance, dealing with section 5 of this act, gave expression to the statement that it was only the war situation and the need to conserve foreign exchange which induced the 05826-99J
government to include in its legislative programme the imposition of the 10 per cent exchange tax. I do not think those remarks apply to the particular resolution with which we are dealing, and I would request the minister, if he can see his way clear to do so, to make some statement in regard to this particular matter. I do not see, as a matter of sound economics, if we are merely taxing a luxury, why we should particularly pick on motor cars, because the automobile industry in this country happens to be in a position of great safety, owing to its set-up. The Canadian Ford company do not fear any competition from the American Ford company. The same is true of General Motors; the same is true of the Chrysler Corporation. It will be recalled that these three companies in both the United States and Canada control eighty-five or ninety or even a higher percentage of the market of the cheap cars which these companies make. The Plymouth, the Ford, and the Chevrolet are the leaders in the small-price group of cars in which we are most interested.
In addition, the motor car industry, through the imposition of an embargo on used cars, is in a particularly favoured position. As I say, under ordinary conditions, if this were not war time, a great many members on this side of the house would strongly oppose this resolution. Of course, if the Minister of Finance is putting this into effect in order to conserve exchange for the purpose of the war, perhaps we should give way and permit his judgment and the advice of the departmental officials to outweigh our objections. But I believe a good many of us would like from the minister a statement that he realizes that this resolution is only for the purpose of conserving exchange, and that when the situation is better in that regard, this government does not intend as a permanent policy, or even as a long time policy, to give this added protection to the automotive industry in this country. I should be glad if the minister could see fit to make a statement to the committee on this point.


James Lorimer Ilsley: I have been looking at the
budget speech made by the former Minister of Finance; and I would gather that he put both measures in the same category. He makes it clear that they both have for their primary object the conservation of exchange, that these measures are war measures relating to present conditions. He said:
The other exchange measure relates to automobiles, both imported and domestic. It is proposed that, in place of the present small excise tax on automobiles of five per cent on the value in excess of $650, there be substituted-
Special War Revenue Act

And so on. I do not think the hon. member will require anything more than that budget speech to show that the attitude of the government was to take this as an emergency measure or a measure related to the requirements of the present situation.


Agar Rodney Adamson: This tax applies on the
manufactured price of motor cars?


James Lorimer Ilsley: The selling price by the
manufacturer to the dealer.


Agar Rodney Adamson: Has the minister any
figures as to whether the Ford, Chevrolet and Plymouth would come in the first category, or which cars would come in the second?


James Lorimer Ilsley: They have different models; I do not know just which category they would come in.


Agar Rodney Adamson: But all motor cars will
be affected?


James Lorimer Ilsley: Yes.


William Kemble Esling: Without wanting to be persistent, I did not get the minister's reply as to no consideration being given in a case where a payment was made and delay was occasioned, say by war orders or by distance. If those same orders had been placed here in Ontario, there is no question that the cars would have been delivered, but because of our distance in British Columbia there has been delay. I would not make the suggestion were it not on the ground that payments had been made by the purchaser.


James Lorimer Ilsley: By the purchaser to a
dealer?


William Kemble Esling: By the purchaser to the
dealer. I know of three separate cases. The purchasers made a deposit on those cars expecting them to be delivered within a reasonable time; the dealer not having them on hand-and he is a very large dealer, perhaps the largest garage in the interior of British Columbia-ordered them, expecting them to arrive within a reasonable time. But for some reason the manufacturer was unable to put them in transit; they were delayed, and then after the budget was presented, the purchaser notified the dealer that he would not accept the cars. The transaction took place not early in June, but on May 11, six weeks before the budget came down, so it is hardly likely he was contemplating this increase. The fact is that the payments were made before this parliament assembled at all, before there was any likelihood of a budget.


James Lorimer Ilsley: I do not think payment by the purchaser to the dealer makes any difference. It does not put the transaction in any different category from that of every other case where the dealer has resold or, in the case of an importer, where the importer has resold. Where there has been a resale at a firm price, there is no doubt there is going to be a loss or no profit or not as much profit. I do not think we can possibly recognize those cases as making any difference, and I do not think the fact that the resale has been accompanied by payment on the part of the purchaser makes any difference; it is just a resale, and if we recognized this as making any difference we would have to recognize every resale.


William Kemble Esling: By "resale" does the minister mean sale by the dealer to the customer?


James Lorimer Ilsley: The transaction between the manufacturer and the dealer is the first sale, and the transaction between the dealer and the customer is a resale. There will be many instances of such resales at a firm price, not taking account of the tax, which as I say will mean either a loss or no profit or a smaller profit than otherwise would be the case. We do not propose to remit the tax in any of those cases.


William Kemble Esling: Would the minister not consider the additional burden on car purchasers in the west on account of freight? That is one disadvantage to which residents in the far west are subjected as compared with those in Ontario. It really amounts to a discrimination. There ought to be some consideration in respect of that.


George Alexander Cruickshank: Is it the policy of the government that a man who has paid money on the purchase of a car, say in May, and who could not get delivery, must pay the extra tax? As another member from British Columbia I say that is very unfair.


James Lorimer Ilsley: All I can say is that it is not peculiar to British Columbia. That is the case irrespective of what part of Canada the transaction takes place in, and as far as I know, it has been the case since confederation.


George Alexander Cruickshank: In Ontario or Quebec one can get delivery to-morrow. I agree with the hon. member for Kootenay West that British Columbia is being unfairly treated.


John James Kinley: In the opinion of the minister would a dealer, if he had a signed contract to sell a car at a certain price, and if before delivery the law changed, be justified in adding that tax to the price of the car?

Dairying Industry-Cheese
Mr. II.SLEY: It depends entirely upon his contract. If he protected himself, well and good; but if he did not, I do not see how he can do it now. It is a matter of the law of the province in which he is doing business, but I should be very much surprised if he could protect himself if he did not foresee it.


John James Kinley: Then that would seem to me another reason why cars in transit should not be subject to the tax and should be treated in the same way as cars in possession of a dealer.
Progress reported.
On motion of Mr. Crerar the house adjourned at 11.05 p.m.
Friday, July 12, 1940



REPORTS OF COMMITTEES


[Stage Direction]
Mr. ALPHONSE FOURNIER (Hull) presented the first and second reports of the standing committee on miscellaneous private bills, and moved that the second report be concurred in.
Motion agreed to.

[Stage Direction]
First report of the standing committee on banking and commerce.-Mr. Moore.