Hon. IAN MACKENZIE (Minister of National Defence) moved that the house go into committee to consider the following proposed resolution:
That it is expedient to introduce a measure to establish a defence purchasing board with exclusive power, subject to approval of the governor in council, to enter into all contracts for the purchase of munitions, equipment, materials and supplies required by the Department of National Defence in cases where the expenditure exceeds $5,000; to provide safeguards to assure that such munitions, equipment, materials and supplies shall be purchased at a reasonable cost to the government and without unreasonable profit to any manufacturer or supplier thereof; to provide that salaries, wages and other expenses of the board shall be payable out of moneys appropriated by parliament.
To authorize the governor in council to borrow such sums of money as may be required to pay expenditures of the Department of National Defence which are chargeable to capital account in the appropriations provided by parliament for the said department; and to provide a sinking fund sufficient to retire in ten years the said sums borrowed for capital expenditures of the said department, together with interest thereon at three per cent per annum.
He said: Mr. Speaker, I think this is one of the most important resolutions that have come before the attention of this house during this or any previous session. In the first place, Mr. Speaker, it might be of interest and of benefit to every hon. member of this house if I be permitted to traverse some of the historical background of the efforts that have been made in peace and in war to meet this urgent problem of the control of munitions supplies. I proceed immediately, sir, to some of the efforts that were made in Great Britain in the years between 1914 and 1918 to deal with this question.
I cite first The Munitions of War Act of 1915, introduced into the British House of Commons by the Right Hon. David Lloyd George, which gave the government control over labour relations in the armament industry and provided for the limitation of profits in establishments which were producing munitions.
The average net profits earned in the two years immediately prior to the war were taken in that act as the basis of computation, and profits exceeding by one-fifth the average for the preceding two years were taxed at the rate of one hundred per cent. In Great Britain at that time they also had an excess profits tax which applied to all industries with certain exemptions. The average profits earned in the years prior to the war were ascertained, and profits exceeding by more than $1,000 (£200) the pre-war average profit, were taxed at the rate of fifty per cent.
Then leaving the war years, and coming down to the year 1937, hon. members of this house will recall that the present Prime Minister of Great Britain, the Right Hon. Neville Chamberlain, then chancellor of the exchequer, introduced in Great Britain what is known as the national defence contribution. Although the provisions of that legislation were drastically modified after its introduction, there is still a special tax under the legislation on the profits of all trades or businesses over a five-year period, at the rate of five per cent in the case of corporations, and four per cent in all other cases. When the profit does not exceed $10,000 (£2,000) the tax does not apply. There are, of course, some modifications and exemptions.
I come now, sir, across the Atlantic to legislation adopted in the republic to the south of us, and I refer to the Vinson Act of the United States, passed in 1934, and applying only to the United States navy. Under this legislation no contract may be made by the Secretary of the Navy unless the contractor agrees to pay into the treasury, profits in excess of ten per- cent of the contract price. Should the contractor fail to pay the treasury department levies a tax of the amount which should have been paid under the agreement. This does not apply to contracts or subcontracts of less than $10,000.
In the United States they also have an excess profits tax. which is a general tax, and profits are calculated as a percentage of the existing and declared value of the capital stock, and the rates fixed are as follows: On profits in excess of 10 per cent and not in excess of 15 per cent, the rate o'! tax is 6 per cent; on profits in excess of 15 per cent, the rate of tax is 12 per cent.