July 15, 1942

LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

We have a dispatch on that.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

If the minister has a dispatch on that, I eliminate it from my statement. [DOT]

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

I should like to have the position in the United States and the position in Britain made clear. I have heard that they both tax them.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

That is correct.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

In our discussion we ought to know what the position is in these two places. The minister says that my statement is correct. Then our point of view may or may not be altered by that fact.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Application for deferment may be made in the United States, but in the United Kingdom, so far as I know, there is nothing even of that kind. They are taxed in both countries.

Income War Tax Act

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

Deferment of payment?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Yes, If a man cannot pay and he is in the forces, he has the privilege of applying for deferment.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

I regret if I have made a statement which my hon. friend has had to correct, and has been good enough to correct. At any rate, we in Canada have to make up our minds in this parliament how we are going to treat our own Canadian officers. Is there anybody who can really justify this parliament taxing the income of a young man, who has no control over where he is sent, because he is in Vancouver island, which was recently bombed, and not in England? I cannot see it at all, and I may say that on information I have-and I know I am right in this-young officers in our Canadian army in this country are greatly upset at the suggestion of their proposed treatment under this budget. Surely it is worth-while to maintain morale, and on that ground alone I suggest that this committee should recognize that these men are making a sacrifice. When we talk about equality of sacrifice, none of us, no civilians, however earnest they may be and however hard they may work in civilian enterprises, can be compared at all, from the point of view of sacrifice, with the officer in the army.

I promised that with regard to the two suggested losses of revenue I would, I hoped, be able to show the minister how to replace them without having to increase taxes by way of the sales tax, or by heavier imposts on the bachelor, or by imposing any direct taxation. I suggest to him that he consider doing it in this way, that he should issue at once a very substantial amount of national currency. I am not a follower of the Social Credit party, but I welcome any view they may hold which supports mine. Let me give, quite independently of anything I have heard from those worthy gentlemen, the reason why I make this suggestion. We are in committee of ways and means, and I make the suggestion as a way and means to get a substantial revenue for this country and not increase the already very heavy burden which falls upon the taxpayers, especially those in the lower brackets. I shall give a few figures which I think will make my suggestion very clear.

In the appendix to the budget, at page 56, it is shown that we borrowed in the two years and five months of war, $3,933,508,690, of which more than $10,000,000 was noninterest bearing certificates. Therefore the net borrowing on which we took on a new interest burden amounted to, roughly, $3,922,000,000, and we used $1,503,000,000 of

that to redeem maturing bonds so that we created new interest-bearing debt for spending purposes-and we certainly spent it-amounting to, roughly, $2,418,000,000. It is interesting to note that of those amounts we borrowed from the chartered banks $600,660,000 and they have the bonds with the interest coupons; we borrowed from the Bank of Canada $664,340,000, or a total from those two sources of $1,265,000,000.

Let me give the story for the last fiscal year. We borrowed $2,457,000,000, of which $4,000,000 was by means of non-interest bearing certificates. Therefore we borrowed at interest $2,452,000,000, and of that we used last year $964,000,000 to redeem maturing bonds, so we created new interest-bearing debt and spending money amounting to $1,488,000,000. Our projected budget this year is $3,900,000,000. About half of that, or $2,049,000,000, it is proposed to raise by taxes, and the minister in his summation of the item we are now discussing and other items says that this leaves a budgetary deficit of $1,850,000,000 which will have to be covered by borrowing.

I have examined our maturing obligations for the coming fiscal year for which we are budgeting. They amount to only $595,000,000. I propose to the minister that any additional sum that he has to get to cover the loss under the two or three items I have discussed under item 1 he should get in this way: he should issue at least $1,200,000,000 of national currency.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

How would the hon. member make that jibe with the policy of the administration against inflation?

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

I will answer that. 1 expected that some hon. member would rise in a hurry and say that that would create inflation.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

I am not asking the question in that sense at all. I am asking for information. Before I returned to the house after the election of 1940, I suggested to the deputy minister of finance that we should try that method.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

Well, the hon. leader of the opposition saw the light; he saw the folly of what we have been doing for several years sooner than I did. I compliment him.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

Unfortunately, I did not get the slightest encouragement, and I dropped the matter, on the theory that I was wrong. I apologize for interrupting.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

My hon. friend may change his mind back again. I will try to change it for him. My hon. friend says, "Oh, that will

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create inflation". There are others who will probably put it much more severely than my hon. friend is putting it. If by inflation we mean you are going to cheapen our present supply of money because you issue more national currency, let me suggest that that dog won't bark; that is not true at all, and I will tell the committee why. I am saying, let us issue bonds for the $595,000,000 of maturities, because those will be brought to the minister by the insurance companies, trust companies and banks, who represent a large number of clients, and they will expect, not to get cash for them, but to get new bonds, as they have been getting for the last twenty years, which bonds will bear interest; that is the way in which the government will maintain its obligations. So I would not disturb in this year of war time the reissue of $595,000,000.

I shall try to illustrate to my hon. friend by an actual visible illustration that it will not create any inflation at all, the reason being that we now control all expenditure in this country. We control prices against rising. We have a food controller, an oil controller. In fact we control every commodity there is except the air we breathe. We control prices of all commodities, and we control wages. That is something which the minister said in effect in 1939-I can give the page- that if you can control the ceiling of prices so that if you issue more national currency there will not be an immediate spiraling up of prices, then there is not danger of inflation by the issue of further national currency in the same way as there would be otherwise.

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

When did I say that?

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

As reported at page 139

of Hansard, for 1939, the second session, the first column, the minister put it in this way. He was dealing with this question with which I am dealing, and he said with regard to inflation:

If it is replied that we should control prices rigidly, then, assuming that all prices under such conditions could be effectively controlled- a very optimistic assumption-we would have to prevent the public from spending its money by some other means such as a drastic system of rationing all commodities.

We are now in the very midst of the most drastic system of rationing all commodities that this country has ever known. It is working. The minister then displayed a lack of optimism, and I think he was perhaps right at the time. That system of rationing has, however, become a reality in this country. Everyond knows that we are rationing certain commodities and preparing to ration more, and the housewives and citizens of

Canada are taking it with chins up and obeying the rationing laws, because we are finding no necessity for prosecutions to make people observe them.

Let me now return to the question of inflation. By inflation is meant that you are putting too much cash in the hands of the people of this country, particularly the working people and the farmers, and the 85 per cent that are termed the very modest earners; you are giving them too much money, and they will go and spend it. Will any of my hon. friends tell me, because I have a $100 bill in my hand

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?

Some hon. MEMBERS:

Oh, oh.

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LIB

Arthur Graeme Slaght

Liberal

Mr. SLAGHT:

I had to borrow it, Mr. Chairman, and the public interest would not permit me to table it. The security back of this Bank of Canada currency is the credit and the assets of Canada. Then I have a $100 bond here, with the pretty little coupons attached covering a period of years, with interest at three per cent payable half-yearly. The security behind this bond is the credit and the assets of the Dominion of Canada. There is no difference at all in what is behind either of these securities; and there is not a pennyworth of gold anywhere in the custody of the government to-day, or in the custody of the Bank of Canada, behind either of these securities. Two years ago we gave up the requirement which had obtained up until then of 25 per cent gold before national currency could properly be issued against it. That day has gone, both with Britain and with us. But we have the credit of this country behind both these securities.

If, instead of issuing bonds, taking them to the bank, pushing them through the wicket and getting $100 bills for them, which the Minister of Finance would do if he issued bonds, he issued $100 bills, what does he do with the money? He pays the obligations of Canada. He pays the John Inglis company for Bren guns, and they in turn pay out the money to their workmen. Similarly, if we issue a $100 bill and take it to the bank and deposit it-because we would not want to keep it in a strong box-we hand it to the banker. Then he has the $100 bill and we have the credit. Then we cheque against the same account, to the John Inglis company and everybody else, and we meet the obligations of Canada in exactly the same way. How do the working people in Canada get a^y more money under the system of issuing bills than they get under the system of issuing bonds? They have to earn every dollar they get from the John Inglis company

Income War Tax Act

or from anyone else. But someone gets a good deal more out of this system that we are going to follow. What does the private banker do, and by that I mean the chartered banks? If my hon. friend issues this bond and takes it to a bank; if that bank has only $5 in its till in money of the Bank of Canada, paper money, the bank then has power, because we have delegated that power to it, to thank him for the bond, take it in, put it away and make a bookkeeping entry in a ledger with pen and ink showing that my hon. friend has a credit of $100 in the bank against which he can cheque the next day, if he wishes, and draw it all out or leave it in. But the bank gets that bond for nothing, except for this. It does just one thing to get that bond; in the first place it has to get a $5 bill of the Bank of Canada, and perhaps it has to keep it there, but it does not even give up that bill. It simply makes a written entry in a book, because we have delegated the power to issue money to the private bank instead of retaining that power in the parliament of Canada, where the British North America Act placed it. I have the sections of that act here, but it will not be gainsaid that the power to create and regulate money is given under section 91 to the parliament of Canada. But we do not use that powder. We delegated it years ago to the chartered banks, under our financial system.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

In 1934 we took it back at so much a year, and it will soon disappear.

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July 15, 1942