July 25, 1946

PC

Donald Methuen Fleming

Progressive Conservative

Mr. FLEMING:

I think the committee would value the hon. member's opinion on the fact that the United Kingdom abolished their Excess Profits Tax Act entirely with a view to stimulating employment.

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CCF

Stanley Howard Knowles (Whip of the Co-operative Commonwealth Federation)

Co-operative Commonwealth Federation (C.C.F.)

Mr. KNOWLES:

We have gone over that before, but we can go over it again if it is thought desirable. One has to take the total economy into consideration. One has to consider the entire tax set-up; the situation in Britain, the shortages they have because of what they went through in the war, and the social security measures that have been brought down in that country. I am suggesting that we do what my hon. friends have proposed time and again, namely, make comparisons within our own country and on the basis of what is possible here. And what does seem obvious here is that this government in the_space of two years is able to bring about drastic modifications in the excess profits tax as compared with the modifications we have had in the personal income tax.

The other thing I would suggest is this. The Minister of Finance in his budget speech made reference in his closing paragraph to the general belief that we as Canadians can do just as great things in time of peace as we did in time of war. I suggest that there is a sense in which our objectives are parallel, namely, high production, and part of the way to achieve high production is to make sure that the results of production are put to social use. That comes about, not by facilitating the piling up of huge profits, but by using such instruments as are at our command to distribute properly wealth. On that basis the government has already gone far enough, if not too far, in the reductions it has made in this particular tax.

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PC

Harry Rutherford Jackman

Progressive Conservative

Mr. JACKMAN:

The minister, in making his reply in the budget debate, mentioned that some on this side-and I think he had reference to myself among others-had said that the retention of this excess profits tax, even though it is lowered slightly, was a great discouragement to production. He attacked that contention; and after reviewing the situation in Canada, where we have 30 per cent normal tax, and 5 per cent likely to be added by the provinces, and then 15 per cent excess profits tax, giving 50 per cent altogether-

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LIB

Douglas Charles Abbott (Minister of National Defence; Minister of National Defence for Naval Services)

Liberal

Mr. ABBOTT:

No; 15 per cent on the excess over 116% of standard, not on all profits. That is an important difference. It is not 50

per cent on all profits.

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PC
LIB

Douglas Charles Abbott (Minister of National Defence; Minister of National Defence for Naval Services)

Liberal

Mr. ABBOTT:

Where the province imposes a tax the tax is 35 per cent on profits up to 116% of standard and 15 per cent on the excess. In most cases that would work out at

an average rate of about 38 per cent.

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PC

Harry Rutherford Jackman

Progressive Conservative

Mr. JACKMAN:

That is the mistake which I believe the Minister and his advisers have fallen into. What I am suggesting is that on the excess profits-define them as you like, 100 per cent or 116%-the effective tax rate will be 50 per cent. Is that correct?

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LIB

Douglas Charles Abbott (Minister of National Defence; Minister of National Defence for Naval Services)

Liberal

Mr. ABBOTT:

That is correct, but only on the excess. On 116% of standard the tax will be 30 or 35 per cent.

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PC

Harry Rutherford Jackman

Progressive Conservative

Mr. JACKMAN:

In this country it will be 50 per cent as against 38 per cent in the United States, and a still smaller rate on the smaller corporations, which fact the minister did not mention. The two examples I gave the minister were these. A company in the United States having a branch plant in Canada can arrange to do its export business from the parent plant across the line, or it can do its export business from its branch in Canada. If it does

Privilege-Mr. Coldwell

so much business, we will call it X, in the United States, and it also does X business in Canada, there is still its foreign trade business, which is additional to the ordinary business carried on domestically in both countries. If that company finds that the tax rate in the United States is 38 per cent on the foreign end of the business, and that the tax rate in Canada is 50 per cent, it is quite obvious where the business is going to be done.

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LIB

Douglas Charles Abbott (Minister of National Defence; Minister of National Defence for Naval Services)

Liberal

Mr. ABBOTT:

It cannot be 50 per cent in Canada.

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PC
LIB

Douglas Charles Abbott (Minister of National Defence; Minister of National Defence for Naval Services)

Liberal

Mr. ABBOTT:

Only on a relatively small proportion of the profits.

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PC

Harry Rutherford Jackman

Progressive Conservative

Mr. JACKMAN:

That is where the minister and his advisers make their cardinal mistake. I am not suggesting what the general rate of taxation is. All I am interested in is in getting the additional business. I am not think-about the average business but about the additional business, and the rate of taxation on that additional business is 50 per cent in Canada, whereas in the United States the rate remains at the flat corporation rate, which we will take as 38 per cent. So that there is no question where the additional business is going to be done. If, not the average business, but the additional business is produced in the United States the rate of taxation is 38 per cent. If the additional business is done here the rate is 50 per cent. It seems to me clear that the minister and his advisers have fallen into a complete lack of business foresight in not grasping that the average rate is of no consequence in regard to the extra foreign business we are trying to get. It is the rate on the last unit of business which counts, the rate here in Canada as against the rate in the United States, and I am saying that there is a twelve per cent differential, that the retained profit is twelve per cent higher in the United States and therefore the additional business is certainly going to be done there.

I mentioned also the example of a Canadian company', a great friend of the government, which was endeavouring to do some export business to Newfoundland and had the trade pretty well lined up. Then an American competitor came in and, because he had a larger retained profit, he was able to quote a closer price and get the business. We are not interested in the average tax rate on all the business of a Canadian company. That is all right for theorists to be interested in, but not practical business men who, if they have an opportunity to do additional business through a United States plant or a Canadian plant and the rate in the case of the United 63260-246

States plant is 38 per cent and in the case of the Canadian plant 50 per cent, will certainly have it done in the United States. The result of this retention of the excess profits tax on our Canadian economy, perhaps not so much now when we have employment and are doing fairly well in production, but in the future will be to deprive our manufacturers of just what is required in the way of incentive and providing employment for our people.

Resolution reported, read the second time and concurred in.

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THE ROYAL ASSENT

LIB

James Horace King (Speaker of the Senate)

Liberal

Mr. SPEAKER:

I have the honour to inform the house that I have received the following communication:

Government House,

Ottawa, July 25, 1946.

Sir.-I have the honour to inform you that the Hon. Thibaudeau Rinfret, Chief Justice of Canada, acting as deputy of His Excellency the Governor General, will proceed to the Senate chamber on Friday, July 26 at 3 p.m., for the purpose of giving the royal assent to certain bills.

I have the honour to be,

Sir,

Your obedient servant,

F. L. C. Pereira,

Assistant Secretary to the Governor General.

It being five minutes after eleven o'clock, the house adjourned, without question put, pursuant to standing order.

Friday, July 26, 1946

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July 25, 1946