July 16, 1956

PC

Ellen Louks Fairclough

Progressive Conservative

Mrs. Ellen L. Fairclough (Hamilton West):

Mr. Speaker, I should like to direct a question to the Secretary of State. Since it is now a year from the time a vacancy occurred on the civil service commission and since there have been repeated statements to the effect that a woman would be appointed to that vacancy, can the Secretary of State report to the house what progress has been made with reference to filling that position?

Topic:   PUBLIC SERVICE
Subtopic:   SUGGESTED APPOINTMENT OF WOMAN MEMBER TO THE CIVIL SERVICE COMMISSION
Permalink
LIB

Roch Pinard (Secretary of State of Canada)

Liberal

Hon. Roch Pinard (Secretary of State):

Mr. Speaker, I did refer to that during the discussion of the estimates of the civil service commission, and when an announcement is ready it will be made in due course in the house.

Topic:   PUBLIC SERVICE
Subtopic:   SUGGESTED APPOINTMENT OF WOMAN MEMBER TO THE CIVIL SERVICE COMMISSION
Permalink

TAXATION

MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES

LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Hon. W. E. Harris (Minister of Finance) moved

that the house go into committee to consider the following resolution:

That It is expedient to introduce a measure to provide that the Minister of Finance may pay to a province, out of the consolidated revenue fund, in respect of any fiscal year in the period commencing on the first day of April, 1957, and ending on the 31st day of March, 1962

(a) a tax equalization payment with respect to individual and corporation income taxes and succession duties;

(b) a provincial revenue stabilization payment with respect to such taxes; and

(c) a tax rental payment in accordance with a tax rental agreement that may be entered into by any province as an alternative to levying such taxes on its own behalf;

and also to authorize tax collection agreements with the governments of the provinces.

Motion agreed to and the house went into committee, Mr. Robinson (Simcoe East) in the chair.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Mr. Chairman, all the relevant correspondence and documents have been tabled from time to time in connection with (Mr. Lapointe.]

the various steps which were taken to arrive at the point we have come to today so I do not intend to take very long at the resolution stage in dealing with this particular matter; however, since the resolution does precede a bill which in many respects will be substantially different from the tax rental arrangements under which we have been operating since 1952, I think it would be appropriate to make some remarks and to place a few explanations before the committee.

As the resolution indicates, it will precede a bill which will implement the offer made to the provincial governments as a result of the several conferences held during the past 15 months. A great deal of study has been given to the subject of financial arrangements with the provinces in that time. We met first on April 26 of last year to decide what matters should receive consideration. We met again in June to work out an equitable method of sharing the costs of unemployment assistance, and our legislation with respect to this received the royal assent last week. On October 3, the main conference was held. At that time, while fiscal matters were the main topic of discussion, other important subjects of mutual concern were also considered. In November, we agreed to pay a greater share of trans-Canada highway costs. In January of this year, the sub-conference on health insurance met, resulting in specific proposals being made to the provincial governments for federal participation in a national scheme. The final conference on the fiscal proposals took place on March 9 and at that time the plan which is the basis of the bill was discussed in detail, it having been made available in a proposal by letter dated January 6. In addition to these ministerial conferences, numerous meetings have been held at the official level to discuss details of the various questions brought forward. Arrangements have been made for the continuation of these official meetings from time to time in the future.

Government in a federation is not a simple process for the provincial and federal governments. For that matter government in these times is not a simple matter anywhere, but additional complications are present in a federal state in the fact that by its very nature the freedom of action that exists in a unitary state is absent. For all this there is no questioning that it is the form best suited to our needs, for only in this way is a reconciliation possible of the differing factors of economics, geography, race, custom and

religion. The fathers of confederation understood this, even though some of them, including Sir John A. Macdonald, believed that a unitary state would have been more suitable in the circumstances then prevailing.

As I see it, the federal government has two purposes that are essentially complementary and not conflicting. It must perform those functions of national interest that are specifically assigned to it under the constitution and further, and this is of equal importance, it must act as a unifying influence, drawing together, by all proper means at its disposal, the constituent parts of the nation. The federal government is not the creature of the provinces nor are the provinces creatures of it. Each has its own assigned responsibilities, but it is the federal government that must provide the unifying force that makes a nation out of what would otherwise be a confederacy of the loosest sort. And so it follows that in the fiscal arrangements with the provinces, the federal government must follow a policy advantageous to the best interests of the whole of the country.

It is in this atmosphere that we have worked out what we consider to be a fair and logical approach to our fiscal problems with the provinces. I said "approach". I was not even tempted to say "solution" because no final solution is practicable, and in this fact lies much of the merit of these limited arrangements. Times and men both change, and our problems will change with them. Always, however, we should have a plan which is equitable and which makes it possible, in so far as this can be done, for all citizens of Canada, no matter where they live, to enjoy that reasonable standard of services that they have a right to expect.

There is, I am sure, no necessity for me to go into the background of federal-provincial financial relations at this time. The historical aspects of the subject are readily available and have been placed before the house on many occasions. I believe, however, that a brief reference to the events leading up to these current arrangements might serve a useful purpose.

The wartime tax agreements, while limited in scope, were the forerunners of the tax rental agreements of 1947 and 1952. They were intended as temporary expedients to permit the federal government to raise the necessary high wartime revenues as equitably as possible between taxpayers, while at the same time permitting the provincial governments to operate on an assured income sufficient for their needs in time of great national emergency. They were emergency solutions to a short-term problem and obviously never were intended to be applied

16. 1956 5987

Federal-Provincial Financial Arrangements to times when a normal expansion of provincial services would be required.

These agreements, that is those which were made at the end of the war-time period were strictly fiscal in nature and did not attempt to cover the broad social and economic fields as visualized in the original post-war proposals. Under the first post-war tax rental agreements, Canada rented from all the provinces, except Ontario and Quebec, the fields of succession duties, individual and corporation income taxes and corporation taxes, in return for payments which from a guaranteed minimum would increase with changes in population and gross national product per capita.

In the period of these agreements, April 1, 1947, to March 31, 1952, in line with decreasing costs of defence, the federal government was able to make substantial advantages available to the provinces by withdrawing from certain of the consumption tax fields it had occupied during the war. In addition, of course, we continued to withdraw from other fields down to and including 1953, when the stock transfer tax was dropped. We also shared with the provinces the returns from taxation of public bodies dealing with the generating or distributing of electrical energy, gas or steam. We are now proposing to allow the provinces to enter the field of taxation on insurance premiums, which at the current rate yields about $22 million a year. In addition, since 1948 there has been a large increase in the special grant programs, the most important of which in dollar amounts have been the national health program, on which over $185 million has been paid the provinces, and the trans-Canada highways program where these payments have totalled about $82 million to date.

Owing in part to their successful operation and in part to an extremely dangerous international situation, no basic changes were made in the principles of the tax rental agreements as renegotiated for 1952. The payments were on a more generous scale than before, and it was largely owing to this that Ontario entered into an agreement, along with eight of the remaining nine provinces.

When it came time to consider what should be done when the tax rental agreements expired at the end of this fiscal year, we carefully studied what had been accomplished in the years that they had been in effect. While no economic yardstick can be applied to measure the value of such things, some fairly obvious conclusions can be drawn:

5988 HOUSE OF

Federal-Provincial Financial Arrangements

1. They have made possible the utilization of the corporation and individual income tax field, largely without disagreement or duplication.

2. They have avoided unnecessary and wasteful administrative duplication of tax collection machinery with substantial savings to both taxpayers and governments alike.

3. They have provided financial assistance to provinces that would have had difficulty in maintaining services at a reasonable level by their unaided efforts, thus compensating for a concentration of these taxing powers in a few of the provinces.

4. They have provided the means of fiscal control through taxation which has proved a useful power on occasion.

These were the results that we had to evaluate and, while we were quite aware that the agreements were not without faults, we had to be sure that there was some more satisfactory approach to our mutual problems before we discarded what we had.

During the course of our meetings with the provinces, I suggested certain objectives that I thought we should keep in mind in seeking a solution to these problems. We should try to assure, as far as possible, that both the federal and provincial governments have access to revenue sources consistent with their responsibilities and at the same time we should promote simplicity, economy and equity in the tax system as a whole and in' the machinery of tax collection. In so far as is possible within our constitutional limits, we should endeavour to develop and maintain fiscal arrangements that will contribute to high and stable levels of employment and that will tend to moderate rather than exaggerate the ups and downs of economic activity.

While the tax rental agreements how in their tenth and final year have gone a long way toward meeting these objectives, in some ways they do not meet all the criteria to which some provinces attach particular importance. The proposals incorporated in this bill are designed to reconcile as far as possible these various conflicting points of view.

These new arrangements provide increased room for the provinces to utilize their taxing powers and at the same time to share through unconditional equalization payments the tax fields covered by these proposals. By this sharing, the equalization payments provide the fiscal assistance that will aid the provinces in meeting a standard of services that would not otherwise be possible.

Secondly, by means of the stabilization payments they place a floor under a large segment of the provincial revenue system which has from time to time in the past

shown evidence of instability. It is our hope that the steady growth of this country will continue in a manner that will make the operation of this part unnecessary. Nevertheless, this is a policy of insurance that has been sought by the provinces, which have been conscious of their vulnerability to economic change in the light of past experience. The stabilizing effect of a provision of this nature on the public sector of the economy should not be minimized and its general acceptance emphasizes the importance of a strong and continuing federal position in fiscal matters.

Third, they provide means for the development of a method of preserving the simplicity and economy of our tax system in these three common fields of taxation.

These arrangements make it possible for us to retain these advantages that have been an essential part of the tax rental principle and at the same time provide freedom of action to the provinces.

These proposals provide an answer to a very substantial extent to the problems confronting us. By them the provinces will have available from the tax fields in which we are mutually concerned revenues that are in our view consistent with their actual responsibilities now and with those that seem likely to develop in the next five years. It is characteristic of the freedom of action that exists under these new arrangements that any province that feels it requires more or less revenue from these tax fields is entirely at liberty on its own responsibility to impose and collect at whatever rates it deems suitable without sacrificing the assistance the equalization and stabilization payments supply.

The problem of determining the financial limits of these proposals has not been an easy one. We have tried in every way to be sympathetic to the many legitimate provincial claims and at the same time reconcile them with our national responsibilities. It is our view that in the limits decided upon both questions have been met in so far as it is possible to reconcile the needs of our expanding expenditures with restricted if buoyant revenues.

I should like to have the committee's permission to table a statement illustrating the workings of these proposals in the first year of the new arrangements, 1957-58, and I would ask permission to have it put on Hansard.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
LIB

Edward Turney Applewhaite (Deputy Chair of Committees of the Whole)

Liberal

The Deputy Chairman:

Has the minister permission?

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
?

Some hon. Members:

Agreed.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

The table is as follows:

ESTIMATE OF THE OPERATION OF FINANCIAL ARRANGEMENTS UNDER PROPOSED 'FEDERAL-PROVINCIAL TAX-SHARING ARRANGEMENTS ACT' FOR THE FIRST FISCAL YEAR 1957-58 UNDER CERTAIN ASSUMED ECONOMIC CONDITIONS (see footnote)

(all figures in thousands except per capitas and percentages)

1. Estimated Population 1957

2 Yield of Standard Taxes

3. Per capita yield of Standard Taxes

4. Equalization per capita to top 2 ($38.20)...

5. Equalization payment for 1957-58

ti. Standard Taxes plus Equalization payment

7* . . -per capita

8. Stabilization payment for 1957-58 1....

9. Revenue available from 2% Provincial

Insurance Premium Tax

10. Total Revenue available 1957-58

1L -per capita

12. Tax Rental Payment available in 1956-572.

13. -per capita (1956 pop.)

14. Increase in Proposed Formula in 1957-58

over 1952 Agreement Formula in 1956-57.

15. Per cent Increase

16. -per capita Increase

17. Tax Rental available in 1957-58 if the 1952

Agreement Formula were continued 3...

18. -per capita

19. Increase in Proposed Formula in 1957-58

over the 1952 Agreement Formula in 1957-58

20. Per cent Increase over 1952 Formula....

21. Per capita Increase over 1952 Formula....

Nfld. P.E.I. N.S. N.B. Que. Ont. Man. Sask. Alta. B.C. Total432 108 703 578 4,700 5,509 867 929 1,172 1,377 16,3754,355 840 9,725 7,375 129,965 213,500 18,765 13,255 26,100 49,525 473,40510.08 7.78 13.83 12.76 27.65 38.75 21.64 14.27 22.27 35.97 28.12 30.42 24.37 25.44 10.55 - 16.56 23.93 15.93 2.23 12,150 3,285 17,130 14,705 49,585 14,360 22,230 18,670 3,070 155,18516,505 4,125 26,855 22,080 179,550 213,500 33,125 35,485 44,770 52,595 628,59038.20 38.20 38.20 38.20 38.20 38.75 38.20 38.20 38.20 38.20 38.39145 _ - - - - 735 880235 70 780 565 6,325 10,170 1,110 660 1,580 2,100 23,59516,740 4,340 27,635 22,645 185,875 223,670 34,235 36,145 46,350 55,430 653,06538.75 40.19 39.31 39.18 39.55 40.60 39.49 38.91 39.55 40.25 39.8814,155 4,165 21,975 18,505 140,515 169,875 28,620 28,625 35,265 50,715 512,41533.54 38.56 31.71 32.58 30.48 31.78 33.36 31.49 31.51 37.82 32.082,585 175 5,660 4,140 45,360 53,795 5,615 7,520 11,085 4,715 140,65018-3 4-2 25-8 22-4 32-3 31-7 19-6 26-3 31-4 9-3 27-45.31 1.63 7.60 6.60 9.07 8.82 6.13 7.42 8.04 2.43 7.8014,890 4,270 22,865 19,320 146,620 179,290 29,620 30,010 37,990 53,330 538,20534.47 39.54 32.52 33.43 31.20 32.54 34.16 32.30 32.41 38.73 32.871,850 70 4,770 3,325 39,255 44,380 4,615 6,135 8,360 2,100 114,86012-4 1-6 20-9 17-2 26-8 24-8 15-6 20-4 22-0 3-9 21-34.28 0.65 6.79 5.75 8.35 8.06 5.32 6.60 7.13 1.53 7.01

1 he yield of standard taxes and the insurance premium tax have been increased by 6% per annum over the basic 1955 data. The distribution of taxable incomes profits and successions between provinces is on the basis of data presently available. 1956 Federal rates for individual income tax and succession duty have been used.

1 To bring up to tax rental payment available in 1957/58 if the 1952 Agreements were to be extended.

2 Estimated on Gross National Product at factor cost of $23.56 billion (Corresponds to GNP of $26.77 billion at market prices).

3 Estimated on Gross National Product at factor cost of $24.70 billion (Corresponds to GNP of $28.00 billion at market prices).

This statement is for illustrative purposes only

Federal-Provincial Financial Arrangements

5990 HOUSE OF

Federal-Provincial Financial Arrangements

This illustration, and it is only that, assumes, of course, certain economic conditions at that time. Briefly, the result is that in this first year there will be available to the provinces some $653 million, including the revenue from the insurance premium tax which is to be made available to them. This is nearly $115 million or over 20 per cent more than would be available if the present tax rental agreements were to be extended for all provinces into the year in question. This $653 million is made up as follows:

1. Unconditional equalization grants . $155 million

2. Revenue from individual income, corporation income and succession duties either by way of rental or by direct provincial impost without additional tax burden on the taxpayer 474 million

3. Insurance premium tax 24 million

$653 million

These payments are very substantial and, taken in conjunction with the growth factors that will operate and the heavy contingent responsibilities of the stabilization payments, make any greater payment impracticable at the present time under present circumstances. I know that this house is acutely aware of the very heavy stress laid upon the federal budget by the responsibilities of defence. These costs total almost 40 per cent of our expenditure and while they are more or less stabilized at this time we cannot be sure what outlay may be required to maintain our security.

During the past 15 years, with the consent and often at the urging of the provincial governments, the federal government has taken on heavy expenditures for objectives which have not been considered, traditionally or constitutionally, federal responsibilities. I think particularly of those in the field of social welfare where payments for unemployment insurance, family allowances, old age pensions and assistance and like measures now cost us close to $900 million a year, and this is constantly rising. In addition, we have commitments to the provinces in health, trans-Canada highway, university and vocational grants, among others, that add substantially to our costs.

We are under constant pressure from all sides to increase these forms of aid-I need not remind hon. members of that-and I need only point out as an illustration of this growing burden that since these present negotiations started in April of last year we have assumed responsibilities in connection with unemployment assistance which in a year such as 1954-55 would cost us $25 million. We have further agreed in principle to assume costs in connection with a national health insurance program that could easily

total over $180 million in a year. Both these are constitutionally the direct responsibilities of the provinces. If the presumed payments become a reality, this means that together with the increase provided by this bill our annual outlay for these matters to the provinces would have gone up by about $320 million as a result of our recent conferences.

I think it becomes quite clear that there is a very practical limit to our ability to dispose of our revenue sources and it is our view that this limit has been reached under present circumstances with these proposals at this time.

Under the rental agreements fiscal aid was an essential part of the payment made. Under the 1956 proposals any element of fiscal aid has been separated from the rental feature and payments will be based on the value of the field in the province concerned. By renting, the provinces may obtain the benefit of these taxes without a taxing statute and without administrative costs. However, much the same result can be obtained less directly and where a provincial government would prefer to have legislation of its own for individual or corporation income taxes that is consistent with the federal legislation at the rate allowed as offsets to federal tax, this government is prepared to enter into agency agreements for the collection of these taxes at a fee proportionate to the costs.

On the whole I think we have some reason to be gratified with the degree of acceptance which the principle of our proposals has received in the provinces. We have not reached and would not expect to reach unanimous agreement on the proper division of these tax fields. We have had our differences, but I think it is a matter of great satisfaction to all who have been concerned in these negotiations that they have been marked by sympathy and understanding of each other's problems.

To sum up, Mr. Chairman, the bill will provide for: (1) Collection agreements on behalf of the provinces; (2) tax rental agreements; (3) a tax equalization payment to those provinces in which the yield at the standard rates is below the average of the yields in the highest two provinces; (4) a provincial revenue stabilization payment to any province when the yield of the present proposal falls below certain floors; (5) abatement of tax in a province where there is no tax rental agreement is supplied in the Income Tax Act.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
PC

George Alexander Drew (Leader of the Official Opposition)

Progressive Conservative

Mr. Drew:

Mr. Chairman, the statement just made by the Minister of Finance gives a somewhat comfortable interpretation of the situation which exists, an interpretation very much in contrast with what those of us who

have been reading the press were under the impression did in fact prevail. When the minister says that we have not reached and would not expect to reach agreement I must say that he is using a very mild and rather deceptive interpretation of the vehement denunciation there has been of the inadequacy of the proposals now put forward.

The minister has pointed out that there will be a very substantial increase in the amount of money to flow from the federal treasury to the provinces over and above what would have been payable under a continuance of the present tax rental agreements. There is no question as to that fact. That, however, should immediately bring to our attention the source of these revenues from which payments will be made. These are revenues that by tradition were primarily provincial revenues under the concept of confederation. This is not a case of a generous handout by the federal government. This is or should be an attempt to reach a just, sensible and reasonable solution of the use of the main fields of direct taxation which are the fields primarily open to the provincial governments.

I agree with what the Minister of Finance has said in regard to the extent to which this subject has been discussed in detail. I do not believe that it is necessary to review the history of the federal system on this occasion and particularly at the resolution stage. Nor do I think it is necessary to go into the history of the various stages by which we have reached this point. However, I think it is essential that we recall that if in fact we believe in the federal system, we must remember the basic proposition that the power to tax is the power to govern. We must remember that if one government becomes dependent on another government to the extent of a considerable part of its revenues, then its real right to govern as an independent body may become more than illusory; it may become a myth with serious consequences to the survival of the federal system in Canada.

We are not dealing now with something that has not been discussed frequently before this time. But it seems necessary to reiterate the basic proposition that wherever governments have become dependent upon other governments for their revenues in substantial measure, fixed upon some rigid pattern, the fate of those governments has usually been in jeopardy. That goes back over a long range of history. It has not always been the case that central governments made payment to the local governments. Actually in the Weimar republic in Germany after the first world war the situation existed under which the central government became largely dependent upon payments from the states. That

67509-380}

16, 1956 59gj

Federal-Provincial Financial Arrangements situation seriously weakened the central democratic government in Germany; it seriously weakened its capacity to meet the urgent problems of the times.

Here in Canada we have a case which has been paralleled in other jurisdictions over the centuries, and that is a situation where the provincial governments, as a result of certain historic facts, are becoming more and more dependent upon the federal government. What is more, the municipal governments are becoming more dependent upon the federal government and the provincial governments with which they are directly associated. It is customary for us to use the legal expression that the municipalities are the legal creatures of the provinces. It would always be well for us to remember that these municipalities are very real entities and not just constitutional bodies. They are very real entities which predate confederation itself. They are very real entities which in some cases represent the actual beginning of all our history. They are very real entities where the roots of our democratic system grow. Therefore the needs of the municipalities and the plight of the local ratepayer-whether he be a home owner, a tenant or an operator of a business-are things which we must have vividly before us when we attempt to assess the adequacy or otherwise of the arrangements that are made with the prov->-inces.

There sometimes may be a tendency to think of these large payments-and they are large payments-as something which simply affects the provincial governments in their various duties. Let me point out how heavy the responsibilities of the provinces are with regard to the municipalities. Merely as ar* example, and not because it happens that F had some close association with that province* for some time, I should like to point out what-happens in the province of Ontario, and I may say it happens in varying degrees in other provinces across Canada. Some 40 per cent to 45 per cent of the total revenue available' to the government of the province of OnteEim -whether by way of payment from the federal treasury or from its independent collection of money-is passed over to the municipalities or to various local municipal agencies. That percentage represents a tremendous proportion of the total money that goes to a provincial government. The figures are not available right across Canada with regard to the exact amount that is payable in that way to the various municipal agencies such as school boards and other local bodies of that kind. But what is abundantly clear is that when we consider the amount of money that goes to the provincial governments we are in fact also considering the position of

5992 HOUSE OF

Federal-Provincial Financial Arrangements the municipalities and in turn, of course, the position of the local taxpayer as well.

When I listened to the statement made by the Minister of Finance I could not help recalling the opening words of a pamphlet on the negotiations which have taken place up to the present time and which was written by Mr. J. Harvey Perry, the director of the Canadian Tax Foundation. I think I will read these words because they set forth fairly clearly not only the problem that confronts us but the way in which the general public looks upon these highly involved discussions which are represented in such a table as that which was put on Hansard this morning and which is now before us. These are the opening words in the foreword to his pamphlet which was published in February of this year:

Surgery in all its forms is now so complicated that the layman has long since ceased to understand anything but the simplest operation. Among the more baffling of the modern techniques is that employed every five years by our politicians in dissecting the Canadian body fiscal. Even the intelligent citizen earnestly trying to understand finds it difficult to decide whether this quinquennial quartering of the tax system involves highly skilled surgery or merely sophisticated butchery. In part this is attributable to the fact that the really vital incisions take place in the decent privacy of the conference room. But it also arises mo doubt from the frustration of attempting to *relate the periodical bulletins on the progress of the [patient, in which developments appear to be * expressed in the equivalent of algebraic equations, -with the ritualistic invocations and tribal incantations which mark all outward aspects of the *performance. This state of frustration the citizen [DOT]could probably ignore if it were not for a niggling feeling that all these events must in some way be of importance to his welfare.

In this, of course, the citizen is wholly right. These are matters of great importance to him, and he should have some idea of what is going on.

I have read those words, Mr. Chairman, because it must have seemed to many of the hon. members here that they were hearing something in the nature of tribal incantations when they heard flowing from the lips of the Minister of Finance some of those references to the discussions which have taken place and the formulae which are embraced in the various agreements which have existed in the past and which are now being supplemented by the measure under consideration. In fact, one might go a little farther. From the statements that have been made by many of the provincial premiers it would seem certain that this is not merely sophisticated butchery, but cynical butchery of our federal system. These statements must have come, and I am sure did come, to the attention of the members of the government. They do not come from any one single premier. They came from different premiers across Canada who have complained bitterly of the

fact that whether the increase over the amount that would have been payable by a continuance of the tax rental agreements be $163 million or some other figure, these are hopelessly inadequate to meet the demands not merely of the provincial governments, but perhaps even more important of the municipal governments in relation to the rapidly pyramiding demands of our society at this time.

We have entered a period where old standards have simply become meaningless. We have been hearing of the crisis of education. It is more than that. It may well become a tragedy. Just today I was reading a statement that in Paris, France, there is great concern about the fact that only one-third of the number of pupils who ordinarily pass certain examinations in that city have passed on this occasion. This is a symptomatic problem. In order to meet the shortage of space, examination standards are being raised to a point where many children are being denied the opportunity for advanced education which they really need, and which this country needs at this time with the demands of technical and other skilled training.

This is no theoretical problem. This is a very real problem, a grave problem, and one with immense implications for the future of our country. It may well be that within the period of five years that these present agreements are to run, the demands on accommodation in our schools, our technical institutions and our universities, will have mounted beyond all recognition. If the present rate of growth continues in many parts of Canada, the schools of today will be hopelessly inadequate for the demands of five years from now. Already university accommodation is utterly inadequate for the present demands, let alone the demands of the future. At this time young people who have written their university examinations are waiting in suspense, not merely to know whether they passed their examinations, but to know whether they passed their examinations with a standard sufficiently high to get them through the gateway of the university they desire to enter. It is an agonizing situation. No longer is it a mere question of ability to pass examinations. It is a question how many can get into a university where the space is so severely limited. That is not a good thing for them; it is not a good thing for us and it is not good for the future of Canada.

Another thing which has its impact upon this whole situation is that, as we look at the tremendously increased use of mechanical equipment to do work that was previously

done by hand, we are seeing a rapidly increasing demand for higher training in the technical fields which will qualify young people to handle these delicate and involved machines which do these jobs that were earlier done by hand. This is going to mean that a higher percentage of our young people must have a higher standard of education. This is going to run the graph line of demand on space in our elementary schools, our secondary schools, our technical schools and our universities away up into figures that it is difficult even to suggest at this moment. It is in the light of that situation that we must examine the adequacy of what is now before us.

When Mr. Perry in his article to which I have referred, speaks of the fact that the citizen is coming to realize that this is a subject of great importance to him, I hope that it will be realized how vitally important this subject is to every citizen and particularly to the home owner who is now bearing a crushing burden of taxation in many municipalities across Canada today. There are municipalities at this time which are forced to charge taxes which are almost equal to a rental of a few years ago. This is only the beginning unless arrangements that are made today make it possible for these municipalities to meet their demands.

Now, in saying these things following the speech of the Minister of Finance, I wish to make it quite clear that the present formula has some merits in the acceptance of certain very important principles. As the minister pointed out, the proposal contemplates the continuance of a form of tax rental agreement, arrangements for federal collection of payments under those agreements, a tax equalization plan, a provincial stabilization fund which will protect municipalities against a severe drop in their revenues, and in turn an abatement in the federal taxation fields of personal income, corporation taxes and succession duties. The acceptance by the federal government of the place of the provinces and the right of the provinces in the field of income tax, corporation tax, succession duties and other direct taxes is, in itself, a welcome evidence of a return to the position which was always accepted without question over the years between 1867 and 1941, when the wartime tax agreements were signed. Unquestionably, the formulae put forward have some merit; undoubtedly, there are improvements over the fiscal arrangements made in 1947 and 1952; undoubtedly, many provinces will be compelled to enter into agreements with the federal government no matter what those agreements may be. They have no choice.

16, 1956 5993

Federal-Provincial Financial Arrangements

It will be recalled that after the first fiscal agreements were proposed many provinces held off for some time. Finally, however, most of them came in reluctantly and with complaints against the inadequacy of the agreements, which were demonstrated to be true as time went on. The complaints that have been made have been demonstrated to be true on each occasion and it is with that thought in mind that we should examine what is now before us.

Whether the provinces are compelled to enter into these agreements or not has nothing to do with whether these present proposals are satisfactory. Are they satisfactory in the minds of the provincial premiers and the representatives of the municipalities at this time? We know they are not. We know that right across Canada the strongest possible terms have been used to describe what may happen if the provincial governments and the municipalities are put in a financial strait-jacket which will limit their ability to meet the mounting demands that lie before them. It can only be said that there may be no choice.

The Minister of Finance (Mr. Harris) has told us that there were discussions. He has told us that government in a federation is not a simple process. It is not. It becomes increasingly difficult, however, if the rights of the provincial governments within that federal system are not fully recognized and that the dealings with those governments are not made on a basis of equality in whatever the allocated fields of responsibility are. It is not enough to admit in discussing the subject now before us that Canada is a federal state; it is not enough to repeat the tribal incantation that we believe in the federal system and that we are in fact children of a federation; it is not enough to say that we believe in the dividing of revenues that will balance the abilities of the governments to meet their responsibilities. The subject now before us is whether we really believe in the federal system sufficiently to do our utmost at this time to find real agreement with the provincial governments and with the municipalities which are very real entities indeed as to the allocation of taxes which will make it possible for them to carry out the heavy responsibilities which they cannot ignore and cannot shirk.

The true federal system admits that in their own fields the provincial governments have full authority over the responsibilities imposed upon them by our constitution. There are special reasons why the federal system must be conserved and strengthened in Canada. We have reasons of history; we have reasons which lie at the root of the very existence of one nation known as

5994 HOUSE OF

Federal-Provincial Financial Arrangements Canada here on the North American continent which cannot be ignored in discussing the solution of these problems. It is not only for reasons of history but also for reasons of geography that we must not merely give lip service to the idea of the federal system, but that we must do all within our power to vitalize that system, to give it living strength so that every government, federal, provincial and municipal, may meet the great and expanding responsibilities of the years of peace.

It was argued, and the argument was accepted by the provincial governments, that centralization became necessary during the years of war. Decentralization is equally necessary in years of peace. Decentralization is just as much a part of our federal system, and just as much a part in the needs of peace, as is the necessity of some measure of centralization to meet the compelling demands of war.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

Hear, hear.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
PC

George Alexander Drew (Leader of the Official Opposition)

Progressive Conservative

Mr. Drew:

We are now at another point of adjustment resulting from the agreement made in 1941. All that we are now discussing goes back to what took place at that time under the terrible demands of war. At h time when that war was in its most critical stage, the provinces agreed without hesitation to vacate their traditional fields of direct taxation with a clear understanding, however, that this was only for the duration of the war, and that once the war was over their historic position would be restored without impairment. We must remind ourselves of that consideration which was in the minds of the provincial governments when they signed the agreements in 1941.

We have listened to the details which have been put before us. We have a table which interprets in figures many of those details in somewhat complex form. But it is not necessary, I submit, to go into those details now. 1 am sure there will be general approval of some of the principles accepted in what has already been done; I am sure there will be a general approval of the principle of equalization grants, whatever the actual formula may be, or whatever the adequacy of the grants may be. Something of that kind was recommended first in the Rowell-Sirois report. I say it was recommended in the Ontario proposals of 1946 to the conference, which was held that year, under the name qf national adjustment grants. I mention that only to indicate that there has been general agreement for some time that the equalization of revenues in this country is necessary to make it possible for the less wealthy provinces of the country to give to

the people of their provinces the local services that are the constitutional obligations of those governments, whether they be provincial or municipal governments.

The question before us is not whether the right method has been adopted, whether the formulae are the desirable methods to reach these conclusions; the question before us I submit, Mr. Chairman, is whether or not at this time there is evidence that these agreements will satisfactorily meet the demands which are actually now imposed upon the provincial governments and the municipal councils throughout Canada and particularly whether they will be adequate over the five-year period during which these agreements will operate. I think that is what we must ask ourselves.

We have statements from every part of Canada that the requirements will not be met. We have ahead of us not merely the crisis in education but we have before us various problems of the most urgent nature which are increasing in importance by leaps and bounds.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
SC

John Horne Blackmore

Social Credit

Mr. Blackmore:

Hospitalization, for example.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
PC

George Alexander Drew (Leader of the Official Opposition)

Progressive Conservative

Mr. Drew:

Where in the whole of Canada today is there a single municipality that can say definitely it has been able to meet the demands for modern needs of roads and highways? Where is there a municipality in Canada today which would confidently say that under the proposals now before us they see the solution ahead of meeting the enormously increased demands for improved highways and roads which come from the rapidly increased number of automobiles in this country? Where is there a municipality in Canada today which sees in these proposals an adequate solution of hospitalization problems? We must remember that personal health is primarily the responsibility of the provincial governments, and in assisting the municipalities that come under our constitution it must be remembered that no matter what grants have been made or are contemplated by this government in the field of hospitalization or in health the main burden for anything that is done rests upon the provincial governments and the municipalities and will continue to do so.

We have the unqualified statement from municipality after municipality across Canada as well as from the provincial governments that these proposals will not make it possible for them to meet their needs even at the present level, let alone the rapidly mounting levels of the years immediately before us. Where is there a municipality in Canada today which is not having some problem

with its supply of sewers and water supplies for any rapid housing development that may be taking place? Where is there a municipality in Canada that has been able to keep pace with the demands that we always regarded as normal in days gone by where houses went into new areas that had been opened up? It must be remembered that there will be an increased demand for the supply of water, sewers and electricity and all the other local facilities which are far closer and of more immediate need to the people than most of the things which come from this government and those needs can only be met by revenues which are not even contemplated in the proposals now before us.

The Minister of Finance (Mr. Harris) said that he is not even tempted to say that this is a solution. That is certainly an admission of the reality. The fact that he is not even tempted to say this is a solution is a recognition that in his mind this is only another makeshift. By now it should have been possible for us to find some solution for the situation which arose as a result of the wartime agreements of 1941. Ever since those first agreements came near their termination there has been a demand from all the provinces for a satisfactory solution of the difficulties that were inherent in those agreements once we returned to a period of peace. It was recognized from the very beginning that those agreements were only makeshift and now in the admission of the Minister of Finance that he is not even tempted to suggest that this is a solution we have the bald declaration of the government that in 1957 there is going to be another makeshift for something that should have been solved long ago through the joint consideration of these governments.

We are now asked to go ahead with an arrangement which the government admits is a makeshift. We are asked to say it is expedient to adopt another makeshift at this time. We are asked to say that even after these long years the government has not yet been able to sit down and thrash out this subject to a point where we can hope to have some satisfactory solution that will prepare us for the years of peace. The agreements of 1941 were for war; we want agreements now for the years of peace, agreements which will work, agreements which will make it possible to ease the tax burden of the local taxpayer on his home, his business and his rental in a way that will make us better able to meet the keen competition we now face throughout the world.

We have seen something of what the dangers of inflation really are in the statements that have been made in the United

16, 1956 5995

Federal-Provincial Financial Arrangements Kingdom just within the past few days. Let us not blind our eyes to the fact that one of the gravest dangers we face in Canada is inflation based upon an excessive burden of taxes at the various stages at which taxes are imposed. Certainly unnecessarily high taxes are inflationary and not deflationary. They do not keep down the inflation and instead they add to the pressures of inflation because if taxes are unnecessarily high, as they are in many municipalities today, they have inevitably increased the needs of every individual for the amount that will be received for the purpose of meeting those taxes and to a point this contributes to the inflationary spiral. There are many other factors, of course, and I am not suggesting for a moment tftat there are not, and all these must be considered. But certainly in this competitive world the effect of taxation on our competitive position is one which we must not ignore.

What has happened in this case is unhappily typical of what has happened on other occasions. It illustrates the unfitness of this government to govern. The Minister of Finance has told us that there were meetings from time to time starting on April 26 of last year and then finally coming to a meeting on March 9 of this year. That should never have been dignified with the name of "conference". All that amounted to was that this government called the provincial premiers together for one day so that they might be told what this government was prepared to do. That is not a conference in any meaning of the word "conference". It is certainly not the type of conference that accepts in fact or in principle the relation of the federal and provincial governments or the place of the provincial governments under that system. It was said by more than one provincial premier that this was no conference at all. It was said that they could just as well have stayed away and been told by a letter what this government was prepared to do.

Once again it was a case of "take it or leave it". I know the Minister of Finance shrugs his shoulders.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
LIB

Walter Edward Harris (Minister of Finance and Receiver General; Leader of the Government in the House of Commons; Liberal Party House Leader)

Liberal

Mr. Harris:

No, he shrugs them in denial.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
PC

George Alexander Drew (Leader of the Official Opposition)

Progressive Conservative

Mr. Drew:

He indicates that he does not agree with this. It certainly was "take it or leave it". Of course, he has used the very misleading suggestion that the provinces are quite free to go ahead and tax without any effect upon their position under agreements or otherwise. That is all right, if people are satisfied with double taxation. But what should be attempted now is not a makeshift but an arrangement that will avoid double taxation in Canada. This is not a case of avoiding double taxation in future. There

5996 HOUSE OF

Federal-Provincial Financial Arrangements should have been a real attempt to avoid double taxation which exists today. There would not be double taxation if the arrangements were in fact adequate for the needs of our provincial and municipal governments. There was none of the real spirit of confederation in that meeting; that was made perfectly clear by the statements that were made by the provincial premiers after they left. That criticism came from every part of Canada. Just over a week ago, the four Atlantic provinces made it abundantly clear that these proposals do not meet their expected requirements. Those provinces met and emphasized their need for greater revenues than will be available to them under these proposals if they are to carry out their responsibilities either under the provincial governments or through the municipalities, and particularly if they are to give to the Atlantic provinces the various rights of improvements that were contemplated in confederation itself.

As one who lives in one of the central provinces, may I say that a full recognition of the moral obligation due to the Atlantic provinces-and that includes Newfoundland as well as the three maritime provinces-and a just arrangement with those provinces is long overdue, merely as a recognition of what was said at the time when those provinces came into confederation. I am not going to quote the various statements that were made; it is not necessary. Every hon. member knows the extent to which those premiers went in emphasizing the urgency of their needs. Everyone who has gone through those provinces and has seen the need for improvement in many communities throughout those provinces knows that a recognition of their needs is something that is very urgent within this federal system of ours. Nor is it merely the Atlantic provinces that require recognition. The province of Saskatchewan has not benefited to the extent that many other provinces have. But it not only concerns those provinces whose average income is well below that of the more fortunate provinces from the financial point of view; it is also true that in the provinces with large financial revenues it has been pointed out that these proposals will not meet their demands, and it has been said that, with the pyramiding responsibilities of the municipal governments, we may well reach a disastrous position within the five years that the arrangements now before us would run.

As I said before, whilst there is no need to argue this in detail, one inescapable fact does emerge. These proposals are not satisfactory to the provinces. They are regarded as

inadequate by the provinces. If they are regarded as inadequate for their needs now, they will be hopelessly inadequate for their needs five years from now. Not long ago the Minister of Finance used these words:

We cannot at this time make any further material concessions that would adversely affect our revenues.

The government speaks of concessions. Actually there is no question of concessions involved. Under our own federal system, the only source of revenue available to the provinces is in the field of direct taxation. The most important of those taxes are, of course, the personal income and corporation taxes. Without arguing as to whether or not the provinces have a prior moral claim in those fields, the fact obviously remains that, since the British North America Act gives to the provinces only the field of direct taxation to carry out their tremendous responsibilities, and since those fields alone are available to the municipalities which do most of the things that are directly felt by the people themselves, then we must consider what the situation is in regard to these taxes and the need of the provinces in regard to those fields. Certainly, whether or not they have the prior claim, at least their moral claim is equal in those fields. They must have a right to levy such taxes as they actually require in the only field open to them, without the added burden of double taxation being imposed upon the taxpayers of this country.

There is no question of concession involved, either in meeting the demands of the Atlantic provinces or in meeting the demands of the other provinces. All that these claims are based upon is the legitimate need of the provinces and the municipalities, based upon the burdens which they cannot escape under our constitution.

The claim of the federal government that it is unable to make any better arrangements comes strangely at a time when we hear reports that there is likely to be a surplus well in excess of half a billion dollars during the current year. Where does that surplus come from? It comes from the very taxes which in earlier days were regarded as provincial taxes and concerning which the provinces and the municipalities certainly have as high a moral claim as the federal government itself. Whether or not the sums that are raised by the new proposals are higher is not the point. It is whether they are adequate or not. Whether or not the surplus reaches the figures that have been predicted, certain it is that there is going to be some large surplus at a time that this government claims inability to make any better arrangements with the provinces for their needs.

It is necessary at this time to recall the basis on which the provinces vacated these fields in the early part of the war. There are hon. members in the house who remember very well the basis upon which these arrangements were made. In his budget speech on April 29, 1941, announcing the details of the agreement which had been made, the then minister of finance said, as found at page 2345 of Hansard:

1 should like to emphasize that this is not an attempt to get the provinces out of these tax fields permanently.

The agreements which were signed at that time also offer explanations of some of the understandings that existed. In the agreements then signed between those provinces of Canada which did sign agreements with the federal government these words are to be found after a general statement in regard to the agreements. The federal government undertook in the year after the termination of the agreements:

... to reduce its rate of taxes by such an amount as will enable the province again to use the income tax and corporation tax fields and in particular the dominion undertakes to reduce its rate of tax on corporation incomes by at least 10 per cent of such incomes.

That was intended to be done within the first year after the termination of hostilities, a period which would be required for the readjustment. What was intended? Many of us know what was intended because some of us actually were present at the discussions which took place. It was intended that the rights of the provinces and municipalities would be respected and preserved. It was intended that the provinces and municipalities would have their positions in these tax fields restored without diminution. That did not mean as to the dollars and cents that were involved. It meant as to principle as well, and I mean "principle" spelled p-r-i-n-c-i-p-l-e. It meant that the place of the provinces in those fields would be fully recognized. What is more, it said that in particular the federal government would reduce its rate of taxation on corporation incomes by at least 10 per cent. That was not merely a declaration that they would reduce it. It was intended that this would avoid double taxation and would permit the provinces to enter that field to that extent.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
LIB

John Whitney Pickersgill (Minister of Citizenship and Immigration)

Liberal

Mr. Pickersgill:

There was no such statement.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
PC

George Alexander Drew (Leader of the Official Opposition)

Progressive Conservative

Mr. Drew:

The Minister of Citizenship and Immigration interjects that there was no such statement. There certainly were statements to that effect.

16, 1956 5997

Federal-Provincial Financial Arrangements

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
LIB

John Whitney Pickersgill (Minister of Citizenship and Immigration)

Liberal

Mr. Pickersgill:

When the wartime tax

agreements were made?

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink
PC

George Alexander Drew (Leader of the Official Opposition)

Progressive Conservative

Mr. Drew:

I happen to have had the privilege of attending the discussions that preceded these arrangements, and I know perfectly well what the statements were that were made.

Topic:   TAXATION
Subtopic:   MEASURE TO PROVIDE FOR AGREEMENTS WITH PROVINCES
Permalink

July 16, 1956