Mr. Sinclair:

You promised $500 million.

Mr. Diefenbaker:

When we have the authority we shall do so.

We know that in a short time the Prime Minister was given authority. He has a commanding majority here. We sometimes wonder whether it is not a commanded majority. Nevertheless, this was the assertion; even after seven or eight months of holding office he still maintained that this assertion was justifiable. We know what happened. The public was persuaded that, with the vision, the government could spent more, tax less and do all this without any inflation; and, of course, could do this with a balanced budget.

Over the week end I have heard some comments. Many people who are not partisan with respect to politics say they do not see much change in the budget propositions that have been put forward, or many changes, except one important one. Practically all of them realize that the new administration has certainly left the till empty.

Right after the election we found that the Minister of Finance had lost no confidence in his ability to operate on the theories I have just quoted. I remember the great satisfaction that was portrayed on the faces of the new members on the treasury benches when we assembled in the fall. They were quite satisfied that they could accomplish these things, and they did not seem to be much concerned about the recession.

The Minister of Finance (Mr. Fleming) in his speech the other night would lead us to believe that in his first financial effort in this chamber in December 1957 he did seem to have given some recognition to the economic conditions which eventually proved to be depressive. But I just want to give hon. members some indication this is not so and that if this were so the minister was certainly

not talking to the House of Commons or to the rest of Canada in this way, because on the very day before he made that financial statement to this house on December 5, 1957 this was his view as expressed to the young people at the University of Toronto when he was addressing the Hart House debaters. He said: "Canada has no crisis or emergency in unemployment". A day or two before this he was addressing another group, and he had similar comments to make. Speaking before the dominion commercial travellers association he said that unemployment on the present scale naturally gives us all concern, but that there is no justification for calling it an emergency as some are doing.

The Minister of Labour (Mr. Starr) had occupied his office for some months, and this experience did not seem to convince him that there was too much to worry or complain about, because in December, in Montreal, he said this:

There is hardly an economist who does not feel that the unemployment situation is merely temporary, and that given a brief breathing pause the natural buoyancy of the economy would assert itself.

We know what happened in the election campaign. There was no attempt on the part of the administration to indicate that they had many serious worries about the future in this respect. The Prime Minister (Mr. Diefenbaker) in February and March was saying that the situation was licked, and we know that all summer after the election there were optimistic noises being made despite warnings from all sectors of the country. In the middle of June when the Minister of Finance was obliged to disclose the financial situation in his budget the picture really began to shock the country.

We have since seen the financial results. The true position was indicated, not only by a deficit where the minister had predicted a surplus but also by the terrific deficit which he forecast for the year 1958-59, and the intimation that deficits of this order were likely to be with us for some time. I am sure that this, as much as anything else, has set off the inflation psychosis to which the governor of the Bank of Canada referred in the report which was recently issued.

I maintain that this lack of frankness, over two years, is still one of the most serious matters of misconduct of which this government can be accused. There are many matters at this very moment which call for candid statements to this house. I am thinking of such subjects as tight money and inflation and I intend to say something about the conversion loan. I want, also to say that we on this side abhor the debating tactics of several hon. members on the other side of the house

when an attempt is made to discuss these all-important questions. We are not going to be deterred at all from discussing them and bringing them into the light of parliamentary debate by the threadbare argument that this would be giving some comfort to the Russians, or that it was almost unpatriotic-practically traitorous-to talk about some of these matters. I hope that before this debate closes we shall get from the Minister of Finance, both in attitude and in frankness, something very different from what we have witnessed recently when matters of this kind have been before us.

I have observed that it has been the minister's custom to sit in his seat and shout across the floor such terms as "rabbish", "nonsense", "improper", "irresponsible" and so on. Then before the debate closes we hear nothing further from the hon. gentleman. I hope he will speak with greater candour in the course of this debate with regard to these all important matters. This shyness on the part of the Minister of Finance is something new. He never used to be shy in discussing matters of this kind, and I can easily give an illustration or two in support of what I am saying. For example, on March 27, 1956, as reported in Hansard on page 2648, this is what he had to say:

Every time the bank rate was raised, it had the effect of subtracting millions of dollars from the value of the bonds held by Canadians, including dominion government bonds.

We found no shyness or lack of statements from the government when interest rates appeared to be going in another direction. I recall that on January 27, 1958, as reported on page 3852 of Hansard, the finance minister did not think it was improper to say something about government policy in a matter of this kind. These are his words: "The tight money policy has now been eased in line with the policies of this government." He was referring to municipalities, and so on. The Prime Minister had earlier met the premiers of the provinces-on November 25, 1957-and again, at this conference, he had no timidity about discussing a matter of this sort. He said: "Here in Canada, quietly and gradually over the last three months, the tight money situation has been eased." And he added:

Those whose business it is to follow the bond market will have noticed it, and that includes many of you here, but it has not attracted such attention as one would think it has merited.

I could give innumerable quotations of this kind. The Minister of Finance during the election campaign was listing the elements of the Conservative inheritance which had been left them by the Liberals, and one of them, he said, was that interests rates were

13, 1959

The Budget-Mr. Benidickson at the highest point in the generation. Credit was stifled, he said, by a tight money policy. Then he went on to say:

Money is now more plentiful. Credit and interest rates have been reduced very substantially.

I draw to the attention of the minister that the rate for treasury bills one day after the budget was 4.42 per cent. A week before it was 4.33 per cent, and the week before that it was again 4.22 per cent. The all-time high, previously, was 4.08 per cent -the rate about which he had been complaining-and I suggest we are entitled to have some further authoritative statement from the ministry with respect to the government's intentions in matters of this kind, because when interest rates were going down, hon. gentlemen on the other side did not hesitate to say it was a result of government policy. The governor of the Bank of Canada, at page 3 of his recent report, said this:

I believe that these fears of inflation will prove to have been exaggerated, particularly if appropriate steps may be expected to be taken to overcome government deficits.

The minister told us in his budget speech that he is not unduly apprehensive, or rather that he has no expectation of substantial increases in the cost of living in the course of the next year or two. If the minister and the governor do take this view I think the Minister of Finance should be able to tell us just why there is such a tight money rein at the moment. We know it is stifling capital investment and that the resort to the United States market is unduly high, particularly on the part of junior governments. And I am sure that the Minister of Finance did not miss the complaint of the chairman of the metropolitan area in Toronto, Mr. Gardiner, who is no normal critic of the present government but who felt obliged to complain and squeal with respect to the federal government's policies in this sphere of interest rates.

Mr. Stinson:

Mr. Speaker, before the hon. member leaves this subject, would he permit a question?

Mr. Benidickson:

Surely.

Mr. Stinson:

Would the hon. member not agree that the conversion loan was a good thing for Canada?

Mr. Benidickson:

Mr. Speaker, the hon.

member has simply drawn me to the next subject with which I propose to deal. We did not have an opportunity to deal with any authoritative information on the matter of the conversion loan when the house adjourned last session. The Minister of Finance at that time was not prepared or was not able perhaps to give us very much information with

The Budget-Mr. Benidickson respect to the costs of the operation and we only this session gained some information of that kind.

As the hon. gentleman who interrupts knows, the Minister of Finance is certainly one who has maintained with great fervour that this scheme was an unqualified success. Indeed, he says it so frequently that I suspect there are many Canadians who wonder if it is not a case of the minister protesting too much.

Mr. Coyne says so.

Mr. Benidickson:

I am going to indicate some questions that I feel should be very carefully considered by all hon. members of this house particularly when we are being asked to raise taxation for a one-year period to the extent of some $350 million. I have indicated that the sentiment of investors visa-vis this government has not improved and in fact seems to be on the decline, despite protestations that this conversion loan was an unqualified success. I believe it is a well known fact that since this government came into office-we will take the period from the end of June 1957 to the end of March 1959- it has increased the amount of our debt by $1,664 million and at the same time the money supply is about $1,720 million greater than it was at that time. I do not think anybody can deny that the deficit announced last June has been the cause of the conversion as well as the cause of this unprecedented expansion of the money supply. The government's need to borrow money is the explanation of both of these operations.

I think the following is rather significant. I noted that one of our most respected officials who has retired from the Department of Finance is reported in an article at page 394 of the November-December journal of the Canadian tax foundation. I think this statement is typical of the down to earth remark one would expect from Dr. A. K. Eaton. Describing the role of civil servants in the finance area he said:

You cannot pretend to be fighting inflation at a time when you have lined up your powers behind the government in a drive to sell bonds to meet deficit financing.

There are a number of facts we have obtained this session with regard to the conversion loan. I ask hon. members who have asked me questions about this particular operation to reflect on the matter and tell us what they think about some of these startling results. The Minister of Finance in returns to those on this side who have asked these questions has indicated that we can now take the immediate cost of the operation to be $42,400,000 for premiums, $19,478,000 for commissions, $7,300,000 for issuing fees, $1,495,000

for advertising and $1,265,000 for administrative costs. Those immediate costs alone total $71 million plus, to get the project launched. Even more important, I think, is the cost that is involved in the years ahead.

I continue to draw the attention of hon. members to the relationship to the need for increased taxation. The Minister of Finance has indicated that the annual interest on the new bonds will be $58 million more than what was paid on the bonds that were converted; there is an amortization charge on an annual basis of $6 million; that totals $64 million.

The important thing I want to ask hon. members who have interrupted is this. Can they give me any good reason-and we have heard nothing about it from the administration-why the conversion committed itself to maturities well in the future. I refer to the 6th, 7th, 8th and 9th victory loans. Permit me to state what the result of that cost has been. The extra interest that will have to be paid for the 6th victory loan, which would not have matured until June 1, 1960, is over $13 million. Calling in advance the 7th victory loan results in an expense of $44 million; for the 8th victory loan, not due until October of 1963, $91 million, and for the 9th victory loan, not due until 1966, $165 million in extra interest. The total of interest with respect to these particular maturities is the staggering amount of $314 million.

But that is not the whole story. In addition to that, premiums had to be paid for the conversion of these loans. That involves another $30 million, giving a total of $345 million. I point out that this is very close to the increase in taxes we are discussing here. As an hon. gentleman on this side suggests, this could perhaps be referred to as a howling success.

Another question I would direct to hon. gentlemen opposite is this. Have they received a satisfactory and convincing answer to the question posed by the fact that in the case of the 17-year 4\ per cent new bonds and in the case of the 25-year 4J per cent new bonds there was no elementary prudence taken in putting in, a few years in advance of maturity, a provision that would give a right on the part of the government to call them. This has been more or less standard practice in the past. In other words if interest rates go down within the 17 and 25 year periods the government has no right to call in those bonds.

Surely hon. members supporting the government have heard from many constituents, as I have, another criticism to the effect that from sorry hindsight they rather think they were diddled by this operation. They are

recalling with considerable distaste the television and radio eloquence of the Prime Minister, the sledge hammer arguments of the Minister of Finance, the high advertising campaign and its very considerable expense and perhaps in particular they remember advertisements such as those which encouraged females to take advantage of the premiums and buy new hats. They remember all these things but what they are perhaps most conscious of is the fact that they have suffered promptly very substantial capital losses.

I have been disappointed to find in the explanation we have received from the ministry that there is an indication that they seem to be proud that they put something over and that this saved the crown some money. If in August the government knew what was likely to happen to bond prices and still went ahead with the conversion scheme, the complaints we are getting from the public are justified. If the government did not know what was going to happen then I feel it should have been better informed. If the government did not know, how much reliance can we place on the predictions and comments we might get along a similar line at this time? In any case, I think it is extremely poor taste on the part of the administration to brag about the success of this conversion operation which has resulted in a great number of their fellow citizens being victimized by sustaining very injurious losses.

A great number of matters are referred to in the minister's speech with which one would like to deal, but the debate will be going on for some days and there will be many others more competent than myself to deal with them. In addition, it is an unusual debate in that it provides several stages for further discussion, namely the resolutions, the bills and so on. As I said the other night, one of the most impressive things, because of the relative silence, in the budget speech, was the reference to unemployment. We are all very concerned about the fact that if the recession is disappearing it is doing so much faster than unemployment.

Probably many of us read recently the report in the Financial Post of a very wide canvass of businessmen as to the economic prospects. Quite a number of them indicated that in their opinions there could be an expectation of an increase in profits, in output and that those were inching upwards in probably a majority of instances; but 70 per cent of those consulted said that they foresaw no increase in the labour force even in consequence of an advance in those other sectors. These are the things that we have heard little about from the administration and I hope that those who follow me in the debate

The Budget-Mr. Regier will say more about government intentions in this all-important field.

I move, Mr. Speaker, seconded by the hon. member for Welland (Mr. McMillan):

That all the words after the word "that" be deleted and the following be substituted therefor:

"this house regrets the bad faith of the government, which sought and secured support from the Canadian people on a program of lower taxes, reduced expenditures and a balanced budget, and which has now produced, in flagrant disregard of pre-election promises, a budget calling for higher taxes, record expenditures and a large deficit.

Mr. Erhari Regier (Burnaby-Coquiilam):

Mr. Speaker, the country has waited a long time for the bringing down of the budget. We have all recognized in this as well as in other commonwealth countries that the contents of the budget must not be revealed to anyone before the budget is actually presented to the house and to the country. I do not for a moment assume that there was a leak of the contents of the budget this time. I know that a member of the fourth estate is, however, a senior adviser and it is likely that when some months ago he was asked by the Minister of Finance (Mr. Fleming) what his opinion was as to the contents that the budget should contain he supplied a little advice to the Minister of Finance and he assured him that that advice would be accepted. I have reference to an article in the Montreal Gazette, dated March 12, 1959, under the title, "Ottawa Day By Day", by Arthur Blakely, in which he says among other things:

Rightly or wrongly, the general expectation is that Mr. Fleming will not postpone a decision any longer but will move, in the new budget, towards a restoration of the rough state of balance between budgetary revenues and budgetary expenditures.

It is also assumed that he will not attempt to restore this state of balance in a single budget, but will take some remedial action now and defer later measures (which might be made unnecessary by a new buoyancy in the economy) until later.

Then, a little farther on at the end of the article he says:

It would not surprise many observers if Mr. Fleming made the fund-

And he is referring to the old age security fund.

-again self-supporting by the imposition of a 3.3.3 formula, taking one additional per cent from personal income tax, corporation tax and sales tax.

I for one would like to congratulate this member of the fourth estate for having a keen insight into the operations of the mind of our Minister of Finance.

When we look at the budget which has been revealed we realize what a disappointment it is indeed because for the masses of the

2620 HOUSE OF

The Budget-Mr. Regier people of Canada there is nothing in it except higher taxes, higher interest rates and a rise in the debt of the federal government. There is nothing in the contents of the budget which will supply any hope to our unemployed, to our farmers, to our basic enterprises and to our secondary enterprises. There is in the budget no hope for those responsible for raising the necessary financing for the operation of either the provincial or municipal governments.

I realize that the minister is most able to present the budget of Canada for the government of Canada in as excellent light as it is possible to present a budget of the kind that he has brought before us. I will not attempt to assist him in that most able performance of what is a message of very little comfort indeed for the Canadian people.

I notice that the minister has made many admissions of failure in the budget. I grant that those admissions were very ably presented so that to find those admissions one really has to look very hard indeed. The minister has been able to persuade most Canadian newspapers and magazines-and he was able to accomplish this even before the presentation of the budget-that things are on the upgrade in Canada. There has been indeed a lot of whistling in the dark to keep our spirits up. The minister was very adept indeed on Thursday last at pouring on a lot of soothing syrup. There were plenty of words, exceptional language, there was excellent oratory, indeed, as only he is able to present oratory. However, as I listened to the minister, Mr. Speaker, it reminded me of a very conscientious clergyman who typed out his sermons and left rather wide margins. His sermons were also like the minister's speeches, on the lengthy side. On one particular margin of one particular page he had inserted the note, "Argument weak here; shout like hell". After listening to the minister, after considering the effect of the budget on the economy of Canada, we realize why the excellent oratory was indeed necessary.

The minister has a remarkable ability to use argument to prove prosperity when in the argument itself there is an admission of failure. I refer to an old term used in senior government civil service ranks which dates back-the minister did not use this one; however it is a play that can be put on words- I remember a Liberal minister of labour who used to talk about the decrease in the rate of increase when he gave us figures on unemployment. The other day the minister used the sentence, "Our net borrowings should be less than one-half", definitely conveying to the average layman, not spending too much time on the budget, the impression that we

were about to reduce our debt. Actually I must admit that the minister said no such thing. However, his statement, "Our net borrowings should be less than one-half" invited the reaction and led many people to believe that we were about to reduce our debt.

It is our contention, Mr. Speaker, that the economy of Canada has reached the stage of being in very deep trouble indeed. I see that even the minister admits this, although inadvertently, because on page 2425 toward the end of his remarks, he said:

Canada has no reason for fear.

I hope the minister can explain why he felt it necessary to insert in his budget speech the sentence, "Canada has no reason for fear." We maintain that there is a good deal of fear. The minister only has to look at interest rates to realize that there is a good deal of fear. I feel that he admitted that. However, he is attempting to wish it out of existence with the sentence, "Canada has no reason for fear."

It is our contention that the Tory party and the government, not only at election time but since, have been misleading the people of Canada as to what the true situation is, especially in the fields of unemployment and economic recovery and particularly so in the field of public finance. I have here a clipping from the Globe and Mail of March 6 last and under the heading, "Questions and Answers for Investors" there is an article published by Wood, Gundy and Company Limited containing a graph comparing yields on bonds and yields on stocks. It shows that the exceptionally high and excessive yields from investment in Canadian equities, which we in this group have advocated should be made more moderate by the imposition of heavier taxation, have forced a rise in interest rates on government borrowings until today, without considering the dividend income tax provisions, the returns from bonds are higher than the returns from investment in Canadian equities. That is something that has not happened during the whole period covered by the graph which begins with 1949 and goes up to 1959.

On many occasions we have called for the establishment of a national investment board and I note the odd place where our approach to this problem is being met. I have here a report in the Globe and Mail of March 31 from Madrid which reads as follows:

The Spanish government announced here details of a new anti-inflationary law aimed at controlling public and private investment and steering it into areas useful to the nation.

In this modern day and age we feel that that concept will eventually have to be accepted as being one of the responsibilities

of government, the management of the direction and flow of available investment capital so that the social needs of the nation may be met along with our industrial needs.

I notice that the confusion in the money market has caused some concern south of the border. Our Canadian government tells us that everything is all right but in another article published in the Gazette of March 11 I find this sentence:

The 1958 fiasco was the worst debacle in the history of United States public finance. Thousands of investors lost money. The government bond market became demoralized and has not yet regained public confidence.

Official investigations are under way south of the border as to what can be done to restore public confidence in the issuance of government securities. Here we have in office a government that does not recognize the seriousness of the situation and tells us that we must accept the old law of supply and demand of the market place with regard to our social capital needs.

The government also has not fully informed the Canadian parliament or the people of the implications of the capital investment forecast for 1959. When we consider the implications of the statistics we see that capital investment is three per cent off compared with the 1958 level. I should like to refer to an article by John Meyer, financial editor of the Gazette, published on March 9 last in which he says:

The $8,321 million in capital investment which the Department of Trade and Commerce anticipate this year, on the strength of the estimate given it at the beginning of the year, is 1.1 per cent less than last year's figure. Prices have increased 2 per cent over the last 12 months. In terms of 1958 values, then, capital investment intentions are a little more than 3 per cent off the 1958 level.

This article ignores the continuing growth in the Canadian population and if we consider the factor of the growing population we will see that the real situation in terms of continuing investment and expansion of the Canadian economy is even worse than indicated in the article.

With regard to markets, we are again assured that everything is rosy and that we do not have too much to worry about. The minister always likes to talk about what is happening south of the border and how that influences us here. I should like to refer him to an article in the Globe and Mail of March 12, 1959 by Richard E. Mooney from the New York Times service. Mr. Mooney says in part:

In broad terms, the conclusion here-

The reference is to Washington.

-is that the world is back on its feet. Europe has regained its prewar competitiveness, and underdeveloped nations are coming up. Both of

The Budget-Mr. Regier these developments have long been objectives of U.S. foreign policy, objectives for which billions of dollars have been spent. The result, according to thinking here, is that U.S. producers can no longer dominate world trade so easily as they did in the earlier postwar years.

I believe that the government found that out when it found that its decision to transfer 15 per cent of our imports from the United States to the British commonwealth was not as easy to implement as to pledge at election time. We have a recession in our local market. Mention was made some time ago of retail sales. I have figures here to show what is happening in the field of retail sales. According to a dominion bureau of statistics report in February last, retail sales in 1957 amounted to $1,235,500,000 and in 1958 to $1,271 million, indicating a 2.9 per cent increase. When we relate this to the 2.6 per cent increase in the price index over the same period and also relate it to the increase in Canada's population of 2.3 per cent, we can see that net retail sales on a per capita basis in 1958 were away below those of 1957. We are not only losing markets abroad but we are losing markets at home, even though some statistics may be produced to show otherwise. If the change in the purchasing power of money is taken into account, as well as the growth in Canada's population, then we find we are not moving out of the economic recession, we are very much in it today. We find no action proposed by the government to remedy the situation.

Then, in so far as unemployment is concerned, this government plies us with statistics from the unemployment insurance commission, attempting to show that unemployment is on the wane. It reminds one a little bit of the phrase "argument weak here, shout like hell". This was the course followed during the election when we were assured, in these loud, booming voices, that so far as unemployment was concerned we were past the peak. Has anyone in the government ranks ever made an estimate of all those people who are ineligible for unemployment insurance benefits and who have not been near an office of the unemployment insurance commission for many long months? During the last winter in the Vancouver area we had 10,000 such people. All of these people whose unemployment insurance benefits have expired are no longer in the statistics that are supplied to this house by the government of Canada. Almost all the people above the age of 35, and especially those above the age of 40, who are told that they are too old for employment, have long since been taken off the list in the unemployment insurance commission offices.

The Budget-Mr. Regier

We are told that last year there was a growth in Canada's labour force of only 1.16 per cent. The government always likes to brag about the growing number of people who are working in Canada. As I indicated before, last year our population rose by 2.2 per cent and yet at the same time our working force showed a rise of only 1.16 per cent. In my opinion this is rather clear evidence that unemployment actually is climbing in Canada instead of receding as the government would have the people of Canada believe. I should like to cite only one little example. If we were really climbing out of the economic recession, if we were really on the way to economic recovery, why would a report indicate that at this time some 25 per cent of the population of one of our ten provinces is on social welfare or relief? Surely, that does not indicate a return to prosperity.

Then, we have claims made, by a reference to industrial enterprise, that we have this economic recovery. Once again, when you consider the growth in population, when you consider the change in prices and think of the volume of goods, you will note that we are lagging rather than growing out of the recession. I have figures here showing industrial output for the month of December, 1958 as compared with December, 1956, and the base period for this index is taken as 1956. The index for December, 1956 stood at 154, while in December, 1958 it was only 148.2. One could take mining, for instance, as another good example. In December, 1957, the index for mining was 217.6; in December, 1958, the index for mining was 214.6. These indices are based on volume rather than the annual sales value in monetary terms.

I fail to see how the minister can, like the men of magic, pull a rabbit out of a hat and base a budget on a growth in gross national product for 1959 by seven per cent, because that is only two per cent less than the greatest industrial growth that Canada has ever experienced since the end of the war. In one year it was nine per cent. Last year, on a volume basis, there was less than one per cent growth, and on a per capita basis there was actually a decline in our gross national product. In spite of this, the minister says he expects a growth of seven per cent, and his predictions are very important, Mr. Speaker, because the whole welfare of the federal budget depends on the accuracy with which the minister is able to make his predictions.

In so far as national defence is concerned, the whole country is in a quandary. We do not know what the policy of the government is, nor is enough information supplied to indicate what the policy of the opposition is

on this matter. We have no information about government policy in the field of transportation, and yet we are asked to subsidize railway transportation at least. The minister has not tackled the problem of the finances of the other levels of government. Instead of calling a dominion-provincial conference he is having a meeting with the provincial finance ministers. In the field of public financing, I feel the minister made a serious error the other day when he indicated his public borrowings would be $850 million. He failed to point out he will have to borrow this year some $1,350 million to refinance government bonds that are falling due in 1959. Adding this amount to the $850 million, we find that federal government bonds or other sureties that will have to be handled this year will amount to $2,200 million as opposed to last year's figure of $2,250 million, that is excluding the bond conversion deal. When we exclude the bond conversion deal, we find the minister will offer on the market this year practically the same amount of government bonds and treasury bills as he did last year.

I know the minister is accurate in the actual wording and the grammar of what he said but, in effect, the country was misled into believing that government borrowings this year would be only half of what they were last year. The facts show that the minister will be borrowing $2,200 million this year as opposed to $2,250 million last year. If he says that much of this is retiring debt, and the debt is only going to grow by $850million, I know he is right. At the sametime it has the effect of placing all these

bonds as a new issue on the money market.

We feel that the Tories have been misleading the public in the matter of public financing and its relations with other governments. We feel that they have supplied inadequate information on national defence and on transportation. We feel that they have been misleading the public with as to what is

happening with regard to economic recovery, unemployment, the market, our capital investment forecast and present incomes of Canadians which are down, as can be found at page 8 of the Canadian Statistical Review, the February issue.

We feel that the results of no action on the part of this government will be serious indeed. The world today is moving at a rapid pace. Canada's economy is especially vulnerable. Unemployment breeds unemployment. Industrial progress must be made in order to meet our ever-growing commitments and the requirements of our population. Agriculture is facing industrialization unless action is taken to meet the problem posed by the cost-price squeeze. Short term policies with regard

to other basic enterprises lead to serious lack of conservation, especially in lumbering, forestry and mining. Higher interest and higher taxes bring more unemployment because they affect the purchasing power of the people. Our troubles begin to compound themselves.

After all, Mr. Speaker, the Tories recognized the ills that we had and the larger ills that we were heading for. At the time of the several elections the Prime Minister (Mr. Diefenbaker) and his party assured the country that they had the answer. We now find that instead they are following a policy of advising the people of Canada to play the sitting ducks game and to take the consequences of an open season. We feel that this procedure is hardly in keeping with the solemn pledge that was given to the Canadian people. I should therefore like to move, seconded by the hon. member for Kootenay West (Mr. Herridge):

That the amendment be amended by adding thereto the following words:

"and this house further regrets that the government has failed to present to parliament a planned financial and economic program designed to develop the economic health of the nation by, among other things, (a) reversing the trend of rising interest rates (b) establishing a capital gains tax".

Hon. George C. Nowlan (Minister of National Revenue):

Mr. Speaker, I am sure the hon. member who has just taken his seat will not be offended if I amplify that story with which he regaled the house a short time ago and in which he spoke about the minister and the marginal notes which were included in the wide margin. Actually, 1 think the Minister of Finance (Mr. Fleming), myself and some of the rest of us who are associated with the legal profession have perhaps a better knowledge of that story because we were all told it in law school many years ago. It has three parts to it instead of the one to which he referred. The advice which was given to the students was this. If you have the law with you, you do so and so with a judge. If you have the facts with you, you do so and so with a jury. It is only when you have neither with you that you do what the hon. member suggested be done.

In the same breath the hon. member regretted the fact that all of the newspapers and all of the magazines in this country had accepted the statement of the Minister of Finance that prosperity was around the corner and that this country was moving forward every day in its recovery from the depression. I would suggest to the hon. member that the Minister of Finance obviously had the facts with him and he impressed the jury because in matters of 66968-9-167

The Budget-Mr. Nowlan this kind the jury, of course outside of the members of the House of Commons, are those journals and magazines and other agencies of public opinion in this nation.

I am rather intrigued by the atmosphere of gloom which still permeates the hon. member for Burnaby-Coquitlam (Mr. Regier) who has just taken his seat. The financial critic for the opposition was more careful in his gloomy prognostications than he was last year. As you will recall, Mr. Speaker, this house was confronted with the appalling prospect of having a deficit which was going to amount to over $1 billion and if you do not accept the words of a politician for that, then you accept the words of financial authorities across the country. This afternoon for a few moments I checked back on some of the statements which were made during the budget debate last year. We have that redoubtable master of statistics who now has the Martin bureau of statistics figures with which he regaled the house in the past. Speaking in the budget debate last year he said this as reported at page 1883 of Hansard of July 3, 1958:

Instead of these promises being fulfilled we are faced-

There was no doubt, no hesitation, no question.

-with a billion dollar deficit. This the Minister of Finance denies-

And so on and so forth.

And the Leader of the Opposition, in dealing with this matter last year, says this as reported at page 1903 of Hansard:

If you think my predictions in these matters-

And he predicted over a billion dollar deficit.

-coming from a political source are suspect. I can refer you again to the director of the Canadian tax foundation which is an accepted authority.

And he goes on and spells out a deficit of over $1 billion. I cannot put my finger on it at the moment but I am sure that my friend the financial critic of the opposition will recall that last year, in dealing with this matter, he too said that if the figures were analysed properly there would be a deficit of over $1 billion. He also quoted various tax authorities which he called to witness in order to establish the financial condition in which this country was going to find itself after one year of budgeting under the present Minister of Finance. The Minister of Finance had suggested that the deficit would be $700 million or approximately that amount, and all of the dire prophecies which the hon. member for Burnaby-Coquitlam is still repeating in this house this afternoon were stated by our friends in the official opposition last year. There were

The Budget-Mr. Nowlan charges of misleading the house and charges of an absolute breakdown of the financial structure of this country, with an inevitable deficit of $1 billion.

Yet what do we find? When the minister brought down his statement last Thursday night and the white paper the day before we found that there was a deficit of not $700 million for which he budgeted but of $618 million. I think that the Minister of Finance and this government deserves great credit for having accomplished this result in the light of the dire prophecies which were made last year. When I hear these gloomy prognostications about the way the country has been betrayed, the way in which the financial structure of the country is being jeopardized, I must say that outside the attendance in this house, where members are always assiduous in their attention and in their attendance, the attendance in the galleries would not suggest that the nation is living in fear and trembling of what is going to happen under this budget or that it wishes to express any indignation or any great apprehension because of what was proposed by the Minister of Finance.

We have had a difiicult year during which to finance. I think the Minister of Finance deserves a great deal of credit for having planned the financing of this nation, assuming additional responsibility and financial expenditures which were never contemplated in the days in which we were in opposition and having succeeded in coming out with a deficit of not that which he had expected but which was less than that for which he had budgeted. Why is it that there should be these suggestions about the "terrible Tories" having betrayed their promises and exposed the country to increased taxation. We have heard about the things which are supposed to have been done; according to the amendment which has been moved-

This house regrets the bad faith of the government which sought and secured support from the Canadian people on a program of lower taxes, reduced expenditures and a balanced budget, and which has now produced in flagrant disregard of pre-election promises a budget calling for higher taxes, record expenditures and a large deficit.

Mr. Speaker, there is no doubt that promises of any kind, whether pre-election promises or otherwise, should be honoured and respected so far as circumstances will possibly permit, but I would suggest to you, sir-and I think all hon. members on both sides of the house would accept this general principle-that promises made to this House of Commons and promises made to parliament stand in an even more favoured position in so far as sanctity and respect are concerned than promises made during an election campaign.

What has been one of the major reasons why we are facing increased taxation at this time? It is simply the necessity for putting on a sound financial basis the old age assistance and security fund which was accepted by this parliament in 1951 after a joint committee of the House of Commons and of the Senate had spent months in considering the inauguration of such a fund. I have the report of that committee here, but I do not intend to weary the house by reading excerpts from it, unless hon. members should desire me to do so. But this was the effect of the report -that there should be established provision for old age assistance and old age security in this country and that the fund should be on a self-supporting basis. As a matter of fact, reference was made to this point in the committee's report itself, that the fund was to be placed on a "pay as you go" basis. This report was adopted by the government of which the Leader of the Opposition (Mr. Pearson) was then a member. Others who sit in this chamber today were also members of the cabinet at that time; the hon. member for Essex East (Mr. Martin); the hon. member for Bonavista-Twillingate (Mr. Pickersgill)-

Mr. Pickersgill:

I do not think I was a

member at that time.

Mr. Nowlan:

No. The hon. member for

Bonavista-Twillingate was, of course, still relegated to the back room. It was some time before he escaped his enclosing confines and came to the front row of the house.

A resolution was moved to establish this fund, and it came to this house having previously been approved by the governor general because it involved the expenditure of money. It was moved by the hon. member for Essex East, who was at that time the minister of health and welfare in these terms:

That it is expedient to introduce a measure to provide for the payment of pensions, without a means test, of $40 a month to persons who have attained the age of 70 years and have appropriate resident qualifications and to establish a fund made up of special contributions levied for that purpose.

In other words, this fund was to be established to pay for the pensions. The minister of finance of that day, now one of the distinguished ornaments of the Supreme Court of Canada, and one who will be remembered by many of us here, said in dealing with this matter that the fund should be self-liquidating. As reported on page 390 of Hansard for October 25, 1951, he said:

The purpose of the provisions to which I have just referred is to ensure that the fund, at least after the first few months, will be self-sustaining and that the revenue sources are sufficient to ensure an adequate flow of income to meet the pension payments and the repayment of loans. This is the basic principle on which it is proposed to operate the fund.

After that, the debate went on for many, many weary days. Then Mr. Abbott again dealt with this matter, and said that if there should be a shortage in the fund he might have to advance a loan for a few weeks or, possibly, a few months, and he goes on to say as reported in Hansard of November 8, 1951, at page 840:

Early next spring when we are looking at general budgetary matters, we shall have to see how things get started: and as I said in my opening statement, some special action may have to be taken at that time to get the fund oft to a proper start. But while it may be necessary to advance moneys to the fund to make payment of current pensions, pending tax receipts-or if tax receipts prove inadequate, pending the time taxes are increased to make up for the deficit-from then on that is the basis upon which the fund will be operated.

Then a former hon. member who will be remembered by many of us in this house, the former hon. member for Winnipeg North Centre, Mr. Stanley Knowles, asked a question, wishing to make it clear whether pensions would be paid, whether the fund was in balance or not, and Mr. Abbott said, in reply:

I would say that additional taxes would have to be imposed, sufficient to reimburse the fund for any advances made, and to provide for future payments.

And Mr. Knowles further asked:

In other words, it could go on as a sort of debt which could pile up as simply a picture of what it has cost to provide old age security.

And this is the response given by Mr. Abbott; it is one to which I should like to draw the particular attention of this house:

That would be possible, but it would not be probable as long as this administration is in power.

What has happened, Mr. Speaker? That was in 1951, and with regard to carrying out that promise to parliament, as with regard to carrying out many other promises to parliament and to the country, the government of that day immediately chose to disregard it, and from then on, every year, this pension fund was never brought into balance. Every year there was a deficit. Last year, as hon. members know, there was a deficit, partly due to increase of pensions which this government made and partly due to the increases which were put into effect by the preceding government amounting to the tremendous sum of $186 million in the fiscal year just closing. And the year before it was $102 million.

Was that principle not right, the principle which was enunciated in 1951? Was it not a sound principle, this principle which had been agreed on not only in the House of Commons but in the other place, and agreed on unanimously, that old age security should 66968-9-167i

The Budget-Mr. Nowlan be guaranteed by means of funds to which we all have to contribute, and that those funds should be kept in balance? Were not the government and the minister of finance justified in making this pledge and saying they felt it virtually impossible to conceive of any other way of doing things?

We all know the situation in which we find ourselves today and the situation in which the Minister of Finance has found himself. We have therefore gone ahead this year to deal with the difficulty, and a very substantial part of this so-called increase in taxation-in fact, $183 million in the full year- will go toward bringing the old age assistance fund, the old age security fund, into balance. This will not be accomplished entirely next year, but over a period of a year or two the fund should be in balance. In this case, as in so many other situations which the government inherited, we shall be carrying out, and redeeming and implementing, a pledge which was made heretofore and which was ignored by our predecessors in office.

Much will be said, I am sure, with regard to sales tax. The hon. member for Kenora-Rainy River (Mr. Benidickson) referred- though not in such detail as I thought he might have done-to the fact that there is an additional sales tax of one per cent, the proceeds of which will contribute to the deficit in the old age security fund which might be prejudicial to the motor car industry. And, of course, there is the additional excise tax, too. Everyone regrets having to pay increased taxes. I may say I feel that the hon. member for Kenora-Rainy River has let me down to some extent because he did not go as far as I thought he might in condemning the increase in the sales tax. I am sure amplification of that has been left for some other speaker on that side of the house and no doubt that hon. gentleman will appreciate my bringing to his attention a statement made by the then minister of finance, Mr. Abbott, as reported at page 388 of Hansard of October 25, 1951:

The sales tax more nearly approaches the ideal levy for financing social security than any other tax in our system. Where under social security provisions the benefits are to be universal it is only right that contributions to the fund should likewise be universal. Income tax, incidentally, reaches, I believe, only about half of our working population. It seems clear that all should take at least some part, however small, in making provision against need.

I commend those words to hon. gentlemen opposite and suggest to them that what we are doing now, at least to the extent of $183 million, is meeting the pledge which was made by the then minister of finance. Some

The Budget-Mr. Nowlan hon. members will be able to recall that hon. gentleman as he sat on the treasury-benches, and will remember that pleasant voice, his smile, the way his eyeglasses were removed and waved around to make a point. They will recall his attitude that any questions coming from the oppositon were simply something to be laughed at. Many will recall his typical statements, "We are going to do so and so; we shall do thus and thus". And because he and his associates did not do what they promised, we have one of the results with which we are faced today.

Much has been said about the weight of taxation and the terrible thing this government is doing in increasing taxation as it has. What are the proposed increases in taxation? I, like the hon. member for Kenora-Rainy River, am not going to deal with all the details of taxation. As he stated, this debate is going to continue for several days and during that interval many speakers will participate and many questions will be dealt with. In brief we have a two per cent increase-or call it three per cent, if you wish, including social security-in corporate income tax. We have an increase of approximately two cents on a package of cigarettes and of 15 cents on a bottle of whiskey. These increases are introduced and hon. gentlemen opposite immediately rise and proclaim that the whole social and financial structure of this country is going to come crashing down on our heads and that the Minister of Finance, like Samson, has disturbed the pillars and now the temple will come crashing down in ruins. If that disastrous event should come about I am sure that both the Minister of Finance and the Prime Minister would be willing to start smoking cigarettes and drinking whisky to save the economy, but I think we need have no fear of such a catastrophe occurring.

I want to suggest to hon. gentlemen opposite that the financial fabric of this country is what we inherited.

Mr. Pickersgill:

Rubbish.

Mr. Nowlan:

If it is as bad as critics suggest today then I can only remind them that we inherited this condition which certainly belies and beclouds all the boasting we used to hear from hon. gentlemen opposite when they sat on this side of the house about the greatness of Canada, one of the leading nations of the world, brought to the forefront through policies they introduced, a nation strong financially, internationally and in every other way. Hon. gentlemen opposite now depict us as a nation of frightened rabbits scurrying through the bushes, weak, emaciated and timid, all because of a little tax on whisky and cigarettes, and a two per

cent increase in the corporate tax. No reasonable person believes what is said to this effect by hon. gentlemen opposite. That is why I suggest, emphasized by the great interest we see aroused in this debate on the part of the public, that there exists on the part of the Canadian people a general acceptance of this budget.

Through you, Mr. Speaker, I would ask if any hon. member has ever seen a budget in which substantial tax increases are advocated, promulgated and brought forward, which has been so readily accepted by the nation as has this budget? I use the word "accepted" advisedly. Oh, I am quite convinced there will be no paeans of praise nor any hallelujahs, but I am certain there is general acceptance. Even hon. members sitting in this chamber bear their share of the burden of the increased taxation. I am sure none of us wants to throw his hat in the air and boast about it. But, as the hon. member for Bumaby-Coquitlam (Mr. Regier) has pointed out, the press and magazines of this country have already accepted the fact that increased taxes were necessary and that the Minister of Finance has developed a system of increases which on the one hand will tend to stabilize our economy and ward off the dangers of inflation and on the other hand not interfere with the economic development of the nation or deter the course of recovery which is taking place at this moment.

Reference has been made to broken promises. I suppose there has never been a budget brought down about which some reference of this nature has not been made n terms of broken promises. There is no question but that statements were, have been and probably always will be made during the course of election campaigns, both inside and outside of this house, in connection with the financial affairs of this country and reduced taxation. Such statements were made during election campaigns held prior to 1957.

Let us examine what has transpired. Early in 1957 and probably prior to then this country was entering into a serious business recession months before we came into office, the seeds of which recession had been sown, had sprouted and were almost in full flower prior to our taking over the administration of the nation. That is a fact, Mr. Speaker-

Mr. Pickersgill:

That old myth.

Mr. Nowlan:

That is a fact. I do well to remind hon. gentlemen opposite once in a while of the fact that the indications of this recession were well known to hon. gentlemen opposite when they were in power and were concealed from this house and from the people of Canada. If we had had a proper appreciation of the financial facts which they

knew and deliberately concealed perhaps some of the statements which were made during the course of the election campaign would not have been advanced with the emphasis they were given. That is the only difference in so far as that situation is concerned.

What happened next? We have emerged out of the depression to a remarkable degree. My friend the hon. member for Burnaby-Coquitlam made reference a moment ago to retail sales. 1 wonder if any hon. gentleman in this house could name a retail merchant in any constituency in Canada who having experienced normal circumstances, and quite apart from unique or peculiar situations involving a strike or something of that sort, would not be in a position to tell him that he had enjoyed better and increased business and more sales last Christmas than ever before in his experience?

The province of Nova Scotia is not one of the wealthiest provinces in Canada and it has received substantial assistance from this government. I can tell hon. members that with the possible exception of one or two industrial areas where labour troubles had resulted in substantial unemployment locally, there was not one retail merchant in that province who did not experience more sales last Christmas than at any other Christmas in history and I am sure that the same thing applies generally across this nation. These facts are independent of figures produced by the bureau of statistics. These are facts which everyone knows, which the country accepts and for which the people of this nation are grateful to the present government.

Oh, oh.

Mr. Nowlan:

Do not scoff. I am not attempting to take full credit for the government. It has been one of the factors contributing to this situation. Management, labour and government working together have accomplished a tremendous amount for the nation during the last 18 or 20 months and we shall continue to do more in the months that he ahead so that by the end of this year we should experience the highest degree of prosperity that has ever been known in Canada.

Oh, oh.

Mr. Nowlan:

I still hear the scornful laughter across the aisle. I could make reference to a well known quotation but I shall refrain from doing so because it might be personal and I should not want to be guilty of that. I believe that when the budget is brought down next year it will tend to justify the prophecy I have made.

The Budget-Mr. Nowlan

There is a psychological danger of inflation and that is one of the problems with which the Minister of Finance has been confronted. I do not refer to an immediate danger of inflation such as has been spoken of by some politicians and some bankers and a few other people. There did exist in this country,, however, a genuine psychological danger of inflation. If steps had not been taken to deal with this threat, again through the co-operation of management, labour and government which assisted economic recovery, there possibly would have been a real danger of inflation that could have had some detrimental effect on money markets. Certainly when words of warning about inflation were spoken by so-called financial experts they carried some weight.

The minister dealt with that in his budget, and by increasing taxation substantially and yet not exceptionally, by reducing the budgetary deficit substantially next year, he has given to the people of Canada an assurance, implied from this government, that we are not going to stand idly by and watch the fires of inflation develop a head of steam in this country. The people can accept that, and that is why this budget has been framed in the way in which it has.

I am not sure whether it was the financial critic or the hon. member for Burnaby-Coquitlam who referred, of course, to unemployment and the dire state of employment in this country. We hear a great deal of talk about that at all times and we all realize that when one man is unemployed it is a tragedy as far as he is concerned, and the more there are unemployed the greater tragedy it is. No one certainly sitting on the treasury benches, or no one sitting on this side of the house, and certainly on the other side as well as far as that is concerned, would for one minute attempt to minimize the tragic effects of unemployment where it does exist. One of the paradoxes, of course, of the immediate situation is that you get all those indices of expanding economy, higher wages, more men employed than ever before, and all the other matters to which reference could be made, and yet we do have a fairly substantial element apparently of unemployment in this country. We have called it seasonal unemployment in the past. I sometimes wonder whether the true seasonal effects are implied. We who live north of the 49th parallel suffer more from a more severe climate than does the great country to the south of us. Undoubtedly, there is a substantial element of seasonal unemployment; possibly also unemployment due to automation possibly due to other things.

The Budget-Mr. Nowlan There is a backlog of unemployment which has been generated owing to economic conditions.

Someone has asked: What is the hope for the future? What about employment? I would like to point out something, Mr. Speaker. These figures may have been put on the record before, but they certainly deserve repetition if they have. The number of Canadians working in mid-February, and there are far more today, according to the D.B.S. figures, was 5,247,000, or 152,000 more Canadians than ever worked before at that time of the year. That is the wonderful record of employment which has been achieved in this nation. Similarly, the number of people without work, reported under the D.B.S. system, was 26,000 fewer than it was in February of the preceding year. We were employing substantially more, over 152,000 more, and unemployment was dropping, and this under economic conditions which we have been told have been made terrible by this government.

Let us speak of the deficit and additional taxes. The Minister of Finance is critized for those additional expenditures. I would like to commend to the house those figures on the contributions to the provinces, the payments which we are making to the provinces of Canada only in comparison with what was assumed three years ago. It will be found at page 2410 of Hansard. I think those figures should commend themselves to every member of the House of Commons and to every intelligent person throughout this country. My time is running out but we find that in the 1956-57 fiscal year-just two years ago-the total contribution made two years ago by the treasury of this country, by the minister of finance, by my hon. friend's predecessor, was $689 million. That was the last payment made by the immediate predecessor of my hon. friend. According to the budget which the present Minister of Finance has brought down for which he is critized for imposing higher taxes, for which he is critized because t still has a deficit, what is the situation? According to those figures, for the fiscal year which will end next March 31 the total contributions to the provinces will be $1,212,500,000, virtually twice the $689 million which was paid three years ago. Yet this government is criticized for breaking promises, for not having a dominion-provincial conference called, and so forth. This government has done more in connection with these matters than the preceding government did in the 25 years preceding this budget, and make no mistake whatsoever about that.

In the past three years we have doubled the total amount of payments which the preced-

ing government made to all of the provinces for all purposes, conditional and unconditional.