February 19, 1968

SC

Bert Raymond Leboe

Social Credit

Mr. Leboe:

In the final analysis it seems to me it is difficult to understand how it can be said, just because the money is received that much sooner, that it costs that much more. It must have some connection with the interest on the amount of money that will have to be borrowed because it is being paid to the government.

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LIB

Mitchell William Sharp (Minister of Finance and Receiver General)

Liberal

Mr. Sharp:

At the present time corporations are permitted to pay their taxes in instalments. They can now pay them over a period of five months after the end of the fiscal year. We are now bringing that forward so that they must complete their payments within three months of the end of the fiscal year.

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NDP

Thomas Clement (Tommy) Douglas

New Democratic Party

Mr. Douglas:

How does that compare with the personal income tax?

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LIB

Mitchell William Sharp (Minister of Finance and Receiver General)

Liberal

Mr. Sharp:

Perhaps I might first be permitted to complete the explanation of how it brings extra revenue to the government which we never lose again. At present corporations pay tax by monthly instalments but the payments for a taxation year do not begin until the fifth month in that taxation year. For example, under the present law a company with a fiscal year that coincides with the

February 19, 1968

calendar year would begin to pay its tax for

1968 in May, 1968 and complete its payments in April, 1969. As a result of the proposed change such a company will pay its 1968 tax in the ten-month period from May, 1968 to February, 1969. Any further amount necessary to bring instalments based on estimates of tax into line with actual tax liability will be due in March, 1969. For 1969 and subsequent years the payment period for such a company will run from March to the following February with any adjustment based on actual tax liability being due in March. If I may describe the change in general terms, for

1969 and subsequent years the payment period will run from the third month of a corporation's fiscal year to the second month of the following fiscal year with any adjustment based on actual tax liability being due in the third month.

There seems to be some scepticism about the bringing forward of payments. I might remind hon. members that when individuals were put on a pay as you go basis some time in 1942 the process was completed by forgiving individuals a part of their tax liability so that they did not have to pay the extra amount of money. We are not forgiving the corporations; we are requiring them to catch up and bring their payments up to a more current basis. In the process we receive an extra $340 million which we never lose because the corporations will continue to be on the new basis and in the next year will pay as much in the form of taxes as in the past. The only way in which a corporation may avoid that extra liability is by going out of business. This is a permanent addition of $340 million to our revenue. To be fair to the house, because it is never my intention to mislead it I should say that this is not a continuing permanent $340 million a year. It is a once for all additional payment of $340 million and it is never recoverable by the corporations.

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NDP

William Arnold Peters

New Democratic Party

Mr. Peters:

If they were brought up to date would the amount increase by two and a half times?

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LIB

Mitchell William Sharp (Minister of Finance and Receiver General)

Liberal

Mr. Sharp:

Yes. This would bring the corporations on to the same basis as individuals. It is something in the order of $150 million a month for each month we bring it forward. We decided that the effect upon the liquidity of the corporations should not be too great considering the need to promote business expansion and otherwise encourage business

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corporations to make investments for the purpose of creating new employment. So we decided on a two month advance for this year, which involves a substantial amount for the corporations to raise in addition to the regular amount of their taxes.

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SC

Bert Raymond Leboe

Social Credit

Mr. Leboe:

I still think, Mr. Chairman, that this is just like daylight saving time. I should like the minister to go back to the second question I asked. How is the word "temporary" defined. It seems to me that "temporary" is an elusive word and that all legislation is temporary. There is no permanent legislation. I should like the minister to explain what is meant by the word "temporary" and how it is defined in the bill.

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LIB

Mitchell William Sharp (Minister of Finance and Receiver General)

Liberal

Mr. Sharp:

Mr. Chairman, It is very difficult to define the word "temporary". Perhaps I should say that my aim is to be a temporary minister of finance at the present time. It is very difficult to say whether or not I will attain this aim. Temporarily this is my aim. I understand to some extent the difficulty the committee is having in respect of this section. We did not feel that we could impose a terminal date without creating other difficulties. We did wish to indicate by the heading, however, that the government does not look upon this as a permanent part of our taxation structure. Therefore we use the heading "Temporary Surtax". With that heading I believe there is a clear indication to the public and to parliament that this tax is not intended to be a permanent part of our taxation structure.

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NDP

Edward Richard Schreyer

New Democratic Party

Mr. Schreyer:

Is it the minister's intention that the tax would last no longer than his position in the Department of Finance?

[DOT] (4:10 p.m.)

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NDP

Frank Howard

New Democratic Party

Mr. Howard:

Mr. Chairman, I wish to congratulate the minister on his ability to channel the debate in the direction he desired rather than dealing with the substance of the matters raised. The minister objected to some comments I made earlier. I did not say, however, what the minister claims. Obviously he misunderstood me or has deliberately misrepresented my remarks. I suggested that he did something deliberately. I gladly withdraw that remark as I would not want to be misunderstood as suggesting that the minister or this government ever did anything deliberately. Most things they do they do by accident or because of circumstances.

Having listened to what the minister said, particularly in respect of what I am supposed

February 18. 1968

Income Tax Act

to have said, I am more confused than I was at the beginning when I suggested there was some element of suspicion attached to the action of the government. The minister suggested that I made the most devastating comments about the Carter commission report ever made in this house. Let me state categorically in the most generous way I can that the minister is mistaken. If he persists in his feeling about what I said I suggest he should check the record. Perhaps that is what he is doing now. I am sure he will find that I did not attack that report in that way.

When I referred to the course of action taken by the government being different in respect of corporations from that taken in respect of individuals I was referring to the special refundable 5 per cent tax imposed on corporations in 1966-67. The minister deliberately ignored that reference and referred instead to some obscure amount like $140 million which will be paid back, or will be like daylight saving, as the hon. member for Cariboo said.

The minister is deceiving the house when he tries to suggest that he will receive extra tax income from corporations. Let me place again on record what I pointed out to the minister when I made the comparison between corporate taxes and taxes on individuals. I understand that the refundable tax was imposed for the same reason as the so-called temporary surtax. The minister said that the refundable tax would be imposed for the period from May 1, 1966 to October 31, 1967. The legislation provided that every corporation should pay additional tax in an amount equal to 5 per cent for each taxation year. However, the minister was able to provide that that tax would only be applicable for the period from May 1, 1966, to October 31, 1967, and also that it would be paid back with interest after a certain period of time.

The difficulty is that this surtax on individuals will be paid by people who cannot avoid paying their full amount of taxes because they are salaried and their employers deduct the tax at the source. These people will pay the full 5 per cent surtax. The minister says he cannot set out a definite period of time over which the surtax will be payable because it is administratively difficult to do so. I suggest that the minister is unable to define "temporary" in respect of this tax and that in effect the 5 per cent surtax will go on forever. That is precisely what the legislation suggests.

{Mr. Howard.]

I do not intend to ask the minister to comment on what I have said, but if he feels he should make some answer I hope he will stick to the facts and not adopt a course of action which suits his position but one which will be more acceptable to members of the house.

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SC

Bert Raymond Leboe

Social Credit

Mr. Leboe:

Have fiscal arrangements been made with the provinces in respect of this surtax and how much of it, if any, will revert to them?

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LIB

Mitchell William Sharp (Minister of Finance and Receiver General)

Liberal

Mr. Sharp:

The surtax will not be shared with the provinces. This is one thing the provincial authorities will want to discuss with us in due course. This surtax was established in such a way that all the revenues will come to the federal government. If it had been imposed as an ordinary increase in income tax it would have been shared with the provinces.

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?

@Deputy Chair(man)? of Committees of the Whole

Is the

committee ready for the question?

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?

Some hon. Members:

Question.

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?

@Deputy Chair(man)? of Committees of the Whole

The question is on the amendment moved by the hon. member for Comox-Alberni.

Amendment (Mr. Barnett) negatived: Yeas, 15; nays, 99.

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?

@Deputy Chair(man)? of Committees of the Whole

I declare the amendment lost.

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NDP

David Orlikow

New Democratic Party

Mr. Orlikow:

Mr. Chairman, I should like to say a few words on this clause because I am opposed to the 5 per cent surtax whether it be of a permanent or temporary nature. I am glad the Minister of Manpower and Immigration is in his seat because I should like to draw his attention to certain comments by an organization which he headed for a long time. They are contained in a memorandum submitted to the government by the Confederation of National Trade Unions. This is what they think about the 5 per cent surtax. This organization suggested, as we have, that this surtax is damaging to the welfare of people in the lower income brackets. Let me refer the minister to this sentence which appears on page 11 of their submission:

The measure providing that the 5 per cent surtax would not go beyond the sum of $600 clearly protects those with large personal incomes.

[DOT] (4:20 p.m.)

That is the complaint we have been making about this proposal since the minister put it forward. The C.N.T.U. and the Canadian Labour Congress have been differing very

February 19, 1968

sharply with regard to Bill C-186, but on the question of the policies adopted by the government through the Minister of Finance they are in complete agreement. I should like to quote one or two sentences from the Canadian Labour Congress brief presented to the government and dated February 13:

We question seriously the economic wisdom of imposing a deflationary tax increase, as the Minister of Finance did in his November 30th budget, at a time when the economy's forward momentum is obviously faltering. Furthermore, there is every likelihood that the recent tax increases will serve to aggravate, rather than to ameliorate, the already unsettling cost and price pressures on the economy.

There is no quesion that this is precisely what the minister's tax proposals have done. I do not know whether the minister set out deliberately to create a larger pool of unemployment when he proposed this tax increase in November, but that is exactly what has happened. The C.N.T.U. in its brief makes it very clear that since the minister introduced the tax increases there has been a very marked increase in the number of unemployed. Between November and December the number of unemployed in Canada increased by 64,000, or 22.1 per cent. This increase was 60 per cent higher than the average increase in the number of unemployed between November and December in the past five years. The result of this measure, together with the cut-backs in government programs, is that the total number of unemployed in Canada in December was equal to 4.6 per cent of the labour force. This is the highest figure for many years and compares with 3.6 per cent in December of 1966 and 3.5 per cent in December of 1965.

The increase in unemployment has been particularly marked in Quebec and the maritime provinces. While, as I mentioned, the number of unemployed jumped to 4.6 per cent of the labour force of Canada as a whole, it jumped to 5.9 per cent in Quebec. Quebec now has almost twice as many unemployed, percentagewise, as the province of Ontario. This is the effect of the tax increases proposed by the Minister of Finance. Who is asked to pay these tax increases? The wage earner and the salaried person. Together with the restrictive economic policies of the government, the cut-backs in programs and the increase in the cost of living, these increases have accentuated the difficult situation of people in the lower and middle income brackets.

As I say, Mr. Chairman, I am opposed to this surtax which the minister introduced last

Income Tax Act

November. It is interesting that in his discussion of "temporary" versus "permanent" the minister said in effect that it was impossible to specify the date to which this surtax would continue. The minister had no difficulty in setting out the date to which the refundable 5 per cent tax on corporations would continue. As a matter of fact, the corporations are already beginning to get their money back.

The minister put forward a very specious argument when he said that bringing forward by two months the date on which corporations pay their taxes meant a permanent increase in taxes. He did not say that our tax policy treats corporations in an entirely different way than it treats the individual taxpayer. Ordinary citizens working for wages or salaries are required to pay their income tax immediately. They pay income tax at each pay period. We in this country, as the Carter commission said so ably, have traditionally favoured the corporations and the wealthy people. We have permitted corporations to pay their taxes late. We have permitted them to keep for some months money they owe the government of Canada, during which time, of course, they have the use of that money. During that time they do not pay any interest to the government of Canada.

When the minister, because of temporary difficulties, advances the date for payment of taxes by corporations by two months he tries to tell the people of Canada that he is increasing the taxes imposed upon corporations. I do not often agree with the hon. member for Cariboo, who said this was like daylight saving, but I agree with him in this instance because if there was ever a phony, specious argument it was that argument advanced by the minister.

I am not prepared to vote for a surtax on income tax that hits the ordinary taxpayer and has a ceiling of $600. I believe this is completely unfair. I think it shatters the whole idea of progressive taxation. The minister has denied again and again that he has rejected the recommendations of the Carter commission. The minister has again tried to suggest that some members of our group who have urged the implementation of the recommendations of the Carter commission are in fact recommending increases in taxes for the ordinary citizen.

The minister was the first to reject the suggestion of Mr. Carter that his proposals should be implemented in a package. The minister did so when he told the mining and

February 13, 1968

Income Tax Act

oil companies that the recommendations of the Carter commission to correct the completely unfair way in which they are treated would not be implemented for four, five or more years at the earliest. The minister rejected the whole package approach of the Carter commission when he did this.

The minister again today tried to suggest that those of us who are urging the implementation of the bulk of the recommendations of the Carter commission are in effect urging increased taxation on the ordinary taxpayer. The minister said that our suggestion would have this effect. I do not know how the minister can say this with any degree of honesty when the whole point of the Carter commission recommendations is that up till now people in the low and middle income brackets have been paying more than their fair share of taxes and the people in the upper income bracket have been paying less than their fair share. The whole problem the Carter commission attempted to meet was the unfair approach to taxes in this country which it said should be reversed so that people in the upper income bracket would pay their fair share of taxes.

[DOT] (4:30 p.m.)

Surely the fact that both the C.N.T.U. and the Canadian Labour Congress urged in their submissions to the government this month that the government implement the recommendations of the Carter commission is proof enough that they recognize, as we have, that the implementation of the Carter commission recommendations would benefit the people in the lower and middle income brackets. Both these organizations called for that. Let me bring to the attention of the minister, although I think he was present when these submissions were made, what the C.N.T.U. said. He can find it on page 11 of their submission. They said:

The C.N.T.U. supports the objectives of the integrated tax plan proposed by the Carter commission. According to this plan, the maximum rate of taxation on personal income would be reduced to 50 per cent and the present tax credit of 20 per cent on dividends would be abolished.

As the commission pointed out, taxation of all revenue at the same rates would end certain procedures employed because they reduce taxes and not because they increase the total revenue of the enterprise.

If the minister were to look at just this recommendation of the Carter commission, he would be right in saying that it reduces taxes. However, the minister conveniently forgot to refer to the other recommendations of the

Carter commission such as the one that a tax on capital gains should be imposed. I think the minister knows better than most members of parliament and better than the ordinary citizens of Canada just what the failure of past Canadian governments and of this government to implement a capital gains tax has meant. It has meant that the mining and oil companies and all the resource industries have been able to save tens of millions of dollars a year in taxes.

The Carter commission said that mining and oil companies should have their depletion allowances removed because 85 per cent of the benefits of such allowances go to eight mining companies, most of which do not need this incentive. The removal of these exemptions would provide a minimum of $150 million a year to the treasury. If the Minister of Finance is worried about meeting some of the bills of the federal government I suggest that instead of putting a 5 per cent surtax on income tax he should go after the people who have the money, namely, the mining and oil companies. Some members of parliament will say that if this is done the rate of growth of these companies will be slowed down. I notice the hon. member for Yukon is nodding his head in agreement.

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LIB

Mitchell William Sharp (Minister of Finance and Receiver General)

Liberal

Mr. Sharp:

May I ask the hon. gentleman if he is referring to the hon. member for Skeena in these remarks?

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NDP

David Orlikow

New Democratic Party

Mr. Orlikow:

I do not have to refer to the hon. member for Skeena. He has been here long enough to establish a reputation of being able to look after himself. He does not need protection by the member for Winnipeg North. If the Minister of Finance has an argument with the hon. member for Skeena they should debate in their own time what the hon. member for Skeena is purported to have said and what he did not say. I will let the hon. member for Skeena look after himself.

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LIB

Mitchell William Sharp (Minister of Finance and Receiver General)

Liberal

Mr. Sharp:

The hon. member should argue with him, not with me.

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February 19, 1968