You say "Right", but I do not want to get into an argument with you. I do not look with scepticism at any organization, whether union or corporate. As I have said before, corporations are healthy, and when they operate in a tax climate that gives them help we can have some degree of full development and full employment. That should be the aim. The president of Imperial Oil Limited, Mr. J. A. Armstrong, is quoted in an article in
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the Winnipeg Free Press of Tuesday, November 23, 1971, as follows:
-warned Monday of serious political and economic effects if Canadians submit to the "myth" that Canada's oil and natural gas should not be exported to the United States, but preserved for domestic use.
J. A. Armstrong called the revenue effects of a decision not to export "disastrous". He plegged the immediate revenue loss at over $11 billion a year and said it would hit both the Canadian petroleum industry and the governments which are the royalty owners.
Naturally, in the west we are interested in royalties. When Mr. Douglas, the former leader of the NDP, was Premier of Saskatchewan he realized then, as Premier Schreyer realizes now, that foreign capital is needed for the development of resources and for full employment. Mr. Douglas said that, and Mr. Schreyer made it very clear on television the other night. But I do not want to digress, Mr. Chairman. The article continues:
The political effects would arise from a reminder that the United States supplied Canada with petroleum until the mid-fifties and on an emergency basis after the closure of the Suez Canal.
The worst consequence of a decision not to export Canadian resources would be the effect on investment spending. Mr. Armstrong said. "The investment spending by private industry would dry up completely and there is no conceivable set of conditions or incentives that government could provide that would prevent this from happening."
Mr. Armstrong said that Canada has two options-to develop or to stagnate its petroleum industry. He called a decision to sit back and refuse to export resources and concentrate on production for the domestic market a vote for stagnation.
"With the world's largest growing market for petroleum energy at our doorstep and with the great potential for crude and natural gas development in the frontiers, it would be a catastrophe if Canada does not capitalize on this unique opportunity not only to strengthen its economy but to assure itself of a plentiful and secure supply of oil and gas in a very uncertain world," he said.
The National Energy Board Friday turned down applications to export some 2.66 trillion cubic feet of natural gas to the United States.
I pause there, Mr. Chairman. Prior to these applications coming before the National Energy Board they were examined by the Alberta Conservation Board. The decision of the National Energy Board questions whether we have enough natural gas to meet Canada's domestic and industrial needs forseeable for the future. In the Borden report our proven reserves were estimated at 23 trillion cubic feet. According to the National Energy Board we do not have that kind of reserve, and if this is so then the way to get the reserve is through development. The way to encourage development is by an attractive tax climate. The reserves are there in the ground.
That leads me to a few more quotations from the remarks of the president of Imperial Oil. Commenting on the board's decision, Mr. Armstrong said:
-there is a difference of opinion in Canada as to the surplus of natural gas in the immediate future.
I agree with the Prime Minister on a point of law. If the National Energy Board makes an affirmative decision, the cabinet can approve or negate it. That is sound law, and in that regard the Prime Minister stands on all fours with the National Energy Board Act. However, if the decision is negative, the cabinet may not be able to change it. The only recourse is appeal to the Supreme Court of Canada under section 18 of the National Energy Board
Act on a question of law or a question of jurisdiction, which does not help us in this field.
At the moment we are debating the tax bill, whether we are going to get development and what kind of tax climate we will have in light of the fact that the National Energy Board turned down applications to export natural gas worth $11 billion each year. That is half a billion dollars more than the new budget for the whole of Canada.
Having, in my opinion, quoted the law correctly the Prime Minister should now take two decisions. First, the government should ask the National Energy Board to review its decision. In the event that the board maintains its decision, the government should review the tax climate of this nation, because it is stagnating development in our country and that is why we have unemployment to the degree that now exists. I want to be very positive and that is why I make these suggestions.
Second, since the act does not permit the cabinet to review decisions which negative or turn down applications, I hope the government will bring the members of that board before the Standing Committee on Energy, Mines and Resources so that parliamentarians may examine them. Their decision came as a shock to western Canada and should be shocking to all Canadians. We want to determine on what basis they estimated reserves and if they think that, given the tax climate which is being discussed in this debate, reserves will increase.
I hope the members of the board will be called before the committee. I should like the privilege of cross-examining the chairman of the board and its members. If anyone says that would be an unusual procedure, I say hogwash. On previous occasions when the standing committee has asked for it, those gentlemen have appeared before the committee. I have often recommended in committee and to the government that the staff of the board be increased to a level that is commensurate with the board's responsibilities under the National Energy Board Act.
In light of the tax climate being created today and the resulting uncertainty, I recommend, first, that the government ask the National Energy Board to review its decision. It should bear in mind the revenue that can be generated in Canada as a result of developments within the industry. I am speaking of benefits which will come from tertiary industries and from exports.
I recommend, second, that the gentlemen of the board be called before the standing committee so the committee may examine them and find out exactly why they decided to veto the decision of the Conservation Board of Alberta. When we have heard the evidence we can say whether that decision should stand or fall. To me, coming from western Canada, the board's decision is shocking. The royalties from this industry which flow to provincial governments of western Canada, and the revenues that indirectly flow into the coffers of the federal government, are substantial. Therefore, when legislating new tax laws we must be very careful.
I now continue quoting what Mr. Armstrong is reported to have said, according to the Winnipeg Free Press:
"The United States only takes our reserves for security because we're close. One or two more tankers from the Persian Gulf to the U.S. market and we're out," he answered.
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By 1980, he estimated that Canada would be supplying about 4 to 5 per cent of U.S. demand for oil and gas.
We went to bed, so to speak with one-eighth of the world's supply of coal in Alberta. All the arguments that my friends to the left raised in this debate were raised years ago. They sound wonderful on the hustings, but they are no good for employment. They are beautiful for winning votes, but no good for the economy of the country or the economic well-being of the average man. We went to bed in the twenties and the thirties with our coal; and who in Alberta or anywhere else in Canada now wants to go to bed with our natural gas? I continue quoting:
Mr. Armstrong estimated capital requirements of the developing Canadian petroleum resources in the next decade at $25 to $30 billion.
The article refers to $25 to $30 billion. That sounds like a lot of money. A capital gains tax is to be introduced through this bill and, while it sounds good on paper, it will rob the average Canadian of any incentive to invest in resources. That is the anomaly of it. It may be funny; my expression of going to bed with our gas. I think it is funny and I said some time ago that it was funny. One sometimes has to show how funny a thing is in order to demonstrate how tragic it is.
Having said in my opening remarks that the regulations I am talking about are similar in nature to those contemplated in the white paper, let me show what the great experts said in committee. I am about to read excerpts taken from official report No. 33 of the Standing Committee on Finance, Trade and Economic Affairs. These proceedings took place on April 16, 1970, at 3.40 in the afternoon. I should like to put some questions and answers on the record because my hon. friend opposite from Calgary felt that the answers were not as suggested in another debate. Actually, we were debating another section of the bill. I directed my first question to Mr. Bryce, the economic adviser to the Prime Minister. I asked, "Did you assist in the drafting of the proposals." Mr. Bryce answered: Normally the government does not reveal who did what within it, but it is well known that Mr. Brown and I did assist in drafting these proposals.
I appreciate the committee's courtesy, Mr. Chairman. I will not be unduly lengthy. I can speak again after an interval. My party has asked me to place on record a few facts which are important to western Canada and to Canada as a whole. My next question was: Does the white paper proposal on taxation abolish the distinction between capital gains and income, and treat capital gains as ordinary taxable income?
Let me digress for a moment. The United States and Great Britain have capital gains taxes. Farmers I was talking to the other night in Manitoba were shocked to hear that any capital gains they made would be added to their income and that half those gains would be taxed at
Income Tax Act
ordinary income tax rates. Yet here we are dealing with the resource industry. Surely we want to encourage economic development. How will that development come about if you say to investors in resource industries, "We will take the cream off the top of the milk in the can and all you will have left "is skim milk". And then you are asked to make butter. Out of what?
That is how ridiculous this law is and that is what it will do to our resource industries. I know that my friends to the left say that the white paper did not go far enough. They found out exactly how far the white paper went only when its proposals affected the Saskatchewan Wheat Pool. They did not think they would lose any rural seats in Saskatchewan.
Sometimes it takes a little time for the correct facts to be known. The rest of my question was as follows:
For example; if a person has a taxable income of earned $10,000 from wages, and earns $10,000 on the stock market, what is the rate of tax on $10,000 capital gains?
Mr. Brown answered:
Half of it will bear the progressive rate as if that gain was a taxable income today.
In other words, one half of the capital gain will be taxed at progressive income tax rates. The provisions of the white paper basically have been incorporated in Bill C-259, so that when you talk about the white paper you are talking about Bill C-259. I then asked whether the capital gain would not be added to taxable income in that year. Mr. Brown answered, "Yes, sir." Actually, I asked the following:
An ordinary landholder who bought some land, then sold it and in that taxable year, whatever year it might be, he made $10,000.1 am asking you, under the ordinary rules, would not that capital gain be added to his taxable income in that one year?
Mr. Brown answered, "Yes, sir." I then asked:
Yes, so basically, although you have mentioned some exceptions and I am prepared to determine those in a few moments, what the chartered accountant of one of the national firms said is true, that the distinction between capital gains and income will be virtually abolished because in many cases-I have given you two or three illustrations, but I am sure you could give me more than I have given you because you are far more knowledgeable in this field-it will merely be added to the taxable income and become taxable in that year. Is that correct?
Mr. Brown answered, "Yes, it is." Mr. Chairman, I want to drive this point home because it is important to farmers and to those investing in the resource industries. Half of any capital gain is to be included in income and will be taxed at progressive income tax rates. What are those progressive rates? They are not 25 per cent or less, as in the United States or Great Britain. They run as high as 61 per cent in Canada, a new country. And then some Members of Parliament say we do not need foreign investment! That is the anomaly I see under this tax bill.
How can hon. members, no matter on which side of the House they sit, believe that we do not need foreign investment? We are going to ask Canadians to invest in their industry and at the same time tax them on capital gains at
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the rate of 61 per cent for those in the top tax bracket. If that is not an anomaly we have never had one in politics. That is why there is stagnation today in the development of our mines and resources and it will stagnate even more.
The National Energy Board has taken the position that we do not have the reserves. I want to read the report about reserves. That is a matter of opinion, not evidence. Opinion evidence must be given different weight than real evidence. How can you encourage further development of the natural gas and petroleum industries if you do not have a tax climate whereby people will invest their money? I quote:
Is the difference then between the United States and Great Britain's capital gains tax that they, the United States, have special rates on capital gains and rates on taxable income in the ordinary way. Is that not correct?
In his answer he agreed with me pointing out that the tax in some cases is 25 per cent and some cases would be 27.5 per cent with a surtax. He also added that some of the states also have an additional tax in addition to the federal tax.
I will deal with the exception in a moment, because I am well aware that it could go up to 80 per cent under certain circumstances for a period of years. But, forgetting that exception, the maximum Canadian rate could be as high as 50 per cent.
I put this to the parliamentary secretary. With a new country, a country developing its mines, petroleum, natural gas and all its industries-which is the very foundation of our economic growth and the growth of employment possibilities which will take people off the breadlines and get them working-you need investment in those resources. Without it, you have stagnation. With stagnation, you have unemployment. With high taxation like this you will continue to have unemployment until it becomes something you must learn to live with. There is no solution to this kind of problem.