-and they can also lead, by their continuing emphasis on the resource industries, to grave effects on the government's efforts to increase employment, income and growth in this country. A tax bill, and especially a bill that is called a reform bill, which comes before this House after ten years of work, or since 1962, can only be at the centre or the heart of an integral part of an over-all economic policy. Such a tax bill can only be formulated after a country knows what its objectives are, in what directions it is going, how the bill itself will integrate with monetary policy, with resource policy, with commercial policy and all the other elements. It does no good if a tax bill works in reverse to a commercial policy, or if a manufacturing policy works in reverse or is detrimental to resource policy, or vice versa.
Mr. Speaker, I think everyone in this House is in agreement with the reduction in corporate rates from 50 per
December 16, 1971
cent in 1972 to 46 per cent in 1976, and the reduction of federal tax on lower incomes from 17 per cent on the first $500 to 6 per cent by 1976. But this is not necessarily reform and is not the whole part of it. What is recognized here is that more buoyant tax revenues from personal and corporate income taxes in an expanding economy should lead to a reduction in tax rates and not necessarily increased federal expenditures. As Professor Daly has shown, Canada's gross national product in the 1953 to 1968 period grew at an average annual rate, compounded, of 7.2 per cent, while personal income taxes increased at a 10.4 per cent rate, compounded. Thus, the rate of growth of personal income taxes far exceeded the rate of the gross national product.
In July, 1971, my colleague, the President of the Treasury Board (Mr. Drury), issued a statement of the financial operations for the country for the first four months of the current year. On page 16 of that statement, table III, one sees that in 1961-62 35 per cent of all federal government tax revenues came from the taxes on individuals. One also sees that in this last current year not 35 per cent of government taxes came from people, but 41.4 per cent. One sees at the same time, Mr. Speaker, that the government collected 231 per cent of all of its tax revenues from corporations in 1961-62, but today it only collects 191 per cent of its tax revenues from corporations. So the impact on persons has been gradually increasing during the last decade.
These reductions today, while welcome for the lower income groups, do not in fact ease the load on those with medium salary and wage income. And I would point out the following fact, that in the last ten years, with an increasing rate of tax revenues coming from the individual, from wages and salaries, and a declining percentage coming from the corporate sector, it is very little wonder that today our young people find it difficult to get into business for themselves, on two grounds, that governments now take more from personal income, which makes it that much more difficult to save, and on the other ground that they take very much less proportionately from businesses which are thus much more able to defend themselves from people who might want to enter particular industries.
Fairness in taxation, as it was conceived by the Carter commission, demands that persons with equal amounts of income pay equivalent amounts of tax and that persons with larger or smaller incomes pay proportionately different rates of tax. This principle was enunciated clearly in their report, but this principle no longer obtains. Income is still divided into two classes, income from labour and from enterprise and from effort, and income from rolling over wealth, that is, capital gains. And whatever the rate that applies to workers on wages and salaries, the gains on wealth are going to be taxed at exactly half that rate. Persons in similar circumstances are not treated in the same manner.
Also, Mr. Speaker, I would like to insist that the argument that people would not invest because of a capital gains tax has been disproved over and over again. There is no reason to accept this kind of threat, because they have no choice. If they do not invest for gain, for income or for dividends, then they will have to live off and eat off their own capital, which is far worse.
Income Tax Act
A second measure here is in the "Summary of 1971 Tax Reform Legislation," where the Minister of Finance introduces for the first time a new exemption for corporations. Corporations will be allowed full deduction of interest if they borrow money to buy shares in other corporations. The primary effect of this clause will be to create conglomerates, firms whose only objectives are growth, growth of assets, growth of revenues and growth of net income. But growth and accumulation are wealth, and wealth is that part of annual income which is not taxed, which is not distributed. To favour wealth and accumulation is to favour size and the concentration of power, and this is neither fairness nor justice. This is the opposite of the main objective of the Carter commission, to make corporations more responsible to people, to shareholders and consumers alike.
How is this going to work? Take the example of major corporations. Imperial Oil had a net income in 1970 of $105 million, Union Carbide had $11 million, Noranda, a Canadian company, had $58 million, and Distillers Corporation, also a Canadian company, had $60 million. On the basis of this new act, Imperial Oil is making as a net income of $105 million on oil and gas and its various subsidiary activities, and it could borrow and reduce the tax burden on that net income something in the order of $500 million. And with $500 million they can buy out MacMillan Bloedel, Domtar, CPR, F.P. Publications and still have a lot of it left over.
This adds to concentration, and one of the curious things about this is that the investment they make in the companies that they buy out, or whose shares they buy, is non-taxable in their hands, but the costs, the interest on making that investment is deductible as a cost from whatever their current operation is. I do not think we have any objection to paying the real costs of gas and oil in this country. But I think we have reason to object when part of the costs that are deducted by the oil company, the distilling company or whatever it may be, is used to buy out other companies in the pulp and paper industry or whatever it may be.
Similarly, Mr. Speaker, I do not think that businessmen are too happy about this. When speaking recently to the president of a very large corporation who thought this was a good section in the act, I pointed out to him, "You are thinking of buying out so and so," and he said, "Yes." I asked, "Have you thought that so and so can also buy you out?" It just leads to more concentration in the Canadian economy at a time when the country itself is looking for more competition.
One could be surprised that we have a bill before this House, Mr. Speaker, which seeks to improve competition, to protect the consumer, to reduce mergers, and at the same time we have a section in the tax reform bill that serves only to force that concentration, and increasing mergers that will be inevitable as a result of this section. I think that the officials of the Department of Consumer and Corporate Affairs and the officials of the Department of Finance might well get together to find out in which direction they are going, or if they are meeting each other in crossing.
I should like to point out something else, Mr. Speaker. This particular exemption applies to all Canadian corporations-not just to Canadian corporations that are wholly owned or controlled, but to all Canadian corporations. On the basis of value alone, Distillers could buy a controlling interest in Imperial Oil, Imperial Oil could buy a controlling interest in MacMillan Bloedel and Distillers, and so on, but it only works one way. Imperial Oil could buy the controlling interest in the two Canadian companies, but the two Canadian companies could not buy the controlling interest in Imperial Oil because that resides in the United States. At a time when we are worried about foreign ownership we give an "open sesame" to foreign subsidiaries that are here already to go out and buy more Canadian companies. Then the Minister of Finance tells them, "We will pay half the cost by allowing you to deduct that interest cost from whatever profit you are making and whatever business you are in".
Mr. Speaker, as most of my hon. colleagues know, I have been extremely concerned at the emphasis in this country for the last 20 years on the policy that we can build a strong Canada by selling our resources.
When he returned from the Group of Ten meeting in Rome, the Minister of Finance said that he was congratulated by all the finance ministers in the group on having the most remarkable and modern tax bill. I do not think they read it, those other ten ministers of finance. And if they did read it, I do not think they understood it or that they agreed. But they did agree to one thing. If you, Mr. Speaker, were the minister of Finance for Japan, Germany or the United States, you would have said, "Have you done anything to change that give-away tax program on resources that you have in Canada?" The answer would have been no, and they would have been very pleased with the bill.
It is not a speech, but I could do that, Mr. Speaker. This is the only time that someone is making a point, and I should like to listen to it because members of the opposition have not contributed anything. We have listened to them, so I wish they would keep quiet.
If Canada stays with cheap taxes-and by cheap taxes I mean the oil and gas industry in pipeline and oil wells which pay taxes of less than 6 per cent of the
profits they earn; by cheap taxes I mean the mining industry in their metal mining operations which pay taxes on 13 per cent of the profits they actually make-and with this kind of policy, then the foreign ministers of finance who want these resources are going to like our tax policies very much. They can also use them to beat down developing nations in the world whose only possibility of ever taking off into industrial growth would be to obtain an adequate return when they come to sell their own resources so that they can industrialize even in the most modest way.
These ministers of finance know that the more we insist on selling our resources as we do in this way, we show our preference for taxing these kinds of exports at such phenomenally low rates and manufactured exports at much higher rates; as long as we are willing to do this they are willing to buy, and they know that every hundred million or billion dollars worth of our resources that they buy, that money coming into this country makes it that much more difficult for the Canadian manufacturing industry to compete, because our dollar goes up and Canadian manufacturing finds it more difficult to compete in the export markets that they may have, or to defend themselves against import competition at home.
When virtually every other nation in the developing, industrialized world follows a policy of conserving and reducing the drain on its industrial resources, by outrageous tax concessions accorded to no other sector of our economy we encourage the exploitation and sale of our resources. The official position of the Department of Finance has been and I quote:
There is no inherent reason why Canada cannot be a major exporter of raw materials and of manufactured goods at the same time.
This is demonstrably false, Mr. Speaker. You cannot have both. When each of our major trading partners-and we know since August 15 the emphasis they place on balancing their trade account-is searching for a balance in their merchandise trade with us, they will be striving to pay for the import of our raw materials with their manufactured goods.
An additional $1 billion export of energy to the United States, for example, would give us in this country $68 million in wages and salaries. But that balancing inflow on which Mr. Connally and Mr. Nixon are insisting in manufactured goods could mean that we are importing anywhere from $200 million to $350 million in their wages and salaries, depending on the industry. If it is the furniture industry, we would be exchanging $68 million for $330 million. If it is the textile industry, 26 per cent or $260 million on an average of their output is composed of wages and salaries. If it is agriculture, wheat or products like that-and I am at no time speaking of pulp and paper or wheat and fish and hydroelectric power, which are renewable resources; I am speaking of non-renewable resources and agricultural products-the average is 26 per cent. If it is pulp and paper, the average is again 26 per cent. So we are exchanging 6.8 per cent or $68 million out of $1 billion, for $260 million. We cannot have our cake and eat it too. It is some exchange! There may be a balance of trade in dollar terms, but there is no balance of trade in jobs or wages and salaries.