May 6, 1974

LIB

Prosper Boulanger (Assistant Deputy Chair of Committees of the Whole)

Liberal

The Acting Speaker (Mr. Boulanger):

Do I gather that we have the unanimous consent of the House to continue the debate on Bill C-25?

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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?

Some hon. Members:

Agreed.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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SC

Joseph Adrien Henri Lambert

Social Credit

Mr. Lambert (Bellechasse):

Mr. Speaker, although the government is a minority one, I suggest that one realises that matters can be handled very quickly, and I welcome this. I would like to see this bill carried as quickly as possible, and for this reason I shall be brief.

I would nonetheless refer to a table published in page 21 of the agenda to the Canadian Wheat Board Annual Report:

Total Number of Canadian Wheat Board Delivery Permits Issued to Producers:

For the year 1958-59 the number was 229,844, while for 1972-73, the reported figure is 171,612. So there was a decrease of 58,232. Would the minister explain to the House in this debate the reason of that decrease in the number of permits? Did their prices go up in terms of bushels per acre or did the acreage actually remain the same despite the drop in the number of permits?

Those are questions about which we are greatly concerned, and I would hope that some light could be cast on that.

Coming back to the bill itself, I agree that with the devaluation of the dollar and with inflation this amount should be increased from $6,000 to $15,000. I think that would be quite reasonable. Consideration must also be given to organizations and operations and those amounts should be increased to $30,000 in the case of a two-member partnership, or $45,000 in the case of a three-member partnership.

I think those are improvements and I would like to see those contained in the bill implemented so that western farmers will benefit from them in order to ensure the survival of the important farm industry which is currently experiencing excessively difficult times, especially Quebec, Ontario and in the Maritime provinces.

It will be remembered that in recent days, particularly here in this House during the question period, the problem

May 6, 1974

of beef, hog, milk and poultry producers has often been raised. That means that there are problems across Canada, and I would like to draw the attention of the minister responsible for the Canadian Wheat Board (Mr. Lang), who is also responsible for the distribution of feed grains across Canada, to the fact that the feed grain problem in my province is extremely serious. One has only to come to our ridings to hear hundreds of complaints in that respect and eastern farmers hope that the new policy referred to by the minister not too long ago will be announced soon and will bring improvements to Quebec and Maritime farmers so as to allow them to bring their production costs down without for that matter having to beg for charity from western farmers.

Mr. Speaker, we do not ask western farmers to give us their crops as a present, or to let us have their production at sacrifice prices, but we want the government to ask in such a way as to ensure eastern and western Canada equal opportunities in the areas of beef, pork, poultry and milk production.

The central government must take the necessary measures, otherwise we shall get even closer to reduced production, specially of milk, and we shall have to import more in the coming year. But who will be our suppliers? New Zealand is experiencing the same phenomenon; according to our information, milk production has decreased considerably. The same is happening in Australia. If we do not take the necessary steps for the survival of the industry, I do not know in what country we shall get the dairy products we shall need in the next few years.

The bill deals with agriculture as a whole. In my mind, when we speak of agriculture, it simply means all productions related to agriculture.

Therefore, I support the bill now before us. I endorse its provisions and its principles. I want to assure my colleagues and farmers from western Canada that even though we represent eastern parts of the country, we want to promote their prosperity and support the efforts of those who seek greater and more stable income, so that all together we can work for the survival of the Canadian agricultural industry.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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PC

Frank Fletcher Hamilton

Progressive Conservative

Mr. Frank Hamilton (Swift Current-Maple Creek):

Mr. Speaker, I am pleased to take part in the debate on Bill C-25 which is to amend the Prairie Grain Advance Payments Act. Over the years the so-called cash advance legislation has been very helpful to western grain producers. As the minister indicated, it was introduced by the government of the right hon. member for Prince Albert (Mr. Diefenbaker).

The bill proposes to raise the ceilings from $6,000 to $15,000 for an individual, and where there are two shareholders or partners over 18 years of age to $30,000. Where there are three or more shareholders involved, and they are principally occupied in farming, the ceiling will be $45,000. These are large sums of money. They indicate just how far rising costs of production and inflation have cut into western agriculture and added to the costs of our operations out there. The minister made a great point about how far he has gone. He went to a lot of trouble to tell us of his concern and to indicate the actions he has

Prairie Grain Payments Act

taken to help western agriculture. I can tell him that my constituents are completely confused by this lawyer's advice. What they want is common sense advice.

To indicate the concern which we have in the west, I would like to quote as follows from a bulletin of the Saskatchewan Wheat Pool issued on April 22:

The pool directors said members are concerned that government doesn't seem to understand or listen to their views. "Right now they have the feeling they're not being heard clearly and they're talking about drastic action to make sure the government knows they are highly concerned."

Reports from member meetings indicate that farmers are suggesting that their organization get more militant in dealing with Ottawa. Ideas suggested include a march on Ottawa, mass meetings in Saskatchewan to demonstrate concern, circulation of petitions requesting specific policies, a letter writing campaign to M.P.'s, enlistment of stronger prairie government support for agricultural causes.

"Our members are asking us to be more forceful in our presentations," said the Pool directors. "They're saying we should fight openly if necessary to gain the things that are right for farmers."

I point out that this is from the largest farm organization we have in western Canada. I think it gives the lie to the minister's case. My experience over the years is that the minister has proven just one thing to the grain industry of western Canada, and that is that we are able to give our feed grain away at fire sale prices. Everyone well remembers when we were trying to get a four bushel quota and $1.25 a few years ago, and the best this minister and his experts could come up with was operation LIFT. The money that is being talked about in this bill is a cash advance on the produce that the western grain farmer must store until it can be marketed; it is not a grant from the government in any sense of the word.

There are a good number of reasons why western farmers cannot market their grain, and transportation is the first one. We have just come through a wasted five year freeze on transportation. Our people are desperate for some leadership, Mr. Speaker. The particular subdivision to which I deliver grain has not had a train for over four months. There are absolutely no delivery opportunities there at all, and at the end of the crop year the country elevators were filled. This indicates just how necessary the cash advances are.

I should like to read from a letter which I just received from a constituent of mine who points out that even though the rest of the country seems to think that farmers are receiving $6 per bushel for spring wheat, this is not the case. Farmers received $2.25 initial price and another $1.75 but they will be fortunate if when they receive their final payment it brings them net $4.50 for No. I.C.W., the top grade of spring wheat. My constituent writes as follows:

Last fall, I harvested my crop but no room was available in the town where I haul my wheat for months-Estuary. As you know, the trouble was due to a lack of boxcars and then later, the rail strike.

Now, the government knew there was a rail workers' strike coming before it ever took place. Then even during the strike, they dragged their feet and were not in a hurry to settle it. I knew what the outcome would be, so did the government. Yet they refused to hurry, even though our wheat was badly needed and winter was coming on.

Finally, I was able to haul my first wheat for the new crop year on October 12, 1973. Then in November I was able to haul two more loads. From then on, the elevators were blocked for a considerable time and finally my farm was snowed in and still is.

May 6, 1974

Prairie Grain Payments Act

This letter was written on April 1, Mr. Speaker. He continues:

There have been times when I could not haul wheat for three or four months, due to no quotas, etc. If the grocer had not extended credit to me, it would have gone very hard with us in those past years. Yet, these things are never realized or cross the minds of many well fed and well paid government officials. If they would receive a cheque once in three months, maybe their thinking would change a bit also.

Later, the letter continues:

I say the Trudeau government has had the poorest management and price controls we have seen in many a decade. I hope a change will come for the better, soon. I have grown up in the "dirty thirties" and I know what hard times are. I know how to save, but I have never been able as yet to even keep a life insurance policy paid up let alone have a bank account. Surely things could be managed a lot better in a country that is blessed with all the resources we have in Canada. I was born here and I am grateful for our freedom, but there are some things as I mentioned, that I say is a shame for our country.

There are many, many people who could write similar letters, Mr. Speaker.

As I said at the outset, over the years this cash advance legislation has been very helpful. From its inception in 1957-58 to the crop year, 1972-73, there has been a total cash advance to western producers of $1,042,166,054. Of that, there was owing to the Canadian Wheat Board on July 31, 1973, some $7 million-this is less than three-quarters of 1 per cent. I should like to make the case that most of this has been through loose administration by government employees and not because farmers have not repaid.

While I am on the subject of loose administrative procedures, Mr. Speaker, I should like to say that we resent the harassment of producers by bureaucrats. Particularly we resent what I could call the sinister grains group that has been set up and that has ridden roughshod over some of the respected organizations administering our grain policies in western Canada. I can think of the person who set up the grains group, Mr. Rod Bryden, who is now a consultant for the government and is paid from public money to look into the question of elevators in western Canada. I was shaken the other day when a member of the grains group took it upon himself to announce that there will be a system of flexible tariffs applied to the grain industry in western Canada. We have a very respected Canadian grain commission which has the responsibility for setting tariffs. I was even further surprised when the chairman of the Canadian Wheat Board volunteered the information at a transportation meeting in Ottawa that they would spend some $130 million of farmers' money to purchase 4,000 hopper cars. It seems to me, Mr. Speaker, that this sort of announcement should not come from government boards and commissions.

This afternoon, in reply to a question about whether the government's two price wheat program actually saved consumers eight cents on a loaf of bread, the minister in his typical roundabout way indicated that the government's program did in fact save consumers eight cents per loaf. This is utter rubbish, Mr. Speaker. Any one even slightly familiar with the industry knows that you can get about 60 one pound loaves of bread from a bushel of wheat. A table of subsidies put out by Agriculture Canada shows the posted price of wheat as $6 per bushel but our wheat is selling for about $4.50 per bushel, and the subsidy paid by the federal government is $1.25 which I calculate to be about two cents per loaf.

Some things about the cash advance legislation have caused problems, Mr. Speaker. One is the business of terminating quotas. The Canadian Wheat Board has authority to terminate quotas and force the grain in. This works a hardship in a situation where an old couple may have left the farm for the winter and moved into the city or down south. I hope that the government will give more consideration to such people, and I realize that last year the Wheat Board were very responsive, realizing that the roads were snowed in. I would also urge that the government consider allowing a tenant to apply for his share of the cash advance without having the landlord sign.

Finally, I should like everyone to understand that if a farmer takes this cash advance it is only an advance on unsold produce and that he pays income tax on it.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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PC

Norval Alic Horner

Progressive Conservative

Mr. Norval Horner (Battleford-Kindersley):

Mr. Speaker, the minister traced the history of cash advances to western producers. In the 1950's, when farmers could not find markets for their crops and asked for cash advances, they were told that such a program would be impossible to administer. Strangely, the Conservative government in 1957 introduced the maximum cash advance of $3,000, an amount the minister treated lightly. Three thousand dollars in those days would go farther to meeting costs than a like amount would today. The advance was intended to help small producers. Over the years it has helped smaller producers. Operators of larger farms have always had access to money at low rates of interest. Although I support the increase to $15,000, I think the larger sum will help operators of larger farms.

The idea behind cash advances was not the same in previous years. Cash advance legislation was introduced to meet the needs of farmers who had no markets for their wheat. Not having markets, they could not deliver their grain to elevators and get a cash ticket. Today the difficulty lies in getting grain to export position. Once more the minister has come to the aid of the railroads. If you provide the farmer with a cash advance, he will not be so worried if he does not see the train. The pressure is taken off the railroad. Of course, the cash advance will not help the farmer who has tough or damp grain, or whose grain starts to heat when the weather gets warm.

The minister operates with a method entirely his own. The Western Producer of April 25, 1974, carried an article under the headline, "Grains Council gets warning from Lang". The Council did well to heed the minister's warning, as he allows organizations and boards only so long before they are forced to agree with his conclusions. In this connection, may I refer to an article in the Star Phoenix of October 15, 1972, in which the minister is quoted as saying:

One of the significant things about LIFT was that it was the one measure which we had to do a little harshly. We couldn't wait around and give everybody lots of choice and understanding.

Freedom of choice and understanding are what democracy is all about. In his dealings concerning the Wheat Board and western transportation, the minister has told organizations to present briefs and ideas, and then has said that those ideas are wrong and his are right. In the

May 6, 1974

speech which Mr. Jarvis delivered for him, the minister said, as recorded in The Western Producer of April 25:

In the very near future, the federal government will be making known its final policy decisions for a new domestic feed grains policy for Canada.

Apparently the minister does not listen to anybody. He does not act on the basis of compromise.

The minister referred to two-price wheat and how great that was for the western farmer. When two-price wheat was introduced in January, 1972, the asking price in Vancouver for prairie grain with 13 Vi per cent protein content was $1.71; that represented an additional payment to the farmer of $1.28. The asking price for grain increased, until in May, 1973, it was $3.05 in Vancouver. After that the western farmer started to lose money on the grain consumed domestically in Canada. Let us assume we use about 60 million bushels a year in Canada; we use about 5 million bushels per month. If you apply the asking price to that amount of wheat, you will see that, under two-price wheat, the farmer was about 5 million dollars ahead of the game up to the end of April, 1974. Taking it in round figures, we can say the program has been operating for 2 Vi jears and the farmer has benefitted overall to the extent of about 5 million bushels. Unless we can continue to sell wheat in excess of $5 and get it to export position, the farmer will soon run up a net loss under the two-price system. I hope the government does not try to kid anyone.

The minister, in his speech in Estevan, said how great two-price wheat was. He also said the government intended to buy 4,000 new hopper cars. That is interesting. He still has to announce the order. There are no hopper cars on order. Even if they are ordered now, delivery cannot take place until 1976 at the earliest.

The minister mentioned feed grains policy. The industry could not come up with a satisfactory pricing method for feed grains, but the minister did. He introduced a system of monitoring off board prices. There are monuments to the minister's policy which will stand for many years, and I am referring to the empty feed lots in many municipalities of Saskatchewan. You will find bankrupt feed lots in practically every municipality. They are monuments to the minister's pricing policy and methods with regard to feed grain.

A previous speaker linked cash advances with the quota system. Certainly, the minister's policy has ridden roughshod over the quota system. A quota system will not work if some deliveries come under the quota and others do not. The government's feed grain policy has created havoc in feeding operations. According to The Western Producer, you can buy an entire basic herd in just about every municipality in Saskatchewan. I looked at some herds over the weekend and talked to some of the people who are getting out of the business. The government had better take a serious look at the sorts of policies it has introduced in the past as they have practically eliminated incentives for the production of food which is needed in the world and in Canada.

The minister said that we are behind with grain deliveries, as compared with last year. Do you remember the slogan of 1972, "The land is strong"? There was talk of delivering a billion bushels. That slogan is hardly opportune today, in view of recent strikes. Consider the govern-

Prairie Grain Payments Act

ment's response to the rail strike last fall, and compare its attitude last fall with the attitude as shown in the slogans "The land is strong" and "grain handling strikes are a barbaric weapon which costs us sales." It is strange that on the one hand the government considers strikes barbaric and that on the other it condones strikes, legal or illegal, wildcat or otherwise. The government's position here is different from its position on the prairies. The government members here chant that it is the liberal way to allow strikes wildcat or legal.

As I said at the beginning, I welcome this increase. It may help some farmers, especially those who cannot sell their grain because their farms are on rail lines which the companies, for one reason or another, fail to serve.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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NDP

Elias (Eli) Nesdoly

New Democratic Party

Mr. Elias Nesdoly (Meadow Lake):

Mr. Speaker, Bill C-25 is a simple bill. It provides for increases in cash advance payments to individual farmers on farm-stored prairie grain from $6,000 to $15,000. The ceiling has been raised to $45,000 for partnerships and corporations in which three or more farmers are involved. I welcome this legislation and think it heads in the right direction. Administered properly, this legislation has helped farmers in the past when they have found themselves in dire financial straits.

I should like to examine this bill in relation to the government's total farm package. Then, perhaps, we could discuss it with a little more wisdom. I should certainly like to know what the government's feed grains policy is to be. I think there is a deliberate policy on the part of the government to dismantle the powers of the Canadian Wheat Board, a Board which has been a good friend of the farmer for the last 35 years. Many powerful allies are helping the government to follow this train of thought. As long as a feed grains policy is not fully defined, there will be problems concerning cash advance payments.

What is to happen to the quota system? As I understand it, there is to be an open quota on feed grains but a restricted quota covering grains which come under the Wheat Board. I believe the whole quota system is likely to be a total loss, along with the transportation system which will also be affected. The hon. member for Lisgar (Mr. Murta) said domestic feed grain prices have been deliberately held up in price. In my opinion, it is about time they were. Present prices will at least cover cost of production as well as help farmers to repay some of the debts they accumulated during the years they were selling grain at below cost; for instance, for 30 cents a bushel to farm implement companies who were feeding it to cattle and realizing a good profit on the enterprise. I hope the price of feed grain stays up for the foreseeable future because, as I say, it is about time farmers received a fair price for their products.

I should like to point out that growing grain is one of the most efficient ways of producing protein. The feed grains industry is important, of course; and the livestock industry is important. But there is something we shall have to realize in this country within the next five or ten years, that converting the protein in grain to protein in pork, poultry and beef cattle is an extremely inefficient process. Protein in the form of beef and pork is an expen-

2074

May 6, 1974

Prairie Grain Payments Act

sive form of protein, and as the world becomes hungrier, protein from grain will be an important factor in saving from starvation people in many parts of the world, that is, if we are concerned about people in other parts of the world. I was reading an article recently which pointed out that, weight for weight, soybean contains twice as much protein as animal products.

In conclusion, let me say we should be strengthening the Wheat Board rather than weakening it through a feed grains policy which in my opinion is to the detriment of the western farmer. At least 90 per cent of the western farmers to whom I have spoken feel that barley and oats should remain under control and that the pricing mechanism should come under the board. They are also concerned about the future of the quota system. Many farmers have asked me, "Why is the government buying hopper cars for the railway companies, when it should be the responsibility of the CN and the CP rather than an expense borne by the Canadian taxpayers?"

With regard to rail line abandonment, last summer, when the federal government held the prairies conference in Calgary and met with the western premiers, they said they would postpone railway line abandonment for 18 months. Today, the minister and other spokesmen for the government are saying the lines will be closed down until July 15. There has not been a train to Meadow Lake for about a month: there has not been a train down the Glaslyn-Turtleford line for about six weeks. The rail roads are open; there are no lines washed out there. There may be in the Lumsden area, but not in the northwest. It seems to me a deliberate attempt is being made to abandon lines via the back door, which is something the western Canadian farmer will not forget should an election come, whenever that may be.

I am prepared to see this bill pass second reading. We are in favour of it. However, I am hoping that our railroad system will be so efficient that farmers will be able to sell their grain when they need to, rather than being obliged to make use of this legislative machinery.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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PC

Thomas Gordon Towers

Progressive Conservative

Mr. Gordon Towers (Red Deer):

Mr. Speaker, I find that the opportunity afforded me to take part in the debate on this bill is opportune since only today I tried to put a question to the minister in charge of the Wheat Board but was unable to pursue it because Your Honour, in your wisdom, did not see fit to allow me to do so. I posed that question believing it was straightforward, forthright and one which producers in western Canada could expect to be answered. I would never question Your Honour's authority or wisdom, but there are occasions when not only members of the House of Commons but people across Canada deserve an answer to questions they have raised.

I believe that the producers of grain deserve an answer on matters as important to them as, not only this bill, but what is happening to their product after it is produced. I have before me a report in the Globe and Mail. I trust that the minister in charge of the Canadian Wheat Board is not like his counterpart, the Minister of Agriculture (Mr. Whelan), who has stated that the Globe and Mail does not always print the truth, because the minister is quoted by the Globe and Mail. The article begins by saying this:

Parliament took a major step yesterday toward writing into law the government's two-price wheat program-

This is a program of the minister responsible for the Wheat Board, which the Globe and Mail article says is "currently saving consumers eights cents a loaf on bread prices". The hon. member for Swift Current-Maple Creek (Mr. Hamilton) referred in his speech to a question I asked today, and I think fairly well explained the situation. It is not a question of who is paying for what. I am sure that the consumer is prepared to pay for his products, and I know that the producer is prepared to place his grain on the market on an equitable basis. But I believe he has the right to know what is happening to his grain.

The government is paying a subsidy of $1.25 a bushel, which amounts to approximately two cents a loaf. That is a matter of mathematics and I do not think it should present a problem to the minister. Today I was hoping the minister would rise to state unequivocally exactly how this $1.25, to a maximum of $1.75, that the government is prepared to pay as a subsidy to bread manufacturers is going to be applied. The minister may skate around this question and throw in some figures, but I believe the producer has a right to know what is happening to his grain.

The producers are also asking other questions. For example, how is the subsidy payment going to be made? Is the government making this payment as purchases are made, or is it made to the Canadian Wheat Board on a quarterly basis or at the end of the year? Then, again, how is the subsidy, after it is paid to the Wheat Board, paid to the producer? Is it going to be on a acreage basis, as it has been over the past years, or is it going to be placed in the pool and paid out on a bushel basis? On what grades will the payment be made? These are all questions that the producers are asking, and I believe the minister would be doing a service to Canadian producers if he would rise in his place and unequivocally tell the House exactly how these payments are going to be made in the days and months that lie ahead.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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LIB

Otto Emil Lang (Minister of Justice and Attorney General of Canada; Minister responsible for the Canadian Wheat Board)

Liberal

Mr. Lang:

The hon. member should read the bill.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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PC

Thomas Gordon Towers

Progressive Conservative

Mr. Towers:

There is nothing about that in the bill. All the bill refers to is advance payment on grain. The question being asked today is how these payments will be made. The minister rose in his place and stated that a Conservative government years ago established, in their wisdom, a base of $3,000 for permit holders. Then in very gracious words he pointed out how much more the government today is giving the producers, namely, $15,000. I would impress upon you, Mr. Speaker, that that original $3,000 bought in those days as much as $15,000 will buy today. The Minister of Agriculture has said that some agricultural input costs have gone up 200 per cent to 300 per cent in the last year. So if you look back over the many years since a Conservative government first had the idea of instituting this type of policy, you will see the producer is just holding his own.

This bill places salve on a sore wound. The government insists on continuing its policy, or rather lack of policy, of failing to come to grips with the real problem facing the agricultural industry today. The real and long-standing difficulty confronting the farmer is the cost-price squeeze

May 6, 1974

in which he continually finds himself in the present-day economy, one in which inflation is destroying the stability of the industry. Populationwise, the farmer is in the minority. It is a generally accepted fact that 7 per cent of the population is engaged in agriculture and the production of food. Yet the farmer has to compete with the other industries on the labour market, and this includes the government, attempting to hire the workers he needs. The government is causing a great drain on the labour market today. In the agriculture committee we were told there were 662 Ph.D's working in the Department of Agriculture research branch alone. Certainly there is a great demand for efficiency in the industries of the world.

No doubt this bill will be proclaimed by the government as of great advantage to the grain producer, but it certainly falls short of what the farmer could and does expect from the government. This legislation will not give the farmer any extra money for his product. I want to impress upon every urban dweller-and I include in this group the minister responsible for the Wheat Board-that this advance payment has to be repaid, every cent of it. Actually, what it does is to get the government off the hook once more, at a time when it should be going out to sell grain to the maximum potential. If the farmer were assured that there would be an opportunity for him to market his grain on a steady basis throughout the year, knowing full well that at the end of the year he would not be left holding the bag-a bag that does not contain money but only the sweat, labour and tears of his efforts of the previous year-he would not need any other inducement to grow grain.

During the past several years the Liberal government has mishandled farmers' products. First of all, there was the supposedly famous Lift program, which the hon. member for Battleford-Kindersley (Mr. Horner) made reference to and for which the farmers of western Canada have not yet forgiven the government; nor should any consumer of this country forgive a government for establishing any plan that is detrimental to the production of food. For example, I refer to the program of a former minister of agriculture to kill thousands of chickens and hens so the producers could receive a benefit. The people of western Canada referred to this program, and still refer to it, as "henocide". It is immoral and illogical to try to justify a program of this nature, and now we are getting into a similar situation.

The Canadian Wheat Board is sending out letters urging farmers to deliver their grain. Elevators are plugged in many areas, so cannot accept delivery. There are ships on the west coast waiting to be loaded. The Canadian grain producer is paying demurrage charges. There are hungry people at the other end of the line waiting for this grain, waiting for food. Added to this confused muddle we have a Minister of Transport (Mr. Marchand) who admits that our transportation system is in a mess and that he does not have control.

I should like to refer to a letter that appeared in the Western Producer of April 25, 1974. A portion of this letter reads as follows:

A survey in early March of elevators at Indian Head, Qu'Appelle and McLean reveals the following:

McLean elevator is filled to capacity.

Prairie Grain Payments Act

Indian Head elevators with approximately 633,000-bushel carry-capacity have now in storage 503,000 bushels of grain.

At McLean and Qu'Appelle loaded boxcars waited for ten days before being shipped.

In Indian Head ten loaded cars were stationary from February 11 to 25 before being picked up. Serial numbers of these cars are available.

These points are on the main line of the CPR which would therefore emphasize the fact that there is grain available at centrally located elevators waiting to be shipped to the terminals. It would appear that the responsibility for failure to meet our obligation to overseas grain markets should be accepted by the railroads as they have failed in their obligations to move the grain which the farmers have already supplied to their local elevators.

That is why I suggest we have to go along with this type of program as this government procrastinates to the point where farmers are not able to deliver their product, and they do need money with which to operate. The opposition has tried and tried to get the government to take some definite action. The government has turned transportation over to the Canadian Transport Commission, placing at its head a former member of the Liberal cabinet who certainly did not do anything to enhance his image in the eyes of the Canadian public when he was in parliament. How can he be expected to do other than create the type of situation we have within our transportation system, which the Minister of Transport has defined as a mess?

The chief commissioner of the Canadian Wheat Board said earlier this month that even if the targets set by the railways for grain movement are met starting immediately, the west coast backlog will not be cleared until the end of July. Vessel demurrage will continue to cost producers hundreds of thousands, if not millions of dollars until the situation is rectified. The circumstances at the lakehead are serious also, but will not be realized until the middle of May when stocks disappear and vessels might be waiting in the St. Lawrence. If the railways do not meet their targets, insufficient grain will move to the lakehead for lake vessels to meet Wheat Board commitments. Once lake freight is lost, it cannot be recovered, and the same costs and charges of contractual default will be faced as are now being experienced on the west coast.

The railways said their targets would be met by July 31, but the chief commissioner said that is not satisfactory to our customers who expect to lift their grain between February and July. They are not satisfied to have their supplies by the end of July, especially when there are people hungry and starving in May. He also stated that with the over-all shortage of cars, grain has not been getting its fair share. Regardless of the fact that one minister is urging farmers to plant more grain, another telling them to deliver their crops to the market, and the Minister of Transport announcing the repair and purchase of additional boxcars, with contracts signed for the sale of grain, not one of these requests, pleas or statements is worth anything to the producer when his grain cannot be delivered.

Why should this government or any reasonable, thinking person expect farmers to plant one more field at the request of the minister when they are faced with the pressures and frustrations of not being able to get their grain into the elevators? Why should the farmer continue year after year to sweat it out, knowing that with luck he might break even and without luck he will be met with a loss in his operations? Granted, the farmer is the backbone

27451-68.1

May 6, 1974

Prairie Grain Payments Act

of the nation and we cannot get along without him. Why, then, does this government insist upon introducing piecemeal legislation which is only a stopgap, just to make the picture look rosy in the eyes of those who do not understand the difficulties of agriculture, particularly when this serious situation is not going to disappear on its own? Until ministers responsible for agriculture, transport and the Wheat Board work together toward a sound, long-range program not just for today, this week, next month but for the future, this situation will not disappear.

At a time when the price of grain is right and it should be moved, there is a bottleneck; yet farmers are urged to plant one more field, not having any guarantee that the price will last unless this government takes some effective action. We, as Canadians and as parliamentarians, should take the initiative in setting up a world food reserve to purchase surplus grain for emergencies. Neither Canada nor any single country should have to finance such a project; all countries should support it. There should be grain on hand during years of plenty to make up the lack in times of poor harvests. Last year there was a shortfall of 5 per cent, and here we are with grain which cannot be moved but which should be moved now when the price is right.

It has been estimated that 5 per cent of the United States wheat production has already been lost due to the drought in Texas. Although at the moment the over-all picture looks promising for increased supplies of grain, that grain is a long way from the bin. Our hopes are high, and we expect the government to get busy to see that the grain is sold through the Wheat Board for export, to ensure that delivery will not be delayed and to arrange to have a sufficient supply for domestic use.

Farmers are being urged by the minister responsible for the Wheat Board to plant additional acreage in grain, but they cannot deliver the grain they now have and they have no guarantee that good prices will last, unless this government takes some effective steps. The Minister of Agriculture has said that much of the cost of production of feed grain is up, as I said earlier, 200 per cent to 300 per cent. He goes around the country telling people that farmers must have more and more money for their products if they are to remain in operation. Let me assure you, Mr. Speaker, and the minister in charge of the Wheat Board that with these programs of the Minister of Agriculture there is no end to what farmers will have to pay for the production of food and to try to keep ahead of the increasing costs of production.

On motion of Mr. Towers the debate was adjourned.

At six o'clock the House took recess.

Topic:   GOVERNMENT ORDERS
Subtopic:   PRAIRIE GRAIN ADVANCE PAYMENTS ACT
Sub-subtopic:   AMENDMENT TO INCREASE MAXIMUM AMOUNT OF ADVANCE PAYMENT
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AFTER RECESS The House resumed at 8 p.m.


THE BUDGET

LIB

John Napier Turner (Minister of Finance)

Liberal

Hon. John N. Turner (Minister of Finance) moved:

That this House approves in general the budgetary policy of the government.

He said: Mr. Speaker, we Canadians today have reached a threshold of great challenge and great opportunity.

We are thriving as seldom before in our history. Our growth of output, employment and real income surpasses that of virtually every other industrial country.

But we are confronted by the scourge of inflation, worldwide in its origins and impact. No other issue more deeply disturbs our country, this government or me, as Minister of Finance. While we have suffered less from inflation than most other nations, we can and must do better to overcome it and alleviate its burdens.

The challenge facing the country is to break the inflationary spiral. But we must do this in ways that will not erode our prosperity nor damage our growth. Let no one think that this can be done easily or quickly. It will take time and effort. And until we have brought inflation under control, it is imperative that the burdens it inflicts be equitably shared and that those people who are most vulnerable be decently protected.

An opportunity is at hand to strengthen the Canadian economy and to improve the standard of living of every Canadian. This will require the wise development of our unique storehouse of resources-both material and human. In doing this, we must not allow ourselves to be diverted by ill-considered and illusory policies that would prejudice our long-term interests as a nation.

This budget has three main purposes. The first is to reinforce our attack on inflation through encouraging increased supplies of goods and services. This we will do by maintaining the strong expansion of the economy and by increasing the productive capacity of our farms, fisheries and industries. The second is to act directly against high prices where that is practical. The third is further to alleviate the adverse impact of rising prices on all Canadians, particularly those with lower incomes.

International Developments

The problem of inflation is clearly world-wide in origin. The Economic Review that I tabled last week deals with this at some length, and documents the leading role which accelerating international prices have played in our domestic price experience. Indeed, world inflation can be traced to the enormous buildup in international liquidity associated with the massive deficits in the U.S. balance of payments which ultimately resulted in the breakdown of the Bretton Woods exchange rate system. More recently, the concurrence of economic expansion in most industrial countries, coupled with major crop failures, led to an explosion of commodity and food prices. Last December, the world was hit further by a cutback in the supply of oil and staggering increases in its price. With so many nations facing massive shocks to their international balances, the world community is threatened by fragmentation and protectionism.

May 6, 1974

These developments constitute a menace to all countries, and not least to Canada, given our dependence on international trade and investment. No country can long prosper in a world of unsettled international financial and trade arrangements. This is clearly a time for renewed co-operation and strenuous efforts by all countries to rebuild a viable international trade and payments system. Let me stress that Canada has been playing a full role in the broad international effort to achieve this objective.

This government came early to the conclusion that under the conditions of great uncertainty emerging in the world, floating exchange rates were appropriate. Indeed, Canada adopted this policy four years ago. This approach has now been widely adopted and seems in these troubled times to be serving us all well.

In the pursuit of international monetary reform, Canada has persistently urged that the discussions should concentrate on matters of immediate importance where progress is possible. Last January, this approach of making progress where we could was endorsed by world finance ministers at their meetings in Rome.

Canada has also urged, and will continue to urge, that the International Monetary Fund, the key international financial institution, be strengthened in order to play an increasing role in maintaining world monetary order. We support the proposal for a new council of the IMF, composed of ministers, to meet frequently to tackle directly the major international financial issues, especially world inflation.

On the trade side, we have been concerned, as the energy crisis emerged, that countries might individually take restrictive action to relieve their balance of payments deficits. I have stressed this danger at many international meetings. I therefore welcome and support the efforts being made in the Organization for Economic Co-operation and Development, and in the work begun at the Washington Energy Conference, to ensure that countries avoid beggar-thy-neighbour policies. Recent actions in Europe make it all the more urgent that we proceed with this initiative without delay. God and this House willing, I will be in Paris in two weeks' time to offer Canada's full co-operation in an appropriate pledge to avoid such destructive policies.

Looking further ahead, it is important that the Tokyo Round of trade negotiations proceed on schedule. We will need to address ourselves to removing unjustifiable trade barriers, improving the GATT rules governing international trade, and dealing effectively with problems of security of supply for key international commodities. If timely progress is to be made, it is critical that the United States take the required legislative action that will enable it to play its essential role in these negotiations.

All of these international efforts are especially vital to the poorer countries of the world. Many developing countries are in desperate straits because of the sudden escalation of oil prices. They need help, and they need it quickly. Canada supports the efforts of the IMF to establish a new lending facility to help countries, particularly the developing ones, to meet this major crisis. We have informed the Fund that Canada is prepared to lend to the Fund for this purpose under the authority of the Currency and Exchange Fund Act.

The Budget-Hon. John N. Turner

We are also revising and improving our own aid program to meet these new circumstances and new requirements. You will recall that in addition to our $549 million already allocated to foreign aid for this year, the government has recently announced that an additional $100 million will be made available this year in fast-disbursing forms of aid, mainly food and fertilizers.

In addition, the government, through the Estimates, is seeking parliamentary authority for the advance commitment of Canada's contribution to the Fourth Replenishment of the International Development Association. This Association is a subsidiary of the World Bank, specializing in the provision of low-interest and interest-free loans to the most needy countries.

Topic:   GOVERNMENT ORDERS
Subtopic:   THE BUDGET
Sub-subtopic:   ANNUAL FINANCIAL STATEMENT OF THE MINISTER OF FINANCE
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THE CANADIAN ECONOMY


The shadows of international events have fallen less darkly on us than on others. The outlook for the Canadian economy is bright. Output, employment and income are all continuing to increase. I don't underestimate for one moment the plague of rising prices but even here we have been less afflicted than have other countries. Ours is a diversified economy, capable of producing a wide range of primary products as well as manufactured goods. In particular, unlike other industrial countries, we are not on balance dependent on foreign supplies of energy, especially oil. In fact, we are a microcosm of the world as a whole in comprising both oil-producing and oil-consuming regions. But the strength of our federation has enabled us to avoid massive increases in oil prices. Such increases would have had disruptive effects on the level of output and employment as well as accelerating the rate of inflation. The agreement negotiated by the Prime Minister (Mr. Trudeau) with the provincial premiers on March 29 with regard to the price of oil, the export tax and the subsidy to eastern consumers struck a reasonable compromise and strengthened our national unity and purpose. We kept within bounds the increase in the price of oil to Canadian consumers. At the same time, substantial benefits are flowing to the oil-producing companies and the provinces in which they operate to encourage the development of new sources of supply. In my last budget, I predicted that in 1973 the real growth of the economy would amount to 7 per cent. This was derided by the opposition as wildly optimistic. In fact, we achieved 7.1 per cent, the largest increase in 17 years and, Japan aside, the highest in the industrial world. My first priority has been the creation of permanent satisfying jobs for our rapidly growing labour force, to ensure that those who want work and need work can find it. In 1973, there were 430,000 more Canadians at work than a year earlier. The expansion in employment was 5.2 per cent, a record achievement for Canada by a substantial margin, and the fastest rate of increase among the industrial nations. Mr. Speaker, I take particular satisfaction from the fact that over one-third of this increase occurred in manufacturing and construction. Manufacturing employment alone rose by 111,000 or 6 per cent, after many years during which it had been almost static. Some of this achievement



May 6, 1974 The Budget-Hon. John N. Turner comes from good fortune. Much of it comes from the enterprise of Canadian business and the efforts of working men and women in this country. But a good deal is due to the sound economic management and budgetary policies of this government. It is also a source of satisfaction to me that employment in the Atlantic provinces and in Quebec increased more rapidly in 1973 than in the country as a whole. The reduction of regional disparities-or better put, the growing equality of economic opportunity-has been a high priority of this government. The policies pursued by my colleague, the Minister of Regional Economic Expansion (Mr. Jamieson) are bearing fruit. But we have always recognized that an essential condition for satisfactory growth in the less prosperous parts of this federation is sustained growth in the economy as a whole. The growth of Canadian output and employment in the early months of 1974 has contrasted sharply with the experience of the United States. In that country, unfortunately, real output dropped at an annual rate of almost 6 per cent in the first quarter. On the other hand, in Canada the production of goods and services rose strongly in the first quarter by at least 8 per cent in annual terms over the fourth quarter of last year. This was accompanied by new job creation in the same period at 7 per cent. We are now at the limits of our physical capacity in many industries. Many products, including such critical industrial items as steel, construction materials, agricultural implements, machinery and chemicals, are in short supply. Despite the record growth of our labour force, the rate of unemployment has been brought down to 5V4 per cent. I know that this is higher than at times in the past when the economy was operating at peak levels. It is certainly at a higher level than I would like to see. The fact remains, however, that the labour market is generally tight across the country, with many jobs remaining unfilled for lack of qualified workers. Looking to the future, Mr. Speaker, I forecast that real output in 1974 will be 5 per cent higher than in 1973, assuming always that we are not plagued by serious strikes and adverse weather at home, or crises abroad. Given the fact that there is no significant amount of slack to take up, this is about as much as we are physically able to do this year. The most dynamic element of demand is now business investment. The recent survey of investment intentions indicated that business is planning to raise capital investment this year by 19 per cent, manufacturing investment by 28 per cent. These increases are on top of the substantial gains of last year. New capacity is already coming on stream to relieve shortages and to create new jobs, and this will gain momentum as the year goes on. Consumers will be stepping up the volume of their buying as fast as the economy expands. Net farm income, which rose by 89 per cent last year, is headed for another buoyant year. Exports will grow less rapidly this year because of the international oil crisis and the slowdown in world growth. Housing starts reached a record level of 269,000 last year, well in excess of the rate of family formation. So far this year, starts are running at still higher levels but this rate may prove unsustainable in the face of the shortage of supply of labour, materials and especially of serviced land. I expect that on top of the massive increase of 430,000 jobs in 1973, we will have a further increase in 1974 in excess of 300,000.



The Issue of Inflation I turn now to the issue of inflation. We all know the harsh facts. The consumer price index rose by 7.6 per cent in 1973 and by 10.4 per cent in the 12 months ending March, 1974. I have stressed that the inflation is world-wide in origin with the major source of upward pressure being the explosive upsurge of prices of agricultural and industrial commodities in international markets, as a result of rising demands and limited supplies. Since mid-1972, international commodity prices have doubled. The increase in the price of oil, which quadrupled, is only the most spectacular example of the general problem. Other commodities which have more than doubled in price during the past two years include wheat, barley, corn, soybeans, coffee, cocoa, sugar, hogs, rubber, tin, copper, zinc and lead. Only recently have they shown any tendency to peak or turn down. All countries have been affected, most to a greater extent than Canada because they have been less able to protect themselves against the rise in oil prices. According to the latest figures available to me, in the 12-month period ending February, the cost of living rose by 12 per cent in the OECD countries as a whole. It was up by 26 per cent in Japan, 13 per cent in Australia, Italy and the United Kingdom, 11 Vi per cent in France and 10 per cent in the United States. For Canada the comparable figure was 9.6 per cent. In our fight against inflation. I have rejected two possible approaches. One is the deflation of demand by severe measures of fiscal and monetary restraint. The effect of this would be stagnation and rising unemployment. In my judgment, such a cure would be worse than the disease. [English] The second approach, urged upon us by the official Opposition, is to impose a general system of price and wage controls. This would be totally ineffective in overcoming the kind of inflationary problem we have been and are still facing. What we need, still, is not controls but an increase in supply. The United States, Britain and other countries have found to their frustration that controls disrupt supply. In these countries the enthusiasm of even the strongest supporters of controls has been cooled by the hard realities of their recent experience. I am not saying that general controls over prices and incomes would be a cure worse than the disease. I am saying that in the present circumstances where the prime causes of inflation are shortages of supply, controls are no cure at all. A variant of the general controls advocated by opposition members is selective controls reinforced by a two-price system for those internationally-traded commodities of which Canada is an important producer. This approach would have us control the prices for these commodities in Canada while leaving their export prices free to rise to world levels. Quite clearly, such a system would lead quickly to the drying up of supplies in Canada unless May 6, 1974



backed up by a battery of export controls. This would not only jeopardize markets we have built up at great effort over many years but it would invite retaliation through imposition of controls on imported goods we require. For Canada, so dependent on trade, to lead the world into this kind of protectionism would be the height of folly. Mr. Speaker, this government has not reached for the bludgeon of deflation or for the illusory magic of controls. We have not played either draconian or cosmetic politics with the Canadian people. In my view, what we have to do is this. First, we have to keep this economy rolling ahead and pouring out the goods and services our people need. Second, we have to reduce the strains reflected in particular market prices where this can be done in a practical way without harmful side effects. Third, we must help those Canadians least able to protect themselves from the hardships of inflation. My purpose tonight is to propose policies and measures which will round out and reinforce all three facets of this strategy. Fiscal and Monetary Policy The development of this strategy must be carried out within the framework of an over-all monetary and fiscal policy. Let me therefore explain here my views of the kind of framework we need. The forecast I have given earlier tonight anticipates that demand in the economy will expand in line with our capacity to produce. In terms of the total demand required to keep the supply of goods flowing at capacity rates, we are on the right course now. We do not require additional stimulus. Neither do we need any severe contraction of demand. I agree with the Governor of the Bank of Canada that the rate of monetary expansion should now be moderated to the pace just sufficient to sustain continuing growth at the levels of our physical capacity. Rates of interest are painfully high, but the way to bring them down is to slow the rate of inflation. This will take time. Meanwhile, I expect the banks to continue to give preference in their lending to small businesses, mortgage finance for housing, and borrowers in the less favoured regions of the country. On the fiscal side, what is required is that we hold our cash requirements, excluding foreign exchange, to much the same effective level as last year. Given our programs of government lending, this implies a reduction in the budgetary deficit and in the deficit computed on the national accounts basis. In the absence of new policy initiatives, my fiscal forecast indicates broadly this result. In choosing tonight's measures to extend our specific policy thrusts against inflation, I have therefore had to find additional revenues to pay for the costs of new initiatives.


REVENUE-RAISING MEASURES


I propose to find those revenues in ways that hurt least, and I propose to apply them to help people most in need. This must be done without damaging the over-all thrust of the government's budgetary policy. Clearly, additional revenues cannot be obtained without imposing a burden somewhere. I have selected measures which will give us the revenue required, but which will not in my judgment The Budget-Hon. John N. Turner contribute to price increases on essential goods or impede the expansion of supply. Petroleum and Mining Corporations The major revenue-raising measures are in the field of corporation taxes. The most important of these relates to the taxation of the petroleum and mining industries. In the tax reform of 1971 a new regime was established for the taxation of these industries. Since then there have been dramatic changes in the world and in Canada affecting the fortunes of these industries. For one, with respect to oil, I do not have to recall the phenomenal price increases and their potential for profit during the past year. The response of governments around the world has been to review their taxation policies and to strike a new balance appropriate to these changed circumstances. In mining, less dramatic but major price increases have occurred due to shortages and inflationary expectations. Here too, a re-examination of tax regimes is called for. In Canada our provinces have adjusted royalties, mining taxes and other arrangements to derive what they perceive to be a fair share for the benefit of their people. However, a provincial resource is also a national resource, and the federal government has a responsibility to see that a reasonable portion of this gain is shared by all Canadians. In these circumstances, the federal government has had to reassess its over-all taxation policy with respect to this key sector of the economy. In doing so, we have had the following objectives in mind. First, it is essential that this sector bears a burden of tax on profits that is reasonable relative to the share borne by other sectors of the economy. Second, it is essential to ensure that all the people of Canada derive a fair share of the substantially increased revenues that flow from the higher value placed by the world on these resources. Third, the federal government should recognize the special position of the provinces with respect to the taxation and charges on resources within their boundaries. Fourth, the federal government must ensure that provincial royalties, provincial mining taxes and other arrangements having similar effects do not unreasonably erode the corporate income tax base. Finally, over-all Canadian tax policy must have regard for the position of these industries in terms of international competition and in terms of the financial resources they require to bring forward the supplies needed in the years ahead. Taking all these considerations into account, I have the following proposals to make for a revised regime of taxation for these industries. First, I am proposing that the basic rate of corporation tax applicable to production profits from minerals, oil, and gas be increased to 50 per cent. Because of the gradual reduction in the corporate rate under the tax reform schedule this will mean an increase of 2 percentage points of tax for the balance of 1974, 3 points in 1975 and 4 points in 1976 and thereafter. I believe that a 50 per cent rate of corporation tax for this type of income is appropriate to the new circumstances, rather than the 46 per cent rate which otherwise would have applied by 1976.



May 6, 1974 The Budget-Hon. John N. Turner Second, I am proposing that revenues derived by provincial governments in respect of production from a petroleum or mineral resource should no longer be deductible in computing the income of the operator of the resource. At the same time, in recognition of the special position of the provinces in relation to natural resources, I am proposing that, effective immediately, there be an extra abatement from federal income tax in respect of taxable production income derived in Canada. The extra abatement will be 15 points in the case of mineral profits and 10 points in the case of petroleum profits. For mineral profits, the combination of the new abatement, together with the standard provincial abatement of 10 points, will reduce the effective statutory federal rate from 50 to 25 per cent. In the case of petroleum, the result will be to reduce the federal rate to 30 per cent. The question of the provincial abatement with respect to mining income requires some elaboration. In August, 1970, at a time when the basic corporate tax rate was 50 per cent, the then minister of finance announced that commencing in 1977 the federal government would abate 15 points of corporate tax in respect of mineral production income. At the same time he indicated that commencing in 1977, provincial mineral taxes and similar payments would not be deductible for corporate tax purposes. Provincial mining royalties were not mentioned because provinces traditionally relied at that time on mining taxes to derive revenues from the industry. Subsequently, many important changes have occurred in provincial tax policies. In particular, provinces have begun to make use of royalties of many different kinds to increase their revenues. I am not opposing this. But I am saying these developments are making it almost impossible to arrive at a meaningful distinction between mining taxes and the varying types of royalties or arrangements which have similar effects in terms of what is or is not allowed as deductions for corporate income tax purposes. Hence, I propose that with regard to the taxation of mineral resource profits, none of these payments to provinces be recognized as deductible in determining corporate tax. I point out, moreover, that this bears not only on the federal corporation tax but also on the provincial corporation tax for those provinces for whom we collect this tax. In respect of petroleum, the additional provincial abatement is an entirely new feature. It is also apparent that the petroleum and mineral resource industries in Canada have reached sufficient maturity that the existing tax incentives are more generous than is needed to encourage continuing development. Accordingly, I am also proposing to cut back immediately on some of the existing incentives. Henceforth, depletion can be claimed only if it is earned and only up to an annual maximum rate of 25 per cent of production income rather than 33 Vz per cent. Canadian exploration and development expenditures have in the past been deductible immediately. If incurred in the future, they will be amortized at a rate of 30 per cent calculated on the diminishing balance basis. Earned depletion which can presently be accumulated at the rate of $1 for every $3 of eligible exploration and development expenditure will continue. With rising resource profits, and the discontinuance of automatic depletion, this earning of depletion will be very effective incentive for encouraging exploration. Similarly, I propose to retain the immediate deductibility of the cost of capital assets invested in a new mine or a major expansion of a mine because of the incentive it provides to new development. I believe these proposals accomplish the objectives we have set for ourselves. Given the circumstances of the day, they establish an improved and not unreasonable position for the federal government on behalf of all the people with respect to the taxation of this sector of the economy. I estimate that these measures will increase the federal tax liability in 1974 of the mining industry by $40 million, and that of the oil and gas sector by $410 million. For the eight provinces with whom we have collection agreements, the comparable amounts are $5 million in respect of mining and $115 million in respect of oil and gas. Ontario and Quebec, of course, collect their own corporation tax, and therefore I have not attempted to estimate any revenue increase with regard to these two provinces. [Translation] Financial Institutions Mr. Speaker, another major sector of the business community which has been very profitable in recent years is the financial area. This has been particularly true of the larger institutions. I have had the occasion to examine their position and I have reached several conclusions. First, the volume of business of financial institutions, and consequently their profit-ability, has increased substantially. Second, during the last decade the loss experience of these institutions generally has been less than 1 per cent and with regard to the larger institutions, the loss experience has been less than 4/10ths of 1 per cent. In October of 1968, the then Minister of Finance changed the tax treatment of these institutions by reducing their tax-free reserves from 3 per cent to 1 Vi per cent of eligible assets. Tonight, I am proposing to reduce the level of tax-free reserves from 1 Vi per cent to 1 per cent of eligible assets for all financial institutions such as banks, trust companies, insurance companies and any others who are required to compute their reserves on this formula basis. This measure will be applicable for taxation years ending after tonight. At the same time, I recognize that the loss experience of the smaller institutions is greater than that of the larger ones. Therefore, I am proposing that the present reserve of 1 Vi per cent be retained in respect of the first $2 billion of eligible assets and that the 1-per-cent rate apply to the excess. This new regime will yield the federal government $40 million in fiscal 1974-75. It will ensure that the large financial institutions bear their fair share of the tax burden, and yet avoid an adverse effect on the smaller institutions and a ay new institutions.


May 6, 1974