May 6, 1974


Other Corporate Measures Mr. Speaker, I would now like to turn to corporate tax measures of a more general nature. Corporate profits have risen sharply in the last year or two. In part, this has been a recovery from earlier depressed levels, but companies have benefitted from the strong economy and from inventory gains enjoyed during May 6, 1974



a period of sharply rising prices. I have said before, and I reiterate tonight, that I welcome the improvement in the position of Canadian corporations so essential to their continued expansion and the creation of new job opportunities. At the same time, I have pointed out on several occasions, both inside and outside the House, that there is a proper balance to be struck. Given the level of profits Canadian corporations are enjoying, it is appropriate that as a temporary measure some additional tax revenue should be obtained from such corporations. Subject to certain important exceptions which I will outline in a moment, I am therefore proposing a temporary 10 per cent surtax on federal corporate income tax for the period from May 1, 1974, to April 30, 1975. The obligation of corporations to pay monthly instalments in respect of their tax liability will be adjusted to reflect the imposition of this surtax and the other measures introduced tonight. This surtax will not apply to small business corporations. I am attempting to do all I can to encourage the growth of small business corporations which are largely owned and controlled by Canadians. Because of the major changes I am proposing for the taxation of mining and petroleum corporations they also would be exempt from this temporary, one-year measure in respect of their production profits. In addition, the surtax will not apply to the profits from manufacturing and processing in Canada. I believe it is essential to maintain the reduction in the tax burden on that vitally important sector to enable it to strengthen its international competitive position. Canadian manufacturers and processors continue to be vulnerable to foreign competition as a result of the extensive use being made of the U.S. DISC tax provisions, the favourable tax treatment provided to manufacturers in other countries, and the intensified pressures they have faced from abroad more recently following the increase in our exchange rate. The manufacturing and processing industries are not only a major source of employment directly, but they also provide a strong underpinning to the burgeoning service sector of our economy. The importance of bolstering manufacturing and processing is by no means confined to the central provinces where the greater proportion of those industries is now located. It is of equal or even greater importance to the Western and Atlantic Provinces, all of which are giving top priority to broadening the base of their economies through the large-scale development of secondary manufacturing and processing operations. The measures which we introduced are doing exactly what they were intended to do. After years of slow growth, Canada's manufacturing and processing industries are rapidly expanding. Profits of manufacturers and processors have improved substantially, but they are being plowed back into heavy new capital investment to increase productive capacity, the supply of goods required by our expanding economy, and employment for our rapidly growing labour force. As I recalled earlier, manufacturing employment last year rose by 111,000, which was 8,000 more than the total increase in the previous six years combined. Manufacturing output rose by 8 per cent in The Budget-Hon. John N. Turner 1973, the largest increase since 1965. Manu- facturing investment in new productive facilities rose by 19 per cent last year and this year is expected to grow by an extraordinary 28 per cent, the greatest increase in more than a decade. Under these circumstances, and in view of the vulnerability of this sector to competition from abroad, I am convinced that it is in the national interest to maintain the reduced tax rate on manufacturing and processing profits which parliament adopted last year. Members will recall that in my last budget I indicated the companion measure implemented by order-in-council providing for a rapid two-year write-off of machinery and equipment acquired by this sector would be put in place for an initial period ending December 31, 1974. It is my intention to reassess this provision toward the end of this year when I have the benefit of the review now under way of the capital cost allowance structure and the further report on the impact of the tax measures on the manufacturing and processing companies. Let me add a word, Mr. Speaker, about why I rejected proposals for an excess profits tax put forward by some members of the opposition. Hard, practical experience with such a system in the past has made it clear that it has major defects. In the first place, it is extremely difficult to define excess profits-as distinct from blatant profiteering-in a way that is equitable and workable. Any excess profits scheme is full of loopholes, with the result that some companies escape taxes otherwise payable. Secondly, imposition of a heavy tax on profits above some level that is defined as normal or reasonable, removes substantially the incentive of business to hold down costs and maintain or improve efficiency. The result is that instead of reducing inflationary pressures, as it is intended to do, an excess profits tax tends to increase those pressures. It is for these reasons that I rejected the idea of erecting a complex excess profits tax system and chose instead to propose a temporary, one-year surtax that is reasonable and administratively simple, but which still maintains the incentive for business to operate as efficiently as possible. [Translation] A further measure that I am proposing tonight will ensure that corporations not only pay their fair share of taxes, but also pay it promptly. I am advancing the timing of the final payment of a corporation's tax to the end of the second month rather than the third month after the end of the corporation's fiscal period. This change in tax payment date will not apply to a small business corporation. The effect of all these measures in the corporate income tax field is to provide a significant increase in federal tax collections in 1974-75. In the absence of the changes affecting the petroleum and mining industries, the advancing of the final payment date would have yielded $200 million. The measures affecting the resource industries would have yielded very little in 1974-75 unless the final payment date had been advanced, because in their case the payments would not have been received until the next fiscal year. But in combination with the advancing of the final payment date, I estimate that these measures will yield $400 million. The proposals regarding financial institutions are estimated to yield $40 million. The temporary



May 6, 1974 The Budget-Hon. John N. Turner 10-per-cent surtax is estimated to yield $150 million. The combined effect of all these measures on federal corporate income tax collections this fiscal year amounts to an increase of $790 million. Excise Taxes Mr. Speaker, I now turn to other sources of revenue. I have already made considerable reference to the energy crisis with which we struggled this past year. All of us have become more conscious that we need to economize in our use of energy, particularly petroleum. I propose a measure which will make some contribution to this end. Effective tonight, a special excise tax is to be introduced on high-energy consuming passenger cars and other types of energy-consuming vehicles. This will include large, heavy cars, high-powered motorcycles, privately-owned aircraft and large power boats. The tax will yield the federal government an additional $10 million of revenue in 1974-75. I have stressed that one of my requirements in this budget is to raise in revenues an amount at least equivalent to the tax reductions I will propose shortly. It seems to me that an increase in the tax levied on liquor and tobacco is an appropriate source to look to for some increase in revenues. Specifically, the proposed changes, which come into effect tonight, will raise federal levies on cigarettes, cigars, tobacco, spirits other than beer, and wine other than cider, by approximately 15 per cent. This measure will yield the federal government an additional $100 million of revenues in fiscal 1974-75. These increases would be implemented by a number of measures, details of which will be found in the Ways and Means Motion.


THE PROGRAM AGAINST INFLATION


Mr. Speaker, I have explained that the fiscal framework needed for this period is one that maintains about the same level of cash requirements as last year. I have described how I propose to raise additional revenues. I now wish to outline how these revenues might be applied within such a framework to finance measures which best round out and reinforce our policies to deal with inflation. Measures to Increase Supply The first element in our strategy against inflation has been and continues to be the expansion of supply. The central features of that policy have been in place for some time. Our fiscal and monetary policies have been designed to bring the economy up to full capacity growth. We have taken measures to increase the capability of the economy to produce efficiently the goods and services which are needed. This not only increases our production capacity, but it also creates remunerative and satisfying jobs, relieves shortages and reduces costs. The reduction of taxes on manufacturing and processing is clearly bringing about just such a massive increase in capacity. Further, as part of the agreements reached with respect to oil, the governments of the producing provinces will channel substantial funds into the encouragement of exploration and development. The National Petroleum Corporation will serve the same objectives. In facing the growing need for electrical energy, we have announced a major program of federal aid for inter-regional transmission lines. We are also well-launched on a nation-wide policy of support for nuclear power plants, utilizing the highly successful Candu reactor, developed by Canadian science and technology under the aegis of the federal government. Wide-ranging measures have already been taken to assist and encourage farmers and fishermen, with assurances that they will be able to market their increased production at fair prices. In this regard the government will undertake further major financial commitments under new farm stabilization measures to be introduced shortly and, of course, the House has just recently approved important measures to increase the effectiveness of the Farm and Fisheries Improvement Acts. My colleague, the Minister of Agriculture (Mr. Whelan), will also be introducing extensions to the Farm Credit Act to enlarge the flow of capital investment in food production. One amendment will increase the total amount of federal loans available for expansion and improvement of agricultural output to well over $2 billion. Moreover, special provisions will be proposed to make it easier for young farmers to purchase farms and get into the business on their own. Last year total lending activity by the Farm Credit Corporation more than doubled to some $400 million in loan approvals. For this fiscal year, the corporation's capital budget will jump again to well over $500 million. Later, when I deal with tax reform, I shall be proposing an important measure of relief for small businesses to encourage them to contribute further to the increase in supply. The over-all fiscal and monetary policy proposed in this budget, by providing for adequate over-all demand, will ensure that new output of goods and services will flow on to the market in as abundant a volume as the economy is capable of producing. Measures to Hold Down Particular Prices The second element in the strategy against inflation is to dampen down the prices of particular products where this is feasible. Here, the government has already adopted a number of measures. The most important of these has been the holding down of domestic oil prices to about 55 per cent of the international monopoly price. Subsidies have also been provided on bread and milk to help all Canadian consumers. The Food Prices Review Board has been focusing public attention on pricing and marketing practices in problem areas. Powers are being sought to enable the government to deal with particular cases of profiteering. In my last budget, I eliminated the sales tax on children's clothing, all remaining food items and nonalcoholic beverages, and certain other products. Tariffs were also reduced on a wide range of consumer goods. Tonight I propose to remove the sales tax on all clothing and footwear. Clothing and footwear account for a significant proportion of the budgets of most families and this action should significantly reduce the prices of these products. This measure will affect about $5 billion in family May 6, 1974



expenditures annually. It will save consumers directly $280 million in taxes this year, and on top of this the substantial markups on these taxes which result from the normal business practice of calculating percentage markups on tax-paid costs. Let me say to the business community-and to wholesalers and retailers particularly-that the purpose of this measure is to help the people of this country by reducing prices. I am confident that in most cases these benefits will be passed on to the consumer. However, I intend to ask my colleague, the Minister for Consumer and Corporate Affairs (Mr. Gray) to monitor prices of clothing and footwear and to report his findings to me. If these tax cuts do not get reflected in prices, then I undertake to recommend that the government take action, in one way or another, to ensure that the consumer does gain and that others are not allowed to appropriate the benefits. Complementing the tax increases I announced earlier on high-energy consuming vehicles, I propose to remove the sales tax on buses and other public passenger transportation equipment purchased by local governments. This will provide important assistance to municipalities in supplying more effective transit systems to reduce reliance on the private car, reduce total energy consumption and abate pollution. Further in the sales tax field, I propose to abolish the tax on bicycles. The advantage of this will be self-evident to Canadians in large numbers who are adopting this popular and healthful form of recreation. Tariff Changes In last year's budget there was a reduction in customs duties for a one-year period on a broad range of consumer goods. These reductions affected trade valued at about $1.6 billion in 1973. There is before the House Bill C-21 which, if implemented, would continue most of these temporary reductions until June 30, 1974. Given the delay in proceeding with the GATT negotiations, I am now proposing that except for one item only, these reductions should be extended until December 31, 1974. Exchange Rate Some further relief on our price structure is resulting from the rise of the exchange rate on the Canadian dollar, which stems from the good over-all performance of the Canadian economy and world confidence in our future. The government has not sought to bring this appreciation about; it has resulted from the underlying forces at work in the exchange market and we have intervened in this market only to maintain orderly conditions. We will continue to be concerned that the competitive position of our industry is not impaired. However, there can be no question that the appreciation that has taken place is providing some relief in moderating the increase in the cost of living. Housing An important aspect of the recent inflationary experience in Canada has been its impact on the cost of housing and the ability of the average Canadian, particularly young people and people of modest income, to meet their housing needs. The government has put in place a number of important programs and measures to ease both supply and cost aspects of the problem. These measures are reflected in the expansion of the budget of Central Mortgage The Budget-Hon. John N. Turner and Housing Corporation to $1.2 billion per year. Special assistance to low-income families has reduced the net cost of their mortgage financing. Indeed, in cases of demonstrated need, the amount of the assisted home ownership grant is such as to reduce the effective rate of interest paid to almost 6 per cent. The programs to assist municipalities with land development and servicing have also been extended and improved to speed up the whole process of bringing additional serviced land onto the market. Tonight I wish to announce several further measures to improve the housing situation. Before doing so I should refer to certain popular suggestions in this regard, specifically the cancellation of the sales tax on building materials, subsidized interest rates, and the deductibility of mortgage interest for tax purposes. Apart from problems of cost and inequity in these suggestions, in the present environment of a sellers' market they all suffer from the fatal defect of overstimulating demand, raising prices, and providing benefits which are almost certain to be captured by builders and sellers. In contrast, my objective is to help home buyers by the following proposals. First, one tax factor which may be holding back the flow of land for housing is that a taxpayer, personal or corporate, may claim against other income the carrying charges on land which is being held for future development. This sheltering of other income has lowered the financial cost of carrying undeveloped land and, therefore, reduced the pressure for early use. I am proposing that the carrying costs on land awaiting development may not be charged against other income but be taken into account only as the land is sold. This new rule for carrying charges would not apply to land which is being held primarily to earn rental income in the year, or to land which is used in the course of carrying on a business other than a real estate business. This measure, which is estimated to yield the federal government about $10 million this year, will assist in bringing land for housing onto the market more quickly. Second, I propose to remove the sales tax on a range of construction equipment including excavation and earth-moving equipment, tower and climbing cranes, air compressors and pumps, equipment for preparing and spreading concrete and asphlat, and several other categories of goods used in the construction industry. The effect of this measure will be to exempt from sales tax all major classes of construction equipment purchased by contractors and local governments. Third, to provide assistance to municipalities which are also struggling with the housing problem, I propose to abolish the federal sales tax on articles and materials purchased by local governments for use in the construction of water distribution systems. The foregoing two measures will reduce costs by $50 million directly in a full year, and by a further considerable amount through indirect effects. Fourth, together with my colleague, the Minister of State for Housing and Urban Affairs (Mr. Basford) I propose to take steps to assure the fullest possible allocation of mortgage funds to lower-cost housing. In addition to the use of the mortgage insurance provisions of the



May 6, 1974 The Budget-Hon. John N. Turner National Housing Act, we propose to enlist the support of the principal lenders and the private mortgage insurance corporations to adjust down payment requirements in such a way as to confine high-ratio loans to middle and lower-priced housing. My last and most important measure in this field will greatly ease the formidable difficulties facing our young people in accumulating the savings required for a down payment on a home and its initial furnishing. All taxpayers over the age of 18 who do not own a home will be able to contribute up to $1,000 a year, to a maximum lifetime amount of $10,000, to a registered home ownership savings plan, and these contributions will be deductible for income tax purposes. The income earned by the plan will bear no tax and the proceeds of the plan will be exempt from income tax if they are applied as a down payment for the purchase of a house and furnishing it at the time of first occupancy. This measure applies not only to urban homes but to purchases of farm homes. The mechanics of this new plan are detailed in the ways and means motion, but in large measure it will operate in much the same manner as the existing registered retirement savings plan. I am sure that the introduction of this innovative program will encourage savings and make it easier for Canadians to acquire homes. Together with the steps to be taken in respect of down payments, this proposal should help to reduce current speculative pressures on housing prices. It is difficult to measure the cost of this new measure. But no doubt as it develops and Canadians become aware of its real value, the registered home ownership savings plan will become a source of significant tax savings to many Canadians and particularly young people. [Translation] Easing the Burdens of Inflation The third element of the government's strategy against inflation is to ease the burdens on those Canadians who are most vulnerable. We have fully indexed old age security pensions, the guaranteed income supplement and the Canada Pension Plan. We have indexed government pensions and facilitated the indexing of private pensions. As for family allowances, not only have they been very substantially increased, but we have ensured that their real value will be maintained. The federal minimum wage has also been progressively increased. My last budget included a very substantial cut in personal income taxes of particular benefit to the lower income groups, and provided for the indexing of the personal income tax system. Tonight, I shall be proposing a wide range of measures which will further alleviate the impact of inflation on all Canadians, particularly those of more modest incomes. First, under the personal income tax, members will recall that just last year I introduced a measure to give all taxpayers a tax reduction in the form of a 5 per cent credit against federal tax payable, with a minimum credit of $100 and a maximum credit of $500. I intend not only to maintain this substantial tax reduction but to augment it for the lower income groups. This will be accomplished by increasing the minimum credit from $100 to $150, effective January 1, 1974. This change means lower taxes for everyone up to the $13,000 to $14,000 income range, and its benefits are concentrated among income-earners receiving less than $10,000. For example, a married taxpayer with two children and earning $6,000 will have his total tax reduced to $269 from $329 or 15 per cent. This tax cut removes at least 300,000 Canadians from the federal tax rolls. The tax reduction tables will be adjusted as of July 1, 1974, so as to give the full benefit of this measure in the second half of this year, it will reduce personal taxes in fiscal year 1974-75 by some $440 million. Members will be aware, of course, that as a result of the tax reform the rate of tax under the first $500 of taxable income will also be reduced this year from 15 per cent to 12 per cent. Even more important is the continuing benefit which all taxpayers are now enjoying as a result of the indexation of the personal income tax. The effect of this new system was to increase exemptions and raise tax brackets by 6.6 per cent for this year-and to remove a further 175,000 citizens from federal tax rolls. Under this automatic plan to relieve the burden of inflation on all taxpayers there will be a further adjustment next year to fully reflect the increase in the consumer price index currently taking place.



In our overriding concern with the fight against inflation we must not overlook the needs of those less fortunate Canadians handicapped by illness and other disabilities. In this regard we will, by regulation, broaden considerably the list of expenditures that qualify as medical expenses for tax purposes. This broader list will now include the cost of such items as heart monitoring devices, orthopaedic shoes and boots, a hospital bed required in a home, and walking aids required by crippled persons. Moreover, I propose a change which will aid those Canadians who are confined for extensive periods of the day to beds and wheelchairs or who are so confined for periods longer than 12 months. This will permit these people to qualify for the additional $1,000 deduction now available to permanently disabled and blind persons. At present, in order to get the deduction of $1,000 per year, a person must have been confined to a bed or wheelchair throughout the taxation year. This provision will be amended in two ways. The time period will be changed to cover situations where a person has been confined for any 12-month period which ended in the year. The second change will ensure that even if a person is up and about for periods during the day, he will not be deprived of the deduction. This amendment recognizes that it is often in the best interest of the patient, whenever he can, to get out of bed or wheelchair. I would also like to announce that my colleague, the Minister of Veterans' Affairs (Mr. MacDonald) will introduce legislation to provide further help for needy veterans, their survivors and their dependents in meeting increased costs. Effective from last October, the income ceilings applied to the war veterans' allowances and civilian war allowances will be increased by 5.3 per cent and escalated quarterly thereafter, in line with increases in the consumer price index. The pensions will be raised by the same dollar amount as the increase in the ceiling. These changes preserve the relationship between veterans' May 6, 1974



allowances and old age pensions. From April 1, 1974, the rate paid for orphans' allowances will be raised to $125 per month for each orphan, and escalated annually in line with the formula for family allowances. A new allowance for dependent children of needy veterans will be provided and the qualifying age for the allowances now paid on behalf of a child or to an orphan, as long as that child or orphan continues his education, will be extended to 25 years. These changes will cost an additional $10 million in 1974-75.


MEASURES TO ENCOURAGE AND PROTECT SAVINGS


One of the most pervasive aspects of inflation is its eroding effect on the real value of people's savings. This budget includes two major measures to relieve this effect. The first measure recognizes that the increases in interest rates which have taken place, although substantial, do not offset the decline in the real value of people's savings when they are invested in interest-earning securities, particularly after tax. I therefore propose that, effective from January 1, 1974, the first $1,000 interest income from securities such as bank and trust company deposits, mortgages, Canada Savings Bonds and other bonds be deductible in computing the taxable income of individuals. The precise details will be found in the ways and means motion. I am proposing a limit of $1,000 per year because I want to help the average person; I have no intention of allowing the wealthy members of our society to avoid paying their fair share of the tax burden. I believe that this proposal will be a very considerable incentive for average Canadians to save. This measure will reduce personal taxes by about $270 million in 1974. The second measure concerns a particular debt obligation of the federal government which is the instrument through which nearly two million Canadians accumulate savings. I refer to Canada Savings Bonds. Nearly $10.5 billion of these bonds are outstanding and the interest yield does not now reflect current interest rates. In order to raise the average effective yield to maturity to 9 per cent, I propose to provide cash bonuses to the holders of these bonds. More specifically, bonds maturing before November 1, 1979, will receive one bonus, at their maturity. Bonds maturing after November 1, 1979, will receive two cash bonuses; an interim bonus on November 1, 1979, and a final bonus at the date of their maturity. For example, the holder of a $1,000 Canada Savings Bond of the 1967-68 series will receive a first cash bonus of $220 in 1979 and a second cash bonus of $30 at maturity in 1980. In all cases these bonuses, which will have the effect of raising the yield to maturity to 9 per cent, will be taxed at the lower effective rates applicable to capital gains. All other features of the Canada Savings Bonds, including their encashability on demand and the compounding of interest, will remain unchanged. The current issue of Canada Savings Bonds, which is still on sale, will of course carry the two bonus payments. Savers who may wish to acquire this bond will know that the return to maturity on it will be 9 per cent. Action is under way to The Budget-Hon. John N. Turner inform holders of Canada Savings Bonds of the steps to be taken in order to obtain these benefits. Among the many Canadians who save through interest-earning investments and who will benefit from these two measures, a large proportion are older, retired people who depend upon interest earnings from lifetime savings for a substantial portion of their income. These people who have saved for themselves should be given every encouragement. As a final proposal affecting the savings of Canadians, I wish to broaden an important existing incentive for retirement saving. As members of this House are aware, registered retirement savings plans provide for postponing of tax, up to limits, in the savings accumulated for retirement. They have become a major vehicle by which Canadians anticipate their needs for income in the years after they stop working. I have felt that we should be more accommodating in allowing a taxpayer to make provision for his or her spouse through such retirement plans. I therefore propose to allow a taxpayer to contribute to a registered retirement savings plan for the benefit of his or her spouse to the extent that the taxpayer does not use the available deductions for his own plan. This measure will allow, for instance, a husband to forego contributing to his own registered retirement savings plan and to contribute instead to a plan for his wife who carries the burden of household and family duties. It will provide the same opportunity for a wife who is the income earner for the family and who is entitled to contribute to a registered retirement savings plan.



Tax Reform I would like to take a few moments to speak about the continuing process of tax reform. One of my first priorities has been to see that the income tax legislation is improved as experience is gained in its application. As will be shown by the length of the Ways and Means Motions which I will be tabling tonight, this has not proven to be a small task. Nevertheless, it is a task we must face if the tax system is to work well, and fairly, in today's society. The amendments being proposed reflect experience gained in the application of the new tax provisions and many useful suggestions from the public. One of my main concerns has been with the application of tax laws to corporate reorganizations. If we are to have vital and efficient corporations, it is important that the tax system not discourage reorganization intended to help our corporations to become more efficient and to adapt to the changing needs of a competitive society. During the past year, I have conducted an indepth review of the relevant provisions and have concluded that some changes are required. I am proposing that where it is evident that corporate changes are taking place for legitimate business purposes and not to avoid tax, the existing rules should be relaxed. With the advent of tax reform in 1972, several new rules were introduced to permit certain types of pre-1972 corporate surpluses to be distributed tax-free to shareholders. A number of corporations are still having difficulty complying with the technical details of these rules. I am therefore introducing amendments tonight further to simplify these



May 6, 1974 The Budget-Hon. John N. Turner rules and remove hardships which might otherwise have been caused by a misunderstanding of the law. It has also come to my attention that the tax system does not apply fairly where property has been expropriated, lost or destroyed. Quite often a taxpayer may be faced with a significant tax liability long before a settlement has been agreed upon and funds are available. This seems quite unfair, and I am introducing a relieving amendment which will ensure that under such circumstances no tax is payable until the compensation has been finally determined. I am proposing several amendments, essentially of a relieving nature, relating to the taxation of partnerships. These new rules will make it easier for partners to withdraw from partnerships, either for purposes of retirement or to accept employment outside the partnership. Another area of tax reform which has been the subject matter of considerable controversy has been the taxation of foreign-source income. I have important changes to announce tonight with respect to the passive income rules. These rules were introduced as part of tax reform in 1971 to protect against the diversion of income that would otherwise be taxable in Canada. The law in this area was new and inevitably complex. Its application was postponed to 1975 to enable the government to re-examine the law in light of representations. The proposed changes improve our protection against the improper use of tax havens to avoid Canadian tax on passive investment income and on income diverted from Canada. At the same time, the changes remove from the scope of these rules the income Canadians derive from their active business operations abroad. In addition, the rules will apply only to those offshore corporations and trusts that are controlled by Canadian taxpayers, and not, as at present, where there may simply be some equity interest. Canada's fiscal climate must remain hospitable to the Canadian company that competes internationally with the large multinational companies of other countries. The changes proposed in this area of the law are designed to ensure that this principle is not compromised. Another matter which I wish to mention concerns the protection of Canada's cultural heritage. Earlier this year, my colleague, the Secretary of State, announced measures to control the export from this country of objects which are significant to Canada as cultural, artistic, historical or scientific treasures. As part of the bill which the Secretary of State will, in due course, introduce to this House, certain amendments will be made to the Income Tax Act which will create an incentive to the owners of such treasures to keep them in Canada. Finally, Mr. Speaker, I wish to announce a most important change related to the existing tax system. All of us realize that the strength of our economy rests to a large measure on the efforts of our smaller independent businessmen. They provide a constant source of innovative and dynamic enterprise in our country, and play a crucial role in maintaining domestic ownership. Members will recall that at the time of tax reform, special provision was made whereby the first $50,000 per year of business income of a Canadian controlled private corporation would be taxed at a special low rate until the corporation has earned $400,000. In order to provide further stimulus for this vital sector of our economy, I am proposing that effective immediately, the cumulative limit of earnings be raised from $400,000 to $500,000 and furthermore that the annual amount of business income that can qualify for the low rate of tax be increased from $50,000 to $100,000.



Further Tariff Changes * [DOT] In view of the forthcoming multilateral trade negotiations-the Tokyo Round-I am proposing only a few amendments to the Customs Tariff at this time. Many of the requests we have received for tariff changes will have to be considered in the course of the negotiations. One amendment worth special mention involves removal of the duty on handicraft products imported from developing countries. Selected handicrafts produced in countries entitled to the benefits of the General Preferential Tariff will be allowed duty-free entry under this new provision. One other measure is of considerable importance. I refer to the so-called tourist allowance. I propose to liberalize the provisions in the Customs Tariff under which goods brought back by Canadian residents on their return from trips abroad are exempt from duties and taxes. The quarterly exemption available after an absence of 48 hours will be doubled to $50 from $25. The annual exemption, now available after an absence from Canada of 12 days or more, will be increased to $150 from $100. Moreover, the minimum period of absence required to qualify for the annual exemption will be reduced from 12 days to 7 days. And I should mention that the Minister of National Revenue has recently directed that the administrative requirements at the border for those claiming the quarterly exemption should be materially eased. These changes will be of considerable benefit to the large and rapidly increasing number of Canadians who travel outside Canada.


SUMMARY OF FISCAL POSITION


Mr. Speaker, may I now briefly sum up the financial position of the government, taking tonight's proposals into account. I estimate that the cash requirements of the government in 1974-75 will be of the order of $2 billion, excluding foreign exchange requirements. Having in mind that certain substantial payments, such as the loans to the CNR and Air Canada under the Financing and Guarantee Act and other expenditure items, were scheduled to be disbursed in the last fiscal year, but were not actually made until this year, this figure of $2 billion is for practical purposes not different from that for 1973-74. The budgetary deficit for 1974-75 will be somewhat lower than in the previous fiscal year. On a national accounts basis, the deficit of $500 million which we experienced in 1973-74 will be reduced by more than half in the current year. I must remind hon. members that these figures are estimates. The actual outcome of the financial accounts will reflect the decisions of this House respecting legisla- May 6, 1974



tion now before it and which will come before it in the course of the fiscal year. With the permission of the House I should like now to include in today's Hansard supplementary tables showing estimates of Government of Canada cash requirements, details of the budgetary revenues, federal government revenues and expenditures on a national accounts basis and reconciliations of these figures with those compiled on a public accounts basis. The information in these tables applies to the fiscal years 1973-74 and 1974-75. I should also like to table, with the consent of the House, several notices of ways and means motions setting out the changes I have proposed tonight and I would ask that they be printed in the notice paper appended to Votes and Proceedings.


NONE

Lucien Lamoureux (Speaker of the House of Commons)

No affiliation

Mr. Speaker:

Is this agreed?

Topic:   GOVERNMENT ORDERS
Subtopic:   SUMMARY OF FISCAL POSITION
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?

Some hon. Members:

Agreed.

[Editor's Note: For notices of ways and means motions, see today's Votes and Proceedings.]

[The tables referred to above are as follows:]

Topic:   GOVERNMENT ORDERS
Subtopic:   SUMMARY OF FISCAL POSITION
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GOVERNMENT OF CANADA FINANCIAL REQUIREMENTS

May 6, 1974