I am very doubtful of that; I am not sure. There are certain disadvantages about averaging. It means that a farmer may be called upon to pay a heavy income tax in a year in which he has no income whatever because he had a large income perhaps three or four years before. A farmer who retires and has no income would have to continue to- pay income tax beyond the period when he was earning an income. I have not made a study of the situation to see what all the disadvantages of averaging are, but we do not do it for business and we do not do it for farmers because of those objections. It would be very hard to administer because there would be this bringing forward of the back years.
With regard to herds, on principle I do not see how the increase in the value of a herd can possibly be regarded as an increase in capital. If a person is in the business of buying and selling cattle or of buying cattle and fattening cattle and selling cattle or of milking cows and later selling the cows, what he makes includes the increase in the value of the herd as well as the current receipts in the case of a dairy business. I do not see how it can possibly be regarded as an increase in capital, with this exception, that if he pays income tax on the same basis as that on which a business man pays income tax-that is what
is called the inventory basis-it is only an increase in the value of his herd which is regarded as income, just as the increase in the inventory of a merchant is what is regarded as income. So the income tax authorities have tried to give every facility to farmers to enable them to get from a cash basis back on to an inventory basis, and when they do that, they may regard some of the original investment there as capital, but of course any increase in the value is regarded as income, just as current receipts are regarded as income. When a farmer buys farm machinery he is not in the business of buying and selling farm machinery and the same when he buys a farm, and any increase in the value is an increase in the capital and is not taxable. But any increase in the value of his herd is not an increase in the value of a capital item but an increase in something which it is his business to buy and sell and make a profit out of. I think the income tax authorities have gone as far as they can to assist agriculture in getting from a cash basis on to an inventory basis. Had agriculture been on an inventory basis throughout the years, the question would never have arisen. It arises simply because agriculture has been on a cash basis.
Those are some of the difficulties that confront the authorities when they are dealing with this matter. There is not so much difficulty about the income tax or its application as there is about the weight of the tax. It bears very heavily on everybody, on the salaried individual, the wage-earner, the member of parliament, the farmer and everybody else.
There may be a certain discouragement of production, but I think of what the people have done during this war. I think of how they have paid their income tax without any question, perhaps in some cases it has been because they could not avoid doing so. Many have been perfectly willing to work overtime; they have been willing to put forth extra efforts to the stage of nervous collapse. These people have been willing to pay income tax on their overtime earnings. Of course, there have been some who would not do so. However, I think the record of the Canadian people under this heavy income tax in time of war has been pretty good.
I look forward to the time when the income tax may be lightened. I think that is the change that will be most welcome rather than to attempt to put the farmer in a preferred position in regard to these matters as compared with other businesses.