The house resumed at eight o'clock.Putting together these figures for naUofUll

defence and defence production, we must addnot less than $244 million to our prevIouslybudgeted expenditures for this fiscal year, andthe best estimate I can make at this time ofour expenditures for this fiscal year is, there.fore, $2,654 million.

In order to put our financial prospects intheir proper perspective I think I should 10beyond the end of this fiscal year and Invitethe house to consider our probable expendi_tures in the succeeding year. The plain fact itthat we must now undertake defence mea.sures, both on our own direct account and inassociation with the North Atlantic treatycountries, involving a rate of expenditure ofabout $1 billion a year. The poUcy underlylnlthis program bas received support from aUparts of the bouse. It is obvious, theretort,the total federal budget will be furtherincreased. In the year 1951-52.

The forecasts of revenue which I made atthe end of March were based on certamassumptions which were clearly set out attbat time. I felt then that the Inltatlonarypressures on this continent, following the 1948recession in the United States, had lost mOlllt oftheir strength and that the prospects for th1Iyear indlcaled, on the average, a steady pricelevel and a nonnal or moderate expansion 01economic activity. It appeared. then that ourgross national production in 1950 would beabout one or two per cent above 1949, andmy revenue forecast was based upon thatestimate. Some of my hon. friends oppositeexpressed the view that I was being toooptimistic, but in fact recovery 1n the UnitedStates was surprisingly rapid and Canadianeconomic trends during the second quarter ofthe year, particularly in the capital invest·ment field, improved rather more than I hadanticipated. Even before the Korean episodebegan to unfold it seemed probable that ourrevenues this year would be one or two percent greater than I had forecast.

Since June 25 the tempo of activity hasstepped up again, employment and outputhave increased, and the general price levelhas advanced somewhat, with the result that Inow estimate that our present tax structurewill yield about 7 per cent more revenue thanI had forecast last March. In March I putour revenue yield at $2,430 million; the bestestimate I can make today is that our presenttax and other receipts will" produce $2,610million. I would estimate that rather morethan halt of this increase of $180 million isdue to increased employment, output andtrade, and rather less than halt to higherprices.

Taking, then, my present estimates of ex·penditure and my forecast of revenue under

HOUSF: OF COMMONSThe Budget-Mr. Abbott

AFTER RECESS

BUDGETARY PROPOSALS

.:18

FINANCIAL STATEMtNT Of' THE MINISTER

OF FINANCE

Hon. Douglas Abbolt (Minister of Financel:Mr. Speaker, I make the usual motion:

That Mr. Speaker do now leave the chair forthe house to 10 Inlo committee of w.ys .nd muru.

Barely five months have elapsed. smce Ilast proposed that the house resolve itselfinto committee ot ways and means, but in thelight of what has occurred during the pasttwo months the motion to which I am speak·ing this evening will not be unexpected. Themarch of events since June 25 has producednew situations requirini a considerable revi­sion in my earlier estimates of revenue andexpenditure, and it is my duty to report tothe house on these matters and to proposemeasures to meet the new conditions.

Hon. members will recall that last March Iforecast our total expenditures tor this yearat $2,410 million. Higher costs for materialand labour have already increased. the costof many of our construction projects, and,apart from defence, there are other unlore·seen expenditures that we shall have to meet.I believe, however, that we shall be able tooffset tbese increases, other than defence, bya program of economies which we are work·ing on and to which I shall reter later. Thenet result is that, apart from increaseddefence, my estimate ot expenditure stillstands at $2,410 million.

It is now obvious that -as a result of detenceand related requirements very large additionswill have to be made to this sum. The houseis being asked to approve increased expendi­tures totalling $144 million In this fiscal year,and In addition to vote $300 mUilon for theproduction of military equipment and relatedservices, partly for our own direct use andpartly ior the use of our European associatesunder the North Atlantic treaty. It Is notpossible at this Juncture to say confidentlyhow much of this latter amount will be spentby March 31. To the extent that we under·take production for our European associates,the speed ot production and the rate ofexpenditure must wait upon decisions as towhat they most urgently require. At presentI am putting down a figure of $100 million asthe amount which 1s likely 10 be disbUrsed byMarch 31. It may be that this sum can beexceeded. Indeed, in view of the urge.ncy ofthe situation, our aim will be to expedite thedefence production program by all possiblemeans.

[Mr'. St. Laurent.]

our present tax structure, we would face adeficit in this fiscal ~-ear of about $44 million.

The policy of this nation, upon the essen­tials of which all parties in this house areagreed, is to preserve three things. First,we must achieve a high degree of militarysecurity without which all else may fail.second, we desire the highest quality ofpolitical freedom and individual liberty.Third, we want to promote economic stabilityand progress, both on a national seale andin terms of sustained and improved individualstandards of living. Each of these objectivesis now challenged by the evil torces that areabroad in the world today.

Our policy on military security is plain.It is to be achieved by building up our owndetence torces, by extending timely aid to ourassociates under the North Atlantic treaty,and by giving all support within our powerto implement the principles upon which theUnited Nations are based.

But my concern, as Minister ot Finance, iswitb economic policy. In his classic budgetstatement of September, 1939, Mr. Ilsley, whowas then acting tor the Minister ot Finance,laid down a set ot broad principles whichshould govern war finance. Ot course weare not in a state ot war-we are at a hill ofdifficulty on the path ot ,peace-but the ques­tions we must decide are not unlike those thatlaced my predecessor eleven yeaTS ago. Twoof the principles enunciated at that time areparticularly apposite today. The first is thata "pay-as-you-go" policy should be followedto the limits of political and administrativepracticability. The se<:ond is that to chooseor to wander into inflationary methods offinancing would be the most unjust ot aUmethods ot distributing the cost ot any sharpincrease in government expenditures.

In 1939, as the house will recall, the worldwas emerging from the long depression, andin Canada, as in other countries, there was agreat deal of slack in the economy in the formof idle or under-employed resources in bothmanpower and equipment. Jt was, therefore,right and proper that in the initial stagessome recourse should be had to bank creditto give a quick stimulus to increased produc­tion. But as soon as the stimulus had takenel'Cect a policy of sharp and progressive in­creases in taxation was adopted and effectivesteps were taken to mobilize the real savingsOf the community in successive victory loancampaigns. But in total war, as the stage otall·out mobilization approaches, there comesa Point where expenditures take so large apart of the national output that it is nothumanly possible to cover them tully bylaxation and by the direct mobilization of realsavings, and where bonds filter back in a

6!l262-27i

SEPTEMBER 7. 1950The Budget-Mr. Abbott

growing stream into the banking system andthe proceeds offer themselves In the marketfor current consumption. It Is at this point.that it becomes necessary to buttress fiscaLmeasures by comprehensive direct controls-'­controls ot prices and wages, controls of pro­duction and distribution, controls ot invest­ment and manpower, controls by rationing:and priorities. But even at best, controls.cannot do much more than contain the pres-·sure of demand tor a time, and unless the pro­cess of decontrol is matched against an in­creasing supply of goods, a greater or lesserdegree of in6ation will occur.

As I said a moment ago our financial prob­lem today has some similarities to that ofSeptember, 1939, but it has also some a11­important differences. We enter upon thisnew phase with litOe or no slack in thee<:onomy and with a reasonably clear appre­ciation of the immediate tasks betore us.We face a situation which does not engenderthe intense degree of patriotic fervour inducedby an outright state of war, and which rna,.smoulder Its way along for a considerabletime. Moreover, unlike 1939, the UnitedStates with its vast resources is not lagginga year or two behind, but is intbe foretrontot an active policy to promote peace bystrength. Present conditions do not call forany interim period of easy financial policy;they require, on the contrary, a prompt andeffective antl·in~atlonary program. '

The defence program and the foreignpolley now before the house commit us toan approximate doubling of the rate of ourexpenditures on detence and on military pro­duction. This means that our defence pro~

gram, including north AUantic aid, must layclaim to twice as much of the materials,equipment, skills and energies that com­prise our productive resources. There isnot this much slack in our economy anddespite all we can do by way of increasedproduction some part at least ot thIs Increasein the claims of defence will have to be metby postponing or foregoing goods and ser~

vices that we as a communlty ml.ght other­wise enjoy.

The impact ot our enlarged detence pro­gram will confiict much more sharply withcapital investment than with ordinary day-to:.day consumer goods. We have had tour:years ot intense capital investment and the.current rate of construction and Investment.is at an all time high. Indeed, it was chiefly­the further sharp upswing in the capltaJ'.Investment and construction boom in t~

second quarter of this year that gave ri~

to the renewed inflationary pressures bothhere and in the United States. A large frae­tion of our addltlonal defence expenditure.

of psychology and behaviour. A moderateinflationary stimulus, by reacting upon con_sumers' [cars and businessmen's expectations,may pyramid sharply in the form of a rushof consumer buying and a building up ofindustrial and commercial inventories ofmaterials and supplies.

The root cause of any sustained inflationis the existence or a ftow of spendable incomethat is greater than the flow of goods andservices available at current prices. Whenthis disparity occurs the spending of thisflow oC excess income bids up the prices of theavailable supply of goods. The surest wayof forestalling inflation Is, therefore, to in4crease, if possible, the flow or available gOOdsand, it necessary, to siphon oft the ftow otexcess income.

- d The fundamental anti-inflationary policy is10 maximize output, minimize waste and fol­Iowa pay·as-you·go policy. Part of the extradefence effort can be covered by making fulluse of productive resources that a~ at presentidle and not tully extended, but there Isnot a great deal available here. A further partcan be met by eliminating all forms of wasteand stepping up efficiency and output, andI think we can do Quite a bit here. But somepart will have to be met by forgoing otherforms of expenditure. The more we as a peoplecan increase efficiency and output the lesswill be the real burden of these addeddefence costs.

A pay_as4you4go policy means that we asa government must fully and amply coverthe whole of our expenditure by taxationand other budgetary revenues. In the presentcircumstances of high employment and activebusiness Ihis is the only honest financialpolicy. To plan to do less than this wouldbe both irresponsible and a fraud on thepubllc.

We are being pressed and urged by manymembers of the house to resume a polley otcomprehensive direct controls, to Impose over­all price ceilings and to reintroduce sub­sidies. The Prime Minister has already toldthe house that we do not propose, underconditions as we see them, to embark uponsuch a course at this time. I have alreadysaid that direct controls, ot themselves, donot cure anything; indeed, they may ottendo more harm than good. At best directcontrols can do little more than contain fora time the pressure of demand; the)' do notreduce those pressures, nor do they go tothe root of the matter. Their proper roleis to support and buttress or, 1t you like, toprotect the ftanks of fiscal and monetarypolicy when we have reached the point otthe practical limib of taxation.

4" HOUSE OF COMMONSTile Budget-Mr. Abbott

will be going into construction and retoolingand inlo the production of equipment thatwill require large quantities of steel, basemetals ana building materials, and whichwill make heavy demands upon skilled. man­power. It will compete with, and wherenecessary it will have to displace non-essen­tial investment.

As soon as the scale or increase necessaryin the dc!C!nce program .became evidentearly in August, the government issued direc­tions that all other expenditure programsshould be re-examined to see what could andshould be reduced or dererred, particularly

.construction pr.ojects and major purchases of"equipment. Most of our. construction pro­jects tor this year were, of course, already

~iJ.Dder way, and it has b~n d~9ded that it~,vou1d be economical to finish nearly all of"these' where work has started or contracts-ha~e been let. It appears, however, that it:,will be: feasible to def~r a g~ many ~':Ojects:u- malor purchases in varIous departments.

'In addition, by reason ot'dimculties in secuc4btg sites, preparinc plans': and placin& con·;tracts at reasonable prices,' the construction~pro£ram as a whole will be held substantially'rbelow the total provided in the estimates.. This is not the only field in which activities~nd. expenditures an bein, re-exa(l'llned inthe light ot present priorities, and I expectthat we shall be able to. cut down ~rtain

operating programs and make other econo­mies, apart trom capital projects. I canassure the house that this search tor econo­mies will be pressed forward, and that inpreparing the estimates for next year a'rigorous standard of essentIallty will beapplied.

With similar consideraHons In mind I urgepublic authorities and private business toreview carefully thC!ir C!urrent and future con­struction and investment projects and to keepthem within the limits of immediately essen­tial undertakings.

It may be said that these large addItions toour defence expendIture do not appear solarge when put agaInst our total national.production. In one sense that is true. Adoubling of our previous defence programis the equivalent or laying claim to an addi­tiona13 per cent of our ,rou national produc­tion. A 3 per cent additional claim when'there is a good deal of slack in the economywould have little or no inflationary effects,but imposed upon an eCQnomy already fullyemployed it would be likely to produce in8a4tionary pressures unless counteracted by suchmeasures as we propose.

But inflation is not just a matter of arith­metic and ·percentages. It 1s also a matter

[),fl'. Abbott.)

The royal commission on prices in its reportlast year reached the same general conclusionwhen it said:

General price control should not be relied uponas an importsnt instrument for stabllizlna: pricesIn peacetime.. . Selective prIce controls may beU$<!ful In exceptional eases. Price control In anyform. however. is no substitute for action desllrJledto bring over-all demand Into line with over-aU5upply. It disguises lnflation. It does not removethe cause of the trouble.

In the second place, while it is true thatdirect con lrols can be begun on a selectivebasis, it is also true that if the inflationarypressures are sustained they have to beextended rapidly until they embrace almostevery aspect of the economy-prices, wages,salaries, supplies, production, distribution,allocation and rationing. A policy of directcontrols of necessity develops an appetite thatgrows by what It feeds on.

Finally, a widespread system of direct con­trols, no matter how skilfully and honestlyadministered, requires a huge and burdensomebureaucracy. People do not like controls,and we have to recognize the fact that. exceptin times of great crisis, they will resist them,evade and circumvent them. You cannotreally enforce such controls upon an unwillingpeople; but during the war when we livedin the shadow of death, the people respondedwith an overwhelmingly voluntary approvaland support of this regimentation.

Moreover, while such controls will beaccepted and can be effective in a great crisis,they must be reserved for such periods.Under less severe conditions, direct controlsof prices, wages, production and distribution-and they are inseparable-are incom­patible with a free society and a free econ·omy. I confess to some surprise when someof my hon. friends sincerely and vigorouslyoppose a degree of compulsion in the deter­mination of railway wages one day and thenext advocate the reintroduction of directcontrols. In principle I share their reluc­tance for the former, but I cannot followeither their enthusiasm or their logic inthe latter.

Finally I would say, without detracting Inany way irom the magnificent wartime jobdone by Mr. Donald Gordon and his asso­ciates, that the success of the wartime pricesand trade board would have been impossiblewithout three things; First, the fact that wepursued a vigorous anti-inflationary policyof maximum possible taxation supported byIntensive savings campaigns; second, that theUnited States during the war years followedpolicies similar to our own~ and third, over­Whelming public support. The hon. memberfor Roselown-Biggar has suggested that we

SEPTEMBER 7. 1950The Budget-Mr. Abbott

can act independently of what goes on inthe United States and tie referred to thedivergence between Canadia,n and Americanprices in 1946 and 1947. I can tell himfrom the personal knowledge of one who hadthe political responsibility during mueh ofthat period that the abrupt removal of ColVo

troIs in the United Sta'les in mid-1946 tre­mendously increased both the technical diffi­culties and the financial cost of our policyof orderly decontrol and it was only by avery narrow margin that we avoided a com~

plete collapse of our efforts and managed tocarry through an orderly retreat.

The royal commission on prices, If I ·mayquote Its report again, recognized this factwhen it said:

The fact that the government could hold Canadianprices down. even for a short period. while UnitedStates prices were rising, has led many obs:erveI'll toconclude that prlce~ could have been held indefi­nitely at levels roughly approxlmaUng those of1945. The evidence submitted by the Officials mostconcerned suggesl.!l strongly that :I continuation 01controls on a Beale necessary to accomplish thaobjective would have led to Insuperable problems 01adminIstration and errlorcanent. The wartime con­trols were effecUve not only because the disparitybetween Canadian and United States prices wurelatively small during the war but beca\.lAe 01 OVt!l'­whelming public support.

But despite all these difficulties and vicis­situdes our prices and cost ratios emergedirom the post-war readjustments at notunreasonable levels, and by 1949 we appearedclose to achieving a new and reasonablysatisfactory equilibrium. It is a part of thetragedy of our time that just as we seemedto have this new equilibrium within our reachwe should be forced suddenly to shift ourbalance.

As the Prime Minister has already stated,the government's policy Is to counter theinfiationary pressures that may be generatedbJo' our expanded defence program primarilyby fiscal measures supported by such othermeasures as are appropriate.

By not recognizing recent increases in cosuwhen establishing the lending values of newhouses, the Central Mortgage and HousingCorporation has already taken action to limitthe dollar value of its housing loans. Thismeans that the house builder or buyer,financed by the corporation, now has to pro­vide in a higher down payment the increasedcost of building materials and labour that hasoccurred in the past few months. In somecases this may mean a decision to postponebuilding and, if so, the pressure on construc­tion materials and labour will be lessened­a field In which defence requirements will beparticularly heavy. In other cases the higher

and dangers that will seriously prejudicedefence. While each country must take itsown appropriate steps to neutralize Infiation_ary pressures originating within Its ownborders, we cannot escape the fact of thedominant infiuence of the United States, andtile effects which its economic behaviourhas on all other countries. For this reasonwe welcome the statements 01 policy on thispoint that have been made by the Presidentof the United Sta tes.

The increased defence expenditures beingthrust heavily upon every country by thesenew manifestations of Russian imperialism,now open and unmasked, call for soundeconomic policies; and it is the duty of everycountry to deal promptly and effectively withthe in8ationary pressures generated within itsown jurisdiction.

I now come back to our own position. AsI have already explained, our revenues forthis year under the present tax structure areestimated to be $2,610 million, and I haveestimated our expenditures at $2,654 million.On this basis our prospective deficit wouldbe $44 million. It is therelore my duty topropose to the house prompt 'and effectivemeasures which will cover fully our antici­pated expenditures for this current year.

'My first proposal relates to the tax on cor­poration profits. At present the rate is 10per cent on the first $10,000 and 33 per centon the remainder. It is proposed that boththese rates be increased by 5 per cent, thatis, to 15 and 38 per cent respectively. Thischange will come into effect 'as of September1 and will therefore apply to a proportionatepart of the profits of any company having afiscal year ending 'Bfter th'Bt date. I estimatethe increase in revenue from this change willbe $13. million during the remainder of thisfiscal year and $85 million in a full 12 months

.period. I am proposing no other changesin taxes affecting corporation profits, nor doI propose any changes in the personal incometax.

We have, of course, given thought 10 sug­gestions that we should reintroduce an excessprofits tax, but I think members in all partsof the house who had· experience with ourwartime excess profits tax will agree that sucha tax is not desirable under present circum­stances. To be efficient and fair an excessprofits tax needs a recent base period repre­senting normal operating conditions forvarious classes of business, and a tax relatedto the average profits of the last three yearswould not be likely to yield much revenueduring the next year or two. But the moreImportant objection at this stage Is that anexcess profits t'BX, particularly one at a high

<22 HOUSE OF COMMONSThe Budget-Mr. Abbott

down payment will absorb current purchasingpower and reduce the mortgage on futureincome.

In the matter of farm improvement loansthe policy will be to reduce the proportionof the proposed expenditure financed underthe act and to accelerate the repayment ofsuch loans in a reasonable and practicablemanner.

Another move in the same direction is thedecision we have made to introduce a billempowering the government to limit the useof consumer credit. During the past two yearsthere has been a very rapid expansion in thevolume of instalment buying and other formsof consumer credit. The size of down pay­ments has been decreasing and the time overwhich payments are spread has been lengthen­ing. The infiationary effects 01 these methods01 anticipating the use alone's income areuniversally recognized. We shall be askingparUament to authorize the government toimpose Umltations on this fonn of creditexpansion in the interests of economic stabil­ity and in carrying out its responsibilitywhich the federal authority must assume lorthe regulation 01 currency and credit.

These and such other indirect controls asmay become appropriate will support ourmain policy of a fully balanced budget, andthe program as a whole w1U attack incipientInfiation at Its source. In this way, and cer­tainly at this stage in our al'falrs, a greatpanoply of direct controls with all theirregimentation, bureaucracy and arbitrarydecisions can be avoided. My colleague, theMinister ot Trade and Commerce, will, how­ever, be asking parliament for special stand­by powen to direct distribution of essentialmaterials, il and when necessary in orderto meet both increasing defence requirementsand essential civilian needs. I do not propose,however, to expand upon the nature of thisbill at this time.. Every corporation, organization, institution

and individual can serve both its own andthe common interest by following similar and~nsistent policies. We as a government will~ndeavour to keep our house in order. Ifothers will do the same these new inflationarypressures can and will be neutralized.

.It will, of course, be clear th-at no one coun­iry can fully insure itself against inflationarypressures th-at have their origin outside itsown borders. In the international spheregreat progress is under way in matters otdefence, through the North Atlantic treatyorganization, to ensure security throughective collaboration. It is important thattnis progress ,be matched in the economic andfinancial fields i! we are to avoid difficulties

(Mr. Abbott.]

In selecting the particular measures torecommend to the house we have tried to takeno action that would cause any significantIncrease in the costs of the day-to-day essen­Ual items of consumer expenditure. For thisreason I do not propose any change in eitherthe rate or the application of the general sale:stax; although I should point out, in passinr,that our present sales tax, particularly wIthits almost total exemption of food, fuel andbuilding materIals, does not deserve manyof the criticisms that have been levelledagainst it. The commodity tu increases thatwe are proposing will fall on less essentialroods or goods which lie more on the fringethan at the core of our basic standard of liv­lng, and in most cases they are the kind ofroods the purchase of which can usually bepostponed.

We are asking the house, therefore, toIncrease to 15 per cent the rate of tax on aUgoods now subject to the additional 10 percent, and we are also asking the house to addto the list of goods subject to this extra 15 percent tax. The list of goods to be added tothis 15 per cent tax group includes householdelectrical appliances (but not stoves, washingmachines or refrigerators>, motorcycles, andcertain items of sporting equipment. Thecomplete list Is gIven In the resolution. Thesecommodity tax changes will produce increasedrevenues of $17 million this year and $34mlllion in a fun year.

Finally, in seeking sources of revenue whichare both fair and productive we have returnedto soft drinks. candy and chewing gum. Irealize that these taxes will not be popularin many quarters, but having regard to thetimes in which we live I am satisfied that itis fair and just to ask these forms of con·sumption to contribute substantially to ourdefence requirements. I propose, therefoN!.a new tax of 30 per cent on tbe manufacturers'

SEPTEMBER 7. 1150The Bud"et-M,.. Abbott

of a multiplidty of classes ot commoditiesand rates of tax we rearranged all commodi·ties and taxes into three broad groups. FiTst,there was the group consisting of beer, wine,spirits and tobaccos with special and. veryhigh rates of tax; second, the general salestax; and third, a group of commodities,including radios, motor cars, tires, furs, jewel·ry, cosmetics and so on, which are subj@ct10 an additional 10 per cent tax. At thattime I said that this rearrangement andsimplification gave us "a commodity taxsystem in which adjwtments to varying fiscalrequirements can be made by adding to orsubtracting from the list of goods covered, orby raising or lowering the general ratesapplicable". Our fiscal needs now make itnecessary to derive more revenue from thisfield.

rate, becomes an invitation to extravap.nceand waste In corporate management, whereas,as I have already said, what we need mosturgently now is maximum efficiency and pro-­duction. I have no doubt that all hon. mem·bers know or will have heard of cases of suchwaste -.and extravagance. Furthermore, inspite of our best efforts to make an excessprofits tax as fair as possible there are boundto be severe inequities under this kind oflegislation. Under conditions of total war,malt.)' bwlnesses would be compelled toaccept these inequities and hardships. I amreluctant, however, to impose tbis severetype of re,ulation under present cfrcum·stances.

I should also pornt out that there are pro­vincial corporation income taxes, and that thetotal income tax payable by corporations inthe two central provinces will be 22 per centon the first $10,000 ot taxable Income and 45per cent on the remaInder. These are veryhigh rates both on total profits and' on anyincreases In profits. For such reasons asthese, we have come to the conclusion thatan excess profits tax under present conditionswould be neJlher economically sound norfiscally lUie!ul.

I have proposed no increases in the personalincome tax because I realize that the cost atliving has gone up about 3i per ce-nt duringthe past 12 months and there can be noabsolute assurance that there may not besome further increase in prices. Moreover,I wish to avoid increasing any taxes that willin any way discourage production, efficiencyand output. While our rates of personalincome tax are far below their wartime peaks,they are still no easy burden, and I feel thatwe should hold this Important source ofIncreased revenue in reserve.

In the second place I propose someincreases In the taxes on alcoholic beverages.The resolutions I am tabling provide for anincrease of $1 per proof gallon on spirits and5 cents per pound on malt used in the produc·tion of beer. This will increase the presentrates to $12 a gallon and 21 cents a poundrespectively. Equivalent changes wlll bemade in the customs duties on these items.These changes should yield an increasedrevenue of $10 mUlion during the remainderof this fiscal year and about $22 million in afull year. I am not proposing any changesin tobacco taxes, which are already very hilh.American rates of taxes on tobacco are mucblower, and we wouldl face considerable dim·culUes if we further widened this difference.

I tum now to commodity taxes. Hon. mem­bers will recall that in the budget of March,1949, we ,ave effect to a drastic simplifica·tion of our commodity tax structure. In place

Income Tax ActResolved. that It is expedient to IntrodUce _

measure to amend the Income Tax Act and toprovide:

That in respect ot Income ot a corporation tromand lifter S<!ptember 1, 1950, the rate ot tax be in_creased trom 10 per cent to IS per cent on Incom_not In exceu ot $10.000 and trom 33 per cent to 38per cent on Income In excess ot $10.000.

Excise Tax ActReS<llved. that It Is expedient to Introduce a

meaSUre to amend The Excise Tax Act and toprovide:

1. That the excise tax on toods mentioned InSchedule I of the act that are at present subject to­the rate ot ten per cent be Increased to fifteen percent.

2. That th(!re be Imposed, levied and collected lln

excise tax of lI.t~n per cent on the followln,:(al electrical appllances and equipment adapted

to household use. viz.. blankets: chall.n, dishes;

Mr. Abbott: In New York, yes. It was aNew York loan that was being refunded;

We hope that developments in internationalaffairs during the next two or three yearswill not require us to increase our commit­men,ts much beyond the scale already envis­aged. 'The revised tax structure I have out­lined this evening will yield us revenues otabout $2,800 million in a full year. This isno -light burden but it is within our carryingcapacity and is not, I believe, at a levelwhich would produce a serious impairmentpt initiative and production. If, despite allour effol'ts, turther ,burdens come our waywe sha-ll still expect to follow a pay-as-you-gopolicy to the-.practicable limits of its applica­tion. It is by following a' sound and honestpolicy of this sort that we shall contributemost effeetively in our financial policies tothe three objectives I have mentioned­national security, political and personal free­dom, and economic strength and stability.

I wish to table now ,the budget resolutions:

opmental expenditures which we would Uk"to undertake and whieh would be sound long_term inveslments. but which will now haveto yield place to expenditures which willcontribute more directly to our nationalsecurity.

Our budgetary position is strong and ourcredit rating never stood higher. Hon. mem­be:-rs will have noticed that last month wewere able to call a $100 million 4 per ceMloan in the United States ten years beforeits due date and ,payoff half of it in cashand to refund the remaining $50 million on a2S-year basis at a net rale of about 2·69per cent. I am informed that no foreil~'ll

loan has ever been placed in ·the New Yorkmarket on as favourable terms.

Mr, Smi.lh (Calgary Wesll: Payable InNew York?

34.400.00024.000.00024,000.000

Total .. , "., ".. $58.900,000 $l89.SOO.ooo

Mr. Smith (Calgary WIl5Il: Did the ministermenrtion ice cream with the soft drinks?

Mr. Abbott: No. That was under the generalsales tax. It was never included in thespecial 10 per cent bracket.

Mr, Cruickshank: Is there any tax onmargarine?

Mr. Abbott: No. After giving effect tothese changes I estimate our total budgetaryrevenues for the year ending Mareh 31, 1951.at $2,669 million, and it expenditures do notexceed the $2,654 million referred to earlier,I shall expect a small surplus for the yearof about $15 million.

In conclusion may I emphasize the strongand healthy position of the Canadian econo­my and our undoubted capacity to meetand carry the responsibilities with whichwe arc faced. The new demands which arecoming upon us are substantial and willrequire us to postpone some of those devel-

IMr. Abbott.)

~n:cre~ Rev'enues From Proposed Tax Chantes

Remainderof Current In a FullFIscal Year Year

Corporatlon Income tax $13.500,000 $ 85.000.000Alcoholic beverages 10,100,000 22.100.000Special excise taxes at U per

cent ". 17,300.000Soft drlnlu "" "." 8,SOO,000Candles and chewing gum.".. 9.SOO.000

HOUSE, OF COMMONSThe Budget-Mr. Abbott

selling price ot all soft drinks, candies andchewing gum. It is estimated that this willadd 1 cent to the cost of those commodities inthis class that now retail generally at Scents.The revenue we shall derive trom this laxis estimated at $18 million during the re­mainder of this fiscal year, and $48 millionin a full year.

Under the terms of the resolutions I amtabling all changes in commodity taxes willbe effective as from midnight tonight, ;lnd theincreased rates of corporation income tax willapply as from September 1, 1950.

All these tax changes add up to an increasedrevenue of about $59 million during thebalance of this fiscal year, and will produceabout $190 million in a full year. For theconvenience of hon. members and with theconsent of the house, I should like to insert inHansard at this point a short table whichsummarizes the revenue effects of all my~roposals.

Mr. Speaker: Is it the pleasure ot the hoilsethat the table be placed on Hansard?

Some han. Members: Agreed.

Mr. AbboU: The table is as follows: