December 2, 1940

WAR MATERIALS

REPORT AS TO ESTABLISHMENT OF CHEMICAL PLANT IN SASKATCHEWAN


On the orders of the day:


CCF

Alexander Malcolm Nicholson

Co-operative Commonwealth Federation (C.C.F.)

Mr. A. M. NICHOLSON (Mackenzie):

I should like to address a question to the Minister of Munitions and Supply. The Saskatoon Star-Phoenix of November 28 carries an Ottawa dispatch to the effect that the government is considering establishing a six million dollar chemical plant at Blad-worth, Saskatchewan. Has the minister any statement to make in connection with this report?

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LIB

Clarence Decatur Howe (Minister of Munitions and Supply)

Liberal

Hon. C. D. HOWE (Minister of Munitions and Supply):

I said in the house a few days ago that I knew nothing about this project. I received a notice of my hon. friend's question a few minutes before I

War Budget-Mr. Ilsley

came into the house, and I telephoned to two or three of my officers, but they knew nothing about it. I am afraid I cannot give my hon. friend any information.

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WAR BUDGET

PROPOSALS OF MINISTER OF FINANCE FOR CONSERVATION OF FOREIGN EXCHANGE

LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Hon. J. L. ILSLEY (Minister of Finance) moved:

That Mr. Speaker do now leave the chair for the house to go into committee of ways and means.

He said: Mr. Speaker, I wish this afternoon to propose certain measures having for their purpose the conservation of foreign exchange for the purchase of essential war-time imports.

The house will remember that in the last budget a careful review of our foreign exchange position was given and certain measures were recommended for the purpose of increasing our receipts of foreign exchange and cutting down our use of it for non-essential purposes. At that time it was indicated that certain other measures would have to be adopted as and when circumstances seemed to make them necessary. Some further action has already been taken but the time has now come when other substantial measures are required. In order to enable the house to appreciate their necessity, it will be desirable for me to run briefly over our foreign exchange policies since the war began and to indicate the position at which we have now arrived.

First, however, let us recall the nature of the problem. Foreign exchange means, essentially, the money of other countries, with which we can buy goods in those other countries or make payments to people there. It is not like our own money, subject to the control of our national government. We can only obtain it by selling things to other countries, or by getting payments from them for services rendered, or by borrowing it. We cannot simply go and buy it with our own money. People in other countries cannot use Canadian money for their own internal transactions and naturally they do not want it merely to keep or to hoard-they want it only to buy things in Canada, or to make payments in Canada for services rendered to them by Canadians. Consequently, if we face a shortage of foreign exchange as a result of normal commercial and other transactions, we must bridge the gap between receipts and payments temporarily by using up our reserves of accumulated foreign exchange, for example, our bank balances in foreign countries or our gold reserves, or by selling foreign assets for foreign exchange. We can only reduce this drain

upon our reserves, this gap between receipts and payments, either by selling more to those in other countries, or by buying less from them, or by suspending payment of our obligations to them or by borrowing from them. There is no other or easier way. The individual who wants foreign exchange can go and buy it- if he wants more he pays for more-but the total amount available to other Canadians is correspondingly diminished. The country as a whole can obtain more only in the ways I have described.

Formerly, one could freely convert one kind of foreign money into another so that we could, for example, use a surplus of pounds sterling to get American dollars merely by selling the sterling exchange in New York. We used to do that before the war but it is no longer possible. We cannot to-day convert our surplus supplies of sterling into the American dollars we require. For that reason, as you will recall, a large part of our surplus sterling has been used to repatriate Canadian securities held in Britain so that Britain could get Canadian dollars, in exchange for sterling, without sacrificing too much of her precious reserves of gold and American dollars. Because we cannot convert funds from sterling into American dollars, our foreign exchange is now really divided into two fairly separate fields: sterling currencies, including sterling itself and other empire currencies-with minor exceptions-and, on the other hand, what we call "hard currency", including mainly American dollars and the other foreign currencies which in practice we have to buy with American dollars and which we can sell for American dollars. It is the "hard" currencies I mean to-day in talking about foreign exchange. They constitute the problem, and not sterling of which we have plenty from the proceeds of our exports to Britain and the empire.

Turning now to a review of our exchange policies it will be recalled that exchange control was instituted on September 16, 1939, within a week of our entry into the war. It was introduced primarily because the nature of our war-time foreign exchange difficulties- the scarcity of American dollars and the surplus of sterling-was foreseen and it was realized that control would be necessary to solve this problem. Furthermore, and of greater immediate importance, it was vitally necessary to guard against the danger of a substantial outward movement of capital from Canada. Residents of other countries have very large investments in this country, and neither in their best interest nor in ours could a large volume of such investments be allowed to be dumped on the Canadian market under war-time conditions. Even Canadians

War Budget-Mr. Ilsley

themselves might have been tempted to invest part of their funds abroad as a personal hedge against the risks of war, or to speculate on the New York market. Any substantial export of capital, whether by Canadians or others, would have had two bad effects, both very serious. First of all, it would have used up our reserves of foreign exchange, as it is necessary to buy foreign exchange in order to export capital. We needed that foreign exchange to buy war-time imports from the United States. Secondly, it would have used up Canadian savings during the war, because someone in Canada would have had to buy the securities or other assets that were sold in order to export capital. We needed all our Canadian savings to help us finance the war.

The foreign exchange control board was established to carry out the control. The success of this control owes a great deal to the efficient organization which has been built up and to the very wholehearted cooperation that has been forthcoming from businesses and individuals both in Canada and in the United States, nearly all of whom have striven to observe both the letter and the spirit of the law.

The general policy followed in exchange control, up to June last, was simple in essence, though necessarily complex in application. It involved no restriction of import or export trade, of tourist trade, of the payment of interest or dividends or other current buisness transactions as distinguished from those on capital account. On the other hand, the board refused to provide exchange for the export of capital from Canada except within certain narrowly prescribed limits, and with certain exceptions for capital that had been invested in Canada after control was established. In order to carry out this restriction of capital movements it was of course necessary to scrutinize all dealings in foreign exchange and foreign trade by Canadian residents.

The board has attempted to avoid placing direct restrictions on the Canadian assets of persons living outside Canada and has not, for example, blocked the bank accounts here of non-residents, but has continued to permit non-residents to transfer them from one to another. It has been necessary, however, to place restrictions upon transactions between residents of Canada on the one hand and non-residents on the other hand, and this has restricted the sale of Canadian securities to Canadians by non-residents.

I should like to interject here that in dealing with the problem of foreign exchange and in administering foreign exchange control, we have tried at all times to accord fair and honest treatment to the residents of friendly

countries. The paramount consideration is and must remain the effective prosecution of our war effort; and we have inevitably had to adopt certain measures which adversely affect the interests of non-residents. But we have avoided that type of measure which could be characterized as "taking it out of the foreigner". Callous disregard of the interests of friends who have trusted us would not only be bad in principle; it would be contrary to our own interests in the long run. I hope and believe that when the war is over all who have a stake in Canada, whether they are residents or non-residents, will be able to say that the war burden was fairly apportioned and that Canada is a country with which anyone might be proud to march into the new fields of development and constructive endeavour which we hope will open before us when peace returns.

At the end of April a further important step in exchange control was taken in order to place all our available liquid supplies of foreign exchange-but not such foreign assets as securities-directly under the control of the foreign exchange control board. This was done by the foreign exchange acquisition order which required residents of Canada to sell their holdings of foreign exchange to the board for payment in Canadian dollars. This included the Bank of Canada, which sold its gold and exchange to the board. Those who required a stock of exchange to carry on their normal business were permitted to retain enough for this purpose.

It was as a result of the budget in June last that the first measures were taken to restrict the use of exchange for other than capital transactions. By that time our imports from the United States had increased a great deal and the total payments made in hard currency for imports and other purposes was greater than the supply of hard currency that we were obtaining from our exports, tourist trade and sale of newly mined gold. The means adopted at that time to save exchange were the war exchange tax of 10 per cent on all imports except those from sterling countries, and the special progressive excise tax on automobiles. The war exchange tax, the principal measure, applied to all imports for which hard currency exchange was required and did not attempt to discriminate between essentials and non-essentials. The tax on automobiles applied to those produced in Canada as well as to those imported, but fell particularly upon the more expensive types which were made up much more largely of imports.

In July, shortly after the budget, a further measure was taken in the form of a decision

War Budget-Mr. Ilsley

not to sell foreign exchange to Canadians for pleasure travel abroad. We were reluctant to do this, because we naturally wish to promote as much contact as we can between Canadians and their friends in the United States. Nevertheless, at this time the flow of American tourists to Canada was seriously disturbed by the confusion attending the sudden introduction in the United States of strict regulations concerning the entry even of tourists to that country and it was also disturbed by what appear to have been malicious rumours, spread possibly by enemy agents, concerning the restrictions and inconveniences they might experience in war-time Canada. With this reduction in our receipts of foreign exchange from the tourist trade coming on top of our previous scarcity of American dollars, we felt it was necessary to ask Canadians to give up the use of foreign exchange for non-essential pleasure travel outside of Canada.

It is estimated that this measure alone will save us approximately sixty million dollars in a full year, a figure which indicates its importance.

These were the measures taken to restrict the use of foreign exchange. We have also acted on the other side, by trying to increase our supplies of foreign exchange. First, in regard to exports in general, the Department of Trade and Commerce has been persistently searching for markets in the United States and elsewhere for Canadian goods, both primary products and manufactured products. Their efforts in this field are most recently exemplified by the present trip of the trade delegation, headed by my colleague, the Minister of Trade and Commerce (Mr. MacKinnon) to Latin America and the West Indies. In addition, the foreign exchange control board has gone to great lengths in arranging its controls so as to facilitate export trade as much as possible.

We have also stimulated the provision of exchange by gold production. My own department as well as the Department of Mines and Resources has kept closely in touch with the gold mining industry since the beginning of the war, and has impressed upoh the industry the need of maintaining and increasing gold production. Particular provisions were made in the Excess Profits Tax Act to ensure that that tax would operate in such a way as to encourage the expansion of gold production. My predecessor in his June budget speech made a special appeal to the industry to increase its production. Finally, in July, I arranged a conference between representatives of the industry and several other ministers and myself to see that everything was being done which could be done to ensure

maximum production, including the recognition of gold mining as an essential war industry.

Finally, and probably most important, we have endeavoured to maintain and extend our tourist trade, which is a very large source of foreign exchange. The work of the Canadian travel bureau has been expanded. A much larger and I think more effective advertising campaign in the American press was carried on. Strenuous efforts were made to coordinate and assist the work of the various organizations in Canada dealing with the tourist trade. And last but far from least we obtained the enthusiastic support of a number of local organizations, which helped a good deal not only to attract tourists to Canada in the first place but to promote realization of the need to see that they enjoyed themselves when they were here. I can assure hon. members that during the next twelve months no stone will be left unturned to assure the maximum receipts of foreign exchange by the promotion and development of this important industry.

The various measures we have taken have held down the deficit between our receipts and payments of foreign exchange but they have been outweighed by the continuous pressure of war-time demands increasing our imports from the United States. During the months preceding the outbreak of war our imports from the United States were in the neighbourhood of $40 million a month. For the past six months they have averaged $65 million, and in October they reached as much as $74 million. Our exports to the United States have increased from a level of around $27 million a month preceding the outbreak of war to the neighbourhood of about $40 million a month in recent months. Consequently, we have now a very large surplus of imports over exports, though the extreme figure of $35 million in October is undoubtedly abnormal. This deficit in our trade with the United States will this year be offset only to a small extent by a surplus on current account with other hard currency countries.

Of course there are other items in our balance of payments on income account which have to be considered in addition to merchandise trade. We are producing and selling to the United States newly mined gold in an amount which will probably reach or exceed two hundred million dollars this year, and I make no excuse for laying it as a patriotic obligation upon our gold-mining industry to increase that amount next year by every means known to the able and experienced operators of that industry. Then we have a substantial net balance of receipts from the tourist trade which is more difficult to estimate. In this connection I may say that the experience of the foreign exchange control board appears to indicate that in the

War Budget-Mr. Ilsley

past our net tourist receipts have been overestimated. But even after making a substantial allowance for such' overestimate, it is now quite clear that our net credit resulting from this trade during the present year will be substantially smaller than last year. We must, and I am sure we can, do a great deal to increase it by a very substantial amount during the coming year. On the other hand we have a substantial net debit on account of interest and dividends, amounting to something more than the value of our gold production. We have also a net payment of about fifty million dollars to make for freight charges and miscellaneous services.

While the inclusion of these four additional items may alter somewhat the picture presented by the balance of trade itself, nevertheless it is clear that we have a substantial debit balance in our current account transactions with hard currency countries, which under present conditions we cannot hope to see offset, except to a small extent, by the normal credits on capital account resulting from, say, the purchase of Canadian securities by foreign investors.

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Subtopic:   PROPOSALS OF MINISTER OF FINANCE FOR CONSERVATION OF FOREIGN EXCHANGE
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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

Has the minister made an estimate of what the deficit will be?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

No. I do not feel that I should indicate that to the house or to the country.

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

We shall have to guess at it.

Topic:   WAR BUDGET
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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Very careful consideration has been given the question of the desirability or the possibility of giving that information to the house. It would involve stating exactly what our loss per month is in foreign exchange, which it is not desirable to make public.

For a complete understanding of the problem, the current drain on our exchange should of course be considered in the light of existing resources. You will not, however, expect that I should disclose the amount of our accumulated resources of gold and foreign exchange, a piece of information which would be of obvious interest to the enemy. These resources are being used and will continue to be used to ensure that our war effort is at no point thwarted. In the opinion of the government, however, they cannot reasonably be used to facilitate the continuance of non-essential imports. Nor do we believe that we would be justified in mobilizing and liquidating the substantial volume of foreign securities which are owned by our people, until at least a serious effort has been made to restrict our consumption of such non-essential imports.

From this review of the problem as it exists to-day and as it has developed, it will, I think, be clear to all hon. members that we must immediately take further steps to curtail the use of hard currency exchange in the purchase of non-essential imports.

I wish to emphasize, however, that we have no desire or intention in the measures which we must take for war purposes, of implying any permanent change in our normal trade policies, the principles of which are well-known.

I must also point out that while we are temporarily compelled to restrict certain imports from our friendly neighbour to the south, this does not mean that our total trade with, or our total purchases from, that country will be reduced. On the contrary, our imports from the United States will certainly show a large increase next year over this year, and will be larger than ever before in our history. All that will happen will be a shift in the character of our imports-a reduction in non-essential imports for non-war purposes in order to make possible a substantial increase in our purchases of vitally needed war equipment and supplies. We regret the disruption which will necessarily occur in certain established trades across the border, but we are confident that any loss of a direct Canadian market which certain United States producers will suffer will be more than made up by an expansion in domestic purchasing power resulting from our purchases of war equipment and supplies in the United States market.

Having determined that the restriction of imports and non-essential goods is necessary, we must answer two further questions. What method shall be used for this purpose, and what imports shall be selected?

Regarding the methods to be used, the various possibilities have been the subject of study for some time. The method of tariffs or even of the type of tax which was used in the last budget was not considered appropriate for the drastic type of restriction programme which is now required. A second method is that of quota restrictions, which has been used a great deal in other countries, and notably in Europe, but by Canada scarcely at all. This method has much to be said for it when restriction must extend to essential goods and to raw materials which are to be used in industrial processes. In these cases some imports must be permitted and complete prohibition is therefore out of the question. Nevertheless, the use of quotas requires an enormous amount of administrative work and machinery, and a considerable degree of arbitrary action in awarding quotas to various importers. We considered it for a time in connection with a number of products. We

War Budget-Mr. Ilsley

have finally decided not to use it in any formal manner but to apply the principle in some degree temporarily in connection with two or three classes of imports which are processed in Canada and where some time will be needed for these processing industries to adapt themselves to other materials. We have decided after much consideration to rely for our major savings upon the method of outright prohibition of a large number of what we consider, and I think the house will consider, imports that are not essential under present circumstances. This method will not require any elaborate machinery for its administration, nor will it involve any discrimination between importers in the awarding of quotas.

The selection of the non-essential imports is by no means an easy task in a country such as Canada which imports so many thousands of things. Our whole economic structure is dependent on the use of imports in nearly all its parts. Therefore it has been necessary to study very carefully the probable economic and social effects of curtailing the imports of the various articles which might be judged non-essential at first glance. In making up the list of goods to be restricted, the following principles have been borne in mind:

The articles prohibited should be such as consumers can legitimately be expected to do without in war time or for which their requirements can probably be met from the durable goods which they already have on hand.

The list should include finished goods rather than raw materials or parts or equipment for Canadian industries so that disturbance to Canadian industry and to those employed in it will be kept to a minimum.

Wherever possible, goods used by the well-to-do rather than those used by the mass of the public should be restricted.

The items should be such as to require a minimum of administrative machinery and action in order to carry out the restriction.

These principles have been followed in making up the list of imports to be dealt with. I may add that the task of compiling the list has been made somewhat easier by the fact that many of our imports of consumers' finished goods represent not essential supplies of the particular items but rather additional, and in many cases, superfluous varieties.

When we are in committee of ways and means I shall move two resolutions. The first of these resolutions precedes the introduction of a bill which will be entitled "The War Exchange Conservation Act." Appended to the resolution will be found two schedules,

the first of which is a list of items, based on the tariff classification, the importation of which from all countries, except countries in the sterling area and Newfoundland, are to be subject to restriction. In respect of the items listed in part one of this schedule, no permits will be granted for their importation from hard currency countries. These are the really non-esential items and consist for the most part of finished gods. Part II of this first schedule comprises goods for which permits to import from hard currency countries will be granted temporarily but on a decreasing scale. This list includes, as I shall point out in a moment, several classes of materials which are used by Canadian industries. It is hoped that eventually the industries using these materials can change over to the use either of domestic materials or of other and cheaper imported materials, but it will take time for our industries to accomplish this adjustment, and in the meantime, therefore, imports will be granted but only for normal requirements. It is proposed to restrict the granting of permits only if the possibility of using other materials or materials from other sources has been fully explored.

There has been, perhaps inevitably, a good deal of speculation in recent weeks and months about the measures the government would find itself compelled to take to relieve the growing strain on the Canadian dollar exchange position. These speculations have led to a number of ill-advised and inaccurate forecasts.

I realize, sir, that there will be widespread surprise over the virtual omission of fresh fruits and vegetables from the list of prohibited imports which I am going to table. I realize, too, the difficulties which our fruit and vegetable growers have been encountering during the present year. My own environment, all my life, has been such that I understand and appreciate the problems of the fruit growers. But I should point out to the fruit and vegetable growers, and to members and others interested in helping them, that the measures to be introduced to-day are not for the purpose of assisting any producers, or any industry. They are not designed or intended to protect industry but to protect our exchange position, an entirely different thing.

The government has examined very carefully the possibilities of conserving foreign exchange by restricting imports without undue dislocation of the domestic economy and without jeopardizing the export markets in which we earn the foreign exchange required for the financing of a large part of the national war effort. I may admit frankly that we had

War Budget-Mr. IIsley

been, weighing the advantages and disadvantages of including a number of fresh fruits and vegetables in the schedule to the resolution. It was recognized that cheap and abundant supplies of fresh fruits and vegetables have become an increasingly important element in the nation's diet, not only in the months when local supplies are freely available but pretty nearly all the year round. For a considerable part of our off-season requirements, many parts of Canada are dependent on imports from the United States. There are undoubtedly among these imports of fresh fruits and vegetables a certain proportion which can only be regarded as luxuries and a larger proportion which, while not a luxury trade in the strict sense of the term, represents supplies which under war conditions we could, if need be, do without. At the same time we had to remember our imports of fresh fruits and vegetables represent a very important export market for United States agricultural products and therefore an offset and protection to the even larger export outlets which our agricultural products enjoy in the United States.

I freely admit that, from the standpoint of exchange alone, the position of the government in respect of fruits and vegetables was difficult. While we had to weigh on the one hand the exchange that would be saved by the restriction of their importation, we had to weigh on the other hand the inevitable public reaction which there would be in many of the agricultural districts of the United States, the embarrassment this reaction would cause to a friendly and helpful government which has its own problems of agricultural surpluses, and the danger which would ensue not only to our own trade relations with the United States, not only to the market which our trade agreement with that country gives to so many of our primary producers, but to the whole trade agreement policy of the United States, a policy which affects the people of all nations and with which this government has consistently cooperated.

This aspect of the fruit and vegetable question was, I may say, forcefully brought home to us last week by the consequences of the publication of the Canadian Fruit Wholesalers' Association's circular communication to its members. On its publication, the United States government felt compelled to point out that prohibition of the importation of fresh fruits and vegetables would gravely prejudice the position of the Canada-United States trade agreement, and, under it, the tariff concessions assured to certain Canadian agricultural exports. These representations, coupled with the considerations of consumer interest which

had made us hesitate about recommending the prohibition of the importation of fresh fruits and vegetables, have resulted in the decision to exclude fresh fruits and vegetables from the schedule which is to be placed before the house. With a deep sense of responsibility we weighed the one set of considerations against the other, with the result that I have announced.

The list of articles which are included in part 1 of the first schedule and the importation of which will be prohibited may be summarized as follows:

Prepared cereal foods; florist stock and cut flowers; processed and canned fruits and vegetables (but not currants, raisins, dates, apricots, or grapefruit juice); preserved fish, oysters and crab; manufactured tobacco; spirits and wines; certain classes of fiction magazines and comics; consumers' paper items; perfumes, etc.; china and glass; silverware; electrical household appliances, stoves, etc; bathroom fittings; automobiles; sporting goods and fishing tackle; cameras; furniture of wood or metal; radios, phonographs; musical instruments; luggage; all finished clothing or wearing apparel; silk fabrics; ornaments; jewellery and precious stones; toys and dolls; and various miscellaneous articles.

I should like to add, immediately, that any of these articles which are the personal property of non-resident visitors to Canada may be brought into Canada by such tourists for their use here, in the same way that such things have always been admitted by our customs regulations in the past.

The second list of articles for which permits will be issued but only in restricted amounts (that is to say, the articles listed in part II of the first schedule) comprises five major categories. These include, first, unmanufactured tobacco; second, automobiles and motor vehicles other than passenger automobiles; third, hardwoods and veneers, and plywood; fourth, raw silk and various partially manufactured forms of natural silk, but not artificial silk or similar synthetic fibres; fifth, all petroleum products.

Let me emphasize again that it is the intention in regard to this second list of commodities gradually to reduce the amount of imports that will be permitted, and it is expected that the Canadian industries using the raw and semi-finished materials on this list will gradually have to adapt themselves to the use of domestic materials or materials from other sources. In the case of tobacco it is expected that the industry will be able to substitute domestic tobacco for the imported types heretofore used. The excise division of the Department of National Revenue will assist in the administration of

War Budget-Mr. Ilsley

this restriction of tobacco imports and the adaptation of the industry to the new conditions.

In the case of hardwoods and veneers it is expected that the furniture industry, with the assistance of the timber controller, will be able to replace a substantial part of their imported hardwoods with domestic woods.

In the case of silk we are dealing with a very important textile import, and with a quite substantial finishing industry in Canada. When the imports of silk materials have been brought under control, it will be possible to determine the extent to which the silk industry can switch over to the use of artificial silk in place of natural silk.

With regard to petroleum products the whole matter is much more complicated, but I understand that the oil controller is making plans to ensure that all our petroleum requirements will be imported in the most economical form possible, and plans are going forward to ensure that this will be done without burden to consumers or without discrimination against those distributors who are now using imported gasoline. Permits for the importation of gasoline will be restricted only after equitable arrangements have been made by the oil controller for the supplying of these distributors. Through the control placed in its hands by this legislation, the government will endeavour to satisfy the nation's gasoline and oil requirements for the smallest possible amount of foreign exchange.

The prohibition or restriction of imports will in many cases result in a greater demand for domestic products. We desire, however, to prevent this greater demand from resulting either in an expansion of the domestic industry concerned or in enhanced prices and profits for domestic manufacturers. Whatever element of protection there may be in these import restrictions is accidental and temporary. They are intended to reduce the consumption of imported goods and not to increase the consumption of domestic goods. Let me repeat the warning given by my predecessor in connection with the war exchange tax, that action now taken is peculiarly an emergency measure whose operation will end with the war, and no vested interest in it will be recognized.

In order to ensure that advantage is not taken of these restrictions in order to raise prices of Canadian produced goods, there is to be included a provision in the bill to enable the government to suspend these restrictions, and any duties, upon imports of any commodity in respect of which it is found that domestic producers are raising or maintaining prices unjustifiably behind the

protection of this measure, and to enable the government to invoke direct penalties by way of special tax levies on such profiteers.

Topic:   WAR BUDGET
Subtopic:   PROPOSALS OF MINISTER OF FINANCE FOR CONSERVATION OF FOREIGN EXCHANGE
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NAT

John Ritchie MacNicol

National Government

Mr. MacNICOL:

That applies to the whole industry. How would you take care of one individual who enhanced prices?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

By the penalty of an excise tax. If the hon. gentleman had followed my last words he would note that I said:

. . . and to enable the government to invoke direct penalties by way of special tax levies on such profiteers.

In the case of a number of the goods whose import is to be restricted, it is particularly desired that domestic protection shall not expand to fill the demand created by the restriction of imports. This group includes the mechanical type of consumers' durable goods. The experienced labour, the steel

and certain other materials used in making these products are required for war industries, or will be very shortly. Furthermore, a eud-stantial amount of parts or materials required in producing them are imported. It might, of course, be possible to limit the production of these goods in Canada by direct regulation of the industry. If this were attempted in the face of rising demand, it would, however, involve either higher prices and profits, or else the rationing of these durable goods, which would be exceedingly difficult because individual demands are so irregular. Consequently, we have decided to impose new or increased excise taxes on this type of article. A detailed list of the articles so affected is contained in the schedule appended to the second resolution which I am going to move and which precedes the introduction of a bill to amend the Special War Revenue Act.

I will summarize this list briefly. The excise tax on automobiles will be raised and

the new rates will be as follows:

On the value (i.e. manufacturer's

price) up to $900 20 per cent

On the excess over $900 and up

to $1,200 40 per cent

On the excess over $1,200 80 per cent

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NAT

Richard Burpee Hanson (Leader of the Official Opposition)

National Government

Mr. HANSON (York-Sunbury):

That is in lieu of the present rates?

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LIB

James Lorimer Ilsley (Minister of Finance and Receiver General)

Liberal

Mr. ILSLEY:

Yes, in lieu of the present rates.

An excise tax of 25 per cent of the manufacturer's price is also proposed on the following items: radios and radio tubes, phonographs, cameras, slot and vending machines; electric or gas stoves, refrigerators, water heaters, light fixtures and lamps; and the

War Budget-Mr. Ilsley

following electrical appliances: washing

machines, vacuum cleaners, toasters, grills, etc., irons and ironers, coffee makers, curlers, razors and several minor items.

The rates of these taxes are not so heavy that they should curtail production beyond the degree that is and will be required by the labour and material requirements of the Department of Munitions and Supply. In this connection, I should remind the house that a tax of twenty-five per cent on manufacturer's value will amount to a considerably smaller proportion of the retail value of these commodities, as distributors' margins must be taken into account. The demand for nearly all these types of durable consumers' goods, automobiles perhaps excepted, is higher because of higher wartime incomes. Most of the companies producing these articles are already engaged in the production of war supplies and the others will now be enabled to devote part of their facilities and labour force to war work.

I come now to the last of the measures concerning imports, and one which I believe will be much more welcome than the others. It is a measure by which we will be able to assist Britain in a direct and substantial way. The house is probably aware that Britain has been trying to increase its exports particularly to North and South America in order that it may be able to exchange these exports for products from this continent which it requires. British producers have faced special obstacles in export markets in war time because of the higher costs of production consequent upon air raid dangers and other conditions in Britain and also because of the greatly increased shipping freights and insurance costs. From our own point of view, there would be advantages in increasing our imports from Britain at this time, quite apart from the natural desire we have to help Britain in every way possible. We have plenty of sterling exchange to pay for such imports. In so far as we increase our imports we can spare more labour and more money to assist Britain in obtaining Canadian products.

Under these circumstances the government has come to the conclusion that we should wherever possible remove or reduce the tariffs 'mpeding the entry of British goods into Canada. Therefore, we are proposing that all customs duties shall be removed on

FMr. Ilsley.]

imports from the United Kingdom of the following list of goods specified in schedule 2 of the first resolution which I shall move:

All cotton items (except those at present free under the British preference).

All artificial silk items (except those at present free under the British preference).

Bituminous coal.

Jellies, jams and marmalades.

Furniture of all kinds.

Gloves and mitts of all kinds, and a number of miscellaneous items.

In addition, this schedule includes a list of imports from the United Kingdom on which the existing duties will be reduced. In this list will be found such items as medicinal and pharmaceutical preparations, soap, earthenware tiles, stoneware and earthenware, table cutlery, bicycles, electric generators, transformers and motors, rugs and carpets, oilcloth and linoleum.

In case some domestic producers should be alarmed at this action, let me remind them once more of the increased costs * facing British exporters to Canada. Most of our industries concerned have enjoyed very greatly increased demand because of war conditions and are quite able, I believe, to stand during war time whatever additional competition may be involved as a result of this measure. I might also point out that the goods affected by this action are more in the nature of necessaries than most of the other products with which we are proposing to deal, and the effect of our action in this case should be to increase the supplies available with resulting benefit to the consumer. At the same time our expenditure of hard currency on these classes of goods should be reduced by this action.

There is one other measure included in the. proposed legislation which is intended to increase our supplies of foreign exchange rather than to decrease our use of it. I have already referred to the emphasis we have placed and will continue to place on the expansion of export and tourist trade as a means of alleviating our exchange problem. The purpose of the new proposal is to enable the government to take advantage of any special opportunities that may arise to facilitate the expansion of exports that would not otherwise take place. It is extremely difficult to deal in general with the cases we have in mind by legislation, since each case is likely to involve special circumstances and to arise at fairly short notice. We must be prepared and empowered to seize whatever chances of increased trade present themselves. Therefore, the measure proposed is essentially an enabling measure to permit the government on

War Budget-Mr. Ilsley

the recommendation of the Minister of Finance, to enter into agreements with individuals or corporations in order to assist them in developing new or expanded export trade that could not otherwise be attained.

The methods to be followed will have to depend to a large extent on the circumstances of each case. We are not requesting the power to subsidize exports. Such subsidies would be useless anyway for increasing exports to the United States, because subsidized goods are subject to special countervailing duties. After due consideration it has 'been decided that the safest and yet most efficient and economical way to give such assistance will be by arrangements for special allowances for depreciation or depletion of capital assets under our tax laws, such as we are already giving to war industries. As in the case of war industries there are special risks attached to the investment of capital in certain export industries under war-time conditions, and they fully justify, from the viewpoint of the national interest, the more rapid amortization of these investments. Of course, once the assets are fully depreciated, we will gain in our tax revenues by that fact if the assets are still in use. In the instances which cannot be handled in this manner, we request the power to safeguard the potential exporter by the use of credits against future taxes such as was used in the tax credit plan for stimulating private capital expenditures which was introduced in the last peace-time budget. Great care will have to be taken in the use of these powers because we must avoid giving any sort of special assistance or indirect subsidy to our normal export trade, or to export trade which is able to develop without assistance.

While it is difficult to make any precise estimate of the amount of foreign exchange which the conservation measures forecast by these resolutions will save, it appears probable that on the basis of current trade the savings will amount to from $5,000,000 to $6,000,000 a month. It is still more difficult to estimate the receipts from the taxes proposed and I shall not even venture a figure.

The measures we are taking are measures for the conservation of exchange but they have more than a monetary significance. By denying ourselves a wide range of imports and by these reductions and removals of duties on British goods, we once more say to Britain and to the world that we are with her and that we have faith in her ultimate success.

What we have done since the outbreak of war leaves no doubt as to our attitude and our determination. We entered the war as a

united nation by the free and virtually unanimous vote of this parliament and we have gone far in the training and arming of a peace-loving population and the speedy and efficient reorganization of our industry for war.

Conscious as we are of our responsibilities as part of the western hemisphere, we say to mankind that we are prepared to go to the very limits of our power and capacity in aid of the people of that island in the North Sea whose heroism has stirred the hearts of all lovers of liberty, that her cause is our cause, that her reverses serve but to rouse our fighting spirit, and that her final victory, whether it be soon or long deferred, will be a victory in which we, the people of Canada, will have a share.

Topic:   WAR BUDGET
Subtopic:   PROPOSALS OF MINISTER OF FINANCE FOR CONSERVATION OF FOREIGN EXCHANGE
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RESOLUTION S


Mr. Speaker, I wish to give notice that when we are in committee of ways and means I shall move the following resolutions:


SPECIAL WAR REVENUE ACT


Resolved, That it is expedient to introduce a measure to amend the Special War Revenue Act and to provide- 1. That Schedule 1 of the said act be amended as follows: (a) by repealing paragraph 1. (a) thereof and substituting the following: 1. (a) Automobiles adapted or adaptable for passenger use, with seating capacity for not more than ten persons each, valued at $900 or less 20 per cent Over $900 but not more than $1,200 20 per cent on $900 plus 40 per cent on the amount in excess of $900. Over $1,200 20 per cent on $900 plus 40 per cent on $300 plus 80 per cent on the amount in excess of $1,200. (b) by repealing paragraph 5 of the said Schedule and substituting the following: 5. Cameras, phonographs, radio broadcast receiving sets and tubes therefor.. 25 per cent (c) by adding to the said schedule as paragraph 6 thereof the following: 6. (a) Electric or Gas Light Fixtures and Lamps and shades, globes and reflectors therefor 25 per cent (b) The following electrical or gas appliances adapted to household use: Stoves, ranges and heaters; water heaters; refrigerators 25 per cent (e) The following electrical appliances adapted to household use: Food choppers and grinders; irons and ironers; washing machines; garbage disposal units; floor waxers and polishers.. 25 per cent War Budget-Mr. Ilsley


December 2, 1940