BACKSTAGE AT OTTAWA

Post Mortem On a Flop

THE MAN WITH A NOTEBOOK June 1 1946
BACKSTAGE AT OTTAWA

Post Mortem On a Flop

THE MAN WITH A NOTEBOOK June 1 1946

BACKSTAGE AT OTTAWA

GENERAL ARTICLES

THE MAN WITH A NOTEBOOK

Post Mortem On a Flop

BREAKDOWN of the Dominion-provincial conference left the Federal Government with a fight on its hands, inside Cabinet and caucus, on which of two courses it should adopt. The Ilsley budget ought to show who won.

Conservatives in the Liberal Party think they now have a valid excuse for getting out of social security commitments, which they always viewed with some misgiving. Alen like Ilsley, Howe, and Abbott have been wondering more and more where the money’s coming from.

According to Liberal sources, Premier Duplessis struck home with his quip that Mr. Ilsley was fatigued by the exhausting job of convincing himself on his own proposals. The Finance Minister and one group of his advisers felt that Ottawa had gone to the very limit of safety, if not beyond it, in January, when they raised the ante from $12 to $15 per capita, or from $138 to $181 millions in total subsidy to the provinces. When the April conference opened their fixed idea was that Ottawa mustn’t spend another cent.

Now that the $15 offer has been turned down, the Ilsley group apparently feels the relief of a man who, after bidding more than he can afford, hears some rival bail him out by raising the bid another notch. Far from wanting to make further concessions, they’re for taking what the gods have given. Let’s draft a real old-fashioned budget, they say, with no old-age pensions or anything like that, and no provincial subsidies either. Let the provinces face the grim necessity of putting on double taxation; that’ll bring ’em round, and then we can talk turkey.

Thus the right wing Liberals.

Left wing Liberals, led by Brooke Claxton, are expected to urge the opposite tack. Don’t drop social security, they say; the people are for it. Budget for it anyway; budget, too, for a tax agreement with any province that wants one. If seven provinces make a deal, the other two can’t afford to stay out, to be the only places in Canada where people have to pay double taxation.

After all, say the liberal Liberals, that’s what we did in 1941-42. The conference with the provinces failed, but we offered them separate deals and they all came in. We did it for war; why not do it for peace?

People who urge this course know it might lead to another Federal election soon, seeking a direct mandate for the Ottawa proposals as amended. But they aren’t afraid of an election. They claim it would increase the Liberal majority, now a lot too slim for Liberal comfort.

Progressive Conservatives, they say, would be embarrassed by difference of opinion between Leader John Bracken and Premier George Drew on this issue of Dominionprovincial relations. Mr. Bracken, in 1941, was the strongest and most eloquent advocate of the Sirois Report, which, like the Ottawa proposals, strengthened the central government. He took the same line then as his successor in the premiership of Manitoba,

Hon. Stuart Garson, took at the conference last month. Friends say he hasn’t changed his views one iota.

Liberals would also figure on making the prairies ring with a sentence Mr. Garson needled out of Premier George Drew—the statement that not only does Ontario pay 48% of all the taxes in Canada, but “the overwhelming majority of every dollar produced in Ontario is made by the work, the brain and the vigor of the people of Ontario,” and not, as westerners argue, by the fact that Ontario is able to tap the wealth of all Canada.

Anyway, the left wing says, you can’t have

it both ways. They think it’s a choice now between a showdown with the Tories (in all Parties, including their own) or conceding victory to the CCF in 1949.

THIS latter view is shared by the CCF. One CCF-er, asked how M. J. Coldwell felt about the failure of the conference, replied, “As a citizen, depressed; as a politician, elated.” They all feel that this breakdown means the Liberals will fail to carry out their promises of social security, and that this will bring the CCF a mandate, next time, to do what the Grits didn’t do.

For this reason Saskatchewan is perhaps the most cheerful of the “poor” provinces today. Premier Tommy Douglas and his men have already spent a lot of time drafting tax laws that they might need if the conference should fail. They are, of course, disappointed that it did fail. But their chagrin is brightened a little by the thought of how very uncomfortable their resultant tax laws will make the eastern corporations. They think they have courtproof ways of taxing all the big companies that earn wealth in Saskatchewan— not only the farm implement companies but the railways, the mail-order merchants, the insurance companies and the banks.

Next door, in Manitoba, Premier Garson is facing the same problem with no elation at all. He would like to attract new industries to Manitoba, not scare them away. But he has to find revenue, and the only *■ way is to impose some kind of provincial income and corporation tax.

There’s a new headache for him and all provincial treasuries in Mr. Ilsley’s strong hint that Ottawa would no longer collect provinces’ income taxation for them, as it used to do. This means each province will have to create its own income tax department. Where will they look for lawyers, accountants, tax experts able enough to draft a law' that will resist the best

corporation lawyers money can hire? And having found these paragons, how will they persuade them to work for provincial civil servants’ salaries?

What with one thing and another, the “poor provinces” are hoping desperately Ottawa will take the bull by the horns and offer separate deals to the provinces willing to sign. If it does, the prospects are that at least six will come in, with British Columbia a strongly possible .seventh.

* H-' *

LOOKING back to the conference, many people in j the Ottawa camp feel the Federal Government’s big fumble was in failing to establish clearly enough the division between the provinces who differed with it only slightly and those basically opposed.

The provinces w'ere not solid, far from it. Seven of them accepted the Dominion proposals in principle and were arguing over relatively minor details.

Premier Macdonald of Nova Scotia set great store by the gasoline tax. It meant $30 millions to Ottawa; Mr. Ilsley thought they couldn’t afford to give it away, though there are some in the Federal camp who think he was cheeseparing. But at the last minute Ottawa did offer to sell the gasoline tax for a financial equivalent. Mr. Macdonald turned out to be ready to negotiate on that basis but by this time lin’d already prepared a briskly critical speech.

Alberta had an even cheaper grievance. Premier Manning was very much set. on the retail sales tax. In January, according to report, Mr. King offered to ask for a constitutional amendment that would give the provinces the right to levy this tax. In April it turned out that Ottawa was going to ask only an amendment which would allow the Federal Government to delegate sales tax powers to the provinces for the duration of each tax agreement. Under the constitution as it stands, the provinces can levy only direct taxes. Thus they can collect a sales tax only by indirect and inefficient methods.

Premier Manning suspected a double cross. 1 le knew Quebec didn’t like this idea of delegating powers. Anyway, he thought the sales tax should be inalienably a provincial right, not contingent on an agreement with Ottawa. The latter arrangement, he thought, would give Ottawa one more bargaining weapon for the renewal of each agreement.

So he protested. He demanded that the sales tax amendment have no strings attached. He made this demand in the course of a speech that declared his willingness to sign an interim tax agreement more or less on Ottawa’s terms.

When, next day, Mr. Ilsley made the famous “No” speech, he didn’t even mention this Alberta request. Premier Manning was furious. His friends think that omission was the main provocation for his indignant speech denouncing the “uncompromising rigidity” of the Federal stand and declaring that if the conference failed it would be Ottawa’s fault.

Premier Hart of British Columbia would have been harder to satisfy without, financial concessions, but he was evidently in a bargaining mood. As for Manitoba, New Brunswick and P.E.I., they made few bones of their willingness to sign up there and then, on Ottawa’s terms.

Ontario and Quebec were in a quite different category. They were willing to give up, or rather to “rent,” the income and corporation tax fields, and this was a concession from the Ontario brief of last January. and from the general line of Quebec’s previous position.

But they were not ready to give up these tax fields under the Continued on page 81

Continued from page 15

conditions of the Ottawa proposals, or anything like them. They would “rent” them, yes, but at their own price. Quebec never did set a price—all Premier Duplessis would say was that it must be “fair,” he didn’t even hint how much.

Premier Drew did set a price, in a detailed submission presented to the conference on its opening day. He said Ontario would give up income and corporation taxes for a three-year period in return for a subsidy which would be calculated by an algebraic formula, the so-called “X formula.” There was a lot of argument over the

dollar value of X, but Mr. Drew finally announced that X was $12. Mr. Ilsley then calculated that the X formula, as of the present year, would run to a total for all provinces of $188 millions.

But the Ontario proposal had other stipulations. Ottawa must vacate the fields of succession duties, gasoline tax, amusement tax, pari-mutuel tax, security transfer tax, and electricity tax. Nova Scotia had also demanded a monopoly on the last five taxes named. Mr. Ilsley calculated that they all amounted to $102 millions a year to the Federal Government now.

Ontario also stipulated that Ottawa should provide to provincial Governments, at par, any U. S. funds they needed for debt service. This, said Mr. Ilsley, would cost $7 millions.

Ontario stipulated further that Ottawa was to continue paying, in addition to “rental” payments, the present statutory subsidies to the provinces, which amount to $17 millions in all.

Finally, Ottawa was to aasume the full cost of relief for employable unemployed, and the full cost of pensions to the aged and the blind. Mr. Ilsley claimed that the pensions alone would run to an additional outlay of $18 millions a year.

In short, the Ontario proposals would add up, by Mr. Ilsley’s figures, to $134 millions more from the Federal treasury than the $198 millions payable to all provinces next year under the revised Ottawa plan. Premier Drew Continued, on page 83

Continued from page 81 called this figure “unadulterated nonsense,” but he didn’t substitute any of his own. In any case, the difference would evidently be pretty substantial.

It’s the grievance of some, in the Federal camp, that no sharp difference seemed to be made between the two groups of dissidents. They complain that Mr. Ilsley strained just as hard at the gnats of gasoline and electricity tax as at Premier Drew’s herd of camels.

All through its hearings, the Senate Committee on Income Tax was notably gentle with the National Revenue Department and with the Government. Some observers even suspected it of being a whitewash brigade.

Committee members resented these suspicions. They say they were just trying to be objective, to establish themselves with both the Government and the public as a fair and disinterested body, not a gang of witchhunters capitalizing on public sentiment against the income tax. Their reports, they say, will be proof enough that they’re not whitewashing the Income Tax Division.

First of these reports will likely be tabled in the Senate before these lines are printed, but at the moment it’s still in the drafting stage. However, opinion inside the committee appears to be crystallizing along these lines:

They will recommend, first of all, an independent board of tax appeals.

Under the existing setup the discretionary power of Deputy Minister Fraser Elliott is well-nigh absolute. No reasons need be given for any ruling, and appeals—when they lie at all—are heavily impeded. There is no quick, easy, effective machinery for review of a National Revenue decision.

Senate committeemen feel that if such a board of appeals could be set up right away, half the battle for rational income taxes would be won. The existence of machinery for review, they think, would put National Revenue on its guard against the arbitrary or inconsistent rulings that are now protested in vain. Moreover, it would itself pave the way for the next steps to be taken.

These next steps, presumably, would be improvement of administrative methods in the Income Tax Department and amendment of the Income War Tax Act itself.

National Revenue is not all partial to the idea of an independent board of appeals. Income Tax people complain loudly-, and quite sincerely, that their powers of discretion are too wide, their responsibility too heavy for their small, overworked, underpaid staff. But the idea of having their discretion removed altogether, in the final analysis, by having it subject to review and perhaps reversal by a body over which they have no control at all—that is definitely unpalatable. There will be a big fight, whether it gets into the open or not, before any such plan becomes law.

But the senators think it ought to become law at once, the sooner the better. They hope to have their recommendation out in time for this year’s budget, perhaps before the budget’s introduced, almost certainly before it’s passed by the Commons. Then, they think, the committee could take its time about other schemes for reform, because it would be getting constant help from the tax appeal board itself.

Quote

Our victory will mean nothing unless we are able also to conquer the menace of war which would bring to naught the fairest hopes for humanity’s forj ward march.—Lord Halifax.