Minutes of Proceedings and Evidence of the Special Joint Committee of the Senate and of the House of Commons on the Constitution of Canada, 28th Parl, 2nd Sess, No 6 (23 June 1970)
By: Canada (Parliament)
Citation: Canada, Parliament, Minutes of Proceedings and Evidence of the Special Joint Committee of the Senate and of the House of Commons on the Constitution of Canada, 28th Parl, 2nd Sess, No 6 (23 June 1970).
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Twenty-eighth Parliament, 1969-70
THE SPECIAL JOINT COMMITTEE
THE HOUSE OF COMMONS
CONSTITUTION OF CANADA
MINUTES OF PROCEEDINGS
TUESDAY, JUNE 23, 1970
(See Minutes of Proceedings)
SPECIAL JOINT COMMITTEE
CONSTITUTION OF CANADA
Representing the Senate
Connolly (Ottawa West),
Macdonald (Cape Breton),
Representing the House of Commons
Michael B. Kirby,
Patrick J. Savoie,
Joint Clerks of the Committee
MINUTES OF PROCEEDINGS
TUESDAY, JUNE 23, 1970
The Special Joint Committee of the Senate and of the House of Commons on the Constitution of Canada met this day at 3:55 pm. The Joint Chairman, Mr. MacGuigan, presided.
Representing the Senate: Senators Cook, Grosart, McDonald (Moosomin), and Yuzyk—(4).
Representing the House of Commons: Messrs. Alexander, Allmand, Asselin, Baldwin, Breau, Brewin, Hogarth, Hopkins, Lachance, MacGuigan, Marceau, McQuaid, Osler and Ouellet—(14).
Also present: From the House of Commons: Mr. Gervais, M.P.
Witnesses: Mr. R. B. Bryce, Economic Adviser to the Prime Minister on the Constitution; Mr. F. R. Irwin, Director, Tax Policy Division, Tax Policy Branch, Department of Finance; Mr. W. Ivan Linton, Director, Tax Base Research Division, Department of National Revenue; and Mr. K. Lysyk, Adviser, Constitutional Review Section, Privy Council Office.
The Joint Chairman introduced the witnesses. Mr. R. B. Bryce made a statement on “The Taxing Powers and the Constitution of Canada”.
Mr. Brewin moved that the Joint Chairmen be authorized, for printing purposes, to edit and vary the booklets entitled Background Papers which are being prepared from time to time by the Secretariat of the Constitutional Conference.
Debate arose, and later, the question being put, the motion was adopted on the following division: YEAS 10; NAYS 6.
Mr. Hogarth moved that, pursuant to the authority granted to your Committee to engage personnel until the Committee
has concluded its work or until December 31, 1971, whichever is sooner, the Committee retain the services of Mr. David L. McWilliam of the Bar of Ontario as legal adviser until the Committee has completed its work or until December 31, 1971, whichever is sooner, at a salary of $1500 per month, subject to the approval of Mr. Speaker.
After debate, the question being put, the motion was adopted.
Mr. Ouellet moved that, pursuant to the authority granted to the Committee to engage personnel until the Committee has concluded its work or until December 31, 1971, whichever is sooner, during the summer recess, the Joint Chairmen be authorized to engage the services of an economist, a special administrative assistant and such clerical and stenographic help as they deem necessary, after the usual consultation, at salaries subject to approval.
After debate, the question being put, the motion was adopted.
Mr. Hogarth moved that the Joint Chairmen be authorized after the usual consultation to draw up and direct the Joint Clerks of the Committee to publish advertisements to encourage popular participation in the Committee’s work.
After debate, the question being put, the motion was adopted.
Agreed,—That the booklet entitled “Background Papers on The Taxing Powers and the Constitution of Canada”, prepared by the Secretariat of the Constitutional Conference, be printed as an appendix to this day’s Minutes of Proceedings and Evidence. (See Appendix “E”).
The witnesses were questioned.
During the questioning, it was
Agreed,—That the table on page 8 of “The Taxing Powers and the Constitution of Canada”, revised to show figures for 1969-70, be printed as an appendix to this day’s Minutes of Proceedings and Evidence. (See Appendix “F”).
Later, the questioning being completed, the Joint Chairman thanked the witnesses on behalf of the Committee.
At 5:56 p.m. the Committee adjourned to Thursday, June 25, 1970.
Michael B. Kirby,
Joint Clerk of the Committee.
This page is blank.
(Recorded by Electronic Apparatus)
Tuesday, June 28, 1970.
The Joint Chairman (Mr. MacGuigan): The meeting will come to order. Gentlemen, at this meeting we have to get through a number of what I call summer resolutions to enable us to do business during the summer.
We do not yet have a quorum for voting on resolutions, so I propose to start hearing our witness. At the end of Question Period we will have a voting majority, and perhaps at that point I can interrupt Mr. Bryce briefly to deal with the business of the Committee so that members of either House who have to attend other Committee meetings will not be prevented from attending them and making up the necessary quorums. If that procedure is acceptable to you we can begin now with the hearing of the evidence.
We are very pleased to have with us today Mr. R. B. Bryce, Economic Adviser to the Prime Minister on the Constitution. This is only the latest in a long series of Mr. Bryce’s titles and high offices in the Government of Canada. He was Secretary of the Treasury Board from 1947 to 1954, Secretary of the Cabinet from 1954 to 1963 and Deputy Minister of Finance from 1963 until earlier this year when he assumed his present position of Economic Adviser to the Prime Minister. I suspect that it is no accident that as a result of this succession of responsibilities he is often thought of as the mandarin among mandarins on the Ottawa scene.
Attending the meeting and assisting Mr. Bryce will be Mr. F. R. Irwin, Director, Tax Policy Division of the Tax Policy Branch, Department of Finance and Mr. W. Ivan Linton, Director, Tax Base Research Division, Department of National Revenue. I suspect that the presence of these advisers indicates that we will have some fairly technical discussions in today’s session on the taxing power of the Parliament of Canada.
I would like, therefore, to invite Mr. Bryce to address us and afterwards to submit himself to questions from the Committee. Mr. Bryce.
Mr. R. B. Bryce (Economic Adviser to the Prime Minister on the Constitution): Thank you, Mr. Chairman. This subject of the taxing powers is one of those which the provinces wished to discuss at an early stage and consequently the discussion of it commenced early in 1969, first among officials and then at the working sessions of the Conference last summer, and finally at the open session in December. It is one on which we have made progress and we are now discussing with the provinces—and have been as recently as two weeks ago—the detailed problems of an approach that is widely supported.
Under the present Constitution the taxing powers are as set forth on page 58 of the red, black and white book, The Taming Powers and the Constitution of Canada, which quotes the actual clauses. Parliament has the widest possible powers; the provincial legislatures have the powers of direct taxation within the province for the raising of a revenue for provincial purposes, and in general that really boils down to direct taxation within the province. They also have the right to levy shop, saloon, tavern, auctioneer, and other licences to raise a revenue for provincial, local, or municipal purposes.
We and the provinces are limited by Section 121 which provides that:
All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall. . .be admitted free into each of the other Provinces. . .
And I underline that is free, not freely. In other words, one can restrict trade but not tax it petween the provinces.
Finally we are limited by Section 125 that provides:
No Lands or Property belonging to Canada or any Province shall be liable to Taxation.
This last leads to the question of intergovernmental taxation and the treatment of agencies of government, which is a long subject in itself and I do not propose to speak of it this afternoon, and it is not really touched upon substantially in the government paper.
The use of the tax fields has been a great issue for the past 35 years and particularly
since January, 1941 when the provinces and the federal government at the time first met to discuss the Rowell-Sirois Report. We have had discussions every year or two at least on the sharing of tax fields since that time. These discussions, I suppose one can say, have tended to be of increasing frequency and increasing intensity as the years have gone by.
However, it is the use of those fields to which we both have clear access that has been at issue and not the Constitutional provisions, so the real argument that has been going on with the provinces has not been over the constitutional provisions but over the use that is made of the access we both have to the fields of direct taxation.
As is indicated in the working paper on Tax Powers, when We approached this subject we considered the alternative approaches to a division of taxing powers under the Constitution and, as indicated on pages 6 and 8 we considered the alternatives of allocation on the one hand and access on the other, and we came to the conclusion that access was really the preferred and only workable basis. If we tried to allocate various forms of tax as between the provinces and Parliament, we had to try to predict not only what the relative needs for revenue would be, but what the relative usefulness would be of various forms of taxes. Consequently, we felt that was neither a very sensible nor likely to be a very enduring basis. Therefore, we went for the maximum possible access of both levels of government to all forms of taxes.
Most of the provinces have agreed to this. British Columbia felt Parliament should have only limited access to income taxes and this should be related to what was required to pay a guaranteed annual income to Canadians, which British Columbia thought should be done in lieu of paying equalization to the provinces as well as paying other welfare measures.
The Government of Canada has considered British Columbia’s proposal and for the reasons that are given at some length on pages 10 to 14, and on the facing pages in French, it has disagreed with this proposal. I will not try to go into the details at this stage,
The principle of access is defined at the top of page 16 and I will read the relevant phrases, if I may, so that members may have it in mind:
Parliament should have the power to tax all persons, incomes, property and transactions (sales or purchases) in Canada and each province should have the same powers within the province. The “within the province” limitation of provincial taxing powers should have the result of allocating fairly among the provinces the Canadian income, property and transactions which each of them may tax, and of protecting the taxpayer against the taxation of his income, property or purchases by more than one province. No government, it is generally agreed, should have the power to erect through its tax system barriers to interprovincial trade, whether intentionally or otherwise, and only Parliament should have the power to impose customs duties.
Now, there is perhaps one detail I would add to that. It says:
Parliament should have the power to tax all persons . . . in Canada . . .
We do have certain extraterritorial rights which we propose to continue by which, in effect, we levy taxes on non-residents such as the withholding taxes on income being paid abroad.
That is the basic principle of access to which the government gave its choice. The paper then goes on to talk about the problems of applying this principle. In regard to the personal income tax there are some accepted rules for this which are working and have been working reasonably well for a good many years and it is not proposed to make any change or to make any mention of them in the Constitution.
Turning to business income, there too it is necessary to have rules and, indeed, more complicated rules than for persons, rules to allocate business income between provinces. There was some difiiculty in working these rules out as is indicated in the paper, but they were resolved about 10 years ago and now they are working with reasonable success. We are not proposing that they should be embodied in the Constitution, but if provinces feel they ought to be we are prepared to
discuss that matter. They involve rather considerable detail and I think it has seemed to the government that to put them into the constitution would weigh that down with rather more detail than is really appropriate. As yet there have been no provincial proposals that we should do that.
We then go on to discuss other taxes on business. There is no doubt that many of these other taxes on business get passed on in varying degree, both to people within the province and, to some degree, to people without the province. The incidence of various kinds of taxes on business is a matter of some controversy, even among economists that are experts in the field—and perhaps I should say, particularly among economists that are experts in the field—and it is a very complicated issue depending on all sorts of circumstances.
However, as yet we feel there has been no serious problem in the allocation of such taxes or in the double taxation in different provinces. Although there used to be a real concern over this back in the nineteen-thirties, it has not been regarded as a serious problem in the past 30 years.
We do not feel that there has been much effort for any one province or its municipalities to impose taxes on businesses located there in the expectation that in that way they can tax people in other provinces. There is, of course, a considerable desire on the part of provinces and municipalities to attract business, so this is a natural check on the tendency that there might be.
In view of all these factors, we are not proposing any changes in this regard in connection with the Constitution, including any limitations that might be involved. The next taxes that we considered were real property taxes, and they are mentioned briefly in the paper at the top of page 30. Both Parliament and the provinces can use them. I had written in my notes that Parliament has not used them as such and, just as I was preparing to come over here, I suddenly wondered if we had not, in fact, used them occasionally where we run municipalities as we do in some of the national parks, or on some of the defense establishments. It is conceivable that
we may have done so. It would not be done by the Department of Finance so much as by the departments directly responsible. The provinces, of course, authorize municipalities to use these taxes and some of the provinces use them directly and, indeed, they largely confine the municipalities to using this form of tax.
Well, such is the present situation. In regard to what we should do in the Constitution, we propose simply to leave it alone and this means, in effect, that both Parliament and the provinces, and therefore the municipalities by direction of the provinces, can use them. Quebec—and I think to a lesser extent British Columbia—has suggested that Parliament should not have the power to use taxes on real property. We have considered this proposal. The Prime Minister made clear at the conference last December that the government has no intention to use such taxes, other than perhaps in the minor exceptional way I have mentioned, but that we do not want to be constitutionally barred iirom them. It is indicated here in the paper that we feel that one form of tax should not be singled out trom this principle of access. Moreover, I would add that provisions barring their use by Parliament might interfere with the details of other taxes such as estate taxes, capital gains taxes or something of this sort, and we do not want to get into legal tangles and restrictions in the application of taxes of general nature to real property.
That is where we have left the matter in regard to real property taxes and we are not proposing any change at the present in that regard. In regard to death duties the situation is much more complicated and still quite active, Both Parliament and the provinces use them. Parliament now uses it in the form of an indirect tax, the estate tax. The provinces are subject to limitations in their use of it that are set forth at the top of page 32 in the working paper, and which are set forth at greater length in other places. I will not try to go into them now.
We see certain advantages that could be gained if the provinces were able to levy indirect death duties and these were subject to certain limitations to prevent double taxation. Under those circumstances, we think it would be possible to simplify things for the taxpayers and to provide about the equivalent opportunity for provinces to earn reve-
nue from this source. The federal proposal, in essence, was that the provinces should be able to levy an estate tax on the estates of those dying with domicile in the province, but not on the estates of others, and that this tax should apply to property in the estate wherever it is situated, within the province or elsewhere in Canada or outside Canada. We felt that was a desirable form of tax that would practically eliminate double taxation between one province and another—in fact, would eliminate it—and would enable us to avoid a lot of arguments about the situs of various kinds of property which has been one of the serious complications in this field.
The situs of property can be artificially changed by one means or another to take advantage of provinces or other places that have lower rates of taxes on property passing at death and, indeed, to take advantage of tax havens outside of Canada. On the other hand, to change domicile means the person has to move himself, and it is a much more serious obstacle and, indeed, a much more real situation that is created. Well, we have put that proposal forward to the provinces. It has been discussed with the provinces and we have had a subcommittee of experts report to the continuing committee of officials on the advantages, disadvantages and implications of this and of exclusive use of the field by provinces or by Canada, or concurrent jurisdiction and use of the field. We expect to be reporting shortly to the conference on this subject.
Those are the main lines along which we have been proceeding and the situation which we have reached. Meanwhile, as is noted in the paper, pages 34 and 36, Quebec has proposed that Parliament should not use death duties, either in the form of estate taxes or succession duties. The government considered this view last year and its conclusion and reasoning is set forth on pages 34 and 36. It feels that Parliament should retain its constitutional rights to impose death duties for the half dozen reasons that are set forth here. That is something we have discussed with the provinces at the meetings, both of Ministers and of officials, and we will be reporting as officials back to the conference in due course.
The next field is an interesting situation and is in regard to sales taxes, taxes on transactions.
The provinces have learned to impose sales taxes in the legal form of direct taxes and in the past two decades have exploited this field quite substantially. They use the retailer normally, or those who sell for consumption or use, as the agent of the province in collecting the tax from the purchaser. This device enables them to keep the tax, not only to make the tax a direct tax but to keep it a direct tax within the province and thus to comply with the constitution. Moreover, this form of tax is such that it does not constitute a barrier to trade between one province and another. Imported things that are sold to people in the province are taxed just as are things produced in the province. Exports from the province are not taxed normally unless the people outside the province come within the province to purchase.
The upshot of all this is that the provinces can get revenue from this direct form of tax just as well as they might from an indirect sales tax.
However, they, and we, see some advantages in their being able to use the indirect form of retail sales tax. It is simpler; it does not have to be shown on the sales slips and bills; its administration is somewhat simpler, and of course, it has that advantage of invisibility which many feel is an advantage.
Senator Grosart: Also multiplicity.
Mr. Bryce: Yes. In this paper, the Government of Canada has stated its view that it would be prepared to agree to the provinces being able to use an indirect sales tax providing that it met two requirements which are set forth on page 40, at the middle of the page:
(1) the power of the provinces to impose indirect sales taxes would have to be such as to prevent provincial taxing systems from acting as impediments to interprovincial or international trade; and
(2) the power to impose indirect provincial sales taxes would have to be framed so as substantially to confine each province’s taxes “within the province”, that is to say to prevent one province from taxing indirectly persons resident in other provinces, and thus. . . ensure. . . the total tax base is allocated equitably as between provinces.
Then we go onto discuss at some length, those limitations.
We have been discussing this subject with the province at the working session of ministers, last June and in December and off and on over the past 12 months with the provincial oificials in the continuing committee of senior oflicials and in the more specialized subcommittee that was established to go into this at some length and at which Mr. Irwin was representing us.
Some of the provinces are most anxious to have the protections set forth on page 40 and to have those clearly applied through a retail sales tax. Other of the provinces feel that they should have as wide an access as possible to indirect taxes on sales and that they should not be confined to the retail level. They feel this, in part, because it is a matter of principle with them; in part, because they would like to be able to look forward in the future to simplifying their administration and possibly to bringing in a tax on value added such as has become quite,—I do not know whether “popular” is the right word to use—widespread in Europe in recent years and is being talked about in the United States. If they were going to have a tax on value added, it would be necessary to have the power to impose it at various stages in manufacturing and distribution.
We have been discussing this with the provinces and we are now preparing a report from the continuing committee of officials to the conference on the subject in the light of our preparation. The main issue has been this question of whether it is necessary, in fact, to confine a tax to the retail level in order to meet these tests that are set forth on page 40. In theory, you could meet them with taxes at levels other than the retail level. The problem is whether you can draft law that will do it, whether you can administer it in a way that will do it and be sure that you have met these two tests.
That is where we stand on these various fields, sir.
I might just refer briefly to the last two items in the paper, federal-provincial consultation on taxing and spending. The government has indicated here it feels that such consultation is desirable and necessary, but it should not be carried out, as Quebec has suggested, by establishing an intergovernmental tax commission which would in effect try to make an allocation of the use of the tax fields as between one level of government and another.
This question of relative use of the tax fields was not all that important as long as taxes were relatively low in total, but of course, now that the total of taxes has gone up to something in the order of one third of the gross national product, we both feel that the others are crowding us and that the both or us taken together are crowding the taxpayer. So it is natural that this kind of consultation is much more required than at the time the Constitution was originally drawn up when, as the historians make clear to us, it was felt that direct taxes would be so unpopular that no one would be very likely to use them to any substantial degree.
The final matter touched upon in the paper is equalization. This has come up, of course, in the other papers that have been before you. The essence is that if equal access to tax fields is going to be really meaningful to those provinces that have less than average tax capacity, the tax revenues need to be equalized in some such way as we have been doing in the past 15 years. The government indicates that it is quite prepared to have, as Nova Scotia has suggested, the objective of equalization reflected in the Constitution, in the preamble we have proposed. Second, we feel that the Constitution should provide the government with explicit power to contribute to the equalization of necessary provincial public services.
Those are the main points, sir, that are covered in the paper and the observations that I wanted to make on it.
The Joint Chairman (Mr. MacGuigan): Thank you very much, Mr. Bryce. I think this is an appropriate point at which to transact our business before we proceed to questions, as we have now acquired a quorum.
I think there are four matters I would like to raise with you which I think require motions here today. One of the problems that has arisen is with respect to the publication of these papers which are being prepared for us by the Constitutional Secretariat.
The Clerk has discovered in attempting to have them appended to today’s proceedings-which we have agreed to do—that there are certain problems.
Since all of our material must appear in both languages and much of this is in only one language or the other, much must be translated. When we come to matters such as provincial statutes, we are being put in the position of issuing official or quasi-official translations of provincial statutes. Therefore, perhaps we should have your permission to edit this material so that when problems arise, such as missing pages and pages in the
wrong place and so on, your Joint Chairmen would have the power to deal with these publication problems so that the material will appear in some semblance of sense and without involving us in any particular problems of technical translation which it would probably be desirable for us to avoid.
If there is general agreement on that, I might ask that someone to move that the Joint Chairmen be authorized, for printing purposes, to edit and vary the background papers which are being prepared from time to time by the Secretariat of the Constitutional Conference.
Senator Grosart: Mr. Chairman, before you put the motion, having now looked at these documents I would like to raise the question again as to whether it is necessary to append them to our proceedings? There is a great deal of repetition in them. By and large, they are all summarized in these red, white and black books. My own feeling is that whereas they are extremely useful to members of the Committee to support the summarization that is in the official book here, it seems to me that it would add unnecessary bulk to our proceedings and unnecessary expense. That is my own feeling. When the motion was put previously I had not had time really to look at them.
The Joint Chairman (Mr. MacGuigan): Certainly our Joint Chairmen do not feel strongly about this and we are open to your direction. Probably as former academics, we both felt that the more complete we could make these proceedings the better. The Clerk informed us that we could have these printed but if there is a feeling that this is too great a burden certainly that would be a decision which is acceptable to us.
Perhaps I might invite the Clerk to inform us as to whether there is any problem other than the one that I have mentioned which is posed for our publication.
The only other difficulty that he draws to my attention is that it takes longer for us to get the proceedings printed when we are having these added. Of course, these will be added only so long as we are hearing government witnesses. Once we get to other witnesses we will then be at the end of these materials.
They will be doing two or three other papers of this kind for us. One of them will be on regional disparities. In any case, we on the Committee will get them. The question is whether we want to make these available to the public as well. I invite any expressions of opinion. As I say, we do not feel strongly
except perhaps that we wanted to make the proceedings as complete for future scholars as possible.
Mr. Allmand: Is it that difficult to do it? Since there are only about five or six of them and we only have two more to go, I would approve unless there is an exceptional amount of work involved or expense. Otherwise, I think let us do it.
The Joint Chairman (Mr. MacGuigan): Are there any other views?
Mr. McQuaid: Are these already translated, or do they have to be translated yet?
The Clerk of the Committee: The main one that has to be translated, sir, is the first one on fundamental rights where it has judgments of the B.C. courts. There are some provincial statutes like the Quebec and the New Brunswick ones which are translated, but then there are the Ontario statutes and then a couple of judgments from B.C. that are not translated.
The Joint Chairman (Mr. MacGuigan): With respect, Mr. Clerk, I think that problem will be taken care of with the power to edit but I take it Mr. McQuaid’s question to mean, has the work of translation already been done for us?
The Clerk of the Committee: No.
Mr. McQuaid: I am thinking, Mr. Chairman, particularly of the speeding up of these reports. I think anything we can do to speed up the reports getting into our hands would be very helpful to us.
The Joint Chairman (Mr. MacGuigan): The Clerk says it is the government legislation which is slowing down publication but all of these would be done over the summer, in the next month, and available to us by the end of July at the lastest, I suppose. They would be available to us long before our sittings in the fall and this problem will not reoccur, I presume, next year since we will not be having many more government witnesses. I am in your hands on this.
Mr. Brewin: I would be glad to move the motion that we do authorize this expenditure.
Senator Grosart: I would like to raise another point on the same question. I think you are going to cause some hard feelings. In some places, one province has only one paragraph on a subject. In fact, some provinces are not even mentioned. It is obviously an editor’s job to select what he thinks is impor-
tant but I find it somewhat inclividious to see pages and pages of Ontario in this particular one and no mention whatsoever of Prince Edward Island, for example. Prince Edward Island unquestionably has people who can provide some opinion on this subject but you would not gather it from this official version of important documents.
The Joint Chairman (Mr. MacGuigan): These are of course the published documents. This means that Prince Edward Island have not chosen to publish anything in this field. It does not mean that they could not but only that they have not. I suppose that in that sense, it is an impartial historical record of the documents which have been made public, There may indeed, as you suggest however, be some comparison, perhaps even an individious one, involved in this. However, now that the motion has been made, I should put it.
Mr. Lachance: Mr. Chairman, is it your intention to put also as an appendix to our proceedings, the proceedings that took place at the various Constitutional Conferences?
The Joint Chairman (Mr. MacGuigan): No, it is not. I suppose we will be open to a motion on that if you wanted to make one but we have not considered printing those as part of our proceedings because of the very size of them.
Mr. Lachance: I raise this matter because it appears to me that whatever we have in these red books exist already in the proceedings. Am I correct?
The Joint Chairman (Mr. MacGuigan): Yes, in a large part the Clerk informs me.
Mr. Osler: Mr. Chairman, speaking on this subject, I tend to agree with Senator Grosart. I think it is rather an unnecessary expenditure I am sure that it is unnecessary for the Committee. I do not know who else is going to use it.
The Joint Chairman (Mr. MacGuigan): You have an opposing view, Mr. Ouellet?
Mr. Ouellet: Yes. I do believe by doing so it will become a public document and it could be useful for the public as reference as it is for us. If we have in mind to travel across Canada and to try to attract the attention of the public to our proceedings, that kind of booklet could be a very useful background paper for people who could be interested in our deliberations, I do not believe it will be cost very much and I think we should go ahead with it.
The Joint Chairman (Mr. MacGuigan): Are there any other views?
Senator Grosart: Could we have your assurance, Mr. Chairman, that if any province has presented a paper it is reflected in these documents now?
The Joint Chairman (Mr. MacGuigan): I should read you this letter or introduction which Mr. Davis has asked to be appended to these documents.
The material in this booklet was compiled by the Secretariat of the Constitutional Conference to assist the Special Joint Committee on the Constitution of Canada. The material is drawn from the public record of the constitutional review and is related to the specific subjects to which the Parliamentary Committee is directing its attention.
The letter is signed, Henry F. Davis.
The only assurance of that kind that I could give Senator Grosart is that it is my understanding that this is what the Constitutional Conference is doing in preparing these documents for us. I personally could not vouch that it is complete because I have not made the survey of the documents.
Senator Grosart: Is that not rather important that we rely on the selectivity of the Secretariat to decide which representations by which provinces are regarded as important?
The Joint Chairman (Mr. MacGuigan): It is. However, they are in a position where they would be subject to very great criticism by the provinces if they did not make it complete. They would hardly dare not survey the materials properly.
Senator Grosart: Public servants dare strange things. I think this is an important point. For example, the Ontario presentation is the one that I happen to know something about. I would not agree entirely with the selectivity that has been used here. I am not criticizing it. Any two or three people will come up with different selections.
The Joint Chairman (Mr. MacGuigan): This is an important point all right. There is a certain amount of selectivity in this process on the part of the officials of the Constitutional Conference and while they, of course, have to answer to the provincial premiers on this as on other questions, this may be another consideration in our minds that might suggest that we should not append these documents
at all but just leave them out. Personally, I have no strong feelings one way or the other. I just want to get a consensus because we cannot have these proceedings printed until we get this question solved. I will put the question then. It is moved by Mr. Brewin and seconded by Mr. Marceau:
That the Joint Chairmen be authorized, for printing purposes, to edit and vary the booklets entitled Background Papers which are being prepared from time to time by the Secretariat of the Constitutional Conference.
Motion agreed to.
The Chairman: One of the serious problems that we face is the fact that we do not as yet have a staff for the Committee. The longer this problem is postponed the more difficult it becomes. I bring this proposition to you with the approval of the steering committee. There are two propositions together on this. One is that because of the absence of time to discover available candidatcs for most of these positions, the Joint Chairmen in consultation with the other members of the steering committee should be empowered to engage the services of an economist and a special administrative assistant and clerical and stenographic help subject to Mr. Speaker’s approval.
We could have made that complete except that we are prepared to recommend to you at this time the appointment of a legal adviser. It seems only appropriate that we should place this before the whole Committee rather than have the power delegated to us and then exercise it in that fashion. I believe the Clerk has distributed to all of you a biographical note which I sent around first to members of the steering committee and now to members of the whole Committee concerning the gentleman that we would propose to you for appointment as our legal adviser.
Mr. Hogarth: Mr. Chairman, I find that this gentleman’s qualifications are ideal for the work of this Committee and I would move that he be hired at a salary of $18,000 a year.
The Joint Chairman (Mr. MacGuigan): I have a motion in somewhat more technical form which has been worded for us with the assistance of the Speaker’s office. They prefer to put his salary on a monthly basis for reasons which I cannot explain to you.
Mr. Hogarth: I so move.
The Joint Chairman (Mr. MacGuigan): Perhaps I might make the motion, Mr. Hogarth.
Mr. Ouellet: Could I ask a question?
The Joint Chairman (Mr. MacGuigan): May I first read the motion? If your question pertains to this, would you prefer to ask the question before I read the motion?
Mr. Ouellet: It pertains to the appointment of the gentleman. I just want to know if he is bilingual.
The Joint Chairman (Mr. MacGuigan): He is not bilingual. He reads French but he is not bilingual vocally. He is in part but very far from being completely bilingual. The steering commi tee did aazree tha the one appoin mom; that must be bilingual is the special administrative assistant who will be a public relations man, charged with the responsibility of organizing the meetings across the country. However, one of our purposes in appointing Mr. McWilliam would be that his background in this area would make him most helpful to us if we are unable in the near future to get someone with these qualifications. He could at least assist us in setting up the meetings in Manitoba in the fall.
Mr. Ouellet: All right.
Mr. Lachance: Are you sure, Mr. Chairman, that no member of Parliament has applied for the job at $18,000?
The Joint Chairman (Mr. MacGuigan): If members of Parliament were eligible, I am sure that many of them would have applied.
The wording that I would suggest is: That, pursuant to the authority granted to your Committee to engage personnel un ii the Commitee has concluded its work or until December 31, 1971, whichever is sooner, the Committee retain the services of Mr. David L. Mcwilliam of the Bar of Ontario as legal adviser until the Committee has completed its work or until December 31, 1971, whichever is sooner, at a salary of $1,500 per month, subject to the approval of Mr. Speaker.
Mr. Hogarth: I so move.
The Joint Chairman (Mr. MacGuigan): It is moved by Mr. Hogarth and seconded by Mr. Lachance.
Motion agreed to.
The Joint Chairman (Mr. MacGuigan): Now the companion motion is moved:
That, pursuant to the authority granted to the Committee to engage personnel until the Committee has concluded its work or until December 31, 1971, whichever is sooner, during the summer recess, the Joint Chairmen be authorized to engage the services of an economist, a special administrative assistant and such clerical and stenographic help as they deem necessary, after the usual consultation, at salaries to be approved by Mr. Speaker.
Mr. Ouellet: I so move.
The Joint Chairman (Mr. MacGuigan): If, of course, we are not able to make this appointment during the summer, this will then come back to the Committee in the fall for approval by the Committee.
Mr. Baldwin: Do you think you can find anyone available in the country?
The Joint Chairman (Mr. MacGuigan): I am not sure. We have exerted already quite a bit of effort in trying to get somebody, especially on the public relations side, who would be bilingual and we have not yet come up with even a satisfactory nomination of someone who has all the qualifications.
Mr. Alexander: Is it a question of money, Mr. Chairman?
The Joint Chairman (Mr. MacGuigan): It is a question primarily of getting someone who is sufficiently bilingual and who has had sufficient experience to do the job.
Mr. Ouellet: Was it well publicized?
The Joint Chairman (Mr. MacGuigan): No, I think we may have to advertise now at this point for it, I presume that the House of Commons would have authority to do that.
Senator McDonald: Mr. Chairman, who is paying the costs for this personnel?
An hon. Member: I did not know the Senate had any money.
The Joint Chairman (Mr. MacGuigan): The Clerk advises me that this is a somewhat nebulous area. Usually the costs are divided between both Houses in proportion to the amount which is available in the budgets of those Houses. Generally speaking, the House in which the motion originates carries the heavier burden. Perhaps we should have a senator make this motion.
Senator McDonald: The reason I raised the point, Mr. Chairman, is that you make reference to the Speaker; I presume you are refer ring to the Speaker of the Commons only.
The Joint Chairman (Mr. MacGuigan): I guess “Mr. Speaker” includes both Speakers, but should we have made that clear? We intend here to include both Speakers equally.
Senator McDonald: Fine.
The Joint Chairman (Mr. MacGuigan): Mr. Ouellet has moved the motion. Has someone else seconded it? Yes, Mr. Lachance. Mr. Allmand.
Mr. Allmand: When you say “after the usual consultation” I presume it means that you consult with everyone on the steering committee.
The Joint Chairman (Mr. MacGuigan): Yes, unless someone goes to Timbuktu and is not available for the whole of the summer recess; but anybody who can be reached will certainly be reached. We will not do this in a hurry.
Mr. Allmand: In that case, you would consult with somebody else in the same party who would seem to be second or third on the list, I suppose. I do not think it would be good if you hired somebody without full consent of all parties.
The Joint Chairman (Mr. MacGuigan): Yes, I am sorry, I did not understand your question, If Mr. McQuaid, for instance, were unavailable we would certainly not move even after some time without consultation with Mr. Baldwin or someone Mr. Baldwin would designate. So there will be full consultation in that sense, yes.
Mr. Lachance: I have a supplementary, Mr. Chairman. In the ease of Mr. McWilliam, was it unanimous of the steering committee?
The Joint Chairman (Mr. MacGuigan): Yes. Is it agreed?
Some hon. Members: Agreed.
The Joint Chairman (Mr. MacGuigan): There is the final question of advertising with respect to the popular hearings, especially those to be held in Manitoba in September. Before we come back we will have to publish
some type of advertisement in the Manitoba papers. Several days ago I suggested to the other members of the steering committee some of the questions we were interested in which might be published. I want to go into those thoroughly with steering committee members before we come to any conclusion, but as we will have to do something on this before the whole Committee comes together again, I wonder if it would be agreeable that the Joint Chairman be authorized to draw up and direct the Joint Clerks of the Committee to publish an advertisement to encourage popular participation in the Comrnittee’s work, That should certainly be as well “after the usual consultation”. It will read this way.
That the Joint Chairmen be authorized, after the usual consultation, to draw up and direct the Joint Clerks of the Committee to publish an advertisement to encourage popular participation in the Committees’ work.
M. Hogarth: I so move.
Mr. Allmand: I wanted to make the point that we should consider placing these advertisements not only in the daily newspapers, but also in the ethnic press and perhaps in weeklies because sometimes weeklies serve some small communities more effectively than the dailies; and wherever it is appropriate, we use the French-language newspapers too. For example, in Manitoba there are probably some French-language newspapers and there certainly are some ethnic newspapers. This is just a feeling that I have. Maybe you should consult with the people from those provinces on the most effective media as well as with Senator Yuzyk and others from that province.
Senator Yuzyk: I think that is an excellent idea.
The Joint Chairman (Mr. MacGuigan): I think that is an excellent suggestion. By the way, it is hoped one of the officials of our Committee will actually go and see the leaders of some of the communities in the areas in which we are going to have hearings to establish good communication before the Committee actually arrives.
Senator Grosart: Mr. Chairman, if you are going to do that you better have a budget. If you start to get into weeklies and ethnics your problem of selection is just about impossible. For example, if you get into the
ethnic papers or the ethnic press, if you are going to give it to everybody—and I do not see how you can pick and choose—you will run into fantastic costs. The same applies to weeklies. I have had some experience in that field. You will have to have a budget because the cost of an ad of such and such a size in all ethnic papers or all weeklies in an area will be colossal.
The Joint Chairman (Mr. MacGuigan): Yes. That is a useful caution as well. As you are on the steering committee, Senator Grosart, you will be one of those who would be approving the places of publication; and that applies to Mr. Allmand as well. I can see we will have some some interesting discussion on the Committee.
Senator Grosart: I am in favour of the principle but I just do not know how you will work it out.
Mr. Lachance: I hope the Committee will bear in mind the costs this may incur; if we were to run an ad in all the papers in Canada, it may be a great expense.
Senator Yuzyk: You would have to look at the circulation, too.
Mr. Hogarth: Mr. Chairman, I have an important engagement at five o’clock; could we call for the question because I do not want to break the quorum. I know you want this resolution to go through and it is certainly acceptable in principle to everybody.
Mr. Osler: Could you add “subject to budget”.
The Joint Chairman (Mr. MacGuigan): I think we are already subject to that and the steering committee will note your comments.
Mr. Osler: It is a very important point.
The Joint Chairman (Mr. MacGuigan): I do not think any of us are extravagant men and Senator Grosart is there to protect our dollar. We have taken the sense of your comment, Mr. Henderson is also on the watch to protect the public as well.
Mr. Baldwin: Mr. Bryce is very interested.
Mr. Osler: I have seen other just as well intentioned committees do some pretty stupid things.
The Joint Chairman (Mr. MacGuigan): Perhaps you can give us the benefit of the doubt until we have committed similar offences.
Motion agreed to.
Mr. Brewin: Mr. Chairman, while you are dealing with this sort of administrative thing, have you made any progress in fixing the dates in September?
The Joint Chairman (Mr. MacGuigan): We are working on that. The Clerk has already been in contact with hotels in the West. You will recall that the Committee had unanimously agreed to go shortly after Labour Day. One or two members who were not here when that vote was taken have since raised the question whether it would be possible for us to go later in the month. We are considering all these matters in light of the available hotel reservations and we hope to inform you very early in July as to what the approximate dates will be.
It will take us longer, of course, to say what the meetings will be during that period. All we can do, in the first instance, is to say which dates we will be in a certain place. The meeting times and places will have to be arranged subsequently; but you will at least know the time we leave Ottawa and the time we return to Ottawa as soon as we can arrange that.
Mr. Osler: Mr. Chairman, even if We do not have details worked out about times, I think it is rather important that we get our notices out well ahead of our arrival because some of these people are going to be thoughtful people who want to collect their thoughts and they may take a month and a half or two months to mull over them.
The Joint Chairman (Mr. MacGuigan): Yes, right. As the vote went this way I assume I have your agreement to append this document prepared by the Constitutional Committee to today’s Proceedings.
Mr. Bryce we will return to you. I regret having interrupted for so long the flow of thought between us and you but we have to act when we can get our quorum especially because of the number of committees sitting at the same time. Our turning to other business indicates no lack of interest in the subject which you have brought forth. Mr. Allmand.
Mr. Allmand: Mr. Bryce, have you and your oflicials examined whether other federal states have found a system whereby they prevent the local and central governments from completely exhausting the taxpayer in taxing? Have Germany, Switzerland, Australia and the United States found other systerns in which there are some kind of boundaries, or do they all have this freedom of access to all fields? Do they operate on the same principles?
Mr. Bryce: Perhaps I could get Mr. Lysyk to come up und speak with me a moment on this.
The joint presence is very common, particularly in the major fields of income taxation. This gives rise to problems as to the relative use of the fields by the States and Congress in the United States, and by other jurisdictions such as the lender in the federal government in Germany and that sort of thing.
Mr. Chairman, unfortunately neither Mr. Lysyk nor myself were working on the preparation of this paper. We are just unable to answer as to how far a search was made and what it revealed.
Unfortunately, I came into this after the paper had been out and that was a question I omitted to inquire about.
Mr. Allmand: Perhaps later on, we could be informed. Somebody could tell one of the Joint Chairman and he could tell us. I would also like to know whether any federal states have formalized the consultation process. You have a discussion of that possibility in here and Quebec has suggested a commission. I would like to know whether any other federal state has any formalized process or commission such as has been proposed or discussed in the booklet?
Mr. Bryce: We will ascertain that, Mr. Chairman, and let the Committee have a report on that. I think that is a perfectly proper question to ask us. I am a little sorry that we do not have the material on hand to analyse it.
Mr. Allmand: Under our system, if I understand correctly, the only way in which we can be guaranteed that the two levels of government are not going to tax the citizen into the ground is through political consultations between them. There is nothing to prevent the amount of tax at either level in the income tax field.
Mr. Bryce: There is nothing in the Constitution that prevents it. I was going to say there is nothing in the statute law except that the statute law has to be changed to do it.
The defence, if I may say so, lies really with Parliament and the legislatures and with the views of the public in influencing Parliament in the legislatures. It rests essentially on the political process. The defence of the populace against taxation is one of the oldest of Parliament’s duties.
Mr. Breau: I just have one short question. In your statement, Mr. Bryce, you were very careful to mention that provinces have learned to impose sales tax. Why did you say: “have learned to impose sales tax”? Was it not within teir powers?
Mr. Bryce: The sales tax that the Government of Canada imposes has been an indirect tax for many many years. I think it was the more classical thinking of the economists and such that sales tax was normally an indirect tax but by making retailers their agents in collecting from the consumers in that way, they were able to get it into a legal form that satisfied the constitutional requirements and enabled the provinces to get into this field.
I would find it hard to say exactly when they started. I guess in the forties, Mr. Irwin, or would it be the fifties? The gasoline tax goes back earlier than that again.
Mr. Breau: That is all, Mr. Chairman.
The Joint Chairman (Mr. MacGuigan): Mr. McQuaid?
Mr. McQuaid: Mr. Bryce, I think the agreement of the federal government is that the indirect sales tax, although it is an indirect tax at the retail level, be also made available to the provinces.
As far as the poorer provinces are concerned, that does not mean too much as far as additional revenues are concerned.
It has been suggested in some of these papers, and I think it was perhaps by the Province of New Brunswick, that the revenues from all these sales taxes could be pooled and then allocated to the provinces through a formula which would be devised later on.
Do you know if the government has taken any stand on that proposal?
Mr. Bryce: Mr. Chairman, We feel that this problem has largely been met by our equalization arrangements. The equalization formula takes account of the lower sales tax base in some provinces and for the gasoline tax and things of this sort. This means that each province is assured of that amount of revenue from that field equal to the average tax rate of all the provinces, applied to the average tax base of all the provinces, making due allowance for the difference in population.
If the province does not choose to put on a tax of that weight, then it does not get the full revenue because of its own choice. Given that factor, we do not think that it is necessary to have a pooled arrangement. It is really pooled through equalization. Equaliza-
tion is a very large pool now. It runs to something in the order of $800 million a year or thereabouts. It does accomplish much the same purpose that pooling would accomplish.
Mr. McQuaid: I presume you would agree that this sales tax hits hardest the man in the lower income bracket, does it not?
Mr. Bryce: That depends, sir, on the exemptions. It has been generally thought over the many decades that the sales tax tends to be a regressive tax. However, if you exempt food from the tax and if you exempt many aspects of shelter from the tax, it is not so regressive a tax.
While it does not take account of ability to pay in the same calculated way that income tax does, neither is it so regressive a tax as the real property tax is or some of the other things that bear heavily on the poor.
Mr. McQuaid: I also understood you to say that the federal government and the governments of the provinces have pretty well reached a consensus insofar as this matter of the division of taxing powers is concerned.
As I recall it, the Province of Alberta and possibly the province of British Columbia objected very strongly about the federal government exercising so much control in the personal income tax field. They felt that that field should be assigned, predominantly, to a large extent to the provinces rather than to the federal government. Has that difference been resolved between these provinces and the federal government?
Mr. Bryce: No, sir.
Mr. McQuaid: I beg your pardon?
Mr. Bryce: No, sir, not the difierence of degree. There is a considerable measure of agreement that we should both have access to the field but I think all the larger provinces, Alberta, British Columbia, Ontario and Quebec, would hope that we would have a smaller share of the income tax. They differ perhaps in degree there. Whether we will ever reach agreement on the share of the income tax, I do not know.
Mr. McQuaid: Perhaps that is what this Committee was set up to do.
Mr. Bryce: We have been trying for thirty years to accomplish it.
Mr. McQuaid: That is all Mr. Chairman.
The Joint Chairman (Mr. MacGuigan): Thank you Mr. McQuaid. Senator Grosart.
Senator Grosart: Mr. Chairman, I would like to ask Mr. Bryce about the suggestion in the Ontario brief that it might be possible to eliminate all financial transfers between the federal government and the provincial government other than the equalization payments. What has been the federal government’s response to that?
Mr. Bryce: Sir, apart from the equalization payment and the tax money owing under their laws that we collect through tax collection arrangements, the main things left are the large shared-cost programs and these are basically the hospital insurances program, the Medicare program, the Canada Assistance Plan and the post-secondary education program. These are the big ones. Those are very large and very important programs.
For a number of years, the government has offered to make some settlement in terms of tax points for several of those programs, notably the hospital insurances program and the Canada Assistance Plan. On a deferred basis, the Medical Crae Act provides for some kind of fiscal compensation for the provinces taking over sole responsibility for that. In a sense, the government has, in principle, agreed that there would be an advantage in making a transfer of this character. However, the government suspended its willingness to put such a proposal into effect at the time it brought out the White Paper on Tax Reform simply because we did not know what the value of tax points were going to be for a while.
Moreover, we are not sure that we know what the cost of these programs is going to be either. It was very difficult to make a settlement as a practical matter. In principle, the government has been willing to do some of this. We have not had any similar proposal in regard to the post-secondary education program because the legislation only authorized it for five years. The five years are up in roughly two year’s time, in March 1972. We felt that we were not committed to them in a degree that would require some such settlement there.
However, all the provinces are not in favour of this. There are substantial problems in applying it even in those fields where the federal government has offered to apply it. Therefore, it is not an immediate prospect that affects what is at issue on the constitu-
tional provisions. It would affect the way we use what is in the Constitution.
Senator Grosart: Was not Ontario’s suggestion that it would in effect be a constitutional provision?
Mr. Bryce: That, I do not recall.
Senator Grosart: I do not think they were explicit but it seemed to me that this was to be a fundamental basis of the distribution of the taxing power.
Mr. Bryce: This really comes up in regard to the paper on the spending; power which the Committee considered at one of its meetings last week. It belongs there rather than here so I did not brief myself on exactly what their proposals were. Our position on the spending power is now well known. We feel we should. retain the constitutional right to make conditional grants to the provinces. However, where these grants are in fields subject to exclusive provincial jurisdiction, the program should be subject to approval by a designated consensus of the provinces and those who do not approve should be entitled to some form of fiscal compensation.
Senator Grosart: Ontario suggested an alternative to a fiscal compensation. It suggested that the funds be raised within the provinces that opted in. Is that feasible?
Mr. Bryce: To do that you would have to use really the personal income tax because that is the only one which you can identify clearly enough with the people in the province to make sure that it sticks. That would mean that we have taxes varying greatly from one province to another for two reasons. First, some provinces would be in and other provinces would be out. Second, the amount of tax we need in Ontario to support a program there is likely to be less than the tax we would need in Manitoba to support the same program in Manitoba because of the relative tax capacity per capita. So that this would produce quite a variation from province to province in the personal tax rates and, moreover, might well dominate the use of the personal tax by the Government of Canada and Parliament.
Senator Grosart: Are you saying therefore that it would appear to be the view of the federal government, as expressed, that transfers must go beyond any equalization that might be worked out under the equalization payments.
Mr. Bryce: Yes, I think so, sir.
Senator Grosart: To change the subject, Mr. Bryce. Has anybody estimated the present level of double taxation between provinces.
Mr. Bryce: In what sense, Senator?
Senator Grosart: It is reflected where there are taxes levied in a province which are reflected in the price of goods exported from the province to other provinces. There must be some current level.
Mr. Bryce: We have not the data to do that. We would have to conduct quite a survey to identify how common it was. Of course, we would have to make some judgment as to how far some of the taxes levied within a province in fact get reflected in the prices at which they sell goods to other provinces. That is very difficult to do for the reasons I mentioned earlier. Let us say we take the tax on places of business for various corporations. How far is this rcflected in the taxes of goods exported from Quebec is a very difficult thing to judge. As far as sales tax goes, the laws are such as to preclude any significant amount. There may be the odd thing that is sold from one province to another.
Mr. Irwin points out to me that the main things that are probably involved here are the provincial taxes on production machinery, the real property taxes and the place-of-bush ness taxes that are paid by businesses. It is very difficult. Of course, they recover them in one degree or another. If you are engaged in business and have to set prices to recover your cost, you will try to do it on all your sales or on as many of your sales as possible. It will depend on the degree of competition. Whether the wheat farmer in the West can increase his prices in order to reflect his taxes on land in selling the wheat that goes into the flour that goes to other provinces is a moot point. I do not suppose there is much of that.
On the other hand, the manufacturer in Ontario, Quebec or British Columbia that is selling into other provinces in the end probably recovers his real property taxes in some part out of his sales outside the province.
Senator Grosart: Casting of automobiles would be an interesting pilot study on that. I have a final question. What has been the effect of the changes in the Alberta Succession Duty Act in terms of individuals obviously taking advantage of it by moving their domicile?
Mr. Bryce: We do not have the facts to distinguish which of the statistics on move-
ment between one province and another arises from these causes but, of course, you can put certain of your property in Alberta without having to move there yourself.
Mr. W. Ivan Linton (Director, Tax Base Research Division, Department of National Revenue): You do not get the advantage unless you move too, or unless you establish a residence.
Senator Grosart: A residence or a domicile?
Mr. Linton: The domicile or an alternative residence test that they have in their act, it you are there a certain period in each of three years, I think it is. There is a residence test in addition to a domicile test, but one way or another you have to get yourself there.
Senator Grosart: Is there evidence of its having a significant transfer effect on assets?
Mr. Linton: None that I know of, but it is Very difficult to say.
Senator Grosart: That is all, Mr. Chairman,
The Joint Chairman (Mr. MacGuigan): Senator Yuzyk.
Senator Yuzyk: I have two questions, Mr. Bryce. One is about the cities and municipalities. We have been witnessing in recent years the rapid expansion of cities. The big cities particularly are getting bigger and they are complaining, of course, that their taxing powers are highly restricted mainly, as I understand it, to property taxes. It would appear that some of these cities would like to have the status of states like the city states of ancient times. Has the government been giving any thought to widening the taxing power of municipalities and cities?
Mr. Bryce: Sir, this is a subject on which the Government of Canada is very cautious. The cilies have the taxing power that the provinces give to them, within the powers that the provinces can legislate, so it is up to the provincial governments to decide which they would do.
Senator Yuzyk: I am not aware of any city that is satisfied with its taxing powers. They are all getting into greater difficulties because of their limited taxing power.
Mr. Bryce: I think that is our experience too, sir. We are not aware of any that are
satisfied. There have been various suggestions put forward in the past. Even irom Ottawa I think you will find on the record that the Minister of Finance some years ago suggested that the cities could use a tax on automobiles to considerable advantage and, indeed, this has been mooted sometimes from Ottawa. However, the provinces do not choose to give it to them and it is up to the provinces to decide.
Senator Yuzyk: Well, there might be a battle ensuing here regarding this matter, because the mayors do meet, do they not, at least once a year? They have a federation and their demands are getting stronger I think all the time are they not?
Mr. Bryce: Oh, yes.
Senator Yuzyk: The other question I have concerns the sheet that we received today, the table on page 8.
The Joint Chairman (Mr. MacGuigan): Perhaps I may ask, because you raise that, whether we should have this attached as an addendum to Mr. Bryce’s presentation. I assume that was your intention too, was it not, Mr. Bryce?
Senator Yuzyk: If it is necessary I will move to have this attached as an addendum. Motion agreed to.
The Joint Chairman (Mr. MacGuigan): I think there is one error in number 6.
Senator Yuzyk: Yes, there is.
The Joint Chairman (Mr. MacGuigan): It should be 99.7 rather than 97.7, so we may insert it with that correction.
Senator Grosart: It might be noted, Mr. Chairman, that it is an updating of the table on page 8. I wish we could find a name for this book instead of calling it the red, white and black book.
Senaior Yuzyk: I would like to ask a question about these tables because they are very interesting. I would like to have seen on the record, say, at least the past five years to give us some idea of the proportion of taxes. For comparison we have 1967-68 and now we have 1969-70, and we do not have the year between. I notice in the allotment of taxes between federal and provincial levels of government that the federal governments share is decreasing. Has that been the situation during the past five years?
Mr. Bryce: I think it has been, sir. I regret to say that I do not have the figures here. If the Committee wishes we can provide these figures over a period.
Senator Yuzyk: I think this is important. These tables are not very complicated and I imagine they are easy to assemble. May I make a motion, then, that we have at least the past five years?
The Joint Chairman: I think that idea would meet with general acceptance, and we. . .
Senator Grosart: Mr. Chairman, before you put the motion, we have the figures in the papers provided to us; namely the Tax Structure Committee Report, which takes the figures back to 1952.
Mr. Osler: Mr. Chairman, this is the proportion of federal, municipal and provincial?
Senator Yuzyk: Same type.
Senator Grosart: That is not exactly the same table.
Mr. Bryce: The basic figures are in the Tax Structure Committee Report. That is right.
Senator Yuzyk: But they would have to be selected from among other statistics.
Mr. Bryce: Yes.
Senator Yuzyk: Well, I still think that this is very brief and succinct.
The Joint Chairman (Mr. MacGuigan): Yes. I think so long as we have Mr. Bryce’s agreement to send us these figures and the Committee’s agreement to add them as an appendix, we probably do not need a formal motion. I am sorry, Senator Grosart. I did not take the sense of what you said. Could you repeat your point?
Senator Grosart: I said the basic figures are already before us in the report of the Tax Structure Committee. I remember an answer to Senator Yuzyk’s question that the federal proportion has dropped from 73 per cent in 1952 to the 52.6 per cent we have here. As a matter of fact, I have used the figures in there.
The Joint Chairman (Mr. MaoGuigan): Yes, I am sorry. I was not clear whether you were moving that we should prepublish that or not.
Senator Grosart: Oh, no.
The Joint Chairman (Mr. MacGuigan): Thank you. Senator Yuzyk.
Senator Yuzyk: I think my question has been answered. The only interpretation I have is that the provincial governments have been very effective in presenting their points of View and in whittling away some of the powers of the federal government in taxation.
The Joint Chairman (Mr. MacGuigan): Mr. Osler, and then I would like to ask some questions.
Mr. Osler: I certainly commend Senator Yuzyk for his obseivation. I hope when he goes home that he keeps pounding that fact in, because as a politician who has to get re-elected all the time I find that is the thing I have to keep pounding in. Some of the traversties of the facts that are used against the federal government are hard to believe.
Would it be too unacademic for this august body if Mr. Bryce were to go quickly through the difference between estate taxes and succession duties for my benefit? If it is, then somebody else can take me by the hand some other time.
The Joint Chairman (Mr. MacGuigan): No, I think that is a fair question, and I think Mr. Bryce is the man to answer it.
Mr. Bryce: Could I ask Mr. Linton, the real expert on this to answer? I have my own view as to what the difference is but I think he is more authoritative.
Mr. Osler: There seems to be a clear distinction in everything you read.
Mr. Linton: Succession duty is a direct tax on the person who receives the property, on the property passing to him, and the taxes owing by him. An estate tax is an indirect tax placed on the executor on the property that passed from the deceased to various other people and paid by the executor generally, though not always, as if it were a debt of the estate and falling therefore on the residuary legatees.
Mr. Osler: So from the practical point of view of the people that are being gouged it is the same thing?
Mr. Linton: Well not quite. It depends what kind of a legatee you are. In an ordinary succession duty, if the burden is not shifted by the will, the legatee, say, of a cash legacy pays the duty on his legacy. In an ordinary estate tax, if the burden falls on the residue, then the person who gets the residue, the main body or the mass of the estate, pays the tax and the specific legatee pays nothing.
Mr. Osler: What then, Mr. Chairman, is the point? I remember Mr. Benson alluding to it once last year when his estate tax changes were on and we had some kind of a briefing in caucus. He made quite a thing about the difference between estate taxes and succession duty laxes, and that Ontario had succession duty taxes.
Mr. Linton: The provinces are confined to succession duties because of that being a direct tax and they are barred. at the present time from imposing an indirect tax. So they must, if they collect anything, collect the succession duties.
Mr. Osler: Off those who succeed.
Mr. Linton: Who receive, yes.
Mr. Osler: Again, we are perhaps a little bit off the subject, but if it were decided that due to other White Paper implications for instance estate tax loaded things too hard the federal government could get out of estate tax but it would still leave the provinces the privilege of levying succession duties. Is that right?
Mr. Bryce: If they wished. Most do not now. Three of the provinces levy succession duties, British Columbia, Ontario and Quebec. The others receive a portion of the estate tax from Canada and do not levy their own. Ontario and Quebec are partly one and partly the other at the moment.
Mr. Osler: Thank you. Could I, Mr. Chairman, if it is not too elementary, ask for a brief explanation of the value-added tax? I think I see where the complications would be.
Mr. Bryce: The value-added tax essentially is a sales tax which takes into account what
the seller himself has purchased to build into the product that he is selling and consequently it is measured, roughly at least, by what the economist calls the value he adds. If he is a manutacturer he buys raw materials, fuel power and machinery, on all of which under a general vaIue-added tax he would pay some sales tax, some value-added tax to the people from whom he buys it. Then when he sells he deducts the cost of what he buys from the value of what he sells and he in effect is taxed on the difference. This difference is roughly the value his enterprise adds to the products and services they buy, but excluding labour.
Mr. Osler: The reason I asked is that if it were possible to work out a system whereby it could be done I was trying to see how it would affect various regions, because some regions are more hewers of wood and drawers of water and others are more manufacturing and do perhaps more sophisticated processes.
Has anybody a rough idea of what the sort of average markup would be at various stages?
Mr. Bryce: That varies a great deal with the nature of the business and even the nature of the individual firm. It is very complex to decide how far the tax on the value-added in Ontario, for example, would bear on the purchaser of a car in Manitoba. If you had no way of taking into account the exports and rernzitling the tax on the exports then of course your purchaser in Manitoba would pay a good deal of tax on the value that is added in Ontario. So if one is going to use a value-added tax one has to make adjustments for exponts and imports in one way or another. When you come to study it in detail it has advantages from the point of view of trade in that you can apply it to imports and exempt exports. This is one of the things that has complicated our trade arrangements in recent years as various countries, particularly in Europe, have shifted to a value-added tax. But it is a long subject, sir, and very complicated to get into.
Mr. Osler: What I was getting at is that there does not appear to be any likelihood whatsoever of some relatively rough and
ready formulae being worked out between provinces that would be acceptable by all. In other words, in respect of the man that makes a piece of plywood veneer in British Columbia there would be a plus or minus factor relative to the man that finished the wood and made a piece of furniture in Ontario.
Mr. Bryce: In fairness, sir, I think some of the provinces feel—perhaps Mr. Irwin could speak to this point—that it is possible to work out formulae that would exempt from the value-added tax goods that are sold from one province to be consumed or used in another province and that would then permit the province into which they are imported, so to Speak, to put their tax on instead of the value-added tax in the province of export. Now we have raised with the provinces the question of whether they can really enact and devise and administer a tax that will accomplish this purpose in the form of a value-added tax. In principle I would say it is soluble, in practice there are very real difficulties.
Senator Grosart: Has it ever been in operation in a federal state?
Mr. Bryce: It is in operation in Germany, Mr. Irwin says, which is a federal state.
The Joint Chairman (Mr. (MacGuigan): Mr. Irwin, would you care to make an additional comment on this point?
Mr. Irwin: I think not, Mr. Chairman.
The Joint Chairman (Mr. MacGuigan): Are you finished, Mr. Osler?
Mr. Osler: I think so. I have another thought but it is not well enough advanced.
The Joint Chairman (Mr. MacGuigan): I would like to ask several questions and perhaps you can formulate your question during that time.
Mr. Bryce, I suppose it is fair to say that the most apparently radical proposal in this constitutional paper is with respect to allowing the provinces to have an indirect provincial sales tax. Yet with respect to this proposal there is some question even as to whether it could be used at all by the provinces. May I ask how beneficial it would be from the revenue viewpoint to the provinces? Is it likely,
even if implemented and if practicable at all, to reveal a large source of additional taxing powers for the provinces?
Mr. Bryce: No, I would say it does not yield a great new source of revenue. It somewhat simplifies their problems of administration and law and things of that nature.
The Joint Chairman (Mr. MacGuigan): It would be faire to sap then that this federal document from the viewpoint of over-all revenue makes no radical new proposals?
Mr. Bryce: No, sir.
The Joint Chairman (Mr. MacGuigan): I wish it had been possible for my joint chairman, Senator Lamontagne, to be here today to pose questions of the complexity which your presence I think would encourage. Perhaps I may put it this way. From the layman’s viewpoint, during the century or so of Confederation there has been a staggering variation in the amount of revenue which has been raised by various levels of government. Other members were referring to this a few moments ago. All this has occurred without any substantial effect probably in the tax area, without any variations at all in the respective taxing powers of the federal and provincial governments.
Perhaps this is an unfair question to ask you, but do you foresee as likely that the provincial tax revenues will continue to rise even under the present constitution in a fairly substantial way? Or is it your feeling that we are not likely to go any further in the direction of increase in combined provincial and municipal spending over federal spending?
Mr. Bryce: Sir, my own view is that the trend of provincial plus municipal expenditure continues to be up and is likely to remain an up trend. How far that will be accompanied by a slower up trend in federal spending you gentlemen can probably judge as well as I can, but how that up trend will compare with the trend of the gross national product and the gross national product per capita is a more difiicult thing to say.
The relationship between the total tax and other public revenue has been rising in relation to the gross national product and it has
been rising for a variety of reasons I will not try to go into. Whether it will go on rising is partly a question of the kind of developments we see and, of course, it is partly a question of policy; what Parliament and the legislatures decide is the right thing to be done.
The Joint Chairman (Mr. MacGuigan): In the light of this present and projected future up trend in provincial tax revenues, I would assume that the provinces cannot make a very strong case for new tax powers when they already have the advantage of this automatic—perhaps I should not say automatic but annual increase in any event.
Mr. Bryce: Sir, in this paper the government has said that it is agreeable to the provinces having access to all the tax power that they can have without really interfering with one another or with trade among them. We have not in any way endeavoured to keep the provinces out of any field in order to protect our use of those taxes. Our tests have been essentially tests to preserve fairness among the provinces themselves or to prevent their imposing the kind of taxes that would prevent trade between them.
The Joint Chairman (Mr. MacGuigan): Would you say that there are major points of contention between the provinces in general and the federal government in this area?
Mr. Bryce: No.
Except possibly the Quebec view that we should not impose death duties for what are really reasons of principle and institutions, not revenue.
The Joint Chairman (Mr. MacGuigan): Yes, and of course British Columbia has had some fairly extravagant proposals.
Mr. Bryce: Yes.
Senator Grosart: Customs.
Mr. Bryce: Customs we keep for essentially trade reasons rather than revenue reasons.
The Joint Chairman (Mr. MacGuigan): With respect to the suggestion as to corporation tax on pages 22 and 23 of the constitutional paper:
The Government of Canada believes it is essential that there be agreed rules for
the allocation of business income among the provinces, for the purpose of preventting the taxation of the same business income by more than one province, and for the purpose of allocating the total tax base fairly between the provinces.
The government leaves open the question as to whether this should be accomplished by constitutional means.
If this were to come about, especially by constitutional means, would this weaken the case for equalization payments? One of the reasons that has always been given for equalization payments is the fact that it has not been possible for a province where some of the business is done but where none of the manufacturing is done to tax adequately a corporation which does do some business in that province, at least by way of selling. If such rules are devised at the level of corporate tax, then could this considerably affect the equalization payments?
Mr. Bryce: I think it is right to say that since equalization started, the concern about allocation of business income among the provinces has weakened. To that degree they are interrelated. On the other hand, I do not think that the working out and putting into the constitution of rules of allocation will by any means remove the need for equalization.
Mr. Osler: Could I ask a supplementary on that?
The Joint Chairman (Mr. MacGuigan): Yes.
Mr. Osler: The one area that I think is very, very fuzzy, but it is articulated from time to time as you may have heard, is the self-generating aspect of things in the so-called “have” provinces as against the “have-not” provinces. I mean success breeds success and some of that success is contingent upon activities that are going on in other provinces that have not got to that take-off point yet, so there is a feeling that there is inherently a bit of an unfair loading towards some of the “have” provinces because of this self-generating effect. There would be no feasible way of writing that into tax law, into equalization, would there?
Mr. Bryce: I think there is no feasible way of writing it into the constitution, sir. We are endeavouring through the programs for regional expansion, regional development, to counteract those tendencies, but I do not think it is possible either to stop it by taxa-
tion or to stop it by legislation. We are trying to do it In o more positive sense than to stop it in one place in order that the others can catch up.
The Joint Chairman (Mr. MacGuigan): I will just ask one final question, and that is with regard to consultation. I do not know if it is fair to put the question this way. How effective can consultation be—perhaps I am really asking how satisfying it can be to the provinces—perhaps I should put it both ways—how satisfying can it be to the governments involved? There are so many factors which are bound to limit the degree of consultation. Would you say, for example, that the degree of consultation has increased considerably in the last three or four years?
Mr. Bryce: Without any doubt the degree of consultation has increased. Whether the provinces would agree that the success of consultation has increased is a different matter. The ministers of finance now have decided to meet every three months, but they still are able to find plenty to disagree about every three months. There has been another committee proceeding today at which the Provmcial Treasurer of Ontario has been making clear his disagreement with the proposals of the Government of Canada.
There is no way that we can ensure agreement; we can seek agreement and it is up to governments to endeavour to persuade one another; not to compel one another.
The Joint Chairman (Mr. MacGuigan): But even in the absence of agreement, are there still advantages to the consultation process?
Mr. Bryce: Yes, I think so, sir.
The Joint Chairman (Mr. MacGuigan): And the government hedges as to whether or not it believes that the advantages are sufficient to make it necessary to enshrine them in the constitution as a requisite. Do you have any personal observation to add to that?
Mr. Bryce: I am not sure, sir, whether we will end up with compulsory consultation. I do not think really that it makes a great deal of difference if you make consultation compulsory or if you set up institutions in the constitution that have to be used for consultation as long as governments remain responsible to parliaments and the legislatures and have the freedom to act within their constitutional powers. I think you are going to have
plenty of room for disagreement. On the other hand, if we consult in good faith and understand the position of the provinces I think we are going to get a somewhat different result than if we did not talk to one another and did not understand one another’s problems.
Mr. Osler: Mr. Chairman, I wonder what it would be like, I am being partly facetious, to consider the approach of having provinces collect all the relevant taxes and give them their percentage in the form of a collection fee? It seems to me that we get the heat put on for collecting all the taxes that we hand over to the provinces and I think it would be nice to reverse the thing like the ancient Romans used to do. I do not know whether we would have to send divisions in to pick them up if they did not rebate them but it is important that people realize where their money is spent I think.
Mr. Bryce: Yes, sir. I think the provinces would feel that if they had to collect most of the taxes and pass a large share on to us that the shoe might be very much on the other foot.
Mr. Osler: That is possible.
The Joint Chairman (Mr. MacGuigan): Senator Grosart.
Senator Grosart: Is it the view of the federal government, Mr. Bryce, that there is no possibility of developing a mechanism to reach agreed limits of the total take of the government’s sector from national productivity? I put the emphasis on the word mechanism.
Mr. Bryce: We could devise a mechanism by which there could be agreements between the federal and provincial governments, but whether it really would be reasonable to expect that people would stick to such agreements, would even reach such agreements, much less stick to them, is another question. I do not believe you would find governments and I do not believe you would find parliaments nor legislatures wanting to have their hands bound in that way. Governments change, I need not tell you. Those that come in want to have the freedom to do new things and if they are bound into long-term agreements their freedom to do those things is severely curtailed.
It is true that we did for a while have tax rental agreements that limited the freedom of the provinces to impose taxes for a period of live years. They rented those tax fields to us. We did have that much but we never had them for longer than that period and, of course, they only covered a fraction of the revenue sources available to the provinces so that they still had a considerable measure of freedom. To have agreements over the total tax take does very seriously -then limit the freedom of action of parliament and the provincial legislatures.
Senator Grosart: I was thinking of it more on the basis of a mechanism that would come up with an annual agreement rthat such and such a percentage of GNP was the fullest weight that national productivity could stand. This really goes back to Mr. Allmand’s earlier question as to whether anybody, any other nation, has been able to devise a mechanism mat would seem to the taxpayer anyway that there should be a collective obligation on governments to relate their take from the GNP in any one year to some specific criteria. At the present time it depends only on the national accounts basis, your budgvt basis somewhere between 32 per cent and 33 per cent. The projection is it will rise to 35 per cent by 1975. I think that is the tax structure projection. This raises the question, can we stand 35 per cent? At what point are we starting to have totally regressive taxation in terms of economic growth? I am aware that we are about the middle of the western countries in our take at the moment but is that the right position for Canada? Should we be lower, should we be higher? Who knows? Surely there should be some kind of a mechanism.
Mr. Bryce: Well, sir, it depends on the kind of country we want to be.
Senator Grosart: Of course.
Mr. Bryce: If we want to have a larger public sector then we have to have a larger tax take to go with it and a somewhat smaller private sector in this respect or another. This is, if you will pardon my saying so, the fundamental political question, really.
Senator Grosart: I agree; I agree.
Mr. Bryce: As to what its economic effects are, these are very difficult questions of judgment. We see Germany going ahead now,
highly prosperous, highly productive, highly free enterprise but with a much higher tax take than Canada has, tax plus social security contributions.
Senator Grosart: Japan is the opposite.
Mr. Bryce: Japan is the opposite. The United States is a bit less than we are but with a very different mix of public expenditures. As one looks ahead and sees the problems that are going to arise in managing the environment and controlling pollution and a whole lot of these things, all the problems of urbanization, one can see reasons why the public sector may be expanding on the other hand, the rates of growth that are feasible in the total may permit the private sector to expand as well but they cannot both expand proportionately.
Senator Grosart: These are all components as I say. What I am suggesting is that it would be preferable to have a mechanism that would come up with one annual decision instead of eleven conflicting annual decisions.
Mr. Bryce: Yes, but is it to be a political mechanism, a bureaucratic mechanism or something that is completely independent?
Senator Grosart: That is what I am asking.
Mr. Bryce: I do not know the answer.
The Joint Chairman (Mr. MacGuigan): Gentlemen, I think we are much indebted to Mr. Bryce and those who appeared with him today. He has actually missed a train in order to completely satisfy our questions and I think for this reason, too, we are indebted to him. Thank you, Mr. Bryce.
The meeting is adjourned until Thursday.
THE TAXING POWERS
CONSTITUTION OF CANADA
The Secretariat of the
The Special Joint Committee of the
Senate and of the House of Commons
The Constitution of Canada
SECRETARIAT OF THE
PO. Box 488
June 22, 1970.
The material in this booklet was compiled by the Secretariat of the Constitutional Conference to assist the Special Joint Committee on the Constitution of Canada. The material is drawn from the public record of the constitutional review and is related to the specific subjects to which the Parliamentary Committee is directing its attention.
Henry F. Davis,
Secretary of the
*See PDF for table of contents on the following pages:
NOVA SCOTIA—SECTION 1
Extracted from document 81(2)
2.3.3 The Federal and Provincial Governments in Canada must each have sources of revenue within their control which are sufficient to enable them to meet their constitutional responsibilities. In order to assure to the provinces the attainment of this objective the Constitution must include provision for full equalization of all provincial revenues, including municipal revenues.
1. An integral part of the problem of regional growth is the disparity in the quality and quantity of public services found across Canada. These disparities were ably illustrated by the Economic Council of Canada in Second and Third Annual Reviews. The’ disparities in provincial-municipal expenditures were found, as would be expected, closely related to the disparities in regional income.
2. The word equalization has acquired a specific meaning in the course of Federal-Provincial financial arrangements in Canada. It is used to describe the process of recognizing that there are differences between provinces in ability to raise money to provide public services and of making efforts to offset the difference, in part at least, by payments from the Federal Treasury.
3. It is no longer necessary to argue that there are such differences or that it is in the national interest partially to offset the differences by such payments. This has now been accepted and done for many years.
4. In the discussions in 1966 between the Federal and Provincial Governments that led to development of the new equalization formula, Nova Scotia submitted that the proposed new equalization formula would not amount to full equalization. This was because the new calculation takes no account whatever of municipal revenues, fiscal capacities or responsibilities. If this equalization formula had taken these municipal revenues into consideration, we believe that public services would be able to be taken care of by nearly all provinces.
2.4.10 The Government of each province must have sufficient powers under the Constitution to discharge its responsibilities in respect of all matters which concern its people as opposed to the interests of all the people of Canada including fiscal resources sufficient to discharge its constitutional responsibilities.
NEW BRUNSWICK—SECTION 2
Extracted from document 161 (pages 1 to 14) Taxing Powers, Spending Powers and the Constitution of Canada
At the direction of the Constitutional Conference of February 1969, the Continuing Committee of Officials has given priority to the study of the distribution of powers, in particular to the taxing and spending powers. A number of governments have stated their basic positions in working papers submitted to the continuing Committee of Officials. The Government of Canada has presented its general approach on the distribution and use of taxing and spending powers in the form of two working papers: The Taxing Powers and the Constitution of Canada and Federal-Provincial Grants and the Spending Power of Parliament. This Working Paper from the Government of New Brunswick has been submitted to the Continuing Committee of Officials to further the examination of the proposals which have been made and to present the general position of the Government of New Brunswick on taxing powers, spending powers and the Constitution of Canada.
The Government of New Brunswick feels that any examination of taxing and spending powers by the Continuing Committee of Officials should be carried on only in the context of or within the general framework of the following three objectives of Confederation:
1. The maintenance of a strong federal government which shall be representative of all the people of Canada and shall act on their behalf to define and to achieve national purposes at home and abroad.
2. The promotion of Canadian social, cultural and economic development, and the general welfare of and equality of opportunity for all Canadians.
3. The promotion of the full development of all regions of Canada.
Considered in this general framework, an analysis of taxing and spending powers takes on a special meaning or sense of direction. First, nothing in a general theory of a right to tax or a right to spend should be done to weaken or to reduce the powers of a central government in fulfilling its essential task: the maintenance of a strong federal state. Thus, the central government must have the
right and the capacity to tax and to spend for the purposes of promoting general economic development, social and cultural diversity and unity, and the general welfare of all Canadians. More specifically, it should have the powers and the capacity to have proper fiscal and monetary controls, to redistribute income and to maintain minimum levels of services everywhere in Canada.
Second, nothing in a general theory of a right to tax or a right to spend should be done to weaken or to reduce the powers of a central government to carry out programmes and fulfill its proper functions in the national interest. Here, for example, the problem of regional disparities obviously relates to this general objective. Taxing and spending powers of the central government should be more than sufficient to implement a programme in the national interest, in this case the elimination of regional disparities.
Third, because of the complexity and inter-relatedness of any analysis of the distribution of powers, taxing powers, spending powers and regional disparities, nothing more than a preliminary and general discussion on the question of taxing and spending powers should be held without (a) keeping explicitly in mind the distribution of powers question and without (b) developing at least general views among the various participaating governments on the distribution of powers.
Since both the constitution itself and the constitutional review process must be reviewed as an organic whole, the distribution of powers aspeot cannot be ignored or postponed much longer. To discuss taxing and spending powers in any more than general and preliminary terms in isolation from the distribution of powers may not be advisable. The taxing powers of a federal government cannot, for example, be discussed in detail unless there is at least a general theory of the distribution of powers in a federal state. Hence, until the participating governments discuss the subject of distribution of powers, it may be premature to deal too finally with taxing and spending powers.
Fourth, the development of a general theory, or an analysis, of distribution of powers, cannot proceed logically unless all governments consider the various approaches
to the study of this complex subject.1 Four possible approaches are relevant and possibly all necessary in dealing with distribution of powers:
(a) a functional approach—essentially this would be based on principles of functionalism and efficiency, i.e. which functions of government could most effectively be carried out by which level of government in a modern society (even here there are important difficulties to be explored);
(b) a regional approach—unique circumstances in particular parts of the country should have a bearing on the distribution of powers;
(c) an historical approach—taking account of the Canadian historical context: that a network of relationships and expectations has developed over the years (federal-provincial relations, roles of municipal governments, etc.) which could affect the scope of possible changes in the distribution of powers; and
(d) a symbolic and doctrinal approach-taking into account the various theories of a federal state, the basic ideology, the role of government of everyday affairs of its citizens, the symbols of unity in a country, etc.
1 For a more detailed examination of this aspect of the Constitutional Review process, see the New Brunswick Working Paper: Problems of Studying the Distribution of Powers under the British North America Act—The Search for an Approach, September 29, 1969.
Even from this broad outline of the various approaches to the distribution of powers question, it is apparent that taxing and spending powers relate to each of these approaches and that discussions on taxing and spending powers cannot be carried out in isolation from almost any approach.
What follows is an outline of the basic position of the Government of New Brunswick on taxing and spending powers plus an analysis of the general approach to that topic taken by other participating governments, especially the Government of Canada. Until, however, the whole complex matter of distribution of powers has been consideied, many of the following points and comments are necessarily more general than will be the case when the
totality of the taxing and spending powers question is related to the distribution of powers analysis.
In June of 1969, the Government of Canada submitted to the Constitutional Conference a paper entitled “The Taxing Powers and the Constitution of Canada”. Briefly, the federal position on taxing powers as outlined in the paper is as follows:
1. The federal government has declared itself in favour of the principle of access to tax powers. That is, Ottawa favours that both levels of government be given broad and overlapping powers of taxation, with the objective of enabling each to cuimivate these fields, as required, to meet changing fiscal responsibilities. It strongly favours this approach over the principle of allocation of tax fields where one has to attempt to predict the fiscal requirements of the two orders of government and then allocate the several sources of taxation in accordance with those needs.
2. In accordance with this principle of access to all tax fields, the Government of Canada is prepared to examine any proposals for constitutional change which would broaden provincial taxing powers or make it easier for provincial legislatures to use their present powers, providing such changes meet three conditions:
(a) the present constitutional protection against interprovincial customs duties and tariff barriers must not be weakened in any way;
(b) the present constitutional protection against the taxation by one province of persons and property in other provinces, and/or against the taxation by two or more provinces of the same income or property must at the very least be maintained;
(c) any extension of, or change in provincial taxing powers should not have the effect of limiting the taxing powers of the Parliament of Canada.
3. Based on the principle of access and the three conditions outlined above, the Government of Canada advanced a number of possible changes in the taxing powers of the present constitution:
(a) broaden the taxing powers of the provinces to enable them to impose indi-
rect taxes, excepting customs duties, i.e. allow the provinces to enter the fields of indirect retail sales taxes and estates taxes;
(b) consider, if the provinces wish to do so whether or not rules allocating business income for taxing purposes among provinces be incorporated in a constitution;
(c) discuss as to how best to provide for federal-provincial consultations on spending and taxing powers, including perhaps the provisions of constitutional obligations to consult; and
(d) provide to the Parliament of Canada explicit power to contribute toward the equalization of necessary provincial public services across Canada as well as the statement of an objective that a goal for all governments should be the provision of equal opportunity for all Canadians, including the availability to them of essential public services.
4. Again based on the principle of access, the three conditions outlined in (2), and as well as on a number of other points, the federal government proposes:
(a) no amendments to the Constitution as it affects the taxation of personal incomes;
(b) no amendments to the Constitution as it affects special business taxes (but this should be related to 3 (b) above);
(c) no review at this dirne of the real property tax field:
(d) that the federal government not be precluded from the taxation of real and personal property in any form even though it will not enter the field of real property taxes; and
(e) not to forgo its power to impose estate taxes.
There are a large number of comments and questions which arise directly out of the above summary of the general approach on taxing powers by the Government of Canada. To facilitate the analysis, however, the comments and questions will concentrate on three main areas: the principle of access, provincial access to fields of indirect sales taxes, and federal-provincial consultation. Comments on the other points raised in (1) to (4) above will
be brief, while comments on equalization payments will be incorporated under the section on regional disparities.
There is no disagreement between the Government of New Brunswick and the Government of Canada when the latter states that:
(a) there is no need to look at or change the constitutional aspects of the personal income tax fields;
(b) the corporation income tax area is constitutionally sound except for the possible incorporation in the constitution of a formula for business income allocation (presently a sound and satisfactory formula but perhaps too inflexible to be put into a constitution because of everchanging conditions);
(c) the Government of Canada need not vacate the estate tax and real property tax fields (so long as it does not impose taxes on real property directly in the province); and
(d) the constitutional aspects of special business taxes need not be looked at.
These statements fit into the overall New Brunswick objective of a strong federal government. They are consistent as well with the general principle of access to all tax powers advanced by the federal government. In addition, the present tax methods and formulae of these several forms of taxation are also generally satisfactory.
However, agreement with these statements in a constitutional sense or in a constitutional review exercise should not imply that there would be agreement with those statements if they were made within the present-day federal-provincial context. The current dynamics of federalism leave much to be desired. In the field of federal-provincial fiscal relations the difficulties and problems are especially large. But the problems are more those of the utilization and allocation of tax fields on a year-to-year basis than problems of access to tax fields in a constitutional sense. The difficulties in current federal-provincial fiscal relations will inevitably color and hamper the review and progress of the discussion of taxing powers in the constitutional review.
What then are New Brunswick’s reactions to these three areas which are of greater significance to it, namely the principle of access itself; the particular question of provincial access to fields of indirect sales taxes, and federal-provincial consultation?
In essence, the Government of New Brunswick supports the Government of Canada in the advancement of the principle of access to taxing powers under a new constitution. There are a number of reasons for, and comments relating to, this basic support.
First, the principle of allocation of tax fields is constitutionally impractical in the long-run. It is difficult to attempt to predict the fiscal needs of the various governments over the next decades and then divide the tax fields among them. One cannot predict for example the likely cost over the next forty or fifty years of health, welfare and education. Hence, one also cannot decide how many tax sources should be exclusively in the hands of the provinces to pay for those expenditures, even if one could project the revenues in those fields. The allocation of tax fields is also apt to lead to an erosion of the powers of a central government since it does not provide the flexibility in tax fields which will then enable the federal government to spend in those areas deemed in the national interest. In addition, tax field allocation is not favourable to New Brunswick because the total revenues from any exclusive tax fields allocated to New Brunswick would not be sufficient to meet the costs of programmes formerly shared by Ottawa which, under some constitutional proposals for the redistribution of powers, would be exclusively under provincial jurisdiction.
Second, the principle of access is consistent with New Brunswick’s interpretation of the role of the central government. It provides the federal government with access to all tax fields and hence provides it the flexibility it needs to paly a strong role in the Canadian federastion. It also provides the federal government the tax base on which to mount programmes of national unity such as Bilingualization and Biculturalism and programmes of national concern such as regional disparities.
Third, the reverse of the second comment above is also true. The principle of access provides every province the opportunity to utilize every tax field except customs duties and some forms of indirect sales taxes. It thus empowers the province to pre-empt or encroach upon those areas previously left exclusively to the federal government. In principle, this means that constitutionally the taxing powers of the federal government could be weakened through such an amendment. In actual fact, this need not be so since this depends on the safeguards wihin the constitution, the distribution of powers decisions, the degree to which Ottawa occupies these tax fields already, etc. However, the basic point is serious enough to warrant a close second look by the participating governments to see if the principle of access could theoretically mean an erosion of a strong central government without further constitutional safeguards.
Fourth, there is an interesting paradox underlying all the constitutional review discussions so far. There appears to be a strong desire to establish juridical independence or policy independence of the various jurisdictions. Yet at the same time there is a Search for countervailing measures (administrative, constitutional or otherwise) to restore the basic uniiy of the nation. Applying this comment to the principle of access, it leads to the following reasoning. It is desirable to accept the principle of access because it permits a greater degree of flexibility and independence among the governments in coping with their tax needs and pending powers. However, there are dangers associated with this principle which must be safeguarded against: excessive powers of the central government, erosion of powers of the central government by provincial governments, barriers to interprovincial trade, balkanization of tax systems, etc. But safeguards are needed to restore the essential unity of the country. These safeguards can take many forms such as for example through:
(a) restrictions on the principle of access to protect against interprovincial trade barriers, taxing of one province by another and double taxation—these restrictions could be those proposed by the federal government or similar concepts;
(b) restrictions in the form of limits on taxation—while (a) above could be done through constitutional safeguards against possible events occurring, the restrictions in this case could take the form of the
constitution stating that provinces shall not have the right to the field of customs duties or indirect manufacturers sales tax as explicit restrictions; and
(c) restrictions on the principle of access through inter-provincial agreements, whereby for example all provinces agree to collect one tax jointly and equally thus avoiding the inherent problems of trade barriers.
If these safeguards are desirable what form should they take in a consiitution? Should there be general wording or specific wording? Is something like the present section 121 of the B.N.A. Act sufficient or should we go further? It will be necessary for the C.C.O. and the First Ministers to seek answers to these questions.
Finally, New Brunswick is vially interested in the specific restrictions which should be placed on the principle of access. Left in its broad form the principle of access would be unsatisfactory. While it would solve many of the problems of the principle of allocation, it could generate its own problems such as the reduction of the powers of the federal government and inter-provincial trade barriers. The restrictions themselves could create problems for New Brunswick. For example, small provinces cannot play a continuous strong role in inter-governmental arrangements. Left to their own devices, small provinces might be subject to the policies and the powers of the larger provinces. Hence, New Brunswick wishes to stress that while it accepts the principle of access, it is aware of the dangers and therefore will demand fairly detailed and explicit safeguards in the constitution.
The second major topic of interest to the Government of New Brunswick in the discussion on taxing powers is the indirect retail sales tax. The topic is narrowed down to this particular tax because the principle of access as proposed by the Government of Canada really provides New Brunswick with little else. The generous spirit of the federal government to allow the provinces access to all fields means little to a smaller and an economically less successful province like New Brunswick. With the restrictions Canada and New Brunswick want to place on the principle of access to protect the overall concept of Canada, there are really few new
taxes provinces will have access to: only the indirect retail sales tax and the estate tax. At this time and for the foreseeable future, the estate tax means little in terms of revenue for New Brunswick because (a) it already gets 75 per cent of the federal estate tax eollected in New Brunswick and (b) it is a very small revenue source. Hence, the only tax worth considering in revenue terms is the indirect retail sales tax.
In the analysis of this tax, one must distinguish between the existence of constitutional rights to tax and the exercise of those rights. Under the principle of access, the existence of the right to tax was discussed. It was agreed that the provinces should have the right to tax in every field except customs duties and with proper safeguards applied elsewhere in trade and tax matters.
An analysis of the exercise of these proposed new rights to tax can be shown to lead to a less favorable conclusion. Already it has been established that it only means two additional tax fields with one, the estate tax, being of little revenue value. What are the problems and benefits associated with the exercising of the right to tax in the indirect retail sales field? What are the administrative difficulties; the equity, yield, elasticity and economic aspects of such a tax? What is the current utilization of such a tax and the resulting allocations, present and future, from it?
The answers to all the above questions are complex and technical. In summary, however, they appear to boil down to the following. Administratively, the indirect retail sales tax need not be any more cumbersome than the direct one, probably less The benefits of the indirect retail sales tax would be approximately the same as the present direct sales tax, a good revenue earner. However, the net benefits would initially not be very great because (a) the federal government already occupies the indirect sales tax field to a large extent and (b) the provinces would likely use this tax as a replacement for a direct retail sales tax which is politically less palatable
(especially above 8 or 9 per cent). Unless there are a number of major commodity exemptions, any general sales tax, direct or indirect, tends to be regressive, especially above an annual income of $7,000 or so and is therefore not a very equitable tax. It hits the middle-income group hardest. A sales tax is finally paid in full (or more) by the consumer, depending on what level the tax is applied at (retail, wholesale or manufacturing stage). The indirect retail sales tax has a relatively low elasticity because it is a constant percentage of sales. Thus it would not be too useful for provinces as a primary revenue source for rapidly rising expenditures on health, education and welfare.
All in all, the federal offer for the indirect retail sales tax is not all that meaningful. It is an administratively easy tax, a good average revenue earner, with a regressive feature, initially low net benefits and not a good source for rapidly rising provincial expenditures. To imply or suggest that the principle of access to all tax fields, plus its constitutional safeguards, will improve the revenue position of the provinces, especially the smaller and less successful ones, is misleading and inaccurate. The net improvement in revenue positions is negligible.
Additional revenue would be available if the provinces had access to indirect sales taxes at the manufacturers or wholesale level. However, this must be done only if the proper safeguards against interprovincial tariff barriers and other obstacles are maintained. The Government of New Brunswick suggests that one way to provide access for the provinces to all fields of indirect sales taxes, while maintaining the essential safeguards, might be through a revenue pool concept. Assuming considerablc uniformity among provincial indirect sales tax laws, the revenue from the taxes could be pooled and then allocated through a mutually acceptable formula. In essence, this revenue pool concept for indirect sales taxes would not differ substantially from those for corporate income taxes or from the proposed pooled revenues
from off-shore mineral rights. The Government of New Brunswick proposes that the C.C.O. examine the revenue pool concept for all indirect sales taxes, particularly its administrative and legal implications and its further implications for the essential safeguards required against interprovincial trade barriers.
A more detailed analysis of taxing powers points out that given a meaningful study of the distribution of powers, at some stage the C.C.O. will have to look at the “allocation” of taxes. The principle of access is not suflicient or need not be sufficient to permit the provinces or the Government of Canada to fulfill their obligations, unless the governments reallocate the utilization of present tax fields. A costing-out of reallocated responsibilities and a re-allocation of taxes will have to be carried out sometime. This is where current federal-provincial fiscal discussions must relate to the Constitutional Review and where the Tax Structure Committee can play a role.
The third and final major topic arising out of the federal paper on taxing powers is inter-governmental arrangements or, more specifically, federal-provincial consultations. Inter-governmental arrangements could become very important in a new constitution to restore the essential unity of the country if the constitution permits a great deal of juridical or policy independence on the part of member governments (see page 9). Consideration should, therefore, be given to include in the constitution some general or specific obligations for inter-governmental arrangements. These could possibly be in the following forms:
(a) an obligation to consult;
(b) an obligation to disclose;
(c) a right to recommend; and
(d) provisions for joint decision-making.
Item (d) would be difficult to envisage under all circumstances. There are, however,
possibilities for considering the incorporation of (a), (b) and (c). All three would require fairly large and complex federal-provincial consultative and administrative machinery. For example, in the field of fiscal policy, federal-provincial consultative and administrative machinery will be needed for the harmonization of tax policies, the allocation of tax revenues and perhaps for the collection of revenues. To incorporate such a structure or such obligations into the constitution might be difficult and might also prove to be too inflexible. Normal relations and the democratic process could perhaps deal with a large part of the problem. Nevertheless, in New Brunswick’s view, the possibilities should be considered.
In any discussion of federal-provincial relations it must not be forgotten that (a) the relations are only as good as the desires, goals and intelligence of the participating governments and that (b) in the long-run smaller provinces are at a disadvantage in such discussions. However, the Government of New Brunswick agrees with the Government of Canada, in welcoming a discussion as to how best to provide for federal-provincial consultations on spending and taxing questions.
Extracted form Document 160—
Problems of studying the Distribution of
Powers under the B.N.A .Act—
The search for an approach (pages 14, 15)
Finally, there is a certain “objectivity” that now may be possible in examining the distribution of powers, from whatever aspect, than was the case a few months ago. When the constitutional discussions first arose there was a tendency on the part of some governments to try to match the debate over powers with the debate over revenues and spending, all on the logical ground that until member governments knew what their responsibilities were they could not know what should be their financial arrangements within any new system.
There were both advantages and disadvantages to this line of approach. On the surface it seemed to offer a view of balancing responsibilities with revenues. But viewed more deeply it could also have led to pre-judging the ultimate scope of federal authority itself because so much attention would have been paid to the question of immediate powers and revenue needs that the longer range interplay
between powers and revenues, and the other effects involved in this whole complex of issues, might not be wholly and adequately considered. For this reason the recent decision and consensus on the part of most governments to have all governments have access to all sources of taxation (with certain understood limits) and to have the federal government take a somewhat more self-limiting attitude toward shared-cost programs, which might impose federal priorities on unwilling Provinces and thus distorting their own priorities, has led to removing this part of the debate from impinging immediately on a more detached analysis of the powers question itself.
For it is now possible to make the assumption that the Provinces will have access to direct and indirect taxation (as limited above) and then to say that the discussion over powers can also take place within the new realism that attaches now to some estimated effects of this new access. For while there is in any case a circular, chicken-and-egg problem here, a beginning was made in the achievement of more or less consensus on the taxing and spending powers (subject to certain unfinished matters referred to above) and thus it is possible to examine the distribution of powers with the parallel pressure of the taxation-spending issues in part removed, at least for the time being.
Extracted from Document 3—Brief on the
Constitution (pages 17, 18)
As for the other items mentioned on the agenda of the present conference, Québec has the following comments to submit.
1) Regional disparities
Redistribution of responsibilities will entail different allocation of tax resources. Arrangements on the extent of tax sharing in the various fields will still be desirable. Similarly, continuous co-operation will be necessary in determining the tax base so as to avoid
double taxation and needless vexations for the taxpayer. For instance, any major overhaul of the structure of shared taxes should he made only after concerted action by all governments. Quebec has always maintained this view and stressed it particularly at the recent Tax Structure Commiittee meeting on the Carter Report.
There might be apprehension in some circles—in fact it has often been expressed by the federal government—that a further tax transfer to the provinces could weaken the machinery of federal fiscal policies designed to stabilize economic activity or promote regional development. It might also be feared that such a transfer could lead to balkanisation of the country.
A net transfer of fiscal resources to the provinces would hardly lessen the effectiveness of economic stabilization and development policies. In fact, recent studies have shown that the federal government could easily apply an effective fiscal policy with a much smaller share of personal and corporate income tax than it now has. In addition, one important fiscal policy instrument has long been, for all practical purposes, in the hands of the provinces and the municipalities which depend on them: we refer to public expenditures for goods and services. We firmly believe that, if we want economic stabilization and development policies to be effective, they must be designed and implemented through concerted action by the country’s various governments. This is not a statement of principle or some sort of dogmatism, for there really is no other way out. Facts as they are urgently call for intergovernmental consultation.
As for the danger of balkanisation, we have always claimed it is non-existent and our recent experience proves it. When we opted out of certain shared-cost programmes—hospital insurance, to name one—we agreed to keep them portable. The same will be done for other social security programmes such as old age pension which Québec intends to take over. Similarly, the Quebec Pension Plan meshes with the Canada Pension Plan and ensures full portability of benefits.
Extracted from document 81(2)
SUBJECT: V—DIVISION OF LEGISLATIVE
4.19.35 To fulfil their constitutional responsibilities, member-states as well as the government of the Union should have access to all sources of tax revenue. Only few fields should be reserved for exclusive use—property tax and succession duties by the states, customs revenue by the central government.
1. In today’s world, it is generally futile to divide taxes by type in water-tight compartments, or to try to set up a system revenue apportionment able to adjust automatically to needs.
2. On the other hand, the governments must pay continual attention to co-ordinating their fiscal policies and distributing revenue fairly. They must also set up machinery for intergovernment co-operation to this end (see chapter VII).
3. The two orders of government should enjoy equal rights in collecting their respective taxes no government should be paid in preference to the others.
RELATIONS COMMISSION ON TAXATION
4.24.44 The constitution should provide for the establishment of a standing intergovernmental commission on taxation which would be made up of representatives from all governments and whose role would be to prepare taxation arrangements for set periods, taking into account available and forecast tax resources, programmes planned and priorities involved.
1. Considering the proposed distribution of fiscal resources, it is essential that the governments of the Union periodically reach agreement on tax sharing and the tax structure.
2. Owing to the importance of these arrangements, it would be advisable to institutionalize the intergovernmental machinery designed to prepare them.
3. This commission might report to the Heads of government Conference.
4.24.45 In theory, no government should be empowered to tax another government or any of its agents. However, intergovernmental taxation should be permitted by mutual consent.
1. Since “the power to tax involves the power to destroy”, it is necessary to retain the principle whereby each area of government is exempt irom others’ taxes.
2. On the other hand, it may be desirable from the administrative standpoint for government activities to be subject to ordinary taxes on a reciprocal basis. This should be permitted by the constitution.
Extracted from Document 134(1)—
The Ontario position on the Spending Power
(pages 3 to 8)
Shared-cost programs have also been justified by the argument that they allow the poorer provinces to provide a higher standard of public services than would otherwise be possible. Aside from fiscal considerations, another justification, though not explicitly stated, is that shared-cost agreements encourage provinces to provide programs they might otherwise have rejected. In our opinion, this does not justify the erosion which would thereby take place of the provincial ability to establish its own expenditure priorities.
There are other strong arguments against the use of conditional grants in areas of provincial jurisdiction. To start with, in the most general terms, a federal system assigns certain responsibilities to the central and to the regional governments. Each level of government is then responsible for establishing its own expenditure priorities. There should be a division of revenues between the two levels of government such that each can carry out its assigned responsibilities without requiring financial transfers (with the attendant opportunities for influence) from the other level. Each level of government should be able to operate without interference from another level. For instance, there should be no assumption that the judgment of the central government should take precedence over that of the provincial governments, when the central government believes a matter within an
area of provincial jurisdiction is of national priority. Experience has shown only too clearly that shared-cost programs have often compelled a provincial government to divert resources to the centrally-set priority in order to take advantage of the money being offered—money obtained in the first place by taxation of the province’s residents. Therefore, whether or not a province joins a particular shared-cost programme, its capacity to raise revenues is reduced, and its priorities are distorted.
Further, as has been obvious at recent federal-provincial meetings, regional diversities are a fundamental characieristic of Canada. Different patterns of settlement and difierent degrees of urbanization have produced considerable regional variations, including great differences in administrative, economic and other capabilities. To date, shared-cost programs have taken little account of these regional differences and preferences, tending to enforce a common pattern which is often too rigid and too detailed.
Ontario therefore proposes:
1. as a basic ground-rule, the sharing of tax fields between the two levels of government in such a way that each can meet its own expenditure responsibilities in a manner of its own choosing;
2. the use of conditional grants only when there is a clear federal-provincial consensus that the proposed program is the best way of handling a particular problem. (The means of determining whether or not a consensus exists is discussed on pages 6 and 7).
In addition, Ontario suggests that all alternatives should be carefully considered before the adoption of a shared-cost program is decided upon. Some alternatives are as follows:
1. Problems requiring national solutions:
a) In the event that most or all provinces find themselves facing a problem so complex and wish so many extra-provincial ramifications that it is beyond their capacity to handle, consideration should be given to formal constitutional amendment to change the locus of responsibility.
(b) Problems common to many provinces night also be dealt with by an expanded degree of inter-provincial co-operation, in order to achieve co-ordination and compatibility of programs within provincial jurisdiction. The example of the Council of Ministers of Education, which now has a permanent secretariat, could well be followed in other fields, including overall inter-provincial relations.
(c) Another alternative to shared-cost programs would be through block or unconditional grants. While these approaches violate the basic Ontario position regarding the sharing of revenues, they do not involve the same degree of interference with provincial priority-setting.
(d) The development of a much more sophisticated system of federal-provincial co-ordinaling machinery is a further alternative, Such machinery would facilitate the flow of technical assistance and help to equalize technical information and communication among the provinces.
(e) A more extensive use of administrative and/or legislative delegation.
2. Problems requiring regional solutions:
Where the main purpose of a shared-cost program is to benefit particular regions of the country, consideration should be given to these alternatives:
(a) a more extensive use of administrative and/or legislative delegation;
(b) an increase in equalization payments; and
(c) a greater channelling of funds to regional agencies. Alternatively, the federal government and the provincial governments comprising a region might participate in regionally-oriented shared-cost programs, which would not require approval by the national interest formula.
Failing these alternatives, a nation-wide shared-cost program, such as we are familiar with today, could prove to be an appropriate means of meeting the problem, provided that the program’s time-limits and conditions were very clearly spelled out. However, difficulties arise when one or more provinces are not in favour of the establishment of a shared-cost program in a provincial field. It is therefore
necessary to devise a formula to determine whether a consensus exists among the federal and provincial governments on the need for a particular proposed shared-cost program. The process of arniving at this consensus should mitigate many of the problems experienced with past shared-cost programs, such as the lack of consultation, the efiective compulsion on provinces to enter, and the serious distortion of provincial priorities.
Briefly, we would suggest as a formula the following: a proposed shared-cost program may only be initiated with the approval of seven of the ten provinces, containing at least 60 per cent of the country’s population. The manner of determining a province’s position is a matter for the province’s government to decide’
Where a proposed program has received the required approval, financial loss should not be suffered by the province or provinces which have declined to participate. This can be arranged in the following alternative ways:
a) the federal government should raise the funds for shared-cost programs only in the provinces which decide to participate. This could be done by some form of premium or an income-tax surcharge in order to avoid differential bases and differential general rates across the country; or
b) the fiscal equivalent (or at least 90 per cent of it) of what the province would have received had it decided to participate in the shared-cost program should be paid directly to the government of the province. (Less than full fiscal equivalence is suggested because an unconditional grant or equivalent tax room has the added advantage of greater provincial flexibility in allocation of such funds within the provincial budget than grants tied to a specific program.)
Either of these we believe to be an improvement on the federal proposal to make payments directly to individuals in the non-participating provinces, Such a scheme could lead into an administrative morass, and would contain elements of equalization and income-redistribution, objectives better attained through the general tax system and
through equalization payments. Direct payments could not precisely return the tax money to the individuals who paid it; thus the province would not have the option of increasing its tax take to the full extent of the federal repayment.
To sum up: while our views, as expressed in this paper and in our propositions, are still subject to modification, the Ontario Government believes that shared-cost programs in areas of provincial jurisdiction should be kept to a minimum, and should be employed only when a federal-provincial consensus exists as outlined in this paper. Further, the details and conditions of such programs should be spelled out in formal agreements. Such agreements should help to eliminate many of the differences that have arisen in recent years as a result of changes in interpretation in the course of an agreement, or because of a freezing or stretching-out of payments. Our basic position is that an equitable sharing of tax fields between the two levels of government in line with expenditure responsibilities would eliminate one of the basic reasons why, since the war, shared-cost programs have been so frequently initiated in spheres of provincial jurisdiction.
WORKING PAPER SUBMITTED BY
THE GOVERNMENT OF ONTARIO
“INTERGOVERNMENTAL FINANCE AND
PAPER ON PROVINCIAL-MUNICIPAL
June 6, 1969
INTRODUCTION: ORIGINS AND PERSPECTIVE
1. At the sixth meeting of the Continuing Committee of Officials on the Constitution, the Ontario delegation tabled its government’s recent white paper on provincial-municipal taxation reform for consideration by the mem-
bers.1 The purpose of these notes is to outline briefly what is thought to be the relevance of the white paper to current constitutional discussions, and to the problem of intergovernment finance in particular.
1 See, Hon. C.S. MacNaughton Ontario Budget 1969, Ontario Dept. of Treasury and Economics, Queen’s Park. The white paper appears as Budget Paper B, “The Reform of Taxation and Government Structure in Ontario,” pp. 53-70.
2. The white paper may be given perspective by a brief consideration of two basic approaches to intergovernmental finance which have been recognized in recent years. In general terms, these may be cited as follows:
(a) Co-ordinated Taxation. This approach involves a system in which at least the main areas of federal-provincial taxation are co-ordinated through federal control, with periodic revisions in the division of the relevant revenues between the federal and provincial governments.
(b) Independent Taxation. This approach involves a system in which each level of government raises is own taxes within its constitutional limits, in order to finance is own expcnditure requirements.
3. The co-ordinated taxation approach is roughly descripive of intergovernmental finance since the Second World War. During this period the federal government has controlled the important fields of personal and corporate income taxation, and to some extent estates taxation as well. On the one hand, those provinces which signed collection agreements have received explicit abatements; while those which operated separate collection systems have been allocated implicit tax-room and have generally conformed to federal structures. On the other hand, the federal government has been able to use the personal and corporate income tax fields for its own fiscal policy purposes.
4. During the 1960s this system of federal-provincial tax sharing has come under increasing pressure. While the provincial shares of total personal income, corporate income and estates tax revenues were increased to 28, 20 and 75 per cent respectively, the rc-allocation has been insufficient to meet the heavy expenditure demands con-
fronting the provinces. This has had a two-fold. effect:
(a) Generally, the provinces have raised taxes regularly in those fields lying outside of federal-provincial tax sharing agreements.
(b) Generally, the provinces have resorted to continuous debt financing.
5. It is against this background that Ontario’s White Paper on provincial-municipal taxation reform is relevant to the current constitutional discussions. This paper is concerned with two main aspects of the Ontario White Paper in a constitutional context. First, although the recommendations of the White Paper can be implemented within the present constitutional framework, they also specify the requirements for provincial-municipal tax reform under any new constiLwtional arrangements involving the development of the principle of free access. Second, the paper is concerned with new mechanisms for federal-provincial coordination on fiscal and taxation matters, which will be necessary whether or not the present constitution is aanended.
6. This paper does not attempt to deal with the problem of how far the principle of access should be carried or to what extent constitutional changes in the taxing power should be contemplated. While the principle of free access can be taken as a general objective, it is quite conceivable that for practical reasons it might not be extended to its logical extreme. For example, there appears to be general agreement that the federal government should have exclusive control over customs duiies, both to secure international agreements and to avoid the emergence of interprovincial trade barriers. Similarly, it might be necessary to restrict federal access to property taxation, other than for purposes of wealth taxation generally, because of the critical importance of this form of taxation for municipal finance.
Main Objectives of Ontario’s Tax Reform
7. The program for provincial-municipal taxation reform set out in Ontario’s white paper has three main objectives. It would be useful at this point to briefly outline and explain these principles.
(a) To increase the revenue productivity of the overall provincial tax system in a balanced and equitable manner. This has at least two important implications:
insofar as the province’s total revenues have a low elasticity factor, its growth capacity must be increased to more
closely approximate the anticipated growth in essential expenditure requirements.
insofar as continued and increased use must be made of non-income tax fields, it must be as part of an overall tax strategy rather than through ad hoc changes.
(b) To co-ordinate tax changes across the broadest possible spectrum of provincial and municipal taxes, in order to control their impact on economic activity and the distribution of individual tax burdens. Given the points mentioned under (a) above the main objective here is the rationalization of municipal property and retail sales taxation.
(c) To achieve the maximum possible degree of harmonization of Ontario’s provincial-municipal tax system with that of the federal government and other provinces. This implies the establishment of effective mechanisms for achieving common agreement to:
—avoid interprovincial tax competition, and extraterritorial taxation
—minimize the compliance costs and administrative complexity of taxation
—control the growth of the total government sector
—allow the maximum flexibility in the use of taxation for fiscal policy purposes.
Main Features of Ontario’s Program in a Federal Setting
8. Given the main principles and objectives of Ontario’s tax reform program, the white paper contains a number of proposals which are of particular relevance to the development of new forms of federal-provincial financial relations. In particular, it contains three major recommendations for a significant realignment of federal-provincial tax fields. These are as follows.
Personal Income Taxation
9. Undoubtedly, the most important feature is Ontario’s intention to establish its own personal income tax system. This is considered to be essential in order to increase the revenue-
productivity of its total revenues; and to provide a vehicle for relating commodity and property tax burdens to individuals’ ability-to—pay, as well as consolidating provincial transfer payments to individuals.
10. Under the present collection agreement with Ottawa, Ontario’s participation in the design and use of the personal income tax system is extremely limited in terms of its ability to achieve its tax reform objectives. At present, the provinces can increase their use of the field—and thence implicitly the overall productivity and progressivity of their total tax-mixes—by instructing the federal government to apply across-thevhoard surtaxes to the standard federal rates. This mechanism is, however, seriously defective in at least two important respects:
(a) Progressivity. While the income base and progressive rate structure may be initially acceptable in equity terms, there is a distinct danger that successive increases in provincial surtaxes would eventually overload the system to the point where the burden on lower- and middle-income classes would become absolutely punitive.
(b) Integration. The confinement of the provinces to applying across-the-board rate increases, denies them the ability control the incidence of other and generally regressive provincial taxes through credits or exemptions against provincial income tax liabilities.
11. This situation is exacerbated by a further weakness in the present federal-provincial income tax system. This concerns the exclusive right of the federal government to apply separate taxes against the taxable income base. The recent Social Development Tax had the effect of undermining the progressivity of the overall system in a way which inevitably reduced the ability of the provinces to apply rate increases.
Corporate Income and Estate Taxation
12. The second main feature is Ontario’s proposal that it turn over the corporate income tax and succession duties fields to federal administration, provided satisfactory arrangements can be negotiated on tax sharing and provincial participation in the design and use of the taxes by the federal government. In addition, as a companion to estate taxation Ontario contends that the provinces
should be granted similar rights in respect of federal gift taxation.
13. The proposed transfer of the corporate income tax field is based on two factors:
(a) Compliance and Administrative Efficiency. At present most of the provinces have collection agreements with Ottawa, while those provinces with separate systems very largely conform to the federal system. A single centralized authority is an obvious rationalization.
(b) Avoidance of Interprovincial Tax Competition. It is commonly assumed that the location of corporate activity is highly sensitive to interjurisdicational differences in corporate taxation. Insofar as the corporate income tax is probably the most important form of corporate taxation, it follows that its ‘neutralization’ under federal control would be an important safeguard against interprovincial tax competition for corporate activity.
14. Similar reasons apply to succession duties. First, the federal government’s proposed changes in the Estate Tax effectively pre-empts possible provincial moves in the field. Secondly, the practice by some provinces of making estate tax rebates to their residents is symptomatic of a basic dissatisfaction with this form of taxation. Consequently, Ontario is in favour of a complete overhaul of present systems to avoid the danger of significant interprovincial differences in estates taxation leading to the development of “tax havens” in Canada. The solution of this problem is not easy. As a first step the abolition of Ontario’s succession duties would have the effect of reducing the complexity of death taxation in Ontario.
Capital Gains Taxation
15. Third, Ontario advocates the establishment of a federal-provincial capital gains tax system. On the one hand, such a move is an obvious part of any serious move to improve the overall equity of the Canadian tax system. On the other hand, it could be a part
of an alternative approach to wealth taxation, to allow estates taxes to be de-emphasized or abolished. Two further points might be made:
(a) To avoid interprovincial differences, the capital gains tax should be administered by the federal government
(b) As part of the general area of income taxation, the revenues should be subject to federal-provincial tax sharing as in the case of personal income taxation.
New Mechanisms for Federal-Provincial
16. The proposed realignment in federal-provincial tax administration contemplated in the Ontario White Paper dow not, however, materially change the basic requirements for achieving intergovernmental financial co-ordination. Insofar as all governments are taxing essentially the same sources, it remains imperative to co-ordinate tax efforts in order to control the distribution of taxation burdens within an overall agreed-upon concept of the desirable size of the government sector. The latter requires the development of an operational system of intergovernmental priority setting, while the former essentially involves the maintenance of common tax conventions and co-ordinated fiscal, tax structure and administrative policies.
17. The Ontario white paper implies an important change in the approach to the problem of federal-provincial financial coordination. This may be simply cited as a change to achieving harmonization through horizontal rather than through vertical tax co-ordination.
Vertical Tax Co-ordination
18. Under the previously cited co-ordinated taxation approach (para 2a), the integration of tax systems has been confined to the corporate, personal and estate tax fields. While this ensured a high degree of vertical conformity in the operations of the two levels of governments in these fields, it has two main weaknesses:
(a) The great bulk of commodity and other taxes at both federal and provincial levels have been developed largely without any regard to the overall pattern of
taxes at each level and between levels of government.
(b) The whole field of municipal finance and taxation has been largely ignored, despite the obvious fact that municipal property taxation has become an important component of the total tax system.
19. In contrast to the present situation, the white paper implies the possibility of achieving a much wider range of integrated taxation at the provincial-municipal level. That is, the establishment and use of the provincial income tax system as a means of controlling the incidence of such large tax fields as the retail sales, health premium and municipal property taxes (with the possible extension to transfer payments and other specific taxes), would have the effect of creating an integrated system at the provincial-municipal level. If the federal government were to achieve a similar integration among its major tax fields, the result would be the establishment of two parallel tax structures: each internally balanced and consistent within itself. If the means could then be found to achieve a measure of co-ordination between federal and provincial structures, the total degree of tax coordination in Canada would have been materially increased over the present partial integration.
20. In the white paper and several other statements, the Ontario government has made a number of suggestions concerning the way horizontally integrated federal and provincial-municipal tax systems could be effectively co-ordinated. In particular, new institutional arrangements are necessary to deal with two main functions. The first concerns intergovernmental policy co-ordination to ensure maximum use of total governmental leverage for fiscal policy purposes, and the rationing of scarce financial resources within agreed limits to the growth of the total governmental sector. The second involves the need to achieve a high degree of co-operation in taxation matters; centring particularly on the avoidance of interprovincial tax competition and establishment of agreed criteria for the use of tax fields jointly occupied by federal and provincial governments, as well as for the development of tax structures generally.
A MINISTERIAL POLICY CO-ORDINATION
21. The first function requires the establishment of more formal and rigorous mechanisms for intergovernmental policy co-ordination in place of the present loose system. In recent years this work has been largely conducted at the ministerial level through the Tax Structure Committee and meetings of Ministers of Finance and Treasurers, supported on an ad hoc basis at the civil service level by the federal-provincial Continuing Committee on Fiscal and Economic Matters. Apart from the confusion in demarcation among the committees, thieir work on the whole has been of a fragmented and limited-purpose nature. Since 1966 the Tax Structure Committee has been inactive, while recent proposals for its revival have centred on renewed pro forma expenditure-revenue projections with uncertain policy relevance as well as possible discussion of tax reform proposals. Finally, the promising start in budgetary consultation at the January 1968 Ministers of Finance meeting has not led to the development of more operational forms of policy co-ordination.
22. In Ontario’s view these committees should be replaced by one ministerial committee responsible for the complete range of intergovernmental economic and fiscal policy co-ordination, supported by a strengthened body at the senior civil servant level and aided by a permanent federal-provincial secretariat. In terms of linear development, this system should be an extension of the approach of the Ministers of Finance meetings towards budgetary consultation, rather than as a continuation of the Tax Structure Committee approach with its more limited approach to intergovernmental finance. More particularly, the new system should be concerned with two interrelated areas.
Fiscal Policy Co-ordination
23. On the one hand, the continued growth in the relative economic importance of provincial-municipal operations emphasizes the urgent need to avoid contrary federal and provincial actions. On the other hand, the development of more sophisticated budgetary techniques and more policy-receptive tax structures at the provincial level point to a very real possibility of achieving co-ordinated
intergovernmental policy action. Work in this area would include:
(a) Development of a framework for establishing common intergovernmental policy objectives in respect of economic growth and stability. The Economic Council and other institutions have done much work in this area of a general and conceptual nature, but it remains to develop explicit and operational devices for governmental use.
(b) Delineation of the scope and methods by which federal and provincial leverage can be used within a common and consistent framework. In what ways and situations can provincial actions be used to support federal policies and vice versa? What are the differential effects and possibilities of federal and provincial actions within and between regions? Apart from a general need for more information and models concerning the interprovincial structure of the economy, these questions also point to a need for more information on the form and implications of federal expenditure and financing operations, as a basis for selecting federal-provincial policy packages to achieve objectives.
Tax Structure Co-ordination
24. The second area of concern which would be appropriate to the ministerial policy co-ordination committee would be that of intergovernmental tax structure harmonization. One of the major weaknesses of the recent federal and provincial tax commissions was that they tended to confine themselves to the problems of tax reform at the level of their respective governments, with inadequate consideration of the larger intergovernmental framework. Hopefully, however, provincial proposals such as those contained in the Ontario white Paper and the federal government’s forthcoming white paper will provide a viable range of options for the development of a workable intergovernmental tax system.
25. In Ontario’s view it is important that the question of intergovernmental tax reform should not be treated in isolation of the broader questions of policy design and co-ordination as a whole. The control of the total governmental sector, and particularly of total tax burdens, means that tax systems cannot
be designed and harmonized without regard to the different revenue-raising demands placed on them by the various governments. This in turn means that spending and taxing powers cannot be treated independently in any ultimate sense. This, therefore, suggests a concentration by the policy co-ordination committee on:
(a) In line with 23(a) above, the development of agreed spending priorities as a basis for developing:
—mechanisms for containing total government spending, particularly when a policy of fiscal restraint is required, and
—allocating scarce revenue resources according to the division of priority-spending responsibilities.
(b) The development of common criteria and conventions in the development of federal and provincial-municipal tax systems; as a basis for consistent treatment of tax sources, and avoidance of interprovincial tax competition and extraprovincial taxation.
A FEDERAL-PROVINCIAL TAX COMMISSION
26. The second type of new institutional arrangement required in the area of federal-provincial fiscal and financial co-ordination concerns the need for a high degree of co-operation in the administration of tax systems on a continuous basis, as suggested in paragraph 20 above. While the main thrust of Ontario’s tax reform program is in the direction of a rationalization of provincial-municipal financial structures, it has been explicitly designed to allow the maximum possible degree of harmonization and co-operation with the federal government in jointly occupied tax fields. The problems of federal-provincial compatibility in tax design and use would most properly be the concern of the overall ministerial committee, as suggested under paragraphs 23 and 25 above. The detailed operational aspects of tax administration, however, would be better handled by a separate federal-provincial commission as suggested in the Ontario white paper.2 Basically, such a commission could serve two important functions.
2. See Ontario Budget 1969 p. 57.
Overall Tax Supervision
27. The first function would be to provide a system for supervising federal and provincial-municipal tax developments and practices in
terms of their conformity to the common standards established by the ministerial committee on intergovernmental policy co-ordination. Apart from acting as a clearing-house of tax information, the commission could undertake analysis of the social and economic effects of tax policies and actions; particularly of their cross-jurisdictional implications. The commission could also be responsible for co-ordinating research on new tax proposals and options.
Tax Collection and Administration
28. Secondly, it would be appropriate for such a commission to be charged with the operational responsibility for administering specific federal-provincial tax collection agreements. Ontario’s white paper suggests two types of collection agreements: namely,
(a) Standard Collection Agreements. In the current constitutional fiscal framework, this would cover the administration and collection of revenues in such fields as corporate income, capital gains, estates and gifts taxation which might be assigned by the provinces to the federal government.
(b) Concurrent Tax Collection. This would cover situations in which separate federal and provincial taxes could be administered through joint collection systems. Relevant examples here would be the joint administration of personal income taxation as suggested in the Ontario white paper, and provincial collection of certain federal commodity taxes.
29. The case of standard collection agreements presents no particular administrative diificulties beyond that of designing viable tax systems per se; for example, the problem of establishing an equitable and effective form of capital gains taxation. In the case of the taxes which Ontario proposes to consign to federal adminsistration, however, Ontario would need to be assured that the federal systems in each case were in the first instance appropriate to Ontario’s overall tax policy and in the second instance that Ontario could effectively participate in subsequent changes and developments.
30. The difficulties in establishing concurrent collection systems would be clearly more formidable. On the one hand, there is no body of Canadian experience, to draw on in this
area. But, on the other hand, the advantages in terms of administrative and compliance costs are likely to be considerable. In personal income taxation, much depends on the degree of compatibility between federal and provincial sysiems in terms of income bases, income-class structures and progressive rate schedules. In the case of Ontario, the tax reform program announced in the white paper calls for the establishment of a provincial personal income tax system for 1971. At the present time work is proceeding on the design of the new tax system and building the necessary administrative structure. However, this schedule allows ample scope for negotiations with the federal government on the establishment of a concurrent collection system, given the anticipated publication of the federal white paper in June of this year.
31. Clearly, it would be premature to attempt to offer any definitive proposals on the concurrent collection of the federal and Ontario personal income taxes until the federal government’s proposals are published. At this point, however, it might be useful to make a few general observations on this question.
32. First, it has been suggested by some that changes in provincial income taxes—particularly in the form of changes in the income base, rather than in across-the-board rate —increases—would complicate the present federal systcrn to an unworkable degree. The proliferation of income tax consulting firms in recent years and the legendary proportion of incorrectly filed returns, however, suggests that the existing system is already too complex for the majority of taxpayers. This suggests a basic need to rationalize the income tax system, quite apart from the possible effects of a separate Ontario personal income tax.
33. Secondly, depending on the actual differences between the proposed federal and Ontario systems, it is likely that both would require a largely common set of data on the individual taxpayer: concerning earned income, family size, expenses, domicile, and so on. The main problems and difificuzlties would arise in requiring taxpayers to make the two sets of calculations necessary to apply the two tax systems to the common data base.
34. The implication of these two observations is that much of the difficulty both with the existing income-tax system and the
administration of separate federal and provincial systems lies in the principle of self-assessment. If the requirement of taxpayer self-assessment were abandoned a completely new range of administrative possibilities appear. If, for example, the taxpayer were required only to submit to the central agency the basic information required by the federal and provincial systems, it could conceivably be subjected to the necessary manual verification and controls and to computerized processing in each case. The taxpayer could then be notified of his final assessment and provided with a detailed print-out of the calculation of each tax. The assessments and print-outs could be designed to provide visual emphasis to the differences between federal and provincial tax burdens.
Extracted from document 81(2)
SUBJECT: THE DISTRIBUTION OF
5.14.34. Federal-provincial tax sharing arrangements must be adequate to enable each government to discharge effectively its constitutional obligations.
One of the most serious defects in the Canadian federal system has been its failure to provide sulficient revenue to the provinces to enable them to meet their responsibilities. The result for one level of government has been insufficient money to perform its tasks, and for the other a more comfortable financial position which has prompted it to intervene in provincial areas of jurisdiction. This feature has been especially aggravated since the Second World War with the sharp increase in the costs of provincially-assigned programs involving education, social security, and highways.
The theory of federalism requires each order of government to act independently within its jurisdictions. Such independence is seriously impaired when one order of government must approach the other for financial aid to discharge its basic responsibilities, for its decisions are subject to review and to pressure for change by its pressing need for funds. The net result is a blurring of the federal system’s distribution of powers and a decrease in efficiency of government and in public satisfaction.
5.22.50. The Federal Parliament and provincial legislatures should have the power to raise revenues for the purpose of carrying out their own constitutional responsibilities. In addition, the federal Parliament should have the power to raise revenues for the purpose of making unconditional transfers to the provinces and conditional transfers which meet rules agreed upon by the federal and provincial governments.
1. The federal government is best able to undertake the responsibility of attempting to equalize conditions and opportunities across the country. It must have the constitutional responsibility to make equalization payments to those provinces qualifying imder an equalization formula, or to institute spccial unconditional payments to provinces, for example, the Atlantic Provinces’ adjustment grants. It must also have the power to raise revenues for this purpose.
2. The federal government should also have the right to make unconditional grants to the provinces, for example, in lieu of the transfer of additional tax room at any particular time. The payment of these grants would have to be preceded by full consultation with the provinces.
SUBJECT: THE MACHINERY FOR
5.23.53. Provision should be made for regular reviews of the spending responsibilities and rcvcnuevraising capabilities of the two orders of government in order that each government has sufficient funds to discharge effectively its constitutional obligations.
5.24.53. 1. Revenues and responsibilities should as far as possible be in balance: one order of government should not be expected to raise revenues considerably in excess of its spending requirements in order to transfer this surplus to the other order of government.
Rather, political responsibility demands that each government raise its own revenues as far as possible.
2. Canadian fiscal machinery should require the federal government and the provinces to review jointly their expenditure responsibilities and revenue-raising capabilities. This might be carried out by an independent body of experts, or by the Tax Structure Committee. If it is of the opinion that a revenue-responsibility imbalance exists, it could recommend either a revision of the ten-existing tax sharing arrangements or consideration of an appropriate constitutional amendment.
Statement on Taxing Powers to The Constitutional Conference
By the Hon. Edward Schreyer of Manitoba
December 8-10, 1969
It is the belief of the Government of Manitoba that the taxing power must be employed in a manner to ensure that each juridiction has the money to carry out its responsibilities. This means that the federal government must control the major tax fields because only the federal government can effectively employ taxation as a means of ensuring economic stability and as a means of equitably redistributing the wealth of the nation.
Nevertheless Manitoba accepts as a valid constitutional principle the proposition that in general both the federal government and the provincial governments should have access to all tax fields. But there are some obvious practical limitations on the general principle of unlimited access. For example, it would be wrong for provinces to apply indirect taxes in a form other than sales tax or consumption tax at the retail level. Otherwise, taxpayers could conceivably be taxed by more than one province. To illustrate: if provincial sales taxes were applied at the wholesale level then Ontario and Quebec taxes would have effect on citizens of other provinces since so many manufactured goods are purchased from Ontario and Quebec.
Manitoba advocates national tax structure development which places the full economic capacity of the Canadian people in support of balanced regional development. We also desire a national tax structure which minimizes variations in rate, base and administration of taxation. Collection agreements and
delegation can be used to meet these objectives.
The Government of Manitoba wishes to relate certain specific conditions to this general approach to taxation.
With reference to death taxes, the Government of Manitoba believes that estates are created in the context of the entire national economic community and the forces which operate in that community, Estates are not built in isolation in a single province. For this reason, and because of the federal government’s extraterritorial power, it is our view that the federal government is the logical authority to levy estate taxes. The same principle applies to corporate income tax.
Revenue obtained from these sources could be distributed by the federal government under an equitable equalization formula.
The Government of Manitoba is also of the opinion that increments in federal revenue which result from changes in the tax base, such as those anticipated in the federal white paper on taxation, or from natural increase or from inflationary increases should be passed on to the provinces on the basis of such a fair equalization formula.
Extracted from document 81(2)
7.1.7 The central government must have adequate economic and fiscal powers to ensure stable economic growth, cope with unemployment, combat inflation and deflation and to promote equalization of opportunity in the various provinces and areas of the nation.
See also Document 211 in Section 7—Alberta (Joint Statement from the Hon. W. A. C. Bennett—The Hon. H. Strom and the Hon. W. R. Thatcher on the “Federal White Paper on Taxation” December 8-10, 1969)
Joint Statement from the Hon. W. A. C. Bennett—The Hon. H. Strom and the Hon. W. R. Thatcher on the “Federal White Paper on Taxation”—December 8-10, 1969
The Premiers and Ministers attending the Provincial Constitutional Conference from
British Columbia, Alberta, and Saskatchewan met today to discuss the proposed “Federal White Paper on Taxation”.
It was agreed that while some provisions of the paper were desirable, the overall impact of the document would be completely unacceptable to the three Western Provinces.
The three Western Premiers welcomed the increased exemptions for those in the low income groups.
However the tax increases proposed to those in the middle income category, the measures that will seriously affect the expansion of small business and resource industries, the discouragement of incentives and investment capital can only be deplored.
The three Western Premiers contended that the White Paper in its present form would promote unemployment, and hurt the economy of Western Canada generally.
Premier W. A. C. Bennett,
Premier H. Strom,
Premier W. R. Thatcher,
Extracted from Document 209.
A position paper prepared for the federal-provincial Constitutional Conference, December 1969, by the Hon. Harry E, Strom (pages 22, 24).
We wish to express some of our general views on the subject of taxing powers.
However, we do not wish, in this paper, to go into any of the mechanical or technical details concerning specific suggestions for changes in taxing powers. We feel that this can be carried on within the conference itself and at other conferences of officials as individual questions arise.
Generally, we believe that it is important to see the question of taxing powers in relation to the Federal Government’s White Paper Proposals on Tax Reform. We consider this to be a major question, and many of these items could be considered simultaneously and in conjunction with an analysis of the White Paper proposals.
Before we committed ourselves to the proposal to allow the provinces access to the indirect tax field, we would want to challenge the proposal of the federal Government that it, the Federal Government, should occupy the major portion and exercise a dominant role in the income tax field.
Shared Tax Fields
In addition, and I think consistent with our other proposals for improved means of intergovernmental liaison and consultation, the Federal and Provincial Governments should agree to provide for the establishment of a permanent Federal-Provincial commission to examine the needs of all levels of government and to recommend the portion of shared tax fields, both direct and indirect, which both levels of government could occupy to finance standard levels of the services which are the responsibility of each.
Any requirements beyond the basic standard level of these services would be financed by additional taxes to be levied by the provincial government concemed. We look toward an integrated basis for taxation and a minimization of administrative cost.
Alberta has already stated its position regarding personal income tax. Our view is that this field should be assigned predominantly to the Provinces. The Provinces should receive at least 75 per cent of personal income tax collections in view of the needs and responsibilities of the Provinces. In return, the Federal Government could assume a greater share of corporation tax.
As a final but not incidental point, we feel that the personal income tax should not be used as a counter-cyclical regulator in our economy.
Extracted from Document 81(2)
8.3.11 To minimize regional dissatisfactions in the economic sphere, there is need to develop a more equitable distribution of the financial means to meet clearly-defined federal and provincial responsibilities and a formula that will ensure the basic social requirements of all Canadians without widespread disparity in the standards of service or cost to the individual citizen.
At the same time, care must be taken to avoid retarding further growth by unjustly penalizing those regions of Canada whose economic development contributes most to national revenues and to the gross national product on which the prosperity of the nation depends.
BRITISH COLUMBIA—SECTION 8
Extracted firom document 208
British Columbia’s Proposals
Presented December 1969 (pages 1-2)
In British Columbia’s Brief entitled “Proposals of the Province of British Columbia on the Constitution of Canada” released in December, 1968, I set out in broad terms the Government of British Columbia’s views on most of the subject-matters contained in the Constitution and, in addition, suggested principles that should be followed in undertaking the constitutional review now under way. I restated those proposals and principles at the Constitutional Conference held in Ottawa in February, 1969.
The matters to be discussed at the next meeting of the Constitutional Conference to be held it) Ottawa on December 8, 9 and 10 deal with certain specific aspects of the distribution of powers between the Federal and Provincial Governments. The purpose of this statement is not to reiterate British Columbia’s Proposals on the Constitution as a whole but rather to indicate in general terms what British Columbia’s submissions will be in respect of those matters on the agenda of this Conference. They are as follows:
The Taxing Power
British Columbia’s position on the taxing powers or each lcvel of government is that the capacity of each government to tax must be sufficient for each level of government to effectively discharge its constitutional obligations. Accordingly, in British Columbia’s view, the Federal Government should leave exclusively to the provinces the direct tax fields of personal and corporate income taxes and succession or estate duties except to the extent. necessary to finance a nationally administered guaranteed annual income plan.
Historically, the Province of British Columbia levied its own personal and corporate income taxes for years subsequent to its entry into Confederation. It was not until 1917, on the other hand, that the Federal
Government, in a period of national crisis due to the First World War, entered into this field for the first time. It was to be a temporary measure.
As in the case of personal and corporate income tax, a glimpse at history clearly shows that up until 1941 the succession duty field was exclusively occupied by the provinces and recognized by the Federal Government to be an area within exclusive provincial jurisdiction. British Columbia first entered the succession duty field in 1894.
What British Columbia is asking for is a return to the provinces of those tax fields which were clearly recognized as being exclusively within provincial jurisdiction and which only because of the exigencies of the First and Second World Wars were occupied by the Federal Government.
Lest it be thought that British Columbia’s proposal would result in the Federal Government being stripped of the necessary tax revenue to meet its constitutional obligations, it should be stressed that, coupled with the return to the provincial governments of the direct tax fields, would be the giving up by the Federal Government of payments to persons and governments such as Family and Youth Allowances, Old Age Security, Guaranteed Income Supplement Plans, Canada Assistance Plan, Equalization Payments to provincial governments and Medicare Payments. In their place would be established a guaranteed annual income for all Canadians. The effect would be a substantial decrease in Federal Government revenue but it would be offset by a substantial decrease in Federal Government spending responsibilities.
Extracted from document 81(2)
(a) Taxing Powers
9.6.14. The capacity of each government to tax must be sufficient for each government to effectively discharge its constitutional obligations. Accordingly, the Federal government should leave exclusively to the provinces the direct tax fields of personal and corporate income taxes and succession or estate taxes. Having done that, the Constitution should restrict the spending power of the Federal government to those matters under its jurisdiction.
9.7.20 The Constitution should impose a duty on the Government of Canada to lessen economic disparities among citizens of Canada wherever they be found, and to the extent that the duty can be discharged through the use of a negative income tax, such expenditures should have priority on the revenue derived from corporate and personal income tax.
See also Document 211 in Section 7—Alberta (Joint Statement from the Hon. W. A. C. Bennett—The Hon. H. Strom and the Hon. W. R. Thatcher on the “Federal White Paper on Taxation” December 8-10, 1969)
GENERAL SOURCES—SECTION 9
Extracted from document 174(1)—(pages 25, 26, 27)
A briefing paper on Constitutional Review Activities and Discussions within the Continuing Committee of Officials
THE TAXING POWERS
When the Constitutional Conference discussed the subject of the taxing powers at the Working Session in June 1969, it recorded the following conclusions:
“With one exception, the First Ministers agreed that Parliament and the provincial legislatures should generally have access to all tax fields, the power of the Parliament of Canada applying across the country and the power of each provincial legislature applying within that province. In applying this principle, the following objectives were accepted:
(i) The ‘within the province’ limitation of provincial taxing powers should generally be applied with respect both to direct and indirect taxes, so as to protect the taxpayer against the taxation of his income, property or purchases by more than one province.
(ii) The taxing powers of both Parliament and the provincial legislatures should be limited so as to avoid the erection of ‘tax barriers’ to interprovincial trade, and the power to impose customs duties should continue to be confined to Parliament alone.
(iii) Considering that both Parliament and the provincial legislatures would have access in general to the same sources of tax revenue, there should be
more regular and adequate federal-provincial consultations.
It was recognized that the principle of general access to all tax fields would not enable all provincial governments equally to discharge their constitutional responsibilities, and therefore Parliament should have the explicit power to make equalization grants to provincial governments. One province advocated that, instead of equalization grants to governments, there be established a basic income for all Canadians.
While some differences of views were expressed, the First Ministers agreed that the Conmiuing Committee of federal and provincial officials be instructed to consider further how these principles, if formally accepted, might be applied in a revised constitution and, in particular, to consider the alternative method of their application to the taxation of estates, transactions and real property. Certain provinces expressed the view that death duties and real property taxes should be excepted from the principle of access.
The Conference recognized that the discussions on the use by Parliament and the legislatures of their taxing powers should proceed concurrently with the constitutional discussions, and that such discussions would be of continuing importance in relation to the discharge by governments of their constitutional responsibilities.”
During its consideration of the taxation of estates (death duties) and the taxation of transactions (sales tax), in accordance with the instructions from the Constitutional Conference, the Continuing Committee indentiiied a number of alternative ways for meeting the objectives stated above. It became apparent to the Committee that, before an adequate report could be given to First Ministers, the many implications of the various alternatives would have to be identified and assessed. It was also concluded in the Committee that this detailed analysis was of a very specialized and technical nature, and that the most effective way of proceeding would be to establish sub-committees composed of experts in these tax fields which could report to the Continuing Committee in respect of these matters. Two sub-committees were therefore set up with the following terms of reference:
The Sub-Committee on Sales Taxes was charged with the responsibility of exploring alternative ways of ensuring that provincial sales taxes would apply only “within the province”, with particular reference to the following alternatives:
(1) Confining provincial transactions taxes to the direct level;
(2) Confining provincial transactions taxes to the retail level;
(3) Confining provincial transactions taxes to the goods and services used and consumed within the province.
The Sub-Committee on Death Duties was given the following terms of reference:
(1) To identify the implications of exclusive federal jurisdiction;
(2) To identify the implications of exclusive provincial jurisdiction;
(3) To identify the implications of concurrent jurisdiction;
(4) In examining (1) and (3) to consider the problem of relating federal estate tax laws to the Civil Code.
The Sub-Committees have to date each had one meeting at which they had a preliminary discussion of the matters referred to them and identified a number of implications, advantages and disadvantages which apply to the various alternatives under review. They then submitted interim reports which were considered by the Continuing Committee at its last meeting. The Continuing Committee concluded that it would be important for the Sub-Committees to pursue their studies in an effort to arrive at a technical evaluation of these implications.
The Continuing Committee agreed that it would report in detail to First Ministers on these questions after the Sub-Committees had been able to complete their investigations.
Extracted from Document 149
Conclusions of first Working Session
FIRST WORKING SESSION
JUNE 11-12, 1969
REPORT ON THE CONCLUSIONS
OF THE MEETING
The Prime Ministers and Premiers held their First Working Session in Ottawa on June 11 and 12, 1969.
The agenda of the meeting was as follows:
1. Distribution of Powers in the Constitution:
(a) The Taxing Powers
(b) The Spending Powers
2. Constitutional Aspects of Regional Disparities
3. Progress Reports from Committees of Ministers
4. Programme of Work for the Constitutional Review
5. Other Business
In the consideration of this item, all governments noted that the present discussions about the taxing and spending powers were subject to a satisfactory division of powers being developed. The Government of Canada and several provinces were concerned that any agreement on the taxing and spending powers was subject to a distribution of legislative powers which would ensure a strong central government. Some provinces made the point that federalism also meant strong provincial governments.
Agenda Item 1a) —
With one exception, the First Ministers agreed that Parliament and the provincial legislatures should generally have access to all tax fields, the power of the Parliament of Canada applying across the country and the power of each provincial legislature applying within that province. In applying this principle, the following objectives were accepted:
(i) The “within the province” limitation of provincial taxing powers should generally be applied with respect both to direct and indirect taxes, so as to protect the taxpayer against the taxation of his income, property or purchases by more than one province.
(ii) The taxing powers of both Parliament and the provincial legislatures should be limited so as to avoid the erection of “tax barriers” to interprovincial trade, and the power to impose customs duties should continue to be confined to Parliament alone.
(iii) Considering that both Parliament and the provincial legislatures would have access in general to the same sources of tax revenue, there should be more regular and adequate federal-provincial consultations.
It was recognized that the principle of general access to all tax fields would not enable all provincial governments equally to discharge their constitutional responsibilities, and therefore Parliament should have the explicit power to make equalization grants to provincial governments. One province advocated that, instead of equalization grants to governments, there be established a basic income for all Canadians.
While some differences of views were expressed, the First Ministers agreed that the Continuing Committee of federal and provincial oflicials be instructed to consider further how these principles, if formally accepted, might be applied in a revised constitution and, in particular, to consider the alternative method of their application to the taxation of estates, transactions and real property. Certain provinces expressed the view that death duties and real property taxes should be excepted from the principle of access.
The Conference recognized that the discussions on the use by Parliament and the legislatures of their taxing powers should proceed concurrently with the constitutional discussions, and that such discussions would be of continuing importance in relation to the discharge by governments of their constitutional responsibilities.
Agenda Item 1 b) —
The second major item of discussion concerned the exercise of the spending power of the Parliament of Canada. Most delegations agreed that the present power of Parliament to make payments to individuals or to institutions should not be subjected to any constitutional limitation; one province, however, reserved its position until the question of the distribution of powers had been dealt with, while some other provinces expressed the view that this federal power should in practice be exercised in consultation with the provinces. It was also noted that some differentiation of institutions might be required before this principle could be finally accepted.
There was general agreement that there should be no constitutional restriction on the power of the Parliament of Canada to make unconditional grants to provincial governments; one province, however, expressed the view that the establishment of a negative income tax plan, administered by the Govern-
ment of Canada, would make such payments unnecessary.
Extracted from document 75
A briefing paper on discussions within the Continuing Committee of Officials (pages 50, 51)
5. Allocation of Sources of Revenue—
One general principle was seen by many to be very basic to the distribution of powers: the federal and provincial governments should have sufficient sources of revenue to enable them to discharge their constitutional responsibilities. While this principle seems to offer little difficulty, when stated in these general terms, variations in view appear concerning its practical implications:
(a) The observation was made that the distribution of responsibilities and the allocation of revenue sources are not in balance under the present Constitution, leaving the provinces with a financial problem. A contrasting view was that the provincial governments’ access to tax fields is generally comparable in quantitative terms to that of the Federal Government.
(b) One interpretation of this general principle would seem to be that if a new distribution of responsibilities and powers is settled upon, then a new allocation of revenues would be called for. Certain suggestions were made concerning the method of allocating revenues:
—one view was that not only sources of revenue but shares of the revenues collected should be allocated by the Constitution;
—a further suggestion was that both levels of government should have access to the major sources of revenue, leaving very few sources to the exclusive use of one level or the other. An elaboration of this view was that an intergovernmental commission might be established to make recommendations concerning the sharing of revenues from jointly occupied tax fields.
(c) A related point of view advanced by some delegations is that under new constitutional arrangements, one government should not be enabled to influence the legislative actions of other governments within their own jurisdictions through the exercise of its spending power. At the
same time, some delegations expressed the view that the central government must have the powers and financial resources to enable it to contribute effectively to the redistribution of income within the country and to the reduction of economic and social disparities from one region to another.
TABLE ON PAGE 8 OF “THE TAXING POWERS AND THE
CONSTITUTION OF CANADA” REVISED TO
SHOW FIGURES FOR 1969-70
*See PDF for table