October 21, 1919

UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

That is what I am talking about.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

based on the Drayton-Acworth report which affords a sufficient foundation for Government's proposal.

If we go beyond the bounds of that report we have no certain guide as to what we should propose. Council will not accept either of the offers which Smithers put forward and unless they receive further offer before end of month they will consider negotiations at an end.

I have read that part of the Prime Minister's cablegram because it bears out the attitude which we take in this House. It has i been said-perhaps it was said by myself while the resolution was before the House- that we.should not consider the purchase of this railway until a proper report was made as to the actual condition of the company. We are borne out in that attitude by the Prime Minister, who says in this cablegram that the Government have nothing before them but the Drayton-Acworth report, and that that report would not justify them in accepting the proposal made by the company. I propose to show that there is nothing before .Parliament or the Government except the Drayton-Acworth report and that there is nothing in the Drayton-Acworth report that would justify the attitude of Parliament or the Government in reference to this proposition to-day. When the Prime Minister refers to the Drayton-Acworth report, what does that report say? While I have not read the whole of the report and there may be some things in it which I do not know, I find reference to this question at pages lxiv and lxv. It says:

It will be seen that the average amount paid in dividends has been $3,600,000 per annum. So the Stock Exchange valuation practically capitalize the dividends on 6 Per cent basis. And this, in a rapidly developing country, might be reasonable, if the dividends had been earned and could be maintained. But in view of the statement of the company's own officers that $211,000,000, which ought to have been spent out of revenue for maintenance has not been so spent, it cannot be contended that the dividends have been earned. In view of the further fact that the company has to face immediate liabilities of over $5,000,000 per annum in connection with the Grand Trunk Pacific, and of the statement of its own officers that a capital expenditure of $30,000,000 is immediately required on its own lines to put the company in proper condition to do its existing business, it can still less be contended that the dividends are maintainable. It cannot therefore be expected that the trustees should acquire the stock from the shareholders on the basis of past dividends. Even if the Government were to relieve them entirely, as 'suggested by their president, of their unfortunate Grand Trunk Pacific venture -and as we have already said, we cannot think that this request can be reasonably justified - it is evident that the Grand Trunk Company is not and will not be for some time to come, in a position entitling it to pay out any money at all in dividends. We regard the entire share

capital of the company as being intrinsically of but small value at the present time. On the basis of present value of maintainable income the fair compensation would he very small.

According to this report the stock of the company is practically valueless.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

Read on to the next clause.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

I am going to read; my hon. friend need not be afraid. I will give him the sweet with the bitter if he thinks that it is sweet:

But we do not think that this is the only basis on which the people of Canada should proceed.

I would like to tell my hon. friends that the authors of the report are now getting into a charitable frame of mind. It is likely after dinner when they are writing this part of the report the austerity of the other paragraphs has disappeared and they are becoming charitable.

But we do not think that this is the only basis on which the people of Canada should proceed. We think this is a case for generosity rather than strict justice. Canada is under obligations to the Grand Trunk shareholders, who, in the early days, with hut small Government assistance, and in competition with the railways of the United States with their vastly greater resources, built up the first Canadian railway system. In later times the company has had further to meet the competition of heavily subsidized Canadian rivals. And it cannot be said that at any stage of its history the shareholders have obtained excessive profits on their enterprise. On the whole we recommend that, on condition of the surrender by the Grand Trunk Company of their entire share capital, guaranteed, preferred, and ordinary, the trustees grant a certain annuity, charged as a working expense on the whole undertaking of the Dominion Railway Company, for the first seven years, increasing at the termination of that period by something like 40 or 50 per cent.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

That is just what we are doing.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

I will satisfy my hon. friend to his heart's content that this is not what he is doing:

We have left the figures blank as there will be questions of cash in hand, value of stores, etc., which must make the precise figures subject to negotiation.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

That is what we are doing here.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE (reading):

But our meaning is that the first figure should he a moderate but substantial .percentage of $3,600,000-

"A moderate percentage of $3,600,090." I would like to know from the Minister of Railways where under this bargain he

makes an annual payment of a moderate percentage of $3,600,000.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

There is the $2,500,000.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

Evidently the hon.

gentleman refers to something in the bargain that I could not come tacross. The hon. gentleman says "$2,500,000." That is the payment on the preferred stock but he has immediately alongside of that to pay nearly $8,000,000 on the debenture stock.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

This was to be in addition to that.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

This report does not say so. This report says that the company have to deliver up everything they *have.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

No, it does not.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

That is the suggestion here. They have to deliver, bolus bolus, everything they have from common stock up and then the Government comes in and makes an allowance upon the basis of $3,600,000. not- the whole but a moderate or substantial percentage of the amount. That is the suggestion of the Drayton-Acworth commission and that is the only authority which the Government have to-day. They have had no further investigation, no inquiry, no report, no arbitration. The Prime Minister, in his cable to the commissioner of the 10th September, 1918, says that there must be some substantial basis for the figures in the offer before anything of this kind should be done and that it should not be done except after investigation, inquiry and report to the Government. There is no such inquiry, no such report, no justification for the bargain to-day which is ^ infinitely, .away and beyond anything that could by the most lively stretch of the imagination be justified under the Drayton-Acworth report.

They were travelling in the dark and without a shadow of authority at all except what negotiations may have gone on heie, as to which we have no report and nothing upon which this House can base any decision. Now, Mr. Speaker, those were the preliminaries and those were the matters which passed back and forth between the Government and the president of the road, and also the reference that was made to the Drayton-Acworth Commission report by the Prime Minister and making it a basis for further negotiations. I wish to point out, and I am using the Drayton-Acworth report for that purpose, that this company has not been for the last ten years in anything like a good business condition; that

it is not in good business condition to-day; and that when the Government is taking the road over they are taking it over with that knowledge and with this report before them which w.as made by the select commission appointed and known as the Drayton-Acworth Commission. I said before- and many of the members of this House have said the same-that 'before we depart from the basis of that report, before we depart from the attitude which 'we took at that time and which .the Prime Minister took, there should be something substantial and something reliable upon which the people of this country can base any different decision at which they will arrive.

I propose to show that the bargain we are making is going away and beyond what was proposed at that time, and away and beyond the value of this undertaking. I hold in my hand a copy of the report made to his company by Sir Alfred Smithers on the 21st March, 1919, in which he states:

I have had most heartrending appeals from the many thousands of British investors who have invested their money in the securities of the Grand Trunk Railway.

Is that the institution which the Canadian people want to take over? Have we not enough appeals, and just appeals, now with respect to the moneys that this country can produce and pay out? Have we not enough of that without going to take over the heritage which this gentleman who was president of this board has howling around him and which he is anxious to pass over to the Minister of Railways?

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
Permalink
UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

Might I suggest to the hon. member, they could not pay the dividends, although they were earned, as long as the Grand Trunk Pacific was in default.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

They have never paid one farthing on those bonds, and they are not paid yet. We have to pay them or they must be done without. That is the position of the Grand Trunk Pacific and the Drayton-Acworth report went fully into the matter. They say nothing about money being pa'd to the Grand Trunk Pacific. They say that this company has been badly managed, badly financed, and badly operated; and that they have taken the life blood out of it, and for the sake of

appearances, passed money around in the shape of a small dividend to keep the thing going, which money should have gone into the operations of the company. Those are the facts, Sir, and it was under those circumstances that this distressing statement of Sir Alfred Smithers

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
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L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

That is the interest for one year; I do not know how long it may he continued. If the bonds and securities are taken over and the Government only pay the interest, that is the annual charge they will have to pay to keep that going.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
Permalink
UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

I was looking at page 39 of the blue-book. There I notice that under Notes Payable, which I take it are equipment bonds, the amount is $35,548,235. The figures are not quite the same, but I mean there would be interest on that $35,000,000. I understand the hon. gentleman to say that there will be that amount of interest instead of that being the amount on which the interest will be computed.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
Permalink
L LIB

Daniel Duncan McKenzie

Laurier Liberal

Mr. McKENZIE:

That is the position I

take, and I have obtained my figures from the bjue-book which the hon. gentleman holds in his hand. There is also a stock issue of $50,126,655, shown on page 39 of the same blue-book recently issued by the Government in connection with the financial and business standing of the Grand Trunk. That stock, which we also assume, bears interest at four per cent, which will amount to a further claim against the country of $2,005,066. The total annual interest upon all the Grand Trunk liabilities which we assume is $47,864,367. The earnings of the Grand Trunk for the railway year ending 31st December, 1918, were $64,482,316; the operating expenses were $53,435,801; leaving a balance, of $11,046,515, from which must be deducted the loss on the roads operated in the United States amounting to $1,639,317. This leaves a net balance, without deducting the fixed charges, of $9,407,198; but subtracting the fixed charges, which were $9,398,438, there is left only $8,760. Taking the very best situation in which the road can be placed for that year and giving credit for a clean earning of $9,407,198, and deducting that amount from the annual interest charge of $47,864,367, there is left a deficit of $38,457,169 on the year's operations of the Grand Trunk, which deficit must be paid annually by the people.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
Permalink
UNION

John Dowsley Reid (Minister of Customs and Inland Revenue; Minister of Railways and Canals)

Unionist

Mr. J. D. REID:

I think the hon. gentleman has made a mistake in regard to the equipment bonds.

Topic:   GRAND TRUNK RAILWAY 'SYSTEM.
Subtopic:   BILL, PROVIDING FOR THE ACQUISITION OF THE SYSTEM BY THE GOVERNMENT.
Permalink

October 21, 1919