May 12, 1921

L LIB

James Alexander Robb

Laurier Liberal

Mr. J. A. ROBB (Chateauguay-Hunting-don):

Mr. Speaker, I think this is the

first time in twelve years' parliamentary experience that I have risen to a question of privilege. In debate yesterday, my hon. friend the Minister of Marine and Fisheries (Mr. Ballantyne), used this sentence as found in Hansard, page 3321: [DOT]

To use t!he words of the hon. member for Red Deer my hon. friends opposite from the province of Quebec are something like Admiral Nelson- they always put the glass to the blind eye. They fraternize one with the other and can see nothing ibut victory ahead for themselves-they can see nothing but the maintenance of this "Quebec bloc." One of the sheep has jumped over the walls of the pen and is wandering loose at the present time;

Mr. Speaker, as a member from Quebec I resent the implication of being called a sheep. The Minister of Marine and Fisheries, perhaps unintentionally, conveyed an insult to the members from the province of Quebec, which he himself may regret. I wish that he would withdraw the statement.

Topic:   QUESTIONS
Subtopic:   IMAGINARY LETTERS-SPEAKER'S RULING
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UNION

Edgar Nelson Rhodes (Speaker of the House of Commons)

Unionist

Mr. SPEAKER:

The remark was not

heard by me, but I am sure, from the nature of the remark as quoted by the hon. member for Chateauguay-Huntingdon (Mr. Robb), that the reference was purely by way of illustration and was not intended to be construed as any reflection upon any hon. member of this House.

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Subtopic:   IMAGINARY LETTERS-SPEAKER'S RULING
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L LIB

Rodolphe Lemieux

Laurier Liberal

Mr. LEMIEUX:

Well, was it meant

to be a black sheep, Mr. Speaker?

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L LIB

Pius Michaud

Laurier Liberal

Mr. MICHAUD:

Perhaps it was "entirely imaginary".

Topic:   QUESTIONS
Subtopic:   IMAGINARY LETTERS-SPEAKER'S RULING
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L LIB

Charles Murphy

Laurier Liberal

Mr. MURPHY:

Probably it is the lamb of the member for Jacques-Cartier (Mr. Lafortune) grown up.

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Subtopic:   IMAGINARY LETTERS-SPEAKER'S RULING
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REVISED EDITION. COMMONS THE BUDGET DEBATE CONTINUED ON THE ANNUAL STATEMENT PRESENTED BY THE MINISTER OF FINANCE


The House resumed from Wednesday, May 11, the debate on the motion of Hon. Sir Henry Drayton (Minister of Finance), that Mr. Speaker do now leave the Chair for the House to go into Committee of Ways and Means, and the proposed amendment thereto of Hon. W. S. Fielding.


UNION

Fred Langdon Davis

Unionist

Mr. F. L. DAVIS (Neepawa):

Mr. Speaker, in rising to discuss the Budget I wish to assure the Finance Minister of my sympathy with his difficulties on this occasion and to express also a realization of the fact that these difficulties are not of his making, many of them having arisen under a finance minister's administration with which I was not at all in agreement.

A year of falling prices; of appalling railway deficits after equally appalling freight-rate increases; of large unemployment, destined to grow worse; of one hundred millions of deficits; of expenditure in excess of revenue, lies behind us. And ahead of us seems to lie a year wherein all these will be aggravated. Last year $432,000,000 was raised by way of taxation, but this, the largest taxation we have ever collected, has not availed to make things meet. The ensuing year cannot be expected to yield like revenues, but will call for similar expenditures. The minister places the figures which should be paid out of current revenues this year at $435,000,000, to which should be added about $155,000,000 of expenditure on railways and upon active investments, so that we shall have a deficit, apparently, of about that amount after applying the ten millions of cash which we have in hand.

For the relief of some whose appetite for tariff discussion is satiated, I will say here that I am not going to discuss the tariff at length. In postponing action the minister, perhaps, is displaying discretion, taking that word in both its good and its bad sense. A party of Liberals and Conservatives that has not been through the fire of an election might prove uncertain under such a strain. I found myself in sympathy last night with most of the remarks of my friend from North Oxford (Mr. Nesbitt). But, as he told us that' England was not a free trade country, I thought he should discuss that matter with our friends from Frontenac (Mr. Edwards) and from Fort William (Mr. Manion) who seemed to hold other views upon that question. In the better

sense of that word " discretion " I think the minister would have displayed more, had he framed and arranged classifications in the tariff schedule and knocked off even a few excrescences just to show the country that the commission had not been entirely a waste of time. After the remarks in the West of the Minister of Immigration and Colonization, (Mr. Calder), there was felt to be need for such a demonstration. Nevertheless, in the state of trade, in th$ condition of United States legislation on tariff questions, and in view of our own political condition, the postponement has much to justify it, not the least being that the prospect is that quite different persons and quite different ideas will shape our next Budget.

I also agree with the elimination of the business profits tax. The time was ripe for that, as business has generally been experiencing a cutting down, a wiping out of values, which would certainly have affected collections under that tax. But the Finance Minister imposes a sales' tax. I think this is no time to show toe great friendliness or consideration for the big interests of this country, and I should like to make a suggestion with regard to the corporations' income tax. A corporation is treated under the fiction that it is a person, and after $2,000 exemption is allowed, 101 per cent practically is levied upon its yield. We have in this country many one-man corporations and these men may have very large revenues from such corporations. Under Section 3, subsection 4, of the Income Tax Act, the minister, unless he is satisfied that there is a need for retaining these funds in the hands of the corporation, may force them out-at least that is the course that he has chosen to pursue-into the hands of the shareholders. But I would point out that with the business profits tax eliminated, the machinery is now defective for his doing that. That is, having before him the earnings of a corporation and the names of the shareholders, he may allot a tax upon the amount which they should have received, had the profits been divided. I believe the question has never been settled whether he has a right to make such an assessment upon funds which the shareholders have not received. Under the income tax as it stands now, firms and partnerships must pay the full amount of the income tax, whether it has been realized in cash or not. No account is taken of the needs of a firm or partnership to extend its business, and I cannot, therefore, see why account should be taken of the needs of a corporation to

extend its business and use its reserve in that way. I grant at once that the minister could hardly make exceptions among firms or partnerships, but he should line up the corporations with the firms and and the partnerships, and I want to point out to him a method whereby that may be done. We have a 10J per cent tax upon a corporation as an income tax. Supposing that tax were levied as a minimum tax provided that the dividends of the corporation were distributed within three months of the end of the company year, and a further surtax were imposed upon the corporation if they did not so divide. The result would be certainly to force a distribution of the dividends, and the shears of the income tax would then catch these sums in the hands of the individual shareholders. Perhaps, even, it would be advisable to do this; still recognizing the corporation as an individual, to provide that no income tax shall be assessed if the dividends are distributed within a very limited time, but that a very heavy income tax shall be levied if the dividends are not distributed within that time. Then you will have these funds forced into the hands of the shareholders and thus brought under the income tax requirements. The objection may be raised that corporations need money to extend their businesses. The one-man corporation can meet that, because, having received the whole amount of the dividends, having paid his tax, he can put his money back into the corporation which is his property. If it is a com' pany of the ordinary description, if its shares are above par, it may offer its shares at a discount or at par, thus making a right in the shares which would be of value. Or, if the shares are at or below par, it may offer preferred stock at advantage and these rights could be sold. Therefore, there will not be that difficulty, which has been one of the objections to the business profits tax, that money for further expansion will not be available.

With regard to our shipping, I think it is deplorable that we had not a Lord Inchcape in Canada to sell our ships at the end of the war. Hon. members know that Lord Inchcape practically took 200 vessels over from the British Government and himself disposed of them. If England, the greatest shipping country in the world, saw fit to do that, surely some one in our Government should have been alert to what was good policy for the very "mistress of the seas" and been apt and eager to follow that example. .

207J

I shall not now discuss our railways, because there will be a future occasion for that. I want, however, to point out that the railway situation perhaps affects our western provinces-and I believe in this case the charity begins at home-in a most acute form. We have to pay very heavy freight rates at any time to get our goods to the markets of the world, and we have to pqy heavy rates to get goods into that country. As an example of what has taken place in the way of change in prices in the last year, let this illustrate. The farmer in the West-and this was in the week before this session began-was selling his steers at 301 per cent decrease, his cows at 30 per cent decrease, his stockers at 38 per cent decrease, his hogs at 23i per cent decrease, and his sheep at 44 per cent decrease. He was selling his wheat then at 151 per cent decrease, his oats at 48 per cent decrease, his barley at 42 per cent decrease, and his flax at 66 per cent decrease. The freight situation had much to do with these large decreases. But on the other hand the farmer had to pay more for everything that he was buying in the way of machinery and equipment. I have in my hand, a list which includes buggy, democrat, wagon gear, grain tanks, trucks, gang ploughs, breaking ploughs, hay rakes, mowers, binders, blacksmiths' forges, and certain gasoline engines; and the total of these at the 1920 price is $1,775.20. In the catalogue of the week ending February 12, 1921, the retail price is $2,154.10, an increase of 21.31 per cent. Compare that with the decreases which he is obliged to accept, and you will see that he is facing very grave difficulties; and I say that these difficulties bear more heavily upon him because of the freight situation; hence there is even more necessity for a re-scaling of rates and an improvement in our whole railway situation. I should in justice, perhaps, point out that in one line of articles, harness^and I am sure my hon. friend from Red Deer (Mr. Clark) will appreciate this, after telling us that he has had to sell hides at 1 cent a pound-the price is down a little from $193.25, to $169, a decrease of 12.39 per cent. With these figures before the House I think it can realize somewhat, of the dissatisfaction that rests in the farmer's mind when he sees that he still has to pay large tariff taxation, as well as contributing in the measure he does to freight, taxation. As an instance of how and where the freights Come from in this country, it is general public knowledge that $33,000,000 was the surplus for all pur-

32C4

poses of the Canadian Pacific Railway last year. I want to tell the House, what perhaps it does not know, that of that surplus, $21,000,000 was produced upon western lines in the last four months of the year 1920; that is, practically two-thirds of the whole surplus was earned on the western lines of the Canadian Pacific in those four months.

A good deal has been said from time to time as to our grave adverse balance of trade with the United States. I would like to produce some comparative figures here to show that the situation is not nearly so grave as has been stated. In 1921 we exported to the United States $542,000,000 i of goods, and we bought from them $856,000,000 of goods; that is, our imports were equal to 155 per cent of our exports. In the year 1920, they were 173 per cent; in 1919, 164 per cent. During the war conditions were disturbed so that it is not fair to make comparisons with those years. The figures were less for three years of the war, and then going back to 1915, our imports were twice our exports, and the same is true of 1914. They were 2.64 per cent in 1913, and in 1912 they were three-fold. To reduce to proper values of the present, for our money in 1921 as compared with our money in 1912 is practically at an appreciation of 100 per cent, you would have to divide the figures of 1921 to get a fair comparison; that is, in those terms, the exports would have been $271,000,000 as against $428,000,000. Now, in 1915 that $428,000,000 is the amount of our imports, and in that year our exports were only $215,000,000 of goods. Consequently, I think that the situation is really improving, and that there is not such a need for fear as to the situation as has been very widely expressed.

A matter which should, perhaps, give us more concern is the question of exchange. We are now paying a premium of around 12J per cent upon American funds, and in our present situation this is really serious, especially when you take into consideration a matter to which I shall refer later on, that is the question of our loans. But this is to be remembered: that while a balance of trade against us would throw the rate of exchange against us, it would not account for the amount of that rate. What really accounts for the amount of the rate is the disparity between the purchasing power of our money and theirs. Compare wheat of the United States with that of Canada. Our wheat has been consistently quoted at a higher level than that of the

United States. That is a commodity which is in world-wide demand, and until the Young Bill, which passed the United States Senate yesterday, began to affect the situation, it was in no way affected by governmental regulations. Now, the fact is that it takes about $9 of our money to buy what $8 will buy in the United States, and that is the real cause, and the basic fact, to take into account in connection with our exchange. We have to-day to compare the purchasing power parities of money to know what we are doing in any trade. It is no use any longer following mint parities. Indeed, even the exchange is a misleading guide, because, during the war, exchange was kept up by the governments and was above the purchasing power of the moneys of the several countries; to-day, because of the disturbance of conditions, it is below the purchasing power of the moneys. If any one cares to follow that question up, I would refer him to the May number of the Commerce Monthly, issued by the National Bank of Commerce of New York, where he will get a bird's-eye view of the whole situation.

In consequence of this, I have to criticise the minister's proposition to limit the exchange variation to 50 per cent. With regard to some countries that is justifiable, particularly with regard to Germany, and if it were pointed straight at Germany I would support it. But as regards France, for example, we have recently entered into a treaty with France to give her certain advantages. Now, by this arrangement of exchange, we reach behind their backs and take away those advantages. At present the French exchange is around 8.14 cents, but the purchasing power of French money is above that point, and that, after all, is what counts in the question of exchange. Indeed, keeping in mind the functions of exchange, when we adopt a policy of this sort, we are providing means which carry us only half way in the complete circle of trade. We take it from French goods into currency, but it has to go the rest of the way, from currency into Canadian consumption, before you have the transaction complete; and in that case we take account of the purchasing power of the money and no injustice is done to us. Where England imposes a duty of 33J per cent in cases of this sort for the same purpose, the London Economist has this to say:

The exchange section of the resolution is still more fatuous; insofar as it is effective it will inevitably retard the recovery of central Europe on the need for which our rulers ha-ve so often and eloquently declaimed.

Our trade does not equal that of Great Britain with Europe, and so has not the pervading effect that such a restriction must have in English trade; but it has its effect, and it is a distinctly unfriendly act on our part to put upon the currencies of Europe such a limit. In dealing with this question, and in order that it may be understood, I propose to read some extracts from an address delivered by the Swedish economist, Cassel, delivered before the Brussels Financial Conference:

The part of the currency which has been exported to foreign countries is in some cases very important. The actual circulation within Germany is, e.g., much lower than the total mass issue, the rest being held in foreign countries. This must be taken into account if we wish to have an idea of the active circulation within Germany. In some cases it is necessary to have regard to an increase or a decrease of geographical area within which the currency is used. In the case of Germany, e.g., the present active circulation should strictly be compared with the pre-war circulation within the present boundaries of the country.

Now, Germany has been forcing her marks upon foreign countries, and this has amounted to floating a demand loan. The consequence has been disastrous to her own trade. Let me quote from page 47 of the same report:

war. In it, as in its two predecessors, there is no enunciation of general policy such as all circumstances demand. Parliament has, during this session, considered such proposals as the development of the St. Lawrence, involving an expenditure of half a billion dollars, as cheerfully as if in the last seven years we had not incurred a debt of two billions of dollars, changed our price levels more than commonly occurs in centuries of time, wasted a very large portion of our capital in waging war, and raised problems which cannot be settled by short views such as these last three Budgets have contained, but which must be met by some measure of vision and a policy having consistency and continuity for at least one generation.

Of our old obligations of nearly $300,000,000 about $25,000,000 falls due within the next four years, and of our new obligations of nearly two billions and a quarter, within the next four years, 25.7 per cent falls due. We have paid this year $25,000,000. Next year we have to pay $195,000,000; in 1923 the same sum; in 1924, $105,000,000, and in 1925, $43,000,000. That we may get this all before us, let us put it on record:

As instances of such depressing tendencies we can quote: a distrust in the future of a monetary standard, leading to a discounting of an anticipated fall of the internal value of the money; operations of speculators, etc. By far the most important of these depressing factors is, however, the practice of selling out the currency of a country abroad. This practice has, during the last year, reached such proportions and become such a prominent factor in the international monetary situation that it is necessary to devote special attention to it. #

The whole operation can best be studied in the case of Germany. German marks have been

In 1926 we have to pay

In 1927 we have to pay

In 1928 we have to pay

In 1929 we have to pay

In 1931 we have to pay

In 1933 we have to pay

In 1934 we have to pay

In 1935 we have to pay a little over

In 1937 we have to pay

In 1938 we have to pay

In 1945 we have to pay

In 1947 we have to pay nearly.. . .

To recapitulate:

79.000. 000

483.000. 000

481.000. 000 1,000,000

345.000. 000

52.000. 000

65.000. 000 5,000,000

sold out abroad on an enormous scale, and at almost any price they would fetch# As the cen- Between per cent. 1921 and 1925 we must pay 25.7tral Government, local bodies, banks, and business enterprises were in absolute need of foreign Between per cent. 1921 and 1931 vve must pay 10.3means of payment, and these did not seem to be procurable in any other way, the country was Between per cent. 1932 and 1935 we must pay 43.3driven to this selling out of its currency. The process must be looked upon as a substitute-a Between per cent. 1937 and 1938 we must pay 17.7bad substitute indeed-for the more regular device of securing foreign loans. As lenders could Between cent. 1945 and 1947 we must pay 3 per

not be found, Germany turned to a new class of investors, the speculators in currency, and offered them, instead of a high rate of interest, the inducement of an extraordinary low rate of exchange. Of course, the speculators suffered heavy losses as the exchange went down step by step. But new ranks of speculators were always ready to believe that "the bottom has been reached" ; as a mantter of fact the last of them have made enormous profits. The selling out of marks is said to have been considerably increased by the endeavours to evade in this way an exorbitant taxation.

In considering the proposals of this year's Budget, there is one lamentable omission. This is the third Budget presented to the people of Canada since the

It is not within the contemplation of any one that we shall pay these debts as they come due, but large refunding operations must be carried through. It is wise, therefore, that we should keep these before us and prepare for them. We are in the third year away fron* the war, and no Budget has yet made reference to them. Let us look at some features of the situation. The United States is our greatest competitor, not only in trading but in obtaining increase in population. It is generally recognized by our statesmen that their conditions have a direct effect and

influence on our own. To obtain the growth in population we desire we must offer to our own people and to immigrants a similar standard of living, a comparatively decent rate of taxation, similar wages, and cost of doing business. At present I shall leave out of any such comparison the effects of a protection policy in which we collect about $20 per head in duties and they collect about $3, and endeavour to deal with other factors of the situation.

The United States floated its loans for about four and one-quarter per cent. We have had to pay rather more than five and one-half per cent. In the present and prospective dearth of capital, we shall do well indeed if we can refund our present indebtedness at the rate of 6 to 6i per cent, being one-quarter to one-third higher than the United States is paying for funds for the same purpose.

This is one of the great reasons why, at present, we should adopt the four recommendations made by the Brussels Conference-balance all recurrent expenditure with taxation; cut down all military expenditure; abandon all unproductive extraordinary expenditure; and restrict to the very minimum even productive extraordinary expenditure. The United States is the only prospective market for such refunding operations, and our money is at a discount of about twelve and a hallf per cent with theirs, so that if we borrow from them we must pay this difference upon the principal sums, and so long as we permit the difference in purchasing power parities of our and their currencies we must pay such premium upon the interest upon the sums borrowed.

Now let me quote from the New York Times financial edition:

As it is, leading financial experts believe that Canada will experience so much difficulty in taking care of the maturities prior to 1933 that there will Ibe little if any opportunity for building for the future-

That is, making preparation for taking care of these maturities.

-and in those years, or just before them, Canada is likely ,to make another big entry into the New York market. During the past year or so Canadian securities have been going better in the American market than ever before. A very considerable amount of provincial and municipal bonds and other securities have been sold here and, in addition, nearly $85,000,000 in Canadian railway issues, representing properties which are to ibe merged into the Canadian National Railways, have been disposed of to American investors. The discount on Canadian funds in the exchange market has been a factor, allowing American investors an immediate discount of 9 per cent to 14 per cent on the purchase price

with the chance that this will be entirely made up within the next few years and long before the maturity of these securities.

Now, that is a situation that we must face with regard to having our money on a disparity with theirs. If we borrow from them we must pay the difference, and so long as we suffer a difference in purchasing power on our money we must pay the difference in exchange upon United States interest.

I think it was the duty of the Government therefore, to lay this situation before Parliament and the country for its consideration, and to announce a policy and to devise ways and means for carrying out that policy. Under the circumstances, the obvious policy is first of all to put our currency on a par with United States currency as we are only about twelve and a (half per cent from such par. And as experts hold that Great Britain which is twenty per cent from par. and France which is thirty-five per cent from par, are able to, and should, bring their currency to par, the conclusion is inescapable that for us it is more attainable and more essential. Were it not mentioned, it might be overlooked that we are already borrowing over $200,000,000 a year from the United States, authorities stating that last year we borrowed $214,000,000, and the rates have been above six per cent. Provincial governments, municipalities and business firms have all been forced to the United States market for needed funds, and where, as is the rule, they are made repayable in the United States, so long as we permit our moneys to remain at a discount, we pay about one-eighth more interest and are repaying one-eighth more principal to cancel the debt. Surely this means that our business is at a disadvantage with United States business and that the way to correct this is to bring our money to a parity. My own small town is paying $1,500 a year to make up the diffier-ence of exchange. They borrowed $100,000, from a firm in Toledo some years ago and there are some other maturities they have in the United States, and they are paying $1,500 a year in exchange. This means very nearly one dollar a head of its population and a material increase in its taxation. Hence, I conclude that the Government's first duty is to balance its expenditure with taxation and secure surpluses with which to bring our money to equality with the United States money. The effect will be to cheapen money throughout Canada, and materially reduce the cost of carrying our debt in the future.

But with this must be coupled the necessity for establishing sinking funds, and we cannot establish sinking funds while we continue to expend; as the Finance Minister says, during the past year he has expended $100,000,000 more than the taxation has yielded him. Neither would any sensible person demand the establishment of sinking funds forthwith; but surely a Government conscious of its obligations would take the country into its confidence and say when it thinks such sinking funds should and can be started. This may be seven to ten years ahead, but a government which has determined upon the establishment of sinking funds and set a date for their establishment and shaped its expenditure and taxation to carry out that operation within that time, will be able to borrow money on much better terms than a government which is proceeding as this present Government is without an expressed realization of the situation or any declared determination to effect these purposes. Such sinking funds could be begun in time to have a most material effect upon the refunding operations at our second period of maturities in the early thirties. Such a detailed policy no future Government would dare to depart from, and with such a policy Parliament and the country would have a corrective and a tonic principle for its future guidance, and that is one of the great lacks in our present fiscal policy. Retrenchment of our expenditure would necessarily follow upon such a policy and Parliament would relegate to the future any scheme for expenditure which would conflict with such a dominating policy and principle.

The peroration of the Finance Minister, although it contains words of faith and confidence, does not appeal particularly to me; but had a policy been announced- such as I have tried here to outline-then I would say that faith and confidence in the Government, and in the future of Canada, is to be entertained. Unless such a policy is established it cannot be entertained.

Topic:   QUESTIONS
Subtopic:   REVISED EDITION. COMMONS THE BUDGET DEBATE CONTINUED ON THE ANNUAL STATEMENT PRESENTED BY THE MINISTER OF FINANCE
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UNION

Hugh Guthrie (Solicitor General of Canada; Minister of Militia and Defence)

Unionist

Hon. HUGH GUTHRIE (Minister of Militia):

Mr. 'Speaker, in rising to address the House for a short time upon the motion now before the Chair, I feel that I should join with those who have preceded me in tendering to my hon. friend and colleague, the Minister of Finance, the congratulations to which he is entitled upon the splendid showing that he has been able to make in regard to the finances of this country, despite the fact that Canada has admittedly passed through the most distressing period in her history-a period not only distressing to Canada financially but distressing throughout the whole world.

It is a splendid tribute to the ability and care of the Finance Minister that after such an experience he can come before Parliament at the close of the financial year and announce that he has been able to meet all the ordinary outlay in respect of government out of the ordinary revenue and at the same time bring down a statement which shows what we call a surplus, amounting to something over $69,000,000. He is able to say in addition that not only has he paid all the ordinary expenses out of ordinary revenue, but he has been able likewise to pay as he went along no less a sum in round figures than $36,000,000 of capital expenditure, and a further sum of war expenditure amounting to $20,000,000, both of which large sums he has paid out of that surplus and still there remains over the handsome amount, having regard to the times in which we live, of $12,428,000 to the credit of the country. That, I submit, Mr, Speaker, is a wonderful financial showing made under exceedingly difficult conditions. I have been in this House a number of years, and I know in years gone by-ten, fifteen or twenty years ago-it was considered a very great triumph on the part of the Finance Minister to announce a surplus at the end of the fiscal year. I am aware there is a difference of opinion tes to whether the surpluses that for many years have been announced in this House can be considered as real or more or less imaginary, but I believe that from Confederation down to the present time it has always been considered a privilege for the Minister of Finance to announce a surplus at the end of the financial year's operations when his ordinary expenditure was less than his ordinary revenue, notwithstanding the fact that during the same year it had become necessary to increase the national debt. On the one hand, on the annual operations we had saved some money, while, on the other hand, by way of capital expenditure we had increased the net debt'. But notwithstanding the increase in the net debt, it has always been the privilege of the Finance Minister to claim as surplus anything he has been able to lay aside on the year's operations as between ordinary revenue and ordinary expenditure.-

The most outstanding fact at the present time, I think, is that during the past twelve months the Finance Minister has found it possible to declare a surplus under the conditions which have existed in this

32G8

country. I believe that for a good many years past, omitting the war years, annual surpluses have been rather the regular thing than the exception; while I think I am also within the mark when I say that during the past twenty years additions to the net debt of Canada have been the rule rather than the exception, even during those years when our largest surpluses were produced. I have a few figures on the subject culled from the public accounts, and I find that the hon. member for Shelburne and Queen's (Mr. Fielding) who for fifteen years was Finance Minister, namely, from 1896 to 1911, was able by good and careful management during many years of that period to come to Parliament and announce a surplus. But I find that during those fifteen years my hon. friend as Finance Minister could only in four years of the fifteen say to Parliament, "I have made no additions to the net debt of Canada." During eleven of those fifteen years out net debt was considerably increased, while, in many of those same years surpluses were announced and cheered in the House and congratulations were tendered to my hon. friend. But I find that the net result of those fifteen years was that notwithstanding the surpluses the national debt was not reduced but as a matter of fact was increased to the tune of about $82,000,000.

Now, Mr. Speaker, my object in going into this matter as I have done at this moment is to lay a foundation for the course which I intend to pursue during the rest of my remarks. I do not know that I should have ventured upon the Budget discussion at all were it not that my hon. friend from Shelburne and Queen's-who appeared this week in the role of the chief financial critic of the official Opposition and delivered a speech in reply to the speech of my hon. friend the Finance Minister in presenting his Budget-at the very opening of his remarks extended to me something like an invitation, or perhaps I might term it a challenge, by direct reference to certain recommendations which were made at the International Financial Conference last September at the city of Brussels, particularly to those in regard to naval and military expenditures, and which conference I attended as a representative of Canada. My hon. friend the exFinance Minister quoted from those recommendations, and his quotation will be found at page 3251 of unrevised Hansard in these words:

The President: The third psrt of the resolution says: It is imperative that every Govern-[>Mr. Guthrie.!

ment should, as the first social and financial reform, take the following steps:

(a) Restrict its ordinary re-current expenditure, including the service of its debt, to such an amount. as can be covered by its ordinary revenue.

(b) Rigidly reduce all expenditures in armaments in so far as such reduction is compatible with the preservation of national security.

(c) Abandon all unproductive extraordinary expenditure.

(d) Restrict even productive extraordinary expenditure to the lowest possible amount.

Such was the language of one of the resolutions passed by the Brussels Conference. In regard to it my hon. friend commented as follows:

This resolution was carried unanimuosly, and approved by the Government of Canada through the Minister of Militia who, as I have said, was present. I deeply regret to say that though the Government of Canada supported that excellent proposal at Brussels, they do not seem to be willing to support it at Ottawa.

I maintain, Mr. Speaker, that in every particular the Government of Canada has lived up to the Brussels recommendations. I do not need to dwell upon paragraphs (a), (b) or (c), but I do intend to dwell upon paragraph (d), the recommendation of which was in the following language:

Rigidly reduce all expenditures in armaments in so far as the reduction is compatible with the preservation of national security.

I do so more particularly, Mr. Speaker, because I find that not only in the Houie of Commons but also on the part of the press of the country there exists what I believe to be a thoroughly uninformed, thoroughly misinformed, thoroughly ignorant condition of the public mind in regard to the militia, naval and air expenditure of Canada. My desire, in the statement which I make to the House to-day, is to give the House and, if possible, the country, if my remarks reach so far, an accurate statement of the situation, and let the House and the people judge of it for itself or for themselves.

I know there is a vast amount of misinformation on this subject. I know it from statements made in this House from day to day. During the course of the present debate two hon. members opposite have challenged the militia expenditure of this country at the sum of $20,000,000. Pretty high, I assure you-but seven or eight millions over the mark; an increase of 70 or 80 per cent over the actual expenditure. I have seen it stated in the newspapers throughout Canada that the military expenditure of the country has reached $30,000,000. I have heard criticisms in this House from my friends of the Agrarian group which had no foundation whatever in fact, and I am sure that if hon. members sitting in the Agrarian

group knew the facts they would not make the statements that they have made. I have had requests from labour bodies throughout Canada, from deputations, asking me to state particularly what the expenditure was and to what it applied. I am able to-day, I think, to give the House fairly full information upon that subject. But I am going to say this-and I am sorry that my hon. friend from Shelburne and Queen's (Mr. Fielding) is not present-had my hon. friend carefully perused the report of the Brussels Conference, which he had before him, he would have found in volume 4 of that report most abundant refutation of every criticism he made, and most complete justification of the position of Canada and of the Government of Canada in connection with the recommendations of the Brussels Conference.

Now, I do not care what viewpoint the House may adopt in examining the military expenditure; I do not care through which avenue they may approach it. I make this challenge: that viewing it from any angle you like, approaching it from any avenue of criticism you like, the position of Canada in regard to military expenditure is unassailable. It is superior to that of any other country in the civilized world to-day, and is so immeasurably superior that one can hardly make comparisons. I go further; I would say to my hon. friend from Shelburne and Queen's, were he here, that Canada of all the nations who attended the Brussels conference is perhaps the one nation which has sought successfully to carry out the recommendations of that conference. I propose to prove this by our own accounts, by our own Estimates, and by the figures of the Brussels conference which* my hon. friend from Shelburne and Queen's had before him when he spoke.

Ever since Confederation we have had military expenditure in Canada. I could take you year by year from Confederation to the present, but there would not be much advantage in going back to that early period. If we merely make a comparison of the figures as between to-day and ten, fifteen or twenty years ago, we shall not gain very much valuable knowledge from the mere comparison of figures unless we start out with something like equality of conditions. In making any comparison as between to-day and ten, fifteen or twenty years ago, we must always bear in mind, first, the purchasing power of our money as between now and then; second, the wealth of our country; third, the population of our country, and fourth, the necessity of guarding or securing the wealth

of the country-what it was then and what it is to-day. These conditions, I say, must be present in the mind if we are to make any useful comparison for the purpose of finding out whether our proposals of today are to be deemed extravagant or thoroughly economical.

The most important condition to observe in this connection is the comparison so far as the money value of goods is concerned. What I state now I stated during the debate on the military Estimates: namely, that it takes just two dollars to-day to procure for the militia what it took one dollar to procure in pre-war years. In saying this I am sure that I am well within the mark. We have to buy a great deal of clothing; clothing has advanced more than 100 per cent. We have to buy a great deal of food for the Permanent Force and for our militia in the-camps; food has advanced more than 100 per cent. The pay of our men in the militia has advanced from 50 or 60 cents, as it was in pre-war days, to $1.25, the minimum to-day. The pay of our Permanent Force has advanced from 80 to 90 cents in' pre-war days to $1.70, the minimum to-day. Our railway transport has advanced, not 100 per cent, but almost that, I am told. I am therefore, well within the mark when I say that prices as between pre-war days and to-day have advanced 100 per cent for all the requirements of the militia of Canada. Now, what does it mean? It means that the vote which we ask from Parliament today to carry on the militia of Canada, about $11,800,000 odd, would represent in pre-war days a vote of about $5,900,000 odd. Now, is that not stating the matter fairly? Bearing that in mind; having regard to the purchasing power of our dollar to-day compared with what it was before the war, we are brought back to the basis of the military expenditure of this country in the year 1905, which amounted to $5,678,000. To say that we have merely gone back to pre-war expenditures is stating less than half the fact. We are back to the basis of 1905. I have a tabulation of our expenditure in pre-war years. I have included in that statement only the ten years prior to the war and excluded the year 1914, as during'that year, after the month of August, our expenditure was a war expenditure. But beginning with the year 1904 and ending with the year 1913, both inclusive, I can make a comparison, and I propose to make it as a record on Hansard. May I ask, Mr. Speaker, that in giving these tabulations, which involve a great many figures, I be permitted merely

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S270 COMMONS


to comment on them and to give the general result, and that the complete statement be placed on the pages of Hansard?


L LIB

Georges Henri Boivin (Deputy Speaker and Chair of Committees of the Whole of the House of Commons)

Laurier Liberal

Mr. DEPUTY SPEAKER:

A list

of figures which has not been actually read in the House can only be inserted in Hansard by unanimous consent. I feel sure, however, that under the circumstances that consent will be given. Is it the unanimous consent of the House that

the figures referred to by the hon. minister be inserted in Hansard without being read in their entirety? Carried.

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UNION

Hugh Guthrie (Solicitor General of Canada; Minister of Militia and Defence)

Unionist

Mr. GUTHRIE:

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LIB
UNION

Hugh Guthrie (Solicitor General of Canada; Minister of Militia and Defence)

Unionist

Mr. GUTHRIE:

I exclude in all my

calculations the North West Mounted Police. In all my calculations and statements for the last ten years under Liberal regime, I excluded the Mounted Police. Had I included them, the proportion would have been considerably higher. I have likewise excluded the Mounted Police in my second calculation, for the reason that the Mounted Police Force has been maintained in this country from its inception to the present time as a non-military force, as a police force. The provinces maintain police forces; so do the municipalities, and we do not look on them, we have never treated , nor considered them, as a military force in any sense of the term. The Mounted Police Force is not in any way under military control; it is not under the Department of Militia and Defence. What have I included for the purpose of my statement?

I have taken the whole proposed militia expenditure as shown at page 31 of the Estimates, $11,890,000. I will generalize on this statement in the same way as before and ask that I be permitted to place it on Hansard.

Statement showing Expenditure on Defence by the Principal Countries of the World for which Figures

are Available.

Population

Canada (see footnote *)..

Australia

New Zealand

Union of South Africa -

United Kingdom

United States....;

Argentine Republic

Brazil

Chile

Denmark

Holland

Japan

Norway

Portugal

Spain

Sweden

Switzerland

(a) 9 5 1, 1, 40, 105, 8, 27, 3, 2, 6, 57. 2 5

5

000,000

000,000

200,000

276,242

000,000

000,000

279,159

000,000

945,538

921,000

778,699

070,936

,632,010

,957,985

,719,598

,813,850

,937,000

Military

11.890.000 13,874,998

2,876,638 (Whites only) 477,000,000 (6)639,275,503

13.500.000 36,846,864

14.225.000

21.250.000 16,210,228

8,730,000 44,228,346 (c) 29,841,916 (e) 67,428,914 8,689,450

Naval

2,500,000

14,062,500

1,688,499

(a)

371,155,500

644,515,731

9,020,749

17,081,963

6,000,000

8,250,000

17,000,000

3,803,975 12,803,803 (d) 20,541,564 (ft 14,095,930 Nil.

Air.

825,000

2,700,000

85,650,300

95,000,000

12,500

Total.

15.215.000 30,637,498

4,565,137

7,089,619

933,805,800

1,378,791,234

22,520,749

53,928,827

20.225.000 29,512,500 33,210,228

272,141,500

12,535,975

57,032,149

50,583,480

81,524,844

8,689,450

Per

Capita.

1- 69 613

3- 80 5-55

13- 13

2- 72 2-00 5-06

10 10

4- 08 4-77 4-76 9-58 2-43

14- 03 2-20

(a) Estimated. (6) Exclusive of expenditure by individual States on State Militias (National Guard).

(c) Exclusive of $18,852,556 budgetted for military activities in Morocco.

(d) Includes one-sixth of a building programme of $50,000,000 to be spread over six years.

(e) Includes Special Expenditure for Defence amounting to $33,923,739.

(J) Includes Special Expenditure for Defence amounting to $5,534,030.

Normal figures for France are not available. . , .

The average expenditure, per capita, for the above-named countries, exclusive of Canada, works out

Estimating population at 8,500,000 expenditure per capita equals $1.79.

" " 8,000,000 " " " $1-89-

This statement covers so many figures that I would only weary the House by reading them all. I have included the whole item of militia expenditure.' I do not deduct from the militia expenditure, and I might well deduct from it $350,000 for the Royal Military College, an educational institution for a civilian education to a much greater extent than for a military education. I do not deduct from the amount, and I might well deduct from it $450,000 for physical training of our high schdol cadets. I do not deduct from the amount, and I might well deduct from it $45,000 for topographic survey, which is thoroughly civilian in character, because all the departments and many municipalities get our maps and very few of our military officers use them. These three items aggregate about $840,000. Then I take the whole of the cost of Naval Service appropriation, $2,500,000, as shown on page 48 of the Estimates, and the whole of the Canadian Air Force appropriation as shown on page 61 of the Estimates, $825,000. I do not take the Civil Aviation appropriation, because that is purely civil. Therefore, the total amount for defence purposes which this Government proposes to expend is $15,215,000. What is our population?- because I am going to put this proposed expenditure to a per capita test. What is it fair to place our population at? The Minister of Finance, in his Budget speech, took it at 9,000,000 persons. We will take it at that figure first; and at 9,000,000 persons, the result is that the total proposed expenditure for all defence purposes in this country is the comparatively insignificant sum of $1.69 per capita. If it be thought that 9,000,000 is too high a figure to place upon our population-and we will not know the census returns until after June-cut it down; take it at

8,500,000 people. That would make the per capita expenditure $1.79. It may be that also is too high. Take it then, at

8,000,000 people, and surely we are justified in that assumption. [DOT] The per capita expenditure then, for the whole defence of Canada, military, naval and air, would be only $1.89, an insignificant amount surely. But if some one insists that we should add to that the Mounted Police expenditure, add $3,500,000 for the Mounted Police, or 45 cents per capita. I object to the Mounted Police expenditure being added as "military" expenditure; but if we are warranted in adding it, do so, and we shall still have a smaller per capita

expenditure than any other country in the civilized world. How are we going to establish whether we are spending too much or too little on the defence of our country? Would it be fair to look around and see what other countries are doing; would it be fair to look around and see what the other British dominions are doing? That might be a fair comparison to make, and if we make it, what do we find? The figures contained in the statement whicn I have placed on Hansard have been compiled from records in the Militia Department by very expert officers, from information which comes through the Intelligence Branch of the department, and I think the figures are both reliable and up to date.

For comparison I go first to Australia, The estimate of population in Australia today is 5,000,000. Expenditure for militia $13,800,000 odd, just about $2,000,000 above us; naval expenditure is $14,000,000, about $11,500,000 above us; air force in Australia, $2,700,000, as against $825,000 for Canada; or a total defence expenditure in Australia of $30,637,000, equal to $6.13 per head of population, as against only $1.69 per head in the Dominion of Canada.

Now let us take New Zealand. New Zealand has a population estimated at

1,200,000. Military expenditure stands at $2,876,000; naval expenditure, $1,688,000; no air force; total for defence $4,565,000, equal to $3.80 per head in little New Zealand as compared with only $1.69 per head in the great Dominion of Canada. '

Next let us compare the expenditure in [DOT]the Union of South Africa. The only estimate of population given for South Africa contains a note, that it represents the whites only. It does not take into account the tremendous native African population. The white population is estimated at 1,276,242. The figures show no naval expenditure; no air expenditure; military expenditure $7,089,000, equal to $5.55 per head of white population as compared with only $1.69 per head in Canada. These are our three great sister Dominions, and Canada in comparison with them occupies a wonderfully satisfactory position, in regard to military and naval expenditure.

If you take the per capita basis as a fair basis of comparison-I do not think it is, in every respect, because when I read down the list I find that other countries, Brazil, for instance, with a tremendous native South American Indian population, have a very low per capita charge, but I am going to give these figures, in the first instance upon this basis.

In the United Kingdom the figures are somewhat alarming. The United Kingdom has an estimated population of 40,000,000. Military expenditure calls for $447,000,000; naval expenditure $371,000,000; air expenditure $85,000,000, or a total of $933,000,000, odd, equal to $23.35 per head of population.

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L LIB

Rodolphe Lemieux

Laurier Liberal

Mr. LEMIEUX:

I do not question the figures given by my hon. friend, but there is justification for the figures in the case of South Africa; I know whereof I speak. There is a constant danger there of a native revolt. [DOT]

Mr1. GUTHRIE: I would rather not be interrupted now. If my hon. friend will let me finish, he can then make his statement. There may be special reasons which can be urged in every country in the world, but there is this to be said: no matter how you view it, Canada has still the lowest expenditure in the world.

I have given the figures for the British Dominions and the Mother Land, save India. I have not got the figures for India upon a per capita basis, because I have nothing reliable in regard to her population. I have the expenditure of India upon another basis, in another statement which I propose to submit.

Coming back to North America, I may say that there are no Mexican figures available that are of any value. Nor have I included in the statements the small Central American states around the canal zone, because I have not been able to obtain information which is reliable as to them; I do not think there is any regular military or naval organization at all in some of these small states. I come now to the United States. The United States has a tremendous programme for the immediate future. The estimate of population is placed at 105,000,000. The proposed expenditure by the Federal Government on its army is $639,250,000; navy, $644,250,000; air force, $95,000,000-$10,000,000 more than Great Britain. The total expenditure is $1,378,000,000, equal to $13.13 per head of population, and this huge sum excludes the tremendous expenditure that is made in the United States by the various states themselves for the maintenance of what they call the State National Guards. Exclusive, of state expenditure the per capita charge is $13.13 per head in the neighbouring republic as compared with $1.69 per head in the Dominion of Canada.

Next let us turn to South America. The Argentine is a great republic. Its population is estimated at 8,279,000 odd; army expenditure stands at $13,500,000; naval, $9,000,000; it has no air force. Total expenditure, $22,500,000 odd or $2.72 per head of population, or $1.03 per head more than Canada. Brazil's per capita expenditure is reduced very much by reason of her large native population. She claims a population of 27,000,000; military expenditure calls for $36,846,000; naval expenditure, $17,000,000; no air expenditure. Total expenditure for defence nearly $60,000,000, yet on the per capita basis it is only a little over $2.

Chile comes next with a population of 3,900,000; army expenditure, $14,000,000 odd; navy, $6,000,000; or a per capita expenditure of $5.06. These are the only South American countries for which I have statistics. Several other South American republics submitted their returns to the Brussels Conference and these are printed in the report, but these returns do not give the military and naval expenditures of many of the South American countries. Let us next go over to Europe. Denmark with a population of 2,900,000 spends on its navy, $8,000,000; army, $21,250,000. It has just started an air force with an expenditure of $12,500; its per capita expenditure is $10.10.

Holland, with a population of 6,778,000, spends $16,000,000 odd on its army, $17,000,000 on its navy and air force

the figures are not separated-or about $4.88 per head of population.

Norway, with a population of 2,632,000, spends on its army and navy about $12,000,000, or $4.76 per head of population.

Portugal, with a population of 5,900,000, spent $44,000,000 on its army, and $12,000,000 on its navy, or a per capita expenditure of $9.58.

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LIB

William Lyon Mackenzie King (Leader of the Official Opposition)

Liberal

Mr. MACKENZIE KING:

For what

year are these figures?

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UNION

Hugh Guthrie (Solicitor General of Canada; Minister of Militia and Defence)

Unionist

Mr. GUTHRIE :

For last year.

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L LIB

Rodolphe Lemieux

Laurier Liberal

Mr. LEMIEUX:

There is a revolution in Portugal practically every month.

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UNION

Hugh Guthrie (Solicitor General of Canada; Minister of Militia and Defence)

Unionist

Mr. GUTHRIE:

I fancy that accounts for their heavy expenditure. Spain claims a population of 20,719,000. It spent $29,000,000* on its army, and $20,-

500,000 on its navy; no air expenditure. By reason of its large population its per capita expenditure is only $2.43 while its

total expenditure for defence runs over $50,000,000.

Sweden, with a population of 5,800,000, has an expenditure of $67,000,000 odd on its army, and $14,000,000 on its navy, or a per capita expenditure of $14.03.

Switzerland, with a population of

3,937,000, spent on its army, $8,600,000 odd; no naval expenditure-it has no navy-and no air expenditure. Its per capita expenditure is $2.20. This per capita statement does not give the figures for other European countries.

The reason for that is apparent I think. The other countries, or most of them, are hardly yet reduced to what one might call a peace basis. Reliable figures were not furnished at the conference from Germany, from Hungary, from Poland, from Finland, from Greece, from Lithuania, or any of the other central European countries, and Russia was not represented at all. But I have given the House now a statement on a per capita basis, of all European countries which are more or less restored to a peace basis; and taking that whole list of countries in Europe, as well as those of North America, South America, the British dominions and the Mother Land, Canada is so far below the per capita expenditure of any other country, in the world as to make the other countries, by comparison, look extremely extravagant in regard to military and naval expenditures. I realize, Mr. Speaker, that the per capita test is not always the safest or fairest test. It is not in the case of Brazil, nor would it be in the case of India. I do not know that I should like to adopt it as the only test in regard to the Dominion of Canada; but so well am I borne out in my contention by the actual figures that I am prepared to adopt any test which the House mhy ask me to apply, and still Canada's position will be pre-eminent. Now, the test which I adopted as applicable to the regime of my hon. friend from Shelburne and Queen's (Mr. Fielding), when he was Minister of Finance, was to ascertain the proportion paid for military expenditures, having regard to the total revenue of the country from year to year. The ordinary annual revenue of a country forms a fair indication of the wealth of a country, although I admit it is not in any sense a conclusive test. However, it is some indication of a country's position and

not a bad test to apply when you are making comparisons in matters of national expenditure. When you settle your military programme, you have regard to the number of people in the country and their condition; you have regard to the wealth of the community, to the actual and pofential wealth of the country, and, as well, to all other matters which should influence the decision of a government in establishing a military or defensive system in any country and providing the money therefor. Consequently, I take the annual revenue as a reasonable basis and apply the test, and applying such a test I find that last year the ordinary revenues in this country, as announced in the House last week, were $432,000,000. I then take the Estimates of this session and find that the expenditure proposed for this year for military, naval and air purposes is $15,215,000, or just 3.5 per cent of the revenue. In other words, out of every $100 which will come into the treasury in ordinary revenue this year, based on last year's figures, we shall spend $3.50 for the whole defence of the country, while in the year 1911, when my hon. friend from Shelburne and Queen's presided over the treasury of the country, of every $100 that came into the treasury $9.50 was spent for defensive purposes. What troubled my hon. friend in his criticism of military expenditure was lack of information; what troubled him also-and we can excuse it-was lack of industry. Had he fully read the report of the Brussels conference he would have found the figures and all the information which I now propose to give to the House. He evidently perused only part of the report; he had not concluded his perusal before he made his speech. I now beg to submit to the House another comparative statement which I desire, for the information of hon. members, to place on Hansard. I will only summarize it. This statement, I may remark parenthetically, is given in the current coin of the respective countries; it is not necessary that it should be reduced into the dollar currency. These figures are for the year 1920-21 as supplied to the Brussels conference, and I have placed, for ready reference, opposite the name of each country, the page in the report of the conference where the figures appear. '

[Mr. Guthrie. 1

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May 12, 1921