February 5, 1937

LIB

Clarence Decatur Howe (Minister of Transport)

Liberal

Mr. HOWE:

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Does that include the radio stations for navigation?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB

Clarence Decatur Howe (Minister of Transport)

Liberal

Mr. HOWE:

No; they are in shipping. So as far as the record of the sums invested in the Canadian National Railways is concerned, I do not believe that is so important in the general scheme of things except for one reason, namely that this railway is competing with a privately owned railway which stands on its own feet. We must not forget that prior to the war we had three privately owned railways in Canada; to-day we have only one. The reason we have a problem with our own railway is largely that the other two privately owned railways were not able to meet the situation brought on by the war. 1 think in fairness to its private competitor that record should be kept, and I believe a way will be found by the committee to set up a record in a manner that will meet the suggestions which have been made along that line.

Something was said about the position of the South African railways. Their position is extraordinarily favourable for a government owned utility. But I wonder whether the people of Canada would be satisfied to have our railway operated along similar lines. First, we must remember that the South African railway has a complete monopoly, while our railway operation is highly competitive. In 1935 the South African railway was able to obtain a surplus of $27,000,000 after interest charges were paid and a charge of $10,000,000 made for depreciation, while in the same year the Canadian National Railways had a cash deficit of .$47,000,000 after payment of interest due to the public but not to the government. We find also that the revenue per mile of the South African railway was $11,061, whereas the revenue per mile of the Canadian National is only $7,322; in other words the revenue per mile of the South African railway is 50 per cent greater than on the Canadian National Railways. If we could somehow obtain a 50 per cent increase in revenue per mile we could not only meet our debt to the public but have a small surplus in addition. Expressing it in another way, we contribute the amount to the public in the way of low freight rates, the lowest in the world, rather than have the surplus which the South African railway enjoys. I might also mention that the employees of the South African railways are about 30 per cent native, or non-European.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

More than that.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB

Clarence Decatur Howe (Minister of Transport)

Liberal

Mr. HOWE:

But to me this is the interesting thing about South Africa: I wish it

were something that the public would take note of seriously. One provision of their railway act is that the mileage of 11,292 miles operated by the government is protected against wasteful and uneconomic competition in areas adequately served by the railway. Such areas are defined by proclamation under their Motor Carrier Transportation Act. Even taxis cannot operate a regular service between particular places without permission. I wonder whether our people would be satisfied with that. To-day Canadians have the option of travel by rail or motor. If the house thinks they do not, appreciate both, hon. members might examine some of the cases heard before the railway board where the railways wished to abandon a branch line, where all the traffic was going to the trucks. In South Africa, if a community has a railway, or if a railway serves any section, service by any other means is absolutely prohibited.

Yet it is interesting to note that the writing off of capital is a live subject there, as it is here. In the report of 1935 it is stated that:

The board of management have asked the government to reduce the capitalization by some $110,000,000 covering costs prior to union.

We come to the Australian railways, and find there a much more serious situation than in South Africa, quite as serious, I think, as we have in Canada.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Except that they are state systems, not one system.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB

Clarence Decatur Howe (Minister of Transport)

Liberal

Mr. HOWE:

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Right Hon. R. B. BENNETT (Leader of the Opposition):

Mr. Speaker, in view of what the minister has said as to the intention to leave to the special committee a large measure of discretion in dealing with the legislation, I shall confine myself to dealing with two questions.

The first is the distinct differences between the bill and the address delivered by the minister when he moved the resolution. In my judgment the bill does violence to sound principles of finance, and I cannot think the

minister seriously expects the committee to adopt the bill as it stands. I have just sent for the report of the Canadian National Railways for the year ended December 31, 1935. I assume that within a reasonable time we shall receive the report for 1936. There never has been any difficulty in making a consolidated balance sheet. If the minister will be good enough to turn to-pages 16 and 17, he will find the consolidated balance sheet as of December 31, 1935, but for the moment I am concerned only with the one item: Liabilities: stocks: capital

stocks owned by the dominion government, $265,628,338.70; capital stocks owned by the public, $4,584,225. Obviously we cannot change that second item dealing with stocks held by the public. What we can do, as the minister indicated the other day-and I think it is sound-is to reduce the value of the capital stocks owned by the government to the sums we paid for them. In the case of the Grand Trunk we paid nothing; in the case of the Canadian Northern we paid the equivalent of some $18,000,000. It would not be difficult to deal with that item; that could be accomplished very simply. There it is; we reduce the amount to what these stocks represent in cash outlay.

The next item under liabilities is: Governmental grants: grants in aid of construction: by province of Canada prior to confederation, $15,142,633.33; other, $2,570,904.78, a total of' $17,713,538.11. Subject to further investigation at the moment, I cannot think that any good purpose would be served by carrying this amount in the accounts. It represents subventions given by Quebec and Ontario prior to confederation to the old Grand Trunk and to lines acquired by the Grand' Trunk.

Mr. HOWrE: The sum of $15,000,000 represents those subventions.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Yes.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB

Clarence Decatur Howe (Minister of Transport)

Liberal

Mr. HOWE:

The sum of $2,000,000 is a little different.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Oh, yes; that is something else altogether. I had occasion to look into that some time ago. It is not necessary to go into that in detail, except to say that one could justify the carrying of the $2,000,000 item but it would be very difficult to justify carrying the $15,000,000 item because it represents old Grand Trunk subventions which are not worth the paper on which they are written. That amount might just as well be eliminated as far as we are concerned. The only reason that has not been done is the reason given by the minister the

C.N.R.-Accounting

Mr. Bennett

other day. Then we come to the item: Long term debt: funded debt unmatured, $1,154,779,000.78. I challenge the right of this parliament to change that by a cent.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB

Clarence Decatur Howe (Minister of Transport)

Liberal

Mr. HOWE:

We are not changing that.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

That is what I say. Therefore this item, namely the long term debt item, stands at $1,154,779,000.78.

The next item in the liability column is: Loans from the Dominion of Canada: temporary loans obtained for redemption of funded debt, pending refunding interest paid, $74,726,975. This is an item which varies from time to time as the government carries on refunding operations for the railway when its obligations mature and a lower rate of interest is obtained, and as far as this item is concerned it cannot be modified or changed. It stands.

The next item is the important one: Other loans from Dominion of Canada, $679,873,935.08. Interest on above accrued but unpaid, $495,030,137.29, or a total of $1,174,904,072.37. I deny the right of this parliament, in honest dealing with the public, to change this amount by a single cent. It represents money paid by the Canadian people into the capital of this enterprise; it represents loans from the Dominion of Canada. The dominion government went into the open market and borrowed money, and then lent it to the Canadian National, that is, the constituent companies which now comprise the Canadian National. The money was not given by way of subsidy. Let us not have any misunderstanding about that. It was not given by way of subsidy or subvention; it was not given by way of special advances for capital stock, as in the case of the old Canadian Northern. It represents loans made to the railways of Canada. My submission is that it stands in a position where it should not be changed even by one cent. Why? Because it represents loans made to the enterprises as going concerns. Just as the minister has said, these roads represent a combination of two privately owned systems and, he might have said, one of the difficulties the people of Canada have in dealing with the railways is that those roads were not constructed by a common proprietor, but were constructed by competing proprietors. Many of them were not built in such a way as to make it possible for them to yield a revenue, when combined with the other competing system. In other words, the Canadian Pacific railway was laid out, according to the plan of its proprietors, where they thought traffic was available. In the case of the other railways, one was a contractors' road, built for subsidies, and the other was built afterwards- and never should have been built-for the

purpose of endeavouring to make a connection with the Grand Trunk system, between the east and the west.

These are important points to keep in mind when we are considering our position with respect to our railways. But, to get back to the financial statement: Why should we change a single cent or word of it? This is a certified report, submitted by trustees and certified by auditors. First, " loans from Dominion of Canada"; should that be written off?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB

Donald MacLennan

Liberal

Mr. MacLENNAN:

Would it make any difference, if it were changed?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Yes, it would give a false conception of the position.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB

Donald MacLennan

Liberal

Mr. MacLENNAN:

Not a materially false conception.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

Yes, very material. I suppose a few hundred million dollars is not important?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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LIB
LIB

Charles Edward Bothwell

Liberal

Mr. BOTHWELL:

Do those loans in any

way represent the year-to-year deficits of the railways?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

I am coming to that presently. At the moment I am considering the accounts. These represent moneys the Canadian people borrowed on their credit, and lent to the railways. There is no duplication in that. If I may use the term with respect, I would say that it is absurd to use the word "duplication" in referring to two separate entities which are keeping their separate accounts, the one borowing from the other. The accounts of the Dominion of Canada show what we owe the world. Our accounts show that we owe the world hundreds of millions of dollars. The accounts of the Canadian National Railways show that they owe us hundreds of millions of dollars which they borrowed from us when we, the Canadian people, borrowed money from the world. There is no duplication in that. Every person knows that is the way in which accounts are kept in every enterprise in the world. One enterprise shows where it got the money and, in turn, the other enterprise shows where it got the money. In its public accounts the Dominion of Canada shows that it borrowed money from people throughout the world who lend it. The Canadian National Railways borrowed from us, the people of Canada. That is the story.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
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February 5, 1937