The Budget-Mr. Dunning SUMMARY OF REVENUES AND EXPENDITURES (000 omitted) - 1932-33 1933-34 1934-35 1935-36 Estimated 1936-37$ 354,643 306,640 $ 351,771 324,071 $ 359,701 358,475 S 372,539 372,222 $ 391,860 443,388 Deficit (-) or surplus (+) on ordinary -48,003 - 27,700 - 1,226 - 317 + 51,528 38,532 4,490 35,898 409 60,660 3,397 102,047 320 80,429 8,125 34,042 9,049 128,593 1,553 35,489 6,580 61,052 2,857 57,263 7,107 50,137 501 101,727 6,544 50,940 515 72,304 3,447 44,472 19,310 " Government Owned Enterprises 173,237 60S 105,978 181 115,008 101 159,726 54 139,533 610 Add deficit or deduct surplus as above Total deficit or increase of direct net debt 172,632 48,003 105.797 27,700 114,907 1,226 159,672 317 138,923 51,528220,635 133,497 116,133 159,989 87,395 revenues 1936-37 For the year as a whole, we estimate that total revenue from taxation and all other sources will aggregate $452,123,000. This total is almost $80,000,000 in excess of that for the preceding fiscal year and is exceeded by the revenues of only one other year in the history of the dominion, the fiscal year ended March 31, 1929, when total collections slightly exceeded $460,000,000. Looking at it from another point of view, it represents an increase of 45 per cent as compared with 1932-33, the low year of the depression. While taxpayers may greet this news with mixed feelings, I think it will be generally accepted as a striking tribute to the recuperative powers of the Canadian economy and a convincing confirmation of the reality of the economic recovery which I have outlined in the earlier part of this address. This increase of course is due to the increased taxes imposed last year, but essentially, expanding government revenues reflect and confirm the increase in national income. The revenue from all tax sources will amount to $384,618,000, an increase of $67,306,000 over last year. To this increase, all our major forms of taxation contributed. The sales tax is now the largest single source of government revenues. For the year we estimate a total yield from this tax of $115,- 500,000 an increase of $37,948,000 over the preceding year. As the rate of this tax was raised last year from 6 to 8 per cent, it may be estimated, assuming no retarding effect on business from the higher rate, that $28,875,000 of the increase was due to the increase in rate and the remainder to the improvement in business activity and to higher price levels. The second largest producer of revenue was the income tax, which we estimate will yield during the current year $102,000,000. This is also a gratifying increase over the previous year-$19,290,000-and is attributable largely to the improvement in corporate and individual incomes, although the increase of li per cent in the corporate income tax rate is estimated to be responsible for approximately $5,840,000 of the increase. Of the total receipts, $58,400,000 will come from corporations, $8,700,000 from the five per cent tax on interest and dividends, and $34,900,000 from the tax on individual incomes. Excise duties, imposed chiefly on liquors and tobacco, are expected to yield $45,500,000, an increase of slightly over $1,000,000 as compared with last year. Receipts from customs duties show an increase of almost $7,500,000. Last year you will recall that $74,004,000 was derived from this source as compared with $76,562,000 during the preceding year. We estimate a total yield this year of $81,500,000. While this is still less than half the customs revenue received during 1929 or even 1920, the increase The Budget-Mr. Dunning
this year amounted to 10 per cent, and there is evidence of an increasing rate of gain during recent months. Special excise taxes will show an increase from 835,181,000 to $38,100,000. This increase is accounted for chiefly by increased receipts from the 3 per cent special excise tax on importations and the tax on transfer of securities. There was a slight decrease in receipts from the tax on bank notes due to the statutory decrease in chartered bank note circulation. Non-tax revenues, that is, the revenues derived from investments and various departmental services, are expected to aggregate $58,770,000, an increase of $3,860,000 over the previous year. The largest increase in this group will be attributable to post office revenues which are estimated at $34,310,000 as compared with $32,508,000 for the year 1935-*36. The nominal surplus on post office operations is estimated at $1,893,000. In calculating this surplus we have included in expenditures of the department the cost of civil government. It has frequently been pointed .out, however, that the post office accounts do not provide, on the expenditure side, for the rental value and other costs of premises occupied and equipment used, nor on the revenue side do they include any credit to the post office for services rendered to other departments through the free use of the mails. During the current fiscal year, we estimate that special receipts and other credits will total $8,735,000, as compared with $374,000 the previous year. This is mainly accounted for by the fact that we expect to take into our revenues $8,000,000 received from the Canadian Wheat Board which will represent an offset in part to the disbursement of $15,856,000 which we provided for last year to recoup the Board for the net liability assumed when it acquired the wheat and wheat contracts held by Canadian Cooperative Wheat Producers Limited in connection with the 1930 wheat pool and stabilization account. It is a matter of congratulation that a liability to our national finances of menacing proportions has been removed. At the close of the last fiscal year the position was such that the government felt it essential not only to pay to the board the $15,856,000 referred to above, but the further substantial liability shown on the board's books on the basis of closing market prices on March 31, 1936, made it appear almost inevitable that an additional heavy loss would have to be provided for again this year. We were criticized for the provision then made. We were told that we should await the complete disposal of the board's holdings before providing for any losses. It seemed to me, then, and it seems to me now, that it was only the part of ordinary business prudence to make at least a partial provision for what appeared likely to be a heavy loss. No one is happier than I am to-day to be able to welcome back to the treasury, as a result of good luck and sound policy, a portion of the funds then disbursed.
In dealing with expenditures, I wish to emphasize again the importance of concentrating on the aggregate of our expenditures of all kinds and on our over-all deficit rather than on ordinary expenditures and the surplus or deficit on ordinary account. However, for the purpose of analyzing details and making comparisons with previous years, I shall first present the expenditures under the five main categories in which they are now classified in the public accounts.
The ordinary expenditures for the year are estimated at a total of $391,860,000. This is $19,321,000 in excess of the expenditures for 1935-36. As ordinary revenues are estimated at $443,388,000, the so-called surplus on ordinary account would be $51,528,000, as compared with a deficit on ordinary account last year of $317,000. As I have indicated, however, this surplus on ordinary account has only slight significance under present conditions. The largest increase in ordinary expenditures is in the cost of old age pensions, which are estimated for the current fiscal year at $22,500,000, as compared with $16,764,000 last year. Most of this increase of $5,736,000 is explained by the participation this year for the first time of the provinces of Quebec and New Brunswick in the old age pensions arrangement. Other important increases were $6,320,000 in the cost of national defence (including civil aviation); $2,856,000 in interest on the public debt; $1,698,000 in ordinary expenditures on public works; $1,889,000 in the expenditures of the Department of Trade and Commerce; and finally, an increase of $979,000 in the ordinary costs of post office operations.
Total expenditures charged to capital account will amount to only $3,447,000, a decrease of $3,097,000 as compared with the year 1935-36. The chief item is $3,178,000 for public works construction.
We come now to that important group of items which are classified as special expenditures, and which this year relate solely to disbursements made for unemployment relief purposes. During the year 1936-37 special The Budget-Mr. Dunning expenditures are expected to aggregate $80,429,000. The decrease of $21,618,000 as compared with the total for 1935-36 is wholly explained by the absence this year of any disbursements for grain marketing losses. Under the Unemployment Relief and Assistance Act, 1936, total expenditures are expected to reach $46,064,000. Of this total $28,930,000 will be accounted for by grants-in-aid to the provinces for direct relief; $14,159,000 by the dominion's share of joint dominion-provincial projects; and $2,750,000 by the cost of the special railway maintenance program which it will be recalled was designed to provide work for single homeless unemployed men formerly taken care of by the relief camps. The serious drought which developed in the three Prairie provinces last summer necessitated relief on so extensive a scale that the government felt obligated to regard the condition as a national emergency and as one therefore which called for special dominion assistance. To meet this unforeseen and emergent problem, funds were appropriated by governor general's warrants to a total amount of $12,240,000 in order chiefly to pay for the cost involved in purchasing and distributing feed and fodder for live stock in the drought-stricken area and the cost of providing direct relief to families living in the area. Agreements were entered into with the three provinces under which the dominion agreed to bear 100 per cent of the cost of direct relief in the drought area as defined, 100 per cent of the cost of feed and fodder for live stock, and 50 per cent of the cost of moving live stock into other feeding areas and of the losses involved in shipping low grade cattle out of the drought area to packing companies for conversion into tankage and boneless beef. These agreements contained special provisions for the protection of the government through the assistance of representatives of the comptroller of the treasury's office located in the three provinces. It is now estimated that the expenditures under this program will not exceed $9,741,000 by the close of this fiscal year. Of this amount $5,490,000 will represent the cost of direct relief and $4,251,000 the dominion's share of the cost of feed, fodder and freight charges. The cost of dominion projects carried on under authority of the special supplementary estimates for 1936-37 aggregated $24,624,000. Of this total $17,360,000 represented the cost of projects undertaken prior to March 31, 1936, and $7,264,000 the cost of new projects. The following table, which I will place on Hansard, compares the expenditures made or to be made for direct relief and various unemployment relief projects during the present fiscal year, with similar expenditures incurred in the preceding fiscal year. Unemployment Relief Expenditure Grants-in-aid to provinces $26,274,875 Dominion's share of joint dominion-provincial projects lo'79o'526 Railway maintenance works ' .... Dominion projects: Department of Public Works 17,895,218Department of National Defence 10,201,468National Harbours Board and Department of Marine.. .. 5,437.008Department of Interior 2,294,291Department of Agriculture 238,500Department of Railways and Canals 942,689Miscellaneous and sundry departments 1,431,681Special drought area relief 4,000,000 Estimated
GOVERNMENT OWNED ENTERPRISES
The next main category of expenditures is that of government owned enterprises in which is grouped the losses of and non-active advances to government owned enterprises which are operated as separate corporations. Canadian National Railway Company Operating revenues of the Canadian National Railway Company increased about $13,400,000 in the calendar year 1936 over the corresponding figure for 1935, or 7-7 per cent. However, operating expenses increased by the same ratio and the net revenue after taxes, rentals, etc., available for interest on debt was $6,600,000 as against $6,800,000 in the previous year. The increased operating expenses were due in part to the costs absorbed by the Canadian National Railway Company under the various government unemployment relief programs and increased wage rates. After applying the $6,600,000 available from earnings to interest charges of $49,900,000, there resulted a net income cash deficit of $43,300,000, The Budget-Mr. Dunning
which amount has to be paid by the dominion and charged to dominion expenditure in the current fiscal year. This cash deficit compares with $47,400,000 for 1935, the improvement being entirely due to reduction in interest charges resulting from refunding of securities at lower rates of interest. It should be borne in mind that there are certain non-cash charges in the railway accounts which should be taken into account in reconciling the above-mentioned figure of cash deficit with the net loss for the year as shown by the annual report of the railway company. In addition to payment of the railway's deficit, the government will advance $9,916,000 by way of loan to the Canadian National Railways during the present fiscal year. This will be made up as follows: $7,053,000 on account of miscellaneous debt retirements under the 1936 budget, and $2,863,000 representing cost of equipment purchased under the special supplementary estimates. Repayment of $395,000 was received on account of loans made in the fiscal year 1936 for repairs to equipment under the Supplementary Public Works Construction Act. During the fiscal year, the government made temporary loans aggregating $33,032,970 to the company to meet called or matured debt, the major item of which was $24,220,000 Grand Trunk 6 per cent dominion guaranteed bonds, which were redeemed on September 1, 1936. These temporary loans together with loans aggregating $2,043,725 carried over from last fiscal year, were repaid from a public issue of dominion guaranteed bonds dated February 1, 1937, in the amount of $35,500,000. This issue was sold in two maturities: $15,500,000 2i per cent seven-year bonds yielding 2-39 per cent and $20,000,000 3 per cent fifteen-year bonds yielding 3'04 per cent. Canadian National Steamships During the fiscal year, the Canadian National Steamships returned $1,500,000 to the government. This was due mainly to the winding-up of the Canadian Government Merchant Marine. The amount of working capital and insurance fund that had been advanced as a non-active loan in previous years has been returned, in addition to the surplus of $343,000 accruing from operations during 1936 prior to the sale of the fleet. The operations of the West Indies service in the calendar year 1936 showed an operating surplus, after payment of interest to the public, of $70,000. This is the firet surplus recorded since the inauguration of the service and compares with a deficit of $270,000 in 1935. Harbour Commissions Assistance to harbour commissions appearing as expenditure in our accounts will total $2,669,000. This amount is composed of $250,000, representing the operating deficits of the harbour commissions at Halifax, Saint John, Quebec and Chicoutimi. The balance represents non-active advances of $443,000 for deficit on the Jacques Cartier Bridge, Montreal, and $1,996,000 for refunding of obligations of the harbour commissions at Three Rivers, Chicoutimi and Saint John, less refunds of $20,000 representing advances in previous years for capital expenditures at Halifax and Saint John. The operations of the harbours are conducted on a calendar year basis and 1936 represents the first full year under which the management of the various ports previously administered by harbour commissions was centralized. While the National Harbours Board was not appointed until October last, centralized control has been effective since November, 1935. Net operating income of these harbours before interest on investment and depreciation showed an improvement in the calendar year 1936 of $1,128,000 over the corresponding figures for 1935. To sum up, the total amount treated as expenditures in our accounts in connection with the operations of the railways and other government owned enterprises operated as separate corporations was $44,472,000 as compared with $50,940,000 for the previous year. This is exclusive of such amounts as are carried in our accounts as active assets, to which reference will be made later.
*WRITE DOWN OF ASSETS
During the fiscal year it is estimated that assets will be written down in the amount of $19,310,000. Apart from the normal writeoffs in connection with soldier and general land settlement loans and seed grain and relief accounts, which altogether total $545,000, this write-off item of $19,310,000 is explained by the contribution which we propose to recommend to parliament should be made by the dominion in connection with a cooperative program for the adjustment of indebtedness of farmers in the drought areas of Saskatchewan and Manitoba. The proposal involves the writing off of provincial treasury bills held by the dominion as security for repayment of loans made to these two provinces to enable them to finance relief and seed grain expenditures in the drought areas during the period from May 1, 1931, to January 1, 1935, plus such accrued interest thereon as has been capitalized. The The Budget-Mr. Dunning amount involved will not exceed $805,000 in the case of Manitoba, and $17,960,000 in the case of Saskatchewan. In the supplementary estimates for the current year authority will be sought to transfer these treasury bills in the government's books from "active assets" to "non-active assets" as at March 31, 1937. Final write-off and cancellation by the dominion government will be made on receipt of proof that the two provincial governments, the municipalities concerned and the mortgage lending institutions which have made loans to farmers in the drought areas have also made the required adjustments in debt or tax claims, as the case may be, in order to provide relief for farmers who have suffered from prolonged drought conditions.
SUMMARY OF EXPENDITURES
If we add together the capital and special expenditures, as well as losses of and nonactive advances to government-owned enterprises, and the other charges representing write down of assets to which I have just referred, we find that the grand total of expenditures for which the government is responsible during the current fiscal year will aggregate $539,518,000. This is an increase of $6,933,000 over the grand total of expenditures for the fiscal year 1935-36. It should be remembered, however, that the total for 1936-37 includes the abnormal item of $18,- 765,000 representing the write down of loans made to Manitoba and Saskatchewan during the years 1930 to 1935. Had this item which relates to transactions of previous years not been included, our total expenditures for the current year would be Sll,832,000 less than those for last year.
PERCENTAGE DISTRIBUTION OF REVENUES AND EXPENDITURES, 1936-37
In the following table an attempt is made to show the percentage distribution of revenues and expenditures for the current year. Receipts from various taxes and other sources of revenue are shown as percentages both of total revenues and of total expenditures. Similarly several of the main items of expenditure and groups of such items are shown as percentages both of total expenditures and of total revenues. The form of our estimates and appropriations, and the method of classifying accounts make it impossible to achieve precise accuracy in such calculations as those I am now placing on Hansard, and I hope that by another year we may be able to introduce such changes in our procedure regarding estimates and accounts as will make it possible to determine more accurately the real costs of the various important services of government. I think members of the house have long recognized the need for the change I suggest. However, the results shown in the table are sufficiently accurate to enable broad conclusions to be drawn as to the relative burdens imposed on the public treasury by several important services or obligations. I now place the table upon Hansard without further comment: