February 16, 1937 (18th Parliament, 2nd Session)


William Lyon Mackenzie King (Prime Minister; Secretary of State for External Affairs; President of the Privy Council)


Right Hon. W. L. MACKENZIE KING (Prime Minister):

Mr. Speaker, I have already had occasion to intimate to this house that the government has been giving a great deal of thought to the desirability of appointing a commission to study certain aspects of the relationship between the dominion and the provinces. The aspects to which I refer are primarily financial. They include the allocation of sources of revenue, and the financial capacity of the provinces to discharge their responsibilities.
The problem we have had in mind has become acute in the case of the provinces of Manitoba and Saskatchewan. The depression, intensified by drought, has drastically reduced the income of the people of these two provinces and consequently the revenue-raising capacity of their governments, while at the same time it has given rise to steadily mounting relief costs and fixed charges. These two provinces have thus far met their obligations, but we have been advised that it is impossible for them to continue to meet their present burdens with the sources of income available to them. Representations to this effect were made at the financial conference held in Ottawa in December, and the matter was again discussed by the premiers of the respective provinces with the Minister of Finance (Mr. Dunning) in January.
As an outcome of the discussions between the premiers of Manitoba and Saskatchewan and the Minister of Finance, the Bank of Canada was invited by all concerned to make an independent study of the financial position of Manitoba and Saskatchewan, and was asked to present its views at the earliest possible date. The bank's report on Manitoba is now in the hands of the government. The report has been tabled to-day. It expresses the view that Manitoba has imposed taxation on a scale at least as high as that of any other province in Canada, and has restricted expenditures as far as it was possible to go without curtailing the services to an extent which would not have been in the public interest. Certain additional expenditures are now believed to be essential, but the bank is not prepared to say that it is practical to secure the necessary funds by means of further taxation, and there is no nearby prospect of securing revenues to cover the provincial share of relief costs. The report on Saskatchewan
Do minion-Provincial R elations

is not yet available, but it is probable that it will disclose difficulties at least as serious as those of Manitoba.
In giving consideration to the situation, as a whole, we have thought it unwise to consider the ability to borrow as the only test which should be applied. If provincial governments find it difficult to discharge the responsibilities which have been placed upon them, and, at the same time, in spite of genuine efforts at economy, to make both ends meet, there will eventually be an end to their ability to finance deficits by additional borrowing. The difficulties of the prairie provinces have been greatly intensified by drought, and the earning power of their people has been affected accordingly. But other sections of the country are not free from problems of a similar character, although they may not be so acute. We have, in short, ample indication of certain fundamental strains and weaknesses arising out of our present allocation of financial powers and governmental responsibilities, and if no attempt is made to remove them, the ill effects will not be confined to the sections where they now appear.
In these circumstances, we propose to appoint a royal commission of inquiry to investigate the whole system of taxation in the dominion; to study the division of financial powers and financial responsibilities between the dominion and the provinces; and to make recommendations as to what should be done to secure a more equitable and practical division of the burden to enable all governments to function more effectively-and, I may add, more independently-within the spheres of their respective jurisdictions.
The commission will be faced with a great volume of work, and will require some time to formulate its recommendations. Its appointment, therefore, cannot represent an immediate solution of the pressing financial problems of Manitoba and Saskatchewan. If these provinces are to continue to discharge their present responsibilities, some immediate financial assistance is necessary. In the circumstances, we believe that the dominion government would be justified in extending temporary aid to them pending the report of the royal commission. A recommendation to that effect will be made to the house when the supplementary estimates are brought down.

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