November 21, 1940 (19th Parliament, 2nd Session)


James Lorimer Ilsley (Minister of Finance and Receiver General)



So far as I have been able to ascertain, war expenditures will continue to rise as our military, naval and air programmes develop. I do not know whether hon. members fully realize what it means for this country to be spending at the rate of one billion dollars a year on war purposes, the rate which we have already reached. That is nearly twice our normal peace-time rate of expenditure of all kinds. It is about one-fifth, probably more than one-fifth, of our national income.
Non-war expenditures during the first six months of this fiscal year have been about $29,000,000 less than in the similar period last year. The reductions to be achieved in the second half year will be larger in the case of most items than those in the first, particularly in the major items of public works and relief: in the first because the fiscal year had already begun before the new policy was fully operative, and in the second because the winter relief load is larger than the summer and there is more room for saving.
On the side of revenue, receipts during the fiscal year up to yesterday were about $145000,000 more than at the same date last year and have been well in line with the budget forecasts, bearing in mind the normal and anticipated variations through the year. If anything, the budget estimates are apt to prove slightly conservative as regards revenue. The first returns from the national defence tax are proving to be somewhat better than the necessarily approximate estimates that were made without previous experience of this kind of tax. It is worth noting, moreover, that the increases in taxes made in the June budget
The Address-Mr. Ilsley

accumulating on a compound interest basis until maturity. While the special advantages of this type of security for the small investor will be readily apparent, it does seem to me that in future war loan issues we should again issue the fifty-dollar denomination in order to allow ever}'' investor, small and large, to participate in the tremendous patriotic effort of our war loan campaigns.
Someone has suggested that because it took two weeks to sell the second war loan it was not a success. That view implies a complete misunderstanding of the desiderata involved in the sound distribution of securities. If we wish to depend on large corporations and large financial institutions to buy our bonds, perhaps a campaign of two or three days would be all that would be necessary, but no one with experience in the security business would regard this as sound or satisfactory distribution. We believe that in the interests of the public as well as of the treasury, dominion securities should be as widely distributed as possible among individual investors who intend to hold their bonds as a permanent investment. It is ridiculous to believe that this distribution can be obtained in a few days in a country like Canada where the population is scattered over so large an area. The victory loan campaigns of the last war lasted for at least two weeks, and personally I shall endeavour to see that in our future loan campaigns the books of the loan are kept open for at least this long a period in order to give an opportunity for everyone to subscribe.
There is one further point I should like to mention. In thinking of our September loan it is necessary to remember that it was the second of two public loans issued during 1940. or rather during the first nine months of 1940. From these two loans and from the sale of war savings certificates, war savings stamps and non-interest-bearing certificates we have raised during the calendar year to date a total of approximately S524.000.000 in cash from private: and institutional investors other than banks. That is a record of which Canada has every reason to be proud, particularly when we remember the interest rates at which the funds have been raised and the extent to which taxes have been increased to pay for this war. To my mind there is no comparison between this record and the record of financing during the last war when 5 per cent or 5-J per cent bonds on a tax-free basis were sold, sometimes at a discount, in an era of inflationary expansion of incomes.
I come now to some of the criticisms which have been made of our financial policies and administration.

These have been of two types: criticism of details and criticism of principle. To the first type belong the observations of the leader of the opposition, who took no exception to our policies on grounds of principle, if I understood him correctly, but took exception to their application in certain respects.
I have already replied. I think, to his criticism of the second war loan.
His next point was a more serious one. He said:
I lay at the feet of the administration the charge of having imposed tremendously heavy and oppressive taxation by the 1940 budget.
And later:
We are taxing the well-disposed to the limit. There is no equality of sacrifice in the 1940 budget. I place the responsibility for this squarely upon the administration.
As the additional taxes imposed by the last budget were steeply graduated and as the taxes imposed under the Excess Profits Tax Act are generally, I think universally, regarded as severe, it would almost appear that the leader of the opposition, in speaking about the "well-disposed" means the well-to-do, and that when he says there is "no equality of sacrifice," he means that the rich are called upon to sacrifice more on a percentage basis than the poor.
These charges are well founded. The well-to-do are being taxed very heavily and at higher percentage rates than those in the lower income brackets. But when we announced the principle of equality of sacrifice we made it clear that it was equality of sacrifice having regard to ability to pay.
It is interesting to find the leader of the Conservative part}', which has been demanding a greater and ever greater war effort, already complaining about the tax burden which that effort involves. Make no mistake about this. If we are really honest in demanding a war effort to the utmost we all must expect to be taxed until it hurts. Taxes that can comfortably be paid are not enough.
Next, the leader of the opposition says that there has been great extravagance in government expenditures and that the treasury must step in and put a brake on foolish and extravagant expenditure. The hon. gentleman would hardly contend that he proved his case by the examples cited. However, I have no doubt that in the extensive and complicated organization that has been set up for the prosecution of our war effort all over this dominion there will be some instances where full value is not obtained for the money expended. All I can say is that my colleagues and I realize our responsibility in that regard. I agree with the opposition that nothing could

The Address-Mr. Ilsley
be more unfortunate than to have the impression go out among the people that the money they place in our hands, in trust, for a high cause, is not being prudently, carefully and responsibly expended. But, Mr. Speaker, as far as the Department of Finance is concerned we are eternally vigilant in that regard; and I feel sure that the same observation applies to my colleagues and to their responsible officials.
I would say to the leader of the opposition, and to every other hon. member of this house, that if he knows of any instance of misuse or overexpenditure or extravagant expenditure of public money I should be glad if he would bring it to my attention or to the attention of the head of the department concerned, because we do not intend to permit that to take place. If there have been incidents- and the ones cited by my hon. friend were of a very minor character-I think they could properly be regarded as isolated instances which must be taken as accidents, incidental to a huge undertaking carried on at the speed necessary in war time.
The leader of the opposition also suggested that in every field of war endeavour this country is far behind our sister dominion, Australia; and he asked for a comparison of our war effort with theirs. I need hardly say' that I do not wish to make any invidious comparisons, particularly in view of all the different circumstances; but I might tell the hon. member that the latest information I have been able to obtain shows that Australian war expenditures for their current fiscal year, which ends June 30 next, are estimated at 177 million Australian pounds, or at current exchange rates, about $630,000,000. This is almost exactly two-thirds of the estimate I gave the house in August for our own war expenditure for the year ending March 31 next; and as the hon. gentleman himself pointed out, this is about the ratio of the population of the two countries. On this basis it would appear that the efforts of the two countries are of the same general order of magnitude. But the leader of the opposition has overlooked the very substantial assistance which Canada's greater wealth enables her to render to the United Kingdom by means of our repatriation programme, which has no counterpart in the case of Australia.
These, I think, were the main criticisms offered by the leader of the opposition. He did me the honour of addressing me rather directly in the debate and therefore I have answered him with some care, though it was not my intention to make what in any sense could be regarded as a debating speech. It is significant, I think, that the principles of
our war finance policy have not been challenged by the official opposition but that criticism has been confined to detail.
With regard to the opposition led in the house by the hon. member for Rosetown-Biggar (Mr. Coldwell), it has not been possible for me to be in the house throughout the entire debate; but, so far as I know, no member of the Cooperative Commonwealth Federation has attacked our financial policy in principle. Of course the general position of that party is that the whole organization of industry in Canada is wrongly conceived and that war production should be on a socialistic basis. Probably this is not the time to debate this question. I think it is obvious, however, that a rapid increase in production and the utmost efficiency of production are necessary in time of war; and apart from all other and far more important considerations, to attempt to reorganize our commercial, industrial and financial institutions upon a principle thoroughly disliked and disapproved of by the overwhelming majority of the Canadian public would of itself have been most prejudicial to production. The dislocation of industry which would be involved in the adoption of the proposals of the Cooperative Commonwealth Federation; the dissolution of the structure of industry which is implicit in the position of the Cooperative Commonwealth Federation, certainly should be avoided at a time when we are seeking and must seek the cooperation of all Canadians in our war effort. I need hardly add that should this cooperation not be forthcoming from those in control of any plant or industry, the government has ample power to take appropriate action and will not hesitate to use it.
I now come to the criticism offered by the leader of the Social Credit group, the hon. member for Lethbridge (Mr. Blackmore). Here our principles are challenged, and I think it may be necessary for me to say something about the challenge and the arguments advanced in support of it.
The leader of the Social Credit group, after moving a subamendment reflecting on the monetary policy of the government, proceeded to say:
Social credit proposes to use the national credit to provide money without additional debt, without additional taxation.
By the providing of money I assume he means the creation of money. Indeed, later in his speech he says:
Let us consider the matter of created money. What an all-wise attitude was taken by some people when reference was made to the creation of money!
The Address-Mr. Ilsley

Thus he made it clear that for the raising of money by taxing and borrowing he would substitute the provision or creation of money by the government. I have stated already that our war expenditures are now running at the rate of almost a billion dollars a year. I ask members of the house, any hon. member, this question: Does anyone think that the
creation of something like a billion dollars a year in money by the government for war purposes would not result in wild inflation? There can be only one answer to that question, unless indeed some extremely severe and comprehensive counteracting measures were taken at the same time. In his speech the hon. gentleman seemed to recognize this, because he goes into the question of countermeasures.
In his speeches in this house, of which I have listened to a good many, I think the hon. gentleman has consistently admitted the evils of inflation. There is no doubt that Canadians could be made to curtail their civilian demands and free economic resources for war demands by inflation. If prices were to be doubled to-morrow there would be no doubt about the curtailment of civilian demand that would ensue. But, as I stated in the beginning of my remarks, this would be the most unfair, the most uneconomical and the most dangerous method of war financing that could possibly be adopted. In countries where there has been a period of serious inflation the people look upon inflation as a national calamity. Fortunately we in this country have not passed through such a period and our people are in no position from experience to form an opinion of the evils of inflation. If they had suffered those evils they would dread them as they would a great plague.
The leader of the Social Credit group apparently realizes those evils and therefore enumerates counter-measures. What are they? First, he says inflation can be controlled by employing credit restriction. Needless to say he does not mention this method with approval; as a matter of fact that is what he criticizes. Next, he says another way is by taxing the people until they have no money to spend. He makes it clear that he is not in favour of taxation as a method of combating inflation. Next, he seems to advocate a sort of universal bonus to consumers, and, later in his speech, he advocates that bonuses be also paid to many, if not all, classes of producers.
Now, with respect to this matter of universal bonusing: If the government, for the purpose of keeping prices down to consumers, pays them bonuses, or, in other words, assumes and pays part of the prices they are

paying for the goods they buy, this will require large expenditures on the part of the government out of the newly-created money and will increase the evil w'hich it is designed to abate.
The more these prices rise, due to the issue of these large sums of money, the larger will be the proportion of these prices the government will have to pay, and the greater will be the amount of newly-created money the government will have to issue. The more they issue, the more prices will rise, and so on.

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