April 24, 1917 (12th Parliament, 7th Session)

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Honourable Sir THOMAS WHITE (Minister of Finance) moved:

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That the Speaker do now leave the Chair for the House to go into Committee of Ways and Means.
He said: Mr. Speaker, I avail myself of the opportunity afforded by this motion to make the annual budget statement.
The features of the public finances in which I conceive the House to be chiefly interested at the present time are the relationship between national income and national expenditure and the increase in the national debt. For the first year of the war the revenue from all sources was about one hundred and thirty million dollars. It rose during the second year to $170,000,000. For the year ended March 31 last, I am happy to say, our income will reach two hundred and thirty-two millions, or one hundred million in advance of the fiscal year 1915. In round figures, $134,000,000 of the aggregate was derived from customs, $24,000,000 from excise, and $12,500,000 from the business profits war tax. From this last named tax, which was introduced by the Budget of last year, we estimated that we should receive twenty-five million dollars during the three years of its currency. Our experience has proved that this estimate will be largely exceeded. This tax was retroactive, being levied in Tespect of business accounting periods ending subsequently to December 31, 1914. The profits of the first accounting period of businesses subject to the tax were much affected by the severe depression and dislocation of business in-

cidental to the first months of the war. Nevertheless, from this first period the sum of $12,500,000 has already been collected, and when the full levy is made we expect [DOT]to have collected in respect of this period as much as $15,000,000. For the second accounting period the taxes for which are payable during this year we estimate that the amount collected will be much larger- in fact, as high as $20,000,000, or more. The increase will, of course, be due to the business prosperity which has prevailed in Canada during the past year and the profits made in supplying munitions of war. On the whole, notwithstanding the difficulty of organizing on short notice the official machinery necessary to cover so large a country as Canada the tax has worked out much more satisfactorily than we expected, and the total results will be much greater than the estimate.
I have said that the total income of the past fiscal year was $232,000,000. Leaving aside for the moment our direct war expenditure, our outlay for the past year was upon ordinary account $145,000,000 and $27,000,000 upon capital and subsidy account, or a total of $172,000,000. It Is to be borne in mind that of our ordinary expenditure $25,000,000 represents increased interest and pension charges due to the war. Taking our total revenue at $232,000,000 and our total current and capital expenditure at $172,000,000, we find that during the past fiscal year we were able to pay from our income all current and capital expenditure, all charges of interest upon our increased national debt, all pension outlays, and in addition devote the sum of $60,000,000 to payment of the principal of our war expenditure. For a country such as Canada, of sparse population and without the conditions of long-established and concentrated wealth prevailing in older and more settled communities, the result must be regarded as extremely sa'tisfacto' /.
Coming next to the .question of our direct war expenditure, we find that with our increasing military effort it also' is continually increasing. Since the beginnng of hostilities our total war outlay, including estimated and unadjusted liability to Great Britain for the maintenance of our troops at the front and inclusive of withheld pay, totals, so far as we can calculate, about $600,000,000. As the result of this large war expenditure, the net national debt of Canada, which was $336,000,000 before the outbreak of war, has risen to over $900,000,000, although this will not 'be shown by our official statements for some months to come.

By the end of the present fiscal yeax it may reach 51,200,000,000.
From the beginning it has been clear that it would not be possible for the people of Canada to pay, during the war, more than a part of the principal of our war expenditure. The policy of the Government has therefore been directed along two main lines: first, to fund the war indebtedness so as to postpone its maturities to periods well beyond the end of the war, and secondly, by increased taxation on the one hand and the recuiction of current expenditure on works on the other to be in a position to meet from annual income all annual outlays including increased interest and pension charges and in addition a substantial amount of the war expenditure itself.
In order to carry out this programme it will be necessary, as our war expenditure, and consequently our interest and pension charges increase, to increase also' our income. This raises the question of the sources of revenue still open to us. A higher customs taxation upon luxuries has been frequently suggested, but this proposal overlooks the fact that most articles of this character are embraced under fixed rates in the treaty with France, and the tariff cannot therefore be raised in respect of these. Apart from this we should hesitate at a time when France needs the advantage of all her sales on this -side of the a*i - *-[DOT]- i 11ci cxcnange, to place a
prohibition or increased duty against importations from our great Ally.
Then it has 'been frequently suggested that following the example of Great Britain and thte United States, we should adopt an income tax upon all incomes beyond say 51,000 or 52,000. The comparison in this regard, however, of Canada with either of these countries is fallacious. We are not a country of large accumulated wealth find of incomes derived from investments. Canadian incomes are derived mostly from personal earnings, and while there are many exceptions, the rule prevails generally throughout, the Dominion. So far as I am aware the incomes of the professional and salaried classes throughout Canada have not materially increased since the outbreak of the war. In the case of many they havie actually declined. This being so, it does not seem equitable to impose upon these the burden of an additional income tax-for they are taxed now upon their incomes by municipalities land (provinces-at a time when owing to the war the cost of living has so greatly increased. If such a tax is
to be imposed, it seems to me that so far as the great majority of Canadians are concerned, it might better be levied in time of peace, when the cost of living is again normal. It is further to be pointed out that the maximum amount which would be obtained from such a tax in Canada would in terms of Dominion finance be comparatively small and that its administration would require almost a second Civil Service sufficient in number to cover every municipality, rural and urban, throughout the Dominion. The cost of levy and collection of such a tax would be much higher proportionately than in a geographically small, wealthy, densely populated country like Great Britain or than in the United States, which although of the same area as Canada has twelve times the population and much more than twelve times our wealth. On the whole it would appear to me that the income tax Should not be resorted to by the Dominion Government until its necessity becomes clea/rly and unmistakably apparent notwithstanding the drawbacks which I have mentioned. In connection with this tax it is also to be observed that the larger incomes in so far as they are not personally earned are derived in part from holdings in joint stock companies already subject to taxation under the provisions of the Business Profits Wa- tw ~ alau oe remembered that the Canadian public are voluntarily supporting the Canadian Patriotic, Red Cross, and other funds. The amount contributed annually to these funds is much in excess of the amount likely to he realized from any income tax. It is true that some wealthy men do not contribute their fair share to these funds. But this would also be true in any scheme of income taxation especially with issues of Dominion bonds exempt from Dominion taxation.
The question of further revenue then narrows down to abnormal profits made by business firms during the period of the war and this in my view is the proper and legitimate source to which to look for increased revenue to meet the increased cost of the war. If a business is making, in war time, profits above the normal, they
must be due to the abnormal conditions created by the war, thajt is to say such a business is deriving advantage from the war. It follows that it may properly be required to contribute a share of such profits to the Government for the purposes of the war. I do not see, -Mr. Speaker, that

Topic:   THE BUDGET.
Subtopic:   ANNUAL STATEMENT BY THE MINISTER OF FINANCE.
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