Mr. F. L. DAVIS (Neepawa):
Mr. Speaker, in rising to discuss the Budget I wish to assure the Finance Minister of my sympathy with his difficulties on this occasion and to express also a realization of the fact that these difficulties are not of his making, many of them having arisen under a finance minister's administration with which I was not at all in agreement.
A year of falling prices; of appalling railway deficits after equally appalling freight-rate increases; of large unemployment, destined to grow worse; of one hundred millions of deficits; of expenditure in excess of revenue, lies behind us. And ahead of us seems to lie a year wherein all these will be aggravated. Last year $432,000,000 was raised by way of taxation, but this, the largest taxation we have ever collected, has not availed to make things meet. The ensuing year cannot be expected to yield like revenues, but will call for similar expenditures. The minister places the figures which should be paid out of current revenues this year at $435,000,000, to which should be added about $155,000,000 of expenditure on railways and upon active investments, so that we shall have a deficit, apparently, of about that amount after applying the ten millions of cash which we have in hand.
For the relief of some whose appetite for tariff discussion is satiated, I will say here that I am not going to discuss the tariff at length. In postponing action the minister, perhaps, is displaying discretion, taking that word in both its good and its bad sense. A party of Liberals and Conservatives that has not been through the fire of an election might prove uncertain under such a strain. I found myself in sympathy last night with most of the remarks of my friend from North Oxford (Mr. Nesbitt). But, as he told us that' England was not a free trade country, I thought he should discuss that matter with our friends from Frontenac (Mr. Edwards) and from Fort William (Mr. Manion) who seemed to hold other views upon that question. In the better
sense of that word " discretion " I think the minister would have displayed more, had he framed and arranged classifications in the tariff schedule and knocked off even a few excrescences just to show the country that the commission had not been entirely a waste of time. After the remarks in the West of the Minister of Immigration and Colonization, (Mr. Calder), there was felt to be need for such a demonstration. Nevertheless, in the state of trade, in th$ condition of United States legislation on tariff questions, and in view of our own political condition, the postponement has much to justify it, not the least being that the prospect is that quite different persons and quite different ideas will shape our next Budget.
I also agree with the elimination of the business profits tax. The time was ripe for that, as business has generally been experiencing a cutting down, a wiping out of values, which would certainly have affected collections under that tax. But the Finance Minister imposes a sales' tax. I think this is no time to show toe great friendliness or consideration for the big interests of this country, and I should like to make a suggestion with regard to the corporations' income tax. A corporation is treated under the fiction that it is a person, and after $2,000 exemption is allowed, 101 per cent practically is levied upon its yield. We have in this country many one-man corporations and these men may have very large revenues from such corporations. Under Section 3, subsection 4, of the Income Tax Act, the minister, unless he is satisfied that there is a need for retaining these funds in the hands of the corporation, may force them out-at least that is the course that he has chosen to pursue-into the hands of the shareholders. But I would point out that with the business profits tax eliminated, the machinery is now defective for his doing that. That is, having before him the earnings of a corporation and the names of the shareholders, he may allot a tax upon the amount which they should have received, had the profits been divided. I believe the question has never been settled whether he has a right to make such an assessment upon funds which the shareholders have not received. Under the income tax as it stands now, firms and partnerships must pay the full amount of the income tax, whether it has been realized in cash or not. No account is taken of the needs of a firm or partnership to extend its business, and I cannot, therefore, see why account should be taken of the needs of a corporation to
extend its business and use its reserve in that way. I grant at once that the minister could hardly make exceptions among firms or partnerships, but he should line up the corporations with the firms and and the partnerships, and I want to point out to him a method whereby that may be done. We have a 10J per cent tax upon a corporation as an income tax. Supposing that tax were levied as a minimum tax provided that the dividends of the corporation were distributed within three months of the end of the company year, and a further surtax were imposed upon the corporation if they did not so divide. The result would be certainly to force a distribution of the dividends, and the shears of the income tax would then catch these sums in the hands of the individual shareholders. Perhaps, even, it would be advisable to do this; still recognizing the corporation as an individual, to provide that no income tax shall be assessed if the dividends are distributed within a very limited time, but that a very heavy income tax shall be levied if the dividends are not distributed within that time. Then you will have these funds forced into the hands of the shareholders and thus brought under the income tax requirements. The objection may be raised that corporations need money to extend their businesses. The one-man corporation can meet that, because, having received the whole amount of the dividends, having paid his tax, he can put his money back into the corporation which is his property. If it is a com' pany of the ordinary description, if its shares are above par, it may offer its shares at a discount or at par, thus making a right in the shares which would be of value. Or, if the shares are at or below par, it may offer preferred stock at advantage and these rights could be sold. Therefore, there will not be that difficulty, which has been one of the objections to the business profits tax, that money for further expansion will not be available.
With regard to our shipping, I think it is deplorable that we had not a Lord Inchcape in Canada to sell our ships at the end of the war. Hon. members know that Lord Inchcape practically took 200 vessels over from the British Government and himself disposed of them. If England, the greatest shipping country in the world, saw fit to do that, surely some one in our Government should have been alert to what was good policy for the very "mistress of the seas" and been apt and eager to follow that example. .
I shall not now discuss our railways, because there will be a future occasion for that. I want, however, to point out that the railway situation perhaps affects our western provinces-and I believe in this case the charity begins at home-in a most acute form. We have to pay very heavy freight rates at any time to get our goods to the markets of the world, and we have to pqy heavy rates to get goods into that country. As an example of what has taken place in the way of change in prices in the last year, let this illustrate. The farmer in the West-and this was in the week before this session began-was selling his steers at 301 per cent decrease, his cows at 30 per cent decrease, his stockers at 38 per cent decrease, his hogs at 23i per cent decrease, and his sheep at 44 per cent decrease. He was selling his wheat then at 151 per cent decrease, his oats at 48 per cent decrease, his barley at 42 per cent decrease, and his flax at 66 per cent decrease. The freight situation had much to do with these large decreases. But on the other hand the farmer had to pay more for everything that he was buying in the way of machinery and equipment. I have in my hand, a list which includes buggy, democrat, wagon gear, grain tanks, trucks, gang ploughs, breaking ploughs, hay rakes, mowers, binders, blacksmiths' forges, and certain gasoline engines; and the total of these at the 1920 price is $1,775.20. In the catalogue of the week ending February 12, 1921, the retail price is $2,154.10, an increase of 21.31 per cent. Compare that with the decreases which he is obliged to accept, and you will see that he is facing very grave difficulties; and I say that these difficulties bear more heavily upon him because of the freight situation; hence there is even more necessity for a re-scaling of rates and an improvement in our whole railway situation. I should in justice, perhaps, point out that in one line of articles, harness^and I am sure my hon. friend from Red Deer (Mr. Clark) will appreciate this, after telling us that he has had to sell hides at 1 cent a pound-the price is down a little from $193.25, to $169, a decrease of 12.39 per cent. With these figures before the House I think it can realize somewhat, of the dissatisfaction that rests in the farmer's mind when he sees that he still has to pay large tariff taxation, as well as contributing in the measure he does to freight, taxation. As an instance of how and where the freights Come from in this country, it is general public knowledge that $33,000,000 was the surplus for all pur-
poses of the Canadian Pacific Railway last year. I want to tell the House, what perhaps it does not know, that of that surplus, $21,000,000 was produced upon western lines in the last four months of the year 1920; that is, practically two-thirds of the whole surplus was earned on the western lines of the Canadian Pacific in those four months.
A good deal has been said from time to time as to our grave adverse balance of trade with the United States. I would like to produce some comparative figures here to show that the situation is not nearly so grave as has been stated. In 1921 we exported to the United States $542,000,000 i of goods, and we bought from them $856,000,000 of goods; that is, our imports were equal to 155 per cent of our exports. In the year 1920, they were 173 per cent; in 1919, 164 per cent. During the war conditions were disturbed so that it is not fair to make comparisons with those years. The figures were less for three years of the war, and then going back to 1915, our imports were twice our exports, and the same is true of 1914. They were 2.64 per cent in 1913, and in 1912 they were three-fold. To reduce to proper values of the present, for our money in 1921 as compared with our money in 1912 is practically at an appreciation of 100 per cent, you would have to divide the figures of 1921 to get a fair comparison; that is, in those terms, the exports would have been $271,000,000 as against $428,000,000. Now, in 1915 that $428,000,000 is the amount of our imports, and in that year our exports were only $215,000,000 of goods. Consequently, I think that the situation is really improving, and that there is not such a need for fear as to the situation as has been very widely expressed.
A matter which should, perhaps, give us more concern is the question of exchange. We are now paying a premium of around 12J per cent upon American funds, and in our present situation this is really serious, especially when you take into consideration a matter to which I shall refer later on, that is the question of our loans. But this is to be remembered: that while a balance of trade against us would throw the rate of exchange against us, it would not account for the amount of that rate. What really accounts for the amount of the rate is the disparity between the purchasing power of our money and theirs. Compare wheat of the United States with that of Canada. Our wheat has been consistently quoted at a higher level than that of the
United States. That is a commodity which is in world-wide demand, and until the Young Bill, which passed the United States Senate yesterday, began to affect the situation, it was in no way affected by governmental regulations. Now, the fact is that it takes about $9 of our money to buy what $8 will buy in the United States, and that is the real cause, and the basic fact, to take into account in connection with our exchange. We have to-day to compare the purchasing power parities of money to know what we are doing in any trade. It is no use any longer following mint parities. Indeed, even the exchange is a misleading guide, because, during the war, exchange was kept up by the governments and was above the purchasing power of the moneys of the several countries; to-day, because of the disturbance of conditions, it is below the purchasing power of the moneys. If any one cares to follow that question up, I would refer him to the May number of the Commerce Monthly, issued by the National Bank of Commerce of New York, where he will get a bird's-eye view of the whole situation.
In consequence of this, I have to criticise the minister's proposition to limit the exchange variation to 50 per cent. With regard to some countries that is justifiable, particularly with regard to Germany, and if it were pointed straight at Germany I would support it. But as regards France, for example, we have recently entered into a treaty with France to give her certain advantages. Now, by this arrangement of exchange, we reach behind their backs and take away those advantages. At present the French exchange is around 8.14 cents, but the purchasing power of French money is above that point, and that, after all, is what counts in the question of exchange. Indeed, keeping in mind the functions of exchange, when we adopt a policy of this sort, we are providing means which carry us only half way in the complete circle of trade. We take it from French goods into currency, but it has to go the rest of the way, from currency into Canadian consumption, before you have the transaction complete; and in that case we take account of the purchasing power of the money and no injustice is done to us. Where England imposes a duty of 33J per cent in cases of this sort for the same purpose, the London Economist has this to say:
The exchange section of the resolution is still more fatuous; insofar as it is effective it will inevitably retard the recovery of central Europe on the need for which our rulers ha-ve so often and eloquently declaimed.
Our trade does not equal that of Great Britain with Europe, and so has not the pervading effect that such a restriction must have in English trade; but it has its effect, and it is a distinctly unfriendly act on our part to put upon the currencies of Europe such a limit. In dealing with this question, and in order that it may be understood, I propose to read some extracts from an address delivered by the Swedish economist, Cassel, delivered before the Brussels Financial Conference:
The part of the currency which has been exported to foreign countries is in some cases very important. The actual circulation within Germany is, e.g., much lower than the total mass issue, the rest being held in foreign countries. This must be taken into account if we wish to have an idea of the active circulation within Germany. In some cases it is necessary to have regard to an increase or a decrease of geographical area within which the currency is used. In the case of Germany, e.g., the present active circulation should strictly be compared with the pre-war circulation within the present boundaries of the country.
Now, Germany has been forcing her marks upon foreign countries, and this has amounted to floating a demand loan. The consequence has been disastrous to her own trade. Let me quote from page 47 of the same report:
war. In it, as in its two predecessors, there is no enunciation of general policy such as all circumstances demand. Parliament has, during this session, considered such proposals as the development of the St. Lawrence, involving an expenditure of half a billion dollars, as cheerfully as if in the last seven years we had not incurred a debt of two billions of dollars, changed our price levels more than commonly occurs in centuries of time, wasted a very large portion of our capital in waging war, and raised problems which cannot be settled by short views such as these last three Budgets have contained, but which must be met by some measure of vision and a policy having consistency and continuity for at least one generation.
Of our old obligations of nearly $300,000,000 about $25,000,000 falls due within the next four years, and of our new obligations of nearly two billions and a quarter, within the next four years, 25.7 per cent falls due. We have paid this year $25,000,000. Next year we have to pay $195,000,000; in 1923 the same sum; in 1924, $105,000,000, and in 1925, $43,000,000. That we may get this all before us, let us put it on record:
As instances of such depressing tendencies we can quote: a distrust in the future of a monetary standard, leading to a discounting of an anticipated fall of the internal value of the money; operations of speculators, etc. By far the most important of these depressing factors is, however, the practice of selling out the currency of a country abroad. This practice has, during the last year, reached such proportions and become such a prominent factor in the international monetary situation that it is necessary to devote special attention to it. #
The whole operation can best be studied in the case of Germany. German marks have been
In 1926 we have to pay
In 1927 we have to pay
In 1928 we have to pay
In 1929 we have to pay
In 1931 we have to pay
In 1933 we have to pay
In 1934 we have to pay
In 1935 we have to pay a little over
In 1937 we have to pay
In 1938 we have to pay
In 1945 we have to pay
In 1947 we have to pay nearly.. . .
481.000. 000 1,000,000
65.000. 000 5,000,000
sold out abroad on an enormous scale, and at almost any price they would fetch# As the cen- Between per cent. 1921 and 1925 we must pay 25.7tral Government, local bodies, banks, and business enterprises were in absolute need of foreign Between per cent. 1921 and 1931 vve must pay 10.3means of payment, and these did not seem to be procurable in any other way, the country was Between per cent. 1932 and 1935 we must pay 43.3driven to this selling out of its currency. The process must be looked upon as a substitute-a Between per cent. 1937 and 1938 we must pay 17.7bad substitute indeed-for the more regular device of securing foreign loans. As lenders could Between cent. 1945 and 1947 we must pay 3 per
not be found, Germany turned to a new class of investors, the speculators in currency, and offered them, instead of a high rate of interest, the inducement of an extraordinary low rate of exchange. Of course, the speculators suffered heavy losses as the exchange went down step by step. But new ranks of speculators were always ready to believe that "the bottom has been reached" ; as a mantter of fact the last of them have made enormous profits. The selling out of marks is said to have been considerably increased by the endeavours to evade in this way an exorbitant taxation.
In considering the proposals of this year's Budget, there is one lamentable omission. This is the third Budget presented to the people of Canada since the
It is not within the contemplation of any one that we shall pay these debts as they come due, but large refunding operations must be carried through. It is wise, therefore, that we should keep these before us and prepare for them. We are in the third year away fron* the war, and no Budget has yet made reference to them. Let us look at some features of the situation. The United States is our greatest competitor, not only in trading but in obtaining increase in population. It is generally recognized by our statesmen that their conditions have a direct effect and
influence on our own. To obtain the growth in population we desire we must offer to our own people and to immigrants a similar standard of living, a comparatively decent rate of taxation, similar wages, and cost of doing business. At present I shall leave out of any such comparison the effects of a protection policy in which we collect about $20 per head in duties and they collect about $3, and endeavour to deal with other factors of the situation.
The United States floated its loans for about four and one-quarter per cent. We have had to pay rather more than five and one-half per cent. In the present and prospective dearth of capital, we shall do well indeed if we can refund our present indebtedness at the rate of 6 to 6i per cent, being one-quarter to one-third higher than the United States is paying for funds for the same purpose.
This is one of the great reasons why, at present, we should adopt the four recommendations made by the Brussels Conference-balance all recurrent expenditure with taxation; cut down all military expenditure; abandon all unproductive extraordinary expenditure; and restrict to the very minimum even productive extraordinary expenditure. The United States is the only prospective market for such refunding operations, and our money is at a discount of about twelve and a hallf per cent with theirs, so that if we borrow from them we must pay this difference upon the principal sums, and so long as we permit the difference in purchasing power parities of our and their currencies we must pay such premium upon the interest upon the sums borrowed.
Now let me quote from the New York Times financial edition:
As it is, leading financial experts believe that Canada will experience so much difficulty in taking care of the maturities prior to 1933 that there will Ibe little if any opportunity for building for the future-
That is, making preparation for taking care of these maturities.
-and in those years, or just before them, Canada is likely ,to make another big entry into the New York market. During the past year or so Canadian securities have been going better in the American market than ever before. A very considerable amount of provincial and municipal bonds and other securities have been sold here and, in addition, nearly $85,000,000 in Canadian railway issues, representing properties which are to ibe merged into the Canadian National Railways, have been disposed of to American investors. The discount on Canadian funds in the exchange market has been a factor, allowing American investors an immediate discount of 9 per cent to 14 per cent on the purchase price
with the chance that this will be entirely made up within the next few years and long before the maturity of these securities.
Now, that is a situation that we must face with regard to having our money on a disparity with theirs. If we borrow from them we must pay the difference, and so long as we suffer a difference in purchasing power on our money we must pay the difference in exchange upon United States interest.
I think it was the duty of the Government therefore, to lay this situation before Parliament and the country for its consideration, and to announce a policy and to devise ways and means for carrying out that policy. Under the circumstances, the obvious policy is first of all to put our currency on a par with United States currency as we are only about twelve and a (half per cent from such par. And as experts hold that Great Britain which is twenty per cent from par. and France which is thirty-five per cent from par, are able to, and should, bring their currency to par, the conclusion is inescapable that for us it is more attainable and more essential. Were it not mentioned, it might be overlooked that we are already borrowing over $200,000,000 a year from the United States, authorities stating that last year we borrowed $214,000,000, and the rates have been above six per cent. Provincial governments, municipalities and business firms have all been forced to the United States market for needed funds, and where, as is the rule, they are made repayable in the United States, so long as we permit our moneys to remain at a discount, we pay about one-eighth more interest and are repaying one-eighth more principal to cancel the debt. Surely this means that our business is at a disadvantage with United States business and that the way to correct this is to bring our money to a parity. My own small town is paying $1,500 a year to make up the diffier-ence of exchange. They borrowed $100,000, from a firm in Toledo some years ago and there are some other maturities they have in the United States, and they are paying $1,500 a year in exchange. This means very nearly one dollar a head of its population and a material increase in its taxation. Hence, I conclude that the Government's first duty is to balance its expenditure with taxation and secure surpluses with which to bring our money to equality with the United States money. The effect will be to cheapen money throughout Canada, and materially reduce the cost of carrying our debt in the future.
But with this must be coupled the necessity for establishing sinking funds, and we cannot establish sinking funds while we continue to expend; as the Finance Minister says, during the past year he has expended $100,000,000 more than the taxation has yielded him. Neither would any sensible person demand the establishment of sinking funds forthwith; but surely a Government conscious of its obligations would take the country into its confidence and say when it thinks such sinking funds should and can be started. This may be seven to ten years ahead, but a government which has determined upon the establishment of sinking funds and set a date for their establishment and shaped its expenditure and taxation to carry out that operation within that time, will be able to borrow money on much better terms than a government which is proceeding as this present Government is without an expressed realization of the situation or any declared determination to effect these purposes. Such sinking funds could be begun in time to have a most material effect upon the refunding operations at our second period of maturities in the early thirties. Such a detailed policy no future Government would dare to depart from, and with such a policy Parliament and the country would have a corrective and a tonic principle for its future guidance, and that is one of the great lacks in our present fiscal policy. Retrenchment of our expenditure would necessarily follow upon such a policy and Parliament would relegate to the future any scheme for expenditure which would conflict with such a dominating policy and principle.
The peroration of the Finance Minister, although it contains words of faith and confidence, does not appeal particularly to me; but had a policy been announced- such as I have tried here to outline-then I would say that faith and confidence in the Government, and in the future of Canada, is to be entertained. Unless such a policy is established it cannot be entertained.
Subtopic: REVISED EDITION. COMMONS THE BUDGET DEBATE CONTINUED ON THE ANNUAL STATEMENT PRESENTED BY THE MINISTER OF FINANCE