Mr. J. H. SINCLAIR:

Why, then, do we say in clause (e), "For the purposes mentioned in the War Appropriation Act, 1918, and in excess of the amount authorized by the said Act?"

Sir THOMAS WHITE:

If any excess. I am not able to state precisely what the expenditure on war account would be for the last year. This provision was in the War Appropriation Act, 1918, and it was found necessary, to take care of an expenditure in excess of the amount authorized for the previous year. The corresponding clauses in last year's Act are as follows:

(a) the defence and security of Canada;

(b) the conduct of naval and military operations in or beyond' Canada;

(c) promoting the continuance of trade industry and business communications, whether by means of insurance or indemnity against war risk or otherwise;

(d) the carrying out of any measures- deemed necessary or advisable by the Governor in Council in consequence of the existence of a state of war; and,

(e) payments made for the said purposes during the fiscal year ending the thirty-first day of March, nineteen hundred and eighteen, in excess of the amount authorized by The War Appropriation Act, 1917.

Now the Government deemed shipbuilding to be a war measure, and payments were made up to the end of the last fiscal year, and I think have been made since, on that account out of the War Appropriation. The paragraph to which my hon. friend has referred would undoubtedly authorize an expenditure upon shipbuilding, for instance, to the extent that is necessary.

Mr. FIELDING:

May I add in explanation that 1 sent for the Journals of 1914, and I find that in the original resolution the words to which exception has been taken are to be found exactly as they have been read by the minister for the year 1918. It so happened that the Act of 1917 did not contain them.

Mr. VIEN:

Last night the Acting Prime Minister stated that the net debt on March 31, 1919, was $1,584,000,000. What was the gross debt on the same date?

Sir THOMAS WHITE:

Unless I could at the same time inform the House as to the assets on the other side of the account, especially the liquid assets, the information would not be of value in reaching a conclusion as to the financial position of Canada. It is the net debt that conveys the information which the hon.. member for Chateauguay-Huntingdon (Mr. Robb) asked me to obtain for him. My hon. friend knows that part of the gross debt would be the currency, although it might be secured by gold, by liabilities of banks in respect of loans, and by other assets.

Mr. VIEN:

At a later date would the minister state what the gross debt is, and how the net debt is arrived at?

Sir THOMAS WHITE:

Yes; perhaps when the Estimates of the Finance Department are up.

Mr. McKENZIE:

How does the minister propose to borrow this money?

Sir THOMAS WHITE:

It is not always wise to state precisely how one intends to raise money, but I think I said in the House a short time ago that it would be necessary to have a domestic loan this coming fall, possibly in September. We have some borrowing to do in New York between now and August next, but the borrowing under this Bill will be by way of a domestic loan. I shall not state to what amount we shall borrow, because I am unable to state that accurately. It might be that we would borrow temporarily from the banks and make a loan for the remaining amount. I say that because interest rates are pretty high, and it is advisable to limit the amount of the loan to as low an amount as possible, in order that we may not have to pay a high rate of interest over a period of years.

Mr. McKENZIE:

This section empowers the Governor in Council to borrow " such sum or sums of money, less any amount borrowed in excess of the amounts authorized by any war appropriation Act." What is the exact amount that the minister proposes to borrow under the powers given him by this Act?

Sir THOMAS WHITE:

This is to ensure that when this amount is raised we shall not have borrowed more than we were authorized by Parliament to borrow. For example, the amount we were authorized to borrow last year was $500,000,000, speaking from memory, and we received $670,000,000 by the Victory Loan. We took practically all that money, and I am not sure that the Dominion has not slightly exceeded the borrowing powers it had. The purpose of this section is to correct that so that when this money is borrowed it will be borrowed in accordance with legislation.

Mr. McKENZIE:

You have $150,000,000 more than was authorized last year?

Sir THOMAS WHITE:

Yes, but there might have been some borrowing power in respect to the previous year. The hon.

gentleman knows that in connection with the Appropriation Bill every year when the general estimates afe passed there is a provision that the borrowing power of the Dominion is so much. Sometimes that is rather arbitrary, but it is put in just to ensure that the Dominion has the borrowing power necessary to raise the money provided in the Appropriation Bill. That is a point that has to be watched by the Finance Department. I asked my deputy to give attention to that in connection with this Bill so that we should not find ourselves without legislative authority in respect to all the amounts which we might have raised by loan in excess of actual borrowing powers at the time. It would not happen in ordinary times, but during the war it did happen that we slightly overborrowed.

Mr. MicKENZIE: We had power last

year to borrow 3500,000,000. That loan brought to the Treasury 3650,000,000. There is therefore $150,000,000 for which we have no authority under the former Act. Is that to be regarded as part of this $350,000,000, or are we going to borrow out-and-out $350,000,000 under this Act together with the $150,000,000 standing over from last year?

Sir THOMAS WHITE:

It will enable us to get this $350,000,000 in accordance with existing legislation. If there were not some such clause as this, when we came to borrow notwithstanding the vote of $350,000,000 we would find ourselves in the position of being able to borrow only,. say, $300,000,000. The situation with regard to the last loan was not quite as described by the hon. member. Let us assume that for 1917-18 we: had a war vote of $500,000,000 and expended $350,000,000. Then if, the next year, we had a vote of $500,000,000 and raised a loan of $650,000,000 the previous authority would apply to the excess on the second Bill. The intention is to enable us to raise $350,000,000 notwithstanding that we may have raised some moneys voted by Parliament but in excess of borrowing powers then existing.

Mr. VIEN:

Is it the intention of the Acting Prime Minister to have these war bonds which are to be issued on that loan tax-free, or are they to be subject to taxation?

Sir THOMAS WHITE:

I am unable to make a statement with regard to that because I don't know what conditions we shall be confronted with when we float this loan. If we could float a taxable loan at

a rate of interest which would compare favourably with the rate which we should obtain on tax-free issue, and having regard to the amount of income tax we would receive if the loan were taxable, I would be strongly in favour of issuing bonds not tax-free. My hon. friend is no doubt aware that when you come to face a market you have to pay a much higher rate of interest, even upon Government loans, where your securities are issued subject to taxation, than you do where the securities are tax-free. I am speaking only from memory, because it did not occur to me that the question would arise to-night. In the United States I think there is a point difference between tax-free securities and taxable securities, and on a large loan the annual difference in interest which you have to pay as between tax-free and taxable issue is very large, and if one looked at it purely from the business standpoint he would calculate as to what revenue would likely be received from a taxable loan, and in that connection he would have to consider the exemption granted under our Income Tax Act. In this country he would, I am sure, reach the conclusion that the tax-free issue gives a better result in an annual budget than a taxable issue, because the amount which would be received by way of interest on a taxable bond would not be as great as the annual amount which the Government would have to pay in excess interest upon the taxable issue. There is another aspect of the matter to which attention must be given. Under an income tax graduated as ours is, there is reached a point at which there is a decided advantage to those of large incomes in buying the tax-free bonds. That is unfortunate. To some extent the issue of tax-free bonds is inconsistent with a steeply graduated income tax. One must consider market conditions, 'and whether outstanding issues which are in competition with him in his loan are tax-free or not, and be guided by the situation with which he is confronted. It is very difficult to say in advance what one will do until the time is reached. When we put out our first loan in New York and the second loan in 1917 the very first point that arose was that the bonds must be tax-free. You could not sell an issue at that time in the United States on taxable bonds for the reason that Canada was at war. They did not know but what they might be taxed at their source here, and you could not sell an issue of taxable bonds in the United States at that time. You could not sell a taxable issue of Cana-

dian bonds in the United States to-day. I raised the question as to whether these bonds might not be taxable to parties not resident in Canada, but on account of the proximity of Canada to the United States, parties in the United States want the benefit of the markets both of Canada and of the United States, and the result was that our bonds in our issues there had to be tax-free. Our bonds being tax-free there, people in Canada desiring to buy bonds, by reason of the exemption given in respect of income tax, could buy them in New York. All the securities we issue here are in competition with all the securities outstanding here and in New York. It is a matter to which I have given a great deal of anxious thought, and there are 'two sides to the question I frankly admit. It is a question of calculation as to what will give the best results to the Dominion. There will always be a certain dissatisfaction if parties of large incomes can buy tax-free bonds and thus escape to some extent from income taxation. But, on the other hand, we must consider what the rate of interest would be as between a taxsfree and a taxable bond and endeavour to do the best we can with the situation.

Mr. VIBN:

On the Victory Loans that have been floated in Canada the Government has fixed the rate of interest. Does the Acting Prime Minister believe that with the rate of interest fixed at 5 and 5i per cent the last domestic loans floated in Canada would not have been subscribed as cheerfully if they had been taxable?

Sir THOMAS WHITE:

Most certainly

not. We should have got a substantial subscription but nothing like the amount we did get- I can say that positively because I went into the matter most carefully. Take, for example, financial institutions which are purchasers of bonds that are offered on the open market; they would have purchased a certain amount but nothing like the amount they did purchase. They could go on the open market and buy. Take the situation in the United States last year. Large insurance companies there which have to earn a certain rate of interest upon their investments in order to make a slight profit, or to carry their liabilities, can take a certain amount of taxable loan at a lower rate of interest than the market rate, but if they had all their surplus funds invested in that and found that these bonds went down five to ten points it would be a very serious thing for them. The rate of interest in the market is determined by supply and demand the same as the price of any other commodity and it is a most extraordinary thing that at the end of this war in which the finance of all countries has been disturbed and dislocated, in many cases shattered, we find ourselves with our securities during the war standing at par and above. Over a million and a half of the people of this country invested in the Victory Loan, and there is a much better feeling in this country among the people who subscribed to this loan that their securities are standing at par and over and that they can realize, if they want to, the amount they paid for them. If these securities were down flvo.-Or ten points and if we put out another loan on a 5 per cent basis, or on a 5i per cent basis, only one thing would happen and that would be that we would have to count on a discount- If the previous loan had gone to a discount, when it came to the floating of the next loan, the fact of that discount would have an important bearing.

I feel that our war financing has been very successful, even if I do say it myself. I felt that we should pay a reasonable rate of interest upon our borrowings. I do not mean to say that the Canadian public might not have taken once or twice a loan at a rate below the market rate, but I do not believe that is a wise policy especially in connection with a long war. When you offer securities to the public the best factor you can have is a lot of pleased subscribers to the previous loan. From the beginning of the war we were in competition with Great Britain's securities in New York and when I offered some of my loans in New York and some of the loans in Canada British securities were selling as low as on a 7 or 8 per cent basis in New York. So were the securities of France as well as other securities of the highest grade. In our financing during the war we had to take conditions as we found them and deal in New York or here as best we could-

In the war loans we engaged the interest of all sections of the community; and I want to pay my tribute here and now, as I have on every platform on which I spoke, to the members of this House on both sides, and to the Canadian people without distinction of class, race and creed, who assisted me to the utmost of their ability in floating these loans. Otherwise we could not have done it. There was co-operative effort on the part of everyone. I have heard no complaint from the time the first loan was floated down to the present, of there being any favouritism, or discrim-

ination, or political influence, or patronage, in reference to the flotation of our 'Canadian war loans.

Mr. VIEN:

As the clause gives the Government power to determine under what conditions the loan is going to the floated, I think it is proper to draw the attention of the Government to the bitter criticism Which has circulated among the public against the floating of tax-exempt loans. There is, it is true, the question of dollars and cents to be kept in view,-whether the discount that you will lose on the taxable bond will be equalized by the amount that the public exchequer will receive from the taxation on this bond. But there is also something else than the dollars and cents aspect of the question, there is a question of principle; and T say it is not democratic to have bonds floated which are tax exempt. There is a great deal of criticism of the action of the Government in floating tax exempt bonds. It allows those who have made a lot of money during the war, by profiteering or otherwise, and financial and banking institutions which have a lot of money to dispose of, to place that money in tax-exempt bonds. They were either as patriotic as they pretended and boasted they were during the floating of these Victory Loans, in which case they would have subscribed as freely whether the bonds were tax exempt or not, or else some of the feathers should be taken off their caps-and I think the Acting Prime Minister has done that to-night in stating that in his opinion the last loan would not have been as freely subscribed had it not been exempt from taxation; we would have received a certain amount but not have quite as much as we have received by issuing tax-exempt bonds. I had some knowledge of the floating of the last Victory Loan in the district of Quebec, and in that district the exemption did not influence very much the people who subscribed to that loan. They subscribed because an appeal was made to them to do so on the ground that it was necessary, for the successful prosecution of the war, to help our industries and to help the Government to carry on, to accomplish the task which they had on their hands. I believe that if a proper appeal had been made to the people of Canada at large the response would have been equally as good whether the bonds were taxable or exempt. There is a great deal of unrest and criticism among the labour classes at the present time. I have heard a lot of it in Montreal, Toronto and Quebec. The labouring classes contend that we owe great sums of money as a result of our domestic loans.

TSlr Thomas White. 1

To whom do we owe them? We owe them to those who have made money during the war either by war contracts or toy profiteering on the necessaries of life-and we have examples high up. They contend that not only do we owe the capital of our domestic loan to those people who made their money sometimes by the sweat of the working classes, but that those people have taken care that the interest they are going to derive from the money they have loaned to the Government will be tax exempt, and that it will toe the wage earner and the small man who will have to pay the greatest part of the amount which the Government has to raise to meet our expenditures and our liabilities. And thereby we invite to a great extent the criticism which is now so prevalent throughout the country. I believe the better practice would have been even to pay a higher rate of interest or a discount on the floating of our bonds. The true democratic principle is that every one should pay his proper share of the country's expenditure, and if I might be at liberty to offer a little advice to the Government it would be this, that in future when floating loans they should not make them exempt from taxation.