May 19, 1920


On the Orders of the Day: Mr. P R. DuTREMBLAY (Laurier-Outre-mont): I see in the Montreal Gazette of this morning a despatch stating that it is rumoured that, following the conference held at Hythe, the Government of Germany will be called upon to pay to the Allies as an indemnity the sum of about £6,000,000,000. Would the Government tell us what portion of this sum is to be allocated to Canada?


Edgar Nelson Rhodes (Speaker of the House of Commons)



I would ask the hon.

member to put that question on the Order Paper. It is one which requires notice and with respect to which there is no urgency.

Mr. DuTREMBLAY: It is a question

which requires the attention of the Government. The despatch further states that a special conference of the Allies will be held shortly at Ostend to consider financial questions among the Allies. I should like to know if the Government have been invited to attend this conference and if they will have a representative at it.

Rt, Hon. Sir ROBERT BORDEN (Prime Minister): The answer to my hon. friend'* question is in the affirmative.




Hon. iSir HENRY DRAYTON (Minister of Finance) moved: That the Speaker do now leave the Chair for the House to go into Committee of Ways and Means. He said: Mr. Speaker, I am afraid that on the present occasion I shall have to ask the indulgence of the House as I shall have to address the House at considerable length. The fault is not mine; the financial position of the country at the present requires, I think, to be dealt with in considerable detail. The conditions not only in Canada to-day, but the world conditions obtaining, are very different from the conditions which did obtain while the war was in progress. During this period the compelling necessity of the moment, the winning of the war, required raising large sums of money in the easiest possible way and with the least infMr. Fielding.] terference with the public or with business methods. It was absolutely imperative that there should be no check in production, no questions raised which might hinder that production or hinder the war effort. It was no time for the consideration of domestic politics, which in any way might distract the nation from a united effort towards the supreme end. These conditions to-day are changed; the war is won; expenses are great; the cost of Government operations as well as the carrying on of every business of every character in the country has increased enormously, and over and above this the country, with other countries which took their part in the titanic struggle, is faced with a pyramid of debt. The task to-day is to aid the return to ordinary economic conditions to the extent that such return is at this time possible. The duty to-day is not only to carry on the Government of the country without any additions to the debt, but on the other hand to promote measures which will reduce the nation's obligations. The task while heavy is nevertheless not as severe and difficult as the obstacles and difficulties wh'ch the country has gloriously overcome in the five years of war and stress. Indeed, were it possible for the country to again become as united and earnest as it was during the war period, if it were possible for each and all of us to sink all differences, class and sectional interests and jealousies into an effort towards re-establishing Canada las united and co-ordinated as that which won the war, the task would indeed be easy and simple. Canada's soldiers during that period won .for themselves and our country imperishable fame. " Their name liveth for evermore." But the productive efforts of Canada during that period were second only to their glorious record. For the five fiscal years ended on March 31, 1915, the excess of the country's imports over exports amounted to $825,521,490. For the next succeeding five years, ended on .March 31 last, this excess of imports was not only overtaken, but our exports exceeded our imports by a sum of $1,803,442,233. It is plain in view of such a tremendous productive and industrial exploit, that if anything like the same effort is made to overcome debts, and by overcoming debts to bring .about a proper deflation of prices, credits, and circulation, the task will prove well within our powers. Canada's trade while, as in the ease of all countries, subject >to periodical depression has steadily advanced, as the following figures will show: Fiscal Year. Total Trade. 1879 $ 149,489,188 1889 , . .. 196,309,107 1899 304,227,339 1909 548,139,881 1919 2,185,194,620 1920 (unrevlsed) . . .. 2,351,174,886 The increase thus recorded is one which is contributed to practically by all of our productive agencies and is spread over a .wide field. An increase in the basic industry of agriculture may be illustrated by the country's wheat production which has been as follows: Year. Bushels. 1870 16,732,873 1880 32,350,269 1890 42,232,372 1900 55,572,368 1910 132,077,547 1919 193,260,400 As indicating the development which has taken place in the production of our agriculture, forests, mines, and fisheries, and the growth of our manufacturing establishments, I desire to place on record the following statistics: Agriculture Production-Canada. Other Total Year. Field Crops. Farm Produce. Production.1900.. . $ 194,953,420 $169,953,446 $ 364,906,8661910.. , 279,982,334 663,349,1901917.. , 1,14 i,637,000 476,391,000 1,621,028,0001919.. . 1,452,437,000 523,404,000 1,975,841,000Forest Production-Canada. Year. Log Products 1917 Year. and Wood Pulp. 1918 211,301,8971881 . . . . $ 39,540,570 1919 173,075,913* 1901 1911 1919 55,266,368 55,051,865 72,878,051 114,713,655 79,767,938 140,381,584 Mineral Production-Canada. Year. 1889 $ 14,013,113 1899 49,234,005 1909 91,831,441 Subject to revision. Fishery Production-Canada. Fiscal Year. 1879 $13,529,254 1899 1917* 1918* 17,655,254 21,891,706 29,629,169 52,312,044 60,243,429 Calendar year. Manufacturing Industries. Year. Capital Invested. Employees. Value of Products. 1881 $ 165,302,623 254,935 $ 309,676,0681891 353,214,300 369,595 469,847,8861901 446,916,487 308,482 481,053,3751906 846,585,023 356,034 718,352,6031911 1,247,583,609 515,203 1,165,975,6391915 1,994,103,272 514,883 1,407,137,1401917 2,786,649,727 692,067 3,015,577,940 Co-related with the above are certain financial statistics which are interesting. Canadian Chartered Banks. Amount of Fire Insurance Paid-Up Capital Year. and Reserve. 1888 $ 79,218,565 1898 91,197,340 1908 170,885,203 1918 225,508,222 1919 243,912,111 Total Bank Deposits by Year. the Public in Canada. 1878 $ 71,900,195 1888 128,725,529 1898 248,572,085 1908 639,899,365 1918 1,669,597,617 1919 1,841,478,895 Policies in Force. Amount.

Amount of Life Insurance Policies in Force. Year Dec. 31. Amount. 1878 $ 84,751,937 1,888 211,761,583 1898 368,523,985 1908 719,513,913 1918 1,785,061,273 1919 (unrevised) .. .. 2,187,833,396 Year Dec. 31. 1878 1888 1898 1908 1918 1919 (unrevised) .. ..

If the progress of the past be but a fair indication of the future, the problems of to-day and to-morrow may be faced without doubt of a successful issue. During the period covered by the above statistics an immense railway system has been built. In 1879 the mileage of steam railways in Canada was 6,484, and in 1919, 38,896. Steam Railways of Canada. 1879. 1889. 1899. 1909. 1919.Miles in operation . 6.4S4 12,628 17,141 24,104 38,896Tons of freight 8,348,310 17,928,626 31,211,753 66,842,258 116,699,572Gross earnings $19,925,066 42,149,615 62,243,784 145,056,336 382,976,901 A great canal system has also been constructed from bide water to the head of the Lakes at a capital cost of $110,823,237.42 to the country. Large and commodious public buildings have also been erected, with the result that an investment has been made in Government capital accounts of $766,912,802.71, while the Dominion ledger shows .Government investments amounting to $1,078,537,461.27. National Debt. The ledger as of March 31, 1920, shows the country's gross debt to be $3,014,483,774.12.- The capital accounts referred to are not deducted from this debt but the ledger, treating investments as active, deducts them from the gross debt and discloses a net debt of $1,935,946,312.85. Beyond all question it is a matter of importance that the exact position of the country's debt should be clear. While the books are correctly kept and the entries properly made, in my opinion some of the investments cannot be characterized as active investments. They aire shown as follows: Investments, etc., included in calculating Net Debt. As of March 31,1920 Sinking Funds $ 21,385,930.72 Canadian Northern Railway Co. 140,223,373.89 Grand Trunk Pacific Railway Co 95,345,469.19 Grand Trunk Railway Co 1,148,533.33 Loans to Banks 101,065,725.00 Advances to Trust & Loan Cos. 3,850,000.00 Loans to Provinces (Housing) 11,740,000.00 Loans to Provinces (Farmers) 3,500,000.00 Imperial Government 171,710,168.19 Other Governments 34,336,117.75 Miscellaneous Investments. .. 39,314,000.45 Miscellaneous & Banking Acc'ts 175,039,622.61 Cash 173,984,342.34 Specie Reserve 103,597,849.90 Province Accounts 2,296,327.90

Gross Debt $3,014,483,774.12 Less above 1,078,537,461.27 Net Debt $1,935,946,312.85 It is obvious that the advances to the Canadian Northern, Grand Trunk Pacific, and Grand Trunk Railway Companies can- LSir Henry Drayton.] not be treated as active assets. They are not at the moment realizable; further, no interest is being paid, and in some eases the principal as well as interest is overdue. As is well known, Canada is now the owner of the Canadian Northern, receiver for the Grand Trunk Pacific, and steps have been taken for the acquisition of the Grand Trunk. While the railways have potential value, at the present time the fact is that the country itself owns the Canadian Northern and is responsible for the operation of the Grand Trunk Pacific, with resultant heavy cost to the taxpayer. Assets which are not readily convertible, as the specie reserve is, or are not interest producing, are not such assets as ought to be deducted from the gross debt. They are inactive, they are items of such a character as might well be placed in a suspense account. At any rate, whatever may be their future value, however great it may be, they are not assets of such a character as to directly reduce the gross debt any more than the other capital accounts of the country ought to be deducted from it. I would therefore reduce the deductions made from the gross debt by the railway items already referred to, and on the same grounds after making a study of the amounts making up the $39,000,0190 odd Charged to miscellaneous investments, I would reduce that item by $11,015,951.20, and the item, miscellaneous and banking accounts, of $175,000,000 odd by the sum of $56,592,463.12. -While the charge against the Imperial Government is correctly stated as of the above date, beyond all question there are further contra accounts of the Imperial Government which will approximately reduce this credit item by some $33,033,333.34. The result of providing for this contra account and of treating the inactive items as items that ought to go in suspense or capital account is to reduce the investments included in calculating the net debt by $337,359,124.07, and to increase the net debt as shown from $1,935,946,312.85 to $2,273,305,436.92. Inflation. There undoubtedly is in Canada as everywhere else inflation in the price of commodities, inflation in currency, and inflation in credits. Our total issue of Dominion notes on March 31, 1914, was $117,795,718. It reached a peak of $337,319,309 in November 1918 and on the 31st March last it amounted to $311,932,791. Of this amount $128,366,066 is issued against gold. The amount of gold required under the Dominion Notes Act, as amended, to secure an issue of this amount is $90,866,066. Gold to the extent of $100,286,280 is available. $26,000,000 of the remainder of the currency was issued for national purposes under the authority of the Dominion Notes Act 1915, and secured as therein provided. $50,000,000 was issued for the purpose of making advances to the Imperial Treasury and is secured by the pledge of approved securities, and $107,566,725 was issued to the banks secured by approved securities largely consisting of Imperial Treasury Bills and our own Treasury Bills. As a result there has been an increase since March 31, 1914, in the circulation issued by the Dominion of $194,137,073. The banks' circulation on 31st March, 1914, was $96,848,384. In November of the preceding year a high point of $126,839,620 was reached. On the 31st March last it amounted to $225,769,628. As against this increase, in the same period the holdings of the banks in cash reserves (gold and subsidiary coin) rose from $45,661,913 to $79,990,836, and the deposit of Dominion notes and gold in the Central Gold Reserves, earmarked for the redemption of the bank note circulation, rose from $3,500,000 to $108,- 200,000. In addition, the bank holdings in Dominion notes for general reserve purposes rose from $96,227,321 to $184,152,673. Tabulating for purposes of comparison the combined circulation of the country as of March 31st, 1914, and the 31et March last, the result is as follows:- Dominion Note Circulation Bank Note Circulation. . . March 31st, 1914.

March 31st, 1920.

Dess Dominion Notes held in Central Gold Reserves . .. 3,500v000

Gold Held. By Government By Banks In Central Gold Reserves.. .


Per cent of Total Gold to Total Outstanding Circulation .. 67

As the statement shows, the combined circulation of the country amounted on March 31st last to $440,002,420 as against $211,144,102 on March 31st, 1-914, a percentage increase of 108 per cent. Comparing these increases with those of other countries, the Right Hon. Reginald McKenna recently stated that the circulation of Great Britain had increased 207 per cent between 1914 and the end of 1919, while the circulation of the United States, as given in the report of the Secretary of the Treasury, shows an increase of 70 per cent from June 30, 1914, to the -corresponding date in 1919. The circulation of other countries taking a prominent part in the war has increased to far greater percentages. Unquestionably, the currency in light of former gold reserves is inflated. The fact, however, is that the world over currency to an ever-increasing degree is related to movement of commodities, secured by a national guarantee supported by approved securities. This trend was apparent before the war. The best illustration is perhaps afforded by the Federal Reserve legislation of the United States. Under that legislation, currency issued by Federal Reserve Banks requires a gold reserve of 40 per cent and no currency stands higher. Under all the circumstances, bearing in mind that Canada before the war had to borrow abroad to finance her own requirements, hearing in mind that during the war and since the Armistice she has not only financed herself but has- also extended credits to other nations, the situation of the country's currency is very remarkably good. The percentage of the gold reserves to the Dominion and bank note circulation is 43 per cent. The percentage of gold to

the total circulation of Great Britain based on 1919 figures is 26 per cent and of the United States approximately 55 per cent. ; The circulation, large as it is, is all required. The greatest demand that actual circulation has to meet is the pay-envelope. In view of to-day's conditions the world over on a greatly increased wage scale, much more circulation is now required for this purpose. The increased prices of commodities mean that more money must be kept in the tens of thousands of shop-tills all over the country. The constantly increasing demands on the Mint tell their own story. In 1914, 11,770,108 pieces of coinage were turned' out; in 1919, 35,906,003 pieces, and for last march,, 2,677,874 pieces were coined, as against 806,646 pieces in March, 1914. Increased credits have contributed and contributed largely in the first instance to the abnormal increase in the cost of commodities, and to a lesser extent increased circulation contributed to the same result. The cost of commodities under new high standards once having been arrived at, however, if business is to continue in Canada under existing world conditions, both the inflated currencies and inflated credits are at the moment necessary to support it. The high prices in Canada could not be and were not made by Canadian action alone. They are the result of the general trend in the prices of commodities the world over, and to-day were it possible to suddenly deflate Canadian credits and circulation, with the general demand for commodities that to-day exists, the influence on the general situation would be negligible. Prices would continue high and the only_ result to the Canadian public consequent on the withdrawal of purchasing power would he stagnation of business, unemployment, and loss of production. As stated, inflation of credit has more to do with increased buying power and therefore, with that increased buying power, has more to do with affecting the cost of commodities than circulation. It is true that in part these credits are increased by an inflated circulation, but the circulation deposited in banks from time to time plays but a small part of the total deposits. Every credit transaction, every advance made by a bank to a customer inevitably produces a corresponding deposit in the hanks of that customer's creditor or creditors. The net result is to increase bank deposits by the extent of the credit and to increase the liabilities of the hank granting the credit without any corresponding increase in its cash assets. Obviously, if the money advanced is to be applied in a productive agency which would be carried on with a profit and result in a large gain of commodities to the country, there is no inflation. On the other hand, the business situation has been improved. The credit basis which is more vicious than any other basis is that which is given for Government expenditure on non-productive objects and which does not result in any addition to the national production. Every loan for an unproductive purpose that the Government makes, no matter how successful it be, to some extent at any rate increases the credit inflation of the country. It either does it directly, as in cases where money is loaned to loan subscribers by the banks for the purpose of enabling them to take up the Government's securities, or indirectly by taking away from the productive agencies of the country savings which otherwise would be available for them, rendering it necessary for the banks to enlarge credits for essential purposes of production which otherwise would have been met by the savings of the nation. Government borrowing, in other words, has the effect of removing capital, the tool of industry, from its ordinary and legitimate purpose of industry and production. It ought to be noted that in Canada the loan situation is extremely satisfactory. Not only has the great bulk of our loans been subscribed to by our own people but in connection with all our large popular issues not one single bond has been subscribed to by the banks. Canadian banks are not loaded with governmental securities. The increase in bank deposits which has been brought about in Canada is in a very similar ratio to that which has happened in other countries. Our total deposits on 31st March, 1914, amounted to $991,734,246, and on the 31st March last amounted to $1,855,131,598, an increase of 87 per cent. In England, according to Rt. Hon. Mr. McKenna, bank deposits increased 115 per cent from 1914 to 1919, while in the United States an increase of 80 per cent in total deposits occurred between 1914 and 1919. In Canada it may be noted that the Government's war borrowings amounted in round numbers to $2,000,000,000 as against an increase in deposits amounting to $863,397,352. As a result, the increase in pub lie purchasing power gauged by the total currency in circulation and total hank deposits in Canada increased 91 per cent in 1919 over the figures of 1914. In England the increase was 125 per cent and in United States 78 per cent. The commerce of the country still requires ample credits. On the 31st March, 1914, the total of loans made by the Canadian banks amounted to $928,184,060, and on the 31st March last the loans amounted to $1,527,078,232, an increase of 65 per cent, This large sum does not include any advance to the Government. Although the business men of the country and those requiring accommodation are now enjoying this great increase in credits, the fact is that from available resources the banks in Canada as well as in all other countries ought not to meet the full requests made for further credits, apart entirely from the injurious effect credits still further increased would have on the general economic situation. The situation is therefore one in which it is impossible by any direct Government action to bring about deflation either in circulation or in credits without great danger of economic disaster. Inflation can only safely be cured in this as in other countries, by the Government and Provincial Governments stopping further loans, and by all governmental institutions, including municipalities and indeed every individual whose circumstances permit it, reducing expenditure whenever possible and by an increased production in all our forms of productive industry. While the trade figures of the country show advances in the value of our production and exports, and while these figures correctly show our standing and growth as compared with those of _ other nations, the fact must not be lost sight of that these figures are based on the inflated values today obtaining and that expressed in quantities the production of the country instead of increasing has actually decreased. Without wearying the House with statistics, it is sufficient to merely point to the best indicator of trade activities, that is, the amount of tonnage handled by the country's railroad system. Those statistics show that in 1918 our railways handled 127,543,687 tons of freight. This indicates a remarkable activity particularly in view of the fact that many of the country's best workers were overseas and that relatively a very large proportion of our population was withdrawn from agriculture and industry. It is specially significant in view of the fact that in the year 1914, with our men at home, the freight handled only amounted to 101,393,989. tons. The tonnage handled last year, however, only amounted to 116,699,572 tons. Instead of decreasing our production the imperative necessities of the country required that it should be largely increased, not only to assist in financing and carrying on the country's operations but also to assist in 'bringing about that reduction of the present high cost of living which is so much desired. Trade. I have already referred to the aggregate trade for the past year and the favourable balance that has developed over the past five years. The results of the past year require a greater detail. Canada's external trade in 1919-20 resulted in a favourable balance of $220,000,000. The chaotic condition of foreign exchange during the year was not without its influence on our business abroad and tended to complicate the readjustment of international trade. In the United Kingdom-our largest selling market-the Canadian dollar was at a premium ranging from 1 to 22 per cent, while in the United States, where some 75 per cent of the national purchases are made, our dollar has been at a discount of from 2f per cent to 17J per cent. The rate of exchange thus worked against Canada in her chief selling market as well as in her chief purchasing market. An appreciated currency assists national buying in any market, in which it is at a premium, while purchases are made proportionately the more onerous when made in a market where the currency is at a discount. Our total imports from United Kingdom amounted to $126,274,000, which is $53,000,000 greater than in 1919 and very nearly, as expressed in dollars, equalled our pre-war trade with the Mother Country. Her purchases from us totalled $489,000,000, a decrease of $51,000,000 from 1919, the balance of trade being $363,000,000 in Canada's favour. While our exports to Great Britain have fallen off, it should be noted that the 1919 figures included about $170,000,000 for munitions and war materials. To the extent of $120,000,000, therefore, this transient trade has been feplaced by trade of a more permanent character. The increase in imports from Great Britain has been very marked in recent months. They rose from a low point of $5,204,979 in April to $25,555,386 in March, the latter figure constituting not only a record but an extraordinary increase. Figures for the last six months have been as follows:- October $ 8,655,848 November 10,919,282 December 9,888,075

January 16,414,503 February ,. .. 14,953,730 March 25,555,386 The increase in imports from the Mother Country is very gratifying and is very significant. The greatest previous volume of her monthly exports to Canada prior to the war was $14,395,740 in March, 1913. It is to be noted that the good old Mother Country very nearly doubled March last, the greatest amount of exports she has ever sent to this country. Exports to the United States amounted to $464,000,000, increasing by $9,000,000, while imports from that country reached the unprecedented figure of $802,000,000 exceeding 1919 imports by $55,000,000. The year's trading, therefore, resulted in an unfavour. able trade balance of $338,000,000. The volume of imports from the United States is all the more remarkable owing to the fact that for a considerable period of the year the adverse exchange rate which has obtained has added to the extent of the depreciation of our money in New York an additional cost to the Canadian purchaser. It is apparent that the mere question of cost has not weighed very much upon the Canadian buyer. Undoubtedly, the exchange rate is against the interests of our national buying from the United States. If practicable it ought to be remedied but it cannot be properly remedied by any artificial means. It will be remedied and can only be permanently relieved when sterling advances to its normal position and Canada's interchange of commodities with United States is reduced to a more reasonable ratio. The following compilations indicate the trend of our trade both as to imports, exports, and total trade: (1) with all countries; (2) with the United Kingdom; and (3) with the United States, for the last three years and for the pre-war years of 1913 and 1914:- Canadian Trade-Merchandise Only. Imports for Consumption. Exports Domestic and Foreign. Total Trade.Fiscal Year ended March 31st- 1913 $ 670,089,066 618,457,144 962,543,746 916,429,335 1,064,516,177 $ 377,068,355 455,437,224 1,586,169,792 1,268,765,285 1,286,658,709 $ 1,047,157,421 1,073,894,368 2,548, 713,538 2,185,194,620 2,351,174,8861914 1918 1919 Trade with United Kingdom. Imports for Consumption. Exports Canadian Produce. Total.Fiscal Year ended March 31st- 1913: $ 138,741,736 132,070,362 81,302,403 73,035,118 126,274,365 $ 170,161,903 215,253,969 845,480,069 540,750,977 489,151,552 $ 308,903,639 247,324, 331 926,782,472 613,786,095 615,425,9171914 1918 1919 Trade with the United States. Imports for Consumption. Exports Canadian Produce. Total.Fiscal Year ended March 31st- 1913 $ 435,770,081 395,565,328 791,906,125 746,920,654 802,095,452 $ 139,725,953 163,372,825 417,812,807 454,873,170 464,029,273 $ 575,496,034 558,938,153 1,209,718,932 1,201,793,824 1,266,124,7251914 1918 1919

The following: statement indicates the dislocation brought about by the war in our two chief markets. Great Britain and the United States. (Expressed in percentages of the whole.) Pre-War. Post War. Year ended 31st Mar., 1914 Year ended 31st Mar., 1919 Year ended 31st Mar., 1920Canada's Purchases. From United Kingdom 21-35% 63-98% 48-81% 38-85% 7-96% SI-50% 44-20% 37-66% 11-86% 75-44% 38-54% 38-94%From United States Canada's Sales. To United Kingdom To United States Revenue, 1919-20. The revenue for the fiscal year ended 31st March last will when the accounts are finally closed reach approximately $388,000,000. This is the largest revenue that the country has ever collected. Instead of lessened receipts, as conditions at the time the last Budget was prepared seemed to indicate, the revenue of the preceding year has been exceeded by $75,000,000, and the country's revenue for 1920 was no less than $255,000,000 greater than that of the first year of the war. The chief sources of revenue were as follows: Customs ' $169,000,000 Excise 43,000,000 Post Office 22,0*00,000 Business Profits War Tax.. .. 44,000,000 Income Tax 20,000,000 Other war taxation 17,000,000 Expenditure, 1919-20. The consolidated fund ordinary expenditure will be approximately $349,000,000. This sum of $349,000,000 includes $108,500,000 interest on public debt, $26,000,000 for pensions, and $49,000,000 for Soldiers' Reestablishment. For investment and capital outlays, beyond the ordinary current expenditure of $349,000,000, an expenditure of $187,856,991 is estimated. The resultant total is $536,741,110 and represents the outlay of Canada for all purposes apart from war during the past year. With a total revenue of $388,000,000 and an ordinary expenditure of $349,000,000, it will be seen, that during the fiscal year 1919-20 the Government, after meeting all ordinary expenditure, including an increased amount for interest account and pensions over the previous year totalling nearly $39,000,000, has a surplus of approximately $39,000,000 over ordinary ex-158 penditure, to apply to capital expenditure. The demobilization expenditures for 1919-20 will amount to $350,000,000, making a total outlay for the year of $886,741,110. Our total expenditure for the war, up to and including the 31st March, 1920, now amounts to $1,674,000,000, apart altogether from such expenses resulting from the war, as Pensions, Soldiers' Civil Re-establishment, Soldiers' Land Settlement, and interest on war debt. Debt. During the year just passed the country paid off a floating debt of $247,000,000 out of the proceeds of the Victory Loan issue of 1919. The floating or short date indebtedness of the country at the close of the year amounted to only $88,956,000. The addition to the debt during the year amounted to $395,000,000 and the position of the net debt has already been referred to. Expenditures for 1920-21. The Main Estimates for 1920-21 total $537,149,428 and Supplementary Estimates for $12,500,000 for bonus purposes have been tabled, with the question of Main Supplementary Estimates still standing. In the above-mentioned Estimates already brought down certain considerable amounts classified as investments are included as follow's: [DOT] Soldiers' Land Settlement Loans. .$50,000,000 Loans to Canadian Northern Railway Company 48,600,000 For Railway Equipment purposes.. 17,000,000 Loans to provinces for Better Housing* purposes 13,300,000 to which ought to be added $20,000,000 for shipbuilding programme included in the above Estimates as "Public Works (Marine Department), Capital."

The estimated expenditure on ordinary account for the present year is: Main Estimates, $328,500,000 and Civil Service bonus, $12,500,000. Of this, $140,000,000 represents interest on public debt, an increase over 1919-20 of $31,500,000. An estimated expenditure on capital account of $41,000,000 is also included in the total of $549,649,428. There will be no separate Act providing for demobilization expenses this year. The Main Estimates contain provision for $38,463,400 for this purpose and also cover distributed items to the amount of $1,745,624 for services paid out of the demobilization appropriation last year. In order to compare the expenditure proposed for all purposes apart from the war with that of the past year the amount then of $40,209,024 must be deducted from this year's Estimates. As these Estimates are also enlarged by an unescapable increase of $31,- 500,000 in debt interest, it will be found that for comparable expenditures, notwithstanding increased costs of service, a saving of $71,709,024 is indicated. Probable income for the present Fiscal Year, 1920-21. The revenue for the year ending the 31st March, 1921, estimated on the basis of existing fiscal legislation, and assuming that values of importations for customs purposes remain practically the same as for 1919-20, should amount to $381,000,000 as follows: Customs Excise Post Office Government railways for months Business Profits War Tax. Income Tax Other War Taxation All other revenues .$167,000,000 . 43,000,000 . 22,000,000 9 . 28,000,000 . 40,000,000 . 35,000,000 . 17,000,000 . 29,000,000 The revenue from the Government railways for 1919-20 is put at $42,500,000. For 1920-21 only $28,000,000 is taken into account on the assumption that at the end of this calendar year the revenue from Government railways will be under the control of the Canadian National Railways, and applied directly against the working expenses of such railways, which will be correspondingly reduced in our estimate of ordinary expenditures for the year. Including the estimated revenue of $381,000,000, cash on hand and outstanding counts including balances due from Great Britain make a whole total of $720,441,752.88. In all probability the whole of these accounts will not he collected within the year and $571,000,000 will more accurately represent the actual cash resources for the year. No further loan, as already pointed out, ought to be made. In addition to the commitments already mentioned, certain floating obligations mature during the year. They are as follows: Treasury Bills, Oct. 1st, 1920.. $24,605,000 Treasury Bills, Oct. 15th, 1920.. 49,215,000 Debenture Stock, June 1st, 1920. 238,400 Total.. ..$74,058,400 The revenue of the year and cash assets available should at least not only carry current expenditure but retire this debt. Grand Trunk Acquisition. The current expenditure, however, will be greater this year than that already indicated. Deficits on the railway system have been reported in the Main Estimates. These deficits during the readjustment period will be materially increased by the acquisition of the Grand Trunk. The primary object of the acquisition of the Grand Trunk was to render efficient and properly complete the National system. The country had a large railway investment with proper terminal facilities in the West, but, speaking generally, lacking them in the East. The railway burden was also largely increased by the failure of the Grand Trunk Pacific promoted and owned by the Grand Trunk. The country was faced with the necessity either of providing new terminals at great cost in eastern centres, leading to a still greater railroad duplication, or of acquiring the Grand Trunk system. The traffic centres of the East had to be opened to the National system if that system was to be put upon a proper basis and enabled to properly compete in all through-traffic. Over and above this, the Grand Trunk was acquired for the purpose of reducing existing duplication and enabling extensive operating economies to be made. Over and above these considerations, the acquisition of the Grand Trunk was highly desirable in order to prevent the insolvency of the line and the consequent breakdown of railroad facilities in the districts served by that system. Railway receiverships in some instances do not carry with them serious consequences, but in the case of the Grand Trunk a receivership would be exceedingly objectionable owing to the fact that the company's system is composed^ of many separate railway corporations having in instances separate obligations and different creditors, rendering a re-organization as of a completed system very difficult. Such re-organization would be attended with still greater difficulty owing to the fact that part of it would take place under the direction of United States courts and part under the direction of Canadian courts. The dislocation of business would have been exceedingly great and the inconvenience and loss to Canadian shippers and consignees and to Canadian business heavy. Some economies ought to be effected in the near future, but with the arbitration pending it is improbable that full benefit of the Grand Trunk acquisition can be expected in the current year. It will be necessary to make advances to the company to cover past due operating obligations. These advances will constitute obligations of the company and as such must be taken into account in the arbitration. In addition to this, advances of necessity will be made to provide for this year's operations, including the acquisition of necessary rolling stock. The abstract of the company's cash book as of February 21 last shows obligations overdue or shortly payable amounting to $18,710,588, made up in large part of unpaid vouchers, bank overdrafts, drafts held for acceptance and short date notes given for supplies. As against these debts the Grand Trunk has supplies on hand and certain capital accounts as against which no capital issue has been made. They are, however, not of a character which can be relied upon for the purpose of supplying cash to meet these liabilities. The approximate amount to cover advances for the purposes above mentioned is $28,000,000. Railway difficulties and overdrafts ought now to be at their peak. Proper co-ordination and economies will, just as soon as the Grand Trunk arbitration is over, be practicable and will be put into effect. The balance sheet, however, inevitably depends on the cost of carrying on business, which has been very greatly increased, and the general rate schedule. The serious drain made by the railways on the country's finances ought to be materially lessened. As a matter of common justice to Canada it should be stated that the charges of unfairness levied against Canada by different shareholders at Grand Trunk meetings, are unfounded. The simple fact remains that if the Grand Trunk had not been taken over the shareholders in all human probability would have lost their whole investment. It is entirely untrue that the Government forced the company to pay a highly increased wage scale and at the same time 158i prevented it from raising its rates either directly or through the Board of Railway Commissioners. The chairman of the Grand Trunk is reported to have made the following statements at the special general meeting of the company: I knew there were influential men in Canada who thought the policy the Government should pursue was to let us alone, and that the weaker we became the easier we could be dealt with - (hear, hear)-they knew we were being forced by the Government to carry on under impossible conditions-conditions over which we had absolutely no control. What were those conditions? That we should meet every order issued by the Canadian Railway War Board to increase wages by immediate compliance, notwithstanding that no increase of rates to meet the increased expenses was allowed In 1918 an increase of freight rates was granted on a great portion of the freight carried, something under 15 per cent in March and something under 25 per cent in August. Notwithstanding this, owing to a further serious increase of wages being ordered by the Canadian Railway War Board, without any corresponding increase in rates, there was an actual decrease in net profit for 1918. The gross traffic for 1918 amounted to £12,600,000, as compared with £9,800,050 in 1917, or a gross increase of £2,700,000, but the working expenses increased by £2,900,000, or a net loss of £200,000 for 1918. In 1919, the accounts of which are not yet complete, the gross earnings are estimated at £14,000,000, as against £12,600,000 in 1918, or an increase of £1,400,000. Owing, however, to another large increase in wages being ordered by the Canadian Railway War Board-again without any increase in rates-it is not expected there will be any increase in net profit, and consequently the company will only be able to meet its fixed charges. Thus, in each of the three years-1917, 1918, and 1919-in consequence of being compelled, by order of the Canadian Railway War Board, to grant increased wages without sufficiently increased rates, the shareholders lost on the average at least between £1,250,000 and £1,500,000 in each of those three years, which they ought to have received in dividends. The direct imputation conveyed to the shareholders was that the Railway Wat Board was a governmental institution to whose orders railways were subject. It was not. That board was not a statutory body but was an organization formed by the railway companies (including the operators of the Intercolonial) for the express purpose of more perfectly co-ordinating their activities and for the purpose of dealing with large railway questions. The board was organized in 1917. The Grand Trunk's representation was as follows: Mr. Howard G. Kelley, a president, and Mr. W. E. Gillen, chairman of the Administrative Committee. Mr. Gillen subsequently retired and Mr. W. D. Robb, a vice-president of the Grand Trunk, was elected a member of the Administrative Committee. In 1919 the

board was reorganized as The Railway Association of Canada with Mr. Kelley this time as sole president and with Grand Trunk representation on every committee. The 'organization was entirely a railway organization. It was not a Government organization. The organization had, however, no control over railroad rates. The Grand Trunk has American lines as well as Canadian lines. It has traffic originating at American points for Ganadian destinations, The rate for the shorter haul in Canadian territory cannot obviously be greater than the rates on the longer haul for Canadian destinations from American territory. Subject to this consideration, and just as soon as action was taken by the American Commission, every application made by the company for a general increased tariff during the whole of the war period was given effect to, and I am informed by the Board of Railway Commissioners that there is no general application for an increase of rates by the Grand Trunk Railway Company pending or refused, nor was any application of that character pending at the time the meeting was held. The highest dividend distribution of the Grand Trunk amounted to $4,736,241.22. The average dividend payments are much lower without deductions being made for deficits of the Grand Trunk Pacific (the subsidiary of the Grand Trunk and organized by it) which were met by advances made by the Parliament of Canada to an amount in excess of $50,000,000. Luxury Taxes. Not only is more revenue necessary but extravagant and luxurious expenditure ought to be checked. Just so long as expenditure on non-essentials and extravagant expenditure continues, just so much longer will the drop in the value of essentials be postponed. On those having income more than necessary for properly maintaining themselves and families, there rests a special duty of saving whenever possible and in this manner adding to the available financial resources for development and for industrial undertakings. Extravagant buying should stop. With this end in view, as well as for necessary revenue, it is proposed to levy on certain specified articles excise taxes which are to be paid by the purchaser to the vendor at the time of sale for consumption or use, or on importation for consumption or use other than resale. Upon certain articles of wearing apparel, such as boots, shoes, etc., in excess of $9 a pair, men's and boys' suite in excess of $45 each, fur coats and robes in excess of $100 each, women's dresses in excess of $45 each, women's suits in excess of |60 each, men's and women's overcoats in excess of $50 each; hats, hose, neckwear, shirts, purses, and gloves bought above specified prices, and on fans and opera cloaks, it is proposed to levy a tax of 10 per cent of the total purchase price. The women are given a little preference over the men because men's suits in excess of $45 will 'be taxed, whereas women's suits up to $60 will be exempt from taxation.

May 19, 1920