May 1, 1936



Walter Edward Foster (Speaker of the Senate)



On Monday last the hon. member for Temiscouata (Mr. Pouliot) was asked by me, as Speaker of this house, to withdraw a statement which he made concerning the leader of the opposition (Mr. Bennett) and which the right hon. gentleman denied. The hon. member utterly refused to conform to my ruling and went as far as to defy the chair by saying:

If I am wrong, I will withdraw; if I am not wrong. I will not withdraw.... I will see the book before withdrawing.

He walked out of the house while repeating this statement. In doing so he offended not only against parliamentary practice but also against the proprieties of the House of Commons.

It is my duty as Speaker to keep intact the rutes of debate and to safeguard the dignity of the Chair. I have waited a few days before taking action because I felt the hon. member for Temiscouata would realize the gravity of his conduct and take the first opportunity to make the withdrawal asked by the chair.

I note in the official debates that he was willing to withdraw his statement in committee of the whole yesterday but was prevented from doing so by the chairman who rightly decided that, the offence having been committed in the house, retraction must be made when the Speaker is in the chair.

As a refusal to yield to the Speaker's authority is a serious matter which cannot be overlooked, I must insist on the hon. member for Temiscouata withdrawing the statement he made regarding the right hon. leader of the opposition, and I trust that in his desire to ensure the true observance of parliamentary practice he will do so in good grace. Unfortunately I do not see the hon. member in his seat, but I hope the next occasion he is in the house he will abide by my ruling and make a retraction accordingly.

The Budget-Mr. Dunning




Hon. CHARLES A. DUNNING (Minister of Finance) moved: That Mr. Speaker do now leave the chair for the house to go into committee of ways and means. He said: Mr. Speaker, I rise to address you to-day, sir, not only with a due sense of the high privilege which is mine, but also with a deeper sense of grave responsibility than I have ever felt before. In times such as these through which we are passing, the responsibility of endeavouring to place before the house and the people of this country a clear and complete statement of the economic position of Canada, the facts regarding our governmental finances, and proposals for meeting the situation thus revealed for the present fiscal year, is unusually great. I know I shall not ask in vain for the sympathetic attention of all my fellow members, although the presentation of figures will inevitably be [DOT]ather trying to the patience of the house. Before dealing with the government accounts I propose to survey briefly the recent trends of business and trade in Canada. The most welcome feature in the fiscal year which has just closed has been what it indicates of a movement toward recovery. I do not wish to exaggerate the extent of that recovery, for to those who are charged with responsibilities of government in these hard days the distance yet to go and the problems still to be solved are the features of our economic record which are most impressive- and at the same time most distressing. Nevertheless, one cannot view the picture broadly without realizing that improvement-however gradual-is real and steady, and that the general undertone is one of definite strength. In spite of prevailing uncertainties in the international political outlook and the persistence of extreme nationalistic policies, the pressure of the economic forces making for recovery continues. These forces may be retarded but they appear now to be sufficiently powerful to *make continuing progress, unless war, the great destroyer, should again intervene. Analysis of the Canadian figures indicates that our past gains are being consolidated and that the upward swing of the business cycle is currently establishing higher levels of activity generally throughout the industrial and commercial field. The index of the physical volume of business compiled by the Dominion Bureau of Statistics to indicate the broad movements of economic activity, stood at 103-3 in March of this year as compared (Mr. Speaker.] with 94-2 for March of last year. This is an improvement of approximately 10 per cent. However, to appreciate fully the significance of this improvement, one should compare the present level of 103-3 with the figure 67-0 which was the level recorded at the low point of the depression in February, 1933. In other words, the increase during this period has been over 54 per cent. The average level of this index in each of the past three calendar years was 79-7, 94-2 and 102-4. These increases are impressive, particularly when one recalls that this index measures the physical volume of output in nearly all our leading industries as well as freight traffic on our railways, building activity and domestic trade. While I desire to avoid complicated statistics as far as possible, it is necessary to refer to the progress made by a few of the more important Canadian industrial groups. For the first three months of this calendar year, 1936, manufacturing of all kinds showed an average expansion of 8-5 per cent over the first quarter of 1935. Within this broad field, the substantial improvement in the output of the primary iron and steel industry is particularly heartening. In the latter half of 1935, this industry showed striking advances, steel output increasing 23 per cent and pig iron 48 per cent over 1934, and the improvement was continued during the first quarter of 1936, notably in January. This, in itself, is important, but it is especially significant as indicating a broadening out of the recovery movement into the heavy or durable goods industries. The construction industry, while still operating on abnormally low levels, enjoyed substantial percentage gains in 1935 over 1934, and the present outlook for building appears to be the best in several years. The forestry group of industries showed marked expansion in 1935. Lumber production on the Pacific coast was about 20 per cent greater than in 1934 and reached the highest point since 1929. Shingles found better markets abroad and exports increased 96 per cent. The newsprint industry, although still beset with abnormally low prices and financial difficulties, increased production to new record levels. Perhaps the most satisfactory evidence of improvement in this whole group of industries is found in the increase of employment afforded by the industry-8 per cent in lumbering and 4 per cent in pulp and paper plants. The mineral industry continues to establish new records of output. Canada's mineral output, valued at over 308 million dollars in 1935, recorded a gain of 11 per cent over the previous year and was only 1 per cent below the record year 1929 when prices for most metals were higher. Production of gold, The Budget-Mr. Dunning copper, nickel, zinc and several of the minor metals made new high records. Total output of gold amounted to 3,283,000 fine ounces with a total value at current market prices of nearly $115,000,000. Increase in mineral output continued unabated during the first quarter of this year. In February, for instance. the export of copper was greater than in any other February, and exports of nickel exceeded any other month in history, the bureau's index standing at 490-2 as compared with 317-9 in February, 1935. Unfortunately, our most important primary industry cannot boast such results. Agriculture has again suffered from climatic hazards, restricted markets and low prices. According to the bureau's estimates, total farm revenue in 1935 amounted to $943,081,000, an increase of less than one per cent as compared with the previous year. Most disappointing was an 8 per cent decline in the value of the principal field crops, chiefly as a result of the price factor. Wheat prices were generally higher than in 1934, but the low grading resulting from rust and frost reduced the value of the crop to about that of the previous year. Increases in yield of oats and barley were more than offset by reduced prices. On the other hand, the contribution of animal products to farm purchasing power more than made up for the loss in field crops. The live stock industry showed considerable improvement. Higher marketings of cattle and better prices increased the value of live stock sales in 1935 by 22 per cent. Milk prices improved somewhat and exports of hog products to Great Britain expanded. The prairie provinces shared in the better returns from cattle and milk and a more uniform distribution of farm income prevailed than in 1934. In this connection I may point out that the advantages of access to wider markets to the south are already being realized. Three months' operation of the recent trade treaty offers evidence of its value to the farmers of this country. Every step which helps to provide markets for agriculture brings nearer that day when the Canadian farmer, receiving more for his products than it costs to produce them, will once more provide, through the stimulus of his purchasing power, a sound basis for national prosperity. My colleague, the Minister of Labour (Mr. Rogers), has recently placed on Hansard comprehensive statistics in regard to the numbers of unemployed in various classifications. One of the most disappointing features of the business improvement so far is that the numbers of those on relief do not decline at the same pace as business activity recovers. The causes of this are chiefly to be found in the continuing growth of population bringing annually a new supply of workers into the industrial field, the customary initial effects of invention of new machines and processes, the gradual decline in the number of those unemployed or dependent who are taken care of by charity or by relatives, and the surplus labour power employed by many corporations which preferred to retain redundant staff or to work short time rather than to dismiss employees during the years of depression. While for these reasons, expanding employment makes only slow progress in reducing the numbers on the relief rolls, nevertheless the increase in employment appears to be real and substantial. The bureau of statistics tabulates monthly statements on employment from over 9,000 of the larger firms engaged in manufacturing, logging, mining, transportation, communications, construction and maintenance, services and trade, and employing some 45 per cent of the total persons at work in all industries. From 93-4 on April 1, 1935, the index for all industries rose to a peak of 107-7 on November 1, an increase of 15-3 per cent, and with the usual seasonal decline during the winter months the index stood at 97-4 on April 1 this year, an increase of 4-3 per cent over April 1 a year ago. The index for manufacturing industries rose 10-2 per cent from April to November and on April 1 this year was still about 8 per cent above the level of the same date in 1935. Supplementing this information it is encouraging to note from data published by the Department of Labour that remuneration to wage earners in 1935 was greater than in 1934 as a result of increases in various industries and localities. Part time and short time work were less prevalent. In logging, wages advanced generally throughout the maritime provinces and Quebec, while in Ontario and British Columbia rates had risen considerably in 1934. In coal mining, wages increased appreciably in Nova Scotia and Alberta, and there were some increases in metal mining wages. Improvement was also witnessed in manufacturing, particularly in clothing and furniture factories. Rates were raised in the construction trades in Quebec and Ontario, and railway wage rates also increased. Longshoremen's wages rose in most of the ocean ports and in some of the lake ports. Common factory labour was up 2-4 per cent, miscellaneous factory trades 2-3 per cent, and logging and sawmilling 5 per cent. One of the most important signs of a more healthy business condition is that industrial and commercial earnings are continuing to show improvement. An analysis of the record of earnings of 241 leading Canadian corporations discloses that net earnings are about 8 per cent greater for the latest fiscal year The Budget-Mr. Dunning

than for the previous fiscal period. When business is showing an increasing scale of earnings there are excellent grounds for anticipating further industrial and commercial improvement with increased volume of smployment. A very interesting feature of our Canadian economy is the remarkable degree of stability in the price level during the last two years. For March the bureau's index was 72-4 as compared with 71-9 a year ago, and since February, 1935, the range of variation from the line of 72 per cent of the average level of prices during 1926 has been extremely small. Further progress, however, was made during the year in correcting some of the disparities between various types of prices created by the irastic fall in the price level during the iarly years of the depression. One important feature of this corrective process was that farm product prices, particularly the prices of animal products, improved more rapidly than the general level. It is of vital importance that this corrective process should continue. One price whose falling tendency is watched with considerable enthusiasm in many quarters is the cost of money; in other words, the rate of interest. In this case, of course, the decline is a favourable factor. This factor is usually measured by the yield on long term bonds. The bureau computes an index of the yield on long term Dominion of Canada bonds, using the average monthly yield for 1926 as the base or 100. The course of this index during the past year provides an interesting record of the investor's reaction to enactments or threatened enactments by provincial legislatures, to administrative decisions, to official pronouncements by radio or in the press or on the public platform, and to the manifold other hazards that may affect the capital markets. It bears eloquent testimony to the oft-repeated saying that capital is timid. Beginning at 70-9 in January the index of interest rates rose to 73-2 in February, dropped to 7T4 in March, rose to 72-2 in April, declined to 71-4 in May, rose to 73-4 in June, declined to 71-6 in August, then rose sharply to 79-8 in September, and thereafter with a slight interruption in December dropped steadily to 69-9 in March, the latest month for which the index is available. The March index is the lowest rate of interest figure recorded since the bureau began compiling this series in 1919 and probably represents the lowest yield on long term funds in the history of our country. Considering also the steady decline in the yield on our three-months treasury bills-our latest issue of these bills was sold on April 15th on a yield basis of approximately seven-eighths of one per cent and I should interject here that another issue was sold yesterday at the slightly higher rate, if my memory serves me correctly, of just over nine-tenths of one per cent per annum- we have ample evidence of the progress which the dominion has made in securing that stimulus to economic recovery through low interest rates which has been so important a factor in the United Kingdom. Unfortunately, these low rates are not available to all borrowers, particularly the most needy ones who are not usually considered the most credit-worthy. Nevertheless the low rates are beginning to permeate the interest rate structure as a whole. One evidence of this is the increasing volume of security flotations, not only by governments but also by private corporations, both for refunding and for new capital purposes. In 1935 the total volume of new issues offered has been estimated at 571 million dollars, an increase of 83 million dollars over 1934. Of this total, 325 million dollars were for refunding and the balance for new capital purposes. During the first quarter of this year, activity was greatly accelerated. In this period total new Canadian bond financing amounted to 241 million dollars, an increase of 180 million dollars over the first quarter of 1934. Of this total 70 million dollars were for refunding purposes. It is also significant that financing by corporations accounted for 105 million dollars or over 43 per cent of the financing of the first quarter of 1936 compared with 9 million dollars or less than 15 per cent for the first quarter of last year. One faictor retarding the full revival of confidence and the healthy functioning of the capital markets has been the cloud of uncertainty which has been overhanging the financial position of several of the provinces. It is revealing no secret to say that the credit of the four western pi-ovinces has been maintained during the last few years only by the financial support of the dominion. Despite the efforts-in some cases, the heroic efforts- of these provinces to cut expenditures and increase revenues, the burden of unemployment relief added to heavy interest charges on outstanding debt has been so heavy and the taxpaying ability of the people reduced so drastically by the economic conditions which prevailed that it has been impossible to provide out of taxes for the cost of unemployment relief, and even in some cases for a portion of ordinary governmental expenditures. In view, in part, of their own financial position and in part of conditions in the investment market, particularly in the early The Budget-Mr. Dunning years of the depression, these provinces have not been able to borrow economically, in the public markets. Whether wisely or not, the dominion government of the day faced with what it regarded as an emergency problem, initiated the policy of making loans to these provinces in order to enable them to meet their share of relief costs, maturing obligations, and in some cases even ordinary governmental expenditures. As I shall show later, such loans now amount to $116,500,000. It has long been clear to everyone, I believe, that this process can not go on indefinitely. We are rapidly reaching-if we have not already reached-the impossible position where the dominion government will be the largest single creditor of these provincial governments. Moreover, if we continue this process of handing out funds without security and without control of any sort, we shall be in danger of undermining dominion credit, which, in my opinion, must be protected at all costs. Recognizing the importance of this problem, the government has for the past six months been devoting a great deal of time and attention to working out a solution with the cooperation of the provinces. It was one of the major questions placed on the agenda of the dominion-provincial conference in December last, and initial discussions at this conference led to the appointment of a continuing committee on financial questions which held sessions in January and again in March. During these discussions, agreement was reached on a general method of procedure. The dominion undertook to initiate an amendment to the British North America Act which would (1) validate certain taxes now imposed by one or more of the provinces and give the provinces power to levy a tax on retail sales, thus providing an enlarged and more elastic provincial tax structure; and (2) enable the dominion to guarantee existing or future debts of a province as well as enable a province to give the dominion adequate security for such guarantee by the pledge of dominion subsidies and, if necessary, other specific revenues. If and when these enabling powers should be secured, the dominion undertook to sponsor legislation providing for the setting of up (1) a national finance council, which would consist of the dominion Minister of Finance and the provincial treasurer of each province, with the governor of the Bank of Canada as technical adviser, and which would provide a permanent mechanism for mutual discussion of taxation, investment and other financial problems, with advisory powers only; and (2) individual loan councils which would consist in each case of the dominion Minister of Finance and the treasurer of the province desiring to participate, with the governor of the Bank of Canada as technical adviser, and which would have power both to approve any program providing for refunding of the debt of a province under dominion guarantee and also to supervise future borrowing by such province. Dominion guarantee would be available to the province only when loan council approval to the proposed issue of securities had been obtained. Moreover, no compulsion was involved; the legislation contemplated would merely provide machinery which any province might take advantage of if it considered it to be in accordance with its own interests. Since March 31 the government has not had any statutory authority to make loans or give guarantees to any province and even in the relief bill which is now before parliament such authority as is being asked for relates only to loans, advances or guarantees in connection with relief measures or undertakings. It is not proposed, except through loan council legislation, to ask parliament for authority to grant financial assistance to enable a province to meet a maturing obligation or to provide for other ordinary governmental expenditures. Provincial obligations that have matured in recent weeks or are about to mature have led to extended discussion with the interested provinces. The correspondence exchanged with the province of Alberta has been tabled. That record speaks for itself. In brief, the federal government has taken the position that not only must it have adequate security for the financial assistance which it is called upon to give but also that the dominion government must be in a position to determine the extent to which and the conditions under which dominion credit is made use of now and in the future. It was a matter of great regret to us that the government of Alberta did not see its way clear to accept the conditions under which alone our assistance could have been made available. The province of Saskatchewan, which has an issue maturing to-day, May 1, has expressed a willingness to participate in the loan council arrangement and with the understanding that the dominion will proceed with its legislation, the province, I am advised, has made arrangements with the Bank of Canada to enable it to meet this maturity. I am also advised that the province of British Columbia will be able to redeem its obligation falling due on May 15 without recourse to outside assistance. The government believes it essential to provide the necessary machinery for any province that may deem it desirable to take advantage of the facilities I have outlined. The government will therefore proceed with the resolution now on the order paper The Budget-Mr. Dunning

designed to initiate the proposed constitutional amendment, and thereafter with the legislation providing for the establishment of loan councils and a national finance council. I may add that after the most careful consideration we are prepared to recommend certain modifications to the loan council arrangement originally suggested. These modifications would make it possible for a province which had submitted a borrowing proposal to the loan council, and which had not obtained the council's approval, to make such offering on its own credit in the domestic market. Approval of the loan council, however, would be mandatory for all external issues and also for domestic issues in those cases where the outstanding debt of the province is refunded under dominion guarantee. These changes, it is believed, will make the arrangement more acceptable to some of the provinces and still make it possible to secure the primary objectives which the dominion has in mind. I might advise the house that the modification to which I have just referred is being communicated to all the provinces, particularly those primarily concerned, and of course will have their consideration, and we shall hear from them with respect to it before very long. I trust that the position which the government has taken in these matters and the action which it proposes to take will commend themselves generally to the good judgment of members of this house. The record of Canadian securities in the investment markets of the world has been a most enviable one. It would be unfortunate if that record were seriously marred at this late stage when the outlook appears to be for continuing recovery and a probable rise in the world price level which will ease the burdens of debtor classes and debtor communities. The arrangement which we contemplate should provide a method for reducing interest burdens in a way acceptable to creditors. It should provide a means whereby provinces, fully cooperating, may restore their credit and place themselves in a position gradually to secure necessary funds for justifiable capital purposes. It should provide a regular and permanent mechanism for the mutual study, with expert assistance, of the difficult, technical financial problems with which all governments are faced. It should make for an avoidance in future of some at least of the costly mistakes made by dominion and provincial governments alike in the past, the continuing burden of which has made it so difficult to assume the new burdens of the present prolonged depression. It is our hope that the arrangement which is now offered will appeal to all provinces which find it impossible economically to finance their own requirements. We are convinced that it will remove a factor which is now retarding economic recovery. As long as we have an economy based on private enterprise-based on the willingness of thousands of individuals to make commitments for the future in the hope that profits will . accrue-so long will the factor of confidence play an important part. As long as fear of the safety of investments or uncertainty in any form persists, private enterprise will not go forward vigorously. We in Canada are powerless to remove the uncertainties in the world political outlook which unfortunately have been aggravated in recent months. We are in duty bound, however, to endeavour to remove all those factors in our domestic situation which tend to retard economic recovery.


I turn now to a brief outline of the trends in our external trade. It is not putting it too strongly to say that foreign trade is the very life-blood of Canada. We have seen only too clearly in recent years the appalling effects on our internal economy' of the decline of international commerce to about two-thirds of its former physical volume. The fruits of economic nationalism in reduced business activity, shrinking governmental revenues and widespread unemployment are such as to justify in abundant measure the efforts which the present government has made, and will continue to make, to free the channels of international trade and expand the markets for our primary and other industries which must otherwise suffer stagnation and drastic readjustment. A start in this direction has already been made with the negotiation of a trade agreement with the United States. The conclusion of this agreement is probably the most significant step taken by two leading trading nations to reverse the trend of economic nationalism. Not only does the agreement open up wider markets for the products of each country, but it is also hoped that it will serve as a lead to other countries and thereby promote progressive lowering of the barriers which have been damming up the trade of the world. Such a movement would be of the greatest value to Canada, the prosperity of the whole dominion being so largely dependent on export outlets for the disposal of our surplus production. The Budget-Mr. Dunning An adjustment was also made of the difficulties which had arisen in relation to our trade with Japan. Without foregoing the safeguards necessary to legitimate Canadian enterprise, we succeeded in securing the cancellation of the duty surtaxes on a number of important products for which Japan has been a valuable customer. Other steps taken to promote our export trade have been the extension of the trade agreement with New Zealand, which was due to expire on November 24, 1935, for a further period until July 31, 1936; an exchange of notes with France providing for certain adjustments in duties and quotas to supplement the agreements which had been concluded with that country; and the extension of the modus vivendi with Haiti whereby Canada is guaranteed the minimum tariff of that country for a further period of one year from April 15, 1936, or until the entry into force of a trade agreement, proposals for which have been submitted to the Haitian government. Canada has long enjoyed profitable and pleasant trading relations with Belgium, and is anxious to strengthen our traditional friendship with that country. Representations having been made by the Belgian government that the specific duties imposed in 1935 on dressed and dyed rabbit skins have had the effect of very seriously curtailing exports of these to Canada, the government has decided to remove the duties in question, and to revert to the ad valorem rate formerly effective. In consideration of this treatment, I may say to hon. gentlemen who are smiling, the Belgian government has agreed to remove the turnover tax which for some time has been imposed on Canadian goods imported into that country and, also, to classify as cheddar the cheese received from this dominion. These concessions, the removal of the heavy turnover tax in particular, should stimulate our exports to Belgium in many lines of goods. The government continues to give careful study to our trade relations with other countries having in view a steady increase in opportunities for the sale of Canadian exportable products. It may be expected that steps will be taken in the near future to enter into active negotiations for the conclusion of trade agreements with several important countries, in accordance with the policy of the government to bring about by the negotiation of bilateral agreements the progressive removal of the hindrances now hampering our international trade. Serious attention is now being given to our trade relations with the most important of our customers, the United Kingdom. I am happy to be able to state that discussions will shortly take place between representatives of the two governments. I shall make more extended reference to this matter when discussing tariff changes. I am pleased to be able to report, for the fiscal year just ended, an important gain in our total trade with other countries, amounting in round figures to 152 million dollars. This is an increase of 12-8 per cent over the previous year. It is true that world trade generally has improved during the past year, but it should be noted that while the average increase in trade of 24 leading countries in the calendar year 1935 was 4-1 per cent our own trade increase was 1T3 per cent. As a result of this marked expansion in our foreign commerce Canada has moved up from eighth to sixth place among the nations in total world trade. A statement of total trade for the twelve months ended March 31, 1936, with comparative figures for 1935, follows: Imports Exports: Canadian produce Foreign produce.. Trade of Canada (excluding gold coin and bullion) Fiscal year ended March 31,1935 March 31,1936 $ 522,416,844 $ 562,803,001 .. .. 659,899,994 765,615,563.. .. 7,658,963 13,441,659$1,189,975,801 $1,341,860,223 Increase $ 40,386,157 105,715,569 5,782,696

Both imports and exports shared in the increase, but while imports rose by 40-4 million dollars, a gain of 7-7 ,per cent, exports were 111-5 million dollars higher, having increased by 16-7 per cent. This expansion of our exports gave us, for the year, a favourable balance of trade of 216 million dollars. This is the fifth successive yearly balance in our favour and is the largest since 1927. The importance to be attached to a favourable balance of trade must, of course, be considered in relation to total trade. The figure for the balance of trade just mentioned does not include our exports of gold-the usual practice among nations being to show this item separately because of its

The Budget-Mr. Dunning monetary use. With us, however, gold is a commodity and a very important part of our regular export trade. In the fiscal year just ended the adjusted estimate of our gold sold abroad was about 119 million dollars. By adding this to the merchandise balance of 216 million dollars already referred to it is seen that the total balance of commodity trade for the fiscal year just ended was 335 million dollars in our favour. Our tourist trade is also an extremely important credit item in Canada's international account. Preliminary estimates for 1935 show tourist expenditures in Canada of about 201 million dollars against Canadian expenditure in other countries of about 91 million dollars giving us a net credit balance in tourist traffic of about 110 million dollars. The house will see, therefore, that, if to our credit balance of 335 million dollars on merchandise and gold we add the net figure of 110 million dollars from tourists, the total balance in our favour from these items is 445 million dollars without taking into account the movement of securities, Canada is thus in a strong position with respect to payments which must be made abroad on account of our foreign financial obligations. Obviously there is here a solid foundation supporting our dollar in the foreign exchange market. Upon analyzing our export trade, it is found that the United Kingdom is still our largest market having taken 293 million dollars or 41i per cent in value of our goods exported in the eleven months ended February 29, 1936, which is approximately the same proportion of the total as in the previous similar period. The British empire as a whole purchased 362 million dollars worth, which was 15i per cent more than for the same eleven months a year ago. Within the empire the increased purchases from us were distributed as follows; the United Kingdom 15-6 per cent, Australia 35-1 per cent, New Zealand 28-7 per cent, and South Africa 7-1 per cent. Exports to British India decreased by 17-2 per cent. Not only do our increased exports bear witness to the steady growth of our trade with empire countries, but the same trend is also revealed in the figures of our purchases from these countries. While our exports to empire countries gained by 48-5 million dollars, our imports increased 19-4 million dollars or 13J per cent in the eleven months period. This increase in imports from British countries was shared as follows: the United Kingdom 5-4 per cent, Australia 16 per cent, British India 13-4 per cent, New Zealand 21-7 per cent, and South Africa 41-3 per cent. Figures showing trade with the United Kingdom and with other empire countries in the eleven months ended February 29, 1936, and in the previous year are as follows: Trade of Canada with Empire Countries (excluding gold coin and bullion) - Eleven months ended Feb. 28,1935 Feb. 29, 1936 Imports from the United Kingdom Exports to the United Kingdom Imports from the British Empire Exports to the British Empire $102,602,618 253,488,637 143,989,314 313,665,822 293,002,334 163,429,300 362,178,462 $108,177,173 Turning now to foreign countries, our trade with the United States is of particular interest following the recent agreement. Exports to the United States for the full year ended March 31, 1936, amounted to 291-3 million dollars as compared with 230-8 million dollars for the previous year. This is a gain of 60-5 million dollars or 26-2 per cent in our exports to the United States. Thus out of a total increase in exports for the year of 111-5 million dollars over 54 per cent of the gain was accounted for by additional sales to the United States. While it is too soon to expect to have realized the full expansion of trade which is expected to follow from the agreement, the latest monthly figures clearly indicate a growing volume of goods moving in both directions across the border. Exports to the United States for the three months January, February and March of this year totalled $70,868,053 as compared with $57,061,713 for the same three months of 1935. This is a gain of 24-2 per cent for the period. Imports from the United States for the full year just ended were $319,610,706 which is an increase of 16 million dollars over the preceding year. 7-2 million dollars of this increase were recorded in the first three months of this year under the operation of the trade agreement. Over 56 per cent of our imports come from the United States. At the same time they take only 37 per cent of our exports. From empire countries we purchase about one-third of our imports and sell to them just over one- The Budget-Mr. Dunning half our goods exported. Approximately 89 per cent of our total trade is with the British empire and the United States. There is in this brief survey of our foreign commerce much to cheer us, and I believe this steadily expanding trade with other countries testifies strongly to the fundamental soundness of the movement toward recovery in Canada. Turning now to the government accounts, may I state that, while the fiscal year ended on March 31, the final accounting has not yet been completed. Consequently, minor changes, and minor changes only, may later be made in the figures now given. I trust the house will allow for my difficulties in dealing with a fiscal year seven months of which had elapsed before the present government came into office. We were faced with the commitments of our predecessors, which, in large measure, prevented important changes in financial policy during a year more than half of which had already passed. In order to simplify the presentation of the accounts, I shall, with the permission of the house, now place on Hansard a number of tables showing the usual five-year comparisons of revenues and various classes of expenditure. This will enable me to present a clearer explanation of a technical and complicated series of accounting and statistical facts. The tables follow: Statement of Revenues for the last Five Fiscal Years (000 omitted) Tax Revenues 1931-32 1932-33 1933-34 1934-35 Estimated 1935-36$ 104,133 70,073 $ 66,305 $ 76,562 $ 74,00048,655 37,834 35,494 43,190 44,410War tax revenues- 1,390 1,328 1,336 1,368 1,30512 826 742 750 7603 61,255 62,067 61,399 66,808 82,70041,734 56,814 61,392 72,447 77,000Manufacturers' importation, stamp, transporta- 17,872 25,377 45,184 39,745 35,7003,573 1,413 275,054 254,319 271,852 304,443 317,288 Non-Tax Revenues 1,485 1,445 1,236 1,205 1,21974 74 56 47 49977 831 878 838 8833,758 3,192 3,613 4,337 4,37210 9 6 6 6485 459 419 516 455402 298 440 485 530234 212 178 90 19940 5 39 43 4181 84 76 96 91150 160 149 139 1479,330 11,221 11,148 10,963 10,600192 178 208 218 223184 180 188 181 18920 20 20 20 20163 166 165 174 17214 17 18 16 15525 539 429 426 450166 121 98 74 6032,235 30,928 30,893 31,248 32,507146 752 50281 213 250 254 241529 1,414 1,291 1,487 1,56215 12 12 9 9407 394 400 407 40251,757 52,318 52,210 54,031 54,492326,811 306,637 324,062 358,474 371,780 Special Receipts 7,028 4,493 418 3,397 320 Total revenues 333,839 311,130 324,480 361,871 372,100 The Budget-Mr. Dunning

Statement of Expenditures by Departments for the last Five Fiscal Years (000 omitted) Ordinary Expenditures 1931-32 1932-33 1933-34 1934-35 Estimated 1935-36Agriculture $ 10,212 8*066 0*996 7* 107 $ 9,703Auditor General's office 436 380 376 377 428Civil Service Commission 306 244 221 221 260External Affairs, including office of the Prime Minister 994 863 974 1,427 1,324Finance- Interest on public debt 121,151 134,999 139,725 138,533 134,550Cost of loan flotations Premium, discount and exchange (net) 1,350 728 1,639 2,550 167 2,890 3,575Subsidies to provinces 13,695 13,677 13,728 13,769 13,769Special grants to provinces 1,600 1,600 1,600 1,600 3,975Other grants and contributions 536 499 398 467 761Civil pensions and superannuations 1,172 1,098 1,032 943 868Government contribution to superannuation fund 2,229 2,270 1,986 1,947 1,875Old age pensions 10,032 11,513 12,314 14,942 16,760General expenditure 1,845 2,046 3,148 3.925 3^724Fisheries 2,046 1,787 1,596 1,641 1,727Governor General's secretary's office 148 136 136 133 137Immigration and Colonization 2,200 1,689 1,369 1,269 1,334Indian Affairs 5,081 4,499 4,380 4,362 4,886Insurance 180 161 152 156 171Interior 4,647 3,454 2,833 2,744 2,952Justice 2,793 2,691 2,712 2,718 2,753Penitentiaries 2,737 2,870 2,677 2,007 2,477Labour 633 605 560 581 662Technical education 283 202 129 91 100Government annuities-Payment to maintain reserve 262 289 184 146 272Legislation- House of Commons 1,982 2,210 986 1,796 1,505Library of parliament 81 65 69 71 77Senate 650 747 286 491 491General Dominion Franchise office 79 81 62 95 1,545 146 60 503 1,093Chief Electoral office including elections 145 56 32 Marine 7,262 5,801 149 1,048 5,439 1,025 909 5,742 1,249 965 5,959 1,510 1,102Mines and Geological Survey 1,264 Movement of Coal and Domestic Fuel Act 721 1,220 2,772 2,124 2,055National Defence- Militia service 9,700 8,719 8,774 8,853 10,197Naval service 3,043 2,167 2,171 2,222 2,379Air Service 4,040 1,731 1,685 2,258 3,805Sundry services 1,347 1,078 791 799 825National Revenue, including Income Tax 13,920 10,846 10,354 10,165 10,983Pensions and National Health- Treatment and after-care of returned soldiers.. 11,633 10,510 9,571 10,127 11,328Pensions, war and military 47,770 44,185 42,923 43,232 42,870Health Division 1,246 924 802 809 879Post Office 36,052 31,607 30,554 30,252 31,607Privy Council 53 47 49 46 47Public Archives 212 174 157 209 162Public Printing and Stationery 289 231 172 368 168Public Works 17,648 13,108 10,827 9,905 12,951Railways and Canals 3,997 3,667 3,315 4,581 4,305Maritime Freight Rates Act 2,555 1,921 1,989 2,529 2,352Railway grade crossing fund 959 318 310 275 128Royal Canadian Mounted Police 3,488 5,820 5,528 5,970 6,192Secretary of State 483 418 3.87 389 704Soldier Settlement 1,036 818 810 746 761Trade and Commerce- Department 6,417 3,277 3,007 3,058 3,528Canada Grain Act 2,306 2,026 1,759 1,679 1,852Mail subsidies and steamship subventions 2,999 2,081 2,221 2,274 2,431Adjustment of war claims 91 1,331 50 55 188 56 48 6 71Sundry charges to consolidated fund 74 37 20 4Total ordinary expenditure 372,145 354,644 351,772 359,700 373,987

The Budget-Mr. Dunning Statement of Expenditures by Departments for the last Five Years-Continued (000 omitted) Capital Expenditures 1931-32 1932-33 1933-34 1934-35 Estimated 1935-30$ 3,299 6,242 7,439 $ 3,027 1,503 4,018 $ 1,975 737 3,778 $ 331 507 6,189 $ 460 305 5,811 16,980 8,548 6,490 7,027 6,576 Special Expenditures 13,190 25,106 .548 17,048 19,125 4 564 6,948 28,382 3 52 399 2,420 49,114 24 24 105 491 1,121 47,704 Total unemployment relief 38,296 36,721 35,898 51,988 8,673 49,469 30,232Canadian Pacific Railway (Relief acts-advances 1,447 1,000 1,766 469 43910,908 1,811 6,600 15,856 174Loss on 1930 wheat pool and stabilization operations-Payment to Canadian Wheat Board of Loss on 1930 oats pool under guarantee of bank advances to Canadian Cooperative Wheat Pro- 49,204 39,979 38,664 61,130 102,770 Government Owned Enterprises Losses charged to consolidated fund- Canadian National Railways system ex eastern (') 6,632 53,423 8,717 52,264 6,691 42,590 5,818 41,796 5,625 270 1,139 6,632 62,140 58,955 48,408 48,830 Loans and advances non-active-^ 1,199 1,913 1,383* 4,898 (*)62,938 14* 2,110 487 1,242 11 333* 2,461 Accounts carried as active assets, transferred to 3,112 66,453 2,096 1,740 2,128 9,744 128,593 61,051 50,148 50,958 448,073 531,764 457,977 478,005 534,291 * Cr. . . (*) $52,256,000 for fiscal years 1931-32 was financed by loans and /or guarantee of securities. (*) Canadian National Railways-Loans for 1931-32-$41,121,000. Sundry harbour commissions- Advances prior to 1932-33-$21,817,000. The Budget-Mr. Dunning

Summary of Revenues and Expenditures (000 omitted) - 1931-32 1932-33 1933-34 1934-35 Estimated 1935-36$ 372,145 326,811 $ 354,644 306,637 $ 351,772 324,062 $ 359,700 358,474 $ 373,987 371,780 -45,334 -48,007 -27,710 -1,226 -2,207 49,204 7,028 39,979 4,493 38,664 418 61,130 3,397 102,770 320 42,176 16,980 9,744 35,486 8,548 128,593 38,246 6,490 61,051 57,733 7,027 50,148 102,450 6,576 50,958 68,900 45,334 172,627 48,007 105,787 27,710 114,908 1,226 159,984 2,207 114,234 220,634 133,497 116,134 162,191 It is also proposed to depart from what I have sometimes called the "bridge score" method of accounting-so much above the line and so much below the line-and to present clearly the over-all deficit in the government's accounts. In the past we have too frequently misled ourselves by the form in which our government accounts were presented. We have pointed with pride to a small surplus on ordinary account and we have tended somewhat to minimize the importance of large deficits resulting from capital and special expenditures. It is time to look the facts squarely in the face. If the people of Canada are fully aware of all the facts, I am confident they will support us in taking the steps necessary to achieve that balance of government revenues and expenditures which in my opinion cannot safely be postponed much longer. revenues 1935-36 Our total revenue from taxation and other sources during the past year aggregated $372,- 100,000. This total is $10,229,000 in excess of the total revenue for the preceding fiscal year. The revenue from taxes alone amounted to $317,288,000, an increase of $12,845,000 over the preceding year. The increase in tax revenue is more than fully accounted for by the income tax which yielded $82,700,000 as compared with $66,- 808,000 in 1934-35. This is the highest yield ever recorded from the income tax, the largest figure for any previous year being that of $78,684,000 in 1921-22. The increase during the past year arises in part from the improvement in individual and corporate incomes, but in part also from the surtax on investment income which was imposed for the first time last year. The sales tax which was the second largest contributor to government revenue last year was responsible for a total collection of $77,000,000, an increase of $4,553,000 over the previous year. Excise duties, imposed chiefly on liquors and tobacco, yielded $44,410,000, exceeding the collections of 1934-35 by $1,220,000, notwithstanding the substantial reduction made last year in the duty on liquors. The yields from our other major types of taxation were lower last year than in the preceding fiscal year. The total revenue from customs import duties amounted to $74,000,000 as compared with $76,562,000 collected in 1934-35. A substantial increase in customs revenue 'had been budgeted for by my predecessor, because of an expected increase in the volume of imports. While the anticipated rise in imports, materialized, the increase was almost wholly in the non-dutiable items. The volume of dutiable imports increased only three per cent and the duties collected actually decreased, largely because of a decline in raw sugar imports and a shift of such imports from foreign countries to countries enjoying the British preferential tariff rates, and because of the reductions made in the duties on liquor last year. Special excise taxes produced a total revenue of $35,700,000. This represents a decrease of $4,045,000, which is accounted for chiefly by the changes made last year under which the excise tax on beer was reimposed in the form of an excise duty on malt and by the elimination last year of the remaining half of the special three per cent tax on imports entitled to entry under the British preferential tariff or under trade agreements between Canada and other British countries. The Budget-Mr. Dunning Non-tax revenues, that is, the revenues derived from various departmental services of government, aggregated $54,492,000, an increase of $461,000 over the previous year. The main items under this heading are interest on investments which amounted to $10,- 600,000, and Post Office revenues which totalled $32,507,000, or nearly $1,260,000 in excess of the previous year. The so-called surplus on Post Office operations approximated $900,000. It must be remembered, of course, that the Post Office accounts do not include the rental value and other costs of premises occupied and equipment used, nor, on the other hand, do they include any credit to the Post Office for services rendered to other departments through the free use of the mails. Special receipts during the last fiscal year amounted to only $320,000. This compares with $3,397,000 received in 1934-35 when the custodian of enemy property made a special transfer of $3,000,000 to the consolidated revenue fund.


While, as already indicated, I wish to draw special attention to the aggregate expenditure for which the government is responsible both on its own and on railway account, it will facilitate comparison with previous years if comment is first made on the various classes of expenditures which have traditionally been shown in the public accounts.


The ordinary expenditures for the year have aggregated $373,987,000. This is $14,287,000 in excess of the expenditures for 1934-35. Nevertheless it is $16,000,000 lower than the total of the amounts authorized by vote and statute. This substantial reduction below the appropriations is accounted for, in part .at least, by the measures taken by the present government when it came into office last October. One of its first acts was to initiate a careful examination of the trend of revenues and expenditures and an analysis of the financial commitments which had been made. The results of such examination were such as to lead to an immediate direction to all departments to effect every possible economy in ordinary and special expenditures and to defer any undertakings which could not be clearly justified on grounds of necessity or of substantial assistance in providing employment. Had such action not been taken, expenditures for the year would have been much higher than they actually were. Some of the increase in ordinary expenditures last year was due to special causes, for instance the expenses involved in holding a national election. I suppose some of us think that expense was justified. Others may quarrel with it. The cost of old age pensions increased $1,818,000 and there were additional special grants to provinces amounting to $2,375,000. Of special interest was the decrease of $3,983,000 in interest on the public debt, reflecting the economies resulting from conversion of outstanding securities into obligations bearing a lower interest rate, and the lower cost of treasury bills. Our interest burden last year was $134,550,000, which was lower than in any years since 1931-32. Nevertheless, it used up 36-2 per cent of our total revenue.


Total expenditures charged to capital account amounted to $6,576,000, a decrease of $451,000 from the previous year. The chief item was $5,361,000 for dredging the river St. Lawrence ship channel.

May 1, 1936