May 1, 1936

SPECIAL EXPENDITURES


We come now to that important group of items which are classified as special expenditures. Some of the items so classified in previous budgets cannot be regarded as special in any real sense of the term and they are now included in ordinary expenditures. These items include $3,575,000 cost of loan flotations, representing flotation costs of new loans and annual charges for amortisation of bond discount; $1,875,000 government contribution to superannuation fund; $272,000 payment to maintain reserve in government annuities fund; and $128,000 representing expenditure made under the Railway Grade Crossing Act. In the tables showing expenditures for the past five years the necessary adjustments have been made in order to place the group totals for the various years on a comparable basis. The importance of this category of special expenditures is indicated by the total expenditure of $102,777,000 which is $41,640,000 in excess of the preceding year and much higher than in any previous year. Of this total $49,469,000 represents payments for unemployment relief purposes. This includes not only the cost of direct relief and provincial grants in aid, but also the maintenance of the relief camps, the care of single homeless unemployed persons, land settlement relief, special assistance to the Saskatchewan drought area and public works and undertakings carried out under authority of relief legislation. The following table The Budget-Mr. Dunning



compares the expenditures made for these similar expenditures in the preceding fiscal various purposes during 1935-36 with the year: Unemployment Relief Expenditures Direct relief Grants in aid (from August 1, 1934) Public works and other projects Land settlement relief Relief camps-Department of National Defence Care of single homeless unemployed persons Department of the Interior, relief including works in national parks Saskatchewan drought area relief Miscellaneous, including administration



Estimated $ 262,388 26,274,875 9,831,375 176.000 8,212,006 219, OOC 180.000 4,000,000 313,362



It will be noted that as in the previous year, special assistance was given to the province of Saskatchewan for relief in the drought area of the province. This form of relief was by way of accountable advances totalling $4,000,000. During the fiscal year 1934-35, the sum of $5,000,000 was advanced for the same purpose and the total of $9,000,000 was intended to cover the dominion's obligation for the provincial relief year extending from September 1, 1934, to August 31, 1935. It is estimated that when all the accounts are received from the province the total of $9,000,000 will not be sufficient to take care of the dominion's obligation. Any excess will be applied in reduction of a loan made to Saskatchewan for that specific purpose. This excess, not yet determined, has not been included in the statement of expenditures. When the present government took office on October 23 last, we found that through agreements with provincial governments certain commitments had been made for the year ending March 31, 1936. These commitments have of course been met and, in addition, as an emergency measure, the monthly grants in aid to provinces for direct relief were increased by seventy-five per cent for the four winter months of December, January, February and March for the purpose of enabling the provinces to grant greater assistance to their municipalities. Another item under special expenditures which might well have been included in the cost of unemployment relief relates to expenditures made pursuant to the Public Works Construction Act, 1934, and the Supplementary Public Works Construction Act, 1935. Expenditures under these two acts during the last fiscal year aggregated $30,232,000 as compared with $8,673,000 in 1934-35. As at March 31, 1936, there remained unexpended $18,726,000 of the amounts authorized by these acts. Uncompleted projects and other projects authorized by these enactments which the government believes it advisable to proceed with have been provided for in the new fiscal year by the special supplementary estimates recently brought down in this house. Included in the special expenditure for last year are three items representing losses incurred as a result of the wheat policy in effect during the past five years. The payment of $6,600,000 to primary producers of wheat who delivered wheat during the crop year 1930 has been amply debated in this house. The item of $15,856,645 represents the debit balance in the bank account of Canadian Cooperative Wheat Producers Limited as of December 2, 1935, which was assumed by the Canadian Wheat Board as a result of the transfer to it as of that date of the wheat and wheat contracts held by Canadian Cooperative Wheat Producers Limited in connection with the 1930 wheat pool account and stabilization account. As advances by the chartered banks to Canadian Cooperative Wheat Producers Limited were guaranteed by the dominion government, further supplementary estimates for 1935-36 will authorize payment to the Canadian Wheat Board of the amount of this liability assumed by it. . The operations of the Canadian Cooperative Wheat Producers Limited, in connection with oats of the 1930 crop resulted in a loss of $170,130 as at December 2, 1935, and under the terms of the government guarantee this amount with accrued interest to the date of payment will be paid to liquidate the bank liability. Unfortunately, these three items totalling $22,630,000 may not represent the total cost of governmental wheat marketing operations. To them will have to be added any further losses that may result before the wheat and wheat contracts resulting from the 1930 pool and stabilization operations have been finally disposed of, and also any losses which the



The Budget-Mr. Dunning Canadian Wheat Board may incur in marketing wheat of the 1935 crop for which a minimum price to primary producers of eighty-seven and one-half cents per bushel, basis No. 1 northern, Fort William, was fixed last September. Whether such losses will accrue and what their magnitude will be will depend on the prospective harvests in wheat producing countries of the world, on the demand of importing countries, and on the trend of wheat prices. These factors it is of course impossible to forecast. It may be emphasized, however, that the government does not believe itself warranted in assuming responsibility for holding such colossal quantities of wheat as have been held during the last few years. Without resort to dumping, its policy will be to market surplus wheat in an orderly manner as rapidly as world conditions will permit, with due regard to the progress of the next Canadian crop, and at the same time endeavouring to restore and expand in every possible way the demand for Canadian wheat and wheat products in world markets. The remaining items under the caption of Special Expenditures are of minor importance. Another important class of expenditures for which the government is responsible may be considered under the caption, "Government-owned Enterprises." This new category appears to be a convenient one in which to group together any losses of, or non-active advances to, government-owned enterprises which are operated as separate corporations. It will include the net income deficit of the Canadian National Railways, and any operating deficits of the Canadian National Steamships or of any harbours previously operated by harbour commissions but in future to be administered by the National Harbours Board, as well as any non-active advances to such enterprises. Non-active advances do not earn interest and are treated in the government accounts as expenditures.


CANADIAN NATIONAL RAILWAY COMPANY


Further improvement in operating revenues of the Canadian National Railway Company took place in 1935. The gain amounted to 88,200,000, or 5 per cent. Operating expenses were higher than in 1934, one of the important factors being the increase in wages brought about by the removal of a part of the payroll deduction. After providing for operating expenses and other charges such as taxes, rentals, etc., the company's accounts showed a net amount of $6,800,000 available for interest on debt. This result was not as satisfactory as in the previous year, when the amount available for this purpose was $7,400,000. After applying the sum of $6,800,000 available from earnings against interest charges of $54,200,000, there resulted a cash deficit of $4/ ,400,000. This amount has been paid by the dominion and charged in our accounts as an expenditure for the year and compares with S48,400,000 in 1934, the improvement of nearly one million dollars being entirely accounted for by savings made in interest charges through refunding of securities. It should be borne in mind that there are certain charges in the accounts of the railways not involving cash which should be taken into account in reconciling the above-mentioned figure of cash deficit with the net loss for the year as shown by the annual report of the railway company. In addition to the provision for deficits, the government advanced $7,574,000 to the Canadian National Railways in the fiscal year period for capital expenditures and retirement of debt. This amount is shown in the public accounts under Loans and Investments. The figure is made up as follows: capital expenditures under the 1935 budget, $687,000; purchase of and repairs to equipment under the Supplementary Public Works Construction Act, $5,068,000; retirement of debt (net), $1,819,000. Important refunding operations in connection with the long-term funded debt of the railway company took place during the year. Four issues of bonds aggregating $108,519,000 were called for redemption prior to their maturity dates and were replaced by securities bearing lower rates of interest. These issues were: $35,000,000 41% bonds due December 1, 196S; $26,000,000 4i% bonds due September 15, 1954; $23,740,000 7% bonds due October 1, 1940; $23,779,000 7% bonds due December 1, 1940. In addition, temporary loans obtained in connection with the maturity of $17,000,000 4i per cent bonds on February 15, 1935, were funded. This made a total of securities included in the refunding operations of 8125,- 519,000. Provision for this amount, together with premiums payable upon call of the bonds and discounts on the new issues, was made by the sale of railway company securities guaranteed by the dominion to the principal amount of $128,400,000 and a temporary loan of $2,043,000 from the dominion treasury. The details of the new issues and the interest cost to the company, are shown in the following statement:


REVI8ED EDITION COMMONS


The Budget-Mr. Dunning Canadian National Railway Company Guaranteed Bonds issued for Refunding, 1935-36 Issue date Maturity date Interest rate Cost to company AmountMay 1, 1935 May 1, 1938 2% 2.35% $13,400,000May 1, 1944 3% 3.29% 35,000,000February 15, 1936 February 15, 1943 2% 2.31% 55.000,000February 15, 1953 3% 3.25% 25,000,000 The annual saving to the company, after providing for the amortization of the premiums paid upon the called bonds, will be approximately $3,000,000 a year as a result of this refunding. All of the redeemed bonds were payable, either optionally or solely outside of Canada, and the new issues are payable in Canada only. In connection with the redemption of the three issues in September, October and December last, the necessary funds were first obtained by the sale in New York of direct obligations of the dominion and later the company recouped the dominion from the proceeds of the sale of its securities in Canada. On March 31, 1936, the amount of the debt of the Canadian National railway system outstanding in the hands of the public was 81,217,000,000, having been reduced by $21,000,000 in the past year. Of the amount outstanding, $964,000,000 are obligations guaranteed by the dominion.


CANADIAN NATIONAL STEAMSHIPS


Proceeding further to deal with the provision which it has been necessary to make for government-owned enterprises, it is satisfactory to report that the operations of the Canadian National Steamships showed a considerable improvement over the previous year. The cash loss on the West Indies service was $270,000, as compared with $567,000 in 1934. The Canadian Government Merchant Marine had operating earnings of $312,000, as compared with a deficit of $127,000 in 1934. An amount of $179,000 was advanced for capital expenditures on the West Indies fleet, but this expenditure was more than offset by the return to the government of a further $200,000 advanced in previous years to the merchant marine for working capital. Taking into consideration all these transactions, there was a credit of $63,000 on account of steamship services.


HARBOUR COMMISSIONS


Assistance to harbour commissions appearing in our expenditure accounts amounted to $3,600,000. This amount is made up of $1,139,000 paid to liquidate bank loans obtained for operating deficits in Quebec, Chicoutimi and Halifax, and represents losses incurred not only in 1935 but also in previous years. The balance is comprised of advances (non-active) of $482,000 for deficit on the Jacques Cartier bridge, Montreal, and $1,979,000 for expenditures in the harbours of Saint John, Halifax, Three Rivers and Quebec. To sum up, the total amount treated as expenditures in our accounts in connection with the operation of the railways and other government owned interprises, was $50,958,000, as compared with $50,148,000 in the previous year. This is exclusive of the amounts carried as investments to which reference will be made later.


SUMMARY OF EXPENDITURES


Adding together ordinary, capital and special expenditures, as well as losses of and non-active advances to government owned enterprises we find that the grand total of expenditures for which the government was responsible was $534,291,000. This is an increase of $56,286,000 during the last fiscal year as compared with 1934-35 and of $2,527,000 as compared with 1932-33, the worst year of the depression. The increase over the previous year, it will be remembered, is more than fully accounted for by the rise of $14,287,000 in ordinary expenditures, the $21,559,000 increase in expenditure under the Public Works Construction Acts and the $22,630,000 payments made and losses taken in respect of wheat and oats. I direct attention to the fact that in the last fiscal year nearly 62 per cent of the dominion's revenues were required to meet fixed and uncontrollable expenditures, such as interest; war and old age pensions and superannuation; care of returned soldiers; subsidies to provinces and certain other outlay of this nature. In the year 1913-14, the last fiscal year prior to the war, only 19 per cent of the revenues were allotted to items generally regarded as uncontrollable, and even in 1929-36, when the effect of the war cost had been shown in our expenditures, the proportion was but 44 per cent, as compared with 62 per cent last year. Although it is not possible at this date, except by certain arbitrary assumptions, to make exact calcula- The Budget-Mr. Dunning tions, nevertheless it is obvious from an examination of the expenditure statements that the burden of the war cost, both direct and indirect, is even to-day a major factor in our budgetary situation. A statement showing the proportion of the revenues required for fixed and uncontrollable expenditures in the yearn 1913-14, 1929-30 and 1935-36, follows: Proportion of Dominion Revenues Required for Certain Uncontrollable Expenditures Interest on debt European war pensions Old age pensions Other pensions and superannuation Care of returned soldiers Subsidies to provinces Other items % 8.61 .51 i .53 2.07 18.72 27.54 8.80 .35 1.01 1.93 2.83 1.22 43.74 % 36.19 11.19 4.51 1.22 2.90 3.70 2.25 61.96 deficit 1935-36 Taking the total revenues for the year at S372,100.000 and the total expenditures at $534,291,000, there is an over-all deficit for the last fiscal year of no less than $162,191,000. This, of course, takes into account the railway deficit as well as all direct governmental expenditures and makes allowance for special receipts. It compares with a total deficit in the previous year of $116,134,000. It represents the gap between total income and total outgo which must be bridged. I shall have some comments to make on this deficit at a later stage.


LOANS AND INVESTMENTS


In addition to provision for the expenditures of the year as already outlined, loans and investments to the amount of $60,400,000 were made.


LOANS TO PROVINCES


The most important of these were loans to the four western provinces aggregating $42,300,000, under authority of the relief acts. The net amount loaned was very much greater than in any previous year due chiefly to large loans to the provinces of Alberta and British Columbia to meet maturing obligations. For this purpose $5,400,000 was advanced to Alberta and $5,900,000 to British Columbia. Loans were also granted for the financing of relief expenditures including public works and agricultural relief and for seed grain and seeding operations. The amount of loans to each province, classified as to purpose, are shown on the following statement: Loans to Provinces under Relief Acts, Fiscal Year 1935-36 Purpose For provincial purposes including public , works, direct relief and agricultural relief To meet maturing obligations For re-loan to municipalities For seed grain and seeding operations Less cash re-payments and credits applied.. Net loans during 1935-36 Manitoba Saskat- chewan Alberta British Columbia Total$ $ $ $ $4,183,655' 8,146,044 7,232,0002 6,195,000 25,756,699 11,406,000 1,532,000 6,000,000537,000 145,000 6,000,000 450,000 400,000 4,720,655 2,324,429 14,291,044 45,565 13,117,000 13,000 12,566,000 7,555 44,694,699 2,390,5492,396,226 14,245,479 13,104,000 12,558,445 42,304,150- : , v wwlkjm. uiuugnt died leuei including seen gram. "Includes $1,050,000 for agricultural relief including seed grain. The amount due by the provinces at the beginning of the fiscal year was $74,200,000. With the addition of the loans made during the year, the total of dominion assistance by way of loan to the four western provinces under the relief acts, now stands at 12739-152} $116,500,000. The dominion holds one-year treasury bills of the provinces bearing interest at the rate of 4J per cent to July 1, 1935, and 4 per cent thereafter, in respect of these loans. The provinces of Manitoba,. Alberta and British Columbia have paid. The Budget-Mr. Dunning


May 1, 1936