March 29, 1937


On the orders of the day:


LIB-PRO

James Allison Glen

Liberal Progressive

Mr. J. A. GLEN (Marquette):

Mr. Speaker, on Thursday last the hon. member for Greenwood (Mr. Massey) referred to some statements which I had made as reported on page 2097 of Hansard. I was referring to remarks made by the hon. member for Moose Jaw (Mr. Ross), as reported on page 1872 of Hansard. The hon. member said:

We in western Canada do not want any dole; we never did want any-

Mr. Spence: You are taking a lot of it.

I was protesting against that remark and, as reported on page 2097 of Hansard, I said:

That remark was made in reply to the hon. member for Moose Jaw (Mr. Ross).

It is clear, therefore, that the reference was to the hon. member for Parkdale (Mr. Spence) and not to the hon. member for Greenwood. I am glad to make this correction and to take this opportunity of repeating my protest against the words used by the hon. member for Parkdale.

Topic:   PRIVILEGE-MR. GLEN
Permalink

PRIVILEGE-MR. COLDWELL


On the orders of the day:


CCF

Major James William Coldwell

Co-operative Commonwealth Federation (C.C.F.)

Mr. M. J. COLDWELL (Rosetown-Biggar):

I should like to correct a statement appearing in Hansard. I have received the following message from Mr. E. M. Culliton of Regina, Saskatchewan:

Hansard of March eleventh reports you as stating, "The same paper reported a protest meeting at Mossbank at which the Liberal M.L.A. for Gravelbourg, Mr. E. M. Culliton, indulged in strong criticism of the government's action." I attended meeting but did not criticize the actions of the government or of the wheat board regardless of report.

I am glad to make this correction.

Topic:   PRIVILEGE-MR. COLDWELL
Permalink

INQUIRY FOR RETURN

GRAND TRUNK RAILWAY SECURITIES


On the orders of the day:


REC

Henry Herbert Stevens

Reconstruction

Hon. H. H. STEVENS (Kootenay East):

Mr. Speaker, on Wednesday last I inquired of the Minister of Transport (Mr. Howe) regarding a return which had been ordered by the house some time ago. The minister was indefinite in his reply. He said:

It deals with a delicate legal situation, and it is necessary to obtain very complete legal advice before we answer the question.

As the session is approaching rapidly to a close, I should like to ask the minister whether he can indicate-if he cannot do it to-day, to-morrow will be all right-what the attitude of the government is with regard to this return. It has been ordered by the house and I am therefore entitled to it. Of course there are certain reservations which are recognized by the house. I should like to have an indication as to whether or not I am to get this return.

Topic:   INQUIRY FOR RETURN
Subtopic:   GRAND TRUNK RAILWAY SECURITIES
Permalink
LIB

Clarence Decatur Howe (Minister of Transport)

Liberal

Hon. C. D. HOWE (Minister of Transport) :

I shall follow up the matter and try to make a statement to my hon. friend.

Topic:   INQUIRY FOR RETURN
Subtopic:   GRAND TRUNK RAILWAY SECURITIES
Permalink

CANADIAN NATIONAL RAILWAYS

REVISION OF ACCOUNTING SET-UP


Hon. C. D. HOWE (Minister of Transport) moved the third reading of Bill No. 12, to provide for revision of the accounting set-up of the Canadian National railway system.


CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Right Hon. R. B. BENNETT (Leader of the Opposition):

Mr. Speaker, I desire to restate as clearly as possible our objections to this measure as it now stands. I laid down what I conceived to be a sound principle, that is, that the balance sheet of the Canadian National Railways should show every item constituting the assets and liabilities of

C.N.R.-Accounting

that institution. Since we were last here I have looked up the great standard works upon the subject, and I find that according to them a balance sheet should give a true and correct statement of the position of the enterprise to which it refers, indicating clearly its assets and liabilities. I am particularly anxious that the Prime Minister (Mr. Mackenzie King) should be here because I cannot think that with his scrupulous regard for money votes and matters that affect accounting he can give the approval of his governmental majority to the enactment of the measure now before this house, a measure which does not comply with the definition of balance sheet which I have just given.

Several reasons were given why certain changes should be made. The first referred to certain misconceptions, but this is no longer heard of because the misconceptions can be explained away. In the memorandum which he read to the special committee, the minister dealt with what he conceived to be duplication. That argument has also gone by the board; for there can be no such thing as duplication if the accounts of the country indicate that borrowings have been made, and the accounts of the company or institution to which the money is lent indicate the receipt of that money. Finally, the minister made this statement in his closing remarks:

Canada's financial structure as a whole is of first importance to the people of Canada. Nothing should be allowed to continue that would in any way weaken the position that Canada at present holds in the financial world. The people of Canada are rightly entitled to know what is their true financial position at all times and to have access to information that will enable them to understand the situation and to judge therefrom what their real responsibilities are. This being so, the elimination of duplication is of vital importance.

That statement involves an exact negation of the measure now before the house. As a Tesult of the changes that have been made in the balance sheet of the railways, the particulars which are essential if the people of Canada are to understand the true position of their enterprise have disappeared. As the minister points out, it is highly important for the credit of this country that those who read may understand exactly the position. The measure now before the house indicates that, notwithstanding the consolidated audit act or any other act referring to matters of this kind, we are to deal with the accounts of the railway in a given way. The balance sheets which have been offered from time to time by the auditors of the Canadian National railway system clearly indicated the exact position of the enterprise and the amount of money the *Canadian people had put into it. I suggested

the other day two or three reasons why it is important that this information should always be made available in the accounts of the railway; let me briefly review them.

First, this is a public utility owned and operated by the people of Canada through an instrumentality which they themselves created, and it is essential for the purpose of determining whether or not we have administered it as successfully and as well as we should that they should know exactly what it has cost us to maintain it in its present position. Second, the question of freight rates is affected. In the past the question of rates largely has been directed to the consideration of what the traffic would bear for the purpose of making some return on the capital investment. Third, the question of wages and salaries and emoluments paid to those who administer the property is very peculiarly affected. For instance, it has been held from time to time that in certain conditions we were not able to pay as much as we might have liked to pay because the wherewithal was not being earned. It was then a question of closing up the enterprise or operating it on a scale of payments to those engaged in it which were not as generous as they otherwise might be. These are only some of the reasons which to the average man make it important that the accounts of the railway should contain a true statement of the situation.

During the progress of the discussion, both in committee and in the house, I think it was clearly indicated by all parties and by every individual that statements of value applied to shares and stocks of the Grand Trunk and the Canadian Northern which were fictitious and admittedly incorrect should be eliminated, and the balance sheet proposes to do that. But it does not stop there. In the annual report of the Canadian National Railways for the year 1936 we have on page 8 the assets, and on page 9 the liabilities of the road: the profit and loss deficit is stated to be $904,655,718.05, and the assets are given as $2,300,368,968.75. It therefore follows that the liabilities as shown on page 9 amount to the large sum of $3,205,024,686.80. Those figures are under the certificate of the auditors. The new set-up as indicated by the minister will be found in the appendix to the bill before the house, on pages 14 and 14A. As a result of the operation which has now been performed upon this balance sheet we have total assets of $2,037,597,996.72; in other words the assets have been cut down by $262,770,972.03. The arbitrary cutting down by $262,000,000 of the cost of the property is an operation which should not, in my judgment,

C.N.R.-Accounting

being later. It is to be an organization with five trustees who are to be permanent civil servants, deputy ministers and the like, and they are to hold these securities and be the company. The company is to issue five million shares which are to represent securities, advances and claims on which an arbitrary value of $270,000,000 is fixed.

I suggest once more, with all the force at my command, and certainly with no party consideration in my mind and from no partisan point of view, that we do not transfer these securities to anyone; they are now vested in the crown and the crown should continue to hold them. Instead, we should vest the title to them in the Minister of Finance, in whom, as a matter of fact, the title to most of them is now vested. The question of value to be placed upon them is a matter of argument, and in my opinion it should be argued from another angle, from which it has been already discussed. Leaving that aside, however, I plead with the minister to simplify this whole matter and not let the Canadian people, looking at the balance sheet of this enterprise hereafter, read any statement about one million shares of no par value stock of the Canadian National Railway Company and five million shares of no par value capital stock issued by Securities Trust, a company which is to come into being for the purpose of preserving priorities which would never be disturbed unless we transferred those priorities to them. They are, as they always have been, unchanged, untouched; they remain in the name of the Minister of Finance, representing the proprietor's equity in this enterprise. Surely that is fair. Why call into being an enterprise for the purpose of holding something that we now own? Why vest in a third person, a new entity, property that is now ours? It represents our equity as proprietors to-day, and we are proposing to turn it over to somebody else and have the balance sheet hereafter talk about one million shares and five million shares.

I know what would be said about that if it were done by a private enterprise; if a private corporation tried to do the same thing there is no question about what would be done. The language of the courts is clear on that point. But here we are disturbing priorities and equities for the purpose of preserving them and we are getting back to the same position in which we were before by the use of the words "proprietor's equity"; for to-day they are vested in the minister or the government. I am not sure whether they are all vested in the name of the Minister of Finance.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
Permalink
LIB

Charles Avery Dunning (Minister of Finance and Receiver General)

Liberal

Mr. DUNNING:

Practically all.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
Permalink
CON

Richard Bedford Bennett (Leader of the Official Opposition)

Conservative (1867-1942)

Mr. BENNETT:

C.N.R.-Accounting

madvert upon the motives that lie behind the action, but merely to present the situation as it stands on the record. I urge upon the government with all the power at my command that they reconsider before it is too late a plan which, as no one can deny, will have the effect I have just indicated upon the minds of those who are vitally concerned with all that affects the well-being of the enterprise they own and control and in which they have invested so many hundreds of millions of dollars.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
Permalink
CON

William Allen Walsh

Conservative (1867-1942)

Mr. W. A. WALSH (Mount Royal):

I hope that the members of this house will not consider it presumption on my part to take part in the debate on third reading of this bill. I do so only because of the importance of the question and because I endeavoured to take an active part in the discussion when this bill was before the railway committee. I want to consolidate the arguments I presented before the committee in opposition to certain clauses of the bill, and for that reason I deem it necessary to take part in the debate.

Some of the issues that have been raised by this bill might be expressed in the following way: whether there is any reasonable justification for the claim that the debts in question really represent mere bookkeeping entries, figures that never should have been on the railway balance sheet, that they do not mean anything and are unfair; whether the general public are being given an honest and proper description of the obligations from which the railway is to be relieved; whether the real intentions of the proposers of the bill in seeking to effect these changes are being frankly and clearly stated to the public; whether the Canadian National accounts are to present a fair and reasonable picture of the results of operations or whether only a partial and incomplete portrayal is to be given the public; whether that adoption of these proposals will lessen the financial drain on the government or whether they will encourage a repetition of past extravagances. In short-

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
Permalink
LIB

Alexander MacGillivray Young

Liberal

Mr. YOUNG:

May I ask the hon. gentleman from what he is reading?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
Permalink
CON

William Allen Walsh

Conservative (1867-1942)

Mr. WALSH:

I am just giving a summary of what I propose to discuss during the next few minutes-in short, whether the proposals are in the public interest or are merely an expedient in order to improve the apparent results of the operations of the Canadian National. These were the features of this bill that presented themselves to my mind as I read the various reports on railway matters that have been presented to this house on previous occasions, and I think these features

crystallize the substance of the opposition to the various details appearing in this bill.

We could show at the present moment exactly how the financial responsibility of the Canadian National was built up. We could show that when the railway was first taken over an obligation was assumed of roughly $1,329,000,000. We could go further and show that most of the branch line and other railway construction carried on before the lines were taken over took place from 1900 to 1910. We could show that the greatest extravagances indulged in by the railway took place during the years from 1921 to 1929. It is not necessary to go into these details, which no doubt already have been presented to the house; I am sure hon. members who are at all interested in the railway problem are as familiar with them as I am. This afternoon we could also discuss the arrangements that were made from 1917 to 1920 which brought into being the Canadian National Railways as such. Whether we agree or disagree with what was done during those years is a matter of very little importance, in that it is now an accomplished fact, and we are faced with something far more serious than a discussion of the whys and wherefores of the taking over of these various lines and consolidating them into one system known as the Canadian National Railways.

We could also go back, Mr. Speaker, and discuss the various features of the Drayton-Acworth report, laying particular emphasis, of course, on the optimism therein expressed. We could also discuss the extravagances that were indulged in under the management of Sir Henry Thornton. When I make that statement I do not desire to detract in the least from the good work that Sir Henry did in connection with the Canadian National railway system. I quite realize that Sir Henry Thornton was one of the greatest railway men we ever had in this country. I appreciate the fact that he did a great deal of good work in consolidating and welding the various sections of the road into a unit, and that he improved the morale of the employees so that they appreciated the fact that they were working for a great national system. Despite all those good attributes that he possessed, however, and despite all that he did, I do feel that he put the Canadian National system into a debt position which is very largely responsible for the condition with which we are confronted to-day, and which makes it necessary to introduce some kind of bill in order to bring some sort of order out of the financial chaos that exists in connection with that railway. I need mention only one particular item that

C .N.R.-Accounting

is still a matter for discussion. I refer to the large and elaborate hotel in the city of Vancouver, which is not yet open, and which I understand in its unfinished condition is costing this country upwards of $50,000 a year in taxes paid to the city of Vancouver for which not one cent of return is received by the system. That is one example of the many that could be quoted in this connection.

The Duff report brought before the people of Canada three main features of the nailway difficulty and emphasized them so that we in Canada had a better understanding of them than we had before. The outstanding findings of that report could be condensed into three statements. Canada did not have a population commensurate with its railway development-with that I think we all agree. Canada could ill afford the extravagances incident to bringing the Canadian National property to the standard achieved under the regime of Sir Henry Thornton-with that I think most of us would be in agreement. It should be clearly understood that substantial sums invested in the Canadian National system must be regarded as lost-with that some are in agreement and some are in distinct disagreement.

In connection with this bill and the new financial set-up of the Canadian National, I have in my hand a booklet, from which I do not propose to read, which contains two reports made by officials of the Canadian National railways, recommending new financial set-ups. One report is dated June 20, 1933, and the other April 10, 1934, both preceding the Touche report of 1935. In comparing these two recommendations with the Touche report I noticed that they were almost identical in their statements, differing only to a very slight degree. I want to make this suggestion, and it is on this premise that I want to carry on my discussion a little later: What we have before us in this bill in the nature of recommendations is in reality the recommendations of the very officers of the Canadian National who helped put the system in the chaotic financial condition that exists at the present time, and that the minister is endeavouring to remedy by means of this legislation. We could analyse the Touche report very carefully, but I do not wish to take the time of the house to do so because its contents are well known. They make certain recommendations, and I am firmly convinced that those recommendations are made on faulty premises. In order further to substantiate my opinion in that respect I suggest that the poorest kind of argument one could use to substantiate his claim is to

set up prospective criticisms or suggestions and then proceed to argue against them. In other words, it is the practice of setting up straw men and then knocking them down. That is almost as weak a method as the often referred to argumentum ad hominem, which very few in political life use, and which is not recommended as a fair and reasonable method of supporting a cause which you consider' just. For these reasons I lose confidence in the Touche report and the recommendations contained therein.

One of the first provisions of the bill is the abandonment of certain claims against the Canadian National Railway Company, and a revision of the accounting set-up of the Canadian National railway system. Where no actual cash is concerned I believe all hon. members can be in complete harmony. Where the minister is seeking to wipe off the books of the Canadian National Railways and the Dominion of Canada items which do not represent cash that has been put into the railways by the Canadian people, we can all agree with his procedure. But I am sure that very few hon. members can agree with the suggestion that we take out of the balance sheet of the railways sums of money which represent actual cash paid into that railway by the people of Canada.

The second proposal in the bill is the setting up of a securities trust corporation for the purpose of preserving the priority rights of the dominion, and for its protection against future contingencies in respect of potential interest and other savings. I was going to deal with that point at length, but my right hon. leader has already done so, and to such advantage that it is not necessary for me to attempt to support the arguments he has put forward. His arguments are worthy of the attention of the house, and I feel that not only the Minister of Transport (Mr. Howe) but the Prime Minister (Mr. Mackenzie King) will give due consideration to his suggestions regarding this most recent innovation in connection with the railway systems of Canada. I consider it a vicious principle, and one likely to lead to difficulties and troubles which we do not now anticipate with relation to the financial set-up of the Canadian National railway system. From the financial point of view, I do not see that the securities trust corporation is going to play any real part in the final rehabilitation of the railways. In fact I am persuaded it is a step which, again from the financial point of view, will make the railway's prospects more difficult than they now are.

May I again suggest to the Minister of Transport that which I have suggested on

C.N.R.-Accounting

so many occasions, that the people of Canada are entitled from year to year to a clear and definite picture of the financial condition of the Canadian National Railways, and that yearly picture should show not only the condition in a particular year, but the condition from the time of inception. The balance sheet of the Canadian National Railways should show the people of Canada exactly the amount of money they have put into the railways, and give them a clear and concise picture of what the roads have cost and what they mean to our citizens.

Certain general principles should be followed in adjusting railway and government accounts. The entire railway loss, including all interest, should be taken up each year in the government budget and be clearly earmarked as such. The full amount of advances by the government should be shown on the railway balance sheet, according to the specific uses made of the funds. The railway balance sheet should record the cumulative loss of the railways. The net results of government railway operations should be clearly portrayed, after charging a fair interest on government investments, and then the necessary cross references should be made in the government and railway accounts so that no misapprehension could exist as to the relationship between the finances of the two.

The suggestion was made in committee that when through the medium of this bill, or in any other way, we criticize the Canadian National Railways, we are naturally antagonistic towards them. I want to make it clear that I do not regard that as fair treatment of anyone who criticizes government measures, even if they pertain to the railways. I look oack to discussions which took place in committee, and to the fact that this particular phase of the matter was referred to by a Liberal member, if other hon. members will permit me to refer to him in those terms. He made reference to that type of criticism, because on that occasion he was criticizing certain features of the bill and there was the mild suggestion that he was somewhat of an opponent of the Canadian National Railways. In my own mind I know that he was no more an opponent of the Canadian National Railways than I am. The hon. member for Outremont (Mr. Vien) is reported to have made the following statement before the committee on railways and shipping:

I resent a little the insinuation that either Sir Edward Beatty or any member of the committee should, when they are trying to find their basic fact, to use my hon. friend's own parlance, that there should be any particular interest other than serving the public interest.

On my own responsibility I wish to express myself this afternoon in terms similar to those used by the hon. member for Outremont. It is on the ground of the public interest that I criticize any measure brought in by the government, whether it pertains to the Canadian National Railways or to any other phase of government activity. I criticize the principle involved. I am not an opponent of the Canadian National Railways; I am a supporter of anything that is good for that system, and I believe I am working in the best interests of the railways and of the people employed thereon when I oppose certain features of Bill No. 12 now before the house for third reading. I wish to make my position perfectly clear, so that there may be no misunderstanding as to where I stand with respect to the Canadian National Railways.

The bill before us cancels a profit and loss deficit balance totalling $904,655,718. There is a credit balance to the proprietor's equity of $676,327,701. This is done by wiping out liabilities amounting to $1,5S0,983,419. I do not know whether I have the figures exactly right; I have tried to bring them down to date, and they may be a little out, but I think they are close enough for the purposes of the point I wish to make. Speaking to this measure on February 5, the minister is reported on page 597 of Hansard as follows:

I believe a schedule can be set up that will preserve the historical record, and this schedule can be made part of the annual report of the Canadian National Railways.

That is the statement the minister made in this house. However, it was suggested that that was not what was being done by the amendments made to this bill. The minister drew our attention to the fact that he said it could be done, not that it would be done. I think we should have a clearer conception of what the minister means and not be quibbling as to whether "can" or "will" was used. The meaning I took from that statement, and the meaning taken from it by all hon. members, is that an amendment would be made to the bill so that more definite information would be furnished than is provided by the bill in its present form. When I made my contention for a clearer balance sheet I referred to the evidence given before the committee by the president of the Canadian Chamber of Commerce, Mr. Henry Morgan. The meaning I took from his statement was that he was in favour of the balance sheet of the Canadian National Railways showing a full and complete picture of the financial expenditures on that system.

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
Permalink
LIB

Eugène Fiset

Liberal

Sir EUGENE FISET:

Is it not a fact

that Mr. Morgan said it was immaterial to-

C.N.R.-Accounting

him whether that statement appeared in the public accounts or in the balance sheet of the Canadian National?

Topic:   CANADIAN NATIONAL RAILWAYS
Subtopic:   REVISION OF ACCOUNTING SET-UP
Permalink

March 29, 1937