Mr. WALSH:

I was just coming to that

point. I should like to read just what Mr. Morgan said in order that hon. members may draw their own conclusions. He is reported on page 46 of the evidence given before the committee on railways and shipping as follows:

The executive of the Canadian Chamber of Commerce welcomes these authoritative assurances.

He was referring to the statements made by the Minister of Transport and the Minister of Finance. I continue:

First, because we believe with the ministers that the proposed adjustment of the capitalization of the Canadian National Railways should not remove from the knowledge of the Canadian people the accumulated costs of the national system. Rather there should be carried forward on the balance sheet itself,-

These are Mr. Morgan's words:

-a complete and continuous record of such accumulated costs from year to year. Secondly, because the clauses of the bill, as now drafted, do not make provision for that intended clarity, which both the ministers and we emphasize.

To carry out the expressed intentions of the government, therefore, it will be necessary to amend the bill, so that no doubt will be left in the mind of the layman that such provision has been made. The executive of the chamber makes this submission in accordance with the principles of sound public finance as approved by the chamber's general membership.

Of course I am in agreement with that statement. The conclusion I drew from it was tha-t the Canadian Chamber of Commerce accepted the amendment which was proposed at that time, which was that this information should be shown on the balance sheet of the Canadian National Railways and not as is proposed by the bill as at present amended. Mr. Morgan continues:

The Minister of Transport has intimated that the proper way of presenting annually this complete financial picture rests with the railway committee. We feel confident, therefore, that the committee will wish to see to it that an adequate clause is inserted in the bill and the desire of the government thus fulfilled.

He continues further on page 50, as follows:

Now, in the case of a government, the people of Canada, no matter what they do with the Canadian National balance sheet, still have to pay the amount that has been guaranteed by the government on the railway situation and on the advance the government has made to the railways; and, therefore, whereas it is quite appreciated that a new set-up for the Canadian National may be quite correct, all I am trying to submit is that we show in a footnote, or in some manner which you are better able to judge and work out than we are-I do not propose to make a suggestion- but the footnote should show the yearly deficit

and the accumulated deficit so that I as a taxpayer or as a business man in checking up the balance sheet of the Canadian National Railways will be able to see exactly the situation for that year and previous to that year.

I can draw no other conclusion from that statement than that Mr. Morgan supported the contention I made before the committee that the balance sheet of the Canadian National Railways, rather than the balance sheet of the Dominion of Canada, should contain this clear and concise picture. It is useless for the Minister of Transport to suggest that there will be a footnote in the balance sheet of the Canadian National Railways to the effect that if further particulars and details are required, reference should be made to the balance sheet of the Dominion of Canada. That is not what we want; that is not what the people of Canada want; that is not what the business men of Canada want, and that is not what the railway employees want. They want to be able to turn to the balance sheet of the Canadian National Railways and find there a clear and definite statement, not only for that one year but for all the years the system has been in existence. That is one point I want to emphasize in particular.

There is another point to which I should like to direct the attention of this house. I am inexperienced in so far as government work is concerned, but in my opinion the principle of this bill was changed in committee. I am subject to correction, but I have always understood that when the house agreed to the second reading of a bill, it agreed to the principle of the bill. When we gave second reading to this bill we understood it was to provide for the revision of the accounting set-up of the Canadian National railway system. In my opinion that is no longer the principle of this bill. The minister has changed it so that now it provides for the revision of the accounting set-up of the balance sheet of the Dominion of Canada. The principle behind the bill was altered in some degree between the time it left this house after second reading and the time of the return of the bill to the house. I brought this point to the attention of Doctor Clark, deputy minister of Finance, who appeared as a witness before the committee; I suggested that it was not in our power to make so vital an alteration in a bill as that proposed by the minister. Doctor Clark replied that " we cannot actually write them off unless parliamentary authority is given for such writing off." The sums now to be written off were advanced to the Canadian National and its subsidiaries as loans and should not now be eliminated without specific authority of parlia-

C.N.R.-Accounting

ment. And how, I asked, are we to give this authority? I assume the authority should have been given by parliament, as has been done heretofore in connection with deficits of. the Canadian National Railways. We are now proposing to give this authority on third reading of a bill to amend the financial set-up of the Canadian National Railways. The Prime Minister, I know, is an authority on constitutionalism; he has used phrases which would lead us to believe that he stands pat on principles of constitutionality. I suggest to him that it is not constitutional to change in committee the principle of a bill, or to adjust the balance sheet of the Dominion of Canada. In this case the largest adjustment that has ever been made in the public accounts is proposed to be done by authority of an amendment tacked on to a bill dealing with a matter other than the finances of the dominion. If that is constitutionalism it is contrary to my conception of the meaning of that term. My own experience may have led me into an error of judgment, but I make this statement in the hope that the point will be cleared up by, perhaps, the Minister of Transport. Either he is wrong or I am. As a new member, naturally I am willing to learn, but as I have said this proceeding is not in accord with my conception of constitutionalism.

When we were in committee I urged that we should get further evidence. I stated that I was not competent, on the strength of such evidence as we had already heard, to pass upon every phase of the bill, and I asked that another accountant be brought in, not to make an accounting of the Canadian National Railway system but to give evidence upon the principles involved in the changes that the minister has proposed. That was a very simple request. Of course I- was asked by the chairman to make a motion, but had I done so it would have been defeated. I threw myself, so to speak, upon the mercy of the chairman and the minister and requested that they call an expert accountant, preferably one versed in railway matters, to come before the committee so that we could ask him specific questions which would enable us to form a judgment on the principles involved in this bill. Some members interpreted this request as meaning that another firm of accountants should go over the books of the railway. That was not what I had in mind;

I wanted merely to ask a dozen or so questions in order to find out whether the accounting principles involved in this bill were the accepted practice among chartered accountants, particularly those concerned with railway accounting. The request was refused, but I contend that T had a right to make it and

that it should not have been rejected. I have noticed in reading the reports of other committees of this house that they call in expert witnesses of all kinds to deal with the matters that come before them. By refusing my request the government closed the door of opportunity to me to find out whether I was right or wrong in the opinions that I had been expressing in connection with this measure.

Sir EUGENE FISET:

I hope the hon. member wishes to be fair in this matter. He knows Very well that when he made his request before the committee it was the hon. member for Winnipeg North (Mr. Heaps) who explained why the request was not to be granted. It was not granted because the officials of the Canadian National Railway Company who appeared in the capacity of experts before the committee gave information in writing and otherwise in reply to all questions that were asked by the members, including the hon. gentleman, and the committee therefore thought that it was not necessary to bring before the committee some other expert who had never had anything to do with the subject matter.

Mr. WALSH:

Mr. SPEAKER:

I am sorry to interrupt the hon. member, but he has exhausted his time.

Mr. WALSH:

I thank you, Mr. Speaker, and the house for having allowed me to present my views.

Mr. ANGUS MacINNIS (Vancouver East):

I rise now only to correct a statement made by the hon. member who has just taken his seat (Mr. Walsh). He tried to blame Sir Henry Thornton for the building of the Canadian National hotel in Vancouver. I happen to know something about that because I was a member of the Vancouver city council at the time that the building was started, and I can tell the hon. member and the house that Sir Henry Thornton was not in favour of building that hotel then. Many years before he was appointed president of the Canadian National Railways an agreement had been made between the city of Vancouver and certain railway companies-I do not know whether it was the Canadian Northern or what railway it was-in connection with certain property in Vancouver, and a part of that agreement was that at some time a hotel would be built in the city to cost a certain amount. In 1926 or 1927 the Canadian National Railway Company was asked to carry out that part of the agreement. The management, under Sir Henry Thornton, did not wish to carry out that part of the agreement because they did not think the time was opportune, and after some negotiations between the Canadian National Railways and Vancouver the city threatened to sue the company to enforce the contract between the railway and the city. These are the facts, and I do not think it. is correct to say that the building of the hotel was due to Sir Henry Thornton or to unsound business on the part of the management of the Canadian National Railways.

But even if it were, is that the only mistake that was made between 1925 and 1929? What private company in Canada did not overdevelop in that period? Why, then, hold up this particular company as extravagant in this regard? The other railway is equally guilty. I have heard the statement made in the house on several occasions and I think it is my duty to make the correction.

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

This bill has been fully discussed in the house and in committee, and in closing the debate I shall confine myself to discussing a few criticisms that have been offered on second and third readings. The chief attack on the bill is that it destroys the record of the cost of the Canadian National Railways to the people of Canada. We are told that the record is to be found in the balance sheet and that when the balance sheet is revised as proposed by this bill that record will go. There is a record of the cost of the Canadian National Railways to the Canadian people but it is found in the public accounts of Canada. You cannot find that record in the present balance sheet of the Canadian National Railways. To include that record in the present balance sheet, some $300,000,000 must be added to the indebtedness as shown in the balance sheet.

In 1933 the Canadian National-Canadian Pacific Act was placed on the statutes of Canada by the government of that day. That act provides that the deficits of the Canadian National Railways shall not be funded, and that provision was made retroactive to take in the balance sheet of 1932. From that day, beginning with the balance sheet of 1932, the record of deficits was ended.

Mr. BENNETT:

I do not like to interrupt the hon. gentleman, but at page 18 he will find: "Dominion of Canada. . . income

deficits, Canadian National Railways, contributed by dominion, 1932-36, $277,521,-

384.49."

Mr. HOWE:

That may be so.

Mr. BENNETT:

That is this year's report.

Mr. HOWE:

It is in the report but not in the balance sheet.

Mr. BENNETT:

That is part of the balance sheet, receipts and expenditures; it will be found on page 18.

Mr. HOWE:

The main object of this bill could be achieved by making retroactive the Canadian National-Canadian Pacific Act of 1933. Let us see what we are really doing in this bill-because it is being lost sight of in the criticism of details. We are setting up a balance sheet that eliminates the duplication

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of debt as between the present railway balance sheet and the net debt of Canada. We are including in the new railway balance sheet all the debt of the railway that is not carried as part of the debt of Canada. That is the full test of what shall be retained as debt in the balance sheet. If it is in the net debt of Canada it is eliminated as debt from the Canadian National Railways balance sheet. What was formerly debt as between the dominion government and the railway is continued in the balance sheet as proprietor's equity. The leader of the opposition (Mr. Bennett) has said that the proprietor's equity items are a duplication of the net debt of Canada. Of course that is so, but it is not a debt duplication because a proprietor's equity is not debt but is simply equity, as the term implies.

Mr. BENNETT:

But it is in the liabilities column.

Mr. HOWE:

Yes, just as the common stock of any ordinary enterprise is in the liabilities column. It is not bonded indebtedness. Now what is the test by which we arrive at the amount to be retained as proprietor's equity? The test is this: Was the money invested in the property? If so, it is retained in the proprietor's equity, provided it has not all previously been included in the new statement of funded debt. On the liability side of the new balance sheet will be shown every dollar that was ever spent to create an asset of the railway. It is all there.

What have we eliminated? We have eliminated, first, the losses of the railway, money advanced by the dominion government to make up operating deficits. Surely a loss is a loss and should be treated as such rather than as a liability or as an investment of the dominion. It is money lost, it is gone; and in paying that money back to the railway we have simply replaced the capital that was lost in that year through operation. Then we have also eliminated the interest on these losses. Under the legislation governing the accounting of the Canadian National Railways that interest was required to be carried by the railways and set up each year, but it never was set up in the accounts of the dominion government. There is in the public accounts of Canada no such statement of assets represented by interest charged on loans by the government to the Canadian National Railways. So there we have a perfectly logical elimination. It is significant that everyone who has had to do with the Canadian National Railways has urged the necessity for the procedure which is being followed in this bill.

IMr Howe.]

The authorities have been cited. We have first the Drayton-Acworth commission of 1917. Then we have the two firms of chartered accountants who were appointed by the government to make a report on the accounts as between the government and the national railway. Those accountants recommended the step which is now being taken.

Mr. BENNETT:

No, not in terms. They recommended reductions in the capital stock, but not in the terms of this proposal.

Mr. HOWE:

They recommended that the practice of capitalizing operating deficits be discontinued, and that government advances of such deficits be not added to the investment account, but be absorbed in the consolidated revenue fund of Canada.

Mr. BENNETT:

That is the Duff report?

Mr. HOWE:

No, that is the report of

1925 made by Edwards, Morgan & Company and Peat, Marwick, Mitchell & Company.

Mr. BENNETT:

That only covers deficits, as I pointed out.