April 29, 1941

REVENUES, 1940-41


3. When the books are finally closed for the fiscal year, 1940-41, it is estimated that total revenues will reach an all-time record of $871,571,000, an increase over last year of $309,477,000, or approximately 55 per cent. This increase represents the additional revenues obtained during the year by reason of: (a) Imposition of new taxes. (b) Changes in rates and exemptions effected sinced the outbreak of war. (c) Expanding production and national income due to war and the consequent higher yield from our former tax structure. (d) Prepayment of income taxes during January, February and March, 1941, not normally payable until April 30, 1941. 4. For purposes of ready reference, the 5-year table of revenue is shown on page 4 but the form is different from that used in previous years. This table is divided to show taxation revenues under appropriate headings with sub-headings of Excise Duties, Excise Taxes and Income Taxes. The non-tax revenue section is broken down under eight main headings, and the whole table is on a comparative basis, one year with another. 5. Total revenues from taxation for the fiscal year just ended are estimated at $778,- 290,000 compared with $468,271,000 collected during the previous year. Revenues from taxation comprise 89 per cent of the total income. An examination of the 5-year table discloses that the greatest gain was made in income tax (including National Defence and Excess Profits Taxes) where an increase of $137,691,000 is recorded. It is not possible to estimate with any degree of accuracy the total amount of prepayments of income tax which normally would not have been paid until April 30, 1941, although it is known that about 110,000 taxpayers took advantage of the interest-free instalment payments. The estimated increase of $137,691,000 is derived from: increases in payments due to improvement in the national income; taxation changes effected by the emergency budget of September, 1939, and prepayments of the interest-free instalments, $86,021,000; National Defence Tax effective for 6 months only in 1939-40, $27,670,000, and Excess Profits Tax, $24,000,000. The excess profits tax includes only the actual amount received to March 31, 1941, and is substantially less than the estimated revenue for a complete year. 6. The total revenue from sales tax, less refunds, is estimated at $180,750,000 compared with $137,446,000 the previous year, an increase of $43,304,000. As provided for in the budget of September, 1939, there was removed from the schedule of exemptions, electricity and gas used for domestic purposes, salted or smoked meats and canned fish. As this change was effective for a part of the previous year only, a portion of the above increase is due to such exemptions being applied for the full year 1940-41. With the exception of this change in taxation, the increase of $43,304,000 is considered as reflecting improvement in conditions generally, due principally to expanding activity brought about by the war. 7. Other excise taxes as set out in the 5-year table, but excluding war exchange tax are expected to produce $41,300,000, an increase over the previous year of $12,718,000. This increase is accounted for mainly by higher yields of the excise taxes on automobiles, rubber tires and tubes and on smokers' supplies and by the new excise taxes on electric and gas appliances, phonographs, radios and tubes, etc. 8. A total revenue of $62,000,000 is expected to be realized from the war exchange tax of 10 per cent on the value for duty purposes of all imports from non-empire countries imposed in the June, 1940, budget primarily to conserve exchange. 9. Revenues from customs import duties for the year just closed are estimated at $130,800,000 compared with $104,301,000 received during 1939-40. This increase of $26,- 499,000 is due largely to increased imports arising out of the war. 10. Receipts from excise duties, mainly on liquor and tobacco, are expected to total $88,750,000, an increase of $27,718,000 over the previous fiscal year. This increase is accounted for mainly by increased duties on liquors and tobacco following the budgets of September, 1939, and June, 1940. The gross duty on liquor is estimated at $34,650,000, and that on tobacco at $55,080,000. 11. The total revenue classified as non-tax revenues is estimated at $80,900,000 compared with $73,346,000 in the previous year. The largest non-tax item is the receipts of the Post Office which it is expected will total $39,700,000, an increase of nearly $3,000,000 over the preceding fiscal year. The receipts from the Post Office will, it is expected, exceed the cost of operations by $1,100,000. As mentioned in previous budget speeches, the Post Office accounts do not include the rental value and other costs of premises occupied, and equipment used, nor do they include any credit to the Post Office for services rendered to other departments for the free use of the mails. The Budget-Appendix 12. Special Receipts and other credits are estimated at $12,381,000. Of this amount, $5,504,000 represents a capital gain on redemption of an estimated £22,500,000 of Grand Trunk Railway 4 per cent perpetual debenture stock, and taken into the accounts as an offset to a corresponding increase in the Canadian National Railways Securities Trust Stock. $2,334,000 of Canadian National Railways Securities Trust Stock was written off because of line abandonments during the calendar year 1940 and an additional $1,475,000 to represent the capital loss (exclusive of loss applicable to expired service life) on the sale of s.s. Prince David and Prince Robert. In addition there was a write-off of $46,000 representing the yearly established losses in the seed grain and relief accounts of the Department of Mines and Resources. All of these amounts, totalling $9,359,000, necessarily appear on the expenditure statement under the heading of "Other Charges". The balance of $3,022,000 is made up of $1,420,000 representing voluntary donations for war purposes; $1,220,000 representing refunds of previous year's war expenditures and $382,000 representing refunds of previous years' relief expenditures and sundry credits.


EXPENDITURES, 1940-41


13. The comments which follow will deal with expenditures classified by the usual main categories: Ordinary Expenditures; War and Special Expenditures, Operating Deficits of, and Non-active Advances to Government-owned Enterprises, Capital Expenditures and Other Charges. All disbursements under these categories are included as expenditures in arriving at the over-all deficit or increase in net debt.


ORDINARY EXPENDITURES


14. It is estimated that ordinary expenditures for the year will total $393,061,000 of which interest and other charges on the public debt, pensions, post office and subsidies and special grants to provinces, will aggregate $274,951,000, or approximately 70 per cent of the total. The remaining 30 per cent represents the general administrative expenses of the other services of government charged to Ordinary Expenditure. The above estimated total of $393,061,000 is less than actual ordinary expenditures last year by $5,262,000. The largest decrease is in the Department of National Defence, where by reason of the war certain expenditures charged to ordinary account last year are this year charged to war expenditures. This decrease amounted to $12,968,000. Other decreases are as follows: Agriculture, $2,931,000; External Affairs. $192,000; Finance, general, $733,000; Fisheries, $609,000; Indian Affairs, $362,000; Lands, Parks and Forests, $161,000; Surveys and Engineering $101,000; Penitentiaries, $227,000; Mines and Geological Survey, $127,000; Movement of coal, $180,000; Treatment and after-care of returned soldiers, $1,110,000; Pensions, War and Military, $651,000; Public Works, $1,465,000; Royal Canadian Mounted Police, $150,000; Trade and Commerce, $445,000; Mail Subsidies and Steamship Subventions, $807,000; Marine Services, $281,000; Railways and Canals, $181,000; Railway Grade Crossing Fund, $120,000; and Sundry, $382,000. These decreases aggregate $24,183,000. The largest increase in ordinary expenditures was in interest and other charges on the Public Debt, which amounted to $11,308,000. Other increases are as follows; Unemployment Insurance Act, $125,000; Government Annuities, $121,000; House of Commons, $1,224,000; Senate, $437,000; Chief Electoral Officer, including elections, $2,017,000; Post Office, $1,874,000; Canadian Travel Bureau, $184,000; Maritime Freight Rates Act, $1,291,000; and Sundry, $340,000. These increases aggregate $18,921,000.


CAPITAL EXPENDITURES


15. Total expenditures charged to capital are estimated to total $3,405,000 compared with $7,030,000 in the previous year. The main items in this category are expenditures arising out of dredging the St. Lawrence Ship Channel and the construction and improvements of Civil airways and airports.


WAR EXPENDITURES


16. It is estimated that the expenditures resulting from the war which will be charged against the fiscal year ended March 31, 1941, will amount to $791,862,000. This amount represents the actual expenditures during the fiscal year; it doles not include commitments entered into but not yet paid for. Such commitments include orders for materials and supplies not delivered at March 31, 1941, or for which accounts had not been rendered and approved at that date. The expenditures for the year include a substantial part but not the whole cost of maintaining Canadian troops in the United Kingdom up to March 31, 1941. The accounts covering these maintenance costs which have been rendered by the United Kingdom goveimiment, have been paid and in addition substantial payments have been made on account. But the rendering of detailed accounts by the United Kingdom government has been delayed due to conditions presently prevailing there, with the result that some part of the costs of maintaining our troops to March 31, 1941, will not be computed or paid until after the books are The Budget-Appendix



closed for the last fiscal year. Such costs will be charged against the fiscal year which began on April 1st last. There is included in the total of $791,862,000, expenditures by the Department of Munitions and Supply for the expansion of industry amounting to $84,900,000. Some part of this should eventually be recovered, including the amount of advances made to contractors for working capital and any salvage that is received for the new plants which have been constructed with moneys advanced by the government. As it is impossible to estimate the amount of such eventual recoveries in any accurate way, the full amount of the expenditures has been charged against the year in which they were incurred. In addition to the estimated expenditures of $791,862,000, amounts aggregating $24,288,000 were paid under authority of the War Appropriation Act, 1940, and have been carried forward as active assets. These include:- Purchases of railway equipment... $15,738,000 Working capital-Canadian Government Merchant Marine 750,000 Advances to commodity companies



-Department of Munitions and Supply 7,800,000



In addition to the above certain payments have been made under authority of Section 3 of the War Appropriation Act, 1940, which are recoverable from the United Kingdom and other Allied Governments. The estimated amount of these recoverable advances at March 31, 1941, is made up as follows:- United Kingdom-Internment operations $ 3,000,000 United Kingdom-Royal Air Force Special Schools 11,000,000 United Kingdom-Aircraft and other equipment for British Commonwealth Joint Air Training Plan.. 17,500,000 United Kingdom and Allied Governments-Militia and naval recover-ables 6,940,000 Total (which is shown as a separate item in the balance sheet)....$38,440,000 In addition there will be recoverable from Australia and New Zealand, substantial amounts in connection with the British Commonwealth Joint Air Training Plan. The total expenditures of $816,160,000, not including the recoverable advances referred to above, which have been charged against the War Appropriation Act are analysed by Departments and Services as follows:- Agriculture $ 5,268,000 Auditor General's Office- Audit of War Expenditure 60,000 Chief Electoral Officer- Duties imposed by National Registration 5,000 Civil Service Commission- Additional War Expenses 120,000 External Affairs 379,000 Finance Fisheries 1,686,000 174,000Justice- Prize Court Defence of Canada Regulations War Measures Act Labour $ 25.000 19.000 3,000 47,000 1,702,000Mines and Resources 354,000Munitions and Supply- . Administration Expansion of Industry $ 2,300,000 84,900,000 87,200,000 National Defence Administration Dependents' Allowance Board Military Services Censoring Internment Radio Services, N.W.T. & Yukon Royal Military College $ 1,351,000 241.000 404,714,000 183.000 957.000 141.000 360.000 407,947,000 The Budget-Appendix National Defence-Naval Services $ National Defence-Air Services- Home War and Overseas Establishments S 66,000,000 British Commonwealth Air Training Plan 119,000,000 National Harbours Board National Research Council National Revenue-* Censorship of Publications National War Services Pensions and National Health Post Office Privy Council- Office of the Registrar of Orders in Council Public Works Royal Canadian Mounted Police- Land Services, incidental to war Secretary of State- Internment Operations S 89,000 Voluntary Service Registration Bureau 9,000 Press Censorship 77,000 Department Generally-War Measures Act 1,000 Commission re Revolution of National Certificates 1,000 Trade and Commerce- Canada Shipping Board Transport 85,192,000 185,000,000 265.000 542.000 5.000 2.543.000 3.520.000 258.000 6.000 5.539.000 2.500.000 177,000 22,000 1,351,000 Total War charged to Expenditure $ 791,862,000 Active Assets- Loans and Investments- Purchase of Railway Equipment $ 15,738,000 Working Capital-Canadian Government Merchant Marine 750,000



$ 16,488,000 Munitions and Supply-Advances to Commodity Companies 7,800,000 Grand Total charged to War Appropriation Acts 816,150,000


SPECIAL EXPENDITURES


17. Relief expenditures for 1940-41 are estimated to total $32,113,000 compared with $62,113,000 in the previous year. Payments to Provinces under the Material Aid and Municipal Improvements Projects Agreements are estimated at $14,757,000 compared with an expenditure the previous year of $19,534,000. The Dominion's share of joint Dominion-Provincial projects, including transportation facilities into mining areas, and the development of tourist highways, decreased from $8,268,000 to $2,371,000. The total cost of Public Works and Other Projects including administration for which the Dominion assumed sole responsibility, is estimated at $9,835,000 as compared with $25,206,000 during the preceding year. Expenditure by the dominion under the Prairie Farm Assistance Act, in the form of advances to the Prairie Farm Emergency Fund as provided for in the act, is estimated at $4,800,000 compared with $7,500,000 for the preceding year. In addition it is estimated that administration costs will total $350,000. In the previous fiscal year these administration costs were charged to ordinary expenditures. The following table shows a comparison of relief expenditures during each of the last two fiscal years:- 2378 COMMONS The Budget-Appendix - 1939-40 1940-41 (estimated)Material Aid to Provinces and Dominion's contribution to Municipal Im- $ 19,534,000 8,268,000 3,623,000 230,000 $ 14,757,000 2.371.000 3.904.000 450.000 660.000 48,000 3.675.000 576.000 264.000 258.000 Dominion Projects- Department of Agriculture 2,751,000 137.000 13,340,000 227.000 " Public Works " Trade and Commerce 4.298.000 600,000 1.605.000 7.500.000 Sundry Departments Western Drought Area Relief- Direct and Agricultural Relief Prairie Farm Assistance Act- Payments to Emergency Fund 4,800,000 350,000 Administration 62,113,000 32,113,000 18. The following table shows the Dominion's relief expenditures of a direct nature since the passing of the first Relief Act in 1930: (000 omitted) - Direct ^ Relief including Grants-in-Aid Joint Dominion-Provincial Works and Projects Dominion Works and Projects Western Drought Area Relief Write-off of Provincial Loans Miscel- laneous Relief Expendi- tures TotalPeriod Sept. 22/30 to March 31, 1935 $ 77,767 26,570 28,931 19,530 17,070 19,534 14,757 $ 49,643 10,408 12,472 10,165 7,472 8,268 2,371 S 29,977 38,132 27,585 13,847 12.919 24.919 9,583 $ (*) 15,088 (2) 4,000 8,751 24,586 9,146 (<) 9,105 («) 5,150 s $ 3,532 306 265 407 288 287 252 $ 176,007 79,416 96,491 68,535 46,895 63,487 32,113Year ended Mar. 31/36 (*) 18,487 Year ended Mar. 31/38 Year ended Mar. 31/39 (5) 1,374 Year ended Mar. 31/41 (estimated) Total 204,159 100,799 156,962 75,826 19,861 5,337 562,944 (l) Includes $5,000,000 Province of Saskatchewan Treasury Bills written off and charged to expenditure. (J) Represents Province of Saskatchewan Treasury Bills written off and charged to expenditure. (*) Written down to non-active assets as of March 31, 1937, and written off during 1939-40. (4) Includes Prairie Farm Assistance Act, 1939, $7,500,000. («) Write off of Saskatchewan Treasury Bills re 1934-35 Drought Area Relief. ([DOT]) Prairie Farm Assistance Act, 1939, $5,150,000. In the above table no account is taken of loans to Western Provinces under Relief Acts, loans to cover labour cost of special railway works programmes and1 losses borne by the Dominion as a result of wheat marketing operations. 19. The remaining item in this classification is an amount of $10,500,000 to provide for a reserve to meet the deficits resulting from the operations of the Canadian Wheat Board calculated as at July 31, 1940, not previously provided for. As was shown in the Public Accounts for the year ended March 31, 1940, an advance of 852,000,000 was made by the Dominion to the Canadian Wlieat Board to [Mr. Ilsley.l meet possible losses of the Board in respect of 1938 Wheat. This further amount of $10,500,000, or to be exact $10,499,676.97 to be set up in the Dominion's books as a Reserve represents the exact amount necessary to meet the deficit of the Board not previously provided for on the basis of calculations made as at July 31, 1940, the close of the crop year, 1939-40.


GOVERNMENT OWNED ENTERPRISES


20. The next major classification of expenditures comprises the losses of, and non-active advances to Government owned enterprises which are operated as separate corporations. The Budget-Appendix Canadian National Railways 21. The operating revenues of the Canadian National Railways for the calendar year 1940 totalled $247,527,000, an increase of $43,707,000 or 21-4 per cent over the calendar year 1939. Operating expenses of the Railways amounted to $202,520,000, an increase of $19,554,000 or 10-7 per cent over the preceding year. Practically all of this increase was in maintenance of way and equipment, and transportation expenses, due to the greatly increased volume of traffic. Net .revenue available for interest on the Railway's debt was $33,474,000 compared with $10,635,000 in 1939. After payment of interest charges of $48,701,000 to the public, and interest charges of $1,738,000 due to the Government on temporary loans for capital purposes and refunding, there was a net cash deficit of $16,965,000 compared with $40,096,000 in the previous year, a decrease of $23,131,000. The operating deficit of the Prince Edward Island Car Ferry and Terminals during 1940 was $461,000 as compared with $427,000 in 1939. Canadian National Steamships 22. The operations of the Canadian National (West Indies) Steamships Limited resulted in a surplus of $666,000 after payment of interest on bonds held by the public but before depreciation and interest on advances from the Government. The comparable figure for 1939 was $154,000. The operating surplus was paid to the Government in payment of interest (Current and Arrears). National Harbours Board 23. The operations of the facilities and harbours under the administration of the National Harbours Board in 1940 recorded a substantial gain over 1939. Operating income for the calendar year after payment of interest to the public but before depreciation and interest on Government advances, totalled $4,943,000 compared with $3,723,000 in the previous year, an increase of 33 per cent. Financial assistance provided by the Government to the National Harbours Board and charged to Dominion expenditure in the fiscal year ended March 31, 1941, amounted to $756,000. This amount was made up as follows: $40,000 for the operating deficit of the Churchill Harbour; $425,000 for non-active advances for the deficit of the Jacques Cartier Bridge at Montreal; $48,000 for retirement of debentures of the Saint John Harbour Commission and $243,000 for capital expenditures at Halifax, Saint John, Quebec and Churchill. The elevators at Port Colbome and Prescott operated at a profit during 1940 and the Government received $310,000 from these sources which was credited to Revenue. Summary 24. The total amount charged to Government expenditures resulting from operating deficits and non-active advances to all government-owned enterprises totalled $18,182,000 as compared with $42,079,000 in the fiscal year ended March 31, 1940. The decrease of $23,897,000 was due almost entirely to the reduction of the deficit of the Canadian National Railways. Loans and Advances to Government-owned Enterprises which are treated in the Public Accounts as Active Assets are referred to in a later section.


OTHER CHARGES


25. Other charges, the final main category of expenditures, is estimated at $17,504,000. The principal items included in this total are $7,150,000 representing the fulfilment of guarantees given by the Dominion with respect to bank loans to Municipalities in the Province of Saskatchewan pursuant to the Seed Grain Loans Guarantee Act, 1937, and $5,504,000, the amount by which the Canadian National Railways Securities Trust Stock has been increased due to capital gain on redemption at $4-45 to the pound of an estimated £22,500,000 of Grand Trunk Railway 4 per cent Perpetual Debenture Stock. This latter figure is offset by a similar amount included as a special credit to Consolidated Fund already referred to under Revenues. Write-offs from non-active assets include $2,334,000 from the Canadian National Railways Securities Trust Stock representing line abandonments during the calendar year 1940, and $1,475,000 representing the net capital loss on the sale of the steamships Prince David and Prince Robert. In addition $46,000 is estimated as the yearly established loss in seed grain and relief accounts of the Department of Mines and Resources. The total of these three items, namely $3,855,000, is offset by a similar amount of other credits already referred to under revenues. The annual write-off of Soldier and General Land Settlement Loans is estimated at $983,000, and the cancellation of Canadian Farm Loan Board Capital Stock at $12,000. These two items are write-offs from active assets and the net debt of the Dominion is increased accordingly. The Budget-Appendix


April 29, 1941