45 per cent is to supply the United Kingdom and other Empire countries and 55 per cent for our own needs. It is our estimate that were it not for the Hyde Park transactions almost the whole of this amount would be a net drain on our resources in United States dollars, or would be as long as we had any such resources left. As matters stand, we are hopeful that the Hyde Park agreement will ensure our ability to purchase essential materials and war supplies in the United States to the full extent that that country is able to supply them. In effect, the agreement may be thought of as eliminating the dollar sign in our war-time transactions with the United States by providing a convenient technique for an exchange of raw materials and other components of war goods for the finished war supplies we are equipped to produce. By the collaboration of our good neighbour and ally, we hope to be able to meet our exchange requirements, which arise out of our need for war materials, in the way most effective for a nation at war, namely, by the provision of munitions of war for whichever of the united nations and whichever of the world's battle fronts require them most urgently. This is a most desirable situation, but let it not be misunderstood. We are able to do this only as long as we continue to exercise care and prudence in our non-war transactions. The restrictions on pleasure travel have now been in force for nearly two years and it can be stated with assurance that these restrictions have saved us well over 100 million United States dollars since they were imposed. The amounts saved by the War Exchange Conservation Act are also very substantial. During the past fiscal year, it is likely that the savings under both these heads have amounted to in the neighbourhood of $130 million, about equally divided between the two items. In the light of these figures, it is fully apparent that these measures have played an essential part in the past and that we are not at present in a position to relax them.

Against this background, I wish now, Mr. Speaker, to review the government accounts for the past fiscal year and report on the financing which has been carried out. Following the useful custom which has now been established,- I shall only summarize the estimates of our revenues and expenditures, and, before I resume my seat, I shall table a White Paper which will include full information concerning these estimates. The house will recall that, though these estimates are close approxima- tions to the final figures, the Public Accounts will not be available until towards the end of this calendar year.

Revenues are again very greatly increased, Our present estimate is that they will total $1,481 million, an increase over the previous year of $609 million, or approximately 70 per cent. This is some $34 million higher than I forecast in presenting the budget last year, and is nearly three times the Dominion's prewar revenue. Total tax revenues are now estimated at $1,360,915,000 as compared with $778 million in the preceding fiscal year. In contrast with previous years, direct taxes on incomes and profits made the largest contribution to this total. The graduated tax on personal incomes, the 18 per cent corporation tax and the special tax on dividends and interest produced $404 million, more than 80 per cent in excess of last year's yield. The national defence tax produced $107 million and the excess profits tax, for what was really its first full year of operation, as it is collected on the profits of the previous year, yielded $135 million. Succession duties, first introduced in last year's budget, produced $7 million, a figure which gives little indication of the future revenue to be derived from this source. Excise taxes, though no longer the largest source of revenue showed a greater increase than that for the preceding year, rising from $284 million to $453 million. The largest item in this group, the sales tax, at $236 million was $56 million or 31 per cent higher than the previous year. The other excise taxes including the new taxes imposed last year fully reached or exceeded the estimates of the last budget. Excise duties yielded $110 million as compared with $89 million in the preceding year. Customs duties, as was expected, showed the smallest increase recorded during the year, from $131 million to $142 million. Non-tax revenue, to which the largest contributor is the Post Office, is estimated to be $103 million. Special receipts and credits will be approximately $18 million.

Turning to our expenditures, we now estimate that ordinary expenditures for 1941-42 were slightly under $444 million, about $53 million more than last year. Of this increase, $15 million is attributable to increased interest on the public debt, $10 million to increased cost of loan flotations and bond amortization, $21 million to compensation to the provinces under the tax agreements and $10 million to The Budget-Mr. Ilsley the Unemployment Insurance Act. Other items of ordinary expenditure are slightly reduced. Capital expenditures at $3,357,000 were about the same as the previous year. The category of so-called special expenditures, which includes the costs of unemployment and agricultural relief, Prairie Farm Assistance Act, wheat acreage reduction payments, and prairie farm income payments will, it is estimated, show expenditures of $62,879,000. Expenditures for relief and works projects have fallen to small figures, but payments under the Prairie Farm Assistance Act, the wheat acreage reduction and the prairie farm income payments have offset this decrease and occasioned an increase of $20 million in the total. To meet deficits resulting from the operations of the Canadian Wheat Board, which had not been previously provided for, $12,571,000 has been placed in reserve. In 1940-41, government-owned enterprises required $18 million. In 1941-42, because of the immense increase in railway earnings, this was reduced to $1,215,000, only the Prince Edward Island car ferry and terminals and the National Harbours Board requiring such expenditures. In the last budget, I estimated that war expenditures for 1941-42 would be between $1,300,000,000 and $1,450,000,000. It is now estimated that they will be $1,351,553,000, excluding outlays of $42,480,000 charged to active assets. This compares with $752 million spent in the preceding year.

Adding to the amounts, which I have given, miscellaneous other charges representing chiefly write-down of assets, we get an aggregate expenditure for the year 1941-42 of $1,894,966,000, an amount more than 50 per cent higher than the expenditures of 1940-41, viz., $1,250 million. Deduction of total revenues of $1,481,285,000 gives $413,681,000 as the overall deficit or increase in the direct net debt, which on March 31, 1942, was approximately $4,062,372,000. I estimated last year that we would pay between 73 and 79 per cent of our direct expenditures out of revenue. It now appears that we will have paid 78 per cent. On March 31, 1942, the outstanding unmatured funded debt (including treasury bills) was $5,866,071,000 on which the average rate of interest was 2-90 per cent as compared with 3-06 per cent a year previously. In addition, there were outstanding bonds and debentures bearing the guarantee of the Dominion to the amount of $818,842,000, a decrease of $165 million during the fiscal year.

Total borrowings during the year, excluding debentures of over $33 million reissued to the western provinces in continuation of the school lands settlement, amounted to approximately $2,424 million. Of this total, $1,834 million was borrowed from the public in the two victory loans; $85,294,000 represents the sale of war savings certificates and stamps; $4,553,000 non-interest bearing certificates; $10,000,000 was borrowed in New York for refunding; $450 million was borrowed from the Bank of Canada and the chartered banks, replacing issues of identical amounts held by them and which matured during the year; the remainder, $40,000,000, is the increase in treasury bills outstanding during the year. Thus, aside from the increase in treasury bills, there was no new direct borrowing from the Bank of Canada or the chartered banks during the year.

Dominion of Canada direct obligations in the amount of $931,042,000 (excluding school lands debentures) were redeemed during 1941-42, leaving net borrowings for the year of $1,493,000,000. This sum was used to meet the over-all deficit of $413,681,000, to advance $400 million to the Foreign Exchange Control Board, for use in financing the sterling area's Canadian-dollar deficit, to advance $252 million to the Canadian National Railways (nearly all of which was used to effect a redemption of railway securities), and the remainder ($427 million) to make various other advances and raise the working balances of the government. To obtain from the people of this country loans to the amount of $1,673 million (allowing for the redemption of securities in New York and London), to obtain from the people and corporations of this country such an amount after they had contributed nearly $1,500 million in revenue is a great financial achievement. It reflects the willingness of Canadians to do what is necessary in finance as in other fields to resolve this conflict in complete victory. It is an achievement which reflects the greatest credit on the National War Finance Committee and on the campaigns which it has so successfully carried out for the sale of war savings certificates and stamps and victory bonds. To them, to the press, radio, and other agencies, which have made special contributions to this success, and to the thousands of workers who cooperated in the campaigns, the government and the people of this country are grateful. Our whole financial record for 1941-42 is an achievement but I wish to add a word of The Budget-Mr. Ilsley

warning. When we say that 78 per cent of our expenditures was paid out of revenues we are perfectly correct by the principles of bookkeeping, but the figure is open to misconstruction. In addition to our expenditures, we must take account of the financing of the United Kingdom. It was necessary during the year for the government to find approximately $1,050 million for this purpose. In exchange for the Canadian dollars transferred to the United Kingdom, we acquired assets, certain Canadian government obligations held in London and sterling balances which have now been converted into the $700,000,000 loan. Since we acquired assets, the accountants are quite correct in classifying these outlays as investments. But just as an individual faces the same immediate financial problem in finding $100 whether it is to be used to pay for the winter's coal, buy a government bond or make a gift to his son, so the immediate financial and economic problem of our financing of United Kingdom purchases has been the same as that of our own war expenditures. We must realize that though it is correct to say that in 1941-42 we paid 78 per cent of our expenditures out of revenue, the significant thing to say is that we paid just over 50 per cent of our expenditures and war advances out of revenue. Further, we must not be misled by our achievements in borrowing from the public and the corporations. The conditions, under which a government may most easily borrow from its people and have its loans always oversubscribed, are the conditions in which there is a considerable inflation of incomes and of bank balances. The government is committed to a policy of "pay as you go as far as it may be practicable"; it has set its face against distributing the cost of war through the medium of inflation. We must bear in mind that if it is easy for some of the people of this country to lend, easy for the government to borrow, there is a presumption, unless most of the opportunities for expenditure have been blocked, that we are falling short of our declared policy. I shall have occasion to say something further on this subject a little later.

So much for the past. I have given a brief, and. I hope, lucid account of the financial policies of the past year and the results of the budget of 1941-42. I realize, however, that the house has a greater interest in the estimates of our expenditures for the new fiscal year and in the measures and policies we propose to meet these expenditures.

For the fiscal ending March 31, 1943, the house has before it estimates of non-war expenditure amounting to $455 million. To this will have to be added supplementary and possibly further supplementary estimates, including about $20 million to provide for payments under the Wheat Acreage Reduction Act, and perhaps amounting altogether to, say, $30 million. The Dominion-Provincial Taxation Agreement Act provides for payments to the provinces of $84,428,000. This does not include any payments which it may be necessary to make as a result of the guarantee of provincial gasoline tax revenue. However, any amount which will fall due on this guarantee in the present fiscal year is likely to be small. It will be recalled that the War Appropriation Act makes provision for war expenditures of $2,000 million. In the early years of the war actual expenditures were likely to fall short of estimates. At this stage, they are more likely to reach or exceed the estimates and I may have to ask the house for an additional appropriation at a later date. Indeed, as I pointed out to the house in March, though the total appropriation requested was $2,000 million, the individual items in the estimates, submitted by the departments at that time, totalled $2,200 million. The War Appropriation (United Kingdom Financing) Act provides for expenditures of $1,000 million to furnish food, raw materials, and munitions of war to the United Kingdom. Of this amount, the sum of $76 million was used to purchase sterling accumulated during the month of March and this sum logically, and as intended, should have been charged to expenditures for the year 1941-42. It was, however, impossible to determine the amount and effect the necessary accounting entries before April 30, the last date on which charges could be taken into the accounts for the last fiscal year. While the gift to the United Kingdom is limited to $1,000 million, it already appears likely that ways and means will have to be found to finance further shipments before March 31, 1943. Adding these estimates together, we arrive at a total of $3,570 million. In view of the considerations I have mentioned, the figure is likely to be exceeded. I feel, therefore, that it would not be safe nor fair to the house and the people of Canada to make financial plans for less than expenditures of $3,900 million. The Budget-Mr. Ilsley

To meet these requirements, it is estimated that with present taxes and tax rates, our total ordinary revenues for the fiscal year 1942-43 will be approximately $1,672 million. The following statement shows how the estimate is made up and, for comparative purposes, the estimated yields for 1941-42: 1912-43 1941-42 (millions) (millions) Customs duties . $ 135 $ 142Excise duties . 123 110Sales tax . 218 236W'ar exchange tax . 95 101Other excise taxes . 85 116Income taxes- Personal . 240 190Corporate . 200 186Interest and dividends. . 28 28National defence tax.... . 150 107Excess profits tax . 275 135Succession duties ,. 15 7Miscellaneous . 3 3$1,567 $1,361Non-tax revenue .. 105 103Total ordinary revenue., .. $1,672 $1,463 It will be noted that we anticipate substantial increases in revenues from national defence tax and personal income tax and a very large increase in the yield of the excess profits tax. These will result from increases in incomes and the application of the rates of the 1941 budget to incomes for a full year. We also look for a sizable increase from excise duties. We anticipate that the yields of the sales tax, the war exchange tax, and other commodity taxes will decline by about $55 million since a large number of goods subject to tax will not be available in the quantities purchased last year and inventories being used up will have already been taxed. Obviously, the amount of such decreases is very hard to estimate with accuracy. The figures which I have given are the most careful guesses which we have been able to achieve.