June 23, 1942

Advances to Commodity Corporations under Department of Munitions and Supply- Purchases of Railway Equipment Working Capital, Canadian National Railways Since the beginning of the war advances companies. The following table shows the net have been made to provide working capital for balances in respect of these advances as at the commodity corporations set up by the Depart- close of the fiscal year 1941-42: ment of Munitions and Supply and for other Commodity Corporations- Melbourne Merchandising Company Ltd. (Wool) $ 5,531,000 Fairmont Company Ltd. (Rubber and hides) 11,955.000 Plateau Company Ltd. (Silk) 958,000

Other Companies- Atlas Plant Extension Ltd 6,207,000 Research Enterprises Ltd 285.000 Algoma Steel Corp. Ltd 4,000,000 John Bertram and Co. Ltd 312,000 Dominion Steel and Coal Corp. Ltd 1,577.000 English Electric Co. of Canada Ltd 777.000 Steel Company of Canada Ltd 2,545,000 A. C. Wickman (Canada) Ltd 75,000


$ 34,222,000 REVISED EDITION

The Budget-Appendix

Of the above total of $34,222,000, the sum of $9,891,000 represents the aggregate of the net balances as at the close of the preceding fiscal year 1940-41, thereby making the net advances for the year $24,331,000. The advances to the commodity corporations have been brought to the account as assets because the funds represent either cash balances in the hands of the corporations concerned or are invested in commodities, such as rubber, leather, silk and wool, that are readily marketable after the war as commercial commodities. The advances to producing companies will be invested in commodities, goods in process, etc., that may not be readily saleable in the commercial markets after the war, although in some lines at least a considerable sum will no doubt be realized by liquidation. For this reason advances of this latter type have been charged to expenditures for the year in which they were incurred. Advances by way of loans repayable over a specified period have been made to a number of private corporations to provide additional plant and equipment facilities. Repayments in the amount of $4,582,000 have been received, and the balance outstanding at the close of the fiscal year is shown at $15,778,000. 26. In addition to the foregoing advances, there have been advances made under authority of Section 3 of the War Appropriation Act, 1941, which are recoverable from the Government of the United Kingdom or from other allied governments. These advances were made to facilitate the provision of services for the said governments. The charges which are brought to account against the respective governments are for services and supplies, such as services arising out of recruitment and training in Canada of the nationals of allied governments, and supplies, repairs or equipment for units of the Royal Navy or naval vessels of allied governments entering Canadian ports. Recoverable vouchers are raised by National Defence authorities at points of origin and are cleared to Ottawa where they are brought to account against the governments concerned and billed regularly. On the whole these accounts are repaid promptly by the respective governments. Naturally the major participant in this type of operation is the Government of the United Kingdom. Under Army Services there are charges arising out of the operation of internment camps in Canada for prisoners of war and internees sent from the United Kingdom. As at March 31. 1942, there was a balance owing on this account of $854,000. The Naval Services has a large operation arising out of the servicing of His Majesty's ships at Halifax and Esquimalt dockyards and at other points. A similar service is rendered to Canada's naval (Mr. Ilsley.l units when they are in United Kingdom waters. Under Air Services the major operation arises out of the Air Training Plan in Canada. This has resulted in substantial charges against the United Kingdom for equipment purchased in lieu of a contribution in kind provided for by the original agreement, and also charges for supplies, services and construction work arising out of the establishment and operation of the R.A.F. Special Schools in Canada. The debit balance in these two accounts as at March 31, 1942, is estimated at $102,419,000, all of which will be adjusted when the new Air Training Agreement becomes operative as at July 1, 1942. In respect of participation in the Air Training Plan by Australia and New Zealand, the former had a small balance owing of $2,- 812,000 as at March 31, 1942, while New Zealand's obligations had been fully met. It must be understood that corresponding services are rendered to Canada by the United Kingdom in connection with units of Canada's Armed Forces serving in the United Kingdom. In this case the United Kingdom Government bills Canada, but necessarily settlements can only be made some considerable time after the services have been rendered by the United Kingdom authorities. It is impossible as yet to give a close estimate of the amount payable by Canada as at the close of last fiscal year but it is fair to assume that this will substantially offset the amounts due the Dominion. An estimate of the amounts owing to Canada, as at March 31, 1942, in respect of recoverable advances made under Section 3 of the War Appropriation Act, is as follows: Army $ 1.595.000 Navy 11,802.000 Air [DOT] 1.017,000 Internment Operations 854,000 R.A.F. Special Schools 53.730.000 B.C.A.T.P.-U.K. Equipment 48.689,000 B.C.A.T.P.-Australia's share 2.812,000 Total $ 120,559,000 27. Before leaving this summary of war expenditures, it may be well to call attention to the indirect assistance given to the Government of the United Kingdom during the fiscal year under review. In the past such assistance has taken a form which did not result in direct Government expenditure. Since the passing of the War Appropriation (United Kingdom Financing) Act, 1942, this situation has been substantially changed, as will be explained in later paragraphs. During the fiscal year 1941-42, the deficit of the sterling area in Canadian dollars amounted to approximately $1,100 million and this deficit was financed by Canada. Slightly less than $48 million was financed by private repatriation The Budget-Appendix of securities, gifts and other private transactions. Of the remaining $1,050 million which required Government financing, $365 million was financed by the repatriation of Government securities, Canadian National Railway guaranteed and unguaranteed securities and other Government guaranteed securities. The remainder, namely $685 million, represents sterling which was accumulated by the Foreign Exchange Control Board during the year. The War Appropriation (United Kingdom Financing) Act, 1942, received Royal Assent on March 27th last. Its three main provisions were: (1) the granting of a billion dollar gift to the Government of the United Kingdom to finance the purchase in Canada of foodstuffs, raw materials and munitions of war and to defray other expenditures incurred in Canada for war purposes; (2) the granting of authority to repatriate all Dominion of Canada direct Dominion of Canada obligations Canadian National Railway securities- Dominion guaranteed Unguaranteed Other Dominion guaranted securities... In accordance with the terms of the Act, Canadian National Railway securities to the value of $191,603,000 were turned over to the Railway Company and a temporary loan for this amount was made to the Company to enable it to acquire them. At the close of the fiscal year all the other securities were held by the Dominion with the exception of a small Dominion sterling issue which was cancelled. The Act provided that the Minister would acquire from the Foreign Exchange Control Board such sterling balances held at the date of the commencement of the Act as were not required for the repatriation operation, the conversion of the $700 million of sterling balances and the current operations of the Board. The cost of acquisition of this surplus sterling was to be charged to the billion dollar gift and as the sterling balances involved represented accumulations to meet the United Kingdom's Canadian dollar deficit during the major part of the month of March, it had been intended that the amount should be charged to the accounts for the fiscal year 1941-42. However, it was not possible to complete the necessary arrangements and estimate the surplus sterling until after April 30th, the last day on which an expenditure incurred in respect of the fiscal year 1941-42 could be charged to that fiscal year. Accordingly the cost of this surplus sterling, namely, $76,429,000, will appear in the Government's expenditures for the current fiscal year. and guaranteed securities and other Canadian National Railway securities held by British investors; and (3) the conversion of sterling balances accumulated to the credit of the Government of Canada to an amount equivalent to $700 million (at the exchange rate-of $4.45 to the pound sterling) into a Canadian dollar obligation which is not to bear interest until after the termination of the war. The conversion of sterling balances into a Canadian dollar obligation did not take place until after the close of the last fiscal year. In regard to the repatriation of securities, one delivery of securities was received before the close of the fiscal year. The value of these securities at the vesting prices, less interest included therein, amounted to $222,724,000. The securities so purchased by the Dominion Government were classified as follows: $ 25,338,000 $132,841,000 63,624,000

196,465,000 921,000


28. Expenditures classified as Special Expenditures for the fiscal year 1941-42 are estimated to total $62,879,000, which compares with $42,869,000 for the preceding fiscal year, an increase of $20,010,000. Payments of awards under the Wheat Acreage Reduction Plan are estimated to total $29,659,000. There was no expenditure on this account during the fiscal year 1940-41. Expenditures 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, are estimated at $11,836,000, an increase of $7,460,000 over the preceding year. The cost of administering this Act is estimated at $420,000, an increase of $74,000. 29. The remaining item under Special Expenditures which shows an increase is the provision for reserve to meet deficits resulting: from the operations of the Canadian Wheat Board. There has been added to this reserve account $12,571,000, an increase of $2,071,009 over the provision made for this purpose in the accounts of the preceding fiscal year. As reflected in the Public Accounts for the year ended March 31, 1940, an advance of $52,000,000 was made to the Canadian Wheat Board to meet possible losses of the Board in respect of the 1938 wheat crop. During the fiscal year ended March 31, 1941, an additional amount of $10,499,677 was set up in the Domin- The Budget-Appendix

ion's books as a reserve to meet the deficit of the Board not previously provided for, on the basis of calculation made as at July 31, 1940. In the fiscal year now under review, an additional amount of $12,570,828 was added to the reserve account to provide for deficits of the Board not previously provided for, on the basis of calculations made as at July 31, 1941, to the close of the last crop year. These amounts, which aggregate $75,070,505, represent deficits resulting from the operations of the Canadian Wheat Board on the basis of calculations made as at July 31, 1941. From the reserve account there was advanced to the Board during the fiscal year ended March 31, 1942, the sum of $4,623,382, which amount enabled the Board to discharge its liability in respect of advances made by chartered banks to the Board and guaranteed by the Government of Canada in connection *with the marketing of wheat crops up to and *including the 1938 crop. As a result of these advances the amount now held in the reserve account is $18,447,123. 30. The total of the increases of the various items of special expenditure, noted above is $39,264,000. Offsetting these increases there was a reduction of relief expenditures of $19,254,000, leaving a net increase in Special Expenditures of $20,010,000, as compared with the previous year.


The next major classification of expenditures comprises the losses of and the non-active advances to Government-owned enterprises, which are operated as separate corporations. Canadian National Railways 31. The operating revenues of the Canadian National Railways for the calendar year 1941 totalled $304,376,000, an increase of $56,849,000 or 23 per cent over the previous year. With the single exception of the year 1928, this represented the largest revenue in the company's history, and was more than double that of 1933. Operating expenses of the railway amounted to $237,768,000, an increase of $35,249,000, or 17-4 per cent over the preceding year. Net revenue available for interest on the railway's debt amounted to $54,361,000 compared with $33,474,000 in 1940. After payment -of interest charges of $44,698,000 on debt held by the public and interest charges of $5,647,000 due to the Government in respect of temporary loans for capital and refunding purposes there was a net cash surplus of $4016,000 compared with a cash deficit of $16,965,000 in the pre- vious year. This cash surplus, the first since 1928, was paid over to the Government in redemption of temporary loans. The operating deficit of the Prince Edward Island Ferry and Terminals during 1941 was $424,000 compared with $461,000 in 1940. Canadian National Steamships 32. The operations of the Canadian National (West Indies) Steamships Limited in the calendar year 1941 resulted in a cash surplus of $1,206,000 after payment of interest on bonds held by the public but before depreciation and interest on advances from the Government. The comparable figure for 1940 was $666,000. The operating surplus was paid to the Government as interest on advances (current and arrears). National Harbours Board 33. The operations of the facilities and harbours under the administration of the National Harbours Board recorded a slight gain over 1940. Operating income for the calendar year, after payment of interest to the public but before depreciation and interest on Government advances, totalled $5,174,000 compared with $4,942,000 in 1940. Financial assistance provided by the Government to the National Harbours Board and charged to Dominion expenditure totalled $791,000. This amount is made up as follows: $33,000 for the operating deficit of the Churchill Harbour; $342,000 for non-active advances in respect of the deficit of the Jacques Cartier Bridge at Montreal; $400,000 for the retirement of debentures of the Quebec Harbour Commission; $2,000 for the redemption of debentures of the Saint John Harbour Commission; and the remaining $14,000 for miscellaneous capital expenditures at various ports. The elevators at Port Colborne and Prescott operated at a profit during 1941 and the Government received $213,000 from these sources which was credited to Ordinary Revenue. Summary 34. The total amount charged to Government expenditures resulting from the operating deficits of, and non-active advances to, all government-owned enterprises totalled $1,215,000 as compared with $18,182,000 in the previous year. This decrease of $16,967,000 was due entirely to the better operating results of the Canadian National Railways, as there was a slight increase in expenditure on other government-owned enterprises. Loans and Advances to government-owned enterprises which are treated in the Public Accounts as Active Assets are referred to in a later section. The Budget-Appendix


35. The total of Other Charges, the final main category of expenditures, is estimated at $31,993,000. The principal item included in this total is $25,000,000, to increase the reserve to meet possible losses on ultimate realization of assets treated as "active" in the Dominion's balance sheet. This is the same amount as was provided for in the Public Accounts for the year ended March 31, 1941. In addition, there was the usual annual write-off of Soldier and General Land Settlement Loans estimated at $271,000, and cancellation of Canadian Farm Loan Board Capital Stock, amounting to $10,000. The provision for a further reserve of $25,000,000 and the write-offs from Active Assets result in a proportionate increase in the net debt of the Dominion. 36. The Canadian National Railways Securities Trust Stock, representing the proprietor's equity of the Dominion in the Canadian National Railways, has been increased by $4,016,000 due to the surplus earnings of the Canadian National Railway System for the calendar year 1941, and also by $99,000 due to the capital gain on redemption of Grand Trunk Railway 4 per cent Perpetual Debenture Stock at a price below par in Canadian funds. Both these items are offset by similar amounts included as special credits to Consolidated Fund already referred to under Revenues. 37. Write-offs from Non-active Assets include $2,539,000 from the Canadian National Railways Securities Trust Stock, representing line abandonments during the calendar year 1941, and $58,000, the yearly established loss on Seed Grain and Relief Accounts of the Department of Mines and Resources. Both these items are offset by similar amounts of other credits already referred to under Revenues.


38. The grand total of expenditures for the fiscal year 1941-42, under the various categories enumerated, namely, Ordinary Expenditures, Capital Expenditures, War Expenditures, Special Expenditures, Losses of and non-active advances to government-owned enterprises, and Other Charges, is $1,894,966,000. 39. The following table shows the percentage distribution of revenues and expenditures for a number of important items of revenue and expenditure. Receipts from various taxes and other revenue sources are shown as percentages both of total revenues and of total expenditures. Similarly, several of the main items of expenditure or groups of such items are shown as percentages both of total expenditures and of total revenues. This table should only be used for the purpose of drawing broad conclusions as to the relative burdens imposed on the treasury by the several important services or obligations of Government. PERCENTAGE DISTRIBUTION OF REVENUES AND EXPENDITURES, 1941-42 (000 omitted) Revenues Amount (estimated) Percentage of total Revenues Percentage to total Expenditures$ % %Ordinary Revenue- Income Tax 403,607 27-25 21-30National Defence Tax 106,637 7-20 5-63Excess profits tax 135,168 912 7-13Succession duties 6,957 0-47 0-37Oustoms Import Duties 142.392 9-61 7-52Excise Duties 110,091 7-43 5-81236,184 15-94 12-46War Exchange Tax Manufacturers, transportation and communication, stamp 100,874 6-81 5-32116.368 7-86 6-14Other tax revenues 2,637 018 0-14Total revenue from taxes 1,360,915 91-87 71-82Non-tax revenues 102,569 6-92 5-41Total ordinary revenue 1,463,484 98-79 77-23Special receipts and other credits 17,801 1 -21 0-94Grand Total Revenues 1,481,285 100-00 78-17 The Budget-Appendix


(000 omitted) ' Expenditures Amount (estimated) Percentage of total Expenditures Percentage to total RevenuesOrdinary Expenditure- Interest on Public debt $ 154.270 % 8-14 % 10-4116,430 0-87 in 170,700 901 11-52 Subsidies to provinces 14.409 0-76 0-97Compensation to provinces under taxation agreements 21,120 Ml 1 -43Old Age Pensions 29,612 445 1-56 2 00Civil pensions and superannuation 0 02 0-03Pensions and after-care of soldiers- Pensions, war and military 40,582 214 2-74Treatment and after-care of returned soldiers 12.733 0-67 0-86 Total 53,315 2-81 3-60 Agriculture 8,437 1,684 2,232 10 727 0-45 0-57 0 09 0-11 0-15 Legislation 012 Mines and Resources 0-57 0-73Pest Office 41,495 2-19 2-80Public Works 11,936 15,448 02,409 0-63 0-81Transport 0-82 1-04 4-21All other 3-29 443,969 23-43 29-97 Capital Expenditure- Railways 5 Public Works 3,352 0 18 0-23 3,357 018 0-23 War Expenditure 1.351,553 71-32 91-24 Special Expenditures- Relief expenditures 8,393 41,915 12,571 0-44 0-57Prairie Farm Assistance including wheat acreage reduction 2-21 0-67 2-83 0-85 Total Special Expenditure 62,879 3-32 4-25 Government Owned Enterprises- Losses charced to Consolidated Fund- Prince Edward Island Car Ferry & Terminals and National Harbours Board 457 002 0-03Loans and Advances non-active- National Harbours Board 758 0-04 0-05 1,215 0-06 0-08 Other Charges- Write down of assets 27,878 1 47 1-884,115 0-22 0-28 31,993 1-69 2-16 1,894,966 100-00 127-93

The Budget-Appendix


June 23, 1942