3140 COMMONSThe Budget_M f. Dunning

--------'-----------transport commi9Bioners for an inquiry intoBell Telephone Company rates. The p;overn­ment is not required to take an-y action iDorder to set an inquiry in moLion, and doesnot propose to do so.

Mr. CHURCH: I mould like to hear fromthe Minister of Labour.

Mr. SPEAKER: Order.

Mr. ROGERS: M)' answer is the same.Mr. CHURCH: If the minister will look

at the rcturn he will find that a.s yet DOinquiry hu been alarted.

Mr. SPEAKER: Order.

THE BUDGET

AN~UAl, FI:iA:,,/C1AL 8TAl'EMENT OF THE ),fINISTER

OF FlNANC&

Hon. CHARLES A. DUNNING (MinisLerof Finance) moved:

That Mr. Speaker do now leave the cbair lortbe houlle to 10 into committee or way. andme'll8.

He said; :Mr. Speaker, in -these yeau thetask or a Minister ef Finance in preparinl anational budget is not an enviable ene. E\"enif only domestic factors had to be cODllidered,tbe difficulties would be great enough for acountry still in the proce311 of recovering fromthe effeets ef prolonged depression. But. to-daydomestic problems are enormously &ggl1lva~d

b}" the turnloil and confusio::! ef tbe outsideworlt!. und Mthe best laid plaw" or govern­ment ~nrl btaineM may be suddenly upset bydn.matic e"ents ebewhere or incalculable shiftsin world trends. We a:-e an org:1I1ic part of atroubled ~nd ~minglr crazy \Verld, and theimpact of that world affectll us sbnormally byrea50Q of the instantaneous transmi!l5ioo. ofneW:!! lind rumours by meaDS of the radio,telegraph and telephone.

Like its predecessor but in ellen more strik.ing degree, the year I\'hich I ha.ve now toreview ha", been packed with drama and ten­sion. One interolltional crisis hilS crowdedupon the heels of another. Naked aggrcssionha.s caused a grim procession of tragedies andrepeatedly altered the map of Europe. BruteCorre has been publicly Ilcclaimed by lOmesttle!men as the only philosophy lor the guid.ance of international relations. The word ofgrut oat ions has beeD plighted only to bebroken. almost before the io.k was dry on thedocument. Every small nation of Europebas lived in perpetual fear or its own eafety.The mills of indu.5try bave evef)"Where beenfrantically speeded up to grind out the wesPOellof dutruction. Economic autarcby hu spreadove~ a larger portion of the earth'. INrfaeeand trading between nations wbich sbould be

(),fr. U.....~.I

~ cooperativ~ process hili tended to degeocrateIDto economiC warfare. A tense public h.,turned its attention more and more to diplmatic and military affairs aDd less and less :the normal busine8l! of living. Although attimes the tension has been relaxed, these inter.IU~es hsve been.al! ~ '.hort .nd the reCUnincrues do Dot diminiSh In severity. I

Ineviubly this reversion to political ltIdeconomic barbarism hllJl cast a dark abadowO\'er econ~mic life which baa im.peded reeoverynol only In Europe but Oct thIS «lntinent AI

w~lI. .Recovery has on lev.eral O«MioDiraIsed ItS head only to be buned again in anew wave of fear and uncertainty. Confideneeand courage are essential for tbe effective work.ing of any economic system based on iudi.vidu~[. liberty .and private enterprise. Theilequalities 4fe dIfficult to develop in the worldor to-day but at leaat in Canada there is morechance for their exercise and developmentthan in most other countries.

Our fiscal yea.r opened lut April with I

recession in business under way io. most oftbe larger countries. While most severe inthe Uoited Stites it was substantial in Gre.tBritain as well, and only I few areas escaped.The recession, while sharp, wa.s short-lived andby the fall revival "'·u under WilY in mOltcountries. Canada "'ll$ one of the fint toshow a substantial uplurn in industry, and OUlrevival hu been more Q.l.tural th.n tha~ ofmost ether countries. UDdoubtedly the levebof .pmductioo and incomes in Euro~ are due~'ery largely to the ever quickening pace ofrearmament. 00 this continent ,pendi~g fordefence purpose! has played III yet. only aminor part in economic life, so tbs.t our busi­De!.! and employment are not dependent asyet to any important extent upon this artificialstimulus.

The Canadi:lo economy has llhown a re­markable degree of strength and recuperati\'epower in the face of the external pressures towhich I have referred. We utered the pastfiscal year still burdened with the effects ofour disastrous crop failure of 1937 and de·pressed both by the drastic rt'ce!sion in theUnited St.ates and the uncert3.inty followingthe annexation of Austria. Nevertbele!l8 ourprevious recovery blld been a sound one andour industry and trade wert' not hllndicappedby excessive inventory accumulation, bygra~diose expansion. of productive lacilitiell,or by exccssi\'e rises in wsges in capit.sl goodll'or export indUlltries. Nor had our securitymarket.!! been pushed to inflated levels by anextravagant use ef credi~. For these and otherreason.s our domestic situation was basic:ally.sound and the recession lIFU checked bef~

it had gone very far.

APRIL 25, 1939The Budoet-Mr. Dunning

3141

The coune of our economic activity duringthe year is reflected clearly in our moat com­prehensive index, that of the physical volumeof obulrineS!, which covel'll activity in manufac­turing, mining, lumbering, oonstrnction andtrade. From the peak point of 127'9 reachedin NO\'ember, .1937, this index fell to a lowpoint of 106·7 in February, 1938, ftatU!oed outat a 8Omewha't higher level during the springand summer, and then recovered during theearly fall to a level of 123·4. in November,1938. The preliminary index for March, 1939,stands at 113'1 or 4. per cent above the figurefor the same month of the previous year.Other indexes of a general nature tell sub­stantially the same story. Preliminary e.'lti­mates of the national income indicate a prob­able figure for 1938 of about $1,460,000,000 orapproximately 7i pcr cent below the totalfor 1937.

Not all our major industries were equallyaffected by the world recession. However, asI am including a more systematic rel·icw ofrecent trends in a supplementary paper, I shallnot in this address do more than make refer­ence to certa.in special features which illustratesome of the points I wish to make.

It is rpassuring to note that in spiU! of thcullfavourahle weathcr conditioM and the re­ccnt extraordinary series of internationalcrises, business Mtivity has maintained part ofthe gains it made last fall and we cnter the~pring and summer with certain definite indi­cations of further improvement. Pre-seasonmoisture conditions for the 1939 prairie cropJlare in general excellcnt, and the live stockmarkets haye becn imprO\'ing in recentmonths. During the first quarter of this calen­dar year, construction contracts awarded wcre6 per cent and residential contracts 92 percent higher than for the snme pcriod in 1938,anu the immediate outlook is for Ilo furthcrsubstantial improvement in residential con­struction. Our most important lumberingarea, British Columbia, has benefitcd frombetter weather and an improved demand inforeign markets. The log scale for the firstthree mont!ls of 1939 was almost 60 per centhighcr than that for the first quarter of 1938.In our centrnl and eastern fOTest industriesconditions have not been so favourable butprogreS! hllJl been made in reducing accumu­lated stocks. Manufacturing opera.tiona willbenefit from improving economic conditionselllCwhere Ilnd from increaJlCd defence expendi­tllreJl, both Canadian and British. Finallythe mineral industries llCem destined to con­tinue their impressive record of expansion.Exploration and development work has con­tinued, although at II. slightly slower pace;operations have been carried on over a more

extensive area than ever before, and the com­pletion of ncw milia, the reopening of oldmineJl and the discovery of new ore bodieshave brought the industry's production facili­ties to an all-time peak. In addition it isinteresting to note the rapid developmentwhich is going on in the oil fields of Albertaand the reported diJICovery of II. large com­mcrcial deposit of high grade iron ore innorthwestern Ontario.

The changing trends in the prosperity ofour various industries mainly reflect ootinternal conditions but lowered demand andfalling prices in external markets due to theworld recession. ThiJl iJl a price we musiinevitably pay for our dependence on worldtrade, but as I pointed out last ye.ar it is aprice considerably smaller than that whichwe would ha.ve to pay in terms of a lowerstandard of Jiving and other costs incident toa policy which would forte readjustmcnt ofall our industry onto a purely domestic basis.Such a change would be unthinkable for apopulation of eleveo millioo people Jiving inso large an area endowed with 50 much of theessential raw materials of the world's industry.

During the calendar year 1938, Canadamaintained its position as the world's fourthlargest exporting country and displaced Japanas the fif'.h ranking natioo in terms of totalexternal trade. }'or the fiscal year endedMarch 31, 1939, our total merchandise ex­ports, excluding gold, aggregated 1841,600,000,down 15·1 per cent from the total for thepreceding fiscal year. Net exporUl of non­monetary gold, however, increased by 13'4per cent to $167.500,000. For the same period,total merehllndise imports amounted toS658,200,000, a decrease of 17·6 per cent. Thismesnt an export or so-called "favourable"b::tb.nce of trade of no lcss than S350.900,0CKlM compared with tt339,BOO,OOO duriDg the pre­ceding year.

Practically all our decrease in exports ofmerchandise, excluding gold, was accountedfor by lower sales to our two largest markets,the United States and the United Kingdom,which countries sufferCii most from the pre­vailing recession. Exports to other countriesof the British commonwealth were down b}'only s.~,200,OOO, nnd exports to nil other coun­tries decrellscd by lcss than 6 per cent. Thcbeneficial effects of our comprehensive tradengreement with thc United StateJl are alreadybeginning to mnke themselvcs felt, and forthe first quarter of 1939, our exports of mer­chandise, exclusive of gold, to that countryregistered a gain of nearly 16 per cent overthe total for the same pcriod in 1938. It is asignificant tribute to the imporlance of oufttreaty that the dollar amount of thia increasein United States imports from Canada was

3142The Budget-Mr. Dunning

COMMONS

greater than the total incre:tse in their im­ports from all countries. Fortunately, also,business prospects for both the United Statesand the United Kingdom for the current fiscalyear arc such as to justify high hopes for asubsUlntial expansion in the Sille of our exportcommodities to these two great markets. Busi­ness in Creat Britain has been improving inrecent months and under the rl!vitalized re­armament program it should continue to im­prove because that country still has unem­ployed resources available for expansion. Inthe United States, the revival of last fall hasbeen checked by prc\'ailing uncertainty duringthe !::lsI. few months, but not even the warclouds in Europe will suffice in my opinion towithstand the upward pressure of the power­ful economic forces making for recovcry onthis continent. If only the fear of war couldbe removed, there would be released long­pent-up economic and social forces whichwould. I believe, soon transform again theeconomic organization of the world into avibr:mt, dynamic machine bringing new pros­perity and happiness to all countries.

Our huge export balance is an evidence oCthe strong position ,which Canada enjoy19 inher intemational 'balance oC payments. Onmerchandise account alone, this balance duringthe calendar year 1938 was 1171,200,000, towhich should be added another '160,500,000representing net exports oC gold. Our touristtrade suffered somewha~ Crom reduced incomeson the part of our potential visitors, but, never­theless, net tourist expenditures in Canadareached the imposing tolal of $149,000,000. Ourcredit balances on merchandise, gold andtourist accoun~ en!lJbled us to offset our debitbalance! in respect of interest and dividends,freight charges and various miscellaneousservices, and left us ·with the substantialsurplus on current account oC 1185,000,000.As in previous years, this current surpluswas used to repatriate Canadian securitiesand retire other Canadian, indebtedneSll pay­able abroad. It is not generally recognized,I ~hin.k, that as a result oC such tra~ctionsCanada has ,been a ne~ exporter of capital tothe extent of over 1900,000,000 during the lastfive years. This is a tribut.e to our inherentfinancial strength and an evidence oC increaseda.bility to withstand financial storms in thefuture. During the last few months there hasbeen an inflow of capital in considerablevolume from the continent of Europe, andthis inflow is apparently continuing, reflectingthe faith of European investors in the saCetyand profitableness of investment in this.country. To the exten~ that this capitalrepresents "fright money" ready to takeflight again at a moment's notice, it may

[)Ir. Dunning.)

create new problems, but to the extent th&tit consists o'f funds which seek, or will inpractice find, permanent investment in Canadait is to be welcomed. Fortunately, i~considerable part at leas~, it seems to beaccompanied by that much-needed spirit ofenterprise which will foster the establishmentof new industries and the expansion oC old.

Interest rates have continued lDW. Ourhigh_grade bond market has followed the risiD«trend in New York rather than the decliningtrend in London. The yield on long-termdominion bonds has recently been lower thanat any time in our history, except Cor a shortperiod in 1936, and also lower than the yieldon similar obligations of most other countrieeexcept those oC a few oC the great creditornations with which it compares very Cavour_ably indeed. Many municipal creditll haveshown 8 substantial and very welcome improve_ment during the year. Bank reserves, deposits,10:\Q.S and investments have continued toincrease, and Canadian ,bank deposiu at thecud of March aggregated $2,485,000,000, 22'2per cent above the level of Mareh. 1935, justafter the establishment of the Bank oCCanada, and 8·8 per cent above the figure forMarch oC the boom year, 1929.

Recession in the United States, Great Britainand elsewhere had its usual effect in depressingthe level and disturbing the relations ofcommodity prices. Our index of wholell8.leprices sOOod at 73·2 in March last as comparedwith an average of 78·6 for 1938. As in theprevious depressions of 1921 and 1930, the fallin prices has ,been particularly severe in thecase of Coodstufb and raw material. Metalprices have' risen again since their drop lastspring, but prices of farm products remainseriously depressed in world markets. Thisspecial weakness oC ,carm prices is due to avariety of causes, chief among which are thecontraction of import demand on thl! part ofcountries striving Cor increased self-eufficiencya[ld the too rigid nature oC Carm productionin the great exporting countries. The agricul­tural crisis remains with us still and shows upwhenever world demand for Carm productsCalters.

I need hardly point out to you, Mr.Speaker, that these general conditions a££ect­iOR agriculture throughout the world applywith particular emphasis to wheat, so longthe backbone oC international trade. Becauseof this and because Canada must export notonly wheat but mellt and live stock, dairyproducts and fruit, -the impact of any worldrecession falls with special severity upon thefarmers oC Canada.

Agriculture can do little to protect itselfagainst these international storms. Other

APRIL· 25, 1939The Budget-Mr. Dunning

3143

producers can contract their output, can fre­quently layoff their workers to live at publiccost upon the relief rolls, while their con­traction in output prevcnts a disastrous de­cline in price and the disappetLrance of profit8.Farmers cannot readily do these things. Inparticular our western wheat growers, whohave suffered from crop failure for a longseries of years, cannot be elt:pected to faceunassisted this international problem. In timeagriculture may, and should be expected to,adjust itself to the new problems created byinternational developments, but such adjust­ment involves a long and slow prOteM. Inthe meantime, agriculture, if allowed to re­main depressed, would have serious adverseeffects upon the rest of our economy. It iatherefore, only self-interest for all of us tosee that everything that can possibly be doneia done to improve the economic standing ofagriculture. Only thus can all industries andall sections of Canada achieve the maximumof prosperity. Only bhus can we preserve andstrengthen national unity.

This WlUl the relUlon for tbe guarantee of abasic minimum price of 80 cents for tbewestern wheat crop of last year. That guar­&Iltee may cost the dominion treaaury a sub­stantial sum of money, but at the time itwas given there were few, even amongst theindustrial and financial leaders of eastern Can­ada, who did not believe it justified in view ofthe dl'lLStic decline in the world price of wheatand the general economic interest of thecountry as a whole. Experience has Mownthat there may have heeu defects in themethod by which the &Slistance was given,but it was, of course, the only form of assist-­ance pO!lSible under the legislation which Wll!upon our statute books when the crisis arose.

I have for many years expressed the per­sonal view th&t the best form which assistanceto agriculture can take is that of helping thefarmers to help themselves. This the govern­ment is attempting to do by ita prairie farmrehabilitation program, ita various melUluresto assist cooperative marketing, and iUl in.tensified effor·ta to improve the quality ofagricultural products destined for foreignmarkets. In the contemplated legislation toprovide for the sctting up of a central mort­gage bank we are striving to do two things,also primarily in the interest of agriculturebut for ,the benefit of the urban home-<lwneras well. First, we arc attempting to deal withthe immediate problem of excessive and har­using indebtedness by providing for an ad­justment of existing mortgages on an equit­able basis which will inspire new hope inthe debtor. Secondly, we are trying to finda IOlution for a longer run problem by

1Itn-198

encouraging the revamping of the whole finan­cial structure which has been built up toprovide long term mortgage credit. In thiaway we hope to put mor·tgage lending on anew basis, which will be not only strongerbut also more flcxible, more economical andmore equitable. Finally, but not least import­ant, we have done and are continuing to doour utmost to secure for our farm productaentry on more favourable terms into the greatexport markets of the world.

In providing aid to agriculture at this time,we wish it to be assistance that will promotea more efficient, more prosperous and morevigorous industry, We wish it to accelerate,not to impede, the development and expan­sion of our Canadian economy as a whole.It is e!lSCntial that our economy develop andexpand. We have seen during the last eighteenmonths that Canada has a strong economicsystem able to withstand shocks from natureand from the world outside our bordeT!3. Wehave demonstrated our strength and stability.But we must not let stability become stagna·tion. l( we can no longer count on greatpossibilities of expansion extensively by push­ing baek farther the borders of settlement orby means of a rapid growth in population,then we mUllt expand intensively by improvingour capital equipment, by making ouI'll abetter rather than a bigger country. On thefrontiers of science, invention and technology,the possibilities of expaDBion are greater thanthey ever were on the geographical frontier,

Both the· necessity for expansion and themeaos to make it possible are found in thevolume of unempJosment that remains withus still. Without taking time to analyse thefigures of unemployment, I wish to expressmy own conviction that the number of unem­ployed in Canada who are willing and able towork, with or without retraining, is not now 90

great that it should be beyond the capacityof an expanding Canadian economy to absorb.

However, in order to expand production,employment and incomes, we must have sub·stantially more capital creation, a more rapidrate of private investment. Someone mustcom·crt n. larger proportion of the 88vingsof the people into capital expenditures orelse our national income will decline again.Look back on the history of this or othelcountries in their modern phase and youwill find prosperity only with expansion, onlywhen the people were busy creating neweapital works. In our prosperous first decadeof thill century we were busy extendiog ourcapital equipmcnt, building cities, railways,harbours, elevators and factories. In ourpost-war period of prosperity from 1925 to

U'IIIID DiTtON

3144The Budget-Mr. Dunning

COMMONS

1930, we were busy building houses, factories,power plants, roads and automobiles. Sincethat time, investment in durable goods haalanguished. It revived somcwhat in 1936 and1937, particularly in the mining industry,and persisted well into 1938, with some rece!-­sion thereafter. But it is still very far belowthe levels n~eded to utilize fully our increasedlabour and other resources. Its full recoveryis our greatest need to-<iay.

This government has striven with all iUleffortl:l to restore private capital creation. Thiswas the main purpose of our easy moneypolicy. That policy has been successful ineffecting a substaotial reduction in interestrates, both short and long term. The reduc­tion in long term interest rates made possiblemany projects otherwise unprofitable. mademany improvements in fixed plant and equip­ment worth while, and by permitting savingsthrough refunding it has strengthened the fin­ances of mllny industries thus putting them ina position to carry out desirable expansion.It has materially reduced the interest burdenon governments and is bringing about agradual lowering of the rate of interest onmortgage funds which is onc of the factorsresponsible for the recent recovery in resi­dential construction.

Some crit-ics have claimed that this easymoney policy has not been carried far enough,and, indeed, in this house a few days ago, theasl.ounding assertion was made that our mone_tary policy had been deflationary or at leasthad had deflationary effects. How absurd thatassertion was is apparent from even the mostsuperficial examination of the facts. Thevolume of bank deposits is probably the bestsingle indicator of the effects of monetarypolicy, and certainly the United States. Aus­tralia. the United Kingdom and Sweden arecountries which are usually quoted to us ashaving made effective use of monetary policyas an instrument of economic recovery. Well,what are the facts? Comparing 1938 withthe depression year 1932, the average volumeof bank deposits in Sweden had increased by15 per cent, in Australia by 16 per cent, inthe United States by 22 per cent and in theUnited Kingdom by 23 per cent, whereas inCanada the increase was slightly over 25 percent.

I sincerely believe that Canada's monetarypolicy in the last. few years has been wiselyconceived and carried out with great skill byour financial officers. I am convinced further­more that a policy of more rR?id expansionwould have been either futile or positivelydangerous. The policy whieh hll! been fol­lowed has been one designed to expand moneyand credit as rapidly as the needs of t.he ,public

(Mr. Dunllinc·)

require but not so rapidly as to create anunhealthy, speculative expansion which wouldbe bound to eod in a serious d~ression. ~

I have frequently stated, its objective haebeen and is to promote the minimum pOSlliblelevel of unemployment by stimulating themaximum possible level of productivity thatcould be sustained over a period of time. IrfOpeat that in order to achieve this objectivemonetary policy has been used and is eon~stantly being used as far as it can wisely becarried.

While we have been endeavouring to u.emonetary policy to the fullest possible extenta3 an instrument of economic recovery, wehave always reali~ed that monetary policyalone was not sufficient to solve our problemsunder present world conditions-that it is atonic but not a cure-all. If other factors arefavourable, a good monetary policy may at.imu_late recovery, may assist greatly in securingthe de3ired ends, just 8.S a bad monetary policyi'l certain to impede progre.se. For this rell.9Onwe have adopted many other measures in thenon-monetary field, some of which I havealready mentioned. At the moment, however.I am specially referring to our efforts to 8timu­late private capital creation. Perhaps the moatimportant of these is the series of mCfl,SUreIIadopted to restore more normal activity inthe construction industry which suffered morefrom the pernicious aOlWmia of depression thanany otht!r industry in Canada. Hon. membersare familiar with this comprehensive program,and I wish to refer only briefly to the resultsthus far accomplished.

Under Ule home improvemen,t plan, whichpro\'ides a simple and inexpensive method formakinK repairs, additions and improvementsto existing homes, we had by March 31 thillyear given a limited government guaranteeto 65,690 loaM for a total volume of $26,228,621.This, of course, does not by any m('fl.ns repre­sent the total volume of modernizatioll workstimulated by the government .program. As anillustration ()f the fundamental soundness ofa lending program adapted to the needs andincome conditio08 of the small borrower, itwill be interesting to han. members to knowthat as of the same date, March 31, 'the lossellwhich we have had to pay in respect of theseloans amounted to only S1!l,037, or less than1I13th of one per cent of the amount of loansmade. The significance of this very smallamount of los$ is greatly enhanced when itis realized that over 50 per cent or the totalof loans made have already been paid off,as of the date I mentioned, March 31.

Under Part ,I of the N1l-tional Housing Ada plan has been provided whereby a Canadianfam~ly can finance the construction of a new

APRJL 25, 1939The Budoet-Mr. DUMing 3'"

home on a long term 80 per «nt or 90 percent mortgage bearing 5 per cent intert'llt andby making monthly instalments for interest,principal and taxes comparable with andusuall}' less than ordinary rentals, it can ownthat home free and clear of all encumbrancesat the end of twenty years, As of March 31,8.014 family hOUs1ng units had been fiooncedunder this plan by loans aggregating 530.­628,894. During the eight months in whichthe ame~ded legislation hat been full)' oper­ative, the total value of loans a.pproved hasincreased by 83 per cent over the volume ofsuch Joans made in the corresponding periodof the previous year. 1 am confident from theindications already received that operationsunder this act during 1939 wm result in a\'olume of loans several times as large as last~·car.

However, it seems to me that much morecan and should be d.one. The abnormallylow volume of building during the last fewyean! has built up a very large deferred demandfor new homes, particularly for persoDJI ofsmall or medium incomes, and it is in thisfield of residential cOllBtI1lction, in my opinion,that is to he found the greatest singleopportunity for new capital creation. It seemsto me, however, Mr. Speaker, that we needa new motive power to take full advantageof the opportunity provided by this leglldation.In the past the speculative builder haa beenthe driving force behind moat new housebuilding. This type of operator has frequentlybeen criticized because in many caeea thequality and the cos~ of his product left muchto be desired, hut he did perform a realservice in a country wholJe people for themost part have not yet been educated to thepoint where they are .willinc to buy a newhouse on the basis of plans and epecifications.This speculative building industry was veryhard hit during the depression, and to-da.ythere are relatively ,fet'lll buiklers with sufficientresources to provide the servke required. Wewill not get active building until this tyPe ofbusineSoS enterprise is revived or replaced by anew type. iPersonslLy 1 think we stand much inneed of a group of building or developmentCorporations along the )inee: of the estatescorporations which have put much of thedrive behind the British building boom.

On a recent occasion .I referred to thegeneroua facilities now provided under partII of the National Bousing Act for theconstI1lction of low-rental housing accommod....tion to be leased to families of law income atle99 than ordinary economic rentals. As yetno loans have been made under this part,but in l:lE!veral cities plan' have been workedout which I hope 'Will come to fI1lition in the

11(92-198l

next few monlh.a. The national empJoymen\commission believed that this low-rentalhousing field offered one of the greateatopportunities for government aaaiatance whichwould give a direct and decisive atimulus tothe eon.struction industry. Our legislationembodies their recommendations in substance,but in order to realize its immediatepossihilities and ultimate eoeial advantage ....eneed the cooperation not only of municipaland provincial authorities but also of public­spirited private citizens who will give theirtime, business ability and some capital to theorganization and management of limited­dividend housing corporations.

In addition, to make all these plana moreeffective, we took the drastic fltep 111.$ yearof removing completely the 8 per cent salestax on the major materials entering into houseconstruction. I know that thia step has beenone of the facton responsible for the lipeedingup or residential constI1lction during the lastfet'lll months, but I doubt whether the variousbranches of the construction industry have &8yet taken full advantage of the sales appealwhich exists in the reduction of building coatsmade possible by this important enactment.

To complete the record ,I may reler toanother measure adopted to stimulate theconstruction industry, and to help unemploy­ment, namely, the Municipal ImprovementsABsistance Act. During the eigh~ months inwhich this act haa been in operation, 46 loanshave been approved for a total amount of13,582,667. Five applications are pending fora total amount of 1442,731. I have rell80n toknow that apart from the contribution madeby theee loana to the relief Qf unemploymelltthey have been a veritable godsend to manymunicipalities which have only in this waybeen enabled to finance much-needed improve_menta to productive undertakings withoutadding new purdens to the shoulders of thegeneral taxpayer.

I think hon. members will agree that this9Cries of measures, responsible already· foro\'er 65 million dollars of new work, repre­sents a comprehensi\'e and powerful programto stimulate capital creation through the con­stI1lction industry, In a similar way we havetried to encourage new capital creation inother industrics. The aggressil'e steps whichhave been taken to open up and broaden ex­port markets for Canadian products have becndirected to putting our essential industriea ona profitable basis which would justify expan­sion and new investment. We hsve also en­couraged investment in ne.... mines by exempl­ing them from corporate income tax for thefirst three years of operation. by money spenton geological surveys, and by assistance in

3146The Budget-Mr. Dunning

COMMONS

constructing roads into ne1V mlnlDg areas. Upto February 18, 1939, seventy-five new minesth3~ are eligible or likely to be eligible fort:u exemption ha'"e come into product.ion, andthe prior costs necessary to bring these minesto the producing stage are estimated at $44,.000.000, of which o,'er $14,000,000 was for direct.wage!. The metal output. of these mines toMarth 31 last is estimated at over $54.000,000,with a probable expenditure of nearly $13,000,­000,000. of which over $14.000,000 was forwages llnd Mlarics. I would not, of couI'lle,contend that tax exemption is wholly respon­sible for all these mines coming into opera­tion, but the magnitude of the figures given. forprior production costs, new wealth creationand WAges and employment indicates at leutthe po99ibilities of this type of program"

We are, of course, well a1V&re of the argu­ments for pump priming in times of depres­sion, and we have hsd to increase governmentez.penditures 5lIbstantiaUy as a partial offsetto the pop in private investment. But wehave never believed that public spendinscould be a substitute for private enterprise.We have realized that public spending couldonly be a relief and not a cure, unless one isprepared to take the whole of business intogovernment hands. There are few Canadians,I believe, who are as yet willing to give uptheir society based on individual freedom andenterpriiJ(! for a system of state regimenta­tion. Under our present system governmentexpenditures are likely to lea'"e the situationno better, and perhaps 'li"0t'!le, when they arewithdrawn. If they are carried too far theyare Iilr:ely to undermine confidence in thecountry's financial position and thereby toretard employment in private industry to anextent much greater than the new employ­ment ""hicb they create. Nevertheless, agovernment cannot stand idly by and aHowthe ravages of depression to take their tollbecause of the too slow revival of private ill_vestment. Ia these days, it the people as awhole, and busiaess in particular, wiH notspend, government must. It is not a matterof choice but of sheer social necessity. Thealternath'e is a greater burden of relief andgreater dangers from deflationary forces. Thisis the reasoning, Mr. Speaker, behind theincrease in our special expenditures alreadyproposed to you in supplementary estimate.no1V before the bouse. These estimates arebued as far as poasible on projects of aproductive and self-l.iquidating nature, pro­jects which are intended to cOBSCrve or developour resources. While it is hoped they willincre3.."C nllt.ional 'income and expand nationalwealth over a period of time; neverthele9l!l

IMr. DulUlin,.)

they irwoh'e expenditures tlHfay. We darenot, we cannot.., contract our expenditures untilour industries and our people generally arespending more freely. When private invest­ment expands, not.. only will we find our needfor government expenditure less, but alsoour revenue receipts will be .so much increasedthat debts can be reduced and taxes lowered.

We hear a great deal tlKiay about the needof leadership and public men have been sub.jected to much criticism on that score. 1would be the last to deny our own limitationaand the mistakes which have been made in thepast by governments just as by otherpeople, and no one would welcome more thanmYllelf the development of an informed andvigilant citizenship that would constantly Mud)'public problems and keep public me.n advi.stmand alert. But.. I speak with all candour andwith no attempt whatever at defensive criti­cism when I say that.. it is in the field ofprivate investment that. le&dersbip and cour­age are most needed in Canada to-day. Thereare many business and financial mea who havebeen using every resource to improve pro­CC!6CS, expand plant and employment, or setup new industries. Their efforts, heart-brealr:­ing at times, have my sincere admiration. Butthey are far too few in number. In general, Iconfess to a disappointment with the lack ofimaginative business leadership in recentyears, certainly as compared with that shownby the gen(!ration wbich built our railwaY',opened up the west and transformed thiscountry in a short span of years into one of

. the great industrial nations of the world.It. may be urged that Obese are troublous

times 1Vhen one must think twice beforeputting his capital and effort into a newventure. Business men have become morecon.scious of the trade cycle and the dangersrather than the virtues of competition. Some­timea I think they pay too much attentionto ·the risks which face busineM in othercountries but whiob have less significance inCanada. In any case, risks have alwaYII existed,and business has overcome them. We shallget nowhere if our inveatins public spends itsmain effort.a not in looking for new oppor­tunities but in trying to forecast the shor¢.term movemen~ of the stock and bond mar­kets. No important lIOCW purpoae is aervedby that type of pmbling.

Repe:.ted aseertiODl are m&de that theburden of debt alld taxation in this countryis the main factor holding back businesa. Ido not believe this to be the cue. Certainlyit need not be unless irresponsible but doubt-­less well-intentioned statement.. by people

APRIL 25, Ul39The Budg(lt-Mr. Dunning

3147

who should know bet.ter convince businessthat it should be depressed by the fear ofdebt and taxes.

It seems ironical to put me in the positionof appearing to argue for higb debt and hightucs, because a major interest. of my publiclife haa been to keep the burden of debt andtaxes on the people down to the lowel!lt prac­ticable level. But 1 am forced to speak outwhen 1 hear persons who have the "me pur­pose aa I have making ilI-conaidered state­ments ",'hich llrt! bound to have the efled ofslowing up private business and therebydriving governments to perform ta.sks whichwill inevitably call for higher taXel!l and higherdebts. Those who make B1\ch statements failto realize t.bat the old days of completelawcz.Jaire, of deviJ-take-the-hindmost, havegone forever. In the world of to-day, govern­ments must act to relieve distress and preventcumulative deAa.tion, and, speaking generally,the magnitude of governmental expendituresin democratic countries is likely to be a roughmeasure of the failure of private enterpriseto do its full duty.

Public debt per capita in this country isnot as: high as in England, Australia or NewZealand; on the contrary theirs is roughlyfifteen to twenty.five per cent higher thanours. Although our dominion fundl!d debthu increuerl substantially since 1930, theannual interest. burden of that debt, allow­ing for elimination of tas-free ~urities, islower than in any year aince the war. So theincrease in dominion debt hu not. requiredany incruae in taxes to cany it. Economicconditions bave made the increased debt well­nigh ine\'itable, but a careful regard for ourcredit and the improvement of our financialmachinery have enabled us to meet thiseconomic necessity without increasing theburden of our debt. Our borrowing has notimpeded privat,e investment by forcing upntes of inl.erC!t tLgainst other borrowers. Ourtaxes are high but we do not bury the moneywe take in in taxes, as one might gather from"'hat some speakers "y. We spend it quickly,far too quickly, in my opinion, and for t.hemost parl pus it on to those who willspend it quickly again. Much of it, more-­over,~ to improve the country', economicequipment, to promote the more rapid crea­tion of Dew wealth. I do not. of course claimthat any government is perfect, nor thatgovernment. spending has always been wise.We make mistakes as other people do. Butwe are subject to and responsible to socialforces to which a private busine. can berelatively indifferent.

Nor need investment. in Canada be panly&edby the fear of war in Europe. The dangers

of war cannot be avoided by hiding. Warmight upset our commerce for a time, but theworld will t!tiU need to eat and wi1lst.i1l demand,perhaps in larger amounta, our paper, ourmetals, and our other products. War wouldmean higher taxes, higher prices, but noneof these dangers will be l\'oided by hoardingrather than investing capital. I cannot be­lieve that people in this eountry are tryingto keep their capital liquid in order to takeit. away in CaM: of war. Such plans would benot only foolish but cowardly.

Investment. in this country bas been profit.­able, Mr. Speaker. Eumination of the publicstatements of 334. corporations indicatea thattheir profits in 1938 were only 10 per centbelow the 1937 level, and etill 7 or 8 per centahove those of the recovery year 1936. Foreigninvestors have been convincingly demonstrat.­ing their faith in this country's future. Why6hould not our own inve6toTS show the "mefaith? The possibilities of profitable newinvestment have by no means been exhausted.I have alreadoy pointed out the great oppor­tunities which exist. in the field of housing.Can we not in other fielda, manufacturing,merchalldising, transport and the IlCrvice ~n~

dustrie!l, apply new methods and moderDlRequipment in order to reduce costa,lower pricesand thereby ez-pand our markets both a\home and abrosd1 Cannot we adopt. newideas developed during recent years in othercountries without waiting for branch plant.or refugees with capital to bring them to us?Have our·ot.her industries explored at all fullythe pOSSIbilities of rellearch wbich has provedsueh a profitable investment in the nickel andthe chemical industries? Have we fullyexplored the possibilities of procemng OUTraw materiala before exporting them? Havewe 80ught out all the opportunities (or theprofitable investment of capital in new indue­tries, particularly small industries?

These are vital queations, Mr. Speaker, forCanada's future. I confess that I do notknow all the answel'8 but I am satisfied thatthe low level of new investment in CanadiaDindustry is • challenge to our finaocial. iodu&­trial aDd scientific leaders to an even greaterdegree thsn it is to parliament..

II.

OOVEJlHIol£ST ACCOUNTS, 1935-39

I turn now, Mr. Speaker, to the govern­ment. accounts for the fiseal year which haajust closed. Fortunately, the procedure whichwe are now instituting will make it unnecee­sary for me to weaT)' yon with a 10Dg anddreary recital of statistical facts relating toevery category of our revenues, our expendi·

31481'he Budget-Mr. Dunning

COMMONS

tures, our direet and indirect liahilitiea, ouractive in\'eltments, and our financing opera·tions during the past year. It· ill. of COUnle,

necessary that the houae abould have. com­prehensive record of III our financial trans.ac·tions but. borrowing from the practice ot theUnited Kingdom and of Australia. I haveincorporated the details in a separate whitepaper which. with the permission of the house,r shall place on HOrwJnJ at the conclusion ofmy address. This white paper will be pub­lished as ao. appeo.dix to the budget speechand therefore ....iII be readily available to aU.The new procedure will enable me to confio.emy remarks at this stage to result, ratherthan detail in the record of the past year.

My forecMt of 8 year ago indicated anaggrell;1l.tll revenue for t.he fiscal year UI38-39of $501,700,000. 1 now estimate that, whenthe books for the year are finally closed, theywill show a toLaI revenue of 1501,677,000, orS23,OOO less than the estimate I gava thehouse a year ago. This total represcnt8 •decrease of 115,016,000 or 2'9 per cent fromthe preceding year but is higher than that forany other year in our history.

Income tax receipts at 1142,{)25,ooo set anewall-time record-lS·a per cent above thecollections of 1937-38. All other types oftaut-ion recorded decreases, particula.rly thesa.les ta.x, which reBected the decline in generalbusiness activity. a.nd also, of course, theexemption granted to the major huildiD.8rnateria.ls. Cu.!torruJ duties on a loweredvolume of imports also failed to come up toexpectation.!. Non-tax revenues. however.reached the new record level of S61,81S,OOO.

Un(ortunstcly, I Wall not so lucky in mybudget estimate oC aggregate expenditures lorthe past year. That estimate of 1524,600,000has been exceeded because of the disappoint­ingly poor earnings 01 the govemment-ownedrailwl\Y system and the prospective losses inwheat marketing resulting from the low level01 world wheat prices.

BreakinR; our total expenditutes down intothe USIl.!1 main categories, we find th!Ltordinary expenditure.! for the fiscal year 1938­39 are now estimated at approximlltely$415,372.000, an increase of only 11,480.000over the previous ye9.r.

Capital expenditures. chieBy for dredgingoperatiOM on the St. Lawrence ship channeland eonstnlction of "irways and airports..!howed little change at 14.687.000 as comparedwith the preceding fiscal year.

Special expenditures for the relief of un­employment and I\f(ricultural di.!tres.s wereless by about S20.000.ooo. The tol.&l for thiseategory wns 148,583.000 and the main items

l:\lr. Dunnin,.1

were $17,025,000 for grants-in-aid to theprovince.!, $5,790.000 for our share of jOintdominion-provincial projecta. 116,492.000 forthe cost of .solely dominion projectl, aDd19,276,000 for the cost of direct relief, food_stuffs and feed and fodder distributed in thedrought areaa of we.!tem Canada.

Governmen1-owned enterprise.! aecounted,for aggregate expenrtitures of $58.967.000 ..compared with 144,833.000 in the precedincyear. Most of this total is represented by thenet income deficit of the Canadisn NationalRailways for the CAlendar year 1938. As hon.members are fully aware from the annualreport of the railway already tabled in thehouse. thi.! deficit amounted to 154.314,000.The increase 01 SIl.!l68,OOO over 1937 wa,due to a substantial decrease-over 116,000_CJOO.-in graS.! operating revenues, which w';"particularly severe on the United States linesof the railway and which in general reBectedthe prevailing business recession, a.! well II.!

to an increase in railway \vage rate.! whichpartially offset the economies it W8.5 possibleto effect in other operating expenses of thesy!'tem.

Operations of the Tran.canada Air Lineaduring 1938 resulted in a deficit of S81S.oooafter interest on C'apital and after deprecia­tion. Canadian National (West Indiea)Steamship~ Limited achieved an operatingl5Urplu.! (after payment of interest on bondsheld by the public but before depreciationand intere.!t on government advances) of1276,000 during 1938. This surplus waa turnedover to the government in partial paymentof interest.

The operations of the harbours and facilitieaunder t.he administration of the NationalHarbours Board recorded a substantial im­provement during 1938. Operating income,after payment of interest to the public butbefore deprecill.tion and interest pllyable tothe government, totalled 13,640,000, an in­crease of 33 per cent over the correspondingfigure for 1937. Financial assistance providedby the government for operating deficits, debtretirement and capital expenditures amountedto !3,441,OOO.

Finally, other cha~e5, con.!isting mainly ofwTite-down of miscellaneous as.seLs, amountedto S3,734,000 durin.sr: 1038-39.

Hon. members who have been keeping theirpencils .!harpened may already have ealculatedthat the figures I have given for the fi\'e maincategories of expenditurea Ildd up to thegrand total of S532.343,000. This i.! 12.065,000101ver than the correspondin.sr: total for 1937-38,and with total revenues estim.!ted at S501,­677,000 it would appear to indicate an over-

APRIL 25, 1939The Budgel-Mr. Dunning

3149

ditions, this tssk is not an e&ay one. Theeconomic pattern of 1939-40 is not as yetclearly discernible and a major turn in worldevents may be near at hand which may makeconditions either very much better or verydifferent from what one can foresee to-day.

However, a Minister of Finance must takea realistic view based on the trends at workwhen his forecast is made. Taking such aview, I now estimate that, allowing for thetu changes I am about to announce. ourasrgregate revenue for the fiscal year 1939-40will amount to $490,000,000, made up aafollows:

I am fully conscious that this estimate mayprove to be unduly pessimistic.

On tbe expenditure side, the main estimatesprov,ide lor a total expenditure of 1457,200,000of which S29,400,000 represen.ts defence expendi.tures which are being oo.pitalized under thespe-cial sinking fund plan. To the remaining1427,800,000 must be added 1122,300,000 askedfor'1n 'the special supplementary estimateswhich have already been tabled, making atotal ()f SS.1O,lOO,OOO. If any further supple­men-tary estimates need to be provided du~jng

the year, I believe we may assume on thebasis of past experience that they will beoffset by savings made by the departments intlle appropriations based on the main andspecial supplementary estimates. The estima.tedtotal expenditure of S550,100,000 includes therailway deficit but does not take into accountany additional loss which may possibly occurin marketing the 1938 wheat crop, over andabove the $25,000.000 for which provision haaalready been made, nor does it take intoaccount p~ible losses with respect to the 1939crop. No man could possibly estimate whatthese i~ms may amount to or make even areasonable guess.

all deficit for the year iust cloaed of $30,666,0009Jl compared with my budget estimate ofapproximately $23,000,000.

.In view of the world trade recession, flucha result for the past year would, I think,have been encouraging. It hu Remed neces­sary to me, however, to go farther and to addto that deficit l!'ome reasonable provision forpossible losses arising from the dominion'sguarantee of a basic price of 80 cents for thewestern wheat crop of 1938. No one can tellat this time what the ultimate 1088 will be.Our experience in 1935 and 1936 shows howquickly an apparent loss of very large pro­portions can be wiped out by rapid changes inthe level of wheat prices resulting from actualor anticipated changes in the world supply anddemand situation. Nevertheless, it seems tobe only sound common sense to take accountof present facts and the immediate outlook.Unfortunately, I cannot without the possibilityof serious adverse consequences do anythingwhich would tend to disclose to speculo.tors inthe world's wheat markets what the exactpositio·o of the Canadian Wheat Board is inregard to sales and holdings of wheat. I havetherefore decided to pick an arbitrary figureof $25,000,000 and to set this up in our booksas a reserve against possible wheat marketinglosses.

This will bring my estimate of our over-alldeficit for the fiscal year 1938-39 up to155,666,000.

In addition to the expenditures already out­lined, the dominion has made disbursementsduring the past year for the acquisition ofinvestments which are treated as active assetein the public accounts. The net increase inthese active loans and investments amountedto S23,524,OOO.

As at Marcb 31, 1939, the net debt of thedominion is estimated at 13,157,334,000. Gr08l'lliabilities are estimated at 13,642,049,000 andOur active assets at 5484,715,000. Bonds anddebentur~ stocks bearing the guarantee· of thedominion and outstanding in the hands ofthe public at the close of the fiscal yearamounted to 51,085,466,000. These guaranteedsecurities outstanding increased during the)'ear by $34,859,000. There are also out­standing other contingent liabilities arising outof guarantees given under relief acts andvarious other Acts. These lire fully set outin the white paper which is being placed 011Hanford.

III

BUDCL'T FOR£(:AST, 1939-40

I turn now from the role of historian to thetask of the prophet. Under present world con-

Tax Revenue-CUlltoffill duties., ......•.E¥.ciee dutietl ..Income tax .Sale. tax.. .. .. .. .. .. .. ..Manufactut'en'/ IItamp, importa­

tion. and otner special eJ:citetaxes .

Bank circulation and imurancecompany tu:e•........

Total tax revenue ..

Non·Tax Revenue--POllt Office receipts .Interest on invelltmenb .Other .

Total ooo·ta% revenue...

Total ordinary revenue ..Special receipts and credits ....

Grand total revenue..•.

, 78,000,00062,500,000

140,000,000126,000,000

27,000,000

1,800,000

$425,300,000

, 315,600,00013,600,00013,600,000

• 62,700,000

$488,000,0002,000,000

'490,000,000

3150The Budget-Mr. Dunning

COMMONS

Lenv,ing aside therefore any expenditure inregard to wheat, there will be a probable gapbetween our revenues and expenditures duringthe nc..... fiscal year of about $60,000,000.

Needless to say, J am di~appointed to baveto contemplate another deficit (If this size. Ihad ferveotly hoped that this year I wouldbe able to offer to the house .. balancedbudget and a.J a result be in a position tobt.gin the process of reducing debt and taxes.I bsve already outlined the reasons why this"consummation devoutly to be ..ished" mustbe deferred aod I bave MU5!Jed at lOmelength the fOl'Cn "bich must be set to ..nrkto make it pouible.

Let no one thiok thu I have cbangtd mymind in regard to the necl'Mity of a balancedbudget. Doubtlesll I will remain the target.equally or two utl'eme aeboob (If thought;on the one hand, those ..ho believe thatbudget baJancing is an outworn fetUb., thata nation tan continue to do ..hat would 80Clnbring an individual to d.i.suter, and on theother hand, lhoee who believe tbt.t govern­men-lal expenditures eould be ruthle51yslashed regardleslJ of the fOcial d~ and thecumulative deflation whicb would thereby becaused_ I trust that Canadians (If goodwill,regardleM or party, ..maee that such criticismi., merely the peoalty which must be paidb)" .public men who go neither to one utremenor to the other but try to t&ke the commontense middle COUI'M.

In times of depreaaion, ... J have alreadyshowtl, inereued upenditurell on the part ofgO\'el'1lmenta are a wer social necessity.Neverthele., no nation et.o go (In indefinitelywith a budget heavily unbalanced withoutsooner or later providing a real, not animagintd. basis ror fear as to the lOundnessof -the country's financial poaition. If thatfear should take root, IlCthing which a gov­ernment could do short of tAking over gradu­ally the whole field of private enterprise, couldoffset the slowing up of private enterpriseand the reduction in employment and incomesto which fear and uncerta.inly would Itive flite_Canada hu had 'ten years of unbalancedbudgets. There is A.! yet no reallOn whataoeverfor any fear III to our national solvency. Butthis process cannot go on forever. Govern­ments must be eternally vigilant that theydo not !imply take the path of leRat r!lIistancewhich is that of eASY spending. The privatecitizen must be awake to lee thllt govern­mentil resist that temptation. And I may add.the private citizen should endeavour not toput that temptation in the l'I'ay of govern­meols. Bulline!Jll and financial leaders mustmake every effort to upand production,employment and incomes in order to avoid

{"fr. OuJ>Dina-1

the necessity of governments embarking uponwork-creating programs.

I for one am convinced that, given peacein the world, if we all put our shouldcra tothe wheel. we can soon so galvanize oureconom)' that national income will be raisedto a point where unbalanced budgets "ill bea nightmare of the ~t for the nation as wella.i for the individual citiltn.

On the bw of the analyaill'l'bicb I bavegiven, and particularly in vie" of tbe forecast.which I have made in respect of tbe over...udeficit for the new fiaea.I year, hOD. meDlbeI"lwill, J think, agree that aDy major redUCtioDlin tualion, beyond the proposllia 'With Tni*tto the apeeiaJ excite tax, are clearly impoeeible.Under current conditio. of buSnes. rec_onand the continued threat of intenlationalta."le59I1es5, -we must courageoualy face thedemands made upon us for unemploymentand agricultural dist~ aDd for the vitalrequirements of national defeoce. Much ... Iregret it, I am fOreN to ask our tupayerlto continue for the time being to bearapproximately their present burdeu, becauseI am convinced that for WI to give up ta:r:revenues at this time 'Would ooly tau. createrburdens and probably other teriow difficultiesat a later date. The aiR of our expectedde6cit might, indeed, lIU.a:est under morenormal conditiOn! an increue in. tax ratelbut I prefer to make the preseOt rates yieldmore revenue by doing everything poIIible topromote an increue in the national income.

For this reason I am reeommeDdinc athree-year utenaion of the income taxtIemption granted. to new metalliferout min"coming into production. A. a rellU.lt of thitprovision, uploration and development .oric:l'I'ill be encouraged to go forward on theunderstanding that. any new mine cominginto production prior to January 1, 19'-1, ..illbe exempt from corporate income tax for itaom three years of operation, in the amemanner u has been the case during the lastthree years. and in connection with which Igave detailed information earlier in thi.address.

With a similar purpoae in mind, I amrecommending to the house another measurewhich involve. the application to all productiveindumry of the principle which hu beellapplied with such beneficial reSlll~ to themining industry. J need not here repeat theargume-nt which I have already WIled u to thenl'US5ityof increased creation of capital worDif we are going to IOlve the problem 01 unem­ployment and restore nonnal bu!inese activity.To my mind that argument is unaDlJWerable.

APRIL 25, 1939The Budget-Mr. Dunning

3151

The government propoeea, therefore. to offerwhat I believe will be a powerful i~ntive to&11 industries to go tofl"ud immtdi.lel1 !Withany justified expansion of plant ILnd with webmoderniution of machinery aDd equipment&I the prolfellS of reeent yeare haa madeeagential. Any fum, therefore, which bepnaafter May 1 next the coDoltruction, inat&1lation,betterment. replacement or utension of plantmachinery or fiIed equipment will be alloweda credit again!t income tu: equ&l to 10 percent of the costs iDcurred lor IUch capitalprojects prior to April 30, 19tO--one year.This tu credit is to be lipread equally overthe nut three years in which the firm haa ataxable income. It will apply to any firmin any industry whether organized .. anindividual firm, partnership or corpo"Uon.except, of courae, a new metalliferous minewhich already haa the benefit of the three-yearexemption from corporate income t.a.x..

I am convinced, lir, that this measure willhave higbly desirable reaulta both immediatelyand permanently. During the present year itshould serve to counteract the eevew factonwhich have been holding back inveltmmtin new capital enterprise in 10 many cueI

and ahould thereby promote .. IlUbeta.nti&lexpansion of employment both in heavycOMtruction and in the machinery and equip­ment industries. But it should do more thaDthis. It ahould help to place our induMeion the most modern and up-to-date buiJ.enabling them to cut costs, to compete moreeffectively in botb the domestic and the worldmarlr:el.l, aDd thereby to be in a positioa tomaintain prosperous employment for thelonger run future.

Other minor changes in the Income TasAct will be made for the purpose of clarify­ing the intent of eristing proviaion.s, removinganomalies and closing certain loopholes.

Under die Excise Act it is proposed toinCN!llse the nl.te of duty on spirits used inmaking vinegar from 27 cents per gallon to6() cenLs per gallon. The purpose of this pro­posal is to stimulate the use of apple ciderin making \'inegar, and thus to widen t.hemarket for low grade apples.

In the sphere of trade negotiations, Can·ada's outstanding aecompli!Jhment of the yearnow closing Wall of a dual nature: coope~

tion with the United Kingdom in the lNcee»­ful negotiations between that country and theUnited States and the simultaneous revisionand enlargement of our exiatinC agreementwith the latter country. The three-waynegotiations neceS!itated were lengthy anddifficult; and that the two agreemenU result­ing therefrom have 80 generally commendedthemselves to the citiuns of the countries

714n-lto

concerned ia in itself a tribute to the spiritof give-and·take in which these three demo­cracies entered jointly upon an admittedlydifficult task.

In view of the time devoted earlier in thia8e&Sion to consideration of the new agree-­ment with the United States, I do not propoeeto refer to it at any length. That it willprove to be as benefici&l to both COUJl,tnesas was the one which i,t baa t1Uperaeded. Ihave not the slightest doubt. Of the lII.ndul'­ing BUf'lCe!8 of the United Kingdom-UnitedStates Illp"eemcnt I am equally confident.

I am nc~ suggesting for a moment, air.that our tas-I in thia direetion are concluded;that the latest agreements, merely becausethey are the most important and most com­prehensive, are necellSArily the crown of thearch. On ttle contrary, they lleem to merather to emphaaize the work which remain.eto be done. And that leads me to remind thehou~e that notice of termination haa recentlybeen given of the agreement exi!ting betweetthis country and the British West Indie__not because Canada does not want an agree­ment, but becau8e the one whim has stoodfor twelve yean is acrely in need of revisioD.And I may assure this house that when thetime comes to ait around a table with theirrepresentatives, we ahaIl do 80 in that lIpiritof friendliness and goodwill which long humarked the relations of thil country with theislands of the West Indies.

M might be eIpected in tbe light of earlierlegislation, tariff changelll to be announcedto-day are neither numerous nor of strikingimportance. Many of them arise out of theprovisions of the new agreement with theUnited States and have already been approvedby the Souse.

ReporU from the Tariff Board I bave laidon the table t~ay, respecting furniture,cigars, cocoa mllotting, starches and dextrines,worsted weaving yarns, coke. radios and t.ubes,and automobiles. The report on the radioindustry, apart from recommending free entryof certain parts, refen to bbe bearing of thePatent Act upon the investigation. In thilconnection the board states that "radio tubemanufactuN!rI in Canada have taken fulladvantage of the protection afforded to themby the terms of the Patent Act". The boardeJ:pf'eS!19 ttle opinion that selling prices ofradio tubes in Canada to all classes of pu,..cbuers should not be in exceas of the reeOI­nized list prices in the United States. plus &IIcharges 00 importation. To that end the boardsuggests that the proposed reduced duties onparts. unless "immediately reflected" in thspublished aelling prices of Canadiao !'diotubes. be rescinded. In giving fuller study

..." .. DITIOf{

3152The Budget-Mr. Dunning

COMMONS

to other phases of this report than ·those relat­ing strictly 00 tariff rates, the governmentwill ihave to consider the relation thereto ofthe provisions of ·the Patent Act respectingthe abuse of exclusive rights under patents.

There is, Mr. Speaker, oDe further TariffBoard report tabled to-day to which I wish, torefer. That is the report arising out of theinquiry respecting vegetable oils. As thehouse well knows from frequent discussionsduring the last three IIel!l8iOO8, this inveetiga­tion by the board arose out of an applicationby the National LJ.iry Council of Canada lorthe imposition of specific duties upon im­portations of vegetable oils. The matter beingintensely involved and technical, I thoughtthe application a highly proper one for aboard inquiry. This inquiry, begun in thefall of 1936, is now completed and the fellll1tis the voluminous report I have placed onthe table. Very briefly may I outline thenature of the board's recommendations: first,a rearrangement and reclassification of thetariff items relating to animal fats. oils andgreases, as well as of those relating to vegetableoils, with certain proposed changes in therates of duty; &econd, the imposition o( anexcise tax o( three cents per pound upon thevegetable oil content of vegetable shorteningsand lard compounds, and of two cents perpound on the vegetable oil content o( aoapsof all kind!!, such excise taxes in all instancesto apply to both the domestic and the im­ported product.

This report was received only in time tobe tabled with the budget speech. A weekago, however, I was advised by the board asto the nature of its recommendations andthese were at once given serious considerationby the government. Since the recommenda­tions, both as regard!! certain tariff changesand the excise taxes. are such as to requireconsultation with the United Kingdom govern­ment.---because of commitments under tradeagreements that have applied to these com­modities since the Ottawa conference of 1932­the Canadian government decided to refer thematter at once to the government of theUnited Kingdom. This was done last week,as speedily as the essential abstracts of thereport could be coded and transmitted, andwe hnve inlimated to the British governmentthat a reply at the earliest possible momentwould be greatly appreciated. May I add,Mr. Speaker, that should such reply releaseCanada from any obligatiollS that may restupon her at present by reason of thege empireagreements. and should the reply be receivedbefore the committee stage is over. it will bepossible to introduce the necessary rt!solutions.

(Mr. DlInn'nl.r

Reference to the reports of the Tariff Boardlaid before parliament to-day providea. &

fitting <lpportunity, Mr. Speaker, to paytribute to one who had, perhaps, m<lst to dowith their making but who is not in the placewhere he was usually to be Been on budgetday. I reft!r to the late Honourable GeorgeH. Sedgewick, whose sudden passing was ashock to every mt!mber <If this house. Highlyintelligent. industrious, fair-minded. the eoulof integrity, Mr. Sedgewick was admirablyfitted for his high poaition, and I ahare thegeneral view that his death is a great loss tothe public service o( this country.

The resolutions to be moved w..day includeone which provides for the removal of thespecial excise tax of three per cent from allimports into Canada under any tariff morefavourable than the general tariff. The directobligation under the Canada-United Statesagreement WM, as members will recall, toremove the tax from the goods covered bythe items in schedule I to the agreement. An,.further removal of this tax is not a matterfor negotiation with another country but isentirely a matter of domeatic policy for Can~

ada. The decision taken in connection withthe items in the agreement WM made. there­fore, in a (ull recognition. of the larger issuelinvolved, and I am sure that the action Iam proposing to_day, which will involve anestimated reduction in taxation of about SI4,·000,000, will commend itself to all interests inthis country, whether manufacturers, import.­ers or consumers. In this connection, I should'mention also the fact that, ha\"ing in mindthllt practically all the erode rubber and theprimary forms of tin imported into Canadaare of empire origin and come now for themost part through empire channels and Cana­dian ports, the government have decided toimpose a duty of 5 per cent ad valorem onsuch goods when imported under the inter·mediate or general tariffs.

In conclusion, I wish to say, Mr. Speaker,that repeatedly during tht! past year I havebeen impres.~d with the extent to which for­eign visitors look on Canadn. as a speciallyfa\·oured land. In their view we are blessedin our geographical situation, in aUf power­ful and friendly neighbours, in our political,economic and social institutions. in the sanityand enterprise of our people, and in our richand varied resources available for productiveinvestment. Many of them indeed have beenshocked at the evidence of constant bickeringand destructi\'e criticism which they find here,at the tendency of some of our people too\<erlook the advantages which we possess over

APRIL 25, 1939The Budget-Mr. Dunning

3153

most other countries and to belittle our ownachievcment8 and the future that should be instore for this country.

I ask you, Mr. Speaker, is it not time forus Canadians "to see ourselves aa others seeus," to adopt a constructive rather than anegative attitude, and to concentrate withcourage and vigour on a united effort to&Olve our own problems and continue the workof building a greater and better country? Ifonly we can develop more of a national e.prilde corps, if only we can recreate that spiritof cooperation, mutual helpfulness and con·struclive enterprise possessed by those whofounded this nation at confederation, we needhave no fear of the future. I for one havenel'er lost faith that Canadians will 8Ucce~

fully meet that challenge.

RESOLUTIONS

Mr. Speaker, I beg to give notice that whenwe are in committee of ways and meana Ishall move the following resolutions:

INOO),jE WAil. TAX Act'

RellOlved, That it i. expedient to amend TheIncome War Tall: Act and to provide:-

I, That a taxpayer (other than a eompanJderiving income from a metalliferoul mine towhich aection 89 of the act appliel) Ihall beentitled to deduct from the tu that wouldotberwilll! be payable under tbe act amounh noteJ:ceeding in the aigT('gate ten per cent ofcapital Cotta actually incurred and paid in theperiod bet'inning .May 1, 1939 and ending April30, 1940 III respe<:t of the cOlllltruetioll, instal­lation, betterment, replacement or utension ofplant, machinery or fill:ed eQ,uipment during thesame period, by deducting, III each of the lintthree fillCal yean of the taxpayer after April 30,1940 in which the taxpayer hal tuable Income,an amount not exceeding one·third of the aggre­gate amount of the deductiolUl authorized.

2. That :lny metalliferous mine that come.into production after the 318t day of December,193!l. aud prior to tbe bt day of January, 1943,shall be uempt f!'Om income tall: for tbe fintthrce fillCal periooa following the commencementof production.

3. Th:lt rlh'idends paid hy a metalliferouamine to a Canarlian company during the periodthat such metalliferous mine 'i9 exempt fromtaxntion under aedion ei~hty·nine of tbe actahall be uempt ill the handa of sueh Canadiancompany.

4. That the tax impolle>1 at the source onpnymenlJl b)' Canadian debtoTll to non·residentsin respect of fillos. whether copyrighted or not,be increased to 5 per ceotum on the totalamount of aueh paymenta.

5. That salari~'fl. bonuses, directon' fees, orother like remulleratiullS. pnid by CannJhmcomp:lnies tu n non·Nlaident. in eJ:Ce.8 of$14.000, shoJI not be allowed as an expense offueb Cansdian company.

6. That Ileneral o\'erhe:ul cxpenllC9 of com­panies shall be rateably apportioned betweenthe taxable and the nOll·taxable ineomf of lucbcomllanies.

71492-1991

7. That where sny estate or trult i, tall:abJeunder the act it Bhall not re<leive a penonaluemption of one thouBand dollan.

8. The dividendi paid h)' a pl!TlIOnal corpora­tion out of capital gaina after all of the incomeof luch corporation hu been tall:etl againat andreceived bf ita IIhareholden .ball be uemptfrom tall:aholl.

9. That the rellOlutions numbered 3, /I. 8, 7and 8 ahaU be applicahle to the incomea of 1938and !lacal period. endinl! therein. RCIOlutlonnumbered 4 ahall be applicable on April twenty­Bill:th, one thousand DIlle hundred and thirt,.·D'ne. RellOlutions numbered I and 2 IIhali comeinto force .. indicated therein,

8PIXlLU. WAll IlEfJ:NU& Act'

RelOlved, That it b: expedient to introduce amesaure to amend The Special War ~venueAct, and ameDdmentJ thereto aDd to provide:

1. That BedioD 88 of the laid act be Itruckout and the following .ubstituted therefor:

"88. (I 1 In addition to any duty or tn thatmay be paysble under tbiB part, or aDy otber.statute, there sball be impolM!d1 levied andcollected a lpecial nci.se tall: of tn~e per centon the duty paid value of sn llOOda importedinto Canada' lubject to entry unaer the generaltariff payable by tbe importer or tralllfeN!e....ho takes the goods out of bond for conlump­tion st the time when tbe gooda are imported.or taken out of wa~hoUle for conaumption:Provided that when raw fu" imported intoCanada are ell:JlOrted therefrom, a drawbllock ofthe tall: paid may be granted under regulatiolllto be made by the minister.

{21 The till: impoeed by thi, IM!Ction aball notapply to:

Cal The article. enumerated. in lIChedule Vto thil act.

(h) GoodB, the duty paid value of which dee.not eJ:ceed twenty·five doUan, ""hen importedhy mail or ell:press, or by the owner thereof""hen entering Canada unlC1lll mo~ than oneentry of @ueh goods be made by one importerduring one day from one country, in which calM!tbe ta:l sball be applicahle."

2. That IIny enactment founded on thi, reso­lution shall be deemed to have come into fo~e

on the twenty·sinh day of April one thoulandnine hunrlred nnd thirty-n,ne, and to haveapplied to all goodB imported or takcn out ofwllrehoulll! for conBumption on anrl after thatday STH! to have applied to 1100dl previou.slyimportel! for which no entry fur consumptioDwas made before that date.

I:.XClS£ ACT

RClIOlved, That it is expedient to introdncea me88ure to amend The Excise Act, 1!l34, andamendments thereto and to provi<lc:

I. That the scherlllJe to the 8IIirl act whichseta out thc cxcise duties to he imposed, le"iedand collected on apirits diatilled in Canada beIImended hy Btriking out SUb8P.ction (cl of sec·tion I of the said sehedule and substitutingtherefor the followinJ;::

"(cl On cvery gallon of the stren~th of proofUliea in any bonrlcd manufactory in the produe·tion of \·inegar. sixty cents, and 80 in proportionfor llny gr"at('r or Ie.. 8trength than thestrenl!th of proof and for any less quantity thana gullon;"

31.14The Budget-Mr. Dunning

COMMONS

2. That any enactment founded on this rt'lIO"lution shall be deemed to have come into forceon the tW8nly-eiJ:th day of April ODe tholUandnine hundred and thirty-nine.

THE CUSTOW8 T.IlIJT

l. Reeolved, that llChedule A to the Cu.stomJTariff, being chapter rorty-four of the Reviled8tatutu of Canada, 1927, a. amended by chapterleventeen of the acu of 1928, chapter thirty·niDll of the act. of 1929, chapter thirteen ofthe act. of 1930 (fi~t RHioo), chapter threeof the act. of 1930 (MlCQnd _eNiOD), cbapterthirty of the actl of 1931, chapter forlY-<lue ofthe actll of 1932, chapters eix and thirly..evenof the acta of 1932·33, chapterl thirty-two andtotty·uine of the actll of 193', chapter twenty·eight of the acta of 1935, chapter thirty-one of

'tot,. Dunnilll.1

the act. of 1936, and chapter twenty..ill: of the..ct. of 1937, be further ..mended by .trikingthereout tariff item. 39, 39..., 39c, 39d, :i3, M5b, 55, 63a, 77a, 87(n), 98, 98a, 117, 170:171a, 172, 172a, 173, 174, 175, 176, 177, 178b183, 184, 203, 208g, 208h, 21Ob, 220(a) and(b). 241, 2Ua, 25', 26'b, 289, 326f, 343, 346a386 (c). 3lXk:, 40ge (iil, 417, 422a, 427b, t27e,427h, 435, 438e(3), 445<1, 446g, U8, tti4, U2b466, 4760) and (ii), 537c, ti4ge, ti696, 1m.:'87h, ti971, 616, 61Be, 652, 657b, 663e, 66tb,6821, 696, 804, 810, 814, 816, 818, 825, andorden in council P.C. 1414 and P.C. 2736, the&everal enumerations of good. respectively Indthe leveral rates of duties of custOlI1ll, if any-et oppoaite each of the laid iteUll, and bjinserting the following it;em., enumerations andr..te. of duty in .aid Jehedule A: