THE FINANCES OF THE CANADIAN CONFEDERATION.

Globe, Volume I, Issue 70, 21 August 1874, Page 3

THE FINANCES OF THE CANADIAN CONFEDERATION.

[From the Uconomist, May 23.] THE DANGER OF HASTY EXPENDITURE ON PUBLIC WORKS. The Budget speech of the new Finance Minister of Canada, Mr Cartwright, is an instructive commentary on the illusions with which the cry for reproductive public works is often raised. The Confederation has only existed about six years : but, although it started with a surplus, and the revenue has since increased more than 50 per cent, there is now a serious deficit, involving the necessity for much new and disagreeable taxation, with every prospect of a still more serious deficit in future, unless the past policy is reversed, and great care is otherwise taken. Apart from the interest we must naturally take in the fortunes of Canada, this is a remarkable history, and will reward examination.

The broad facts as to the past growth of revenue and expenditure appear very clearly from the accounts of the year ending 30th June. 1873, and comparative statements which accompany the Budget speech. The amounts of receipts and expenditure, exclusive of capital expenditure, and other capital operations, together with the annual surplus or deficit, have been as follows :*— Ending Receipts. 3o Surplus. Deficit. 30th TUle " June. £ £ £ £ 18GS 2,737,000 .. 2,G07,000 ... 40,000 I,s(io 2.x?(i,000 ... 2,808,000 ... 68,000 1870 3,103,000 ... 2,809,000 ... 234,000 1871 3,807,000 ... 3,125,000 ... 712,000 1572 -1,143,000 ... 3,518,000 ... 025,000 1873 4,103,000 ... 3,835,000 ... 328,000 1874+ 4,348,100 ... -1,820,000 -172,000 1875 J 4,400,000 ... 4,050,000 5^0,000 *Converting the dollar at 4s. t Part estimate. X Estimate. Thus a splendid position has been quickly converted into one of difficulty, if not of imminent danger. At the beginning there is a moderate surplus upon moderate totals of receipts and expenditure ; then the totals on both sides increase with a very large surplus; and finally there is an enoimons increase of the total on the expenditure side, with a deficit of more than half a million—about an eighth of the income—which has now to be filled up. And bad as this showing is, it is not the worst. The total estimate for 1874-5 is not £4,950,000, as above stated, vvliieh includes only ordinary expenditure but £8.381,000; and although the sum of £1,150 000 may properly be deducted from the latter amount as a repayment of debt, there is still a sum of £7,231,000, which is nearly double the income, forming the charge for the year. The explanation is that while there is a deficit of half a million in the ordinary income for ordinary expenditure, the Canadian Government is under obligations which compel it to expend £2,321,000 on new "public works." The debt charge in future is thus to be materially increased, and the necessity of finding additional revenue becomes therefore very stringent. Nor does the story and even here The following extraordinary expenditure has been undertaken in future years in addition to what appears in the estimates for 187-1-s:

Completion of Inter-Colonial Kailway 700,000 Miscellaneous Public Works ... 5,000,000 Canadian Pacific Railway (minimum estimate) ... 20,000,000

Total 25,700,000 —which will be increased by about ten millions more, the Minister thinks, if the Canadian Pacific Kailway is completed in seven years, as technically provided for in the Treaty incorporating British Columbia with the Confederation. The financial outlook in Canada is thus a very gloomy one. The population, as Mr Cartwright explains, is only 3i millions, not increasing but in fact almost stationary in the old provinces where the principal revenue is raised, and subject to heavy provincial and local charges, besides those of the Central Government which are now in question. If the pioposed expenditure is indulged in, Canada, we aie told, will be saddled at the end of seven years with a national debt relatively to the the population jus!: one-third greater than that of the United .States at the end of the civil war, and if measured by the rate of interest required one-third greater relatively than the national debt of England. Such burdens might conceivably be borne for a great national object, but they are formidable ones to undertake in a time of profound peace, and, with an actual present difficulty in discovering new sources of revenue, expose the country to the chan«e of badlyadjusted taxation, and all its attendant evils. It is not difficult to see how the mess has been brought about. First of all, the great expenditure on new works has gradually increased the direct charge for debt interest. The progress of this item has been : rear Ending Debt Interest.

30th June. . »» 1868 • 000,000 1809 '." '.".'. '"'. .- !,81 > 000 IH7O 1.000,000 1871 '" '" ••• 1,033,000 1572 ... 1,051,000 187 . 5 1,042,000 187 4 . ... 1,28:5,000 1875 .'.".' •' 1,300,000

A. second cause of increased expenditure has been the maintenance and working of certain undertakings which were intended to be reproductive, but so far from having that character are a, direct cause of loss, The receipts and expenditure of the Public Works Department, taken separately, have progressed as follows : ™, Receipts. Expendi- Surplus. Deficit. ending tim>* 30th nut? - .Time. £ £ £ £ 18(53.... ISO.OOO ... 150,000 ... 30,000 1800 184,000 ... 151,000 ... 33,000 1870 201,000 ... 188,000 ... 13,000 1871 229,000 ... 320,000 01,000 1872 243,000 ... 371,000 132,000 1873 323,000 ... 010,000 2S)(!,000 18~lt ... 450,000 ... 000,000 450,000 lS75t ... 320,000 ...1,118,1)00 705,000 * We include in this the annual charge for those works to income and the charge for "collection." t Estimates. As yet, therefore, the Public Works speculation of the Canadian Government has not been a successful om;. It has imposed heavy charges for interest on the country, an«l the works themselves arc as yet worse than unproductive. The deficiency, as Mr Cartwright explains, arises especially from the working of the Inter-Colonial Railway and the other railroads of the Dominion ; he remarks :

" The deficiency arising from these sources is reported as likely to amount to the extraordinary sum of about a million and a quarter of dollars. I desire to call the special attention of the House to one point which must be clear to every hou. gentleman. These railways run for the most part through a country which has been settled for the last fifty or sixty years. I cannot, of course, refer to the fact that these railroads entail such an enormous expenditure, without its becoming apparent to the House that the cost, of the maintenance of a railway nearly 3000 miles in length, and passing through a country which is almost entirely uninhabited, must be of necessity very much greater. For a very long time, even after the actual construction of this railway, an enormous charge must be levied upon this country in order to keep it in full working order and repair, and this fact must be steadily kept sight of in considering the real character of that project." This is another serious aggravation of the prospect of the deficit arising from the increased interest charge alone. The illusion under which the Canadian Government has been led into the present mess could not be more clearly exposed. A third source of increased expenditure has been the political extension of the Canadian Dominion. The incorporation of an outlying province like Manitoba is immediately a source of expense.- Just as Central Asia costs money to the Russian Government, and many of our provinces in India yield less than the cost of governing them, so Canada lias added to itself a territory which is a burdensome charge. The older and richer provinces of Canada are in fact paying heavily for the accomplishment of certain political objects. And now the penalty must be paid for all these extravagances. Fortunately Canada is not a poor country, and much of the charge that has to come may be left to the ordinary growth of the revenue ; but the fact that tnere is such a future charge makes it all the more necessary to cover the present deficit of half a million by new taxes. This must be. Mr Cartwright thinks, by means of an addition to the Customs and Excise duties, which already yield £3,400,000 out of the total of £4,400,000 constituting the Canadian revenue. The provincial and local taxation is already so heavy, he states, that no other resource is open to him, and accordingly he proposes to levy—

Additional duties on wine (to be raised from 25 to 40, 60, and 80 cents per gallon 40,000 Additional duty of 2 I cents oer gallon on spirits 10,000 Additional ad valorem duty on silks,'satins, velvets, jewellery. &o. 80,000 Addition of If per cent to 15 per cent duty on unenumcratcd articles 100,000 Addition of 25 cents to present duty of 15 cents per lb ou cigars 20,000 New duty on tea and coffee ... 80,000 New duty of 5 per cent on certain classes of iron, and addition of 2-J- per cent to existing duty of 5 per cent on other classes... ... 20,000 Increased excise ou spirits, from 63 to 75 cents per gallon, and on manufactured tobacco from 15 to 20 cents per lb ... 150,000

Total 530,000 -•besides minor changes in the mode of collecting the duties on iron, which will make the total increase of revenue about £600,000. This is what the luxury of territorial expansion and unlimited public works cosis the Canadians at the very time their revenue was so elastic that, with economy and care, they might have obtained a large reduction of taxation. The objection has been raised that some of the duties will be protective, which is no doubt true, but ou the whole the principal additions to taxation are not of that character. The opportunity of insinuating'protectiou which the necessity for new taxation Iras furnished is itself, however, only a phase of the mischief and danger of the financial policy of the Confederation during the hist six years. The history may be left to tell its own tale. There is no kind of expenditure which requires more careful study beforehand, and more rigorous restriction to objects which are sure" to pay, than expenditure on new public works. Territorial expansion is also a luxury the cost of which should be carefully counted beforehand. Canada has committed the most serious blunders in both respects, and the result is the large deficit and gloomy outlook we have described. We do not doubt that matters will now be put straight,—that care and vigilance will be exercised, and that with the ordinary growth of revenue and the excellent results of some of the les3 ambitious public works, which would have passed muster after a rigorous study, all fear of a deficit will be extinguished. Canada has the advantage of being a country accustomed to representative Government, where the facts can bo known and discussed, and self-denying resolutions imposed on the Administration. Hut if the danger is so great in Canada, what must it be in some foreign countries only too well known on the Stock Exchange, where the expenditure on public works has been equally lavish and hasty, if not grossly extravagant, where the money has been borrowed at a greater cost. and where there is no constitutional arrangement to compel the publication and discussion of the facts, and force theiulmiuis I tratioa to pull up in time ?