CANADA'S FINANCIAL TROUBLES
Commonwealth and Foreign [To the Editor of THE SPECTATOR.]
Sta,—Federalism has been loosely described as democracy applied to States. Today, like democracy itself, federalism is being subjected to severe strains, the world over, arising parti- cularly from economic and financial difficulties. It is hard for the British reader, living under a unified form of government, to appreciate the extent to which the sectional make-up of Canada, and the federal nature of the Dominion Government which is in part its consequence and in part its cause, help to account for Canada's failure to tackle fundamental financial and economic problems. British visitors perpetually ask us why we do not "put our house in order." Nine times out of ten, part of the answer lies in the conflict of sectional interests or in the faulty workings of a federal system ill-equipped to deal with twentieth-century economic problems.
British readers are fairly familiar with the constitutional struggle now in progress in the United States and implicit in last November's election. It may be remarked that Mr. Bennett's Canadian "New Deal " received just as rough treat- ment at the hands of the Judicial Committee of the Privy Council as its prototype did at the hands of the United States Supreme Court. But, in Canada's case, no such shift as Roosevelt's flanking movement upon the Court is practicable. In the end, Canada will have to face her constitutional diffi- culties and amend the British North America Act.
This hardiest of all Canadian perennials comes into sharp prominence, once again, with the Government's announce- ment of its intention to set up a Royal Commission to go into the question of Dominion-provincial financial relationships, including the areas of taxation to be left open to each and the avoidance of overlapping. Two sets of issues are involved. Firstly, there is the immediate and acute problem of the Prairie West. Alberta is in default and has cut private as well as public debts drastically, though the Courts may invalidate the existing legislation. Manitoba and Saskatchewan are in difficulties, and are growing restive. A hurry call has gone out for immediate Dominion assistance to these provinces in carry- ing their relief burdens. Secondly, on the longer range, both provinces Want a Royal Commission to enquire into their whole financial situation and debt burdens, including their financial relationships with the Dominion, along the lines of the Duncan Commission which reported on the Maritime Provinces.
Manitoba and Saskatchewan are bc,th under Liberal Govern- ments, which, in Canada usually means " conservative " governments—though not just now in Ontario. These rather orthodox Governments would like to stave off the thrust of radicalism, particularly the invasion of repudianonist ideas from Alberta. With the farmers of Alberta cheering for Aberhart's debt-cutting activities, though they may be dis- appointed at their failure to receive Social Credit " dividends," up to the present, the demand for debt relief has grown very pronounced on the rest of the prairie. And it should be recalled that Saskatchewan has been far harder hit than Alberta.
Passing over private debts, the extent to which public debt bears down upon these provinces has been clearly shown in the Bank of Canada's admirable Statistical Summary, which made its first appearance in January. Within the single decade of 1925 to 1935, Manitoba's provincial debt increased from $71,400,000 to Si i,000,000, or 55 per cent. Saskatchewan's grew from $55,500,000 to $183,400,000, a rise of no less than 231 per cent. But more serious still are the Bank of Canada's figures of the incidence of debt shown in the table of" Provincial debt as a ratio of the year's revenue." In 1926, Manitoba's debt was 637 per cent. of the year's revenue, already .a high figure, but not altogether exceptional as these things go in Canada. In 1935, the ratio stood at 761 per cent., or rather below the average indicated in the Bank's figures for the present total of all provincial debts, indicating, as has been the case, that Manitoba has been fairly thrifty throughout the latter part of the depression. In the case of Saskatchewan, however, the figures are staggering. In 1925, Saskatchewan's debts stood in the ratio of 444 per cent. to revenue, but by 1935 had reached r,to5 per cent., or more than eleven times revenue. The fact that the prairie had another short wheat crop, and
that a large part of the dried-out area lies within the province is material to this reckoning, but here is a situation that patently cannot continue indefinitely.
There was some difference of opinion as to the form the Royal Commission should take. The West, by and large, wanted a "Duncan Commission" on its own problems. Sir John Aird, retiring president of the Canadian Bank of Com- merce, supported the demand, indicating that there was a certain amount of opinion in the East in favour of such a plan— if only to stave off default (though something immediate in the way of assistance would have to be offered, quickly, to meet pressing needs). In Eastern Canada, however, there was more support for the alternative proposal put forward by Mr. Morris Wilson, president of the Royal Bank of Canada, and endorsed in principle, with special reference to taxation, by the Canadian Chamber of Commerce. This envisaged a much wider enquiry, into the financial relationships of all the provinces with the Dominion. There has long been a clear need for an examination of Dominion-provincial relations quite generally.
The Dominion Cabinet was reliably reported to be split upon the question of special consideration for Western Canada. The Finance Minister, Mr. Dunning, himself a Westerner, was thought to be favourable to the idea. The Quebec mem- bers, seldom too tender to the West, were reported hostile. The final decision may well have lain with the Prime Minister. The occasion of the announcement was the receipt of a serious report from the Governor of the Bank of Canada, who had been asked to enquire into the financial position of Manitoba and Saskatchewan on behalf of both Dominion and Provincial Governments. In my opinion, it is thoroughly desirable that the broader of the two enquiries should have been chosen, since we must have a Commission. Even so, particular attention must be given to the prairie provinces. Furthermore, the Com- mission's findings must be implemented. The current Canadian practice of gambling upon economic recovery to solve our most pressing problems may work in Eastern Canada and upon the Pacific Coast, but not upon the prairie. If the Royal Commission had been appointed over a year ago, when the plight of the West became obvious, its findings might now be available. Meanwhile the Western situation, particularly in Alberta, might have been kept in better control.
The claim of the provinces for a review of the situation has some merit. At the time of the Canadian Confederation, in 1867, social services provided by the various Governments were relatively inexpensive. The provinces had the right to levy direct taxation for provincial purposes, and the Dominion both direct and indirect taxation. But, in the course of the past fifty years, the provinces, which are charged with looking after matters of local concern, have had to meet very heavy increases in the cost of social services, &c., like road pro- grammes, hospitals and the rest. At the same time, the Dominion, during the War, invaded the field of income tax, while the area of taxation for the provinces has only been expanded by recourse to a wide variety of legal subterfuges. Meanwhile the unhappy Canadian taxpayer is mulcted in double, and often triple, overlapping taxation.
There is a demand on the part of trade bodies for a " May " Commission, on the British model, into the cost of Government in Canada. And indeed, with ten Governments for eleven million people, not to mention municipalities, all of which have very severe unemployment relief burdens, there is certainly a case for review. But a mere " May " Commission would not do the job, particularly in Western Canada. Economy in governmental expenditures will not, of itself, restore the prairie. There is question, also, of the conversion of provincial debts to lower rates of interest, with, it is to be hoped, Dominion backing. If this is not done with Dominion backing, then there is grave danger of unilateral action, which means default. It was, in fact, to stave off such an eventuality that Ottawa decided to give special assist- ance to Manitoba and Saskatchewan, and to appoint a Royal Commission of enquiry.—I am, Sir, &c.,
Youit CORRESPONDENT IN CANADA.
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