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Letter No. 5 of Joseph R. Smallwood on Confederation



Editor Daily News,

Dear Sir,


Under Confederation the Provincial Government of Newfoundland would lose most of the revenue which the Government is presently able to collect.


The millions which the Government is now able to collect in Customs duties would be lost. Any Customs duties collected on goods imported into Newfoundland from non-Canadian sources would be collected by the Dominion Government, at the Canadian rates current, which are lower than our Newfoundland Customs duty rates. The further millions which the Government is presently able to collect in Income Tax would also be lost - the Dominion Government would collect these. The Provincial Government could impose an additional, a Provincial Income Tax; but this would be to impose too much taxation to expect our people to pay.


The Provincial Government would be limited to direct taxation.


Could it, by direct taxation, collect enough money to enable it to meet its obligations? The B.N.A. Act lays down the Provincial Government's functions and responsibilities, and declares that it must levy only direct taxes.


In the first place, how much money would the Provincial Government need?


The Commission of Government's Estimates for the fiscal year 1945-46 show what they figured on spending during the year, which ends March 31 next. The amount is $22,778,200. Besides this, they planned to spend $5,626,100 on special reconstruction projects. This is a special, non-recurring expenditure. We may fairly ignore it here.


If in 1945-46, we were a Province of Canada, our Provincial Government would rot need to spend all of this $22,778,200; for many of the functions it will actually be spent on would not then be Provincial Government functions at all, but Dominion Government functions, and the Dominion Government would have to perform those functions and pay for them out of their own revenue.


For example, included in that $22,778,200 is the cost of our Posts-Telegraphs-Telephone system - $1,352,400. This would be paid by the Dominion Government, for of course these are Dominion functions.


Dominion Government Expenditure


The following is a partial list of the items included in that $22,778,200 which the Provincial Government would not have to pay for, but which the Dominion Government would have to pay for:


Marine Division


Civil Aviation


Public Buildings (1)




War services, Veterans, Defence (2)


V.D. Campaign (3)


Merchant Navy Hospital


Widows, Orphans, etc. (4)


Indigent Persons (5)


Governor & Govt. House (6)


Supreme Court (7)


Dept. of Customs (8)


Dept. of Posts and Telegraphs (9)


Assessor Taxes


Meteorological Serv.


Demonstration Farm (10)


Railway Deficit (11)


Public Debt Servicing (12)






Notes on Above List


1) The total amount given for public buildings in this year's Estimates is $722,000. The Dominion Government would takeover all Customs and Postal buildings, lighthouses, etc. so I have divided the amount equally between the two governments.


2) I am assuming here that the Dominion Government, under the terms of Confederation, would take over all these .responsibilities.


3) The Dominion Government has lately spent much money on this.


4) A vastly greater amount than this would be spent by the Dominion Government in Newfoundland in the form of Family Allowances.


5) The Federal Old Age Pension scheme would take care of this, but on a much larger scale.


6) Lieutenant Governors are paid by the Dominion Government.


7) Costs of the Supreme Court are paid by the Dominion Government.


8) All Customs services would be Dominion. They would employ Newfoundlanders, but at better salaries.


9) We might expect that when Posts and Telegraphs became part of the Dominion system it would show considerable improvement and pay better salaries.


10) Our Demonstration Farm would undoubtedly be taken over by the Dominion and be operated on a bigger scale.


11) I have assumed here that the Newfoundland Railway and Coastal boats will be taken over by the Dominion. That could mean greatly improved ser­vice even over the present level.


12) The assumption here is that Canada takes over part of our Public Debt, and Britain the re­mainder. For convenience sake I have placed the interest costs under the Canadian heading.


Taking this $10,075,939 from the $22,778,200, we have left an amount of $12,702,261. This, on first sight, is what our Provincial Government would have to spend if it wished to keep up the standard of ex­penditure which they are actually maintaining this year. Actually, it could be much less.


Provincial Government Expenditures


I give next a list showing expenditure that our Provincial Government would be making this year:


Finance Department

$ 297,540

Department of Customs

$ 15,500

Department of Home Affairs

$ 61,154

Department of Education

$ 2,826,700

Department of justice

$ 832,357

Department of Natural Resources

$ 1,686,743

Department of Public Works

$ 2,671,381

Dept. Public Health & Welfare



$ 11,210,156



There is a difference here of $1,492,105. A large part of this would not be spent specifically by either Government, and another part of it would be ab­sorbed into other services and functions of the Domin­ion Government. However, it is prudent to add half of it to the $11,210,156 shown above, giving us a total of say $12,000,000 which apparently the Provincial Government would have to find.


But $1,309,994 of this consists of Cost of Living Bonus to Civil Servants, teachers and pensioners. A large proportion of those Civil Servants would cease to be Provincial and become Dominion; and so far as the remainder are concerned the bonus would not need to be paid for of course under Confederation the cost of living would experience a sharp fall.


We thus arrive at the figure of $10,690,006, or say $10,700,000. The $700,000 could without difficulty or impairment of efficiency be lopped off, bringing our total Provincial expenditure to $10,000,000.


Could the Provincial Government raise enough in taxes to meet this expenditure? Bear in mind that they are limited to direct taxation.


Provincial Government Revenue


Of the total revenue estimated for the current year the following amounts would still be Provincial, and would still be collected by the Provincial Government:


Department of Finance

$ 29,000

Assessor of Taxes (Death Duties) (1)                       

$ 100,000

Department of Home Affairs

$ 3,000

Department of Education

$ 28,800

Department of justice

$ 35,500

Department of Natural Resources (2)

$ 382,600

Department of Public Works

$ 304,400

Department Health & Welfare

$ 202,000

Board of Liquor Control (3)

$ 750,000


$ 1,835,300



Notes on Above


1) Death Duty rates could be increased to bring double this amount.


2) It seems probably that this amount could be doubled or even trebled. With many of the imports of the Humber, Buchans, Grand Falls and St. Law­rence industries now subject to Customs duties, and Confederation removing them, the way should be open for the imposition of some direct taxation on such large industrial concerns.


3) The total receipts from liquor this current year are estimated at $1,600,000. Some of this is got from Customs duty on liquor, some from trading profits. The Dominion Government would take the duties, the Provincial Government the profits. The amount given here as the Provincial Government's share of the total is an estimate.


Leaving aside the point about increasing some of the above items, we have a total of $1,835,300, or $8,164,­700 less than needed to meet expenditures. Where could it come from?


Under Confederation, gasolene [sic] would come in duty-free, so gas consumers would save around $500,000. A direct gasolene tax would bring the Provincial Government this much. A gasolene tax is imposed in all the Provinces and forms an important item of Provincial revenue.


Our next source of revenue would be a Sales Tax on retail sales. Customs import duties this year are estimated at roughly $15,000,000. Adding the "profit" on this, it means that the consumers of Newfoundland are paying about $16,500,000 taxation on their purchases. Under Confederation at least $15,500,000 of this would be saved the public; so the Provincial Government would be well justified in obtaining some of the saving to help finance Provincial public services. Retail sales this year will amount to about $75,000,000 which at six-per-cent would yield the Provincial Government $3,750,000. But $25,000,000 of retail sales might be exempted from the sales tax, making the yield then $2,500,000.


To recapitulate:


Departmental Revenue as above

$ 1,835,300

Gasolene Tax

$ 500,000

Retail Sales Tax

$ 2,500,000


$ 4,835,300



This leaves the Provincial Government $5,164,700 still to raise to meet expense. This $164,700 could easily be raised by a number of light direct taxes, or increases in some of the items in the second-last list given above. The remaining $5,000,000 would have to come from the Dominion Government of Canada, and in the next installment I shall tell how.


Source : Joseph R. SMALLWOOD, Letter to the Editor, The Daily News, March 6, 1946.




© 2004 Claude Bélanger, Marianopolis College