L’Encyclopédie de l’histoire du Québec / The Quebec History Encyclopedia
Public Finance in Canada
[This article was written in the 1930's and published in 1948; for the precise citation, see the end of the document.]
Finance, Public. The problem of public finance in Canada is three-fold. It is federal, provincial, and municipal. In each of these three spheres the cost of government has risen within recent years so sharply that it now constitutes one of the most serious, if not the most serious, of Canadian problems. The great increase in the cost of the federal or Dominion government has been, of course, in part due to the Great War and the interest and pension charges resulting from it. But increases of no less serious magnitude have taken place in the cost of government in the provinces and in the municipalities. In the .fiscal year ending 1931, for example, the total ordinary expenditure of the nine provincial governments of Canada was over $190,000,000, as compared with less than $54,000,000 in 191.6, only fifteen years before-an increase of over 250 per cent. In the fiscal year ending 1931, the aggregate taxes imposed by the municipalities of Ontario, for example, were over $128,000,000, as compared with less than $35,000,000 in 1913 - an increase of over 275 per cent.; and municipal taxation in other provinces has told a tale scarcely less portentous than this. But the problems connected with Dominion, provincial, and municipal finance are in each case distinct; and .it is best therefore, that each should be treated separately.
Dominion Public Finance.
At Confederation, the new Dominion assumed the debts of the component provinces of British North America ; and it may therefore be regarded as the heir of the problems of pre-Confederation public finance. During the French régime, and in the earlier part of the British, the territorial or casual revenues of Canada, consisting of certain seigniorial dues and the proceeds of the sale of government land and timber, were reserved to the Crown; while the right of levying customs duties was vested in the government of the mother country. During this period, therefore, the responsibility for public finance rested ultimately with the mother country. With the introduction of representative government in the colonies of British North America, however, the power of taxation for local purposes was vested in the provincial legislatures; and gradually the British government resigned to the provincial legislatures the control both of the customs duties and of the territorial and casual revenues of the Crown. All the colonies of British North America had thus acquired, prior to Confederation, complete control of public finance.
The British North America Act gave to the new Dominion in 1867 the customs and excise taxes that had constituted the chief source of revenue of the separate provinces (direct taxation being as unpopular in British North America as in other new countries); and until the period of the Great War these taxes remained the chief resource of the Dominion government for general purposes-the revenue from the postoffice and the receipts from the government railways (which are not . properly regarded as taxes) being mainly absorbed in the cost of administering these services. In the fiscal year of 1913-4, customs and excise duties totalled $126,143,275 out of aggregate receipts on consolidated fund account amounting to $163,174,395. Since both these taxes are indirect, the result was that, prior to the Great War, the average Canadian was hardly conscious of the pressure of taxation for Dominion purposes.
The expenditures caused by the Great War, however, were so vast that they had to be met by loans; and on loans interest must be paid. It is a cardinal maxim of public finance that, where loans are contracted, new taxation should be imposed to meet the interest charges on the loans and to provide a sinking fund for their ultimate extinction. The result was, during the period of the Great War and afterwards, a large increase in taxation. Not only were customs and excise taxes increased, but new taxes were imposed. In 1915 new taxes were levied on bank circulation, on the income of trust and loan companies, on insurance companies, on telegrams, railways tickets, cheques, postal notes, money orders, letters, and post cards. In 1916 a business profits war tax (dropped in 1921) was introduced; and in 1917 an income tax was for the first time imposed-a tax which was in subsequent years repeatedly increased, and still remains an important feature of Dominion taxation. In 1920 the Dominion sales tax was introduced. The cumulative result of these war taxes was that in 1921 customs duties were for the first time displaced from their position as the chief source of Dominion revenue, the war taxes yielding fully $5,000,000 more than the customs duties.
Military expenditures in connection with the Great War, however, have not been the sole source of trouble in Canadian public finance. The deficits on the Canadian National Railways since the Great War, and more recently the expenditures in relief of unemployment went since 1930, have proved a burden hardly less onerous. These have been met (where they have not been charged to capital account) partly by new taxes, such as the tax on the gold mines, but mainly by the increase of taxes already established, such as the income and sales taxes.
For detailed information with regard to Dominion public finance, see the Canada Year Book. See also O. D. Skelton, Canadian federal ,finance (Queen's Quarterly, 1915 and 1918) and a valuable pamphlet on war-time finance , Sir T. White, The story of Canada's war finance (Montreal, 1921).
Provincial Public Finance.
One of the conditions on which Confederation was consummated was that the provinces were to receive from the Dominion exchequer annual subsidies. These have varied in accordance with population, and special grants have at times been made to various provinces; but the total of these subsidies has been in recent years over $12,000,000, and the total of all the provincial subsidies paid since 1867 is not far short of $500,000,000. For many years, these subsidies, combined with revenues from the sale of crown lands, timber dues, mining royalties, leases of water powers, etc. sufficed to meet the expenditures of most of the provinces. Though the provinces were given authority by the British North America Act to impose direct taxation within the province for provincial purposes, resort to direct taxation was practically unnecessary in most of the provinces till the dawn of the twentieth century. Since 1900, however, the Canadian public, discarding the laissez-faire ideas of the nineteenth century, have demanded, especially in Ontario and in the western provinces, increased services from their governments, especially in education, sanitation, good roads, and the public ownership and operation of public utilities. This extension of the sphere of provincial government has necessitated increased revenues. These have been found in various ways. One of the earliest and most profitable means .of adding to provincial revenues was the succession duty. This has yielded an increasingly large sum to provincial revenues, the aggregate amount of tax, which was only $1,020,972 for all provinces in 1904, having risen to $18,650,659 in 1931-or an increase of more than 18-fold in 27 years. The introduction of the automobile has provided the provinces with another lucrative source of revenue. In 1921 the total revenue of all provinces from automobile licences was $7,857,751; in 1931, ten years later, it was $19,952,575. Still more spectacular has been the growth of revenue from the gasoline tax. In 1923, Manitoba and Alberta, the only provinces that had adopted the tax, had a revenue from it of $280,404. Prince Edward Island, Quebec, and British Columbia adopted the tax in 1924; Ontario, in 1925; New Brunswick and Nova Scotia, in 1926; and Saskatchewan, in 1929. In 1929 the gasoline tax in all provinces reached a grand total of $17,237,017. More recently, with the abolition of prohibition in all provinces except Prince Edward Island and the establishment of some form of government sale or control, the revenues from the sale of liquor have added considerably to provincial income: In 1925 the total revenue collected by all provinces from the liquor traffic was less than X9,000,000; in 1931 it was over $32,000,000.
This increased revenue, however, has not kept pace with provincial liabilities. The total direct liabilities of the provinces have increased from a little over fifty millions in 1896 to more than one and a quarter billions in 1931. The interest charges on the bonded debt of the provinces has risen from less than $8,000,000 in 1916 to over $36,000,000 in 1931; and it is still rising, since in all the provinces unemployment relief has in some measure been charged to capital account. The provinces of Canada have been to a large degree placing on the shoulders of the future the task of supporting the unemployed of to-day.
Municipal Public Finance.
Under the British North America Act, municipal law and government come under provincial jurisdiction; and the Municipal Acts of the various provinces differ in detail with regard to their financial provisions. But in general it may be said that the chief basis of municipal revenue in all the provinces is real estate; though in some provinces taxes are also imposed on personal property, income, and business profits. Taxes are normally assessed at the rate of so many mills on the dollar of the assessed valuations. These assessed valuations vary greatly in different municipalities, even within the same province; but in general, where the assessment is low, the tax rate is correspondingly high.
Since 1900, Canadian municipalities have borrowed freely, especially during the period before the Great War, and the period since it ended. These borrowings have been caused by the public demand, during the boom periods preceding and following the Great War, for better roads, various public services, such as civic street-railways, public parks and playgrounds, and even public abattoirs. During the period 1913-31 the bonded indebtedness of Ontario municipalities increased from a little over $150,000,000 to nearly $500,000,000; that of Quebec municipalities from about $130,000,000 to more than $360,000,000; and that of other provinces in similar proportion. Since the close of the Great War, the total bonded indebtedness of the municipalities of Canada has more than doubled. Since 1930 heavy additions to this debt have been caused by expenditures for the relief of unemployment. Another cause of embarrassment has been the borrowing of funds in the United States , and the difficulty of meeting these loans of exchange was unfavourable. The result has been the virtual insolvency of numbers of municipalities in almost every province of Canada ; and in several provinces the government has been compelled to step in, and place insolvent municipalities under provincial supervisors.
For current statistics in regard to public finance, see the Canada Year Book.
Source : W. Stewart WALLACE, ed., The Encyclopedia of Canada, Vol. II. Toronto, University Associates of Canada, 1948, 411p., pp. 333-336.
© 2005 Claude Bélanger, Marianopolis College