BUSINESS & INVESTMENTS
Drayton Budget Gives General Satisfaction
AS A revenue measure Sir Henry Drayton's budget is receiving general commendation from the business community. The Minister of Finance has made several suggestions of altered taxation measures which should have an important bearing on business and industry generally. The efficacy of the sales tax I as a vehicle for producing adequate ' revenue remains to be proven in practice,
I but it becomes more and more apparent : from an examination of the underlying principles that its application as at present j devised will be less likely to injuriously affect trade than almost any other form of j tax so far conceived.
The system to be followed in 1921 largely exempts food stuffs as in the past. Original j raw material products of forest, fisheries,
I mines and agriculture remain free from a Sales Tax, as also are initial sales of farm j produce. Sir Henry evidently recognized that the intricacies and cost of collecting taxes on such products by means of a Sales ¡ Tax would in all probability be excessive ! to the point of defeating the revenue producing purpose of such tax. The same applies to sales by retailers and the truth ! of this is found in the operation of the Luxury Taxes, which cost 62 per cent, to ¡ collect.
J The new—or rather the enlarged—Sales Tax is collected from importers, manufacturers and wholesalers. It will not unduly increase the price of commodities, nor increase the cost of living. The fact must be remembered that the Business Profits Tax was proved to have been directly responsible for a large portion of the recent high level of prices. While the removal of this tax is not looked on as likely to provide a very substantial benefit for the majority of industries during the present vear owing to the decline in profits and hence in the demand for government taxat:cn yet the measure is viewed as one of the most solid steps that has been taken for petring industry on a normal and substantial basis once again.
Th» magnitude of the task with which °!r Henry was confronted in framing his Fiidvet wifi be recognized from a survey of the following figures. The national debt of Canada is now $2,350,236,700 or over $261 for every man, woman and child in the Dominion on the basis of the estimate of the Census Department that Canada ha° a population of nine millions. To make ends meet during the coming year there is r»n„ired the enormous sum of $591,347,697. or over $65 per head. By refunding or ’•»newing maturing obligations on the National Railways and capitalizing an exnend-'ture of $47,491,953 for housing 'nan=, soldiers’ settlements and sinking f”nds. the total amount to be raised by '■•’^ation is reduced to $435,360,971, or $1« n»r head of population.
T’F» o-reat ouertkn, however. rpo-ains as t° •h»ther the recentare and applkstkn of ri-» Pales Tax is v id» morph t» raise th» m-r-'red revere». This v. ill he evident in th» course of the next few month0, as returns from systm" are almost instantaneous. If th» v»'ue-e doos not meet reouirement° a hiph»° rereentpre ran he imposed or the application ran he broadened t» o—Frare certain ■ ffipr hrar'hes cf '•sJe, This m-ocess heipo gradual ” ill have lift'» ono disturbing offert on rommene. ■’idH by th» returns recorded for the fa'»0 Tax during the nine months cf Jf20 in " hich it was operative, the new Pales Taxbeing an ¡remare of 50 po° c»rt.— mav well he exported to rrrdl'Ce V 95,000,000 including the manufacturers’ tax of 1
To'ff Pension Del0' ed ''I’1" de ü b n r f the Minister 4 T'm nee to delay -evisitn cf the tariff pending a;tkn fy the t n erken Government en them cv n tariff problems is doubtless a geed n eve, and \ ill piare Canada, in the ps,sitien cf having something to bargain \ ith.
There is a growing appreciation of the fact that to-day the most important national issue is that of thrift and efficient management in public affairs if the enor-. mous burden which has been the legacy of the war is to he successfully financed. The business world looks to Ottawa for inspiration and guidance in this respect. The Drayton budget may be regarded as a reasonable effort to meet the situation. With such an enormous revenue to be obtained at this time and such unfavorable balance of trade, agitations for anything like a general reduction of the tariff would hardly be taken seriously. Nor was it to be expected that the income taxes, burdensome as they are, would be abolished at such a time.
A broad survey of the business conditions in various parts of the Dominion leads to the conclusion that the problems of the adjustment period b?’ e not yet been fully solved. Industry is e’e pressed, and with the exception of rare glimmerings of improvement gives litt’e ground for the hope of an immediate return to normal activity. The markets for agricultural products and basic materia’s have slumped to low levels during the course of the past three or four months, and the fact that the production cost factor was held up has been responsible in large measure for the high cost to the consumer.
The Business Situation A SPECIAL investigation of business conditions throughout Canada has recently been undertaken, and some hin dred or more bank managers across the Dominion have outlined conditions in their respective districts.
Several phases of the situation are discussed, particularly applying to industry, to retail trade, to building and to agriculture. From a careful analysis of these replies it may be stated definitely that business on thewhole throughout Canada is being conducted along restricted lines. The retai'er is meeting a'tered conditions and is marking his goods dov n to confm-rn more clo°elv with replacement values. The extent of this reduction of course varies, but on the who'e substantial progress has been made. One hopeful feature of the situation is the fact that the retail trade ' has not suffered to the same extent as industrial lines of enterprise. The reoorts indicate that retail sales are continuing in practically as large a volume as for the corresponding period a year ago. In a number of instances a reduction is reported but when it is considered that the prices have been reduced s:n°e a year ago it is ouite nrobable that the volume of goods °"tual]y handled is as large or larger. This condition removes from the consumer the onus of responsibility for the “buyer’s strike.” There is no strike among the consuming public although there is no doubt that the individual is buying more carefully, and in smaller onantitia«, but he comes back to the market oftener. The retailers are, however, adopting a conservative policy and are strictly limiting purchases to meet immediate needs only. Stocks in retailers’ and wholesa'e-s’ hands must be cleaned up before manufacturers w;u air-vn finri anything like a normal demand.
There is a ve-y decided depression in the building trades throughout Cenada. Very l'tt'e building is in sigbt for the immediate future in the majority of Canadian ci ries and towns. In every care the lack of activity in this line is attributed to the high costs of labor, and in a lesser degree to the high cost of materials.
The farmer too has suffered -’:th the rest of the community. TT° has been forced to sell his season’s pmr'uce at reduced prices. A large quantity of grain has been held in store to await a return of higher prices, but the opinion now prevails that the era of high prices for farm products is]definitely past for the time being.
Stocks have been fairly well reduced in consequence.
The West has been under a handicap owing to the very broad decline in the prices for grains, and this condition has been reflected in business throughout this district. Not only has the western farmer been required" to accept less than the anticipated prices for his crops, but the crop yield was hardly up to expectations. There has been a decided improvement in sentiment in recent weeks, although it is difficult to trace any tangible benefit to business. The crop outlook has been brightened by the fact that abundant showers have fallen recently, thereby ensuring a favorable impetus at the beginning of the season.
There is undoubtedly a large quantity of grain still in store in the West, and farmers will probably have to dispose of their holdings to less advantage than under the market conditions prevailing last fall. In many districts collections are being made with difficulty, due to the fact that the farmers entered heavy commitments last fall in anticipation of large crops and high prices. They have been disappointed in both respects, and in consequence have in many instances been required to ask for an extension of credit.
'T'HE most hopeful phase of the situation in Ontario and throughout Canada is the fact that the retailers are doing a comparatively large volume of business.
At no time since the adverse turn in trade materialized last fall has the turnover of the retailer suffered any drastic decline. The turnover is without doubt above the average of the previous year. Profits have suffered, but in the fact that the dealer is able to sell his goods freely lies the solution of the present situation. With the distributing agencies rapidlydepleting their own stocks, they must come into the market more and more for new goods and this will in time be reflected upon the industrial field.
The industrial situation has not shown the improvement hoped for with the return of spring. Almost without exception the reports indicate that industry is still stagnant with the volume of unemployment large.
High production costs are at the moment the chief obstacle encountered by industry and business as a whole. Production costs must come down, and manufacturers are giving serious attention to this matter. This may be brought about through the introduction of new and better equipment, of labor saving devices or through the greater efficiency of labor, or through a lowering of the wages of labor. Reductions in wages have been introduced in a number of lines of industry, but it is evident that the movement is only just beginning.
A comparison of the wholesale prices of a number of the basic food commodities indicates a substantial decline in prices at the beginning of May of the present year compared with prices a year ago. From the table appended below it will be seen that in many cases the reduction has been of very substantial proportions, and reflects a corresponding decline in the cost of
Sugar ...............$19.00 $10.50
Rolled Oats, bag 5 75 3.15
Salmon .............. 2.40 1.45
Canned Corn.......... 2.00 1.50
Jam ................ 1.40 .80
Flour............... 13.60 10.00
The Railway Problem
'T'HE Canadian National Railw-ays pres-*■ ent a problem of vital importance to every Canadian citizen. Last year the operations of these lines resulted in a huge deficit of some $70,000,000, and it is quite evident that the returns for the present year will show a still greater deficit. Not only is the financing of this enterprise a huge drain on the taxpayer but he is rewarded in return with inefficient service at exorbitant rates. The Royal Securities Corporation, Limited, of Montreal, discusses the situation in the current issue of Investment Items, and offers some suggestions which should prove helpful. The discussion in part follows:
If that competition between equals, which tends to the maximum efficiency of both, is impossible, there are two other options. One is the continuance of separate
operation with such a great disparity between the two systems that, none of the real benefits of competition will be realized. The other is amalgamation.
If the Canadian National Railways are worth anything to any owner they artworth that much and more to the Canadian Pacific Railway. If they represent a source of loss to any owner, they would represent a somewhat less loss if operated by the C.P.R. All bargains are a matter of terms and we believe that terms could be devised which would make it better business for the C.P.R. to take over these roads than to refuse to do so. And it must not be forgotten that the C.P.R. is a very large taxpayer, in addition to being perhaps the most direct gainer by general Canadian prosperity and the most direct loser by Canadian depression.
We believe very strongly that the highest degree of efficiency can only be obtained for the railways of Canada by placing the present Canadian National system under the control of the best railway executives to be found in the Dominion. The view recently expressed, that competition between the Canadian Pacific and the National system is in itself desirable as a stimulus to efficiency, seems to us to be due merely to a desire to be as cheerful as possible about the existing situation, and to have no basis in railroading science. It involves two assumptions: (11 that competition between two systems covering the same territory is desirable, and more desirable than unified operation, and i2j that the National system can be provided with a body of operators as expert and with as much esprit de corps as those in charge of the Canadian Pacific Railway, so as to be able to compete on approximately equal terms in spite of the deficiencies of the National Railway plant. The first of these assumptions is extremely uncertain, and the second is absolutely false.
The question of how to obtain that best possible management of the national railway lines—and indeed of the whole railway system of the Dominion, regarded as a unit—is incomparably the most important question which Canadians have to face. Efficient inland transportation is the very breath of Canada’s economic life. A country whose chief staple industry is the production for export of wheat, a commodity which must be carried over a thousand miles to seaboard, and must compete in its ultimate market with similar products raised far nearer to the ocean, is as dependent on efficient transportation as on spring rains and summer sun. And the lack of efficient transportation threatens not only our economic prosperity, but our national unity.
There remains to be considered the disposition of the third system—the Grand Trunk Railway. Its inclusion with the other units of the Canadian National system either for operation by the Government or the C.P.R. appears to us to be undesirable. The Grand Trunk Railway if divested of the Grand Trunk Pacific and of that equally disastrous handicap, long distance control, will, we believe, be able to stand on its own feet. Its inclusion with the Canadian National system and its ownership and operation by the Canadian Government would possibly develop serious international questions and would almost certainly accentuate competition with parallel American-owned lines, for 46 per cent, of its traffic is from one point in the United States to another point in that country. Its inclusion with the combined C.P.R. and Canadian National system is undesirable because it is not an essential part of such a system and because its independent operation in the most thickly populated portions of Canada (where there is room for two independent systems) would afford some measure of competition for the new system.
If, however, the people of Canada are prepared to relieve the Grand Trunk of its expensive child, the Grand Trunk Pacific, they should also relieve it of the obvious burden of management by a Board of Directors whose policies are directed from London and not from Canada. The essential of any government aid to the Grand Trunk must be the provision that control will be held not by a British or United States Board, but by the most efficient body of Canadian business men that can be found. Without this provision, success wiff he impossible.
It goes without, saying that the C.P.R. stockholders must have the voting control of the company. We1 question, indeed, Continued on patje 0.1
Business and Investments
Continued from page 5
whether the Government as a partial stockholder should have any vote at all except perhaps in certain special circumstances. The interests of the Government, as regards economical operation and improvement of earning power, would be identical with those of the other shareholders. The special interests of the people of Canada, as regards rates and a proper distribution of facilities, are a matter for the Railway Commission and should not be intruded into shareholders’ meetings. When once an efficient transportation service is established at a reasonable cost to its users, we have no doubt that the profits accruing will steadily increase. Participation in those increasing profits is the best return that the Government can ever hope to get from its ownership of the present National Railways; and it will
not get even that until it has dispossessed itself of the management of those railways, and handed them over to private owners actuated by the one really effective motive for the production of efficiency, namely, the desire for efficiency and consequent
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