Design for a New Dominion

R. M. FOWLER September 15 1940

Design for a New Dominion

R. M. FOWLER September 15 1940

Design for a New Dominion


Says this writer: We should not wait for peace to implement the Rowell-Sirois Report—Adoption now would enhance our war effort by making government more efficient


Part Four-Conclusion

WHAT DO Canadians want most today? I am not concerned about what we wanted as a nation in the distant days of last May, before Germany invaded Holland and Belgium; nor about what we may seek to achieve in some future and happier day. What are our aims today-in this fateful late summer of 1940? What are our national objectives? What chances have we of reaching them? How can we best go about it? In this article I propose to indicate our immediate national objectives as I see them, and then test the recommendations of the Rowell-Sirois Commission against those indicated objectives. It is not improbable that the whole future of the Commission's Report must depend upon whether or not its recommendations can help us put forward a larger and more effective war effort. If they will do so, we should adopt them immediately. We should not delay and debate them for months and years to come; leisurely discussion is a peacetime luxury which a nation at war cannot afford. If there is friction between Dominicn and provincial governments. if the Canadian machinery of government is old-fashioned and inefficient, if the system is bedevilled by waste and useless duplication of services, then the modernization of the system and the removal of inefficiency and friction should be a central part of Can ada's war effort.

Two years ago, when the Commission was canvassing opinion in every province in Canada, it would have been impossible to have stated our national objectives except in vague and general terms. At that time it was provincial rather than national objectives that mattered. Each province had special needs and desires, and sometimes the aims of the several provinces differed so widely as to be seemingly irreconcilable. Today war has swept away, or made unimportant, many of our petty differences. Faced with a threat to her very existence as a nation, Canada has suddenly grown up. We now have, as never before in our history, a national consciousness, and national aims which Canadians in all provinces share. Those national aims can, 1 believe, be clearly and briefly stated.

We want, first and foremost, passionately and unanimously to win this war—to put forth the utmost effort to achieve victory in a cause we believe to be right and just. We want, at a time of national danger, to maintain and heighten national unity—in fact, we must do that if we are to achieve our maximum war effort. We want to be ready for as long a war as may be necessary to win victory; and lastly, w'e want to be prepared to face the exhaustion and depression which must follow a lengthy war effort.

These are aims which all Canadians must surely share.

The Financial Proposals

LET US now examine the principal recommendations of the Commission to see what relation they bear to the attaining of these national objectives.

Since the Commission’s recommendations on debt and taxation were designed to conserve and increase national income, it is obvious that they bear directly on the problem of war finance.

To achieve our maximum war effort we must be able to pay the enormous costs which this effort will entail. Those costs must come from the current incomes and accumulated savings of Canadians. There is no other place they can come from. The total incomes of Canadians will suffer from the disruption of our foreign trade. We will lose income through the decline of foreign investment in Canada. Many Canadians, who have been producing wealth and income, will be actively engaged as soldiers and administrators, and their production will be temporarily suspended. Faced with these losses in the total Canadian income and with the financing of the war effort, we must do two things. We must first prevent other losses in income wherever possible; secondly, we must find ways to expand the total wealth and income of the nation. The recommendations of the Commission seek to do both these things.

The recommendations concerning provincial debt have already been discussed in detail in a previous article in this series. The Commission has recommended that the Dominion should place its credit squarely behind provincial obligations and that there should be provision for control

of future provincial borrowings. If this is done, default by provincial governments will be avoided. Default would mean losses and possible bankruptcies for individuals and corporations in all provinces. It would injure Canadian credit in the United States. It would mean, for the people of the defaulting province, high interest costs in the future and the starvation of essential provincial services. All these results of default would tend to lessen the total Canadian income, by financial disruption and destruction of business confidence.

If the Commission’s proposals regarding provincial debts are implemented, these ill-effects would be avoided. There would be positive results as well. The total national income would tend to expand, if the fear of provincial default were removed. By refunding the debt at lower interest rates (which the Dominion can do, and the provinces cannot), there would be a substantial net saving to the people of Canada as a whole. That saving could be devoted specifically to the promotion of the war. In fact, the whole process of refunding might be successfully carried out by an appeal to bondholders for voluntary refunding at lower interest rates as a means of aiding the national war effort.

Moreover, the debt proposals would assist the Dominion in co-ordinating national economic policies. Foreign exchange control is already in the hands of the Dominion Government and is a necessary instrument for a country at war. Approximately half the total provincial debt is payable to foreign bondholders in foreign currencies. Payment of large sums of interest, at a time when exchange rates are disturbed, creates problems with which the provinces are totally unequipped to deal. Any attempts to do so might weaken the Dominion efforts to stabilize exchange rates and to maintain Canadian purchasing

power for the purchase of essential war requirements in the United States.

Lastly, the proposals for the consolidation of Dominion and provincial debts, and the control of future provincial borrowings, would permit a single borrowing policy for Canada instead of ten different, and often conflicting, policies as at present. A country at war must fight on the economic and financial fronts as well as on the military front. Is it not elementary common sense that, on all fronts, we should be united?

Dominion Tax Levy

HTHE TAXATION recommendations have also been discussed in a previous article. The Commission found that income taxes levied by both Dominion and provincial governments are inequitable as between individuals and as between different regions in Canada. It found that corporation taxes in Canada are complicated beyond belief; that these taxes are stifling business expansion; and (to quote the report) they “violate every canon of sound taxation.”

The provincial system of succession duties was found to be inequitable and unjust. Their imposition produced bitter resentment and prevented investment of capital flowing freely from one province to another. For all three of these taxes the total costs of collection were high. There was waste of time and money to taxpayers in filling out a multitude of forms and in reaching agreements with a number of tax authorities.

The Commission’s proposal that the Dominion alone should levy income taxes, corporation taxes and succession duties, would have the following results:

1. It would tend to prevent unfair and unequal taxation of Canadians in different provinces of Canada.

2. It would remove the friction between provinces which arises today from income being earned in one province and taxed in another.

3. It would make possible a scientific system of corporation taxes which by removing the present restriction, would enable business to expand, with resultant increase in the national income.

4. It would avoid unco-ordinated double taxation by the Dominion and the provinces. One government can fix its rates in relation to the ability of the person or company to pay. Two governments can only do so if there is closer co-operation than has ever existed between Dominion and provincial governments in Canada.

5. It would diminish the costs of tax collection. Elimination of duplication would not only reduce governmental costs of collection; it would save money for the taxpayer by enabling him to deal with one government instead of ten.

The above list clearly shows how implementation of the Commission’s taxation proposals would assist in reaching the national objectives indicated at the beginning of this article. They would make it easier to raise the huge sums necessary for war purposes with the least possible injury to taxpayers. They would remove much friction that exists today between Canadian governments. They would provide a fairer tax system to meet the strains of war years and the years of reconstruction which must follow.

What About Unemployment?

HTHE RECOMMENDATIONS of the Commission ■*dealing with unemployment, contribute in a different way to the attainment of our national objectives. The Commission made an elaborate study of unemployment in Canada during the past decade. It found that, in the years from 1930 to 1937, more than §964,000,000 had been spent on unemployment by Canadian governments. In spite of this huge expenditure, no attack had been made on the causes of unemployment. No system had been devised to deal efficiently with future emergencies.

The causes of this failure lay in the constitutional difficulties. Under the courts’ interpretation of the British North America Act social services (including unemployment relief) were provincial responsibilities. But the provinces were without sufficient revenues to meet the enormous new costs of social services. The Dominion had sufficient power to raise the necessary revenue, but was without any power to provide the services.

The Commission reached the conclusion that unemployment is a national problem. It is caused in large measure by national and international economic factors. It can be met only by nation-wide policies to relieve and remove its burden. Its large fluctuating costs can be borne only by the Dominion Government, with its wide taxation and borrowing powers.

Once these facts are faced, in the light of the experience of the past ten years, the conclusion is inescapable that unemployment relief should be a Dominion function. The National Employment Commission reached this conclusion. The Rowell-Sirois Commission, after a complete re-examination of the problem, reached the same conclusion.

It is obvious that a major change in responsibility for unemployment relief would be difficult or impossible at a

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time when unemployment was on the increase. Changes can best be made and new administrative systems devised when the load is lightest. For this reason, we should take advantage of the decline in unemployment as a result of the war, to make the suggested transfer of responsibility. Under such a readjustment the Dominion would assume the responsibility for providing and administering relief to the employable unemployed. Plans would be drawn up for meeting increases in unemployment as they may arise. The plans would presumably include the appointment of a skeleton staff of administrators and the preparation of a program for re-establishing normal peacetime industries to take the place of war industries when these are no longer necessary. Public works would be curtailed or suspended until the war is over. But plans would be made in advance for a public works program to begin when men on active service are demobilized and those engaged in war work are no longer needed.

In a word, the recommendations of the Commission on the subject of unemployment are capable of being carried out today. It may not be possible to implement them when the war is over. If put into operation, the recommendations would produce immediate benefits in the form of more efficient administration, the removal of sources of friction between the Dominion and provincial governments, and the preparation of a comprehensive attack on the problems of unemployment. They would, in the future, assist in dealing with the serious problems of rehabilitation and readjustment that will arise when Canadian soldiers are demobilized and Canadian war production is discontinued.

Unemployment Insurance

'"THE COMMISSION also recommended that unemployment insurance should be a responsibility of the Dominion Parliament. There can be no doubt of the advantages of starting such a scheme at a time when unemployment is small. During the war years, substantial funds may be accumulated to provide assistance to workers who are now employed in war industries, but who may be faced with a period of unemployment after the war.

There is danger, however, that unemployment insurance may be regarded as a complete cure for unemployment, which it cannot be at the present stage of Canada’s industrial development. At the request of the Commission, an examination was made of the Dominion’s relief rolls to see what effect unemployment insurance would have on relief costs. It was assumed that a comprehensive scheme had been introduced and had gone into full operation. It was found that, in the ten largest Canadian cities where most unemployment was concentrated, only fourteen per cent of those in receipt of relief would have been cared for by insurance benefits in September, 1937. For the month of September, 1938, insurance would have cared for only eighteen per cent of those on relief. From these figures, it appears that only one unemployed person out of five can be provided for by unemployment insurance. Four out of every five must still be given direct relief.

Unemployment insurance is, therefore, a solution for only a small part of the unemployment problem. It must be accompanied by other plans which can, in the Commission’s view, only be mad» if responsibility for unemployment is transferred to the Dominion. In fact, if an unemployment insurance scheme is established by the Dominion, and the provinces are left with responsibility for unemployment relief, new problems of great difficulty will arise. The problem of unemployment is a single problem requiring a

comprehensive unified policy for its solution. It cannot be divided into a number of separate parts, some of which are assigned to one government and some to another.

If the Dominion is to have power to introduce unemployment insurance and to establish a national system of employment offices, three separate and distinct amendments to the Canadian constitution will have to be made. The recent amendment permitting the Dominion to introduce unemployment insurance, will not give the Dominion any power to give direct unemployment relief, or to establish employment offices. Further constitutional changes are essential, if these responsibilities are to be assumed by the Dominion. Both should be made if a unified policy is to be developed for the relief and prevention of unemployment.

The Time to Act Is Now

IT IS perhaps unnecessary to go through all the other recommendations of the Report to study their application to Canada’s war effort. They are obviously not all of equal importance. Some can clearly be related to the immediate objectives of the war; others seem only remotely connected with the war effort. However, they form together a comprehensive plan of reconstruction; of the Canadian governmental system, and each one of them can be shown to have value in that reconstruction.

The recommendations as to marketing would allow plans to be developed for the orderly production and sale of natural products in a way that has been constitutionally impossible in the past. The suggestion for co-operative planning between the Dominion railway transportation system and the provincial highway transportation systems seeks to avoid an overinvestment and waste which a country at war can ill afford. The proposal for close co-operation between Dominion and provincial governments in the form of regular conferences, aims at a more complete national unity and the removal of dangerous rivalry between governments. These and many other recommendations are designed to put our national house in order, so that we may put forth a stronger and more united effort against the foreign foe.

There is one phase of Canada’s future which did not receive specific attention from the Commission. But recent developments of the war in Europe have made it important. The conquest of France will result in great economic and industrial changes in Canada. The Battle of Britain may require completely new plans for the industrial development of this country. In the event of a protracted war, it may be necessary to transport large industries and large numbers of the population from Great Britain to Canada. We can no longer plan for a gradual increase in our population by highly selective immigration and natural growth. Whether we wish it or not, we may be compelled to accept large and sudden changes in our industrial and economic life in the very near future.

Faced with this prospect of hitherto unexpected national strain, should we make our system of government modern and efficient?—or should we continue with a system which, even before the perils of war were upon us, had shown signs of breakdown and dangerous stress? The answers to these questions are plain.

Naturally, it would have been easier and pleasanter if we could have had a long and carefully prepared discussion of the recommendations between Dominion and provincial governments. We would have felt safer, and surer of our ground, if we could have allowed ordinary, slow democratic

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processes to work out the necessary changes. But we are faced with a situation wrhere there is no time for lengthy discussion, where the needs of the future are upon us in the space of a few weeks or months, and where democratic processes must be speeded up to meet the challenge of totalitarian methods.

We are fortunate that we do not have to make necessary constitutional changes blindfold. We have the unanimous report of an able Commission, made up of men who had no political axes to grind, and who had full knowledge of opinions in all

-y parts of Canada. After nearly three years m of careful study they have recommended a splan for the reconstruction of Dominionre provincial relations which, while it may :>r not be perfect, would undoubtedly produce es a better-balanced system than we have *e today. Can we not take this plan with a certain amount of faith and put it into to early operation? Improvements can be es worked out from time to time as experience rt shows they are necessary. The main :n advantages of the plan are needed quickly, id Have we the vision and the courage to ill act now?