121. The broad facts of the financial position in Newfoundland are unfortunately all too plain. Ever since the War, the country has been living beyond its means, and the budget has not been balanced since 1920. The Island is now in extreme financial difficulties.

  122. The financial year begins on the 1st July and ends on the 30th June. The average annual revenue for the 12 years 1920-21 to 1931-32 was $9,250,000;* the average annual expenditure for the same period, including losses on the operation of the railway, was $11,250,000, thus leaving an average annual deficit of $2,000,000. Since the world depression set in, the annual deficit has been greatly in excess of that figure.

  123. The following figures will indicate, more clearly than any words, the seriousness of the present position:--

  Reference is also invited to the accompanying chart. As we shall explain later, the figure of average revenue for the years 1920-32 must in itself be regarded as in excess of the normal revenue of the country.

Chart Showing Revenue and Expenditure of the Government of Newfoundland, 1911-1932. Graph by Malby & Sons, Lith. From Newfoundland Royal Commission 1933 Report (London: His Majesty's Stationary Office, 1934) 45. (57 kb)

  124. The yearly deficits between 1920-32 were met from the proceeds of dollar loans which were raised partly through the medium of the Bank of Montreal, the bankers of the Government, partly by private negotiation, and partly as a result of invitations to tender. Except in one instance, no provision was made for sinking fund in respect of these loans.

  125. The loans so contracted will be examined in detail later. It will suffice to record here that they served the object not merely of enabling the Government of the day to liquidate its annual deficit on current account but also of providing it with funds with which to embark on costly schemes of capital expenditure. Among the projects so financed may be instanced the construction of a dry dock to replace that built in 1882, the taking over and improvement of the railway, the expansion of the telegraph and telephone services, and the provision of steamers for coastal services. Unfortunately, none of these projects has proved directly remunerative. An ambitious scheme of highroad construction, originally designed to attract tourists to the Island but afterwards diverted from its main purpose, was similarly financed from loan funds and proved a costly experiment; while the expenditure incurred in the construction of numerous public works and buildings throughout the country served merely to increase the mounting national debt. There were also numerous instances where individual items of expenditure, which should properly have been met from revenue, were charged to loan funds. Full particulars of the loans and of the purposes for which they were raised are given in Appendix F, and a list of loans, in order of maturity, is given in Appendix G.

  126. As a result of this double process, under which current expenditure invariably exceeded revenue, while at the same time fresh expenditure on capital account was annually undertaken, the public debt of Newfoundland has risen since the War with startling rapidity. It will be seen that a loan was raised in each of the 12 years 1920-21 to 1931-32. At the beginning of that period the gross public debt was $43,032,785, including two loans of $12,943,400 raised for war purposes; on the 30th July 1932, it was $97,638,772. It now stands at a little under $101,000,000 or almost $400 per capita for a population of low earning power composed mainly of fishermen on the border-line of subsistence. Payments for interest, including provision for exchange fluctuation, amount approximately to $5,200,000 per annum or 56 per cent. of the average annual revenue of the country for the 12 years 1920-21 to 1931-32 ($9,250,000) and 65 per cent. of the revenue for the last two years ($8,000,000).

  127. The situation to-day is that, as a result of the extravagance of the post-war period, a debt has been incurred which is out of all proportion to the country's capacity, and we cannot avoid the conclusion that, given this scale of indebtedness, there is no prospect of the Island being able to pay its way, even under normal trade conditions.

  128. As will be seen from paragraph 117, the close of the War found Newfoundland in the enjoyment of a greater measure of prosperity than she had previously experienced. The price of codfish had risen during the War to heights hitherto undreamed of, and fishermen and merchants alike were able to congratulate themselves on the making of large profits. A great improvement had taken place in the standard of living; for the first time in their lives the fishermen had more money than they required for immediate necessities and standards were set up which in later years could not be maintained. It was forgotten that the conditions brought about by the War were transitory and exceptional; men grew accustomed to thinking in large figures and schemes and projects which a few years earlier would have seemed visionary and fantastic were regarded as the natural product of the new era. Government and people alike were the victims of an over-confidence, which, in the years following the War, was to blind them to realities, to induce a fatal disregard of the elementary canons of public finance and finally to involve them ever more deeply in financial embarrassment. Within 12 years the public debt was more than doubled. As a result of a long succession of unbalanced budgets, which in turn necessitated continuous borrowing, the financial position of the country was clearly unsound even in the seemingly prosperous years of 1929 and 1930; when the economic depression set in and the price of fish started to fall, the Island was faced with bankruptcy.

  129. Most of the profits made by the fishermen during the War were immediately dissipated in the purchase of small luxuries and in the many trivial items of expenditure entailed by an all round improvement in the standard of living. But a fair number of fishermen took the opportunity to save a portion of this unexpected windfall. Before the War, the deposits in the Banks stood at $8,870,000. After the War they were estimated to amount to $21,000,000. They now stand at $26,000,000. Of this amount, sums amounting to $1,260,000 are deposited in the Government Savings Bank. The greater part of these deposits are believed to belong to fishermen; and there are good grounds for thinking that considerable additional sums lie hoarded in fishermen's homes around the coast. The contrast between these figures and the plight of the people generally is striking. Deposits in the Banks stand at an average of nearly $100 per capita. Yet the fishermen are living in conditions of abject poverty, and no less than 70,000 persons, or 25 per cent. of the population, were in receipt of public relief during the winter months of 1932-33. It seems to be the fact that savings, once deposited in the Banks, are considered a sacred inheritance for the next generation which must on no account be touched, and it is popularly supposed that men endeavour to go on the dole, and would, indeed, prefer to starve, rather than draw on such deposits. References are made in Chapters III and V to this peculiar trait in the national character.† The point which we wish to make here is that the deposits in the Banks, which at first sight are of an impressive amount, are in fact sterilised, cannot be regarded as available for local investment and do not in any way reflect the condition of the people. This, as we shall show later, is now desperate.

  * Note.--The currency of the Island is the Canadian dollar, adopted in 1895 on the entry of the Canadian Banks into the Island, and the dollar figures in this and other sections of the Report refer, unless otherwise stated, to Canadian and not to United States dollars.
  † See paragraphs 91 and 216.