CHAPTER IV.--THE FINANCIAL POSITION.
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
123. The following
figures will indicate, more clearly than any words, the seriousness of
the present position:--
1933-34 (Budget estimate) ....................
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
Graph by Malby & Sons, Lith. From Newfoundland Royal Commission 1933 Report (London:
His Majesty's Stationary Office, 1934) 45.
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
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.
The Period from 1920-21 to 1931-32.
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.