CHAPTER IV.--THE FINANCIAL POSITION.
The Period from 1920-21 to 1931-32. (continued)
THE ESTABLISHMENT OF A SYSTEM OF TREASURY CONTROL.
143. It appears plain that,
in the years to which reference has just been made, little or no control over
public expenditure was exercised by the Department of Finance. When prior
authority for expenditure was asked by Departments it was given by the Finance
Department ordinarily as a matter of course; and in very numerous instances
expenditure was incurred by Departments without Treasury authority. The reports
by the Auditor-General during the period disclosed considerable irregularities,
but were generally ignored, and the liberal interpretation given to the provisions
of the Audit Acts removed the main check on improper expenditure. The political
system current in the Island sapped such initiative as was possessed by the civil
servants, whether in the Department of Finance of other Departments, and the control
of public finance, including appointments to the public service and all questions of
salaries, was in effect wholly in the hands of the political party in power at the
144. In 1932, as a condition
of the loan made by the four Canadian Banks at the end of 1931, a different system
of financial control was brought into being. The position of Controller of the
Treasury and Deputy Minister of Finance was established. The duties of this office,
as defined by the Treasury Control Act of 30th April, 1932, are generally to have
control over the collection of taxation; to see that no expenditure is made which is
not in accordance with law, or for which funds are not available; and to watch over
the financial position of the Dominion.
145. The control of expenditure
is referred to in some detail in the Schedule to the Act. It is provided, in particular,
that the invariable practice shall be that no new expenditure is to be incurred without
the written consent of the Department of Finance, new expenditure being defined as
1. Any new scheme or
service which involves or may involve payment from public funds, whether or not this
scheme or service is in pursuance of a general policy already adopted by the government,
and whether or not provision has been made for it in the Vote of a Department.
2. The creation of new posts and the appointment of additional staff whether
permanent or temporary.
3. All increases in salary, other than such automatic increases by seniority
or on promotion.
4. Any payments to public servants in addition to their respective salaries.
5. Any proposals for special payments to any other person.
6. Any proposals for pensions, other than those provided for under a properly
The Treasury Control Act,
with its Schedule, is printed in Appendix H.
146. We consider that this
system of control has worked well within the limits specified below. It is true
that certain Departments have experienced some difficulty in adapting themselves
to the requirements of financial control, but the transition from the former to
the present system has now been satisfactorily accomplished, and we may say
generally that Treasury control, approximating to the control which is exercised,
e.g., in the United Kingdom, is now in effective existence. Indeed we may add
that, in our view, if there be any unnecessary expenditure on the part of Departments,
it is so insignificant in amount that it may for practical purposes be disregarded.
147. We would, however,
emphasise the fact that the system is theoretically imperfect. The Controller
of the Treasury is, in form, appointed by the Government; and therefore, in form,
is under the Government's control. In essence, however, it is he who, in
controlling expenditure, in effect controls almost all Governmental activities.
It is obvious that the proper working of an arrangement of this nature depends not
merely on close co-operation between the Government, or Executive Council, and the
Controller, but on the existence of satisfactory relations between the personalities
concerned. From our observations, we are happy to be able to say that these
conditions are at present fully satisfied; but this might not always be the case,
and it is a weakness in the system that it should be liable to be upset by the
The Financial Year 1932-33.
148. It will be seen, from the
account given of the working of the financial year 1931-32, that the receipts from
the loans raised in that year were barely sufficient to liquidate the deficit on the
year. The budget for the year was framed on the basis that revenue would amount to
$10,180,000 and expenditure to $10,150,107, there being accordingly a surplus of
$29,893. The figures contemplated an increase in revenue of over $2,000,000 as a
result of additional taxation (which was now increased to the limit) and a decrease
in expenditure, resulting from drastic economies, of a similar amount. It was soon
manifest, however, that these hopes were not to be realised. It was found impossible
to keep expenditure within the estimate owing to the necessity for continuous payments
in respect of able-bodied relief. Provision had been made in the Estimates for only
$50,000 in respect of this service, whereas $1,170,000 had been expended in relief
payments during the previous year and large accounts were outstanding. As has already
been recorded, it was in fact found necessary to devote $1,085,000 to relief payments
during the year 1932-33. On the other hand revenue showed a sharp decline owing to the
decreased purchasing power of the people, and by early autumn it had to be recognised
that the receipts from customs duties had been greatly overestimated. In these
circumstances it became evident that the Government would not be able from its own
resources to meet in full the half-yearly interest payments on the public debt falling
due on the 1st January and, in the result, default on that date was only avoided by the
action of Your Majesty's Governments in the United Kingdom and Canada in arranging for
a joint advance of $1,250,000 to enable these payments to be met.
149. During the first six
months of the present calendar year, the position continued to deteriorate.
Revenue showed a further shrinkage while expenditure, though restricted to a
minimum, continued to increase. Thanks, however, to the generous action of the
United Kingdom Government in once more coming to the assistance of the Island and
making a further advance of $1,850,000, default on the interest payments falling
due on the 1st July was avoided. The financial year eventually closed with a
deficit of $3,253,776 as against the deficit of $4,029,339 on the previous year.*
150. It should here be noted
that in the autumn of 1932 Sir William Stavert, one of Your Majesty's Commissioners,
succeeded Sir Percy Thompson as Financial Advisor to the Newfoundland Government,
while Mr. E.N.R. Trentham, also seconded by the United Kingdom Treasury, succeeded
Mr. Penson as Deputy Minister of Finance and Controller of the Treasury.
* The Exchequer balance sheet on 30th June, 1933, is given in Appendix I.