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 time.

  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 follows:--

  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 authorised scale.

  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 personal factor.

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.




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