151. For the current year revenue has been estimated at $8,934,338 or about $850,000 more than last year, and expenditure at $11,065,889 or some $500,000 less than the expenditure for 1932-33. The estimated deficit for the year is thus $2,131,551 or about $1,120,000 less than the deficit for the year 1932-33. The text of the Budget Speech delivered by the Prime Minister on the 29th June, 1933, is reproduced in Appendix J; it will suffice to note here that while every attempt has been made to produce a reliable budget, the figures both of revenue and expenditure must be accepted with caution. For, in the first place, the amount provided for able-bodied relief is $500,000, as against $1,085,000 expended for this purpose during the year 1932-33. As will be detailed later, the Government have made great efforts to stimulate the fishery in the hope of enabling the fishermen to earn enough to carry them through the winter. Owing, however, to causes outside their immediate control, and in particular to the virtual failure of the Shore Fishery on almost the whole of the East and North-East coasts of the island (i.e., from Cape Race to Cape Bauld), these efforts have only been partially successful and it is to be feared therefore that large numbers of fishermen will be thrown upon the dole during the coming months. In these circumstances it would seem probable that at least $1,000,000 (or $500,000 in excess of the estimate) will be required for relief during the current financial year.

  152. The estimate of revenue similarly reflects an optimistic outlook in that it provides for an increase in receipts from Customs duties of $700,000 over those of last year. The argument here is that the Island has been living in such a state of uncertainty that imports have been reduced to a minimum; that this uncertainty will be to some extent relieved by the publication of our recommendations; and that, when these are available, imports, and therefore the returns from Customs duties will show an immediate increase. Against this must be set the following considerations. First, that the earning power, and therefore the purchasing power, of the people have been seriously diminished by the world depression, that a succession of unprofitable seasons has reduced the fishermen to a state of abject poverty, that all classes have suffered severe losses of income, which have been intensified by increased taxation, and that as reserves become exhausted Customs receipts must necessarily diminish. Secondly, that we are satisfied, as will be hereafter explained, that the present tariff is unscientific, presses too hardly on the fishermen, and urgently needs readjustment; and that as a result of such readjustment a temporary reduction in revenue from Customs duties must be anticipated. In view of these considerations, it would be unsafe to place the yield from Customs duties at a higher figure than $5,750,000, as compared with the estimate of $6,400,000 and the actual receipts of $5,700,000 during 1932-33.

  153. Allowing, therefore, $1,000,000 for able-bodied relief and assuming the revenue from Customs duties to be $5,750,000, the Expenditure Estimate for 1933-34 becomes $11,565,889 (as compared with that for 1932-33 of $11,339,442), and the Revenue Estimate becomes $8,284,338 (as compared with last year's receipts of $8,085,666). On this basis, the deficit for the year would be $3,281,551 as compared with the deficit of $3,253,776 for the year 1932-33.

  154. It is indeed our considered view that, while world conditions remain abnormal, there is likely to be a recurrent deficit in the neighbourhood of $3,000,000 (or nearly 40 per cent. of the revenue of the country), so long as Newfoundland is saddled with her present burden of debt and is unable to recapture her lost foreign trade.

  155. Such in outline is the grave financial situation with which the Newfoundland Government is faced to-day. We have already indicated that, in their anxiety to restore the finances of the Island, they have gone to extreme lengths in imposing increased taxation and enforcing reductions of expenditure. In spite of their efforts, there remains a gap between revenue and expenditure of some $3,000,000, or 40 per cent. of the revenue of the Island for the last two years. This gap cannot be bridged under present conditions; that, even under normal conditions, there can be no immediate prospect of the Island being able to show a balanced budget will be clear from a detailed examination of revenue and expenditure, to which we now pass.

  156. The following tables show the annual revenue since the War, and the details of the receipts during the last three years:--

  157. It will be seen that approximately 75 per cent. of the revenue is derived from customs duties, 7½ per cent. from income and other taxes, and 2½ per cent. from liquor profits. Taxation thus very largely indirect.

  158. The fact that the revenue of the country is so largely dependent on customs receipts makes it necessary to exercise caution in comparing the revenue figures of recent years with those of the years 1920-30. For one result of the excessive expenditure incurred during that period and met from loan funds was to increase temporarily and artificially the purchasing power of the people. This in turn was reflected in increased imports and thus in increased receipts from customs duties. The revenue returns throughout the post-war period until the onset of the depression were swollen by this process, and must accordingly be regarded as in excess of the normal revenue of the Island.