HISTORY OF PUBLIC FINANCE

OF

1840-1867

A CONFLICT OF INTERESTS

F the problems of reconstruction involved in the union of the Canadian provinces, few were as complicated or as difficult as the establishment of the system of public finance on a safe and prosperous basis. The absence of popular control over the civil expenditure ranked first among the ostensible causes of the revolt against the administration in Lower Canada. Upper Canada was hopelessly in debt. The prospect of finding assistance in bearing its financial burden had inclined the upper province to regard the scheme of union with distinct favour, but at the same time, the danger of being held responsible for obligations which it had not assumed seemed to prejudice the lower province against the proposed union. The Act of Union had apparently settled the question of the civil list; it had consolidated the provincial revenue, and had determined the order of its responsibility for public expenditure. There still remained the task of moulding into one the diverse elements which had formerly constituted two systems of administration, and the still greater problem of the public debt, with its conflicting interests.

The introduction of the element of public responsibility for the administration of the public funds was a distinctive feature of Lord Sydenham's scheme. John Henry Dunn, who for several years had been receiver-general of Upper Canada, was retained as receiver-general or treasurer for the united province, and received official recognition as an adviser of the crown by being called to the executive

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council. The office of inspector-general of Public Accounts was continued, but the duties of the office were enlarged so as to include the direction of the general financial policy of the government. Francis Hincks, who was appointed inspector-general in 1842, was admitted to the executive council, and at the same time was required to secure a seat in the House of Assembly. By entrusting the Finance minister with the responsibility of presenting and defending the financial policy of the administration, it was proposed to preserve harmony between the executive and legislative bodies, and thus to avoid the disputes which had proved so disastrous in Lower Canada.

The very heavy debt which the improvement of the waterways had created, placed the united province under a serious financial handicap. According to a statement submitted by Poulett Thomson in June 1840, the annual revenue would be inadequate to meet the estimated necessary expenditure. The following general statement gives a survey of the condition of the province's finances :

On this estimate, an annual balance of only £3119 remained to provide for the contingent expenses of the

legislature a sum which was entirely inadequate. On the existing revenue basis it was quite impossible for the province to undertake new public works or to launch any scheme of public advantage which involved claims on the public treasury.

SYDENHAM'S BANKING SCHEME

The general prosperity of the province depended at this time in a peculiar manner on the state of the public finances. The political disturbances which preceded the Union would at any time have seriously impaired the public credit, but, coming as they did, at a period of general commercial depression, this completely crippled the work on public improvements. In addition, the suspension of operations on the public works, by depriving new settlers of the employment needed to enable them to become safely established, not only destroyed a profitable local market, but seriously reacted on the tide of immigration. The completion of the St Lawrence waterway was confidently expected to open a larger market for Canadian produce. The resumption of activity upon the public works became therefore a matter of the greatest public concern, and Sydenham felt obliged to remind the imperial government of its offer of financial assistance as an inducement to secure the consent of Upper Canada to the proposed union. The actual debt was represented as £1,226,000 sterling, while a further appropriation was needed to render the canals capable of receiving traffic. Under these circumstances Lord John Russell, on the part of the British government, proposed to guarantee a loan of £1,500,000. In submitting this offer to the House of Assembly, Sydenham presented a comprehensive survey of the works which the province would require during the succeeding few years. In the light of this larger policy the imperial loan was entirely inadequate to meet the demands of the province. To finance the new public works, which he estimated would cost £1,470,000, Lord Sydenham proposed a resort to three different schemes. There would remain a balance of nearly £300,000 from the imperial loan after the debt had been

THE CIVIL LIST

The question of the civil list, which the British parliament had hoped to have set at rest, was still the occasion for contention. At this time, however, the issue was approached more with a desire to eliminate unnecessary expenditure, than for the purpose of receiving party advantage. The House of Assembly had never taken kindly to the system which, on the authority of the imperial parliament, had imposed a definite civil list. The independence of the Canadian assembly seemed to demand that the appropriations for a civil list should be made on the initiative of the colonial legislature. Accordingly, the Canadian parliament in 1846 undertook to revise the schedules of salaries forming part of the Act of Union. The appropriation of £1000 sterling for the salary of a lieutenant-governor was eliminated, while the total allowance in Schedule A was reduced from £50,000 currency to £34,638, 15s. 4d., and provision was made for a further reduction, when vacancies occurred in the offices concerned, to £33,031. Several changes were made in the salaries and allowances to the chief offices of state. An appropriation was made for the newly formed Board of Public Works. The sum of £6666 currency was allowed for Indian annuities, while the contingent account was raised to £7500 currency. The total appropriation for Schedule B was raised from £33,333 currency to £39,245, 16s. currency. On the basis of the minimum schedule prepared by the assembly, a reduction was effected in the civil list of approximately £13,000 currency.

THE REBELLION LOSSES CLAIMS

The claims for damages inflicted during the period of the Rebellion constituted another demand on the public treasury. The question of Rebellion losses had already been agitated in Upper Canada, and the legislature of that province in its last session had appropriated £40,000 in compensation for damages. No payments were made on this

account until 1845, when the Draper government set aside the revenue from tavern licences in Upper Canada for the special purpose of redeeming the pledge of the assembly of Upper Canada. The settlement in Upper Canada naturally created an agitation in the lower province, and in 1846 the sum of £10,000 was voted for the payment of claims certified before the Union. The question was settled in 1849, when authority was given the governor to raise debentures not to exceed £100,000 for the satisfaction of damages, and the payment of all expenses in connection with the determination of claims.

REVENUE AND THE PUBLIC DEBT

The variations in the net revenue and in the expenditure during the first decade of the Union, will be observed from the following table. A statement is added showing the steady increase in the interest on the public debt.

STATEMENT OF REVENUE AND EXPENDITURE, 1841-49

The debenture debt of the province was payable both in Canada and Great Britain. A return made in March 1848 showed a debt payable in Canada of £500,314, 7s. 61d. currency. Of this amount, £2637, 10s. bore two, three, four, five and six per cent, £149, 5s. 10d. was at five per cent, £5000 at five and seven-eighths per cent, and £343,166, 17s. 61d. at six per cent. The period for redemption extended to 1875.

In July 1850 Francis Hincks reported debentures outstanding payable in London to the amount of £2,195,225