48. PUBLIC FINANCE, 1867-1917. Up to the time that the various provinces, which originally constituted the Dominion of Canada, entered into Confederation, they had depended almost entirely for their provincial revenues upon customs duties upon imports, supple mented by a limited set of excise taxes. Direct taxation upon property and income had been practically entirely reserved for the municipali ties, both rural and urban. These municipal revenues, however, had been regularly supple mented from the provincial treasuries by grants in aid of specific requirements, chief of which were education and transportation, or schools and highways and bridges. The larger public works, such as railways and canals, harbors and roads, were for the most part undertaken by the provincial governments, or by corporations chartered by them and heavily subsidized or aided in other ways, including authorized municipal assistance.
Source of Revenue.— Such being the finan cial conditions of the provinces at the time of Confederation, one of the chief difficulties to be faced was that of persuading the individual provinces to resign almost their only methods of taxation, customs and excise, into the hands of the new Federal government, and thus be left to cast about for other and hitherto but little developed sources of revenue. After much discussion, but under the somewhat stimulating pressure of necessity, a compromise was arrived at. The new Dominion or Federal government was granted sole control of the customs, excise and all other so-called indirect methods of taxation; while the provinces and their subordinate municipal institutions were confined to direct methods of taxation without, however, excluding the Dominion government from these sources also. On the other hand, the Dominion, in view of these sacrifices on the part of the provinces, not only assumed the future costs, management and maintenance of all the larger and expensive public works and public services, but also assumed the previously accumulated funded debts of the provinces. In addition, the Dominion was required to grant to the respective provinces, on a speci fied basis, certain annual subsidies in cash. These for some time furnished the most im portant element in their respective provincial revenues. The amounts of these provincial subsidies have been the occasion of much agita tion and not infrequent revision ever since. To the provinces were also assigned the various public lands, including the timber and mines on or within them. At the same time, the British North America Act authorized both the provin cial and Dominion governments to borrow money on the basis of their respective public credits.
The very strong and long grounded dislike of the Canadian people, both French and Eng lish, to direct taxation led not only, as we have seen, to the confinement of this method of taxa tion to the self-imposed levies on the property owners of the municipalities, but steadily pre vented, until quite recently and chiefly under the temporary requirements of the war, the levy of direct property and income taxes for pro vincial or Dominion purposes. Thus in most
cases, up to the outbreak of the present great war, there had remained a sharp distinction be tween the sources of the revenues of the Dominion, provincial and municipal gov ernments. This separation has been of the greatest value to the people of Canada in sim plifying their fiscal problems, and in keeping be fore them the distinct fields of responsibility for the levying and expending of the various con tributions which the citizens are called upon to make in support of the different public admin istrations under which they live.
As already indicated, the revenues of the Dominion are, for the most part, derived from customs duties on imports and excise duties on certain lines of manufactured goods, chiefly liquors and tobaccos. Owing to the customary method of presentation and discussion of the annual budgets and public accounts of the Dominion, the very limited source of the chief revenues of the country is apt to be overlooked. The present situation arose from historic con ditions and the necessity for remedying certain obvious abuses under former methods of deal ing with public accounts. Thus, at one time, the officials connected with the collection of the public revenue, whether levied as taxes or ob tained in connection with certain public services, were permitted to retain, chiefly in the shape of fees and expenses, the cost of collection, re turning to the government only the balance in its favor. When combined with the prevalent system of political patronage, the abuses con nected with this method can be readily under stood. In order, therefore, to bring as much as possible of the receipts and payments from the various departments to the attention of Parliament and the country, the ordinary re ceipts from the different sources, except from loans and trust funds which are otherwise ac counted for, were combined in what is known as the consolidated fund. Out of this is paid both the ordinary and miscellaneous charges and expenses of the government, except what is applied in the way of capital expenditure or the redemption of debt, or special subsidies and grants. At the same time, in connection with some of the public service, as for instance the postal service, a very considerable element of the expense connected with it is deducted before the remaining funds are handed over to be come part of the consolidated revenue. Thus the total gross revenue of the Post-Office De partment amounted to upwards of $16,750,000 m 1914-15, but charges to the extent of almost $4,000,000 were deducted therefrom before the remaining amount of nearly $13,000,000 was handed over as part of the consolidated revenue.