As to what works may be chargeable to. capital expenditure or to annual revenue out of the consolidated fund is largely a matter of expediency. In the history of the Dominion since Confederation, the views and the practices of finance ministers and governments have varied very considerably. Thus, items which at one time are regarded as properly charged to consolidated revenue are, at another, charged to capital account. Apparently the most in fluential element in determining the variations in practice has been the condition of the public purse, and the very natural disinclination of ministers of finance and their colleagues to present budgets showing deficits on the ordinary annual expenditure. The lack of any definite principle in the division between expenditure from consolidated revenue and expenditure on capital account will be recognized in a survey of the details of the items charged to capital account and annual revenue in the Departments of Public Works and Railways and Canals.
Changes Resulting from the We turn now to take a brief survey of the financial changes which have resulted from the voluntary participation of Canada in the present great war. Canada has undertaken to bear the entire cost of placing half a million troops in the field, fully equipped, transporting them to and from Europe, maintaining them on the front with provisions, munitions, ambulance and hos pital equipment and all the other expenses in cidental to war. In so doing the country has necessarily to face new and hitherto untried problems of finance. The government has fol lowed the British example of meeting as large a share as possible of the expense from in creased taxation, and the remainder from loans. Both old and new forms of taxation have been employed in raising additional revenue. In 1914 additional customs duties were levied on a list of articles mostly of foreign production, and more or less in the line of what are now considered necessary luxuries, and therefore likely to increase revenue rather than curtail consumption. Excise duties on liquor and tobacco were also increased. The additional revenue expected from these sources was about $1,000,000 per month.
In 1915 the customs dues were still further augumented by a general increase of 5 per cent on the British' preferential rates and of per cent on all other rates. This additional tax was applied, with a few specific exceptions, to goods both free and dutiable in the regular tariff. As a result, although the imports of the previously dutiable goods fell off in 1915 16 while the total imports increased only $32, 500,000, yet the customs revenue increased $24,735,000 over the previous year.
The government issue of Dominion notes, supported by a 25 per cent reserve instead of 100 per cent reserve, was increased • from $30,000,000 to $50,000,000, thereby securing an additional free loan of $15,000,000. So large, however, was the volume of notes fully secured by gold that this change reduced the reserve on the total issue merely from 81 to 71.7 per cent.
New features of Federal taxation were first introduced in 1915, and consisted of special taxes of 1 per cent on bank notes, 1 per cent on the interest income of loan and trust com panies and the net premium of insurance com panies, except life and marine. Telegraph and cable messages were taxed one cent each, and railway and steamship tickets at graduated rates. Other features were a two-cent stamp on bank cheques, bills of exchange, money and postal orders, travelers' cheques, and notes discounted at banks. There was also a levy of one cent extra on letters and post cards. Additional excise stamps of varying amounts were levied on proprietary medicines, perfumery and wines. During the first year the revenue from these special taxes amounted to somewhat over $3,000,000.
In 1914 the special appropriation for war purposes was $50,000,000, the following year $100,000,000, and for 1916-17 $250,000,000. In this connection two quite new departures in Federal finance were made. During the summer of 1915, the first Dominion loans to be nego tiated in the United States were arranged. The first was for $25,000,000 and the second for $20, 000,000. These were followed in the spring of 1916 by another loan- of $75,000,000, floated in New York. The other departure was the rais ing of a domestic loan for $50,000,000, in the autumn of 1915. This was so successful that over twice that amount was subscribed and $100,000,000 accepted. In the autumn of 1916, the experiment was repeated for another $100, 000,000 with perfect success. Exchange condi tions, owing to the enormous surplus of British imports from America during the earlier period of the war, rendered it undesirable to borrow in Britain for use in America. A mutual arrangement was therefore effected by which the British treasury advanced funds for Canadian war expenditure in Europe and the Canadian government, partly from its own borrowings and partly by credit arrangements with the banks, financed British purchases in Canada, thus naturally relieving the transatlantic exchange situation.