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Home -> Charles Francis Bastable -> Public Finance -> Chapter VI

Public Finance - Chapter VI

1. Preface

2. Chapter I

3. Chapter I a

4. Chapter II

5. Chapter II a

6. Chapter III

7. Chapter IV

8. Chapter V

9. Chapter VI

10. Chapter VII

11. Chapter VII a

12. Chapter VIII

13. Chapter VIII a

14. Book II Chapter I

15. Chapter II

16. Chapter II a

17. Chapter III

18. Chapter III a

19. Chapter III b

20. Chapter IV

21. Chapter V

22. Book III Chapter I

23. Book III Chapter I a

24. Chapter II

25. Chapter III

26. Chapter III a

27. Chapter III b

28. Chapter IV

29. Chapter V

30. Chapter V a

31. Chapter VI

32. Book IV Chapter I

33. Chapter II

34. Chapter III

35. Chapter IV

36. Chapter V

37. Chapter VI

38. Chapter VI a

39. Book V Chapter I

40. Chapter II

41. Chapter III

42. Chapter IV

43. Chapter IV a

44. Chapter V

45. Chapter Va

46. Chapter VI

47. Chapter VIa

48. Chapter VII

49. Chapter VIIa

50. Chapter VIII

51. Chapter VIIIa

Internal Taxes On Commodities.

DIRECT taxation of enjoyment or consumption is,
as we have seen in the preceding chapter, of comparatively
little financial significance. In this respect it presents a
marked contrast to that system of indirect taxation that
has now to be examined. All European countries rely on
what is known in England as ' the Excise ' for a substantial
part of their revenue receipts 1 . Any failure in this branch
of taxation would be a fiscal disaster very hard to retrieve.
Even the United States, which in times of peace can dis-
pense with internal taxation of most commodities, had,
under the pressure of war, to apply this system in a par-
ticularly rigorous form 2 . Nothing but a much higher
standard of morality in regard to the payment of direct
taxes, or a very unlikely reduction of expenditure, will
render the remission of taxes on commodities possible.
Another noteworthy feature of the taxes under considera-
tion is their modernness in their present form. The

1 Thus in England the receipt from the Excise on commodities is, speaking
broadly, 30 per cent, of the total tax receipts .22,572,000 out of ^"76,387,000
in the year 1888-9. The contributions indirectes and the fiscal monopolies in
France show for 1889 a gross yield of .47,000,000. Allowing for the expenses
of working the tobacco monopoly and deducting the post telegraphs and the
taxes on communications, the balance remaining is over 25 per cent, of the
total tax revenue. The German Imperial excise is of less importance, but it
gave a return of over ^"6,000,000 in 1887-8.

English Excise is hardly 250 years old 1 , and the corre-
sponding branch of revenue in other countries cannot claim
much higher antiquity. A reference to general economic
conditions supplies the explanation of their relatively recent
origin. An extended and productive system of indirect
taxation requires for its effective operation a large de-
velopment of money transactions with an accompanying
separation of employments. Any attempt to tax producers
or dealers in the expectation that they will recoup them-
selves by charging an increased price for their wares is
obviously impracticable where most production is for
domestic use, and such exchanges as do take place are
transacted by means of barter. Besides, the natural
tendency of financial policy is to begin with customs duties,
partly as being easier to collect, but also as, in the popular
belief, falling mainly on foreign producers. A further pre-
requisite for the creation of an excise is the formation of an
administrative organization capable of effectively super-
vising the production of the dutiable articles within the
territory of the State.

The tax system is however, in all its divisions, the result
of a gradual evolution, and therefore we need not be sur-
prised at finding earlier forms of taxation falling on the
production of commodities, and hence ultimately on con-
sumers. The claim of the feudal over-lord to ill-defined
prerogative rights is one source. Market fees and tolls
were the foundation on which a system of indirect taxes
could without difficulty be constructed, and the older im-
port and export duties presented a convenient analogy.
A charge on the sale of a domestic article did not seem
a greater violation of the subject's liberty than if it were
imposed on the introduction of a foreign one. The licenses
on trades and occupations supplied another means for
attaining the same end. When confined to particular
industries they must evidently be regarded as part of the expenses of production, and unless there is a differential
gain will be ultimately shifted to the consumers of the
products l . A license graduated in proportion to the out-
put or amount of sales is hardly distinguishable from a tax
on the commodity produced. The relations of mediaeval
traders and craftsmen to their rulers and municipalities
brought this kind of taxation into use as an expansion of
the general property tax. Still more important was the
influence of the quasi-private receipts of the sovereign,
which led to the monopolizing of certain forms of produc-
tion in order to increase the royal revenue. The State
monopolies, of which so many examples are to be found in
ancient and mediaeval Finance, are, however, so far as the
price of the commodity is thereby raised, nothing but a
special form of taxation. As already explained 2 , the
normal profit on the capital employed is a part of the
economic receipts, but any excess is unquestionably taxa-

In these different ways the indirect taxation of consump-
tion has been attempted, and the last-mentioned monopoly
is even yet employed, as being, under certain conditions,
a convenient mode of levying taxation.

2. The problems presented to the financier in con-
nexion with the whole system of indirect taxation are both
numerous and important The earlier methods were
directed simply to obtaining resources for the immediate
wants of the State without regard to the ulterior effects on
the economic position of the nation. This irrational and
almost instinctive procedure was soon replaced by attempts
to use taxation as a means of guiding private expenditure
in the supposed best direction. The desire to employ
taxation as a moralising agency is even at present as the
duties on alcoholic drinks prove an element of no incon-
siderable weight. The proper development of the taxes
on commodities has, moreover, been hindered by mistaken
views as to the true effect and operation of this part of the
tax system. The earlier excises aimed at including all
the various articles of consumption : it was thought that
the maxim of equality demanded nothing less than this
comprehensive procedure. The often described alcavala
and bolla were imposed, the former on the sale, the latter
on the manufacture of all kinds of goods. The excises of
the 17th and i8th centuries were regarded by financiers as
the principal form of taxation, destined, if not to replace all
other kinds of imposts, at least to hold the principal
position in the fiscal system. Dutch methods of taxation
had shown how productive taxation on commodities could
be made, and the greater the number of the taxed articles
the more perfect was the system deemed to be. Popular
sentiment by no means agreed with this idea of theorists
and statesmen. The unpopularity of direct imposts has
often been noticed as one of their defects, but no form of
taxation has ever excited more genuine dislike than the
' general excise ' which Walpole was accused of attempting
to introduce into England. We have seen the weighty
reasons that forbid the adoption of indirect taxation on a
great number of articles 1 , and here we may add that the
historical movement of the i8th century made such a
course impossible as a permanent system of Finance. The
political revolution placed power in the hands of a class
that would not tolerate it, while the less-noticed, but quite
as important, industrial revolution established conditions
under which it would not be endurable 2 .

The influence of economic doctrines is also to be traced
in the later legislation on the matter. Without at all

1 Bk. iii. ch. 4 . 5 .

2 The hostility of the Physiocrats to indirect taxation was shared, so far as
internal taxation went, by the other sections of the liberal party. It is note-
worthy that this disposition is also found in the labour parties of the present
day, who resent taxation on commodities consumed by the working classes as
taxation of labour. Cp. Lassalle, Die indirecte Steuer und die Lage der
Arbeitenden Classen.
asserting that modern taxation in this department is in
full conformity with the prescriptions that result from
economic principles, it may be said that there has been
a decidedly beneficial remodelling of internal taxation,
which has removed many of the objections that might be
urged against its cruder forms, and there is every reason
to hope that this progress will continue.

3. The first problem to be faced in determining the
character and extent of the taxation on commodities is
the number of articles to be taxed. As we cannot with
prudence bring all, or even the greater part of the com-
modities produced under duty, it is necessary to make
a selection, and to do so on certain definite principles.
The old and simple rule of taxing whatever is most easily
reached can hardly claim scientific justification. It is
the product of fiscal necessity, not of providence and
deliberation. One very important condition is the amount
of revenue required ; the expediency of taxing a given
article will always, in some degree, depend on this con-
dition. If, as we have found 1 , the whole category of
indirect taxes is the outcome of the heavy expenditure
of the modern State, it is plain that the greater the outlay
the more imperious will be the calls of the Exchequer for
receipts from this source. With an increased expenditure
of 20,000.000 per annum in Great Britain, the exemption
of sugar from taxation could hardly be continued. It is
next necessary to settle the proportion that can be obtained
by the various kinds of direct taxation, as well as by those
further imposts that we have grouped under the title of
taxes on acts and communications, before we can say what
sum must be gained through the excise and customs.
This, again, suggests a fresh consideration. From the
economic and fiscal point of view, the existence of import
duties establishes the expediency of corresponding excise
ones. Any other policy is detrimental to the revenue and
therefore to be condemned. We may, however, escape the
discussion of this question at present by regarding pro-
, tective import dues as being equivalent to bounties on
production, and therefore forming a part of expenditure 1 .
When the amount to be raised through internal taxation
of commodities has been fixed, the more difficult question
of distributing the total charge among the several duti-
able articles, and of saying what these shall be, arises.
One very plain limit is supplied by the condition of
maximum productiveness in the case of each article.
The rule of charging only what 'the commodity can
bear ' has not always been as carefully observed as it
should be, but it is now well understood that increased
rates may give diminished receipts. No single class of
goods could yield the amount that modern fiscal systems
require. But it is not merely the need of attaining the
highest productiveness that leads to an extension of the
list of dutiable goods ; considerations of equity also come
into play. The different classes of society do not expend
their incomes in the same proportion on the many articles
of consumption, and even persons in the same class have
very different habits and tastes. A tax that presses heavily
on one individual or class may scarcely affect another.
Hence it is necessary to make a judicious selection of
objects, in order to secure a fair distribution of the charge
in accordance with the general rule adopted as a guide.
The inclusion or exclusion of necessaries will depend on
the view taken as to the treatment of the minimum of
subsistence. If its exemption be deemed proper, all tax-
ation that would trench on it is to be peremptorily for-
bidden : where the duty of all to contribute to the service
of the State is recognised, duties on such articles as corn
and salt may be the easiest way of enforcing that responsi-
bility. At the opposite extreme, the mode of dealing with
articles consumed only by the rich will be affected by the
amount already obtained through income and property
taxes and duties on the transfer of wealth, and, too, by
the extent to which the idea of progressive taxation is
accepted. Heavy imposts on luxurious expenditure tend
to press more heavily on the rich, and are in principle
the same as a progressive income tax *, though their actual
operation may vary more according to circumstances.

The main brunt of indirect taxation will, in most modern
communities, fall on the great intermediate class of goods
that form the staples of consumption. It is one of the
earliest observations in Finance that taxation on the
expenditure of the working classes will yield much better
results than that which is placed on the apparently more
profitable outlay of the comparatively few rich persons 2 .
The objects of general expenditure must be brought under
contribution, in order to secure the high return that is
needed as a justification for the imposition of so vexatious
a system as the excise.

We thus reach rather limits within which the field of
taxation has to be kept, than direct indications as to the
articles and rates to be imposed. Another class of con-
siderations will help us to make some further progress.
An excise system must depend largely for its success on
the technical conditions of the industries that it supervises.
Where industrial improvement is rapid, the restrictions
needed for the protection of the revenue are felt as a
serious hindrance. The adoption of new processes, so
necessary for the most effective production, is not readily
carried out, and the system of taxation violates the maxim
of ' economy ' by inflicting loss on the community without
corresponding gain to the State. The only escape is found
in restricting the objects of taxation to a small number of
articles, and in so choosing them as to include only those
industries in which invention is not very active, or in which
interference with it will not be seriously felt.

Again, it is evident that some commodities are far more
closely connected with the work of production than others.
A duty on manufactured silk would obviously have less
effect on industry in general than one on iron. The former
would apart from its diffused effects only concern the
producers and consumers of silk goods ; the latter would
affect almost every industry of importance by enhancing
the price of one of the most essential auxiliary materials of
production. This contrast between auxiliary articles and
i those destined for direct consumption l leads to the rule
.that taxation of raw materials or goods that aid production
should, as far as possible, be avoided. Not only are the
real effects of duties on such articles harder to estimate :
there is the further evil that the taxes have to be advanced
by the producers for a longer period, and the ultimate
increase of cost to the consumer is made greater by the
interest on those advances. It is true that the State
receives the money at an earlier time, but its gain is not
sufficient to counterbalance the loss through interest on
the locking up of what would otherwise be active capital.

The system of taxing commodities is consequently most
effective when it is confined to a comparatively small
number of goods, which form the typical objects of the
general expenditure of the various classes and grades of
the community, and which, at the same time, are not
important elements in auxiliary capital. The production
of these goods must, moreover, not be in a very scattered
form, and in the hands of small producers, as excise super-
vision then becomes too burdensome to the industry and
too costly to be effective. All the real objects of taxation
on commodities can be accomplished without including
many items in the list of dutiable goods. Productiveness,
economy, and equity, are the ends in view ; and they
cannot all be secured without this limitation of the field of
the tax collector ; while equity, which seems to be violated,
is really and substantially attained by a small as well as

1 For Economics this distinction has been worked out by Menger, who
grades commodities in ' orders ' according to their nearness to the consumer,
by an extensive number of taxes. One article of general
consumption is a better object for purposes both of revenue
and justice, than thirty or forty minor commodities on
which the cost of collection would be high and the ultimate
incidence uncertain.

The last important influence that affects the selection of
the objects of indirect taxation is the desire to discourage
certain forms of outlay that are regarded as pernicious, or,
to take the mildest view, not promotive of economic or other
virtues. This idea, which lies at the root of all sumptuary
taxes, is represented in modern Finance by the treatment
of intoxicating drinks and tobacco. In nearly every country
these articles form the mainstay of the revenue from in-
direct taxation, owing to the two conditions of large
consumption and heavy taxation. So far has this move-
ment been carried in England, that it is quite within the
limits of probability that both excise and customs may
soon be confined to these commodities of doubtful ad-
vantage, as the former virtually is l . Though the French
contributions indirectes have a broader basis, they are yet
largely dependent on the wine and spirit duties ; while the
tobacco monopoly is highly productive. The United States
and Russia have their internal revenue in a similar posi-
tion, and the inferior yield in Germany is admittedly one
of the weak points in the fiscal system of that Empire.

4. One result of the preceding inquiry as to the
conditions that should be taken into account in framing a
system of duties on commodities is to give strong support
to the position that such duties must be varied according ^
to the country in which they are applied. The really pro-
ductive objects of taxation are not quite the same in any
two countries. The tastes and habits of each community
have to be carefully observed and taken into account,

1 Some license duties and that on the railway receipts from passengers are
placed under the excise, but they really belong to another category of taxes
(see ch. 8 of the present Book). The tea duty is the only productive part of
the customs outside spirituous liquors and tobacco, and its yield is much
diminished by the reduction to ^d. per Ib. made by Mr. Goschen in 1890.
otherwise the revenue receipts will suffer. But the financier
has not merely to study the direction of demand ; he must
further pay attention to the agencies of supply. The system
required for a wine-producing country, such as France or
Italy, is not the same as that best fitted for districts in
which alcohol is produced by an elaborate manufacturing
process. Adjustment to the economic environment, so
exceedingly desirable in the arrangement of taxation,
necessitates the adoption of special taxes in different cases
in order to gain the best results.

The same point is further enforced by the varying
amount of revenue that is required, and the extraordinary
differences in the amount of consumption on which taxa-
tion can be imposed. The exemption of necessaries from
duty must be contingent on the power of obtaining the'
required amount from other objects. Thus salt, which is
rightly free in England, has to be taxed in India owing to
the absence of other resources, and sugar, released from
taxation in Great Britain in 1875, would, in case of financial
pressure, be one of the most eligible objects for imposition.
The true test of financial competence is to be found in
the application of the general principles to the varying cir-
cumstances of each particular nation in such a way as to
realize the ends of a sound and prudent policy.

The modern developments of financial conditions have,
it must be said, tended to bring about a greater approach
to uniformity in the taxation of consumable commodities,
both in respect to the objects taxed and the procedure em-
ployed. Economical and political causes have both con-
tributed to this result. The modern industrial system
with its uniform and mechanical methods of production,
the general diffusion of a taste for articles of convenience,
and the formation of powerful fiscal administrations have
all helped to make the excise systems of European States
more nearly resemble each other. Scientific investigation
has also aided in producing this situation. The skilled
financial advisers of a government are acquainted with, and
ready to adopt, what is effective in the forms and methods
of other nations.

Even greater progress in this direction may be antici-
pated in the future. We may not unreasonably hope that
some of the anomalies at present existing will be removed,
and that by due co-ordination and uniformity in method
the hindrances to production and exchange that indirect
taxation now causes may, if not entirely removed, be at
least reduced to a minimum.

5. The freedom of this country from internal taxation
of commodities was one of the boasts of Englishmen so late
as the seventeenth century. Under Elizabeth the granting
of monopolies was the first step towards what might have
become an effective system of taxation, but this encroach-
ment was successfully opposed. The introduction of the ex-
cise on the Dutch model, said to be the proposal of Pym,
was due to the needs of the Parliament in its struggle with
Charles I ; it included a large number of articles of necessary
consumption, chiefly food and clothing. Retained during
the Protectorate, with some modifications, as an important
source of revenue, the excise was re-established after the
Restoration in the form of a tax on beer and ale, partly as
a compensation for the abolition of the feudal dues, and
partly as a resource for the growing needs of the Sovereign 1 .
At the close of the reign of Charles II the yield of these
taxes was 620,000.

Whatever may have been the advantages of the Revolu-
tion of 1688, reduction in the burden of taxation was not
one. The cost of the French war and the entanglement of
England in the European disputes respecting the Balance
of Power, along with the Colonial and commercial policy
that resulted from the predominance of the monied interests,
largely augmented the annual expenditure. During the
eighteenth century the process of building up the excise by
the inclusion of fresh articles and the increase of the rates

1 The hereditary excise had the former, the temporary excise granted for the
life of the King the latter object, but the distinction was only a formal one.
on those already taxed was in process. Breweries and dis-
tilleries were soon placed under charge ; the malt duty was
imposed (1697), and later on developed into an important
tax. Several articles of necessary consumption were brought
within the fiscal net. Salt, leather, soap, and candles are
enumerated, and their taxation condemned, by Adam
Smith l . The extension of the system was however carried
on in a tentative way ; new taxes were tried, and if they
proved to be unpopular or unproductive were repealed,
perhaps to be soon re-imposed under more favourable cir-
cumstances. The best known incident in this part of fiscal
history Walpole's excise scheme was really a reform in
the customs treatment of tea and tobacco, and excited
prejudice rather by what it seemed to lead to, than by
its actual provisions. The financial result of the many
measures passed respecting the excise during the eighteenth
century is best shown in the increased receipts. At the
commencement of that period they had averaged
i, 200,000 2 : by 1792 they had risen to 10,000.000.
From the latter date the extraordinary drain of the Revo-
lutionary war with France affected the financial policy of
the country, and caused those fresh applications of taxation
that have been so often described by historians. The
existing rates were in nearly every case raised to the
highest productive point (often as experience proved
beyond it). The duty on salt was doubled, and later on
again subjected to a 50 per cent, increase. Glass, tiles, and
leather were also made liable to additional charges. Beer
and ale, as might be expected, received specially severe
treatment. At the commencement of the French war the
various taxes on these articles or their constituents yielded
3,578,000 : in 1815 they came to almost 9,600,000. The
spirit duties were trebled during the course of the war,
until in 1811 they stood at JQS. z^d. per gallon, or almost
the present rate l .

Such very great increase of taxation, accompanied as it
was by corresponding advances in respect to other classes
of imposts, could not long survive the return of peace,
aided by the application of proper fiscal methods. Unfor-
tunately the abandonment of the income tax and the inju-
dicious methods of borrowing pursued by Pitt and his
successors made reform a work of some difficulty. The
debt charge of ^3 2,000,000 and the heavy military and
naval expenditure, not readily brought back to a peace
footing, both hindered immediate remissions or exemptions.
The national industries had, besides, become adjusted to this
very heavy taxation, and caution was needed in the attempt
to alter the situation. At first the want of revenue was so
great that certain excise duties were increased, e. g. those
on soap, malt, and British spirits. This extreme pressure
did not, however, last long, and it became possible to carry
out some moderate reforms. The salt duty was reduced,
and its abolition fixed for an early date (1825). That on
leather was lowered one half, and the very high tax on
British spirits (us. 8J order to meet the illicit trade and in connexion with the
lower duties on wine. The exertions of Huskisson were,
however, chiefly directed towards the improvement of the
customs, which, indeed, most urgently required reform.
The internal taxes were not directly affected by the disturb-
ing influence of the protectionist system, and therefore the
changes to be carried out were of a comparatively mode-
rate character. They may be said to consist in : (i) the
elimination of raw materials from the list of goods liable to
duty ; (2) the contraction of that list to a very small number
of articles, and (3) the placing of the weight of internal
taxation on intoxicating drinks. A further aim has been
to secure a complete harmony between the excise and
customs systems, which has been reached by the abandon-
ment of protection and the establishment of exactly equiva-
lent duties in both departments. In fact, that substantial
unification of the excise and customs for which Walpole
vainly risked his popularity has been definitely accom-
plished so far as financial effectiveness is concerned.

Some of the facts of this reform of the excise are not
without interest. After the disappearance of the salt tax
the duties on leather and candles did not long remain. In
1830-1 they were repealed. The impost on soap that
* tax on cleanliness ' survived till Mr. Gladstone's first
Budget in 1853. Glass was released in 1845, but paper
continued liable to duty till 1861. Starch and bottles were
exempted in 1834, bricks and tiles in 1850. These repeals
of duty, which seem so trifling, were really, taken together,
a considerable boon to British industry and to the bulk of
consumers. The progress of the chemical industries may
be dated from the repeal of the salt duty. Bricks, tiles,
and glass are constituents of that most necessary com-
modity a house, besides being of use in numberless other
ways. The paper tax was even more than a ' tax on
knowledge ' ; it hindered the development of an important
industry and raised the price of an article capable of many
different uses. These advantages were well worth the sacri-
fice of the revenue obtained from the abandoned duties 1 .

The treatment of alcoholic drinks stands apart from the

1 The following were the amounts yielded by the excise taxes on the above-
mentioned articles at the dates of abolition :

Salt (1825) . . . 380,000

Leather (1830) . . . 360,000

Candles (1831) . . . 476,500

Starch (1834) . . . 90,000

Bottles (1834) . . . 3,600

Glass (1845) . . . 600,000

Bricks (1850) . . . 456,000

Soap (1853) . . . 1,126,000

Paper (1861) . . . 1,350,000

Total 4,842,100
general system pursued with respect to industries. In their
case there has been no remission, except when there was a
prospect of increasing productiveness. The only exception
to this rule the repeal of the beer duty in 1830, by which
3,100,000 of revenue was sacrificed had in part the aim
of making the malt tax more productive, and this was in
good degree attained. Besides the double system of taxing
both malt and beer was recognised as inconvenient. During
the half century 1830-80 the malt tax was the mode in
which beer and ale were taxed, and supplied a standing
grievance to agriculturists. Its large yield 8,000,000 in
1877 made it impossible to repeal it, but in 1880 the exist-
ing duty on beer was imposed in its place, partly to relieve
the depressed farmers, but also in accordance with the prin-
ciple that a tax should be as near the point of consumption
as can be arranged, in order that the preliminary processes
may be released from excise restraints. The returns from
the beer duty for the ten years 1881-90 have quite realized
expectations. For 1889-90 the amount was 9.400,000.

The duty on hops, first imposed in 1710, became later on
a subsidiary duty to the main tax on beer. It had the
grave defects of being uncertain in its yield and pressing on
the raw material, which was moreover an agricultural pro-
duct Accordingly this tax was repealed in 1862, leaving
nothing of the kind, except the trifling duty on chicory, in
the English excise. Its yield had varied from 86,000 in
1852 to 728,000 in 1855.

British spirits have presented greater difficulties. If the
principle of fixing the duty in proportion to the amount of
alcohol contained be adopted, the rate on spirits should
much exceed that on beer, and the aim of encouraging
temperance would lead to the same result. On the other
hand the principal seats of production of spirits are in Ire-
land and Scotland, and the average consumption in their
case is also greater. Heavy taxation of the more alcoholic
drinks therefore presses unfairly on those parts of the
United Kingdom. Finally, the enforcement of the revenue
laws is no easy matter in wild and mountainous districts,
and consequently the limit of productivity was at first rather
low. Existing methods are the outcome of the efforts to
meet these several obstacles.

The scale of duty, previously fixed on different principles
in the three countries, was unified by Robinson (1825), the
only difference being the higher rate in England- (7^. per
gallon). By a series of measures the Scotch and Irish
duties were brought up to the level of the English one,
itself raised by degrees, until in 1858 a uniform duty of
8j. per gallon was imposed. The increase in return was
considerable. In 1829 the yield had been 4,800,000 ; by
1851 it was over 6,000,000. For 1859 the amount re-
ceived was a little under 9,000.000. An increase to loj.
per gallon in 1860 made the tax still more productive, till
in 1868 it was 10,500,000. The great prosperity of trade
and the more efficient excise administration caused large
annual increases, until in 1875-6 the highest return
15,150,000 was obtained. From that date there was
a decline for several years, but the yield is again elastic,
and a new maximum was reached in 1890-1, when the
receipts from this source were 15,475,000.

It is therefore apparent that the excise system of
England, so far as it applies to commodities, is almost
exclusively a tax on alcoholic drinks, and is carried out by
supervision of the brewing and distilling industries, which
involves a very complete control of their operations. The
modern tendency to concentrate the production of both
beers and spirits at a few r centres makes this system less
troublesome, and the heavy taxation in turn favours the
larger producers. Further steps in this direction have been
taken in the last few years by the extensive creation of
limited companies, who almost possess a monopoly of
special forms of beer, ale, or whisky, and who therefore
bear the first weight of increased taxation. The whole situa-
tion is a highly artificial one ; by it the State draws very
large resources from the taxation of what is an instrument
of luxury, in many cases one of vice. The aim of reducing
the national consumption of these drinks is naturally post-
poned to that of maintaining so material a support of the
public revenue, and the problem of adjusting the duties
between the different classes is very imperfectly dealt with.
There may be some reason for favouring such beverages as
are believed to possess some nutritive power and to be less
likely to cause intoxication ; but the present scales of duty
seem unfair as between the consumers of spirits and those
of beer.

The trade licenses which accompany and are officially
regarded as a part of the excise have been already dis-
cussed \

From one point of view the internal tax system also
deals with the important article of tobacco ; but until
within the last few years it has been confined to the nega-
tive function of preventing its cultivation in the United
Kingdom. This system of prohibition, which seems to be
a direct violation of industrial liberty and an interference
with a probably gainful employment, dates in England
from the time of Charles II 2 , and has been justified on
the grounds of the inferiority of the home-grown plant and
the great trouble of collecting a very high duty on an
article of local production. At present licenses are granted
for the purpose of experimental growing, though there is
little probability of the cultivation extending.

The processes of the English taxation of commodities
are reduced almost entirely to levies on the producers of
the taxed articles, the sale licenses being rather charges on
the profits of the occupations, which, however, does not
prevent their being useful as adjuncts of the excise by
bringing all producers and dealers under the notice of the
authorities, and facilitating supervision. Duties purely on
sale are not employed, though the bonding system, by

1 Bk. iv. ch. 2. 8.

2 The prohibition at first applied to Ireland, but was removed in 1779 in
consequence of the American war. It was reimposed in 1832.
which goods are retained under official control free of duty
until withdrawn for use, nearly approximates to that
form. Neither are duties on the land under cultivation for
a crop of the taxed article in use. Finally the monopoly
system is not a part of English policy. Spirits, beer, and
tobacco would be the only objects for its operation, and
each of them is treated in another way. In fact the great
characteristic of this form of British taxation is the sim-
plicity alike of its objects and its processes.

6. The French methods are much more elaborate,
and possess a longer history. Under the Ancien Regime
indirect taxation had been extensively employed. The
necessities of the State had led to the heavy and unequal
salt tax, to the duties on drinks, on leather, iron, and other
useful articles, to the monopoly of tobacco, and the costly
and vexatious inter-provincial duties. The origin of the
system may be traced to the fifteenth century, in which the
monarchy was reconstructed after the English wars. A
great expansion, however, took place in the seventeenth
century, when the administration of Colbert had recast the
financial system, and when such a new source of revenue as
tobacco was secured.

The continuous development, apparently broken by the
Revolution, soon returned to its old course, though purged
of many of the defects that had previously existed. The
vices of pre-revolutionary taxation arose rather from defec-
tive administration than from the inherent badness of the
articles selected for duty. There were innumerable personal
and local discriminations ; the noblesse were exempt from
various charges, and some districts were free from duties
that pressed heavily on others. Thus salt was under six
different systems, according to the particular province, not
to speak of the many local privileges. Similar complexities
were connected with the duties on wines and brandies. But
far greater was the evil of the mode of collection, which
was by the system of farming or letting out to companies,
who contracted to pay a certain sum in return for the collection of the duties. This system, so characteristic of
Roman Finance, recurs in the French indirect taxes, and
did much to increase their unpopularity. The ' Farmers
General ' were objects of universal dislike, and some of
the members of the body paid the penalty during the
Revolution l .

One of the first results of the disturbances that broke
out in 1789 was a check to the collection of the indirect
taxes. The offices for the duties on salt, on wines and
spirits, and also the internal customs were attacked. Con-
traband salt and tobacco were freely sold, and the toll-
barriers of the cities were thrown down 2 . The failure to
collect the faille was more than paralleled by the case of the
indirect taxes. This strong popular sentiment undoubtedly
encouraged the Constituent Assembly, already imbued with
the physiocratic dislike to taxes on consumption, to take
the somewhat rash course of abandoning the greater part
of the obnoxious duties.

After an ineffectual attempt to maintain it provisionally
the salt tax was abolished in March 1790. In 1791 the
aides, or drink duties, met the same fate, as did also the
tobacco monopoly. The abolition of the octrois was decreed
in Februry 1791.

So complete a break with past financial conditions could
not continue 3 , and accordingly we find that the work of the
next ten or fifteen years consisted in building up the struc-
ture on the same general lines, but without the serious
faults that it had previously contained. The salt tax was
restored in 1806, but the old inequalities and the system of
monopoly were not brought back. The suitability of
tobacco as an object of heavy taxation made it advisable,
after a series of ineffective attempts at taxation in the
ordinary way, to re-establish the State monopoly of that
article in 1810. The octrois were gradually re-introduced,
beginning with that of Paris in 1798, and soon extending
to other towns. Finally the complete freedom of spirituous
liquors from taxation was put an end to by the law of 1 804,
which imposed a tax on wine and cider when in the pos-
session of the producer. Further taxation of this promising
source speedily followed in the duties on the transport of
drinks, and the tax on the amount sold by dealers. Thus
in less than twenty years the system apparently overthrown
at the Revolution was again in force, freed from its most
objectionable features.

7. The existing French system, which in its main out-
lines was established at the fall of the first Empire, shows
when compared with that of England, a number of sug-
gestive resemblances and equally suggestive differences.
There is the same broad general treatment as respects the
commodities selected for taxation and the proportionate
burden placed on each class ; there is also the same readi-
ness to levy the duty at the most favourable point, and
lastly there is the same prominence given to this kind of
indirect taxation in the fiscal system. On the other hand
the French system has a wider basis. Salt, so neces-
sary both for domestic and industrial uses, is an object
of charge. So is that very general article o consumption,
sugar, whose treatment has so often harassed financiers, and
which when freed from duty has grown so much in favour
in the United Kingdom. The paper tax has only been
suppressed in the last five years, while matches, whose
taxation in England Mr. Lowe could not propose with-
out losing whatever financial popularity he had possessed
are placed under a state monopoly, as is also gunpowder,
while dynamite is taxed. Oil is another important
commodity that has to suffer taxation, to which may be
added candles. Acid and vinegar may close the list,
which establishes that France possesses that diversity of
indirect taxes, which McCulloch believed to have been too
hastily abandoned in England l .

Again, the procedure of the French administration is
much more varied. The drink duties are levied partly on
wine in circulation, partly on the retailers who sell it, partly
on its entry into towns. Beer and spirits are taxed at the
point of manufacture, in fact on the system of the English
excise. Salt and sugar are similarly dealt with, but in all
these cases the duty on transport may come into operation.

A more remarkable feature is the use of monopoly as a
fiscal agent. It is true that in England the Post Office is
under this regime, but ordinary commodities are quite free
from it. In France, besides the small monopolies of gun-
powder and matches the latter created in 1872, and con-
ceded to a company, but taken up by the State in 1890
there is the great tobacco manufacture, which is altogether
a State concern. Experience has shown that only by this
means could sufficient revenue be obtained from it.

These contrasts are to some extent due to the more
rigorous administrative system of continental countries.
Interference with internal trade would be much more diffi-
cult, and cause more irritation in England. But the different
position of the two countries is a far more powerful cause.
It is comparatively easy to watch the manufacture of drinks
in the United Kingdom owing to the concentration of the
industry. The problem of supervising the vineyards of the
French peasantry has proved too difficult for the revenue
officials of that country,and led to the repeal of the inventory
duty of 1804. The insular position of Great Britain has
been a further assistance in protecting her excise system
from the introduction of contraband goods. Thus the price
of the State manufactured tobacco in France has to be
varied according to the proximity of the district to the
frontier. The methods of each country are in fact adapted
to meet the circumstances peculiar to its situation.

At the same time it must be said that in certain respects
French taxation of home commodities falls short of the
highest attainable standard. Some of the duties are of
too small a yield to justify their retention. The salt tax,
even though it is confined to that used for domestic con-
sumption, is too irksome and unequal a charge to be main-
tained when its return is only ; 1,250,000. The taxes on
oils, matches, candles, and explosives might also be re-
moved. The sugar duty is a more doubtful case. Its
yield is very considerable ^"6.300,000 in 1890 and with the
heavy burdens that the country has to meet such a resource
should not be lightly given up. Unfortunately the duty on
sugar has become mixed up with the pernicious bounty
system, which is evil alike for the treasury and the pro-
ducers. Moreover, the technical problems connected with
the measuring of the quantity and quality of sugar yielded
are very difficult, so much so that they were some of
the reasons for the repeal of the duty in England. A
uniform duty on the finished product, adjusted to equal the
import duty on the article, seems at present the best course.
It would get rid of the bounty trouble and would not leave
much opening for fraud.

The wine and spirit duties are an indispensable part of
the system, and should be very cautiously treated. The
exemption of wine consumed by the grower is a gap in the
tax, that at once reduces the receipts and. makes its inci-
dence unfair. Nothing but the hopelessness of levying the
duty could excuse this omission. A system of licenses for
private consumption, such as that adopted for private brew-
ing in England, might in some degree remedy the grievance.
A further cause of complaint has been found in the com-
paratively high duty on retail sales. The artisan who buys
his wine in small quantities is more severely taxed than
the large consumer, who has only the moderate duty on
transport to pay. The impossibility of raising the latter
tax without provoking an extensive contraband trade, and
the loss that any lowering of the duty on retailers would
cause are the hindrances to reform. The duty levied on
the entry of wine into towns with more than 4000 inhabi-
tants is a further pressure on the residents in them, though
its consolidation with, or perhaps more accurately speaking
replacement of, the duty on retailers, where the popula-
tion exceeds 10,000, carried out in 1875, is on the whole a
desirable measure. The attempt to exercise surveillance
over the very large number of agricultural distillers has
proved a failure, compelling resort to the tax on circulation
of spirits. These difficulties which are good examples of
the inevitable dilemmas that indirect taxation gives rise to
are due in a great measure to the position of France as a
wine-producing country. Taxation of the cheaper wines
falls necessarily on the bulk of the population, as it is
imposed on their usual consumption. The cry of a ' free
breakfast table,' once so popular in England, would need
for its realization in France the removal of the wine duty.
It is highly probable that the bulk of the drink duties
will be more and more shifted to alcohol, and thus let the
lighter wines escape easily.

Notwithstanding these grievances and gaps in the French
system, it must be pronounced to be, on the whole, and con-
sidering the problems to be dealt with, a skilful application
of well-planned administrative principles. Tried by the
great test of productiveness, it answers the object for
which it was planned. The various indirect contributions
bring in close on 26.000,000, of which the drink duties
provide about 18,000,000, and the internal sugar duty
3,400,006. The monopolies gain about 16,000,000
(95 P er cent, of which comes from tobacco). When the
total is taken it comes to the great amount of 42,000,000.
Of this great revenue, spirits, beers and wines, tobacco,
and sugar are the principal sources, the other duties form-
ing but a trifling supplement. As in England, these articles
are the support of the exchequer, while in France the drink
duties further contribute about 4,000,000 annually to
local Finance 1 .
8. Italian Finance has not had the same opportunities
for the development of a productive system of indirect
taxation as those possessed by England and France. The
poverty of the people and the short duration of the present
Kingdom have both prevented the creation of a complete
system. Nevertheless the eminent statesmen and econo-
mists to whom the conduct of affairs has been entrusted
have made great progress in this direction, and have en-
deavoured to apply scientific principles, so far as the
difficulties of the situation would allow.

The tax system of Italy had to be built up on that of the
several states out of which it was formed, and it had to
supply sufficient funds to meet the growing expenses of the
new Government. These conditions made the adoption of
taxes, in other respects very undesirable, a necessity. The
grist tax which fell on the main items of subsistence was
at once oppressive and unequal, but it became one of
the sources of revenue from 1869 to 1882, bringing in
83,500,000 lire (3,340,000) in 1878, and an average of over
2,700,000 for each year of its continuance. Salt another
necessary has been kept under a state monopoly, as it was
in most of the smaller Italian states. Spirits, beers, and
mineral waters have also been placed under an excise ; so
have cotton oil, chicory, gunpowder, and the more important
article of sugar. A monopoly of tobacco has been con-
ceded to a company, and the return from this source is one
of the large items in the budget (over 7,500,000).

Italy, however, differs from both England and France in
making use of the town duties on goods as a source of
State revenue. The Italian octroi duties are notorious for
their severity, falling as they do on articles of necessary
consumption, as well as on the commoner enjoyments.
Flour, rice, meat, butter, sugar, wine, beer and spirits,
are all subjected to these local customs for the benefit of
the State, with additional charges for municipal purposes.
The inconvenience of this method is indisputable : it causes
local variations in taxation levied for common purposes,
and it is besides open to the general objections to the octroi
system. The tax on wine may be defended on the same
ground as the French entry duty, viz. that it is the only
possible way of reaching an article of such general produc-
tion and consumption, but this very difficulty seems to
point to some other form of taxation as the most desirable
solution. The total yield of 3,200,000 from octrois for
State purposes is not large enough to justify the employ-
ment of so unfair and unpopular a method of taxation.

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