VIII

THE YEAR'S BALANCE-SHEET

_April_, 1918

The Figures of the National Budget--A Large Increase in Revenue and
a Larger in Expenditure--Comparisons with Last Year and with the
Estimates--The Proportions borne by Taxation still too Low--The Folly
of our Policy of Incessant Borrowing--Its Injustice to the Fighting
Men.


At first sight the figures of revenue and expenditure for the year
ending March 31st are extremely satisfactory, at any rate on the
revenue side. The Chancellor anticipated a year ago a revenue from
taxation and State services of L638 millions, and the receipts into
the Exchequer on these accounts actually amount to L707 millions. On
the expenditure side, however, the increase over the Budget estimate
was very much greater. The estimate was L2290 millions, and the actual
amount expended was L2696 millions. Instead, therefore, of a deficit
of L1652 millions having to be met by borrowing, there was an actual
gap, to be filled by this method, of, roughly, L1990 millions.

To take the revenue side of the matter first, this being by far the
most cheering and satisfactory, we find that the details of the
revenue, as compared with last year's, were as follows:--

Year ending Year ending
Mar. 31, 1918. Mar. 31, 1917. Increase. Decrease.
L L L L
Customs 71,261,000 70,561,000 700,000 ---
Excise 38,772,000 56,380,000 --- 17,608,000
Estate, etc.,
Duties 31,674,000 31,232,000 442,000 ---
Stamps 8,300,000 7,878,000 422,000 ---
Land Tax 665,000 640,000 25,000 ---
House Duty 1,960,000 1,940,000 20,000 ---
Income Tax and
Super Tax 239,509,000 205,033,000 34,476,000 ---
Excess Profits
Duties, etc. 220,214,000 139,920,000 80,294,000 ---
Land Value
Duties 685,000 521,000 164,000 ---
Postal Service 35,300,000 34,100,000 1,200,000 ---
Crown Lands 690,000 650,000 40,000 ---
Sundry Loans, etc. 6,056,250 8,055,817 --- 1,999,567
Miscellaneous 52,148,315 16,516,765 35,631,550 ---
----------- ----------- ----------- -----------
707,234,565 573,427,582 153,414,550 19,607,567
| |
+-----------+----------+
L133,806,983
Net Increase.

A more interesting comparison perhaps is to take the actual receipts
during the past financial year and compare them, not with the former
year, but with the estimates of the expected yield of the various
items. In this case we get the following comparisons:--

[Transcriber's Note: Corrected a typo in the table: "Sundry Loans"
line should have a minus(-) instead of a plus(+) as printed.]

Actual. Estimated. Difference.
L L L
Customs 71,261,000 70,750,000 + 511,000
Excise 38,772,000 34,950,000 + 3,822,000
Estate Duties 31,674,000 29,000,000 + 2,674,000
Stamps 8,300,000 8,000,000 + 300,000
Land Tax and House Duty 2,625,000 2,600,000 + 25,000
Income Tax and Super Tax 239,509,000 224,000,000 + 15,509,000
Excess Profits Tax 220,214,000 200,000,000 + 20,214,000
Land Value Duties 685,000 400,000 + 285,000
Postal Services 35,300,000 33,700,000 + 1,600,000
Crown Lands 690,000 600,000 + 90,000
Sundry Loans, etc. 6,056,000 7,500,000 - 1,444,000
Miscellaneous 52,148,000 27,100,000 + 25,048,000

Certainly, the country is entitled to congratulate itself on this
tremendous evidence of elasticity of revenue, and to a certain extent
on the effort that it has made in providing this enormous sum of money
from the proceeds of taxation and State services. But when this much
has been admitted we have to hasten to add that the figures are not
nearly so big as they look, and that there is much less "to write
home about," as the schoolboy said, than there appears to be at first
sight. Those champions of the Government methods of war finance who
maintain that we have, during the past year, multiplied the pre-war
revenue, of roughly, L200 millions by more than 3-1/2, so arriving at
the present revenue of over L700 millions, are not comparing like
with like. The statement is perfectly true on paper, and expressed in
pounds sterling, but then the pound sterling of to-day is an entirely
different article from the pre-war pound sterling. Owing to the system
of finance pursued by our Government, and by every other Government
now engaged in the war, of providing for a large part of the country's
goods by the mere manufacture of new currency and credit, the
buying power of the pound sterling has been greatly depreciated.
By multiplying the amount of legal tender currency in the shape of
Treasury notes, of token currency in the shape of silver and bronze
coinage, and of banking currency through the bank deposits which
are swollen by the banks' investments in Government securities, the
Government has increased the amount of currency passing from hand to
hand in the community while, at the same time, the volume of goods
to be purchased has not been increased with anything like the same
rapidity, and may, in fact, have been, actually decreased. The
inevitable result has been a great flood of new money with a greatly
depreciated value. Index numbers show a rise of over 100 per cent.
in the average prices of commodities during the war. It is, however,
perhaps unfair to assume that the buying power of the pound has
actually been reduced by a half, but it is certainly safe to say that
it has been reduced by a third. Therefore, the revenue raised by the
Government during the past year has to be reduced by at least a third
before we are justified in comparing our war achievements with the
Government's pre-war revenue. If we take one-third off L707 millions
it reduces the total raised during the past year by revenue to about
L470 millions, less than two and a half times the pre-war revenue.

From another point of view our satisfaction with the tremendous
figures of the past year's revenue has to be to some extent qualified.
The great elasticity shown by the big increase of actual achievement
over the Budget estimate has been almost entirely in revenue items
which cannot be expected to continue to serve us when the war is
over. The total increase in the receipts over estimate amounts to L69
millions, and of this L20 millions was provided by the Excess Profits
Duty, a fiscal weapon which was invented during the war, and for
the purpose of the war. It has always been assumed that it would be
discontinued as soon as the war was over, and if it should not be
discontinued its after-war effect is likely to be very unfortunate at
a time when our industrial effort requires all the encouragement
that it can get. Another L25 millions was provided by miscellaneous
revenue, and this windfall again must be largely due to operations
connected with the war. Finally, the L15-1/2 millions by which
the income tax exceeded the estimate must again be largely due to
inflation and extravagance on the part of the Government, which, by
manufacturing money, and then spending it recklessly, puts big profits
and big incomes into the hands of those who have stocks of goods to
sell or who are in a position to produce them.

If, therefore, the satisfaction with which we regard the big total of
the Government's revenue receipts has to be considerably modified in
the cold light of close observation, the enormous increase on the
expenditure side gives us very little comfort and calls for the most
determined and continued criticism if our reckless Government is to be
made to turn over a new leaf. In the early days of the war there was
much excuse for wasting money. We had to improvise a great Army, and
a great organisation for equipping it; there was no time then to look
too closely into the way the money was being spent, but this excuse is
long obsolete. It is not possible to waste money without also wasting
the energy and working power of the nation; on this energy and working
power the staying power of the country depends in its struggle to
avert the greatest disaster that can be imagined for civilisation,
that is, the victory of the German military power. Seeing that for
many months past we have no longer been obliged to finance Russia, and
to provide Russia with the mass of materials and the equipment that
she required, the way in which our expenditure has mounted up
during the course of the year is a very serious blot on the year's
balance-sheet. We spent during the year ending March 31st, L2696
millions against L2198 millions in the previous year, an increase of
close upon L500 millions; L63 millions of this increase were due to
interest on war debt, the rest of it was due to increased cost of the
war, and few business men will deny that very many of these extra
millions might have been saved if our rulers and our bureaucratic
tyrants had been imbued with any real sense of the need for conserving
the energy of the nation.

Much has been done by the Committee on National Expenditure to bring
home to the Government opportunities for economy, and methods by which
it can be secured. Can we be equally confident that much has been done
by the Government to carry out the advice that has been given by this
Committee? The Treasury is frequently blamed for its inability to
check the rapacity and extravagance of the spending Departments. It is
very likely that the Treasury might have done more if it had not been
led by its own desire for a short-sighted economy into economising on
its own staff, the activity and efficiency of which was so absolutely
essential to the proper spending of the nation's money. But when this
has been admitted, the fact remains that the Treasury cannot, or can
only with great difficulty, be stronger on the side of economy than
the Chancellor of the Exchequer, and that the task of the Chancellor
of the Exchequer of imposing economy on a spendthrift War Cabinet is
one of extreme difficulty. I hope it is not necessary to say that I do
not urge economy from any sordid desire to save the nation's money if,
by its spending, victory could be secured or brought a day nearer. I
only urge it because I believe that the conservation of our resources
is absolutely necessary to maintain our staying power, and that these
resources are at present being scandalously wasted by the Government.
Inter-departmental competition is still complained of in the latest
report of the National Committee on Expenditure, and there seems to be
still very little evidence that the Government Departments have yet
possessed themselves of the simple fact that it is only out of these
resources that victory can be secured, and that any waste of them is
therefore a crime against the cause of liberty and progress.

It is possible that before these lines are in print the Chancellor
will have brought in his new Budget, and therefore any attempt to
forecast the measures by which he will meet next year's revenue would
be even more futile than most other endeavours at prophecy. But from
the figures of last year as they are before us we see once more that
the proportion of expenditure raised by revenue still leaves very much
to be desired; L707 millions out of, roughly, L2700 millions is not
nearly enough. It is true that on the expenditure side large sums have
been put into assets which may some day or other be recoverable, and
it is therefore impossible to assume with any approach to accuracy
what the actual cost of the war has been for us during the past year.
We have made, for instance, very large advances to our Allies and
Dominions, and it need not be said that our advances to our own
Dominions may be regarded as quite as good as if they were still in
our own pockets; but in the case of our Allies, our loans to Russia
are a somewhat questionable asset, and our loans to our other
brothers-in-arms cannot be regarded as likely to be recoverable for
some time to come, owing to the severity with which the war's pressure
has been laid upon them. With regard to the other assets in which
the Government has invested our money, such as factories, machinery,
ships, supplies and food, etc., it is at least possible that
considerable loss may be involved in the realisation of some of them.
It is, however, possible that the actual cost of the war to us during
the year that is past may turn out some day to have been in the
neighbourhood of L2000 millions. If, on the other hand, we deduct from
the L700 millions raised by revenue the L200 millions which represent
the normal pre-war cost of Government to this country we find that the
proportion of war's cost raised out of revenue is slightly over 25 per
cent. This proportion must be taken with all reserve for the reasons
given above, but in any case it is very far below the 47 per cent. of
the war's cost raised out of revenue by our ancestors in the course of
the Napoleonic wars.

It seems to me that this policy of raising so large a proportion
of the war's cost by borrowing is one that commends itself to
short-sighted politicians, but is by no means in the interests of the
country as a whole, or of the taxpayers who now and hereafter have to
find the money for paying for the war. In so far as the war's needs
have to be met abroad, borrowing abroad is to some extent inevitable
if the borrowing nation has not the necessary resources and labour
available to turn out goods for export to exchange against those which
have to be purchased abroad, but in so far as the war's needs are
financed at home, the policy of borrowing is one that should only
be used within the narrowest possible limits. By its means the
Government, instead of making the citizens pay by taxation for the
war as it goes on, hires a certain number of them to pay for it by
promising them a rate of interest, and their money back some day.
The interest and the sinking fund for redemption have to be found by
taxation, and so the borrowing process merely postpones taxation from
the war period to the peace period. During the war period taxation can
be raised comparatively easily owing to the patriotic stimulus and
the simplification of the industrial problem which is provided by the
Government's insatiable demand for commodities. When the days of peace
return, however, there will be very grave disturbance and dislocation
in industry, and it will have once more to face the problem of
providing goods, not for a Government which will take all that it can
get, but for a public, the demands of which will be uncertain, and
whose buying power will be unevenly distributed, and difficult to
calculate. The process, therefore, which postpones taxation during
the war period to the peace period seems to be extraordinarily
short-sighted from the point of view of the nation's economic
progress. Recovery after the war may be astonishingly rapid if all
goes well, but this can only happen if every opportunity is given to
industry to get back to peace work with the least possible friction,
and a heavy burden of after-war taxation, such as we shall inevitably
have to face if our Chancellors of the Exchequer continue to pile up
the debt charge as they have done in the past, will be anything but
helpful to those whose business it will be to set the machinery of
industry going under peace conditions.

As things are, if we continue to add anything like L2000 millions a
year to the National Debt, it will not be possible to balance the
after-war Budget without taxation on a heavier scale than is now
imposed, or without retaining the Excess Profit Duty, and so stifling
industry at a time when it will need all the fresh air that it can
get. Apart from this expedient, which would seem to be disastrous from
the point of view of its effect upon fresh industry, the most widely
advertised alternative is the capital levy, the objections to which
are patent to all business men. It would involve an enormously costly
and tedious process of valuation, its yield would be problematical,
and it might easily deal a blow at the incentive to save on which the
supply of capital after the war entirely depends. A much higher rate
of income tax, especially on large incomes, is another solution of the
problem, and it also might obviously have most unfortunate effects
upon the elasticity of industry. A tax on retail purchases has much to
be said in its favour, but against it is the inequity inseparable from
the impossibility of graduating it according to the ability of the
taxpayer to bear the burden; and a general tariff on imported goods,
though it would be welcomed by the many Protectionists in our midst,
can hardly be considered as a practical fiscal weapon at a time when
the need for food, raw material, and all the equipment of industry
will make it necessary to import as rapidly and as cheaply as possible
in order to promote our after-war recovery.

Apart from these purely economic arguments against the high proportion
of the war's costs that we are meeting by borrowing, there is the much
more important fact of its bad effect on the minds of our soldiers,
and of those members of the civilian population who draw mistaken
inferences from its effects. From the point of view of our soldiers,
who have to go and fight for their country at a time when those who
are left at home are earning high wages and making big profits, it is
evidently highly unfair that the war should be financed by a method
which postpones taxation. The civilian population left at home,
earning high profits and high wages, should clearly pay as much as
possible during the war by immediate taxation, so that the burden of
taxation may be relieved for our soldiers when they return to civil
life. In view of the hardships and dangers which our soldiers have to
face, and the heroism with which they are facing them, this argument
should be of overwhelming strength in the eyes of every citizen who
has imagination enough to conceive what our fighting men are doing for
us and how supreme is our duty to do everything to relieve them from
any other burden except those which the war compels them to face.
There is also the fact that many members of our uninstructed
industrial population believe that the richer classes are growing
richer owing to the war, and battening on the proceeds of the loans.
I do not think that this is true; on the contrary, I believe that
the war has brought a considerable shifting of buying power from the
well-to-do classes to the manual workers. Nevertheless, in these times
misconceptions are awkwardly active for evil. The well-to-do classes
as a whole are not really benefited by having their future incomes
pledged in order to meet the future debt charge, and if, at the same
time, they are believed to be acquiring the right to wealth, which
wealth they will have themselves to provide, the fatuity of the
borrowing policy becomes more manifest. For these reasons it is
sincerely to be hoped that our next fiscal year will be marked by
a much higher revenue from taxation, a considerable decrease in
expenditure, and a consequently great improvement in the proportion of
war's cost met out of revenue, on what has been done in the past year.
At our present rate of taxation we are not nearly meeting, out of
permanent taxes, the sum which will be needed when the war is over
for peace expenditure on the inevitably higher scale, pensions, and
interest and sinking fund on war debt.