FINANCE AFTER THE WAR

Dominion, Volume 10, Issue 2955, 15 December 1916, Page 31

FINANCE AFTER THE WAR

-.v (By H. Wilson-Fox, in "The Times.")

' Our laissez-faire system of State 3>olicy is nowhere more conspicuous /than in the domain of national finance, where we have passed long since into the groove of tradition. We have been content to travel, the old ways from generation to generation, and our vision has.become obscured. It is timo for us to lift our eyes, survey our surroundings, and look where our course 5s leading us. We should ask oursolves if we must still continue to tread the same paths, and if we are content to /trudgo along them sorrowfully, bearing ihe Heavy burdens which the great war is imposing on us with resignation and, :acquiescence, soothed by, comforting reflections as to the elevating influence of poverty upon national character. But, do we really believe this sorry comfort, and ought we to wish to beliove it? Should wo not frankly admit that diminution of national prosperity •is an evil, not a blessing; brace ourselves to hew efforts; and set ourselves! •to discover means to minimise the injurious effects of tho war during the period which must elapse before our lost/stores of wealth can be replaced? I';' NEED WE BE POOR? •.The war, moreover, through the irony, <of fate, has given us a striking object- 1 lesson as'to the beneficent effects of prosperity-upon the well-being of tho poorer sections of the community. It Las shown us that there is no real

reason -why an imomployablo class Should find a plqce in coir social system, and that increased learnings spell empty wards in :jworkhouses and Hospitals. Iri..face.;of these facts are wo icontcnt with a financial policy which involves: the prospect, indeed the certainty, of return to the old, and possibly far worse, conditions? If. not, wo, must faco the position, and also ijealise that, unless we' adopt entirely /Sew methods, the grinding taxation, which will press upon us dilfing the nest 25 years at least will reproduce in an accentuated' form those social conditions from which we have suffered in; the past, largely as the result of want of imagination, conviction, and' method in the conduct of State affairs. So far our Government has shown no •evidence' of any desire or intention to try new methods. Taxation has already been increased to ai? extent which before the war would have been consfdcred inconceivable. It has been hinted' that further taxes are under consideration, while on each occasion'when new taxation is imposed the Minister who proposes it is landed for his couragesave the mark 1 The gods help those who help themselves. Is it not',time for us to ask ourselves if there is no better •way? Resignation will not help us; but inquiry, foresight, and action may possibly bring relief. OUR FINANCIAL POSITION. 'As a preliminary to such inquiry, let ■us.consider in the first place;what our financial position is. The task is comparatively easy,; because the figures of our war finance have recently been presented in a convenient form in an illuminating paper contributed by Sir Oeorge Paish to the Royal Statistical Society. The following summary of our position is based upon this paper,' 1 arid, covers the period' ending March;' 31, 1917. The figures given are therefore partly actual.and partly estimated. . J ' . The extent to. which taxation' has been increased is shown by comparison of the national revenue .for . the year ended March 31, 1914, with the estimated revenue for the current year :— £ ' Revenue for year ended March 31, 1914 ...... 198,243,000 •Ditto (estimated), 1917 495,275,000 Increase £301,032,000 Sir George Paish estimates the total war expenditure up to March 31, .1817) at £3,777,000,000. This amount will, he states, have been provided as follows:— 1 £■•■:•. : Paid out of revenue ... 712,000,000 . Provided by loans ... 3,065,000,000 Total £3,777,000.000: It would appear from these figures that .of the capital cost ofthewar to March 31, 1917, £712,000,000 will Jiave been. met out of income. It must, however, be pointed out .that the estimate of war expenditure includes—(a) The whole cost , during the war of the 'Army and Navy, on which . about £80,000,000 wae. spent in the year 1913-14, and which, on the same peace basis) -would have absorbed £213j000,000 during the war period-.; (b) the whole of the interest on war. loans, which may be roughly estimated at £200,000,000. Deducting these amounts, we arrive at a net figure of about £300,000,000 as the proportion of the capital cost of the war which will have been paid out of revenue at March 31, 1917. .

It imiet also be noted that as against the figure of £3,06-5,000,000 at which our loans are estimated to stand; at March 31, 1917, Sir George' Paish states that an amount of £818,000,000 •will have been lent at that date to our Allies and the Dominions. But the war is not over,, and the cost of clearing up after it, which must necessarily extend over a lone period, will certainly be considerable. If, therefore, it is desired to forecast in rough fashion our position after the war. I do not think that'it is safe to estimate on a net addition to our permanent National Debt of less than £3,500,000,000, even if our loans to our Allies and Dominions are taken into account. - Should the amount prove to be less, so much the better. Assuming interest at 5 per cent., and sinking fund at 1 per oent., the annual cliargo on the above figure would bo £210,000,000. Taking into account that the normal combined expenditure on the Army and Navy will probably remain at a considerably higher figure for many years than tho pre-war figure of £80,000,000, and that heavy payments will have to be made for war pensions and allowances, I arrive 'at the following rough estimate of tihe probable annual expenditure during the years immediately following the conclusion of peace... Perannum. £ Post-war services, including interest and sinking fund on old National Debt, increased expenditure on Army and Navy,. , and war pensions and allowances 250,000,000 Service of war debt ... 210,000,000 £460,000,000

It will be seen that this sum is only. £35,000,000 less than tho estimate of national revenue for the| present year, during whioh abnormal yields of taxation are contemplated, owing to tho facta ThsS aggregate income of taxpayers is temporarily swollen as tho result of our gigantic war expenditure; (b) the revenue includes receipts from an «xcess profits tax which cannot bo maintained indefinitely in its present form. If the Sinking Fund on the prewar debt be taken at £5,000,000 and on the new war debt at £35,000.000, a total amount of £40,000,000 will have to be devoted annually to the reduction

SOME SDGGESTIONS THE NEED FOE NEW METHODS

of the debt. It may, moreover, be admitted that, if no other means can -be found,for discharging it, an amount of £40,000,000 would be the minimum annual provision which should be made. • THE BURDEN OF TAXATION. - These figures show that, unless some radical change can be mad© in our system of finance, the pressure of taxation upon the inhabitants of this country will be so sevoro for at least a generation as to rob tho majority of them of many of the opportunities and enjoyments of life, and to retard that expansion of production without whichi this serious position must continue indefinitely. It is imperative, therefore, to find, if-it be possible, some means of escape from the doom of poverty ana depression with which wo are threatened. If such means exist we should not lightly disregard them. Guidance may possibly be found in, the assumed conduct of an individual in similar circumstances. When an'active business man becom'es involved in debt through causes over which lie has no control, but still possesses » comfortable income, good credit, and undeveloped resources, lie has, :two courses open to him. Ho can either sell such assets as he cari dispose of, reduce his debts, and pay off the balance out of income,, living, meanwhile) a crippled- existence; or he can use his credit, and by intelligent application of his brains, energy, and resources create new wealth with which to discharge his liabilities. If he chooses the second course with good prospect of. success, there is no necessity for him: to alter his mode of life materially, or to ,sacrifice the prospects of his' children by enforced economy. Acceptance of the first alternative wcmld, moreover, imply want of either spirit or capacity. 1 THE EMPIRE'S ESTATE. The choice with which the nation is now confronted is somewhat similar.

The British Empire is the owner of the finest undeveloped estate which Inae ■ ever been known in the history of the world —an estate which is unique in its world-wide distribution and in the variety and value of its products. Markets and means of transportation are on ail unprecedented scale, while science is daily becoming a more valuable handmaid'of productive industry. We still possess the credit with which to develop our resources. Can it be right in such oircumstances to continue to pursue a purely passive State policy, and to allow all our national resource® to be dealt with by individuals in a haphazard and unco-ordinated manner without regard to State and State opportunities? It certainly cannot be right to assume that what is must be, and that directions in which State capital and management can be employed directly with advantage for tlia production of wealth cannot be found. There is, moreover, Jio question of any sacrifice of principle. We have merely to .decide what is worth while. We have to ask: Is it possible to embark upon great. , productive undertakings which will pay under State I management to such an extent that money which _would otherwiso bo devoted to paying off a portion of the National Debt_ would bo better employ-, ed in prosecuting them? Is it',possible by action of this character to provide for the extinction during an extended period of a greater proportion of -the National Debt than would, occur if the money proposed to be so employed were applied directly to cancellation of debt? A classic/and successful example of,such a State policy is our purchase in 1875, of Suez Canal shares to the value of £4,000,000. These shares have con-' ..timied year in and year out to pay interest on debt to a considerably greater amount than the £4,000,000 paid for them; and, apart from their value from a political and strategic .point of view, would, if sold to-day, realise some £30,000,000. In this case, therefore, it was clearly, good business for the State' to invest a sum of £4,000,000 in shares, in preference to employing it for the immediate discharge .of debt. In this transaction commercial considerations occupied a subordinate place; but there seems to be no reason in principle why, in other cases, State funds should not be invested similarly to secure , exclusively, or mainly, commeroial objects. It is often said that ws ought not to saddle posterity with the liquidation qf our debts, and' that our duty to .those who will succeed us demands from/us the sacrifice, of saving, for the purpose of . leaving to them a less encumbered heritage. Matters of this nature cannot, , however, be decided by maxims, nor can our duty be ascertained in this simple manner. Granted that we wish to do our best for posterity, there is room for wide differences of view as to what.is best to be done. The point is that freedom from debt may be purchased too If it can only be secured at the cost of oreating a population which has been ill-nourished for a generation, and has been deprived of many of the opportunities and amoni-; ties of life, so far from benefiting posterity by our unselfish action, wo shall have done it a positive disservice, and 1 our self-sacrifice will- have been in vain. Our real duty to posterity lies in living for it, in concentrating our faculties upon, the task of extending and improving the productive capacity of our Empire, and in utilising for this purpose to the fullest extent . both our credit and our natural resources. Posterity will start from a higher level if its parents are not hampered by ! poverty. REDUCE TAXATION AND ENCOURAGE PRODUCTION.

, Definite suggestions will be made ill a second articlo in regard to directions in which favourable opportunities for investment may be sought, as to the limits within which State enterprise of this character should be confined, and as\to the organisation which will be needed for its successful prosecution. Meantime it may be pointed out that if, after full inquiry, it should he decided to embark on such a policy on a scale commensurate with' our opportunities and needs, it will be possible to deal with the post-war financial situation on entirely new lines, and to free the minds of ofir generation from a heavy burden of depression which, if unrelieved, will certainly have the effect of restricting enterprise at a. timo when the need to stimulate it was never more pressing. If a financial policy such as has been suggested can be followed with good prospect of success, the State should aim at reduction of the post-war taxation to the utmost possible extent, in order to encourage productive industry during the coming critical years of reconstruction, while new relations between Labour and Capital are being established, and new solutions are being found for tho majority of our social problems. A period of acute distress would make this great task of reconstruction far' moro difficult, and we ought not to impose it upon ourselves by blind adherence to financial traditions which are not necessarily applicable to present circumstances. If it should appear that to pay our way and discharge our State responsibilities will require a post-war income of

£460,000,000 per year, and that a policy such as is suggested is practicable, a portion of the £460,000,000 needed— say, £100,000,000 or £150,000,000.. per annum—might be borrowed and added to the war debt during a period of, say, five years, so that the strain of taxation may be reliovcd during the time when it will bo Mt most keenly. The test of right action-in these matters is solely national advantage, and if that be secured wo need not concern ourselves overmuch with financial maxims, which have been useful in circumstances that have been wholly different from those with which we are now oalled upon to deal. What :we mainly need now are open minds, knowledge of facts, and good judgment. Given these, we need be under no anxiety in regard to our future.