THE NEW GERMAN TAXES

Dominion, Volume 11, Issue 278, 13 August 1918, Page 8

THE NEW GERMAN TAXES

A GLIMPSE OF TEUTON WAR FINANCE GAMBLING ON VICTORY The German Empire has two budgets— the ordinary budget, which includes, beside ordinary expenses, interest on tho war loans; and the extraordinary, which comprises military and naval expenditure, and does not come into question here, as it is covered by borrowiiy;. For 1911 and 1915 no new taxes were imposed; interest on tho war loans was met; out of fresh borrowings, and Germany derived enormous resources in cash and kind hum the plunder of Belgium, France, and Poland. This conld not last for ever, and in introducing the 1!)1G budget Dr. Hellferich had to face the question of a deficit on ihe ordinary budget and consequent taxation. Germany's plans had been laid for a short war, followed by indemnities, and it was considered that it would be sufficient to raiso what was required by borrowing and to postpone all question of financial revision till the end of the war. This later principlo has been steadfastly adhered to; everything is to ha settled "after peace." Consequently, when new taxation was introduced, it was a mere patchwork, and has so remained. It lias been explained again and again by successive Treasury Secretaries that their only object was a temporary scheme to raiso money for the moment, and that everything would bo co-ordinated in a proper system once the war was over. One reason for this was tho well-known chronic trouble in the sphere of finance between the Empire, represented by tho Treasury Secretary, and the separate States, represented by the Federal Council; it had become customary (though it is not founded in the German Constitution) to regard direct taxation as the prerogative of tlio States alone. This doctrine had indeed been cut into. For yfars tlio Empire had levied death duties, and there was the Wehrstener (Defence Contribution) of 1913; nevertheless it was certain that the States would cling, as they have clung, jealously to their supposed privileges; and part of the troubles of Imperial finance arises from this, that an I Imperial income tax cannot be imposed.

The German Deficits. The estimated deficit for IDIC was M.480 million (,£2-1,000,000); in addition there was a "latent" or unascertained further deficit, for the Budget figures were largely formal, Helfferich introducc-d now indirect taxation estimated to produce 51.500 million (J555,000,0C{)) to cover , tho estimated deficits, to meet the "latent" deficit he introduced the War Profits Tax, which was a single' levy on capital increment in the caso of individuals and on excess profits in tho caso of companies ascertained for tho period Januarv 1 to December 31, 1915. For 1917 Hie estimated deficit was M.1250 million (jeyj,soo,ooo); new indirect taxation was introduced estimated to produco M.SOO million for tho year, in addition to tlie .£25,000,000 (i.e., 51.1.8 milliards (<£90,000,000) of indirect taxation for tho two years 1916 and 1917); and a "supplement" of 20 per cent, on the War Profits Tax was imposed, an extraordinary arrangement which made this "nonrecurring" levy recurrent, and which fully justifies the German accusations, angrily repudiated by the now Treasury Secretary, Count Rodern, that their taxation is patchwork. When Count Rodern, in February last, introduced the 191S Budget, the estimated deficit Had grown to 51.2875 million (£l-13,750,000), and taxation on a higher scale could no longer bo avoided. The growth of tho deficit is, of course, largely due to tho growth of the interest needed for the service of the German debt. The amounts rtqniml for the debt servico have grown as follows from tho 51.21,7 million of 1914-.-1915, 51.1197 million; 1916, 51.2302 million; 1917, 51.3562 million; 1918, 51.5908 million (£295,100,000). This increaso of M.23-16 million in the debt service, accounted for the larger part of the deficit of M.2875 million; the rest was mad© up, partly by the fact that the increase in war taxation sanctioned for 1917 had been for one year only, and partly by decrease in certain receipts combined with increased expenditure on certain accounts—lmperial insurance, compensation, post office, railways, and above all tho new Imperial Economic Office. To meet this deficit Count Rodent proposed a number of taxes of which we will give a list, calculated to bring in (on paper) over 51. three milliards, 50,000,000. This sum was claimed by the "Lokal Anzeiger" ns a world's record in new taxation for any one year. It is,.of course, far behind Britain in 1916-17, when the new excess profits duty alone produced £180,000,00(1. And the new German taxes, as we shall see, present a very different appearanco when analysed; for some of them only exist upon paper. The New Taxes. These are the proposed new taxes, and tho estimated yearly revenue front them in millions of marks:— (1) Brandy monopoly, 050; (2) beer tax, 338; (3) beer duly, 21; (1) wine tax, 105; (5) sparkling wino tax, 20. These five form the alcoholic grotijt, estimated roughly to produco 51. 'one milliard (JijU0,000,000). (6) 51ineral waters and lemonade tax, 50; (7) tea, coffee, and cocoa ta.v, 75; (8) posts and telegraphs, increased, ices, 125; (9) Stock lixchunge lax, 210; (10) Exchange stamps, 4; (11) "Umsats!," or turnover tax, including tho luxury tax, ]000 (J.'500,000,000); (12) wai tax on companies, 6110 (1'300,000,000); (13) a Bill to prevent evasion ol taxes.

01' these (12) really belongs to l'Jl7; it represents the GO per cent, of excess profits which companies in that year had, under the extended "sperrgeset!!," to carry to a separate account with a view io the future. Consequently the new taxation is not JilMI,0(10,000, but .1'12U,000,000. Again, (?) has no real existence; neither tea, coffee, nor cocoa remain in or aro being imported into Germany, and substitutes are excepted from (lie lux. The alcoholic group is even more extraordinary. The manufacture of brandy fur general drinking purposes is at present prohibited altogether. The beer estimate is based on peace-time returns. Whereas tho allotment of barley l'or brewing was lixed ill November, 1917, at 15 per cent, ol' the peace figure I'mliavaria and JO per cent, for the rest of Germany, and in January, 1918, delivery of barley to the breweries was stopped altogether (perhaps temporarily), it being needed for the army horses. The new taxes, then, can only at best produce for 1918 a sum very far below .£l2o,SlX!,mill, as against JUU,000,001) of genuine, new taxation in Britain for tho same year, and the balancing of the budget by their means is purely a matter of form—it will not really balance.

New Imposts Criticised. . The now taxes loud themselves to much criticism. We have already noticed how in large measure the drink_ taxes, alcoholic and non-alcoholic, exist only on paper; thai is, they will only come into effect, and that gradually, after peace. Why are they brought forward now? The answer is that in part they are taxes on the consumption of the lower and middle classes (beer "and non-alcoholic drinks), and in part (the brandy monopoly) they are .the first,experiment in those State monopolies from which many Germans hope so much after the war, while others opuose them just as strongly. Conse(luently th'ev are brought in now, when it is comparatively' easy to secure their passage on patriotic grounds, rather than after tho war, when there might be strenuous opposition. Tho German taxpayer is to be confronted nt peace with tho accomplished fact. Horr Georg Bernhard, in tho "Vossische Zeitung' of April 18, expressed the fear that the.so taxes would hinder that fundamental reform on broad lines which has been so often promised after the war, and there can be little doubt, when we look at the scope of tho taxation schcmo as a whole, that they are meant to hinder it. The second point is that tho new war profits !ax, unlike tho old, extends to companies only nnd not to individuals. War taxation for individuals is not to be fixed till the end of 1918. The official explanation is that it lias not been possible ai present, through shortage ot personnel, to assess the yield of a tax 013 individuals. It is a lame explanation, for France, Britain, and Germany are all introducing luxury taxes whoso yiold cannot bo assessed. 1110 real reason is tha(; "individuals," in the esse of

tlio war" profits tax, largely weans tlio Prussian agrarians. Their profits are enormous, tliousrh unknown to the public, as tlioy liavo not, like industrial companies, to publish accounts; but it is known time iiie increased yield of tlio Prussian income tax is almost entirely due to the country districts, and Professor liallod lias recently calculated that, while town property has fallen 10 per cent, in value during thu war, country property has risen io per cent. Powerful and absolutely unscrupulous, tho Prussian Junkers have thus secured to themselves nine months' freedom from taxation, for the last instalment of the old war profits tax was paid in March, 1918. This has not passed unnoticed by the industrial interests; in tho debate in (ho Ueichstag on the now taxes, tho Nntional-Liberal deputy, lTerr Paasche, said that in the coming finance reform "it must not hnppon that the great landowners go almost tax free."

A Future War Measure, Tho third point we elinll notico concerns the turnover tax, which is claimed in Germany 00 a brilliant German invention. A. small turnover tax was introduced ill 11)16; but this one is no far-reaching that it is practically a new measure. The tax is J per cent', on the value of goods sold or services rendered (including those of doctors, lawyers, etc.), and 20 per cent, oil sale, of luxuries. In the case of goods the tax represents a whole series of i per cent, tolls, multiplied according to tho number of hands through which tho gcud.i pass in process of manufacture from laiv material to saleable article. Now, this, though it has not been noticed, is actly the tax proposed by Herr liaitienau in his extraordinary book "Dio neuo Wirtschnft," a book to bo studied by all who want to understand whither Germany is driving; a tax which shall tax the entire trade of the country by embracing goods 111 thoir origin and all their stages, and which, if made high enough, could provide a huge Imperial revenue. As we now have Rathennu's tax in action, and as we have a commencement made with State monopolies in action (the brandy monopoly); and as the vast schomo sketched by Itathenau for the combination and militarisation of all German industry in ona organism, increasing the power of the industrial oligarchy, is based on carrying the monopoly syndicate idea to its logical conclusion; we must obviously face tho possibility of Rathenau'a plan, which is a future war measure, being practical politics.

A fourth point of some importance is hidden away in the details of the Stock Exchange tax; tho proposal to tax (on u sliding scale from i to d per cent) the interest on deposits or current accounts in banks, savings banks, and co-operative societies. The object is supposed to be 'to induco people to invest in War Loan by penalising deposits. But there' is already practically compulsory machinery at work to turn deposits into War loan; and a German illustration of the working of this proposal throws a very different light on it. Muller has M.IOOO on deposit in a co-operative bank a'fc 4 per cent, interest. This bank redeposits in a co-operativo Cbntrale at 41 per cent., and this Again in one of the great banks at IJ per oent. Three taxes are thus paid on the three interests, and at the end of the year Atuller only gets his M.-10, less 51.3.41. Consequently Muller move 3 his money, and deposits it directly with the great bank, so ns to be charged only one interest. That is, tho tax will throw still incro power into the hands of those half a dozen great banks which are fast obtaining the monopoly of German finance. '

Wo cannot pursue details further; wo have given enough to show that tho taxes have another object besides that of covering a deficit', tho object of strengthening 'those great interests, financial, industrial, and agricultural, which form tho close oligarchy which rules modem Germany. Something of the sort is dimly seen in Germany, and is taking shape in tho conflict which, since tho Budget was introduced, has boon going on between tho Left, which advocates direct taxation, and tho Right, which defends indirect. It will be noticed that, with the possible exception of tho War Tax on companies, tho whole of the new taxes are indirect; for, as the Government has withdrawn the prohibition to charge the Turnover Tax on tho consumer, the pretence of 19J.6 that the Turnover Tax was not indirect has vanished. Wo must next Me how thsi matter of direct taxation stands.

Direct Taxation. On April 23 Count Rodom stated that Germany's war burdens up to date were M.9J milliards of direct and 4 milliards of indirect taxation. Of tho direct taxation, he said that the war profits tax and its 1917 supplement had yielded J)J milliards (£275,u00,000); for the rest he referred to his December jpeecli, when lie claimed as direct taxation M.2 milliards raised by the towns— which in Britain would not ue counted as taxation—and one milliard from the 1813 defence levy, which was in fact preparatory to the war. This makes SJ milliards. The remaining 750 millions, which he did not specify, must roughly represent the new war profits tax (1918). The new direct Imperial taxation, then, [luring (he. war really reduces itself to (he M.a} milliards of tho old . war profits tax, plus whatever tho new .war profits tax brings in. In addition lo this there lias of course been a certain rise in income tax in the Federal States; but in the most important State, Prussia, the surcharges on the income tax only madu its total yield for 1917 M.58,715 million as against, 31.343.1 millions in 1918, an increaso of 237.0 millions, or OS per cent,, which is trilling. Of the 4 milliards attributed to new indirect taxation, 1.8 milliards (.£90,000,000) are referable to the new taxation of 19IG and 1917; the balance must represent the new taxes of 1918. What Germany, then, has actually so far raised by new war taxation is, on this fooling 31.5J luillairds directly, and M.1.8 milliards indirectly; Ji:j65,000,OflO altogether. But it is at least doubtful if the war profits tax is a direct tax. It is partly a levy oil excess profits taken in a lump, partly a levy on capital increment, i.e., capitalised income or profits—a direct premium on squandering, by the way. Now it has often been pointed out in Britain that nn excess profits- tax is not really a direct tax; it is a No Man's Land, because it is largely derived from higher prices, which really fall on the, -consumer; and the fair course would bo to halve "it between direct and indirect taxation. If this were done with the German tax (and of course the fact of the profits having been capitalised makes no difference to the reasoning), Ihe figures for what Germany has actually raised by new war taxation would be M.2J milliards directly, and rather over M.4-1 milliards indirectly; while if tho proposed new taxes' he included the figures would be rather ,over M.;i milliards directly, and sumo 7i milliards indirectly. This is very different from Count Rodern's claim of 9} milliards directly against four milliards indirectly. Britain meanwhlie, if we similarly treat only half the British excess profits duty as direct, raised 04 ppr cent, of her 101718 revenue of direct taxation.

Count Hodorn tried to show that his new indirect taxes were really taxes 011 property, and hit the wealthy, instancing the wine, luxury, and Stock Exchange taxes; and it is noteworthy that lis was answered by the Centrum organ "Germania," which, oil May 5, pointed out that these were only estimated at 31.375 million, against over M.2 milliards for tho rest. Of course, what the German Government has really done is to take tho line of least resistance, and throw tho burden of tho new taxation on consumption and dealings, that is, on the middle and poorer classes, as they did with the 1917 coal tax. It is evident that they dare not tax the wealthy industrialists and agrarians on whom they rely for support; and these gentlemen, though they favour war, have not the least intention of being taxed; the measuro of their patriotism can bo seen in the Daimler and Mannesinann scandals, and (lie shameless plundering of tho State carried on by these concerns. It is this that is causing the ardent advocacy of direct taxation of property by the parties of the Left and (to some extent) tho Centre; it is 110 theoretic enthusiasm for a scientific basis of taxation, but a. very human desire to get at tho war profiteers. Ono strange result has been a shower of compliments to the "selfsacrificing heroism of the British taxpayer," who during the war, has paid .£1,(IW,000,000 in new taxation, against 000,000 in Germany, and vhoso cpn-

duct tho "Frankfurter Zeitung," on May 13, contrasted with the "privato egoism, petty lour of taxation, particularism and diletlentisni," which characterised berinan finance. it is now reported that the lieichstug will press l'or a iior-ro-curring defence levy of 11.1200 millions (JCfiU,UtKI,OIH)), to be obtained by Uxv tion of income. If true, it will do interesting to 6co what tlio Federal Conn oil have to say.

Business Honesty at n Discount, .Everyone knows how general business honesty in Germany has gono to pieces; and thu Prussian Finance Minister, Uerr Hergt, called attention on lanu'iry 1(1 to tho uncertainty in the yield of direct taxes in Germany owing to lack of "fiscal morality"; "with the higher pressure of taxation on the one hand (he said), and tho decline of general morality on the other, many attempts are being nuulo to evade taxes." Tins lias led tho Imperial Government to introduce, concurrently with its new taxes, ft "liill for tho Prevention of Flight from Taxation," which throws fresh light on the patriotism of the wealthy classes of Germany. Tho explanatory statement appended to tho Bill 6ays that attempts to avoid German taxation by residence abroad after the war will cirtainlv bo made; and the Bill provides that "(with certain exceptions) every German with a fortune exceeding who leaves Germany within five yeais after tho war for permanent residence abroad, is liable duriny those years to all personal taxation he would otherwise pay, Imperial and Federal; double the amount of Federal taxes .is to he paid, half to go to his commune; and before leaving Germany lie must give up 20 par cent, of his fortune as security for payment. If he seeks to evade Ins liability, he may be imprisoned for five years and fined M.100,000, and lie and his family may lose their citizenship. Time, indeed, brings its revenge. In Janliary, 1915, Germany imposed a tax on emigrant Belgians, who should not return by March 1, 1915, of ten times the ordinary taxation, leviable by force. Now it is going to be the Germans' turn.