MONEY FOR WAR

Dominion, Volume 33, Issue 190, 8 May 1940, Page 3

MONEY FOR WAR

Need For Real State Economy Seen CHAMBER OF COMMERCE BULLETIN The opinion that real economy is now required over the whole range ot Government expenditure is expressed ill the latest 'bulletin of the Canterburv Chamber of Commerce, prepared in consultation with the Department of Economics of Canterbury University College. It is contended that unless substantial economies can Im achieved, or production considerably increased, the expenditure ot a Uigtr nart of the national income on yai must necessarily result in paving less for the community and hence in lowering its general standard of living. The bulletin states that the conclusion was reached that whatever methods of financing -vvar expenditure be adopted, the general, result th e same. From the income of the people, earned by the production and sale of marketable goods and services, Government must extract sufficient t meet its requirements. in tT latest year for which official figures were available, following a ye of record high export recetpilA, aggregate of all private incomes,\wh ch was the closest approximation ttf the national income, was estimated Jit £167 000,060. It \vas unlikely to have, increased since, except by reason of State-created credit, and the associated using up of reserves. For 1939-40 the estimated State taxation was £41,550,000, to which must be added £3,720,000 for additional war taxation for a full year, and about £7,500,000 for local body taxation. These amounts totalled £52,770,000, or probably about 30 per cent., b/- in the £ on the present national income, al present, too, State taxation, excluding special war taxes, was more than twice as high as it. was before the depression. If expenditure from the present ordinary State taxes could be reduced to approximately pre-depression levels, more than £20,000,000 yearly would be set free for war expenditure without resort either to additional taxation or loans. Sources Of Revenue.

The most essential needs of a country in time of war were reducible to two: the provision of the maximum war effort at the front and the maintenance of an efficient economic organization at home. These were equally important and were Interdependent. After making reference to New Zealand’s favourable position for war finance during 1914-18 and the position today, the bulletin goes on to deal with sources of revenue for war purposes. The first source was obvidusly economy in the Government’s ordinary expenditure. Excluding one exceptional year, 1920-21, State taxation in New Zealand) was never more than £20,000,000 before 1933-34. As recovery from the recent depression developed, the heavy emergency taxes imposed during the depression raised the total yield of taxation to £25,480,000 in 1935-36.' Since then income had expanded and further increases in taxation had .been imposed, and the estimated yield for the present year, excluding special war taxation, was £41,550,000. At present, therefore, State taxation for ordinary purposes and expenditure from that taxation were more than twice as high as they were in any normal year up to 1933-34. Substantial savings should tie possible by eliminating less essential expenditure, and this process should release considerable sums for war purposes. A second source of revenue, which proved very productive during the last war, might be found in the increased yield of existing taxes which an expansion in total production and national income would secure. There should be ample room for such expansion. A general effect of the policy followed in recent years had been to transfer labour from some export industries to less productive activities such as public works. An urgent necessity at present was to transfer more labour from these less essential channels of employment to more essential export production. Real economy was now required over the whole range of Government expenditure. A third possible source of money for war finance was extra taxation. If further taxes were considered, the nature of the taxes imposed was as important as their yield, and care must be taken that taxation did not dry up the sources from which it was drawn. Where indirect taxes were imposed the effect was to increase prices, to increase both costs of production and costs of living, and the resultant tendency was to reduce both the volume of production and the standard of living. While some reduction in the standard of living appeared inevitable in view of the emergency of war. every care should be taken to avoid increases in production costs which might result in contracting essential production. In the case of income taxation on companies the Government found itself on the horns of a dilemma, which resulted from an uneconomic method of taxation of long standing. Tn some cases higher company taxation would be passed on to the rest of the community. Where it could not be passed on, its probable result, would be to increase costs beyond what business could bear and therefore to contract production. In view of the necessity of increasing production such effects as these required to be watched carefully. Inflation Danger. It was obvious that war expenses should be met as far as-possible from current revenue. The alternative was to borrow money, but the burden of unproductive debt already carried in New Zealand should itself be a sufficient warning against increasing that debt where increase could be avoided. Consequently the dependence on loans should be reduced ,to the lowest possible minimum. If, however, revenue failed to provide all the money required, loans must be raised, and internal loans rather than external should be relied on. At present tiie market was decidedly favourable for internal loans owing to the abundance of money. While the possibilities of external loans must be considered it was not. likely that the United Kingdom would have much to spare to assist the Dominion. Should all these sources of money fail lo provide the amounts that were required, there still remained one last resort: that was. inflation, and it was always possible in wartime that justification might be found for inflation on the ground that, though it was thoroughly bad, it might be necessary for self-preservation. The experiences of the last war showed that inflation was both an insidious and a disastrous process. Those countries in Europe that experienced its worst effects were the firmest in their conviction that it must never happen again. But inflation had always been, and must remain, a very real danger in war time. It had already begun in some countries, and much attention was now being given to methods of financing the war with--uzj resort to infiatioßj