FINANCING REARMAMENT.

Hawke's Bay Herald-Tribune, Issue 87, 29 April 1937, Page 4

FINANCING REARMAMENT.

As was noted at the time, our first cabled outline of Mr Chamberlain's proposals for special taxation to heip meet expenditure on rearmament got somewhat mangled in transinission. Subsequent explanatory messages have, however, shown that the interpretation given to it here was substantially correct. There was, of course, no doubt as to the extra 3d added to the "standard" rate of income-tax, bringing it up to 5/- in the pound, to which has to be added the graduated surtacx on incomes in excess of £2200. It is now made fadrly clear that the proposal for an excess profits tax, spoken of as a "nationai defence contribution," contemplated a steeply graduated levy — where the income exceeded £2,000 — upon profits earned which were in excess either of the average for the three ye-ars 1933-35 or of 6 p.c. for companies and 8 pc. for individuals or firms on the captial employed. The choice between these alternatives was to lie with the taxpayer. The rate of tax was then graduated to rise according to the rate of profits earned so that where they reached 15 p.c* the graduated levy would reach the maximum of one-third of the profits in excess of the chosen standard. It is on the practica] effects of the applica- - tion of these proposals that so much discussion has been aroused. This was only to be anticipated when we come to consider that the new tax is to have general application to all industries and businesses and not only to those that might reasonably be expected to make more or less direct extra profits from the Government's expenditure on rearmament. The Chancellor of the Exchequer has, however, explained that, while it was in thought to confine the tax to the latter category, this was found impracticable, since it was impossible to say how widely the benefits of that expenditure might extend. Hence the broader incidence given to the tax, which Mv. Chamberlain has been afc pains to point out will be removod as soon as the emergency expenditure ends. In this connection he has, no doubt for the enlightenment of Herr Hitler and Signor Mussolini, quite definitely indicated that such end will come as soon as the programme already laid down is completed, but po&sibly earlier if some international understanding as to limitation of armaments is reached before then. The maun financing of the programme is, however, to come from public loans, as to which an ultimate maximum of £400-million has been suggested. Of this amount the Government has at once set about the raising of one-fourth, and it is worth while noting the terms upon which this first rearmament loan is to-day to be submitted for public subscriptionWe were^ told a day or two back that this loan of £100million would be issued at a face rate of 2^ per cent. per annum, the £l00bonds being sold at a diseount of 10/-, that is, at £99 10/-, which will make but a very slight difference in the over-all return to investors, bringing it, we are told to-day, up to only £2 11/- per cent. "It is said that these terms have ' been well received in financial circles and that little doubt, if any, is entertained as to the loan being fully covered within the few days allowed for applications to be lodgea. This shows how little of panic has entered into the decision of the British Government to place itself in a position from which its counsels for the world's pacification will bear more weight among potential disturbers of its peace. Both Mr. Baldwin and Mr. Chamberlain, who is generally accepted as his early successor as Prime Minister of the United Kingdom, have repeatedly emphasised that they have nothing ruore in view than the defence of the Empire and the peomotion of the principle of collective security Great Britain has so long advocated. The prospects of that principle gaining adherents will be greatly advanced by the s*eps she now taking to strengthen herself for playing her part in pntting it into practice. The premium thus being paid for the purpose of more effectually ensuring peace may seem heavy, but, even in money, it is as nothing compared with the actual cost of war, to say nothing of its horrors as being in these very days exemplified in Spain. Who, reading the accounts we are receiving of what is happening around Bilbao and recalling the so recent tragedy of Abyssinia, will say that Great Britain has not adopted the proper course ?