MEETING WAR COSTS

Manawatu Standard, Volume LX, Issue 136, 9 May 1940, Page 10

MEETING WAR COSTS

STATE SAVING ADVOCATED. DRASTIC ECONOMY NEEDED. The view that the most fruitful source ot revenue for war purposes is to be found in drastic economy in present Government expenditure is expressed in the latest bulletin of the Canterbury Chamber of Commerce, prepared in consultation with the Department of Economics of Canterbury University College.

The conclusion is reached that whatever methods of financing war expenditure be adopted, the general result is the same. From the income of the people, earned by the production and sale of marketable goods and services, the Government must extract sufficient to meet its requirements. Unless substantial economies can be achieved, or production considerably increased, the expenditure of a larger part of the national income on war must necessarily result in leaving less for the community, and hence in lowering its general standard of living. In 1937-38, the latest year for which official figures are available, following a year of record high export receipts, the aggregate of all private incomes, which is the closest approximation to the national income, was estimated at £167,000,000. It is unlikely to have increased since, except by reason of State-created credit, and tfie associated using 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 total £52,770 000, or probably about 30 per cent., Gs in the £, on the present national income. At the present time, too, State taxation, including special war taxes, is more than twice as high as it Vvas 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. BIG SAVINGS POSSIBLE. Tlie bulletin says that the most essential needs of a country in time of war arc reducible to two: The provision of the maximum war effort at the front, and the maintenance of an efficient economic organisation at home. Both of these are equally important and both are 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, it is stated, is obviously 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 lias expanded and further increases in taxation have been imposed, and the estimated yield for the present year, excluding special war taxation, is £41,550,000. At present, therefore, State taxation for ordinary purposes and expenditure from that taxation are more than twice as high as they were in any normal year up to 193334. Substantial savings should be 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 he ampie room for such expansion. A general effect of the policy followed in recent years has been to transfer labour from some export industries to less productive-activities 6uch as public works. An urgent necessity at the present time is to transfer more labour from these less essential channels of employment to more essential export production. Real economy is now required over the whole range of Government expenditure.

A third possible source of money for war finance is extra taxation. If further taxes are considered, the nature of the taxes imposed is as important as their yield, and care must be taken that taxation does not dry up the sources from which it is drawn. Where indirect taxes are imposed the effect is to increase prices, to increase both costs of production and costs of living, and the resultant tendency is to • reduce both the volume of production and the standard of living. While some reduction in the standard of living appears 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 finds itself <jn the horns of j a dilemma, which results from an uneconomic method of taxation of long ! standing. In some cases higher com- ! pany 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 require to be watched carefully. DANGERS OF INFLATION. The bulletin says that it is obvious that war expenses should be met as far as possible from current revenue. The alternative is 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 can be avoided. Consequently the dependence on loans should be reduced to the lowest possible minimum. If, however, revenue fails to provide all the money required, loans must be raised, and internal loans rather than external should be relied on. At the present time the market is decidedly favourable for internal loans owing to the abundance of money. The bulletin makes the point that while the possibilities of external loans must he considered, it is not likely that the United Kingdom would have much to spare to assist the Dominion. Should all these sources of money fail to provide the amounts that are required, there still remains one last resort, that is, inflation, and it is always possible in wartime that justification may be found for inflation on the around that, though it rs thoroughly bad. it may l>e necessary for self-preservation. The experiences of the last war show 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 imi*t never happen again. But inflatibn.Jias always been, and must remain, a verv real danger in war time. It has already begun in some countries, and much attention is now being given to methods of ' financing the war without resort fo inflation.