BRITAIN'S BURDEN

Sun (Auckland), Volume 1, Issue 31, 29 April 1927, Page 11

BRITAIN'S BURDEN

OBLIGATIONS TO U.S. LOAD HEAVY ENOUGH VIEW ENGUSH EXPERTS Until trade conditions at Home improve, it is considered by the committee reporting upon deb" and taxation in England that any increase in the present annual burden of debt-repay-ment is hardly to be contemplated. This view is advanced during treatment of the question as to whether it would be practicable or desirable for Great Britain to exercise its option to accelerate its debt payments to U.S. A. The report of the committee draws an enlightening compariscr* between external and internal borrowings srd outlines the disadvantages of overseas loans. In dealing with the external debt of Great Britain, which now tot; ils £1,111,000.000, the committee draws a comparison between internal and external borrowings. While internal debt, like taxation, involved an immediate using up of the country's over-re-sources of the foreign lender, too much reliance should not be placed upon the idea that heavy internal borrowing does not very much matter, since it leaves behind no real burden. INTERNAL OR EXTERNAL? “It is clear,” it said. * that in respect to the payment of interest on the repayment of internal debt there is no money burden upon the, community as a whole and no destruction of purchasing power, but the existence of the debt necessitates the levying of higher rates of taxation than would otherwise be necessary, a process which must have economic consequence, while the transfer of resources must influence the extent of savings and the distribution of wealth. No general rule can be laid down to decide whether internal or external borrowing is to be preferred. The balance of advantage will depend on the economic situation of the countries concerned. Thus for a young or expanding country possessed of large undeveloped resources it may be essential to borrow abroad if its progress is no to be impeded. When a government borrows money for war the expenditure is, in an economic sense, unproductive. It does not in general add to the productive capital of the country, nor create any ne\v fund of wealth out of which the debt obligations can be met. The war, except so far as the money for it was raised abroad, had clearly to be paid for immediately and the burden on the community as a whole could not be thrown on the future generations. There was a drain on the national wealth at the time, resulting in actual or economic damage —except so far as the money raised in taxes or loans was provided by extra saving or industrial effort. The main heads under which the damage may be classified are the loss of foreign securities, the using up of potential capital w'hich would normally have flowed into productive industry, the depletion of existing capital and the depreciation of assets not employed for w r ar purposes. While the internal debt is owed by the nation to some of its citizens the external debt is owed by the nation as a w'hole to other countries, now in the main to U.S.A.

The consequent absorption of our goods and services by these countries in payment, without any imports in return, is obviously a real and heavy burden to the community as a whole, and is directly attributable to the external debt; it is in quite a different category to the transfer w’ithin the community. EFFECTS OF INFLATION While so far as the war v. financed by internal loans the tax burden on the individual was postponed. It is not to be forgotten that part of the borrowing involved inflation, w’hich operates as a kind of covert tax with features far worse than those of any answered tax in our system. The inflationary tax is not adjusted in any way to the amount of the individual’s fortune, and as between fortunes of the same amount it benefits one class and hurts another, imposing a heavy burden upon people with fixed incomes. In England it is pointed out the burden of war expenditure financed by home borrowing fell upon production at a time when production was stimulated to great activity, w'hile the external debt fails upon it year in, year out, the good years having to be taken with the bad. Whereas money borrowed within the country—particularly when the flotation of the loan caJls into being savings that would otherwise not have been made at all—a new source of taxable income is created. To borrow abroad does not bring with it any addition to the taxable income: to a certain extent then it may involve a heavier burden on the community. At the same time in so far as the internal loan is financed by inflation the tax advantage will last only so long as the inflation is not wiped out by subsequent deflation; and therefore can only be regarded as a temporary advantage. Whether or not it may be practicable or desirable to take advantage of the option to accelerate repayment to the United States Government, it »s too early yet to foresee. There is obviously a Imiit to the amount which can be transferred abroad without damaging effects on industry in the country and an increase in the present annual burden is hardly to be contemplated until trade conditions improve.