Nelson Evening Mail. MONDAY, JULY 12, 1915. FINANCE AND THE WAR.

Nelson Evening Mail, Volume XLVIII, Issue XLVIII, 12 July 1915, Page 4

Nelson Evening Mail. MONDAY, JULY 12, 1915. FINANCE AND THE WAR.

[ IN" his great speech at the Guildhall, Lord Kitchener remiaded the nation that Napoleon had said there were three necessaries of war—-money, money, | money. Britain's greatest needs at the i moment, added Lord Kitchener, were [ men, material, and money. Ever 1 since] I Germany failed' to get in the smashing j ! blows at France and Russia, which she | had hoped to deliver within a few | I months of the; opening of hostilities, the great importance of the financial factor had become apparent. Fortunately, the British Fmpire,' and in fact the whole of the Allies,, are in.a very much sounder position than Germany and Austria. In. view of the importance of the "financial factor considerable interest attaches to ! a careful analysis of Austro-Geriran finance, contributed to the May "Contemporary Review" by Mr. Broughton Villiers. It is plain, he says, that Germany, and.still more, Austria-Hungary, compare very xmfavourably with Great Britain in. the soundness of their financial positions. . The British Government has found no difficulty in arranging for. new taxation," which will suffice to provide interest and sinking fund for a huge war 'debt of hundreds of millions. It was able, to do this because of longestablished traditions of sound finance, and : the strong adaptable fabric of .the. British Budget, which, according to Mr Villiers, is to-day the greatest financial instrument of the kind in the world. The main strength of British finance rests on (1) unflinching persistence in the steady repayment of debt during times of .peace ; and (2) the inclusion in the Budget of a great direct tax, the Income Tax, which can be continued in time of war, and the rate of which can be readily increased, once the machinery for collecting it has been created. ■- Not only has the German Empire no such flexible direct taxas the Incorre Tax, but, instead of reducing, it has been steadily piling up debt in time of peace. The British debt has been incurred for the most part in actual war, whereas the German Imperial debt,and, the Austro-Hungarian .debt, have been contracted in preparation for war. As long as the growth of population and trade was sufficient to ensure an animal increase in the yield of the taxes adequate to pay the increase on each year's new borrowings, and yearly savings of national industry accumulated fast enough to ensure a newsurplus of wealth-seeking investment in Governnient stock, Germany has gone on 'raising loans to pay, not for the cost of war itself, but for the training, equipment, and organisation of the army and navy. Bad finance of this kind is bound to break down in time of stress. Whatever the result of the war, borrowing of the sort in which the German Government has indulged, will have to cease.

None of Germany's existing taxes can be made more productive, while two at 'least of them (Customs and excise) have necessarily become less productive in time of war. "At the same time the income from. State railways must have declined enormously. Even before the war the protective tariff was most unsatisfactory from' a .revenue point of view, and at the outset of war the protective tax on agricultural! produce collapsed. i'After the war," says Mr. Villiers, "it will be very difficult to 'reimpose -the food duties; indeed, the attempt to do so might very readily be" the cause of ,a revolution. Certainly food prices will be many; years yet, and the cause for maintaining the- suspension of the food tax will be scarcely'less strong than for the original suspension itself." Prior to. the war the German Government overspent <upon an average about £10,000,000 a year, and filled in this J deficit by. bprvbwing. The war down to j the end oVlast month must have increasI ed the ■lmperial debt by at least ! £500,000,00, involving an inte'rest charge of not less than £25,000,000 a year, Heince! Mr' Villieis conclude'!* tlhat! if peace had come; last ircnth, and the Allies had .received no. war indemnity, /the German Finance Minister would have been faced with an ''annual deficit of: from 35 to 50 million sterling, which he could only meet by some heavy direct impost, such as' the Junker -class have always bitterly opposed, or by drastic reduction in expenditure. Examination of the hiain items of expenditure shows that'such reduction could only be effected by cutting down to less, than half .its pre-war

rate the cost of the army and navy. Austria-Hungary is in an e*ven worse financial plight. Her indebtedness, .which amounted to nearly £800,000,000, had actually increased by £800,000,000 in the previous IS years of profound pence. The average deficit of late years has been, about £17,000,000, and assuming that no provision were made for the repayment of the immense debt, and that the inte'rest for money borrowed for the war were only £18,000,000 —an absurdly low estimate—there would have to be new taxation to the extent of £35,000,000 a year to rrakc end's meet at the prewar rate of expenditure. Even the complete abolition of the army and navy would not save the Austrian people fronr an enormous increase of taxation. These significant estimates of Mr. Villiers are based on the assumption that the taxable population of Germany and Austria cannot be the same after as before the war, but leaving out of account the less of hundreds of thousands of wealth producers by death, or disablement, a victory of the Allies would almost certainly further decrease the population of both empires by delivering the Slavonic and Latin populations of Austria and the Alsatians and Poles of Germany. These possible losses of tei - ritory would reduce the joint populationa of the two empires from about HO to about 60 millions. Mr Villiers's figures at least show that anything short of a crowning victory for the Germanic empires would destroy the financial basis oh which their armed strength has rested, while that armed strength must of necessity steadily deteriorate during the war because of the rude shock which that financial basis has already received. .