THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, MAY 3, 1919. NEW ZEALAND FINANCE.

New Zealand Herald, Volume LVI, Issue 17151, 3 May 1919, Page 8

THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, MAY 3, 1919. NEW ZEALAND FINANCE.

With peace in Bight and the demobilisation of the army well advanced, it becomes possible to estimate approximately the financial liabilities which New Zealand will have to carry as a result of the war. The position was put in an interesting manner by the Acting-Minister for Finance a few days ago. He stated that the estimated national wealth of the United Kingdom is some £18,000,000,000. Thirty-four per cent, of this—£6,o6s,ooo,ooo— has been expended by Britain on the war. The national income is estimated at some £2,400,000,000 per annum, so that Britain may be said to have mortgaged between two and three years' income. Making a similar comparison in regard to New Zealand, taking the pre-war estimate, approximately the national wealth aggregates about £400,000,000, about 15 per cent, of which —£61,000,000— already been applied to meeting war obligations. The national income is estimated to be some £55,000,000, so that New Zealand has spent something over one year's income on the war. These calculations are based upon the present expenditure of the Dominion, but unfortunately they are not final. Liabilities are still increasing, and by the time the cost of demobilisation, repatriation, and gratuities has been met, the total will fall not far short of £70,000,000. To this must be added the capitalised cost of pensions, about £12,000,000. It is possible that some portion of this outlay may be recovered from Germany, the latest forecast being that she will at least be called upon to bear the pension charges. But till the actual terms of peace are known, it must be assumed that the Dominion's bill will be about £80,000,000. This sum is 20 per cent, of the national wealth, or approximately the national income for a year and a-half. To gain an idea of what this means it will suffice if the investor imagines himself deprived of interest for 18 months or the workman contemplates work without pay for the same period. The analogy is not exact because the State has resources and powers

denied to the individual, but a comparison which exaggerates the need for prudence and economy may fairly be suggested as a corrective of the cavalier manner in which the public is apt to dismiss its collective responsibility.

Viewed from another angle, the charge, upon the nation's resources appears even greater by comparison. In the United States the Government will probably be able to carry on by taking 5 per cent, of the national income in direct and indirect taxation. In Britain the tax revenue for 1917-18 was £613,000,000, ; which is 25.50 per cent, of the 'national income (£2,400,000,000). I The tax revenue of New Zealand for the financial year 1917-18 was approximately £12,600,000, which is 23 (per cent, of the national income ! (£55,000,000). There is a prospect of i an early reduction of taxation, but : to restore the financial position of the State the taxpayer must provide it for years to come with a revenue sufficiently large to leave a margin over its immediate requirements. The only way to sound finance was plainly pointed out in a report recently presented by a British committee under Lord Cunliffe, a former Governor of the Bank of England. " It is essential," the committee remarked, " that as soon as possible the State should not only live within its income, but should beg : n to reduce its indebtedness. Wo accordingly recommend that at, the earliest possible moment an adequate sinking fund should be provided mil of revenue, so that there ina\ be a regular annual reduction of capital liabilities, more especially those which constitute the floating debt." It is axiomatic that New Zealand

must continue to find a very much larger revenue than before the war. Whether that revenue is to be obtained by heavier taxation or by increasing the taxable wealth depends entirely upon the policy and administration of the Government. The two alternatives which present themselves to every belligerent nation are to pile up taxes or to increase production. There is no third way. The problem will be easy or difficult to different countries, according to their capacities for expansion. To industrial countries it is by no means insuperable, but the path will obviously be harder and longer than for the undeveloped parts of the world. The British Dominions, with their almost inexhaustible natural resources, may expect to recover easily and rapidly, and New Zealand in particular should show, unrivalled powers of recuperation. The only precedent condition is the use of the wealth which lies latent, awaiting the call of capital and labour. Food is our staple production, and in a hungry world there could be none more beneficent or profitable. The quantity available for export can be increased enormously by the utilisation of a greater area of land and the closer and more scientific cultivation of that now in use. If settlement is advanced as it should be, there is every prospect that within a few years the national income will have grown so much that taxation may safely be reduced to its level before the war. If settlement is not promoted thero can be no great relief from taxation without endangering the finances of the country. The alternatives are simple and plainland settlement or high taxes. The Government must decide quickly because a unique opportunity for settlement is fast passing.