THE OTAGO DAILY TIMES FRIDAY, June 28, 1940. THE WAR BUDGET

Otago Daily Times, Issue 24336, 28 June 1940, Page 6

THE OTAGO DAILY TIMES FRIDAY, June 28, 1940. THE WAR BUDGET

Among the Budgets that have been brought down in the House of Representatives, that which was presented by the Minister of Finance last night stands in a class by itself. It is, of course, to be recognised that a country cannot engage actively in a great war without incurring an expenditure that is relatively tremendous. Moreover, no citizen in New Zealand, who realises that the very existence of the Empire is threatened by a powerful enemy, can have the slightest ground for complaint in the fact that, for the protection of Imperial and national interests, the Dominion has become committed to an outlay for war purposes alongside which the expenditure at any previous time in its history falls into comparative insignificance. Necessarily, also, in order that this expenditure may be met, an unprecedented demand is to be made on the financial resources of the community. Here again, except in regard to details of the Budget which do not relate to the war effort, criticism is silenced. But the observation must be made that the policy that has been pursued by the Government since it came into office has certainly weakened, in serious measure, the capacity of the taxpayers to face the demands to which they are now compelled to submit. The lavish and wasteful expenditure of the past four years had already had the effect of increasing the taxation per head of the public to an unprecedented extent, when the outbreak of war made it inevitable that fresh taxation on a heavy scale should be imposed. Further, the Government itself seems to have, at first, inadequately appreciated the effect which the war was bound to have on the national economy. If it had appreciated it, steps would have at once been taken by it to curtail its expenditure for civil purposes. Instead, it continued to prosecute a huge scheme of public works and to retain the cost of the administrative services at the level to which it had been brought. The recovery of what might have been saved in these respects is impossible. But it cannot be forgotten that prodigality in expenditure and a lack of foresight on the part of the Government have impaired the financial resiliency of the country at a juncture when sacrifices of an exceptional order are required from it. The Ministerial estimate of the figure that will be required to meet the war expenditure for the current year is £37,500,000, exclusive of the cost Of maintaining the armed forces of the Dominion that have gone overseas. The amount that must be applied to this latter purpose is being advanced by the British Government and the repayment of it will be provided for in the war loans that will be raised by the Dominion. The war expenditure that will fall directly on this country during the year is to be met partly out of taxation and partly out of the proceeds of an internal loan. This will represent the application in New Zealand of the policy that is being adopted in Great Britain. It would be a laudable plan under which the cost of the war would be met as largely as possible out of the proceeds of taxation. But there are limits beyond which taxation cannot be wisely or usefully carried if the reserves that are essential for the rehabilitation of the country when the war is ended are not to be heavily depleted, if not actually exhausted. Already, as will be seen from the accompanying figures, which show the amount that has been raised from taxation in each of the past six years, the burden of the impost has been very materially increased of late and is now distinctly onerous: — £ 1934- 24,737.939 1935- .. .. .. 25,476.372 1936- 31,164.302 1937- 36,767.525 1938- .. .. .. 37,764.912 1939- .. .. .. 44,522,128 It might have been expected that the whole of the yield from the additional taxes that are to be raised * this year would be applied to the War Expenses Account. It is disappointing that it will not be. A substantial part of it is to go into the ordinary revenue account. The total amount of the new taxation can only be estimated, but, on the Minister’s own calculation, it will be neaidy £ 15,006.000, and, on this assumption, the aggregate burden of taxation will be not less than £54,500,000. Income tax of individuals and companies has been selected by the Minister as'that upon which an increased levy may most conveniently be imposed, and those who will have to contribute will not be surprised, for they will realise the obligations that rest on them. A new graduated scale of income taxation is proposed. It will begin with 2s 6d in the pound on the first £IOO of taxable balance and will be stepped until it reaches 12 s in the pound on all taxable balance in excess of £3BOO, The tax on companies will be graduated from 2s 6d in the pound up to 8s in the pound at £6600 and thereafter, by stiffer graduations, to a maximum of 8s 9d on all incomes over £7950. The increase of 15 per cent, on the rate of taxes for both individuals and companies, as authorised last year, will continue to be levied. Government departments are to become liable to income tax, and their excess profits are to be transferred in their entirety to the State. Death and gift duties are to be attacked in a degree that is estimated to produce £950,000 in a full year. A national security tax

of Is in the pound on salaries and wages, in effect doubling the present social security tax, is expected to yield £6,000,000 for the balance of this financial year; and the sales tax is also to be doubled, a portion of the proceeds being applied to the War Expenses Account and a portion to the Consolidated Fund. It is estimated by the Minister that the war taxation that is proposed by him will bring in £14,090,000. But the war expenditure in the Dominion is regarded as likely to amount to £17,750,000. It is proposed that the deficiency of £3,660,000, together with the sum of £19,750,000, representing the amount that is being borrowed from the British Government t 6 defray the cost of maintaining the Dominion troops overseas, shall be raised by an internal loan, the amount of which is not indicated in the Budget. Designated as a loan, it will actually amount, in some measure, to a levy on capital, for “ the Government considers that these loans ”—evidently there is not to be only one of this description—“ should be regarded as contributions tb the war effort from the material resources of those with property, and should accordingly be free of interest for a period of three years or until three months after the conclusion of the war and thereafter for ten years at a rate of interest not exceeding 2\ per cent.,” which is a rate of interest lower than that paid by the British Government on its war loans. A sum of more than two millions has already been subscribed for war purposes in interest-free loans and in donations, and those who have spontaneously subscribed in this manner or may yet voluntarily do so ■ will, pro tanto, be relieved from the liability to the conscription of wealth that is contemplated. It may be difficult for the Government to devise the procedure by which all who have means will be required to contribute to these loans. The Minister need entertain no doubt, however, as to the readiness of the persons who are in possession of material assets to contribute, according to their means, to loans for the purpose of assisting in the prosecution of the war to a successful issue. They may dislike the method which the Minister is employing, but none will dispute the principle that wealth should make its due contribution to the cost of the war. They are likely, however, to have other views about supporting loans that are not for war purposes.