WAR FINANCE

Otago Daily Times, Issue 24413, 26 September 1940, Page 6

WAR FINANCE

The intention of the Government to announce this week details of its proposed war purposes loan was expressed by the Minister of Finance in Christchurch on Tuesday. The Minister’s statement concerning the compulsory loan that is contemplated was inconsistent with the Budget reference to the subject. He says now that it would be incorrect to call the loan a compulsory loan; that the compulsory principle would apply only when it was found that individuals expected to contribute had failed to do so, and then only to the extent of their income. This somewhat oblique comment will lead to an exact statement of the Government’s intentions being invested with more than ordinary interest. The fact is that a compulsory loan, in the precise meaning of the term, was plainly foreshadowed in the Budget, and people have been waiting ever since for some indication of the basis on which the amount of contributions to the loan would be determined. After discussing the Government’s plans for obtaining the total amount of loan money required during the year £38,400,000, including £19,750.000 for. war purposes abroad, £3,630,000 for war and defence at home, and £15.100,000 for public works—the Minister intimated in the Budget that it was the intention of the Government to raise by loan contribution within the Dominion not only the money required to be expended in the country, but also some portion of the amount necessary to meet expenditure abroad, thus relieving, as far as possible, the drain upon the resources of the British Government.

It is the intention of the Government to formulate lor the consideration cf the House a procedure under which all who have the means will be required to assist by subscribing to loans for these purposes.

In the light of this and preceding statements the Budget was read, not unreasonably, as requiring that internal loans would be compulsory and at very low rates of interest — bearing no interest, in fact, at first—and that subscription, according to the capacity of the individual, would not be voluntary at any stage, but compulsory under a prearranged system of contribution. What Mr Nash now seems to say is that compulsion will not apply until the appeal for voluntary subscription has failed, in the case at least of “ individuals expected to contribute.” .The loan, in brief, is to be “an ordinary war loan,” presumably subject to pressure on investors should the need arise. If that is not what the Minister has now meant to imply he should make an opportunity of saying so. When compulsion to subscribe to war loans was provided for by legislation late in the war of 19.14-18 it was not of general application. The purpose behind the law was to compel certain persons who had not subscribed to the loans to do so, and the Commissioner of Taxes was empowered to require from such persons subscriptions not exceeding six times the amount of the yearly average of their land and income tax for the three preceding years. If the Government intends to follow that or a similar procedure to-day, it is pertinent to observe that scales of taxation are much higher now than they were twenty-five years ago, and that many persons who were compelled to shoulder loan responsibilities then were seriously embarrassed to meet their obligations, and, indeed, had to borrow on personal or other security to do so. The potential consequences of compulsory lending may be more serious to many businesses to-day than they were in the period of the last war. If liquid assets are to be compulsorily drawn upon and tied up for a long period industry may conceivably be deprived of much of its capacity to expand. It is not to be supposed that the lessons of past experience have escaped the Government, and it may therefore be hoped that it will proceed warily with the application of compulsion, and that it will not disregard the necessity for avoiding any serious check to the enlargement, by the inflow of new capital, of essential industries. The volume of borrowing for war purposes could, of course, be usefully limited by a curtailment of State expenditure on projects not connected with the prosecution of the war. It is essential that money for war purposes must be found, and there will be no reluctance on the part of individuals or business groups to subscribe to loans for war purposes even at a sacrifice of their vital interests, which are also, for tax-paying purposes, the interests of the State. Some three millions of interest-free money has already been contributed voluntarily for war purposes, in response to an appeal for the lightening of the burden of war finance. Nevertheless it cannot be said that the Government has shown a corresponding willingness to assist towards that end by a reduction of expenditure upon purposes that are not in any way related to the war. there seemed to be a suggestion in the Budget that the principle of compulsory lending to the State was to be applied to meet the Government’s capital expenditure on public works, since the theory expounded is that loans subject to a measure of compulsion shall provide all the money required to be expended in the country. The Government cannot expect to escape criticism if it persists in ignoring its duty to devote a major, not a minor, portion of the revenues at its disposal to the payment of war charges rather than to the maintenance of domestic services.