The Southland Times. FRIDAY, JUNE 28, 1940. Paying the Price of Victory

Southland Times, Issue 24164, 28 June 1940, Page 4

The Southland Times. FRIDAY, JUNE 28, 1940. Paying the Price of Victory

THE GOVERNMENT’S first full war Budget, which was presented in the House of Representatives last night by the Minister of Finance, provides for the heaviest expenditure and the most severe taxation in the country’s history. It will not, however, shock or dismay a public which is eager to settle down to the task of winning the war, for there is no hardship or sacrifice that does not seem small when measured against the knowledge that if the war is not won, everything is lost. During the current year the Government will raise by taxes and loans, and spend in New Zealand and abroad, a sum little, if at all, short of £100,000,000. Of this great total an amount of £37,500,000 (representing about 20 per cent, of the. national income) will be spent directly on the armed forces and the prosecution of the war. It must be said at once that Mr Nash’s proposals for meeting this war expenditure are bold and fair. Since slightly more than half of the money has to be found overseas, inevitably to a large extent by borrowing, the Minister has contended that as nearly as possible the whole of the balance, which has to be provided in New Zealand, should be provided by taxation. He has made it quite clear that the diversion of goods and services to war purposes must be made at the expense of the civilian consumption of goods services, that is, at the expense of the civilian standard of living. As means of reducing civilian consumption in war-time a Government has its choice of heavy taxation and inflation; and it is greatly to Mr Nash’s credit that he has chosen the alternative that is politically the more difficult but economically the sounder. For taxation has far less serious after-effects than inflation; and where, as in the present case, the principal tax is a direct one, it ensures that the burden falls on those who are best able to pay, it leaves the public with the maximum knowledge of what it is paying—not a bad thing in a democracy—and it gives the individual the maximum freedom of choice in the way in which he spends what is left. The single alternative is inflation, which in a war economy would mean bigger wage balances but an ever-soaring cost of living. The war will, of course, inevitably have some inflationary effects, but these will be kept to a minimum while the Government continues to finance such a substantial proportion of its war expenditure from direct taxes.

New Taxes and Loans

The principal tax increase is the addition of another 1/- to the present Social Security tax of 1/in the £l. This means that the Government from now on will be taking 2/- in the £l, or 10 per cent., of all incomes at their source. It is undoubtedly the most direct and practical method of raising revenue and reducing consumption simultaneously; and it is a method which workers should accept as being economically sounder than any other. The only increase in indirect taxation is the doubling of the sales tax to 10 per cent. This also fulfils the double purpose of increasing revenue and reducing consumption. The graduation of the ordinary income tax is to be made more severe in the case both of individuals and of companies. Death and gift duties are to be again raised and State trading departments hitherto free from taxation are to be brought (very properly) into the commissioner’s net. Finally, the Government intends, like the British Government, to take all excess profits made during the war. From these sources Mr Nash expects to find four-fifths of the internal defence expenditure. The balance, and as much as possible of the external expenditure, is to be provided by internal loans. Small investors are to be asked to support a national savings scheme. From those with greater resources the Government will require loans which are to be interest-free for three years (or for the duration of the war and one year) and will thereafter for 10 years bear interest at a rate not exceeding 2 j per cent. Provided this levy is imposed in such a way as not to cause hardship, no exception can be taken to it. The principal criticism of the Budget proposals will be that the Government has failed to reduce ordinary and public works expenditure to the extent that the war demands. On the figures quoted last night by Mr Nash no exact comparisons can be made with last year’s expenditure, which included a number of items now placed in the War Expenses Account. It is true, as he said, that the war adds certain new commitments to the ordinary Budget; but these are not large, and it should have still been possible to achieve a substantial reduction in the total expenditure. The actual reduction appears to be less than £1,000,000, or about 2| per cent.

on last year’s expenditure. It is not enough. Nor has there been an adequate cut in public works expenditure, for which it will be necessary to borrow £15,000,000 compared with £19,000,000 last year. The expenditure on public works, in a critical year of- the war, of £15,000,000 of borrowed money is indefensible.