TE AWAMUTU COURIER. Printed on Mondays, Wednesdays, and Fridays. FRIDAY, 19th JANUARY, 1940. FINANCING WAR EFFORT.

Te Awamutu Courier, Volume 60, Issue 4233, 19 January 1940, Page 4

TE AWAMUTU COURIER. Printed on Mondays, Wednesdays, and Fridays. FRIDAY, 19th JANUARY, 1940. FINANCING WAR EFFORT.

THE decision ot a public meeting in a Taranaki town recently opposing a recommendation to the Government to impose a special war tax of 1 per cent on all capital over £5OO, has come in for comment, favourable and adverse, all over the Dominion. No indication has been given definitely by the Government of its intentions in regard to paying for the war, but it may be interesting to note the position at Home. Sir Johu Simon's warning that great sacrifices may be expected by every class if the war is to be fought to a successful conclusion is an indication that the realities of financing the war are being faced. If infiation was to be avoided. Sir John said, a definite sacrifice was called for from everyone, whatever the size of his income. As a first step to guard against this danger, the severest Budget the British people had ever faced had been so constructed as to raise the largest possible sum toward the eost of the first year of war. The second, yet to be achieved, would be an effort to discourage unnecessary spending. He pointed out, however, that the great difficulty in this lay in that two-thirds of all goods were consumed by people whose incomes did not exceed £5 a week, and who were, therefore, not affected by even the heaviest taxation. That the control ®f expenditure, more particularly by the tvage earning class, is the crux of the problem of how to pay for the war without inflating the currency has already been recognised in Britain. Writing in three articles for The Times, Mr J. M. Keynes has propounded a scheme which has provoked considerable discussion, designed to get over just this difficulty. Mr Keynes’ plan is briefly as follows: Wages, be says, are bound to rise; they have in fact risen for coal miners, textile workers ano agricultural labourers. ,But to conserve resources for war purposes, wage earners must not consume any more than they have done, and to prevent the higher wages inflating prices by increasing competition for a limited supply of goods a certain proportion of their earnings should be paid in the form of blocked deposits at the Post Office Savings Bank. Wages would, therefore, be paid in cash for immediate consumption. and above a certain minimum in money, the use ot which must be deferred until the emergency is over and a surplus of productive resources is again enjoyed. According to the scale Mr Keynes has tentatively suggested 3s in the pound would be collected as compulsory savings from married men with two children whose incomes exceed £5 a week. The element of progression to equate sacrifice between large and small incomes would be left to income tax and surtax. Sums created in the savings bank will carry 2} per cent interest, and except to meet pre-war commitments of a capital nature, such as instalments to a building society, for hire purchase, or to meet insurance premiums, will not be available as current expenditure or as security against loans. Deposits will be unblocked, probably by a series of instalments, at some date after the war when the resources of the community are no longer fully employed. Such releases would then help to pull the country through the first post war slump. The scheme is not designed to obviate a programme of normal bor-

rowing for war purposes. The advantages claimed for the scheme are many. It is clear that if everyone spends his wages prices will rise until no one is better off. The increased earnings will not have benefited their recipients one penny, but will have escaped through higher prices and higher profits, partly into taxation and partly into the savings of other classes. This is in fact what happened during the Great War, when the wage earner’s standard of living remained stationary in spite of the longer hours, which were, in effect, given for nothing. Further, there is a vast difference between taking the surplus of a man’s income above consumption needs by loan and by taxation. Government stock is an addition to his wealth, to his security and to his comfort in facing the future, and therefore sustains his incentive to maintain output. The consumption of what his war effort entitled him to would cost the community nothing in a post-war depression, since the men and plant would otherwise be idle. The case for such a scheme as that of Mr Keynes is strengthened when the alternatives suggested by Sir John Simon are examined, namely, increased taxation, voluntary saving and rationing. The spread of taxation to income groups below £250 a year would Involve costly administrative changes and could scarcely have any effect, aS the Chancellor of the Exche-

quer admits. Against a general increase in purchasing power, rationing is useless. Sir John Simon’s appeal to small investors was reported recently as having brought in £55,248,035. This appeal is deserving of all success, but the utmost that can be hoped for from savings certificates is much below what will be required to avoid Inflation and the upward spiral of prices and wages when the maximum war effort has developed. By rough calculation Mr Keynes estimated that his scheme would yield at least £400,000,000 a year over and above taxation. The lateness of the Chancellor’s appeal is not explained by “the comparative quiet of events at home, and the limited extent of losses and suffering in the field. . ...” The truth is that the change from a peace to a war economy has not been very adroitly handled by the Government, since, far from resources being strained, there are more unemployed now than there were before the war began, while exports have not recoverd their pre-war volume. When production has attained its maximum the Government will probably face its choice: compulsory savings or inflation.