A.— No. 1.

8

MEMORANDA BETWEEN HIS EXCELLENCY

Estimates for 1863-4 published in Appendix to Journals, 1863, 15.—N0. 1. Financial Statement published in Appendix to Journals, 1864, B. - No. 2a.

of interest at 6 per cent., and the One Million Short-dated Debentures authorised to be raised in anticipation of such loan, will, no doubt, in due time find purchasers in the London money market. The Loan Account may then, in round figures, be stated approximately thus : —■ Raised and expended by the late Government ..... £1,000,000 Transferred to the Imperial Government on account of claims . . 500.000 Required to repay overdraft to bankers, including interest, &c. . . 300,000 Repaid Debentures of 1863 100,000 Paid Taranaki Compensation Claims 180,000 Outstanding Account, Sundries to present time, say .... 100,000 £2,120,000 To this must be added, for construction of roads, The current expenditure, at the rate of nearly £60,000 per month, cannot suddenly be arrested, even by the most energetic measures for that purpose. It is impossible to make an approximate estimate of what this may amount to. Still, by stopping the present war expenditure as speedily as possible, and with some temporary assistance from the Imperial Government, enough may, it is hoped, be saved out of the Three Million Loan to provide, say, for a period of five years for the extraordinary charges of internal defence now proposed to be undertaken. If the present expenditure is suffered to go on, and the loan is thereby exhausted, as it rapidly will be, Ministers have no expectation that the Colony will be able financially to assume the charge of its internal defence within any assignable space of time. It may be hoped that at the end of, say, five years, the extraordinary charges of internal defence now proposed may cease to be required, and the Colony resume what may be termed its normal scale of expenditure; but this is obviously dependent on conditions which must be uncertain. Ministers can only make calculations founded on probabilities. In the foregoing estimate nothing has been taken into account as receivable from sale of laud. It may be that portions of the confiscated blocks may be available for sale after satisfying the claims of Immigrants and Military Settlers, as well as of Friendly Natives, and Rebel Natives who may come in in accordance with His Excellency's Proclamation. But these claims must be satisfied in the first instance on a liberal scale, and no considerable immediate relief to our finances can be expected from the residue which may be open for sale. Out of the proceeds thereof the Colony must satisfy claims for compensation to Natives and others for lands taken for Military Settlements, the expenses of immigration, location of settlers, surveys, and a variety of other charges which will, in the opinion of Ministers, be barely covered by any amount which can be expected to be at once realised from the sale of land. It may be said that by increased taxation, on the one hand, and rigid economy, on the other, the current revenue may supply means for providing for the internal defence of the Colony. It must, however, be borne in mind that the ordinary expenditure of the Colony is, or will be shortly, burdened with interest on loans to the amount of nearly £200,000 a year. Ministers have already raised the Customs Tariff to the extreme limit which can be borne. Indeed, they may be obliged to diminish it in order to avoid smuggling, for which the present high rate of duty upon some articles offers great temptation. They have under consideration other kinds of taxation, but it must not be expected that these will make a sensible increase to the revenue. Assuming then the revenue not to be capable of increase except to a moderate extent, can the ordinary expenditure be perceptibly reduced ? This question can only be answered by those acquainted with the circumstances of the colony, and Ministers fear that no perceptible reduction of the ordinary civil expenditure is practicable. In elucidation of this point, Ministers transmit a copy of the Estimates for the years 1863-4 and 1864-5, together with the copy of the statement made in the House of Representatives in 1864, by Mr. Fitzherbert, the Colonial Treasurer. But it may be said that the General Government ought to avail itself of the whole- of the ordinary revenue, without allocating to the service of the Provincial Governments (as at present) three-eights of the customs, which has been wrongly termed "surplus revenue." This again is a quest ion which cannot be rightly understood except by persons acquainted with the local circumstances of Ihe colony. It is true that upon the face of the Estimates there is an apparent surplus of ordinary revenue, which goes to the Provinces. The Provincial Governments are thereby enabled to carry on various Departments of the Public Service, the charge of which would otherwise fall upon the General Government. The Provinces pay, in fact, the bulk of the local expenditure, the local administration of justice, police, the maintenance of hospitals, gaols, and the like. Apart from all political considerations, and without touching upon the consequences which would result from destroying the present Provincial Establishments, in point of economy the General Government would save little or nothing by taking upon itself the charges now borne by the Provinces, as of course it must do, should it take to itself the whole revenue. By degrees the Provinces are making provision for some of their present charges by municipal taxation. By this means it may be hoped, that the ordinary revenue of the Colony may eventually be considerably disburthened. But no sensible relief can be expected at present, from this source, to the Colonial finances. It may be said that the territorial revenue ought to be made available towards the war expenditure; that is, that the territorial revenue of the Middle Island (which alone is of considerable amount) should be taken to pay for the internal defence of the Provinces of the Northern Island. It would be needless to discuss such a proposition, which would be simply impracticable. It would be in breach of solemn engagements entered into between the respective Provinces, and would defeat the rights of Provincial creditors, who have lent money to the Provinces, upon the faith of existing arrangements. But, independently of this, such a diversion of the Territorial Revenue would simply destroy the revenue itself. A large price, for instance, is given by purchasers of land in Canterbury, under a