8.—6,

War Expenses Account.

As taxation is involved, the finance of our war expenses cannot be isolated from the budgetary position of the Consolidated Fund. In fact the War Expenses Account is really an extension of the general Budget kept in a separate account for administrative purposes and to clarify the position. The far-reaching disturbances to trade and industry arising out of the war together with the inevitable smaller consumption of goods by the people adversely affect the normal Budget resources. The rationing of motor-spirit obviously results in a fall in the revenue from petrol-tax. Customs duties and sales tax decline as imports are reduced. The revenue from the former would normally have suffered as a result of the import selection policy, but that policy must now be carried much further under the stress of war. On the basis of present taxation it is estimated that there would have been a net decrease of £2,100,000 in the revenue of the Consolidated Fund, the principal variation compared with last year's receipts beingDecrease. £ £ Customs duties .. .. .. 2,400,000 Sales tax .. . . . . .. 500,000 Highways revenue .. .. .. 400,000 3,300,000 Increase. £ Income-tax . . .. .. .. 1,100,000 Stamp and death duties .. .. 100,000 1,200,000 Net decrease .. .. .. £2,100,000 On the other side of the account every effort has been made to economize in normal avenues of expenditure having regard to the advisability, previously referred to, of maintaining civil activities as far as is practicable. However, the war has increased departmental responsibilities involving additional expenditure. Various subsidies, particularly in respect of fertilizers and rural housing, are being paid to assist in keeping down farming-costs and to encourage production. On the other hand, the costs of the Navy, Army, and Air Force are now charged to War Expenses Account. Full details of the expenditure are shown in the Estimates, but the net result is a comparative decrease in the total Consolidated Fund expenditure of £900,000, this decrease being due to the fact that this year no provision is made for defence expenditure out of the Consolidated Fund. Thus, so far as the Consolidated Fund is concerned, we are faced with a shrinkage of £2,100,000 in revenue, offset to the extent of £900,000 by a decrease in expenditure to be provided from that fund. A provision of £250,000 has been made for supplementary estimates, but there is a margin for this in the fact that last year's figures, Avith which comparisons are made, produced a surplus of £300,000. Altogether additional revenue to the extent of £1,150,000 is required to balance the Consolidated Fund Budget. For war expenses, as previously indicated, we are faced this year with expenditure estimated at £37,500,000. Following the principles outlined in my opening observations, as much as possible of this should be found from taxation. The special items of war taxation imposed last year would this year, if left undisturbed, produce approximately £3,500,000. Having regard to the destructive nature of the expenditure it is imperative that much more than this should be provided from revenue. In fact, it seems clearly in the best interest of the Dominion that we should aim to provide from taxation the greater part, if we cannot manage the whole, of the £17,750,000 required for expenditure in New Zealand. For this purpose and to bridge the gap of £1,150,000 in the Consolidated Fund, consideration was first given to an upward revision of the rates of income-tax. In order to obviate certain anomalies which would have been

Reduced Consolidated Fund revenue.

Consolidated Fund revenue.

Economy in normal expenditure.

Consolidated Fund deficiency.

War Expenses Account requirements.

Income-tax adjustments.

4