15 MARCH 1935, Page 34

Finance

Budget Prospects

I THINK most people will be agreed that much of the improvement established last year in our home trade was due to an increase in public confidence, and, further, that this increase in confidence was directly connected with a balanced Budget, the small remission in the Income Tax and the fair prospect of a further reduction at no distant date. For it appeared to be one of the good qualities of Mr. Neville Chamberlain's Budget of a year ago that he framed cautious, estimates of his Revenue. That circumstance, and a . remembrance that the Budget for 1935-6 was 1:kaly to give a better yield in the matter of Income Tax, prompted hopes that this year we might see another. sixpence off the Income _Tax. Had such a reduction been possible, there can be no question that its effect in stimulating not only confidence but optimism would have been directly helpful to trade. Now, however, hopes of such reduction have practically disappeared, and by way of explaining this disappearance and also by way of prelude to the Budget to be introduced next month, it may be useful to make a survey of the probable position with which Mr. Neville Chamberlain will have to deal in his next Budget. This it is possible to do because the Estimates for 1935-6 of the spending departments have now been presented, and, with the one exception of the total required for the National Debt service, we know exactly what. the Expenditure for the new year will be.

THE CURB.ENT YEAR.

First of all, however, it is necessary to see whether the present fiscal year is likely to close with a small -surplus . or a small deficit. On the surface the position is scarcely encouraging. The Accounts_ made up to last Saturday show that there was a deficit of over £4,000,000 as compared with a surplus of £15,000,000' at the same time last year. With only another three weeks to run, it might, therefore, at first sight be thought that there was no chance of a surplus. It has to be remembered, however, that a year ago the surplus achieved within three weeks of the closing of the fiscal year grew into a surplus of over £31,000,000 before the year closed and it is highly probable, that some such recovery may take place during the next three weeks. As a matter of fact, the Revenue has come in quite well, especially from the Income Tax, and anxiety chiefly centres on the rise in Expendi- ture. A year ago Mr. Neville Chamberlain estimated that for the entire year there would be a total decline in the Income Tax of £9,482,000, whereas up to date there is actually an increase of about 11,300,000. Customs receipts also promise to exceed the Chancellor's estimates. On the other hand, however, whereas Mr. Chamberlain estimated for a decrease under Miscellaneous Revenue of just over 12,000,000, there was a decline up to last Saturday of 18,600,000. Still, taking the entire Revenue as a whole, it looks as though the Chancellor's estimate would be realized, for whereas he budgeted for a total decline for the year of about £18,000,000, the shrinkage up to last Saturday was only about 113,600,000. Un- fortunately, however, the Supply Expenditure already shows an increase of nearly 118,000,000 as compared with an expected increase of about £8,000,000. It is not necessary, for the purpose of this article, to consider the question whether the increase in Supple- mentary Estimates—chiefly in connexion with unem- ployment relief.—has been desirable or not as I am only concerned with the actual facts which have to be faced in the next Budget. One thing is quite clear, however, namely, that if the present -year is to- close with a Surplus, the Revenue will have considerably to exceed the Chancellor's original estimate of £706,520,000. At

present it looks as if this estimate would be exceeded, and

if the figure should rise to about 1711,000,000 and some savings in Expenditure are effected in the final weeks of the year, a Surplus will be realized.

THE NEW BUDGET.

The outstanding feature of the new Budget is the further great rise in Expenditure. Again I do not propose to discuss whether the rise is justified or not. Much of it is connected with increased sums for National Defence and the balance with unemployment relief. At present the new Estimates of Supply Expenditure, including the prospect of Supplementary Estimates, seem likely to show an increase of quite 126,000,000 or £27,000,000. This is apart from the amount to be devoted to the service of the Debt, and if the Chancellor pursues his usual conservative policy, he is not likely to make tiny change in that respect, even though the results for the past year show that he over-estimated-the amount required by some- thing like 110,000,000. That amount, however, is. going, of course, to Debt redemption and the allocation is the mare necessary inasmuch as the fixed Sinking Fund is still suspended. _ _

ESTIMATING THE NEW REVENUE.

Confronted, then, with a possible increase in Expendi- ture of at least /26,000,000, and remembering that last year the Chancellor was only able to budget for a Surplus of under 11,000,000, we seem, at first sight, to see a prospect of the new Budget showing a considerable Deficit. That prospect, however, I believe, will disappear by reason of the more hopeful estimates which the Chancellor will be able to frame with regard to his Revenue. I have already referred to the likelihood of the Revenue for the current year exceeding the Chancellor's original estimate by about 15,000,000, and there should, I think, be little difficulty in budgeting for the new year for an increase of fully 115,000,000 under the head of Income Tax, which would give him about £20,000,000 towards the additional Expenditure of £26,000,000. As regards the balance, it may fairly be expected that more revenue will be obtained from Customs and possibly from Excise, and if, of course, Mr. Chamberlain decides to allocate a much smaller amount for Debt service, there should be no difficulty in establishing a Budget equili- brium. ,

SOUND BUDGET THE ESSENTIAL.

' Already, however, there is a .strong cry from ,some quarters for a full restoration of the cuts in Civil Service salaries. .Whether it will be possible for the Chancellor to meet these demands remains to be seen, but it is at least plain that the chances for any remission of taxation are so remote as to be out of the question. Nevertheless, if Mr. Chamberlain-is able to produce a sound Budget, reasonably balanced, with a respectable Surplus, everything possible will have been done to maintain the confidence which is always inspired by the knowledge that the National Accounts are in a sound condition.

A WAR RESERVE.

At the same time, the constant rise in expenditure must be a source of considerable anxiety, lessening, as it does, the chances of a further reduction in the Income Tax, which reduction, however, is greatly needed as a stimulus to confidence and trade. It must not be for- gotten that in the pre-War days a high -Licome Tax was regarded as a kind of war reserve. Thus, if at the out- break of war in .1914, we had had in existence a standing Income Tax rate of 4s. 6d. in the £, the prospect would have been an appalling one for the taxpayer. For the moment, no doubt, our first -duty is to relieve the distress of the unemployed, but it is clear that it is equally the duty of the Chancellor to endeavour to create conditions bringing about more active trade, for then, and only then, we shall solve the problem of the unemployed in the proper manner, when the Exchequer will reap the double benefit of, a great diminution of the "Dole" expenditure and also increased revenue from a trade