THE THIRD WAR BUDGET.
ON one point all critics of Mr. McKeuna'm great Budget are in agreement—namely, the admirable lucidity with which it was expounded to the House of Commons. There was not the slightest attempt at any unnecessary rhetoric ; the financial situation and the means to be adopted towards meeting it were explained in a clear, businesslike manner, and the whole statement was com- pleted in the record time of an hour and a quarter. It is evident that Mr. McKenna has found his true métier at the Treasury. Beyond this, most critics are further in agreement that great courage has been shown by the Chancellor of the Exchequer in formulating a series of taxes, many of which cut across commercial interests or poli- tical prejudices, and must unquestionably provoke a certain , .mount of unpopularity for himself or for the Cabinet. Moreover, he went out of his way more than once to tell the House that even higher rates of taxation were feces- e ery, and that further War Budgets must be anticipated in the near future. To all those who look at the problem with financial rather than political eyes this was the most comforting feature in Mr. McKenna's Budget statement, for if we compare the financial results of his new pro- posals with the financial needs of the nation we are bound to regret that even bolder proposals were not put forward.
According to present estimates, the total expenditure of the nation in the current year will reach the absolutely unprecedented figure of £1,590,000,000. Of this at least £1,100,000,000 is true expenditure, the remainder being represented by advances of various kinds and to various countries, which may possibly be recovered in the future. Towards meeting this expenditure the revenue on the basis of present taxation will only contribute £272,000,000. Mr. McKenna's new taxes, including the readjustment of postal rates, will produce another £38,000,000, making in the current year a total revenue of £306,000,000. •But no less than £250,000,000 out of this total is absorbed by Civil Service expenditure, by the interest on Debt, and by normal Army and Navy expenditure. Thus the total contribution out of revenue to the direct cost of the war in the current year, even with the new taxes added, is only £55,000,000. That is a contemptible contribution for such a wealthy country to make. It compares most unfavourably with the scale of contributions made year by year during the Napoleonic Wars, the Crimean War, and even the South African War. Not only is it unfair to posterity for the present generation to shirk their responsibilities, but the process of shirking in this as in other matters involves an increase of cost. It is certain that if the late Government had had the courage to impose heavy war taxation on the outbreak of war, and to follow up that step by still heavier taxation last April or May, private expenditure would have been greatly reduced to meet the war taxes, there would have been consequently less demand for labour for private purposes, and therefore less cost to the Govern- ment in obtaining labour for munitions of war and less difficulty in obtaining men for the Army. At the same time, the amount of borrowing would have been pro tanto reduced, with the result that there would have been less burden of interest to meet in the future. This argu- ment is strengthened when we note how small is the sum that Mr. McKenna is able to obtain in the present year by his new taxes as compared with their yield in a full year. He gets £33,000,000, as compared with an estimate of £107,000,000 for a full year. That means that if the taxes now proposed to Parliament bad been imposed at the beginning of the current financial year we should have been some £70,000,000 to the good, and £70,000,000 is not a sum to be despised, even when we are reckoning in hundreds of millions. Moreover, the excuse which Mr. McKenna, gave for not producing even bolder proposals—namely, the impossibility of getting Departmental work done in time—further rein- forces the argument that the present Budget should have been introduced six months ago. All we can now hope is that the Cabinet will begin to realize that there is a larger fund of patriotism iu the country than the politicians are apparently willing to believe. The country understands the tremendous character of the issues involved in this war, and is willing and even eager to make the necessary sacrifices to bring it to a successful conclusion as speedily as possible.
As regards the particular proposals of the Chancellor of the Exchequer there will be general approval, but on nearly every point, in our judgment, the Government might safely have gone very much further. For example, the Cabinet have completely shirked the question of a further tax upon alcohol, although it is notorious that the spirit distillers have been making large profits out of the extra consumption of spirits during the war period. In the same way the increase of the Income Tax by 40 per cent. is less than was anticipated, and there is no obvious reason why that increase should not have taken full effect at once. Instead, Mr. McKenna only proposes in the current year to iucrease the tax by 20 per cent. In the same way, the Cabinet have shirked the duty of making the Income Tax extend to the whole population. In these columns we have repeatedly insisted on the ease with which an Income Tax on wage-earners could be collected through the employers. The excuse given that this proposal is administratively impossible because of the cost of making rebates for children could have been dealt with by introducing a small special tax upon all wages and salaries (in addition to the ordinary Income Tax) to be deducted at the source without any rebate for any purpose. In the same way it is very desirable that there should be a small tax on dividends (in addition to the ordinary Income Tax) to be deducted at the source without rebate. At present numbers of dividends up to £5 in amount practically escape taxation altogether because the Bauk refrains from making the deduction in order to avoid. cloims for rebate. Credit, however, is due to Mr. McKenna for introducing the broad distinction for administrative purposes between employees and business firms, and for auanging that taxes on wages and salaries should be paid quarterly, and on business profits half-yearly, instead of, as at present, annually on both. This spreading of the Income Tax over the whole year will be a financial convenience both to the Exchequer and to the taxpayer. The Excess Profits Tax is a new departure, promoted undoubtedly by a Press and Trade Union agitation against the extravagant war profits now being made by many firms. If, as seems clear from the Budget statement, the tax is to apply to all kinds of businesses, and not only to those firms engaged in producing munitions of war, it may be described as quite sound in principle, though it is clear from the machinery which Mr. McKenna proposes to set up that very great difficulty will be found in rendering it equitable in practice. It is a question whether better financial results would not have been obtained at less administrative cost by an equivalent extension of the ordinary Income Tax. After all, the primary evil arises, so far at any rate as munitions of war are concerned, from the defective methods of Government purchase, which permit excessive profits to be made. From the moral point of view there should be no war profits at all, and therefore a proposal to tax them 50 per cent. does not really solve the moral question, while it creates a great deal of administrative difficulty.
Another new departure which Mr. McKenna has apparently made solely as a concession to newspaper agitation is the import duty of 331 per cent. on certain manufactured articles—namely, motor-cars and motor- cycles, cinema films, clocks and watches, musical instru- ments, plate-glass, and hats. He defended this rather quaint collection, first, by pleading the. desirability of checking imports, and, secondly, by recommending his hearers to study the Board of Trade returns, where they would find a justification for the particular selection made. Some bettor defence than this will bo needed on both grounds. With the exception of motor-cars and cinema. films, the importation of this group of articles is a small matter. Indeed, Mr. McKenna's own estimate for a full year's yield of revenue from clocks and watches, musical instruments, plate-glass, and hats is only £400,000. In ordinary years clocks come in the main from Germany ; watches from Switzerland ; musical instruments from Germany ; plate-glass from Belgium ; hats from Germany, Austria, France, and Italy. The total sum involved, even in a normal year, is very small, and since the war broke out there has been a great reduction in the importation of all those articles. As a means of reducing the total volume of our imports, the proposed tax is an absurdity. The case for a tax on imported motor-carsaind cinema films rests on stronger grounds, for here the sum at stake is more con- siderable. Mr. McKenna estimates for a revenue from motor-cars, &c., of £1,150,000 in a full year and £400,000 from cinema films. The objection to his proposal is that it is not accompanied by a corresponding duty upon the home-made article. The effect of putting a special duty on the imported article must be to tempt home manu- facturers to produce a competing product ; but at the present time we do not want to tempt our home manu- facturers to produce any article of luxury, unless it be for export. It is true that the Government have the power under the Defence of the Realm Acts to prohibit any kind of manufacture ; but it is surely ridiculous to rely upon this power of prohibition, and at the same time to give a temptation to the manufacturer. Further than this, it is .very doubtful whether the Government and a section of the Press have not been making a fetish of the question of imports. Of course it is desirable to reduce the volume of our importations so far as the imported articles are not necessary to our national existence ; but it is equally desirable to reduce the home production of luxuries. Our main national purpose at the present time is to set free labour and capital for war work, and this is done just as much by reducing the home production of luxuries as by reducing the volume of imported luxuries. If •Mr. McKenna maintains these proposed new duties, he cer- tainly ought to add in the case of motor-cars and cinema films, which are the only articles of financial importance, a corresponding tax on the home-made article, both for the sake of getting additional revenue and for the sake of further reducing consumption. It is most desirable that the licence duty on small motor-cars and on motor-cycles should be very appreciably raised, and a tax on cinema and theatre tickets is a source of revenue that has too long been neglected. A word must be added with regard to the postal rates. It is a pity that the Cabinet should have failed to carry out the recommendation of the Public Retrenchment Com- mittee that the ordinary letter postage should be increased by a halfpenny war tax. This has been done in Canada with satisfactory results to the revenueand without a murmur of public disapprobation. There is reason to believe that the proposal would have yielded at least another £5,000,000 or £6,000,000 to the revenue. However, there are other Budgets to come, and at any rate Mr. McKenna has done well in getting rid of halfpenny postage on postcards, packets, and newspapers. He is also to be congratulated on having made some effort to meet the loss on the tele- graph service both as regards private and Press telegrams. On all these points he can rely, we believe, on the support of the newspaper Press generally, though obviously the raising of the rates affects them injuriously. Perhaps the best verdict on the Budget as a whole is that its main excellence consists in the indication it gives of more to come.