TOPICS OF THE DAY.
THE BUDGET.
MR ASQ17ITH'S second Budget must be pronounced a sound one. It is true that it touches dangerous ground in one or two places, and that it foreshadows for next year the establishment of that most dangerous form of Socialism, indiscriminate outdoor relief for the aged under the alias of old-age pensions. Taking the Budget, however, as it actually stands, and for what it actually proposes to do, it must be admitted to be good and honest finance. Before, however, we deal with it in detail we must register a word of protest against this ill-omened scheme for old-age pensions. State-given old-age pensions must prove a double curse. They will not merely be a step in the direction of national pauperisation, but the vast sums required to grant them cannot be raised with- out recourse to indirect taxation, and indirect taxation cannot be increased to any large extent without the intro- duction of Protection. That being so, the spectacle of Mr. Asquith beating his breast and declaring that though he will take the first step towards old-age pensions as soon as possible, he will never desert Free-trade, leaves us cold. It is enough for us to know that he is determined to adopt a policy which when carried out must in all human probability lead to the destruction of our Free-trade system. Protection is always the child of bloated expendi- ture. That is the universal teaching of history.
The first, though not the most sensational, point to he noticed is Mr. Asquith's declaration that a greater effort must be made to pay off Debt, and his determination to devote this year a million and a half for this purpose, apart from the automatic operation of the old Sinking Fund, under which the National Debt Commis- sioners take possession of everything in the shape of realised surplus. Next, Mr. Asquith intends to differen- tiate the Income-tax. In future there is to be a distinction drawn, which has never been drawn before, between earned and unearned incomes. He will give a relief of 3d. in the pound on earned incomes which are not above 42,000 a year. The professional man and the man who, whether in the Civil Service, the Army, or the Navy, or in any trade or business, enjoys an income of not over £2,000 a year, will only pay three-fourths of the Income- tax which he now pays. No doubt in practice there are a good many people living upon trust funds who are very much lathe position of men drawing salaries,—that is,they have no power whatever over their capital, and are in a sense in receipt of salaries. These men will probably feel it hard that the Income-tax was not graduated instead of differentiated. Looking at the matter broadly, however, we think it must be admitted that there is a real difference between earned and unearned incomes. The man whose income is earned, if he lives long enough, is almost certain to lose that income through the incapacity of age. He is therefore obliged, if he is a prudent man, not to live upon the whole of his income, but to set aside a portion of it in order to make provision for his old age. He must also make a similar provision for incapacity through illness or through some change in trade or commerce which reduces, or deprives him of, his income. The man who lives on' an income derived from capital is, as a rule, not under the necessity of making a similar provision against' old age or illness, though if his interest is only a life interest, he may, like a professional man, have to save for his children. Speaking generally, then, the man with the earned income can only afford to spend, or ought only to spend, say, two-thirds of what he gains. He may therefore justly claim that the amount which he saves each year shall not be treated as income. The principle is indeed already admitted to a certain extent in the case of payments for life insurance.
While dealing with earned Income-tax, Mr. Asquith proposes to abolish the three years' average, a change which we think reasonable, though it is by no means certain that it will benefit the Exchequer. To prevent evasion he also provides that every one is to make a declaration of income. That provision will no doubt Callse a good deal of trouble, worry, and burnings of heart, even to those who have no desire to avoid paying what they are legally obliged to pay. At the- same time,
it is difficult to say that the proposal is unreasonable, or in any true sense harsh. Mr. Asquith estimates that the loss to the Treasury from the application of the principle of differentiation will be £1,250,000 a year. The means by which he proposes to recover, as it were, this sum from the payers of direct taxation is by a revision of the Death- duties. He intends to leave the scale as at present on estates up to £150,000. After that sum the duties, as we have explained in detail elsewhere, are to be more effectually graduated than at present. This new gradua- tion, it is hoped, will bring in an extra £1,200,000 a year, though this year the yield is only expected to be £600,000.
In principle we have no objection to the graduation which is Proposed. We are, however, conscious that there is still a large unexplored territory open to those who desire to defeat the Death-duties, and to defeat them quite legally and legitimately, and we are not sure that the increased pressure on the large estates may not just turn the scale and make rich men divest themselves of large portions of their property in their lifetime, in order to get the better of the Exchequer. From the point of view of public policy there is, of course, no objection to rich men parting with their property in this way, and endowing their sons and daughters. The quicker property is diffused, the better for the State. Probably the Board of Inland Revenue will say that they can rely upon the unfortunate experiences of King Lear to protect them against any large extension of the dissipation of big estates before death. We are not quite sure, however, whether our milder manners and natures have not made latter-day repetitions of Regan and Goneril an impossibility. At any rate, the modern millionaire may easily reduce his estate well below the two- million level without running: any risk of playing the final act of his old age at midnight in a thunderstorm on the moor outside his daughter's country house or shooting-lodge.
Mr. Asquith's final Budget proposal is one of great interest, and one which, if due regard is given by the Treasury to the incidence of local taxation, is, we are convinced, sound. He tells us that if he remains in office be means to destroy root and branch the system by which Exchequer taxes are intercepted and handed over to the local authorities. The existing system, he complains, greatly complicates national accoipats, and in effect prevents the Chancellor of the Exchequer from being master in his own Treasury. For example, he had been pressed, he informs us, to put a tax on motor-cars, and he felt disposed to do so ; but since the proceeds of their taxation - would go to local authorities and not to the National Exchequer, it was not worth his while to consider the question. In the same way, the taxation of licenses is not a practical proposition for the Chancellor of the Exchequer, since the proceeds of this also would go to the local authorities. In view of these facts, what he proposes to do is to provide that after the close of the present financial year local authorities shall be given a sum equivalent to what they now receive on the present basis of taxation, while any additions made to licenses will flow direct into the Treasury. That is perfectly reason- able, provided that the Chancellor of the Exchequer remembers how crying is the need for a reduction of local taxation, and how oppressive is the incidence of the rates, especially as regards the industry of agriculture, which, through a series of unlucky accidents, has been singled out to bear a special burden. In our belief, the whole question of local taxation is ripe for treatment. We will go further, and say that no treatment will in the end prove satisfactory which does not place some of the larger items of local expenditure, such as the cost of education and the cost of the nation's roads, upon the national Exchequer.
On the whole, we feel that Mr. Asquith may be con- gratulated on his Budget. In leaving indirect taxation exactly where it is he only did what he was obliged to do, for to have reduced the duties on tea, tobacco, or sugar, and thus to have failed to make provision for a. more heroic paying off of Debt, would have been a capital error. At the same time, it must not be supposed that we consider it to be the best of all possible Budgets, or even the best that could have been devised in the circumstances. We are inclined to think that be would have been wise to have made an effort to take at least a penny off the Income-tax, and so to have given a certain amount of all-round relief to the middle class.
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