Finance—Public & Private

The Year's Deficit

I DO not propose to waste the time of readers of these columns by arguing at any length as to whether the responsibility for the past year's realized deficit of £14,523,000 is to be charged to the ex-Chancellor of the Exchequer, Mr. Winston Churchill, or to Mr. Snowden.

I think that the impartial observer can scarcely fail to come to the conclusion that the responsibility may fairly be divided between the two. In the matter of the Stamp revenue, in particular, Mr. Churchill seems to me to have erred on the side of-optimism in anticipating last year a further expansion, inasmuch as the big revenue of the previous year was obviously connected with the abnormal activity on the Stock Exchange and in new capital creations. On the other hand, there can also be little doubt that the revenue during the second half of the year was adversely affected to a serious extent, not so much by the advent of a Labour Govern- ment as by the fact that it soon became evident that the new Ministry was about to add greatly to the total expenditure for the new financial year. Moreover—and the argument has nothing to do with the general question of Free Trade or Protection—uncertainty with regard to Safeguarding duties in the silk and certain other industries undoubtedly had a restraining effect upon certain forms of trade activity.

THE YEAR'S RESULTS.

Briefly, the history of the past fiscal year is as follows. Mr. Churchill a year ago budgeted for a decline in the revenue of 112,024,000 ; the actual shrinkage was £23,915,000, and with a marked increase in expenditure Mr. Churchill's anticipated surplus of just over £4,000,000 has given place to the large deficit already mentioned.

Without going into the various details of the revenue for the past year, there are two points which stand out with some prominence. When the Tea Duty was remitted a year ago it was hoped that the revenue be would. be made up by expansion elsewhere, but the heavy drop of £6,500,000 in Excise reflects the general industrial depression. The other feature is concerned with the results of direct taxation. The ex-Chancellor had evidently hoped that the recent waning tendency- of Income and Super-tax revenue would be made up during the past year, and he budgeted for an increase of 18,700,000 - the actual increase, however, is under 150,000. Moreover, the poor results for the past year follow unsatisfactory figures a year ago, when there was a fall in the Income and Super-tax revenue of about £17,000,000. Clearly, this branch of revenue giVes plain dications of suffering from excessive strain.

THE SINKING FUND.

A further point arising out of the past year's accounts requires- special mention, for it is one which ought to be kept well in mind in considering the prospects for the coming year. Briefly, it is this, that the amount which should have been received from revenue during the past year to meet the full requirements of the Sinking Fund fell completely short of those requirements, so that to . meet the demands of what is known as the Statutory Sinking Funds—that is, the funds definitely attached to particular Loans—fresh borrowing had to be resorted to, and to that extent, of course, the term " Sinking Fund " is a misnomer, because to the extent that new borrowing is involved there is no real reduction in the national indebtedness.

THE BUDGET.

I notice that in considering the problem which now confronts Mr. Snowden in the next Budget some writers have made the mistake of supposing that the deficit of the year which has passed increases the sum which the Chancellor has to obtain in his new Budget. That is to say, supposing far the sake of argument that the prospective deficit in the Budget was £40,000,000, there would have to be added to it the £14,500,000 deficit from the past year. Such, of course, is not the ease ; (Continued on page ,589) _

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deficits are not carried forward, they simply mean that the money is borrowed and that the Floating Debt is increased to that extent. However, Mr. Snowden's task will be sufficiently formidable without having to deal retrospectively with the deficit for 1929-30.

THE NEW DEFICIT.

With the exception of the figures of the Consolidated Fund charges, all the Estimates of Expenditure have now been published, and following upon what I have just said with regard to the failure of the revenue during the past year to provide for the full requirements of the Sinking Fund, it is scarcely likely that Mr. Snowden can estimate for a smaller amount under that head. Therefore, it looks as though his new Expenditure chargeable against revenue for 1930-81 would be nearly £782,000,000. If, therefore, we assume that the revenue for the current year is simply to be maintained at the level of last year, it is evident that there will be a prospective deficit to be met in the new Budget of round about £48,000,000. The seriousness of this large prospective deficit is, of course, increased by the very fact of the industrial depression because it seems unlikely that the Chancellor will feel justified in anticipating any great expansion in revenue for the coming year.

A VITAL QUESTION.

Clearly, then, new sources of income will have to be sought, and here again the difficulty of the Chancellor's task is increased by the fact that he will, of course, be desirous of avoiding, as far as may be possible, the placing of any imposts calculated tovate the present conditions of depression and unemployment. He cannot —nor is he likely to—ignore the Sinking Fund claims because he knows that on the maintenance of the national credit depends the chances of being able to accomplish Debt Conversions on lines favourable to the Exchequer and, therefore, to the taxpayer. He may, of course, elect to further advance the Income and Super-tax with special reference to unearned incomes. Without, however, attempting to determine the question of whether such a course would be just or not, having regard to the heavy burdens already existing, I suggest that we are now right up against the vital and much disputed point of how far the heaviness of direct taxation by its encroachment upon liquid resources reacts unfavourably upon the general industrial and economic situation of the country. Very large sums have been expended in recent years upon so-called social services, or as some would describe it upon unproductive outlays. If the country cannot afford these outlays, the question arises as to whether by reason of reaction upon industrial activity and prosperity generally, greater injury is not inflicted upon the entire community than would have been inflicted if the- so-called social services had not been rendered. The question is a supremely interesting one, and it looks as though each year we were getting to closer Eips with