THE BUDGET.
WE have so frequently criticized the inadequacy of Mr. Bonar Law's first Budget that we welcome with the more enthusiasm his second effort. Apart from certain details to which reference will presently be made, it is a well-balanced and at the same time a courageous Budget. Having these merits, it has been well received, even by the people who are most severely affected by it. That is a point which Finance Ministers too often forget. They are all so nervously afraid of offending this or that particular interest that they fail to do the right thing. As a result they receive no credit from that large section of the community which wants to see the right thing done, and consequently the purely selfish interests are left to clamour unchecked. Few things in our recent financial history are more significant than the way in which several of the large shopkeepers have intimated their approval of the Luxury Tax. They would never have done this if they had not been convinced by the other features of the Budget that the Chancellor of the Exchequer was really doing his best in the national interest, and was not framing his scheme of taxation purely from the point of view of the timid politician. One of the great unsolved mysteries of the politi- cian's psychology is that he never seems to understand the psychology of the crowd. What the crowd admires is courage. Danton taught the lesson a hundred years ago : " II faut de l'audace, encore de l'audace, toujours de l'audace." Now and again some statesman arises, like M. Clemenceau to-day, who understands this eternal law, but the rank-and- file of politicians never seem able to free themselves from the delusion that popular favour can be won by cowardice. Mr. Bonar Law has behaved quite otherwise. The "simple problem which he had to solve was how to get more revenue, for on all sides it was and is agreed that more revenue is imperatiVe. Nobody of course imagines that we could possibly raise by means of taxation the whole of the revenue required to finance the war ; but in spite of the arguments that Mr. Bonar Law himself used—arguments which are backed, if they were not suggested, by the Govern- ment Press—most people are convinced that the proportion of the cost of the war hitherto raised by means of taxation has been inadequate. Higher taxation not only means less Debt, but it also means less inflation of the currency, less artificial addition to prices, and less final cost to the nation. Even now the taxes proposed are not, in our judgment, sufficient, though they go a long way in the right direction. What is even more satisfactory is that the new scheme of taxation is placed upon sound economic lines. Very wisely, Mr. Bonar Law has resisted the Bolshevist demand for an increase in the Excess Profits Duty. All the available evidence shows that this duty, which Mr. McKenna left at 60 per cent. and which Mr. Bonar Law raised last year to 80 per cent., is already too high. It encourages waste and discourages enter- prise. At the same time, the revenue from the duty is almost entirely provided out of the needlessly high prices which the .bfunitions Department pays for the commodities it buys. The tax,. in fact, is largely eyewash, and to raise it, as the Socialists demand, to 100 per cent. would do grave economic injury to the country without the slightest benefit to the revenue.
Mr. Bonar Law has equally resisted the temptation to play to the gallery in the matter of the Income Tax and the Super Tax. He has raised both these taxes to a moderate extent, but he has quite rightly argued that the additions made must be accompanied by corresponding additions to indirect taxa- tion, so that the cost of the war may be shared by the whole nation instead of falling upon the relatively small class of Income Tax payers. He has also very rightly refused to raise the limit of exemption for Income Tax, in spite of the cynical demand for this concession put forward by some Labour leaders. Our only regret is that he has not facilitated the collection of Income Tax from wage-earners by making a general provision for employers to collect the tax from their workpeople. The indirect taxes which he has imposed fully justify the criticisms directed by ourselves and others against the economic measures taken by successive Governments since the war began. It has constantly been argued in our columns that as soon as the necessity for limiting consumption became apparent, heavy and constantly growing taxation should have been imposed upon expenditure, so that the consumer would either be forced by higher prices to limit his consumption, or would alternatively be compelled to make a contribution to public revenues. Instead of following this expedient, the value of which has been proved by the ex- perience of generations, successive Governments, in the hope of winning popularity, adopted new schemes for limiting prices and limiting consumption by authority, with the result in many cases of endowing particular trades with extravagant profits. This is specially true of the beer and spirit trades, which have been making huge profits because the policy of liquor control was not accompanied by the increased taxation of the liquor allowed to be sold. At last this necessary step is to be taken, and the duties on beer and spirits are both to be roughly doubled.
Another fully justifiable indirect tax is the increased tax on sugar. With regard to this, it is somewhat pitiful to see that Radical speakers in the House of Commons are still unable to shake off old prejudices, and talk as if the increased taxation of sugar were an unpardonable crime. As a matter of fact, the charge on each individual is a quite insignificant burden, while the revenue accruing to the State is a very appreciable sum. Similar considerations apply to the increased taxation on tobacco and matches. Tobacco, in spite of the enormous rate of taxation to which it is subject, still remains a cheap luxury. The tax on matches only works out at sixpence a thousand, which would be regarded as no burden at all if people were reasonably careful in the use of matches.
It is a pity that Mr. Bonar Law did not have similar courage in dealing with postage rates. He has indeed tardily consented to raise the postage of the one-ounce letter from a penny to three-halfpence, but simultaneously he proposes to reduce the present scale of postage on two-ounce and four-ounce letters from twopence and twopence-halfpenny respectively down to three-halfpence. Doubtless there will be a balance of revenue in his favour, but there was no necessity for the concession. Even more regrettable is his failure to increase the postage on halfpenny paekets weighing less than one ounce. Everybody agrees that Money is now worth only half what it was before the war; therefore on this ground alone the halfpenny postal packet ought to have been raised to a penny. More important still is the consideration that the existence of the halfpenny rate encourages the distribution of useless circulars. It also involves a considerable amount of inspection by the officials of the Post Office to prevent letters being sent in halfpenny envelopes. From the point of view of paper shortage, of administrative convenience, and of revenue, halfpenny postage ought to be swept away entirely. The most notable feature of, the Budget, the feature which will probably make it historical, is the introduction of a new Luxury Tax. Congratulations are due to the Chancellor of the Exchequer on the courage he has shown in adopting the principle of this tax, and fixing it at a reasonably high figure. The French tax, of which particulars were given in the last issue of the Spectator, is only 10 per cent. Mr. Bonar Law proposes twopence in the shilling, or 161 per cent. That will be a very convenient scale, and the rate is not excessive. With a good deal of shrewdness, he has left to a Committee of the House of Commons the duty of working out details of his tax. He has the precedent of the French Chamber to justify him in following this course, and the Committee will certainly have the support of the public in framing an adequate scheme. - To limit the tax to extravagantly priced articles would be to destroy its value both as a revenue-producing instrument and as a weapon for reducing popular expenditure. On the whole, the wisest plan would be to impose this Gel valorem tax on all articles except the simpler forms of food.
The only point in the Budget which has been at all generally criticized is the proposed increase in the stamp on cheques from a penny to twopence. The objection to this proposal is that it may lead to an increased use of Treasury notes, and thus tend to a further inflation of currency. Provided this danger can by any means be avoided, the tax in itself is unobjectionable, and is apparently not opposed by bankers.
Taking the Budget as a whole, it marks a very great advance towards sound finance. The total contribution to the cost of the war out of revenue is still, in our judgment, insufficient, and there still remain many possibilities of increased revenue. These ought to be explored without delay, and we suggest that Mr. Bonar Law should extend the very ingenious device which he is proposing for the Luxury Tax, and appoint a Select Committee of the House of Commons to advise him as to further possibilities of tax revenue. There is no necessity to wait until either another year or another six months has gone by. Annual Budgets are out of date. The business of the Chancellor of the Exchequer is to propose additional taxation wherever and whenever he sees an opportunity of obtaining additional revenue without injustice to individuals or un- warrantable economic injury to the nation.
Previous page
