THE DEFICIT.
IT is obvious not only that there will be a deficit for the year ending March 25th, but that to avoid a deficit in the ensuing financial year increased taxation will be required. There is nothing so alarming, or so sensational, or so "discreditable to Government," as some of the newspapers would lead us to believe in this fact, but it certainly requires the serious attention of all thinking men. Now the only ways of meeting a deficit are, (1) spending less money, (2) raising more revenue, (3) employing both these methods together. Unfortunately, it is, under present circumstances, practically impossible to spend less than we are spending now. The chief causes of the increased expenditure are the additions that have been made to the Navy and to the Army. But no one but a madman would propose to reduce either our land or our sea forces at the present moment. While the rest of the Powers are piling up armaments, and while we remain the object of much envy and are considered to possess all the best pieces of the uncivilised world, we have only one course open to us. We must make our position invulnerable by a navy which can command the sea, and an army which can effectively support the navy. The possibilities of decreasing our civil expenditure cannot fruitfully be discussed. That expendi- ture, indeed, is likely to increase rather than to decrease. Theoretically, no doubt, we might cut down the money collected by the central Government and paid over to the local authorities, but to do this would raise the whole question of local taxation. These subsidies or " doles" may be a wasteful expedient, but they depend upon a principle which is in itself just, — the principle of making personal property contribute to local burdens. There is little hope, therefore, of our being able to intercept any of the money that has been earmarked as belonging to the local authorities though collected by the State.
It comes, then, to this,—the Chancellor of the Exc'iequer cannot reduce expenditure, and will have 16 "tais-6 iiore revenue. The extra amount he will require for the coming financial year will be about £3,000,000. How is this money to be raised ? On the answer to this question a great deal may depend. The Government may decide to stick to the sound and well-tried fiscal system upon which we have worked for the last quarter of a century, or the needs of the Treasury may be made the excuse for revoking that policy, for beginning a retrograde movement, and for returning to forms of indirect taxation which were abandoned by a Conservative Government some twenty-five years ago. The necessity for getting another £3,000,000 a year, we may be sure, will be seized upon by the enemies of Free-trade to urge the reimposition of the Sugar-duty,—partly because that duty would doubtless raise a large revenue, and partly because a tax on sugar, once agreed to in principle, might be manipulated so as to have a protective effect in regard to our own refineries and also so as to prevent the competition of beet-sugar. We will say without further preface that we should consider the reimposition of the Sugar-duty one of the gravest blunders that any Government could possibly commit. We are quite aware that it would provide a new source of revenue which in times of stress might produce many millions a year, and we are also aware that a new source of revenue would per se be an immense benefit to the Treasury. Again, we are aware that a moderate tax on sugar would not be unpopular with the consumer, because people would not seem to feel it. In spite, however, of these arguments in favour of a return to the Sugar-tax, we believe that it can be shown that its reimposition would be most injurious. To begin with, the tax is open to the objections that belong to all forms of indirect taxation. People do not seem to feel them, and therefore they are less likely to see that they are well spent and raised for adequate reasons. The more States depend upon indirect taxation, the more careless and indifferent they become about all fiscal matters. We do not, however, ourselves wish to rely upon this general argument, because we shall always be obliged in this country to raise a large revenue by indirect taxation. More important is the principle of the old fiscal reformers to have as many commodities as possible in the free-list and to confine indirect taxation to one or two objects. It is immensely to the benefit of a trade to get it entirely free from the Customs House, and we have no doubt that it is infinitely better to raise the revenue we now raise from tea, from tea alone, than it would be to get it half from tea and half from sugar. Customs House officers may be a necessary evil, but it is as well to keep their ministrations within as narrow an area as possible. Absolute Free-trade in any article is a great benefit, and it is as well to maintain that benefit wherever possible. But there is another and even stronger reason against taxing sugar. Sugar—even refined sugar—has be- come a staple raw material. Sugar is an essential material in half-a-dozen great trades. Tea and tobacco are con-. sumed pretty much as they reach us, but sugar is raw material to the jam-maker, the biscuit manufacturer, the confectioner, the maker of aerated .drinks. All these great and thriving trades depend upon sugar for their profit, and if the price of sugar is increased by taxation they are certain to suffer. All the objections, then—and they are many and great—which apply to taxes on raw materials apply to a Sugar-tax. Next, on the ground of national health we may well object to a Sugar-tax. It is the fact that they can now all get sugar which has more than any- thing else improved the physique of the children of the poor. Their consumption of sugar is enormous, and any- thing which would stand in the way of their obtaining it on the easiest possible terms may rightly be condemned. We have no doubt we shall be told by newspapers like the Daily Mail which are clamouring for a Sugar-tax, that our asser- tion that such a tax would in reality be felt, though it would not seem to be felt, is absurd. We shall be told that a farthing or half a farthing a pound would never be noticed. Possibly the careless consumer might not notice it, but he would feel it all the same, while the wholesale men and the manufacturers would feel it in a very marked way. To show that this is so, let us for the sake of argument suppose that the proposal is not to tax sugar but to tax paper. It could easily be argued that a farthing a pound on paper would never be felt by any one, and that it would be a tax which the consumer would neither feel nor notice. Yet for all that we very much doubt any daily, or for the matter of that weekly, newspaper finding it a tax to be welcomed and encouraged as an excellent source of revenue. Every one connected with a newspaper can see how injurious to that industry would be the imposition of a tax on paper. Why should we imagine that things are different in the sugar trade ? Yet, and we say it in all seriousness, a Paper-tax, bad as it would be, would be a much better tax from the point of view of the public interest than a Sugar-tax. After all, nobody eats paper, and it is easier to go without a newspaper than food. Remember that any increase in the price of a commodity must in the end diminish consumption.
For all these reasons, then, we trust most sincerely that the Chancellor of the Exchequer will refuse to listen to those who are trying to press upon him a revival of the Sugar-duty. How, then, is he to get his money? We would, to begin with, place the Tobacco-tax on the old level,—a proposal which has, we may note, been almost universally advocated. That, however, would only give us about half of the £3,000,000 needed. For raising the other one and a half millions we would adopt the scheme advocated by the Economist, and add a shilling a barrel to the tax on beer. This would give about £1,500,000, and would tend in the direction of equalising the burdens respectively placed upon the drinkers of spirits and of beer. If this were not enough we think that the Chancellor of the Exchequer might very properly go into the anachronisms connected with Savings Bank deposits, At present we pay on the money of Savings Bank depositors a higher rate of interest than we get for the sums they deposit. Hence a consider- able annual loss. Again, all the expenses of management are paid out of the taxpayers' pockets. Surely this is bad business, and ought to be stopped. It is an excellent thing to encourage thrift, but it ought not to be done at some 4 per cent. over the market rate of Consols. Even if the actual sum saved by putting the Savings Bank business on a sound basis were not very large, it would be wise to seize so good an opportunity for making a change which, if not made, may end by landing us in considerable difficulties.
While dealing with the present subject we would say a word as to the proposition either to "settle everything" by putting a penny on the Income-tax, or else to prescribe a good big dose of indirect taxation, and so make it possible to reduce the Income-tax by a penny. Both proposals seem to us thoroughly unsound. The Income-tax is high enough already, and the notion of decreasing the Income - tax at this juncture by a piece of fiscal legerdemain is absurd. It is far better to leave the Income-tax at a fixed rate, and not to fidget with it in any shape or form, either by reductions or augmentations. Depend upon it, it is a tax which is much more easily borne when it is kept fixed. Then people accommodate themselves to its incidence, and do not worry about the tax. ,They inherit or buy stock, as it were, subject to the tax, and unless it alters hardly notice that what is paid into the Bank is less 8d. in the pound Income-tax. They never, that is, reckon up how much more they would have a quarter if the Income-tax were only 6d. instead of 8d. If, however, the rate rises, they notice at once. Round a fixed Income-tax matters, as we have said, arrange themselves to a very great extent. A varying Income-tax, on the other hand, throws out all calculations. Hence, except under stress of war, our Chancellors of the Exchequer will be wise to leave the Income-tax alone. A permanent reduction is not prac- ticable, and to take a penny off and then put it on again would in reality earn little or no gratitude from the public. Unless, then, the authorities have some un- noticed fiscal resources—as, for example, in a rearrange- ment of the Stamp-duties—which is of course quite possible, we do not think that the Chancellor of the Exchequer can do better than to reimpose what he took off tobacco, add a shilling a barrel to beer, and stop giving away public money to Savings Bank depositors.
There is, however, one other method of dealing with the deficit which should be mentioned, though it is, we fear, one which is hardly likely to be taken up. That is the rearrangement of the Sinking Funds. We fully realise the immense reserve power which we get from the new Sinking Fund, by means of which we pay off some £ 6,000,000 or so of Debt every year. It would enable us in case of war to raise a loan of, say, .2250,000,000 without adding to our expenditure. We should simply use the money we now employ in paying off Debt to pay interest. At the same time, the St. James's Gazette has a great deal of truth on its side when it urges, as it constantly does with great force and ability, that it is extremely bad business to go on spending, say, £108 or £ 109 to pay off a hundred pounds' worth of Debt. That must be a wasteful policy. Now in view of these facts, we think that the whole question of the Sinking Funds should be reconsidered. The experts of the Treasury should be set to devising some more economical plan of paying off Debt,—probably by a great extension of the system of terminable annuities. If this suggestion were adopted and a thorough revision of the Sinking Funds decided on, the Chancellor might this year merely reimpose the full Tobacco-duty, take what he wanted in addition from the new Sinking Fund, and announce that next year he would propose a wholly new scheme for dealing with the repayment of the National Debt. This would be a businesslike and not unpopular proposal, but we doubt the Treasury caring to take it up. They will probably prefer something less large and fundamental. In that case the best thing, as we have said above, would be to go back to the old Tobacco-tax and add a shilling a barrel to the duty on beer.
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