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revenue amounted to 707,235,000l., or 26.2 per cent. of the gross and 33.6 per cent. of the net expenditure.

The following table, which contains particulars of the actual receipts and expenditure for the years 1913-14 and 1917-18, will show the changes in National Finance produced by four years of war :

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(a) Nominal provisions, the substantive provision being made under Votes of Credit.

Vol. 230.-No. 456.

The whole basis of taxation has been profoundly disturbed by the war. In 1913-14 direct taxation amounted to 937. millions and represented 57 per cent. of the total tax revenue. For the year 1917-18 direct taxation, including excess profits duty, amounted to 5037. millions, or 82.5 per cent. of the total taxation. It will be seen, therefore, that the burden of war taxation has fallen almost entirely upon the direct taxpayers. The proportion of the total expenditure raised by (1) borrowing and (2) revenue-that is taxation and Post Office, etc., during the years 1915, 1916, 1917 and 1918-was:

For the year to March 31, 1915 (which included the first eight months of the war), the revenue was 576-71. millions, of which amount 4057. millions were borrowed and 171.77. millions, or 29.7 per cent., raised by revenue.

For the year to March 31, 1916, the total sum received was 1,501-37. millions, of which 1,164.5l. millions were borrowed, and 336-77. millions, or 224 per cent., were raised by revenue. For the year to March 31, 1917, the amount received was 21997. millions, of which 1,625.51. millions were borrowed and 573-4l. millions, or 26.8 per cent., raised by revenue. For the year to March 31, 1918, the total expenditure was 2,696,221,000l., of which 2,989,000,000l. were borrowed and 707,000,000l., or 26-2 per cent., were raised by revenue.

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Mr Bonar Law, on April 22 last, estimated the expenditure for the year to March 31, 1919, at 2,972,197,000%. or 8,142,000l. a day. In his Budget speech he said :

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The rule originally introduced by my predecessor implies that at the end of the budget year we shall have revenue sufficient to meet all normal expenditure and the Debt Charges without new taxation or new borrowing. As long as it is humanly possible for the country to live up to that standard it is our duty to see that it is carried out.' He then made the following calculation:

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In order to comply with the principle thus laid down, Mr Bonar Law said it was necessary to impose new taxation which would produce in a full year an additional revenue of 114,500,0007.; and he accordingly proposed the following new taxation: (1) the standard rate of the income tax to be increased from 5s. to 6s. in the £ with consequential modifications in the graduated scale; (2) the limit of Super-Tax exemption to be lowered from 30007. to 25007., and the rates of Super-Tax under the graduated scale to be increased up to a maximum of 4s. 6d. in the £; (3) Farmers' Income Tax under Schedule B to be doubled (the 1917-18 measure of liability was the rental; it has now been increased to double the rental value); (4) Stamp Duty on cheques to be increased from 1d. to 2d.; (5) postage rates to be increased by about 50 per cent. all round; (6) the duties on spirits, beer, tobacco, sugar, and matches raised by amounts varying from 30 to 60 per cent. Finally, Mr Bonar Law proposed an excise duty of one-sixth part ad valorem on Luxuries. These additions were approved, with the exception of the Luxury Duties, which were eventually referred to a Special Committee, to be dealt with in a separate measure. For the current year Mr Bonar Law estimated that the new taxation would produce 67,800,000l., and that the yield in a full year would be 114,500,000l. He estimated the total revenue for 1918-19 at 842,050,000l., leaving 2,130,147,000l. to be borrowed.

Many people have expressed their disappointment that a larger proportion of our expenditure has not been obtained from taxation, and they maintain that the financial policy adopted in the Napoleonic wars should be applied to the present war; but this contention has not been sustained. Too large a share of the burden of taxation has been thrown upon the direct taxpayer. Under the new budget, incomes of 5000l. will pay 7s. 2d. in the £; those of 10,000l., 8s. 4d.; those of 15,000l., 10s. Od. So long as the Excess Profits Duty forms one of the principal sources of revenue, and Income Tax, Super-Tax and the Estate Duties are retained at their present levels, it would be very dangerous to place any further burden upon the shoulders of the direct taxpayers. There are already indications that the limits of direct taxation have been nearly reached, and that further

additions will cease to yield a proportionate increase of

revenue.

From the statement made by the Chancellor of the Exchequer, when introducing the Budget, it may be assumed that the gross amount of the National Debt on March 31, 1919, will be approximately 79801. millions. From this we may make the following deductions:

Advances to Allies up to March 31, 1919 .
Less proportion deducted- one half

Million £

1632

Advances to Dominions (to March 31, 1919)
Liability undertaken by India (do.)

816

816

244

64

1124

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375

97

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100

572

100

672

Balances with financial agents abroad
Land, Securities, Buildings, Ships, etc.
Stores of all kinds, chiefly Munitions De-
partment (cost 325l. millions) taken at.

Further assets of the same nature to be acquired during current financial year. Estimated amount of Excess Profits Duty accrued but not collected at March 31, 1919

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500

2296

This would reduce the net amount of the National Debt on March 31, 1919, to 56847. millions. To this must be added the cost of demobilisation and other expenses in connexion with the conclusion of the war, so that, if the war should end this year, we might expect to wind up with a net debt of about 7000l. millions, exclusive of the capitalised value of the pensions, for which the latest valuation is 7501. millions. How much of this vast sum can be truly described as lost? Only a comparatively small proportion. I am in complete agreement with the views expressed many years ago by Sir Robert Giffen in his book on the 'Growth of Capital' (1889):

'Of course to each individual holding a portion of the National Debt, the holding is property. . . . On the whole

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the reason assigned is a good one, but I should not censure very much any one who included the debt as a part of the capital of the community . . . the money expression of all the other capital of the community is less than it would otherwise be by the amount of the debt. . . if there were no debt, lands, houses, etc., would exchange for rather more than they do now. The debt in this view represents a certain distribution of part of the capital of the country, and we do not get a complete view of the capital unless we include it.'

The National Debt at the end of the war will probably be about 40 per cent. of the total of the national wealth before the war; and the vast amount which must be raised annually by way of taxation to pay the interest, even though the debt is practically all held at home, somewhat weakens the complacent views which Giffen took when the National Debt was only about 4 per cent. of the national wealth.

The real cost of the war may be summarised under the following headings: (1) The death and disablement of, say, one million men. Human suffering and sorrow cannot be expressed in terms of money, but, if an actuarial valuation had to be made, this million of lives might be estimated to represent 8007. millions. (2) The capital value of the pensions, say, 750,000,000l.; (3) diminished stocks of food supplies, raw materials and manufactured goods; (4) a large diminution in our shipping tonnage and the impaired efficiency of the remainder. (5) We have parted with a considerable proportion of our investments abroad. In the years immediately preceding the war we used to invest about 2007. millions abroad and expend about 2007. millions in the form of new investments in the United Kingdom, besides providing about 180,000,000l. per annum for depreciation, renewals, etc. This latter provision has been largely suspended during the war. (6) The community is poorer to the extent to which it has been deprived of many services, such as cheap and frequent train services, shipping services, etc., but this is largely a temporary loss and cannot be expressed in terms of money. Altogether I think it would be a reasonable estimate to assume that, including the capitalised value of the war pensions and the moneys borrowed abroad, our real loss during the war in terms of money is in the

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