THE BUDGET.

The soundness of the position taken up by the Opposition last year in regard to the national finances, has this year been fully established by the admissions and procedure of the Chancellor of the Exchequer. It may seem remarkable that the Chancellor of the Exchequer should preface his financial statement by referring to a resolution of the House, which was adopted at the instance of the Opposition,—that he should avowedly base his present Budget upon that resolution. But Mr Gladstone is a Minister of consummate Parliamentary tact, who avails himself of every plea which best serves his purpose for the time; and, as we shall see in the sequel, he had a special reason for thus seeking to cover with the authority of Parliament a Budget which is not quite so accordant with the resolution of the House as he desires it to be thought. The resolution, which was adopted at the instance of the Opposition, and upon which the Chancellor of the Exchequer professedly bases his present Budget, insisted upon the necessity of reducing the national expenditure. It was urged upon the Government that the financial administration of the three previous years had been such as to trench deeply upon the extraordinary resources of the country, and that, while ostensibly adding to the military strength of the country, we were really diminishing our power by exhausting the sources by which the expenses of war and national defence could be sustained. It was pointed out that during these years we had not only abolished, and put out of reach, several important taxes for the remission of which there was no urgent necessity, but that, in order to do so, we had actually incurred a considerable deficit. Of late years not only the leaders of the Opposition, but some of the highest financial authorities on the Ministerial side of the House—including Lord Overstone, Lord Monteagle, and Earl Grey—had denounced as most impolitic the hand-to-mouth system pursued by Mr Gladstone, and had urged the necessity of framing the estimates with a view to obtaining a substantial yearly surplus. These were the considerations which led the House of Commons last summer to adopt the resolution to which the Chancellor of the Exchequer now appeals in justification of his Budget; and they must not be forgotten when examining how far the financial programme of the present year is in accordance with that resolution.

A new critic now takes the field against Mr Gladstone, and adds his protest to those which have already been made by the other leading financial authorities. In a new edition of his work on Taxation, that veteran Liberal and political economist, Mr M’Culloch, severely criticises the recent financial policy of the Government, and endorses with his high and obviously impartial authority the opinions by which that policy has been so often combated by the Conservatives. To all the special features of Gladstonian finance Mr M’Culloch is opposed. He is strongly in favour of the maintenance of a good yearly surplus, as an indispensable feature of a prudent system of finance; he condemns as most impolitic that narrowing of the area of taxation which Mr Gladstone extols as a “simplification of the tariff;” and he moreover objects, in the strongest terms, to the manner in which that principle of “simplification” has been applied.

It is not surprising that the voice of protest should thus be raised from all quarters against the principles of Mr Gladstone’s finance. To begin with, he has been a most prodigal financier, and cares not a jot for the future. At a time when the charges on the National Debt were reduced by the falling-in of the terminable annuities, to the extent of two millions a-year—when there was an unexpected repayment of a portion of the Spanish loan, and other windfalls—and when he found a surplus of considerable amount left to him by his predecessors in office,—then surely, if ever, the country had a right to expect from the Chancellor of the Exchequer a succession of good annual balance-sheets. If the policy of maintaining a substantial surplus is not carried out under these favourable circumstances, the fault must lie with the administrator of the national finances. Yet, so far has Mr Gladstone been from adhering to the old and sound maxim of financial policy, that he has not only given us no surplus, but has recklessly incurred us a deficit, of which he now makes no mention. Had this bad condition of the finances been incurred in consequence of an exceptional increase of the national expenditure which could only be met by the imposition of new taxes, it might have been excusable. But there was no such difficulty: the revenue was sufficient, if let alone, to have more than kept pace with the expenditure. The peculiar culpability of Mr Gladstone as a financial Minister—the pernicious feature of his system which called forth the eloquent denunciation of Lord Overstone, and the emphatic protest of Earl Grey and Lord Monteagle, and of the ablest financial journal of the Liberal party, the ‘Economist’—is, that during this period of so-called exceptional expenditure he has deliberately thrown away the means which were at his disposal for meeting it. He has abolished taxes against which there was no peculiar ground of complaint, and he has reduced others in order to cheapen certain commodities for which there was no general demand.

This financial system of Mr Gladstone is, unfortunately, not a mere thing of the past. Its consequences weigh upon us now, and there is no sign of his abandoning it. It is a novel system—novel even to himself; but he adheres to it with an obstinacy which threatens to embarrass us in the future not less than in the past. A grave question must be at stake when the greatest financial authorities of the Liberal party come forward prominently to side with the Conservatives in opposing and denouncing the policy of the Chancellor of the Exchequer. They feel strongly that the recent hand-to-mouth system of Mr Gladstone will not do, and that in times of emergency it would entail grave disaster upon the national fortunes. “Great nations—such, for example, as England and France,” says Mr M’Culloch, “with colonies and dependencies in all parts of the world, and with jealous and powerful neighbours, must expect to be every now and then involved in difficulties; and on that account they should have a considerable surplus revenue—i. e., a considerable surplus after defraying the cost of their usual establishments,” And he adds—“Had the affair in regard to the Trent led, as it was not unlikely to do, to a war with the United States, it would have found us in an awkward situation—without any surplus revenue, with discredited customs and excise duties, and nothing to fall back upon but an increase of the Income-tax and loans.” We regret to say that the calamity from which we so narrowly escaped two years ago, cannot be regarded as unlikely of occurrence now; and there are also elements of strife sufficiently formidable on our own side of the Atlantic to engage the thoughts of our statesmen, and to invest with peculiar interest the at all times momentous subject of the national finances. When we hear so old a Liberal and so practised a political economist as Mr M’Culloch echoing Lord Castlereagh, and charging the country in the very words of the Tory statesman, with an “ignorant impatience of taxation,” we cannot but be confirmed in the views which we have repeatedly expressed in regard to the policy of the present Chancellor of the Exchequer; and the country at large will do well to reconsider that policy and the principle upon which it is based.

On one occasion in 1857, when the late Sir G. C. Lewis—whose death is a loss alike to the country and to the Ministry—referred to an opinion of one who had as good a knowledge of the practical working of taxation as any man either before or since, Mr Gladstone exclaimed with the utmost contempt—“He goes back to Arthur Young, sir: old Arthur Young he takes for his authority!” And when, in his own recent Budget speech, Mr Gladstone, with all the ingenuity of rhetoric, was calling upon the House to stand amazed at the rapid increase in the [nominal?] income of the country (one-fifth during eight years), which he claimed as the result of his policy,—and Sir J. Packington quietly suggested that it is Australia and the new gold mines that have caused the difference,—Mr Gladstone rejoined, “Australia! Oh no: the right honourable gentleman is lost in the depths of heresy on that point.” This overbearing presumption is natural to Mr Gladstone, who finds it a convenient way of summarily evading difficulties which are more easily scoffed at than answered. But we take leave to think that there are few intelligent men in this country who, for width of view and soundness of judgment, would not have preferred the late Sir George Lewis to his more eloquent and ingenious colleague. And for ourselves we entertain no doubt that Sir J. Pakington was perfectly correct in his suggestion, and that the great increase alike in the income of this country, and in certain branches of the expenditure, is in part attributable to the rise in the monetary value of property and labour in consequence of the new markets for our goods in Australia, and the great addition to the stock of gold.[9]Mr Gladstone would probably treat Mr M’Culloch in the same contemptuous fashion,—especially as Mr M’Culloch’s opinions and arguments, if correct, totally demolish the “system” which Mr Gladstone of late years, and in contradiction to his former self, has been labouring to establish. But we shall give the public an opportunity of judging whether Mr M’Culloch’s opinions are not as well founded as they are harmonious with those of the Conservative party.

Mr M’Culloch maintains that it is more than doubtful whether any remission of taxation should take place unless the revenue exceed the ordinary expenditure by some 5 or 10 per cent of its amount. In other words, he considers that, with an expenditure equal to that of the United Kingdom, the estimates should always be so framed as to have a conjectural balance of four or five millions. Mr Gladstone rarely aims at having a surplus of even a tenth of that amount; and sometimes £80,000 or less seems to him enough to meet the chapter of accidents, and sustain the moral power and financial credit of the country! The following passage, which appears in the new edition of Mr M’Culloch’s work, seems to have been written expressly in reference to the financial administration of the present Chancellor of the Exchequer:—

“In countries under free or constitutional governments the reduction or repeal of taxes is frequently proposed in the view of courting popularity, or of favourably influencing public opinion. And the desire to grasp an immediate advantage, to be relieved of a burden, without caring for the ultimate consequences of its extinction, is so extremely prevalent, that such projects, though often very undeserving, seldom fail to procure a less or greater share of the public sympathy for those by whom they are put forth. Statesmen, however, and those intrusted with the duties of government, should take a less circumscribed view of such matters, and are bound to inquire into the real character of the measures that come before them, and to weigh and consider their more remote as well as their proximate results. Their duty is to oppose, not to pander to the selfish and unfounded prejudices of the public.... The real questions are, can the tax be spared; and, if not, can it be replaced by a less inconvenient or injurious tax? If it can neither be spared nor replaced by another that is less objectionable, its repeal would be as futile, as inexpedient, and as unadvised a measure as can well be imagined.”

Mr Gladstone, in his desire for popularity, has carried the practice thus emphatically condemned by Mr M’Culloch to a most dangerous extreme. He totally disregards the sound principle of ending every year with a surplus, in order to meet sudden and unforeseen contingencies, and he lavishes every spare pound upon the reduction of taxation. Moreover, in making these reductions, he has adopted a practice which, although he presents it under the attractive guise of a “simplification of the tariff,” is paving the way for a serious popular agitation against some of the indispensable elements of our fiscal system. Sir Robert Peel, it is true, simplified the tariff; but he did so more wisely and prudently. It was not merely for the sake of simplicity that he reduced the list of taxed commodities, but because many of the taxes at that time vexed trade without appreciably swelling the revenue. Previous to his administration, our customs tariff comprised above a thousand articles, many of which were insignificant, and all but unproductive to the State. But Mr Gladstone has carried out the same practice on a very different principle. The tariff, as left by Sir Robert Peel, embraced above four hundred items; now it is restricted to about forty. Indeed, this branch of our revenue at present is raised almost entirely from sugar, tea, tobacco, spirits, wine, beer, corn, coffee, currants and raisins, timber, and pepper. This is objectionable in many respects. In the first place, it renders our revenue liable to be much more seriously affected by the fluctuations of trade and the condition of the masses of the people, than under the old system; and by concentrating taxation upon a few commodities, it makes the fiscal pressure more obvious and more felt, and furnishes proportionately greater scope for popular agitation. “When the public attention is fixed exclusively on a few leading and indeed necessary articles,” says Mr M’Culloch, “it is all but certain that the duties on them, even should they be moderate, will come to be looked upon as being, in no ordinary degree, objectionable and oppressive. But were a great variety of articles, suitable for the consumption of all classes, subject to duties, there would be but little probability of the public attention being concentrated on a few only.” And what are the few commodities which now furnish the principal part of our revenue? As we have seen, precisely those which are consumed in greatest quantity by the bulk of the people. There is no real inequality in the distribution of our taxation; for the Income-Tax, the Succession-Duties, &c., do not fall at all upon the lower classes, and have been framed so as to keep the balance of taxation equal between the rich and the poor. But we fear this fact will not be fairly considered by the masses, who, under the influence of demagogues like Mr Bright, are too prone to think themselves unjustly dealt with. Two months ago we pointed out this feature of Mr Gladstone’s financial policy, as one eminently provocative of agitation against some branches of our revenue which it is indispensable to preserve. Mr M’Culloch holds a similar opinion. He says—

“When such duties apply to all kinds of things [the raw materials of industry and the prime articles of food being excepted], it is seen that they must affect, in one way or other, every class, and, indeed, every individual, and being merged in and forming a part of the price of the articles on which they are charged, they attract little or no attention. But such will not be the case with us in time to come. Consumption duties have ceased to be general, and are now (1862) unfortunately restricted to a few leading articles, comprising some of the principal necessaries and luxuries of the labouring poor. So striking and momentous a change cannot fail to rouse the public attention; and will, it is to be feared, give rise to a belief that it is essentially partial and unfair. And such belief will be better founded than it is at all desirable it should be; for, while we admit various luxuries of the rich and the great, including the mostrecherchéwines, at very low duties, and many more, comprising, among others, the finest laces, velvets, porcelain, tablecloths, carpets, silks, gloves, ornamental furniture, bronzes, and so forth, free of all charge, we lay heavy duties on the tea and sugar, which are indispensable to the labouring poor, and heavier still on the tobacco, the spirits, and the beer which constitute their luxuries. Is it to be supposed that such a policy should be considered by the bulk of the people as other than unfair and offensive?”

It is a most important principle of judicious finance that the incidence of taxation should be as little felt as possible, and also that it should not only be fair, but be seen to be fair. We believe that the present taxation of this country falls very equally on all classes; but, unfortunately, under Mr Gladstone’s “reforms,” it has assumed an appearance of gross inequality. We have largely increased the spirit duties, and we have kept up the taxes on malt and beer, yet we have greatly reduced the duties on wine. Moreover, we have made the reduction of the duties on wines in such a way that the finest wines pay no more than the cheap wines. Several articles of luxury have likewise, under the operation of the French treaty, disappeared from the tariff, and their absence, though of no great importance as affecting the revenue, gives a handle to demagogues who desire to excite the masses against the taxation of the country. The “Financial Reform Association,” and the Radical party in general, could have no better ally than Mr Gladstone; and the chief result of his “popular” Budgets will inevitably be to render our whole system of taxation extremely unpopular.

Mr Gladstone’s new Budget is less ingenious, less experimental, less obviously hazardous, than those which have preceded it. The balance is, in appearance at least, kept even between direct and indirect taxation: and the twopence off the income-tax, and the fivepence off the duties on tea, reduce these taxes to the level at which they stood prior to the Russian war. The modification of the Income-tax upon incomes between £100 and £200 a-year is an improvement. Mr Gladstone has also done well in admitting a past error of his, by abolishing the small charges on certain operations, of trade which he imposed in 1860, but which have been found exceedingly vexatious to commerce. Nor can any objection be taken to the change which he proposes to make on the taxation of railways, by which the tax on the passenger traffic is reduced from 5 to 3½ per cent, while the exemption at present enjoyed by parliamentary and excursion trains is abolished. His proposal to levy the Income-tax upon the revenues of corporations which are expended in charity, and on the income of endowed charities, is more open to question; and so are some of his other minor proposals; but the interests affected are not sufficiently powerful to offer much opposition to the Government.

The main facts of Mr Gladstone’s financial statement are briefly as follows. Warned by the strong expression of opinion on the part of the House in favour of a reduction of expenditure, the Government resolved to anticipate farther opposition by curtailing the estimates which the House had so reluctantly voted, and last year spent about £800,000 less than they had taken power to do. In respect to the Revenue, Mr Gladstone’s estimates were singularly at fault. As on previous occasions, his estimate of the Excise greatly exceeded the actual return, which this year has fallen short of his estimate by more than a million sterling. But the Income-tax yielded nearly half a million more than he calculated, and so have the Customs; and the total produce of the national taxes has been so favourable as to leave a surplus of about £400,000 above the estimate, and an excess of £1,300,000 above the expenditure. The revenue of the past year amounted to £70,603,000, the expenditure was £69,302,000: surplus £1,301,000. If the taxes were to remain on the same footing this year, they would yield (according to Mr Gladstone) £71,490,000; and he proposes some trifling new taxes amounting to £133,000: together equal to £71,623,000. And as the estimated expenditure for the ensuing year is only £67,749,000 (£1,553,000 less than last year’s), the surplus at the end of the ensuing year, if the taxes were kept at their present rate, would be £3,874,000. But the proposed reductions of taxation, chiefly on the Income-tax and Tea-duties, will cause a loss of revenue in the ensuing year to the extent of £3,343,000; so that the actual surplus, as estimated by Mr Gladstone, will be £531,000. The Budget stands thus:

The surplus which Mr Gladstone thus reckons upon this year is far below the amount which our best financiers consider requisite for the maintenance of a sound system of finance. It is true, and we attach great weight to the consideration, that the present depressed state of an important branch of national industry renders it desirable that the taxation of the country should be reduced as low as possible. But this argument, unhappily, cuts two ways. For the same depression of trade, which calls for a minimum of taxation this year, to at least a similar extent places in jeopardy the surplus which the Chancellor of the Exchequer reckons upon. In his estimate of the produce of the excise, especially, we believe that he commits his usual mistake of being too sanguine. But the really hazardous feature of his Budget consists in this: That only a part of the proposed reductions of taxation will take effect during the ensuing year; and, therefore, the estimates which suffice for the financial year, upon which we have entered, will be inadequate for the year following. The reductions of taxation which will take place before April next will, as we have said, amount to £3,343,000; but the total yearly loss of revenue consequent upon the reductions proposed by the Chancellor of the Exchequer, is £4,242,000; so that if they took entire effect during the present year, instead of a surplus of £531,000, there would be a deficit of £368,000. But of the loss on the Income-tax, £850,000 will only fall on the following year (1864–5), and £49,000 of loss from the abolition of some petty taxes will likewise be passed on to next year. Thus we obtain a surplus of £531,000 for the present financial year only by passing on to next year a loss of £900,000. If the finances had been in a thoroughly good condition, and if the state of the country promised to be prosperous, and our relations with other Powers peaceful, the heavy legacy of loss for the year 1864–5 might be contemplated with less alarm; for the experience of late years shows that, in ordinary times, the productiveness of the revenue tends to augment at the rate of £700,000 a-year. But this is not the case. And, moreover, as Mr Gladstone’s estimate of the miscellaneous receipts for the present year embrace half a million sterling of the China indemnity money—a payment which will not take place again—the deficit which we are preparing for the year 1864–5, is an exceedingly formidable one = £1,400,000.

This is the weak point of Mr Gladstone’s Budget. Suppose his expectations are fully realised—suppose he have a surplus at the end of this year of half a million, and that the productiveness of the taxes increase next year to the extent of £700,000 (which is not likely),—there would nevertheless be a deficit in the year 1864–5 of £200,000. Such a result, the most favourable that can be expected, cannot be regarded with indifference. But this is not all. Is it not a fact that the balances in the Exchequer in March last year were £2,684,000 less than they were in 1860, when Mr Gladstone began his present financial administration? And as he does not take any account of that deficit in his new Budget, the deficit remains unprovided for, and of course renders his present financial programme doubly hazardous. It was only by the help of the two and a half millions abstracted from the Exchequer balances, and also by creating new Debt to the extent of £461,000, that he escaped bankruptcy during the two first years of his financial administration: and if he had been a Minister of ordinary prudence, he would have felt bound to replace those sums before he proceeded to make further reductions of taxation. But he is determined to produce popular Budgets, however dear a price the country may have to pay for them in the long run. He justifies anew the censure which Mr M’Culloch has passed upon such a system of finance. He makes the show of a surplus for the ensuing year, only by ignoring nearly three millions of deficit which he has accumulated in past years, and by preparing a new deficit for the year 1864–5.

Every proposal to reduce taxation is sure to be popular,—we are equally sure that the present reductions are exceedingly dangerous. It is one thing to cut down expenditure—and this, we conceive, was what the Conservatives last year urged upon the Government: it is quite another thing to dispense with a real surplus, to resign ourselves to a past deficit, and prepare for ourselves a new one. The errors of Mr Gladstone’s previous Budgets now begin to weigh heavy upon the national fortunes. The abandonment of the paper-duties has rendered our present financial position one of no ordinary embarrassment. Had these duties still been in operation, the present reductions of taxation, so desirable in themselves, and so repeatedly called for by the Conservative party, could have been effected without any risk. As it is, we think the financial position of the country eminently unsatisfactory and unsafe. Not only must we experience a deficit in the year 1864–5, but we are totally unprepared for any untoward contingencies in the present year. The peace of Europe (if peace it may be called) is obviously insecure; hostilities seem impending between this country and Japan; and our relations with the Federal States of North America are such as, unhappily, and from no fault of ours, to render the occurrence of war between the two countries a contingency which cannot entirely be overlooked. But if any exceptional expenditure be forced upon us, how are we to meet it? Under Mr Gladstone’s management, the taxation of the country has been so concentrated upon a few articles of universal consumption, and the duty upon some of those commodities (such as spirits) has been so obviously carried to the highest possible point, that to increase the revenue from its present sources would be extremely difficult and unpopular. We cannot reimpose the old duties on wines, silks, gloves, and other articles embraced in the French treaty, for in respect to these we have sold our freedom of taxation to a foreign power. The paper duties are irretrievably abandoned; for, however impolitic may have been the abolition of those duties in times like the present, their reimposition would be a great hardship and injustice to the manufacturers who have made new arrangements in accordance with the abolition. A few months hence the same will be the case with the Tea-duties.A large increase of the Income-tax, and an issue of Exchequer bonds, are the only means by which we can hope to make head against an emergency. The surplus is merely nominal—the balances in the Exchequer cannot be further reduced,—and even the issue of Exchequer bonds can be resorted to only to a small extent, in consequence of Mr Gladstone’s repeated postponement of paying off, as they fell due, the amounts already in circulation. Over the term of Mr Gladstone’s present financial administration, as over his previous one, the country will yet have to write the words, so damnatory of the reputation of a statesman,Improvidus futuri. In the present aspect of affairs, we begin to think anew of his Budgets before the Crimean War; and we can only hope that the year 1864 will not be like 1854, and that the country will not find itself again in straits and embarrassments like those which proved wellnigh overwhelming ten years ago.

Printed by William Blackwood & Sons, Edinburgh.

1. ‘Prehistoric Man; Researches into the Origin of Civilisation in the Old and the New World.’ By Daniel Wilson, LL. D., Professor of History and English Literature in University College, Toronto; Author of the ‘Archæology and Prehistoric Annals of Scotland,’ &c. Macmillan & Co., Cambridge.

2. There is one instance of a fragment of human bone found in company with these flints, but we have heard doubts thrown on the nature of this fragment.

3. ‘The Life of General Sir Howard Douglas, Bart, G.C.B., G.C.M.G., F.R.S., D.C.L. From his Notes, Conversations, and Correspondence.’ By S. W. Fullom. John Murray, London.

4. Fact.

5. Heldreich (author of ‘An Essay on the Useful Plants of Greece’) finds it in a single oak forest in Elis.

6. According to the prevalent opinion: the high authority of Decandolle is the other way; he believes it indigenous in the South of Europe generally; but the contrary evidence is very strong.

7. It was noted as something semi-prodigious that a palm-tree took root at Rome, in the temple of Jupiter, on the Capitol, during the war with Perseus; and another in the pavement of Augustus’s house on the Palatine.—Ampère, ‘L’Histoire Romaine à Rome.’

8. Diplomatic Correspondence, 1861, 1862. Washington.

9. TheTimesitself takes this view. After stating that “no one doubts that Australia, like India, China, and other countries, has contributed to the prosperity of our trade by developing its own resources, pastoral, metallic, or otherwise,” it makes this important admission: “It is also true that Australia and California, by increasing enormously the quantity of gold in the world, have diminished its value; so that,even if the wealth of the country had not increased, its amount, as represented in gold[i. e.its value in money]would certainly have been larger.” This alteration in the value of money since 1853 is the main explanation of the fact which seems to Mr Gladstone “so strange as to be almost incredible,” but which he coolly attributes to “the legislation of Parliament setting free the industry and intelligence of the British people.” This, he says, is “the real and new cause that has been in operation,” and which has so marvellously increased the wealth of the country 20 per cent in eight years! But if this were the case, surely he need not cut his estimates so fine. A nation that has grown so enormously rich in a few years’ time could well afford to keep a good balance at its banker’s—i. e., in the Exchequer.

TRANSCRIBER’S NOTESSilently corrected obvious typographical errors and variations in spelling.Retained archaic, non-standard, and uncertain spellings as printed.

TRANSCRIBER’S NOTES

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