"Precarious Equilibrium"

"Precarious Equilibrium"

In Great Britain the Budget is an ancient red leather despatch box which rests on a table in the House of Commons and for most of the year serves as a convenient elbow rest for weary orators. In parliamentary language the British Budget is not "presented" but "opened" once a year. No opening is so well attended, for what the box contains vitally affects the pocket of every inhabitant of Great Britain. For the second time in his career, greying, long-necked Neville Chamberlain opened the Budget last week in a speech that took two hours and left most of his listeners wry-mouthed. There were few open complaints. "Unimaginative" and "uninspired" were the favorite adjectives of the British Press. The U. S. Press's first shock was the discovery that Neville Chamberlain's Budget contained no provision for the $75,950,000 War debt installment due the U. S. on June 15. But then it was recollected that last year's Budget contained no War Debts provision either. Far more important was a guarded announcement that the exchange equalization fund--money that the British Government has used to keep the pound steady by buying and selling dollars, francs and other currencies against it--was to be sharply increased. Said Chancellor Chamberlain: "Some time ago I decided it would be necessary to make an addition to the reserve of the account and later I propose to ask the House of Commons to grant it. ''There is no connection between the American action in restoring the embargo on the export of gold and the increase in our exchange [fund] which was decided upon long before we had any conception that the United States Government might abandon the gold standard. . . ." These were soft words for foreign consumption. Hardly was the speech finished before Lombard Street tipsters were insisting that the present -L-150,000,000 fund would be raised to -L-200,000,000 possibly to -L-500,00,000 in preparation for a duel with the dollar. Wrote Economist John Maynard Keynes: "It demonstrates that we intend to remain the masters of our own situation. The United States is perfectly entitled to reduce the gold content of the dollar. There is much to be said for this policy, not only for America but for the rest of the world; but we must be firmly resolved to maintain the relative exchange value of our own currency at a figure adjusted to our own wage levels." The Financial News looked at the idea of an exchange duel with the U. S. with some complacency: "We would stand to win an advantage. Despite the situation created by the abandonment of the gold standard in the United States, we will hold most of the trumps. We are not handicapped by any gold clauses, such as those which tend to prevent the American authorities from depreciating the dollar too much. "Moreover, the United States authorities have had practically no experience in exchange control. Apart from occasional intervention in Paris in support of the dollar they have had no opportunity of acquiring the technical knowledge required for such highly intricate operations." In an effort to quiet this talk of a foreign exchange war the U. S. Treasury issued a brief statement to the effect that no U. S. exchange equalization fund had been set up, none would be. Sinking Fund. A sharp cracker in Chancellor Chamberlain's Budget was the announcement that there would be no provision for the sinking fund to retire the national debt, which last year bit -L-32,500,000 out of the Budget. Penny a Pint. As far as the British taxpayer was concerned, there was only one encouraging word in the Budget, that was Beer. The income tax remained at its old basic tax rate of five shillings in the pound--25%, the highest income tax in the world, though Chancellor Chamberlain offered a slight sop by restoring the old method of collecting in equal half-yearly installments instead of demanding three-quarters of the tax in January, one-quarter in July. The beer tax was reduced a penny a pint and brewers announced that this reduction would be passed on to consumers immediately. Another dispensation was permission to brew strong ale up to 6% by weight. Snapped persistently dry Lady Astor: "It's a brewer's budget. . . . What the government has clone is to suspend the sinking fund in order to create a drinking fund.''

Other taxes:

Stock. Tax on nominal capital of companies and corporations reduced 50% to ten shillings for each -L-100.

Wines. Duty on Empire sparkling wines increased from is 6d to 7s 6d per gallon. The present duty, -L-4 per 112 lb. on imported hops (largely from the Pacific northwest) continued for another four years.

Matches. Bolstering the Russian embargo the duty on foreign matches is upped from 4s 4d to 4s 9d per gross of containers. Imported cigaret lighters will pay a tax of 1s 6d each, a 200% increase. Domestic lighters will be taxed 1s, a 100% increase.

Trucks. Aid was promised the British railroads in increased taxation of motor trucks & lorries. Exact figures were not given for the tax will not go into effect until Jan. 1.

Oil. Imported fuel oil, lubricating oil. gas oil and kerosene will pay another penny, bringing the tax to 9d a gallon. Here was a tax that touched every thatched cottage, for despite the growing grid of high tension lines in Britain, the average rural house is still lamplit.

British business's chief interest in the Budget was, did it balance? According to the Government's own figures it did, with the promise of a rosy surplus of -L-1,291,000. BUT last year's Budget was supposed to balance too and Chancellor Chamberlain admitted a -L-32,000,000 deficit. Rather acidly Chancellor Chamberlain pointed out that this deficit would have been a mere -L-3,000,000 but for War Debt payments to the U. S. Despite increased taxation, tax returns dropped sharply last year. Most observers felt that only a U. S. moratorium on the debt and a strong revival of world trade will allow the Chamberlain budget figures to become a reality. Lamented the pontifical Times:

"It is plain enough that unless drastic steps are taken to reduce expenditure, orthodox finance will soon become impossible. Meanwhile Mr. Chamberlain is in a sense making the worst of both worlds, for his Budget contains neither the anodyne of inflation nor the virtue of retrenchment. Indeed, the Budget seems confined to inflationary expenditure with deflationary taxation in a precarious equilibrium."

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