Defence Loan Act 1870.

It follows, therefore, that only £618,493 was really applied to Public Works and Immigration, and if we deduct that sum from the £1,102,472 which was added to the debt, we get £483,979 to represent the increase of debt for other purposes, and that amount may very probably stand for the actual deficiency for the year just terminated. The detail are shown below.

There are two circumstances by which the public is liable to be deceived in regard to the financial operations of the Colony. One is the term Consolidated Fund, and the other is the occasional reference to the operations of the Sinking Fund. The name of the first seems to suggest all revenue converge to it, and that it is the source from which that all expenditure is defrayed, excepting that upon reproductive works. Consequently, when the Colonial Treasurer for the time being proclaims a surplus on the transactions of the Consolidated Fund a number of people accept the assurance with thankful surprise, and comfort themselves with the belief that it is all right—that we have at last established a balance between income and expenditure—and that the Sinking Fund will gradually cat away into the principal of our loans, and in process of time, rid us of them entirely. But the seeming surplus on the Consolidated Fund as we have seen is only created by charging large items of miscellaneous expenditure against borrowed money, and, until quite recently, it has been part of our avowed policy to defray the bulk of interest and other expenses on the Public Works Loan out of the capital of the loan itself.

As regards the Sinking Fund, under the system we are pursuing, its very existence amounts to no more than a pleasant fiction. A Sinking Fund is the apparatus by which a debt is gradually paid off; and, in cases where the debt is not being paid off, but, on the contrary, goes on increasing at a enormous rate, the institution of a Sinking Fund becomes a patent absurdity. To illustrate its operation I subjoin a table, showing the relative growths of Debt and Sinking Fund for the last two years.

Here the increase of Debt is more than ten times that of the Sinking Fund. What more solemn farce can therefore be imagined than keeping up a pretence of paying off our debt, when that debt is advancing with such gigantic strides? But it is not a mere question of silliness, nor even of uselessly complicating the public accounts. These operations cost money. There are "Commissioners" of the Sinking Fund, who, we may presume, draw salaries. At all events they make voluminous reports, and occasionally suggest the advisability of special legislation for the better performance of their duties. When, therefore, our debt is not being paid off, but on the contrary is rapidly accumulating, the operations of the Sinking Fund have and can have no other effect than to deceive the public, whilst putting the country to very considerable expense.

Whenever an attempt is made to draw attention to the enormous amount of our debt and the rapidity with which it accumulates, two arguments are used with the view of reassuring. One is, that debt incurred for reproductive purposes is not a burden but a benefit—that if borrowed money be only judiciously applied to Public Works it will yield a return equal to the annual charge for interest, thus imposing no burden on the community whilst affording increased facilities to trade and general production.

As an abstract proposition this is of course undeniable, but upon the case in hand it has not the remotest bearing. The additions to our debt are not contracted for reproductive purposes only. About half of it, or £5,000,000, has been incurred for the wretched Northern War, and so far from that expenditure having settled the question it still costs us about a quarter of a million annually to maintain what I suppose we must call "peace." As shown above, the annual deficit amounts to nearly half a million a year, which regularly goes to augment the debt. Then, as regards the sums borrowed for public works can anyone in his senses imagine that we get value for them, or anything like it? What is the page 18 real worth of all the Public Works in this Province as compared with the sums expended on them? Not long ago I was conversing with an engineer of high standing and solicited his opinion on the matter Were they worth a half—a third—a quarter of what they had cost? After consideration he replied it was impossible to place so high a valuation as a quarter on them. They might perhaps be worth a fifth, but if swept away to-morrow could entirely be replaced for that fraction of their cost. Look at the Public Works of whose working we are furnished with accounts, such as the Post Office and Telegraph. The buildings and plant required for them are we may presume what would be deemed fitting objects on which to expend sums borrowed for reproductive works. And yet in what sense are these works reproductive except so far as debt tends to reproduce itself? Instead of making a profit for the Government—instead of paying interest of the capital invested in them or doing anything towards it—they involve a direct loss of about £80,000 a year. And it must be remembered there is nothing in the nature of a Post Office or Telegraph that makes it unreasonable to expect them to yield a profit, or at least pay their way. In America a vast number of letters are conveyed by private parties as a commercial undertaking. Most efficiently is the service conducted, and it shows every appearance of well remunerating the enterprising proprietors. When, therefore, we find the Government enterprises distinguished by such tremenduous loss in cases where it is possible to keep track, what must we suppose it to be in cases where we have not the means of checking it ?

Sometimes we hear people admit that the money intrusted to the Government for investment in public works is certain to result in direct loss, and yet it is urged that the indirect advantages resulting therefrom will more than counterbalance it. The very term "indirect advantages" is one of that vague illusive character that do so much to confuse and mislead the unthinking. Strictly speaking there can be no such thing as an indirect advantage, for whenever a real benefit exists, it must be to the profit of some individual or individuals of whom the public is composed. And in such cases, seeing that private parties have generally a pretty keen eye to their own interests, the community at large might safely trust them to adopt measures most conducive to it.

The receipts for the financial year ending June 1871, were £936,188, still showing a falling off.

If the above should not be deemed conclusive, we have the experience of other countries to guide us. In August last, a petition was presented to the House of Commons bearing the signatures of 4878 landed proprietors of Bengal and the Central Provinces of India, which represented that the proceedings of the Government had tended to worsen the condition of the country; that a loss of £2,000,000 a year on railways had to be made up by taxation; that the traffic in many places was reverting to the rivers, yet the Government designed to spend £28,000,000 on new lines of railway, and £39,000,000 on canals; that a large deficit was found almost every year in the Indian Exchequer, to meet which local taxes and cesses had been imposed in vain; and finally praying for the appointment of a commission to inquire into these grievances.

The other argument put forward in reply to the suggestions of prudence is the population theory. We are told to reassure ourselves, for immigration, by affording a wider base on which to levy taxes, will enable us to provide for the increased interest and other expenses of government.

If there were any probability of population increasing in the same ratio as our indebtedness, there might be some show of plausibility in the argument, though other countries will not tolerate the idea of allowing debt to increase at all. As compared with population, the national debt of Great Britain has largely diminished within the List fifty years. That of the United States, since the close of the war, has been enormously reduced, not merely in proportion to the population, but in actual amount. Whilst Northern Germany has practically no debt .at all.

From 1857 to 1862 the debt had increased rather more than fifty per cent., but the population had simultaneously increased a hundred and fifty per cent., and thus the debt, though actually greater, had relatively diminished. Here, therefore, was room for congratulation, and if our finances had subsequently been as wisely administered, we should have little reason to complain.

But whilst up to 1862 population went on increasing at a greater rate than the debt, since then the conditions have been reversed. Population has not doubled, nor nearly doubled, but the debt has increased eight fold. In 1862 the percentage chargeable to every man, woman, and child, was little over six pounds; now it is more than thirty-six. In view of these facts it is nonsense to plead the increase of population as a set off against the accummulation of debt. Such an argument can only be put forward by those who are ignorant of the truth, or who, for purposes of their own, wish to conceal it.

Thus we see that for four consecutive years the population increased, whilst the revenue with equal regularity tell off. If there existed such an exact correspondence between population and revenue as is assumed, the revenue for 1870 would have been £400,000 higher than it was. It is true enough that additions to the population have a tendency to raise the revenue, hut that tendency may be neutralised by many causes—as, for instance, bad government, or the perversion of the public funds from their legitimate objects; and if we admit that, other things being equal, the revenue for the last four years would have advanced in proportion to the population, it stands to reason that adverse influences of a very prejudicial character must have been at work to counteract this tendency to such a fatal degree.

Besides, is it likely that population will be attracted to a country so deeply steeped in debt, and that tolerates its reckless increase with such indifference as we manifest? Our very reason for desiring population is enough of itself to drive it away. Whenever, it becomes known, as eventually it must, that we are sunk in a debt of such magnitude as to be unable to defray its interest, what use will it be to go to the labour market of Europe and ask people to come out and help us to pay it? A man notoriously insolvent might as well advertise for a partner with £10,000 capital.

There are people who affirm that the resources of New Zealand are such as will enable us to defray the interest of our debt even when increased to the dimensions shadowed forth in the programme of the Colonial Treasurer; but it is remarkable that those very people shrink from the idea of imposing taxes even to defray the interest on the present debt. But if we cannot pay interest on £10,000.000, how can we be expected to pay interest on £14,000,000 or £15,000,000?

The system we have been and are pursuing, cannot, in its nature, go on forever. Some time or other our real position will become known, and then the bubble will burst. By the operation of some extraordinary delusion, English capitalists have been induced to advance millions to the New Zealand Government. Perhaps they may be under the impression that this money is only applied to reproductive works, and that we are honestly defraying current expenses out of revenue. Such infatuation can hardly be accounted for on any other hypothesis. They probably have not the means of knowing how enormously our expenditure exceeds income, and what large amounts of borrowed capital are annually applied to conceal the deficiency. The fact of such a Government as ours having carried on so long, can only be attributed to its creditors being in ignorance of our position, and the question of how long it may succeed in keeping up the game, is dependent on the success it may achieve in concealing the truth. Our financial position is like a barrel full of holes, into which people are pouring water, expecting to find it there when wanted. So long as they keep pouring in at a rate equal to the leakage, the water will maintain its level, and they may perhaps delude themselves into the belief that it is all there and available when wanted; but the moment the supply slackens the waste betrays itself. So it is with us. For years past our Government has been spending money at a rate absolutely furious, and the only reason that the increasing deficits have not forced themselves on public attention is, that capitalists in England have enabled it to proceed unchecked in its career of extravagance. At present even, it is doubtful if the country could support the weight of its burdens; but if any further additions to them are made, there will be but the alternative of repudiation, or such ruinous taxation as will dissipate for ever our dream of prosperity.

The evil is of such long standing, and seems to have worked itself so deeply into our whole system, that nothing but a united and energetic effort can suffice to throw it off. Our disease is so bad that only the most violent remedy will have any effect, and the very first step in the direction of retrenchment will necessarily be attended with disagreeable consequences. It is idle to think of accomplishing any real reform without first recognising our true position. To do that implies facing a long and severe period of adversity. The seeming prosperity that at present surrounds us is but the temporary effect of our infatuated policy of wasteful, reckless expenditure. Some time it must come to an end, and the practical question for the people of New Zealand is this—Will they put an immediate stop to the vicious system of bolstering up a rotten fabric, and resolutely face the worst that can befall them, or, for the sake of a short period of fictitious prosperity, will they consent to the ruin of their adopted country and the tenfold aggravation of the evil day when it comes?