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War Economy

War Expenses Account

War Expenses Account

In September 1939 the War Expenses Act authorised the initial wartime measures to increase Government revenue, and established the War Expenses Account. In introducing the Bill Mr Nash said:2

‘It is worthwhile, however, emphasising that the Bill establishes in itself a major principle, that major principle being the complete isolation of war accounts, both revenue and expenditure. The source of the money and how it is expended will be seen in one account, which ultimately will come before Parliament for analysis, criticism, or approval.’

In speaking on the Bill in the Legislative Council the Hon. W. Perry said:3

‘We must all realise that as time goes on much heavier taxes than are contemplated by the Bill will be imposed on the people of this country, and will, I know, be borne by the people for the purpose of prosecuting the war to a successful conclusion…. I observe that power is given to the Minister of Finance to borrow £10,000,000. It has been said that the £10,000,000, or a substantial portion of it, may be borrowed from the Reserve Bank. If that be so, then that inevitably must lead to inflation, a principle with which I, for one, thoroughly disagree. If money is to be borrowed to the extent of £10,000,000 or £50,000,000 for the purpose of prosecuting this war then let it not be borrowed from the Reserve Bank with resultant inflation, but let it be borrowed, if necessary compulsorily, from the people who have it, whether they have it in large amounts or small amounts. I hope that, so far as is humanly possible, this war will be financed as far as New Zealand is concerned out of revenue.’

On pages 2535 there appears a classification of war expenditure year by year and of the sources of funds for war purposes, as recorded in War Expenses Account.

2 NZPD, Vol. 256, p. 363.

3 Ibid., p. 423.

page 253

1 Detailed analysis is not available for early years.

2 Expenditure from 29 September 1939 to 31 March 1940.

5 Credit.

New Zealand War Expenses Account
expenditure 1
1939–402 1940–41 1941–42 1942–43 1943–44 1944–45 1945–46 From inception to 31/3/46
NAVY £(000) £(000) £(000) £(000) £(000) £(000) £(000) £(000)
Pay and allowances 3,688 2,179 2,651 3,527 12,045
Accommodation, clothing and victualling 949 704 432 561 2,646
War and other stores 4,634 2,119 1,239 183 8,175
Lands, buildings and ships 3,167 2,109 714 745 6,735
Other 3,747 1,137 1,603 998 7,485
Total, Navy 902 2,109 4,628 8,546 8,248 6,639 6,014 37,086
ARMY
Pay and allowances 49,015 30,628 23,137 23,184 125,964
Accommodation, clothing and victualling 15,056 3,922 2,665 2,399 24,042
War and other stores 55,556 34,602 20,358 -7,0225 103,494
Lands, buildings and fortifications 8,536 1,925 695 308 11,464
Other 13,097 7,010 4,114 5,149 29,370
Total, Army 3,573 17,249 31,539 88,899 78,087 50,969 24,018 294,334
AIR FORCE
Pay and allowances 8,231 10,988 10,452 9,298 38,969
Accommodation, clothing and victualling 3,184 2,589 2,127 1,596 9,496
War and other stores 13,051 15,352 18,223 15,515 62,141
Lands, aerodromes and other buildings 10,110 3,019 958 485 14,572
Other 11,483 1,806 1,523 5,228 20,040
Total, Air Force 2,596 7,488 11,716 24,259 33,754 33,283 32,122 145,218page 254
CIVIL £(000) £(000) £(000) £(000) £(000) £(000) £(000) £(000)
Subsidies to primary producers 838 1,420 2,460 1,498 6,216
Subsidies for stabilisation purposes 935 1,422 2,559 3,033 7,949
Other 17,967 5,018 -1295 -2,8915 19,965
Total, Civil 35 278 4,494 14,933 7,860 4,890 1,640 34,130
OTHER
Rehabilitation 75 544 1,243 2,573 4,435
Reciprocal Aid—Reverse Lend-Lease 6,986 24,453 26,735 22,778 80,952
Gratuities 18,000 18,000
Aeroplane fund 95 68 163
Amortisation of debt 3,648 7,351 241 10,216 6,250 27,500 55,206
Total, Other 3,743 7,419 7,302 35,213 34,228 70,851 158,756
Total Expenditure 3 7,106 30,8674 59,796 143,939 163,162 130,009 134,645 669,524

5 Credit.

5 Credit.

3 Including amortisation payments.

4 In some statements of War Expenses Account the total expenditure for 1940–41 is shown as £31·6 million, and for all years up to 31 March 1946 as £670·3 million.

page 255
New Zealand War Expenses Account
RECEIPTS
1939–40 1940–41 1941–42 1942–43 1943–44 1944–45 1945–46 From inception to 31/3/46
£(000) £(000) £(000) £(000) £(000) £(000) £(000) £(000)
Loans6 3,086 18,152 31,767 78,041 72,755 54,418 37,183 295,402
War Taxation 2,182 15,745 21,937 39,556 45,444 48,733 51,417 225,014
Transfers from Consolidated Fund 2,288 3,226 3,172 11,700 6,200 26,586
Disposal of surplus assets 3,479 11,270 14,749
Miscellaneous receipts 304 488 3,918 28 92 1,442 1,337 7,609
Rehabilitation donations and repayments 7 28 118 368 521
Aeroplane Fund 157 6 163
Fijian Government Contribution 51 118 169
Reciprocal Aid—Lend-Lease 26,813 32,478 24,248 21,030 104,569
Canadian Mutual Aid 297 5,806 6,103
Transfer of profits from Marketing Pool Accounts 218 43 47 69 377
Total Receipts 7,860 34,542 60,905 147,953 162,540 138,982 128,480 681,262

6 Including £53 million of the monies paid overseas on New Zealand's behalf by the United Kingdom, and progressively repaid.

page 256

In the financial year 1938–39 the Government had spent £3 million on defence, but this was more than doubled in the first year of war. Expenditure through War Expenses Account then increased by tremendous leaps to a peak of £163 million in 1943–44.

Because of the inclusion of loan repayments, and for other less important reasons, expenditure through War Expenses Account is not a precise measure of the cost of war. However, it does give a reasonable first general impression of the increasing proportion of the national output which was diverted to war purposes.

Chart 54 shows the proportions of national output used for war purposes.

GNP statistics

Chart 54
DEMANDS OF WAR ON THE NATIONAL OUTPUT
PERCENTAGES OF GROSS NATIONAL PRODUCT

The mounting pressure on national resources in 1940–41 and 1941–42 shows clearly in this chart, and the jump to well over two-fifths of national output for war purposes in the two most difficult years, 1942–43 and 1943–44.

War Expenses Account gives, also, a general impression of the main items of the cost of war and of the means of raising the necessary revenue. The table which follows excludes loan repayments but otherwise shows, by items, the total of payments through War Expenses Account for the years 1939–40 to 1945–46.

page 257
The Cost of War1
Totals up to 31/3/1946
Navy, Army and Air Force £(m)
Pay and allowances and gratuities 195
Accommodation, clothing and victualling 36
War and other stores 173
Land, buildings, ships, fortifications, and aerodromes 33
Other 57
Reciprocal Aid
Reverse Lend-Lease 81
Subsidies 2
To primary producers and for stabilisation purposes 14
Other Items
Miscellaneous expenses and rehabilitation 25
——
6153

The five items under the heading Navy, Army and Air Force, totalling £494 million, were obviously genuine costs of war, as was most of the sum of £25 million under miscellaneous expenses and rehabilitation. The £81 million of Reciprocal Aid may appear doubtful, because it was requited by Lend-Lease aid received from the United States. On the other hand, this £81 million of expenditure by New Zealand represented a diversion of her own resources to war purposes, and must be regarded as a cost of war, even though the assistance received from the United States enabled New Zealand's war effort to be larger and more effective than would otherwise have been possible.

The £14 million cost of subsidies charged to War Expenses Account was not strictly a cost of war to the nation, because it was a transfer payment back from the Government to the private sector of the economy. However, it was a cost incurred by the Government as a result of the war and, unlike the loan repayments which have been excluded from this table, did not reduce the Government's indebtedness. It is therefore included in this first assessment of war costs; but later in this chapter in the national income type of analysis, which is concerned with the provision of goods and services, and their use, the £14 million of subsidy payments is excluded. Incidentally, the £14 million did not cover all subsidy payments. For example, some were charged to the farm produce stabilisation accounts.4

1 A rearrangement of expenditure items in War Expenses Account.

2 This item does not include all subsidies paid during the war.

3 A further £55 million was provided from War Expenses Account for amortisation of debt, bringing the total recorded expenditure to £670 million.

4 See also Chapter 12.

page 258

The years 1939–40 to 1942–43 required rapid, and at times painful, readjustments of national patterns of expenditure. The proportion of the national product required for war rose from 1 per cent in 1938–39 to 44 per cent in 1943–44.1 Until 1945–46 more than one-third of all goods and services would be required to meet the costs of war.

1 As recorded in the unadjusted War Expenses Account figures.