Chapter XIV.
War Finance.

By The Editor.

The fact that New Zealand in the great war mobilised, trained and equipped for war service one-ninth of her population, that she despatched from her shores one-eleventh of that population, paying for the cost of their transport over 12,000 miles of ocean, fed and maintained them in camp overseas, and on the fighting fronts, armed, clothed and munitioned them—should indicate the extent of the financial burden which she placed upon her shoulders. Little idea of the commitment involved was held by the people of the Dominion when, at the declaration of war, New Zealand eagerly offered her all. But even could the grim spectre of her task fulfilled have risen before them it would have made no difference. An expeditionary force of some 8,000 men had, some months previously, been promised the Imperial Government in the event of war; and probably many believed this would prove the sum total of the Dominion's effort, and the full Imperial requirement. What perhaps is more akin to the truth is that very few gave the subject a thought in those days, or paused to count the cost; everyone sought to help and to offer. Later, when many more men than 8,000 had been despatched, and loans had been raised and taxes were increasing, when heavy casualty lists were coming to hand, and the toll of the dead was steadily mounting up, the clamour became not that commitments were being exceeded, but that more and still more should be done; and an embarrassed Government had the greatest difficulty in resisting popular demands and keeping the country's contributions within possible bounds.

There existed no provision for war finance when hostilities were announced. The Budget of 1914 was already in print when the first tidings came over the cables. But before the session of Parliament closed, authority was asked by the Minister for Finance (the Hon. Sir James Allen), and was unanimously accorded, for £2,000,000 with which to meet war expenses. This sum though small in the subsequent scale of page 234

Members of the National Government, 1915, and His Excellency the Governor-General (Lord Liverpool).

page 235things, represented the average annual loan for New Zealand's financial requirements in ordinary times. It gave the people at that period some small idea of the strain that was going to be placed on the country's resources, but there was no temerity or protest. By March, 1915, the country's war expenditure had risen to £300,000 a month. In June it was £350,000 a month, while an additional £80,000 per month was being paid to the Imperial Government for the expenses of our troops in the field.

Meanwhile, in December, 1914, the Parliamentary elections were held, and Mr. Massey was returned with a small majority. The new Parliament was called together in June, 1915, and on the last day of that month it passed the Public Revenues Act Amendment Act, under which the Government asked for immediate authority to borrow £10,000,000 for war purposes. The legislation was passed, without opposition, in the one sitting. Of the loan authorised £2,090,000 was raised in New Zealand at 4 and 4½, per cent. and the balance, £7,910,000, was advanced by the Imperial Government at 4½ and 5 per cent.

The following month the Prime Minister, Mr. Massey, took over the portfolio of Finance to enable Sir James Allen to concentrate wholly upon his duties as Defence Minister. On August 6th the National Government was formed. The Rt. Hon. Sir Joseph Ward became Finance Minister, and on August 26th he introduced the year's Budget. This document disclosed a net surplus for the year of £72,142. There had been a war-occasioned fall in customs and railway revenue, but expenditure had been kept down and was £184,000 less than the estimate. The £2,000,000 authorised the previous year had been obtained in Treasury Bills from the Imperial Government, but had proved insufficient for the war expenses, and an additional amount had been raised in London on reserve securities held there. For the coming year it was proposed to institute war taxation and additional charges which would produce £2,032,600. The usual annual loan for public works was to be limited to £2,000,000 for the year, and was to be raised by debentures issued within the Dominion at 4½ per cent. free of income tax. A Finance Act page 236was passed giving effect to these proposals. Letter postage was increased to l½d., and telegrams from 6d. a dozen words, to 8d.

Depending almost entirely for its financial Stability upon its export of wool, meat and dairy produce, the Dominion's first anxiety was in regard to shipping: would war mean the closing of the ocean highways and the suspension of shipping to and from our coasts? Only for a few months of the war did this doubt and anxiety exist. When the German Pacific fleet disappeared beneath the waves at the Falklands doubt was set at rest. The activities of raiders, though awakening precautions, caused little real anxiety. Still, shipping early in 1915 became disorganised. The Imperial authorities by arrangement with the various shipping interests requisitioned the steamers plying between Britain and New Zealand and Australia, and set up a Shipping Controller in London. The Dominion and Commonwealth also formed committees of representatives of the overseas shipping companies, who controlled and allotted the tonnage available. Early in 1915, owing to the inability of the shipping companies to provide sufficient bottoms for the frozen meat trade, the freezing works had become blocked, and had been forced, wholly or partially, to close down for a time. The Prime Minister made vigorous and emphatic representations to the con-trolling authorities at Home with good effect, and ships were regularly allotted. After this the export trade went on satisfactorily, and continued fairly so throughout the war, though at times, owing to the diminishing number due to enemy action, anxieties arose as to future provision. This matter is referred to because the Dominion's ability to play her part in the war financially really depended upon her export clearances. On the whole things turned out very well for her. The Imperial requisition scheme ensured good prices for her produce, and there was ample money in circulation.

At the outbreak of hostilities New Zealand had decided to bear the whole cost of her participation in the war. In regard to expenses in the field she agreed with the Imperial Government for the latter to issue supplies, and ammunition, page 237upon requisition by the New Zealand Ordnance, and to charge a commuted rate per head. The rate agreed upon for the Gallipoli campaign, to include ammunition, rations, equipment, fuel, clothing, drugs, forage, stationery, upkeep of arms, guns, etc., railway and sea transport, (exclusive of transport of reinforcements from the Dominion), was 6/- per head. The arrangement in regard to the French campaign is supplied later in this chapter.

To control the purchase of military stores, such as uniforms, clothing, boots, and the necessary camp equipment and provender, a munitions board composed of the most able business men (who gave their services voluntarily) with a Minister (the Hon. A. M. Myers) at its head, was set up. This Board did splendid work, and its records prove the value of its services to the country. Similarly, to deal with military expenditure, a War Expenses Department, specially strengthened from the Treasury Department, was established, the Minister for Defence being the responsible authority. On March 31st, 1916, the Dominion's war expenses stood at £8,015,315.

The Budget of 1916, submitted on June 16th, was termed a "sensation" budget. It disclosed a net surplus of revenue for the year of over two millions sterling, which far exceeded the estimate. Owing to the freedom of the seas having been held by Britain, there had been a great revival of trade, and the export of produce had been continued at remunerative prices. The extra taxation imposed the previous year had been met without inconvenience. A reserve had been established in London, by investment in Imperial Treasury Bills, against sudden calls that might be made by local investors. It was proposed in the Budget to borrow £12,000,000 for war purposes for the current year, and thus to provide, with an unexpended authority which existed from the previous year, £14,000,000. It was now estimated that the war would cost New Zealand £1,000,000 per month. The £2,000,000 authorised for Public Works for the year had been raised in New Zealand at 4½ per cent. The proposals of the Budget were contained in a Finance Bill, which was introduced and passed a few days later, and in which were included page 238heavy war taxes on incomes, land, additional customs and beer duties, stamp duties, a tax on horse-racing stakes, etc. It also contained proposals for taxation on "excess profits," but this innovation was dropped the following year because of the impossibility of applying its provisions. The loan authority sought was for £16,000,000, a portion of the amount to be raised in New Zealand.

At the end of 1916 the war expenditure stood at £21,050,000, practically £19 per head of population; but there was no evidence of doubt or dismay, nor even any public reference, except of pride, to the matter; indeed it was in this period that the cry was most clamorous that the Dominion was not doing enough.

The 1917 Budget was introduced a few days before the third anniversary of the outbreak of war. It showed the war expenditure for the year ending March 31st to have been £14,344,523. It was estimated that if the present rate of reinforcements were continued, a sum of £24,000,000 would be required for the financial year 1917-18. In subscriptions to the various war relief funds abroad the sum of £907,149 had been contributed, and goods despatched to the value of £298,335; and in addition it was estimated that £2,100,000 had been raised by patriotic societies. The revenue for the year had been £18,367,000,—an increase over that of 1916 of £3,857,400. Of the war loan of £16,000,000 authorised the previous year, £11,000,000 had been raised in New Zealand at a cost of a half per cent. [The average cost of raising three loans in London prior to the war was 3½ per cent.] The Finance Minister in his Budget pointed out that probably by March, 1918, the war expenditure of the Dominion would be £50,000,000. Imperial loans for all purposes since the outbreak of war had amounted to £17,600,000. A loan of £24,000,000 for the current year was asked for, £12,000,000 of which was to be raised on the local market as soon as possible, and the the balance later. Provision for compulsory contribution was proposed, should the response fall short of requirements. Further sums from the revenue surplus had been invested in Imperial war loans, and at May 31st, 1917, the total amount so invested stood at £7,048,000. The Minister asked page 239for an amusement tax, and for readjustments of the land and income taxes to provide greater revenue. In the past farmers had been taxed on their land values, but not on income from the products of the soil.

A "War Purposes Loan Bill conferring the authorities required in the Budget was introduced the day following the reading of the Budget, and was passed the next day with very little debate, the chief criticism being levelled against the proposal to exempt the loan contributions from taxation, a proposal which the Minister stated was necessary for successful flotation.

The day following the imposition of these new, heavy burdens, was the anniversary of the declaration of war, and the occasion was marked in Parliament, and at public meetings throughout the Dominion, with speeches declaring the inflexible determination of the people to continue the fight to a victorious conclusion. Such was the spirit of New Zealand in a doubtful and gloomy period, when the burden of war was rapidly growing heavier; and yet another example of the national feeling may be quoted, for on September 3rd, scarcely a month later, the first £12,000,000 portion of the £28,000,000 loan had closed, with subscriptions recorded totalling £15,800,000.

Substantial increases to the pensions of soldiers and their dependants were made by Parliament before the session ended. Later, increases in the scale of allowances and consideration for dependants of second division men called up in ballots, were also made, a subject which is dealt with in detail in another chapter.

Towards the end of 1917 a Commission was appointed by the Government to examine and report upon the administrative methods and expenditure of the Defence Department. The chairman was an Australian (Sir R. M. Anderson). The report of this body was very satisfactory, and very reassuring in respect to the control of finance. "With special satisfaction," the Commission said, "we desire to emphasise the fact that, with an expenditure of £40,000,000, we have discovered no case of fraud, embezzle page 240ment, or collusion, which so far as we can ascertain, is a unique record."

In April of 1918 the rates of pay of home service and expeditionary force officers and nurses, and also their field allowances, were raised. Bonuses had already been granted to civil servants to meet the higher cost of living.

Parliament held a special session in April of this year, 1918, to transact important business before the departure of Mr. Massey and Sir Joseph Ward to attend the Imperial Conference, and War Cabinet meetings in London, to which they had been summoned by the British Prime Minister. On April 12th, two days after Parliament assembled, Sir Joseph Ward introduced a Finance Bill, asking for authority to raise an internal loan of £20,000,000. The second portion of £9,500,000 of the loan of the previous year was not yet all subscribed, and the Minister asked for authority in the Bill to apply necessary compulsion in certain directions. It had been found that certain wealthy people and concerns were withholding subscriptions. Much spirited controversy had centred in the principle of compulsion, and the general concensus of opinion favoured it. The Finance Bill passed with no protracted debate, and without any important amendment.

There was no other work during this special session for Parliament to transact. In a few days the two leaders were due to leave New Zealand to answer the urgent call of the British Prime Minister. The period will be remembered—the darkest and most threatening days of the war, the period when the British forces were being beaten relentlessly backward, and the Channel ports threatened. May it not be recorded without boast, but with national pride, that this emergency session of Parliament closed with expressions from the country's leaders of un-shaken confidence in the future, and of firm resolve to offer the last shilling and the last man in the Empire's cause. The fervent singing of the National Anthem ended the sitting. The Imperial request for the utmost contribution of men had been answered to the fullest extent. That contribution in proportion to population already exceeded the response of page 241any other oversea Dominion, and the financial burden per capita stood next to that of the Mother Country. Such was the spirit of New Zealand in the darkest days of the war. By April 20th the loan of £9,500,000 was fully subscribed.

Mr. Massey and Sir Joseph Ward returned to New Zealand on October 12th, and on November 5th the second session of Parliament in this year (1918) opened. A few days afterwards, on the 11th, the Armistice was declared. The Budget was presented to Parliament on November 26th. It disclosed another great revenue year, the surplus of revenue—£20,206,221—over expenditure being £5,085,934, making a total accumulated surplus of £11,560,788. The war expenditure of the country at September 30th, 1918, was shown as £51,400,000, the bulk of which money had been raised at a very small cost indeed within the Dominion through the medium of the Treasury Department, assisted by the Post Office. The current expenditure in connection with the war at this date was £1,800,000 per month—more than £1 per head of the population The Finance Minister announced that a considerable portion of the £20.000,000 loan authorised in April had been raised, and unexhausted authorities for £13,000,000 still remained. He asked, and was provided with, authority to raise a further £10,000,000 for war purposes, and £2,500,000 for public works expenditure.

During the latter period of the war men had been returning more or less disabled, and provision had been made for their rehabilitation in civil life. This subject is referred to fully in another chapter; it is required here only to mention that this duty imposed a further financial obligation upon the country, the fulfilling of which was criticised, at its inauguration, only from the aspect that more still might be done. It is unlikely, however, that the historians of the future, will discover much of which to complain in regard to the Dominion's treatment, so far as financial provision is concerned, of her soldiers.

The financial aftermath of the war must remain a subject for future historians. At March 31st, 1920, the cost of the war to New Zealand amounted to £76,956,826. This sum, of course, included the greater portion of the cost of main page 242taining her troops in camps in England and Egypt while awaiting return to New Zealand, of their transportation back across the world, gratuities, and a small portion of the cost of their repatriation. The full measure of the outlay on repatriation cannot here he recorded, for this task must continue yet for years. Of the war expenditure of New Zealand, £53,748,780 was met by loans raised within the Dominion, the balance having been advanced by Britain for the maintenance of troops in the field. The basis upon which New Zealand repaid the British War Office for expenditure on behalf of the New Zealand troops was the actual fighting cost per man. In the case of the troops in France this was computed at 5/- per man per day (exclusive of gun and howitzer ammunition). The 5/- was represented as follows:—rations, fuel, forage, clothing, equipment, general stores, drugs and stationery, 3/6; small arms ammunition and bombs, trench-mortar ammunition, 8d; up-keep of small arms, machine-guns, artillery equipment, and vehicles, 7d; railways and sea transport (exclusive of the main journey from New Zealand), labour establishment at forts and base depots. 3d; total 5/-. Gun and howitzer ammunition was charged for, in addition, at a daily rate per head on a quarterly basis. The cost of ammunition to New Zealand was first computed in France by taking the expenditure over a given area which was occupied partly by New Zealand troops. Afterwards, in April, 1918, improved methods were instituted, and more exact figures were obtained. Sometimes, during periods when fighting was active, the ammunition charges reached as high as 7/6 per man per day; at other times they dropped to 3/6 and 3/7. This last method of computation was to calculate the number of guns, their calibre, the number of rounds fired, and to fix a rate per round.

The subject of New Zealand's financing of her war effort is by no means exhausted. There remains much interesting data yet to be supplied in regard to maintenance of camps within the Dominion and in England and Egypt, the cost of transport and other services, hospital ships, naval services, early home defence, the Quartermaster's branch, etc. That data, however, must be left for inclusion in a more detailed page 243historical record. The allotted bounds of this chapter have already been exceeded.

The later date of publication of this volume enables the cost of the war to the Dominion to be shown as at March 31st, 1921. At that date the war loans amounted to £81,538,570, of which £55,198,325 had been raised in New Zealand.