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War Economy

Finding the Money

Finding the Money

It was fortunate for the stability of the internal economy that the Government was determined to pay for the war substantially out of taxation and internal borrowing. Income tax increases reduced the disposable income of the people and cut back their ability to spend. Extra purchase taxes discouraged spending and, when money was spent, took part of it away from the private sector of the economy. Extra borrowing from the public, so long as it was not financed by bank credit, reinforced the effects of extra taxation. It might have come out of income and might have reduced consumption expenditure, or, if it took money already saved, would have made less available for private capital expenditure.2 All these methods of page 260 raising money tended to reduce purchases of goods and services by the people, and to leave more resources available to satisfy war needs.

A summary of the sources of war finance is given in the following table, which is based on War Expenses Account.

How the Cost of War was Raised1
Totals up to 31/3/1946
£(m)
Special war taxation 225
General taxation (transfers from Consolidated Fund) 27
Borrowing in New Zealand 2422
Lend-Lease and Canadian Mutual Aid 111
Other receipts 23
6282

Out of a total of £628 million made available for war purposes, £242 million was raised by internal loans, and £225 million by special war taxation. A total of £27 million was transferred from the Consolidated Fund, and could for all practical purposes be regarded as having been met from general taxation. A further £111 million represented the value of goods and services made available through Lend-Lease and Canadian Mutual Aid, leaving only £23 million of receipts from other sources.

Thus, out of a total of £628 million, the people and institutions of New Zealand had by 31 March 1946 made available, by lending or in taxes paid, £494 million, or close to 80 per cent. The balance was met by reciprocal aid arrangements and, to a minor extent, by other receipts. There was no outstanding overseas debt as a result of World War II.

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2 In the special circumstances of war, some of the savings would have remained idle if not borrowed by the Government; but there would have been an undue growth of liquid assets in the hands of the public.

1 A summary of receipts through War Expenses Account, modified as in note 2. See also p. 255.

2 A further £53 million was recorded as borrowed from the United Kingdom under the Memorandum of Security, but it was progressively repaid, the final payment being made early in 1946. See also p. 270. The 1946 Budget Statement gives the sum borrowed and repaid under the Memorandum of Security as £60·8 million, but only £53·4 million was recorded in War Expenses Account

2 A further £53 million was recorded as borrowed from the United Kingdom under the Memorandum of Security, but it was progressively repaid, the final payment being made early in 1946. See also p. 270. The 1946 Budget Statement gives the sum borrowed and repaid under the Memorandum of Security as £60·8 million, but only £53·4 million was recorded in War Expenses Account