Germany before the war

by baron Beyens

This ambition on the part of the Conservative chiefs to act as the power behind the political throne received a severe set-back two years ago. The blow was all the more effective in that it wounded them in their tenderest spot. Hitherto, they had managed to keep real estate, above all when it passed to an heir, exempt from the new taxes. The financial covering for the 1913 army bill, however, was passed by a coalition of the Centre, the Socialists, and the Liberal groups, not in accordance with the Government proposal, but with amendments which brought landed property within the scope of the new taxation. The fact that this vote had an influence on recent events compels me to enter into some detail, in order to explain the mechanism of the financial section of this important bill.

VIII.

“We must conduct affairs in such a way,” says the official German secret report, published in the 1914 Yellow Book and dated March 19, 1913, the day after the army bill of that year was passed, “that, under the weighty pressure of powerful armaments, enormous sacrifices, and a strained political situation, an outbreak of hostilities would be looked upon as a deliverance, because, like the war of 1870, it would be followed by several decades of peace and prosperity.”

The new financial burdens were indeed heavy, even for a nation which, like the German, was visibly growing richer and richer. The expenditure involved in the new army bill was of two kinds. The one, amounting to some £50,000,000, graduated over a period of three years, would not be renewed; the other represented a permanent annual disbursement, estimated at £24,510,000 until 1915, and £11,600,000 after that date.

Where were these vast sums to be found in a country already overburdened with taxation? The Imperial Treasury had no more than £5,000,000 left over from the receipts of preceding years. The Chancellor could not resort to fresh taxes on food and drink. Moreover his hands were tied by a motion, put forward by Herr Bassermann and Herr Erzberger in the previous year, and passed by the Reichstag. This motion bound the Government to frame, before March 31, 1913, a scheme of taxation on property, in other words on wealth. “But a general Imperial tax on property,” the Finance Minister, Herr Kühn, had declared in the course of the debate, “would have been an encroachment upon the financial sovereign rights of the federated States, and the Imperial Government could not enter upon this path without injuring the federal character of the Empire.” It must not be forgotten that Prussia, being the most important of the federated States, would have been the first to suffer from a blow directed at her fiscal independence.

An internal loan of £50,000,000 was not feasible, in view of the state of the market, in which even the most promising loans of German municipalities found great difficulty in getting placed. It was out of the question, on the other hand, to appeal to the foreign investor. He would not have lent a penny for the increase of German armaments, which were already causing a great deal of anxiety abroad.

The Finance Minister thought he had solved the problem by submitting to the approval of the Reichstag a large batch of finance measures of the most varied type.

First of all he proposed certain devices for the covering of permanent expenditure. Then he moved an increase in the assessment of matricular contributions paid by the federated States, on whose shoulders a fresh share of the burden was thus thrown. Finally, to redeem the promise made to the Reichstag in 1912 with regard to a property-tax, Herr Kühn suggested imposing a tax on increments of wealth and capital in those federated States which should not themselves have introduced such a tax by 1916, and whose resources were not enough to pay the higher rate of matricular contributions that was now demanded.

In order to meet the non-recurring expenses, the Government bill—this is its truly original feature—proposed an extraordinary tax on property and income, to be paid for the next two years. This Wehrbeitrag (Defence Contribution) was really a special war levy, imposed on capitalists in the midst of peace, when the political sky of Germany was not in any way overcast. It was a tax on the patriotism of the well-to-do classes, an urgent appeal to national sentiment. That the response would be enthusiastic the Government did not doubt for a moment. The assessment of property began at the very low minimum of £500, that of income at the very high minimum of £2,500.