A new critic now takes the field against Mr Gladstone, and adds his protest to those which have already been made by the other leading financial authorities. In a new edition of his work on Taxation, that veteran Liberal and political economist, Mr M’Culloch, severely criticises the recent financial policy of the Government, and endorses with his high and obviously impartial authority the opinions by which that policy has been so often combated by the Conservatives. To all the special features of Gladstonian finance Mr M’Culloch is opposed. He is strongly in favour of the maintenance of a good yearly surplus, as an indispensable feature of a prudent system of finance; he condemns as most impolitic that narrowing of the area of taxation which Mr Gladstone extols as a “simplification of the tariff;” and he moreover objects, in the strongest terms, to the manner in which that principle of “simplification” has been applied.
It is not surprising that the voice of protest should thus be raised from all quarters against the principles of Mr Gladstone’s finance. To begin with, he has been a most prodigal financier, and cares not a jot for the future. At a time when the charges on the National Debt were reduced by the falling-in of the terminable annuities, to the extent of two millions a-year—when there was an unexpected repayment of a portion of the Spanish loan, and other windfalls—and when he found a surplus of considerable amount left to him by his predecessors in office,—then surely, if ever, the country had a right to expect from the Chancellor of the Exchequer a succession of good annual balance-sheets. If the policy of maintaining a substantial surplus is not carried out under these favourable circumstances, the fault must lie with the administrator of the national finances. Yet, so far has Mr Gladstone been from adhering to the old and sound maxim of financial policy, that he has not only given us no surplus, but has recklessly incurred us a deficit, of which he now makes no mention. Had this bad condition of the finances been incurred in consequence of an exceptional increase of the national expenditure which could only be met by the imposition of new taxes, it might have been excusable. But there was no such difficulty: the revenue was sufficient, if let alone, to have more than kept pace with the expenditure. The peculiar culpability of Mr Gladstone as a financial Minister—the pernicious feature of his system which called forth the eloquent denunciation of Lord Overstone, and the emphatic protest of Earl Grey and Lord Monteagle, and of the ablest financial journal of the Liberal party, the ‘Economist’—is, that during this period of so-called exceptional expenditure he has deliberately thrown away the means which were at his disposal for meeting it. He has abolished taxes against which there was no peculiar ground of complaint, and he has reduced others in order to cheapen certain commodities for which there was no general demand.
This financial system of Mr Gladstone is, unfortunately, not a mere thing of the past. Its consequences weigh upon us now, and there is no sign of his abandoning it. It is a novel system—novel even to himself; but he adheres to it with an obstinacy which threatens to embarrass us in the future not less than in the past. A grave question must be at stake when the greatest financial authorities of the Liberal party come forward prominently to side with the Conservatives in opposing and denouncing the policy of the Chancellor of the Exchequer. They feel strongly that the recent hand-to-mouth system of Mr Gladstone will not do, and that in times of emergency it would entail grave disaster upon the national fortunes. “Great nations—such, for example, as England and France,” says Mr M’Culloch, “with colonies and dependencies in all parts of the world, and with jealous and powerful neighbours, must expect to be every now and then involved in difficulties; and on that account they should have a considerable surplus revenue—i. e., a considerable surplus after defraying the cost of their usual establishments,” And he adds—“Had the affair in regard to the Trent led, as it was not unlikely to do, to a war with the United States, it would have found us in an awkward situation—without any surplus revenue, with discredited customs and excise duties, and nothing to fall back upon but an increase of the Income-tax and loans.” We regret to say that the calamity from which we so narrowly escaped two years ago, cannot be regarded as unlikely of occurrence now; and there are also elements of strife sufficiently formidable on our own side of the Atlantic to engage the thoughts of our statesmen, and to invest with peculiar interest the at all times momentous subject of the national finances. When we hear so old a Liberal and so practised a political economist as Mr M’Culloch echoing Lord Castlereagh, and charging the country in the very words of the Tory statesman, with an “ignorant impatience of taxation,” we cannot but be confirmed in the views which we have repeatedly expressed in regard to the policy of the present Chancellor of the Exchequer; and the country at large will do well to reconsider that policy and the principle upon which it is based.
On one occasion in 1857, when the late Sir G. C. Lewis—whose death is a loss alike to the country and to the Ministry—referred to an opinion of one who had as good a knowledge of the practical working of taxation as any man either before or since, Mr Gladstone exclaimed with the utmost contempt—“He goes back to Arthur Young, sir: old Arthur Young he takes for his authority!” And when, in his own recent Budget speech, Mr Gladstone, with all the ingenuity of rhetoric, was calling upon the House to stand amazed at the rapid increase in the [nominal?] income of the country (one-fifth during eight years), which he claimed as the result of his policy,—and Sir J. Packington quietly suggested that it is Australia and the new gold mines that have caused the difference,—Mr Gladstone rejoined, “Australia! Oh no: the right honourable gentleman is lost in the depths of heresy on that point.” This overbearing presumption is natural to Mr Gladstone, who finds it a convenient way of summarily evading difficulties which are more easily scoffed at than answered. But we take leave to think that there are few intelligent men in this country who, for width of view and soundness of judgment, would not have preferred the late Sir George Lewis to his more eloquent and ingenious colleague. And for ourselves we entertain no doubt that Sir J. Pakington was perfectly correct in his suggestion, and that the great increase alike in the income of this country, and in certain branches of the expenditure, is in part attributable to the rise in the monetary value of property and labour in consequence of the new markets for our goods in Australia, and the great addition to the stock of gold.[[9]] Mr Gladstone would probably treat Mr M’Culloch in the same contemptuous fashion,—especially as Mr M’Culloch’s opinions and arguments, if correct, totally demolish the “system” which Mr Gladstone of late years, and in contradiction to his former self, has been labouring to establish. But we shall give the public an opportunity of judging whether Mr M’Culloch’s opinions are not as well founded as they are harmonious with those of the Conservative party.
Mr M’Culloch maintains that it is more than doubtful whether any remission of taxation should take place unless the revenue exceed the ordinary expenditure by some 5 or 10 per cent of its amount. In other words, he considers that, with an expenditure equal to that of the United Kingdom, the estimates should always be so framed as to have a conjectural balance of four or five millions. Mr Gladstone rarely aims at having a surplus of even a tenth of that amount; and sometimes £80,000 or less seems to him enough to meet the chapter of accidents, and sustain the moral power and financial credit of the country! The following passage, which appears in the new edition of Mr M’Culloch’s work, seems to have been written expressly in reference to the financial administration of the present Chancellor of the Exchequer:—
“In countries under free or constitutional governments the reduction or repeal of taxes is frequently proposed in the view of courting popularity, or of favourably influencing public opinion. And the desire to grasp an immediate advantage, to be relieved of a burden, without caring for the ultimate consequences of its extinction, is so extremely prevalent, that such projects, though often very undeserving, seldom fail to procure a less or greater share of the public sympathy for those by whom they are put forth. Statesmen, however, and those intrusted with the duties of government, should take a less circumscribed view of such matters, and are bound to inquire into the real character of the measures that come before them, and to weigh and consider their more remote as well as their proximate results. Their duty is to oppose, not to pander to the selfish and unfounded prejudices of the public.... The real questions are, can the tax be spared; and, if not, can it be replaced by a less inconvenient or injurious tax? If it can neither be spared nor replaced by another that is less objectionable, its repeal would be as futile, as inexpedient, and as unadvised a measure as can well be imagined.”
Mr Gladstone, in his desire for popularity, has carried the practice thus emphatically condemned by Mr M’Culloch to a most dangerous extreme. He totally disregards the sound principle of ending every year with a surplus, in order to meet sudden and unforeseen contingencies, and he lavishes every spare pound upon the reduction of taxation. Moreover, in making these reductions, he has adopted a practice which, although he presents it under the attractive guise of a “simplification of the tariff,” is paving the way for a serious popular agitation against some of the indispensable elements of our fiscal system. Sir Robert Peel, it is true, simplified the tariff; but he did so more wisely and prudently. It was not merely for the sake of simplicity that he reduced the list of taxed commodities, but because many of the taxes at that time vexed trade without appreciably swelling the revenue. Previous to his administration, our customs tariff comprised above a thousand articles, many of which were insignificant, and all but unproductive to the State. But Mr Gladstone has carried out the same practice on a very different principle. The tariff, as left by Sir Robert Peel, embraced above four hundred items; now it is restricted to about forty. Indeed, this branch of our revenue at present is raised almost entirely from sugar, tea, tobacco, spirits, wine, beer, corn, coffee, currants and raisins, timber, and pepper. This is objectionable in many respects. In the first place, it renders our revenue liable to be much more seriously affected by the fluctuations of trade and the condition of the masses of the people, than under the old system; and by concentrating taxation upon a few commodities, it makes the fiscal pressure more obvious and more felt, and furnishes proportionately greater scope for popular agitation. “When the public attention is fixed exclusively on a few leading and indeed necessary articles,” says Mr M’Culloch, “it is all but certain that the duties on them, even should they be moderate, will come to be looked upon as being, in no ordinary degree, objectionable and oppressive. But were a great variety of articles, suitable for the consumption of all classes, subject to duties, there would be but little probability of the public attention being concentrated on a few only.” And what are the few commodities which now furnish the principal part of our revenue? As we have seen, precisely those which are consumed in greatest quantity by the bulk of the people. There is no real inequality in the distribution of our taxation; for the Income-Tax, the Succession-Duties, &c., do not fall at all upon the lower classes, and have been framed so as to keep the balance of taxation equal between the rich and the poor. But we fear this fact will not be fairly considered by the masses, who, under the influence of demagogues like Mr Bright, are too prone to think themselves unjustly dealt with. Two months ago we pointed out this feature of Mr Gladstone’s financial policy, as one eminently provocative of agitation against some branches of our revenue which it is indispensable to preserve. Mr M’Culloch holds a similar opinion. He says—
“When such duties apply to all kinds of things [the raw materials of industry and the prime articles of food being excepted], it is seen that they must affect, in one way or other, every class, and, indeed, every individual, and being merged in and forming a part of the price of the articles on which they are charged, they attract little or no attention. But such will not be the case with us in time to come. Consumption duties have ceased to be general, and are now (1862) unfortunately restricted to a few leading articles, comprising some of the principal necessaries and luxuries of the labouring poor. So striking and momentous a change cannot fail to rouse the public attention; and will, it is to be feared, give rise to a belief that it is essentially partial and unfair. And such belief will be better founded than it is at all desirable it should be; for, while we admit various luxuries of the rich and the great, including the most recherché wines, at very low duties, and many more, comprising, among others, the finest laces, velvets, porcelain, tablecloths, carpets, silks, gloves, ornamental furniture, bronzes, and so forth, free of all charge, we lay heavy duties on the tea and sugar, which are indispensable to the labouring poor, and heavier still on the tobacco, the spirits, and the beer which constitute their luxuries. Is it to be supposed that such a policy should be considered by the bulk of the people as other than unfair and offensive?”
It is a most important principle of judicious finance that the incidence of taxation should be as little felt as possible, and also that it should not only be fair, but be seen to be fair. We believe that the present taxation of this country falls very equally on all classes; but, unfortunately, under Mr Gladstone’s “reforms,” it has assumed an appearance of gross inequality. We have largely increased the spirit duties, and we have kept up the taxes on malt and beer, yet we have greatly reduced the duties on wine. Moreover, we have made the reduction of the duties on wines in such a way that the finest wines pay no more than the cheap wines. Several articles of luxury have likewise, under the operation of the French treaty, disappeared from the tariff, and their absence, though of no great importance as affecting the revenue, gives a handle to demagogues who desire to excite the masses against the taxation of the country. The “Financial Reform Association,” and the Radical party in general, could have no better ally than Mr Gladstone; and the chief result of his “popular” Budgets will inevitably be to render our whole system of taxation extremely unpopular.
Mr Gladstone’s new Budget is less ingenious, less experimental, less obviously hazardous, than those which have preceded it. The balance is, in appearance at least, kept even between direct and indirect taxation: and the twopence off the income-tax, and the fivepence off the duties on tea, reduce these taxes to the level at which they stood prior to the Russian war. The modification of the Income-tax upon incomes between £100 and £200 a-year is an improvement. Mr Gladstone has also done well in admitting a past error of his, by abolishing the small charges on certain operations, of trade which he imposed in 1860, but which have been found exceedingly vexatious to commerce. Nor can any objection be taken to the change which he proposes to make on the taxation of railways, by which the tax on the passenger traffic is reduced from 5 to 3½ per cent, while the exemption at present enjoyed by parliamentary and excursion trains is abolished. His proposal to levy the Income-tax upon the revenues of corporations which are expended in charity, and on the income of endowed charities, is more open to question; and so are some of his other minor proposals; but the interests affected are not sufficiently powerful to offer much opposition to the Government.