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.’
‘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.’
2 NZPD, Vol. 256, p. 363.
3 Ibid., p. 423.
|1939–402||1940–41||1941–42||1942–43||1943–44||1944–45||1945–46||From inception to 31/3/46|
|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|
|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|
|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|
|Total, Air Force||2,596||7,488||11,716||24,259||33,754||33,283||32,122||145,218page 254|
|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|
|Reciprocal Aid—Reverse Lend-Lease||6,986||24,453||26,735||22,778||80,952|
|Amortisation of debt||3,648||7,351||241||10,216||6,250||27,500||55,206|
|Total Expenditure 3||7,106||30,8674||59,796||143,939||163,162||130,009||134,645||669,524|
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.
|1939–40||1940–41||1941–42||1942–43||1943–44||1944–45||1945–46||From inception to 31/3/46|
|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|
|Rehabilitation donations and repayments||7||28||118||368||521|
|Fijian Government Contribution||51||118||169|
|Canadian Mutual Aid||297||5,806||6,103|
|Transfer of profits from Marketing Pool Accounts||218||43||47||69||377|
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.
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
|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|
|To primary producers and for stabilisation purposes||14|
|Miscellaneous expenses and rehabilitation||25|
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.
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.