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America, but it is for the present declared to be unconstitutional. A uniform law regulating “State” taxation of “mortgages

is likewise impossible. Each State has to devise a rough working system for itself, and it suffers from the tax laws of other States.?

The Parliament of the United Kingdom is free from such injurious limitations, a fact which would make any failure in the work of reform all the more discreditable.3

Starting, then, from the established system as a basis, it may be remarked at once that the great bulk of revenue must continue to be divided as at present. The customs and excise duties, the succession duties, and the Income Tax, should clearly accrue to the Central Government. The reasons for this attribution are sufficiently plain. The State needs a revenue both adequate and elastic, and it is only through the income tax that the latter element is always procurable. The technical conditions of collection and assessment also furnish a strong argument in the same direction. A large portion of the “ stamp duties ” will fall into this category. These large groups of taxes have the further advantage of allowing an apportionment of the burden fairly in accordance with the capacity of the payer. Income tax and succession duties supply the requisite balance to the pressure of the taxes on commodities, which in turn can be varied to meet the gradual alterations in social conditions.

Local finance, on the other hand, may be largely treated in a conservative manner by leaving untouched its ancient resource of “ rates.” Here the reasons are simple and obvious. The close connection of the ownership and occupation of land and buildings with a special locality, the benefits that local administration affords, and the long previous duration of the system appear to be absolutely conclusive in its favour. So, too, is the flexibility of the charge with regard to different areas.

Variations in rates apportion compensation in accordance with the outlay which ought to be either necessary or beneficial to tax payers. Both in town and country districts the old and long-established method of taxing immovables on their annual

1 This qualification is necessary owing to the conflicting judgments of the Supreme Court.

2 See Adams's Science of Finance, part ii., book ii., ch. 6, and the Report of the Massachusetts Tax Commission of 1897 for recent illustrations.

3 In this respect, the attempt to set up the Irish Act of Union as imposing restrictions on the competency of the Imperial parliament was particularly unfortunate. To introduce even one of the complications of a federal system, without the necessary amending power which such a system requires, would be financially disastrous. The Austro-Hungarian financial conflict is an llustration in point.

value, may be regarded as furnishing the back-bone of local finance.

Another source of revenue of special and growing importance in towns is the management of municipal industries. Though it is easy to exaggerate the amount of net receipts thus obtained, there can nevertheless be no doubt that a large part of the services of local government do, in fact, fall under this head, so that the gross receipts and expenditure may be justly taken into account. The net surplus is quite large enough to sensibly relieve the pressure on the rates, and might be increased by judicious management on the strictly economic principle of working for profit.

Thus far there has been no difficulty in getting a definite distribution, allotting “to each its own," in obedience to the Ulpianic precept. More doubt arises when we approach the receipts on the border line. Some of the central revenue is, at first sight at least, of a local rather than an imperial character. Most promising under this head is the “inhabited house duty," which is localised by its mode of collection, and which ought either to be handed over to local finance, or repealed in order to allow of a corresponding increase of rates. The former would probably be the better course, owing to the graduated scale of the tax. might even be well to allow of the increase of this duty to (say) double its present amount should other revenue sources not suffice. The extension of the tax to Ireland for local use would follow as a logical consequence. A second branch of revenue that should pass from central to local revenue is the so-called) “land tax." This impost, originally a general property tax fixed at a high rate 2 passed gradually during the 18th century into a tax on land, until in 1798 it was made unchangeable and redeemable. It has thus become a rent charge rather than a tax, but this, notwithstanding (1) its levy by apportionment amongst localities, (2) its incidence being confined to land, and (3) the fact that it only applies to Great Britain, all mark it out as suitable for surrender by the State Exchequer. It may even be suggested that the capital value of the redeemed land tax should be included in this transfer in order to get a nearer approach to equality in the new distribution.

Recent legislation has done something in the way of transfer


1 See Mr. Cannan's vigorous argument in this Journal for March, 1899, vol, ix., pp. 1 sq.

2 See Dowell, History of Taxation, (2nd. ed.) vol. iii., pp. 81 sq., for it vicissitudes.

ring the receipts from important classes of licences to the credit of local revenue, but the more important steps remain to be taken. It is perhaps essential that the Inland Revenue authorities should have supervision over breweries, distilleries, and tobacco factories: the great body of licences could however be directly collected and the proceeds applied locally. Licences on manufacture should besides be so moderate that their retention by the locality in which they were levied would give rise to no injustice. Greater flexibility in the system would also prove serviceable, a readjustment of grocers' and spirit licences might easily be employed alike as a mode of favouring revenue, and as an agency in favour of temperance. ?

The cession of the house duty and the land tax, together with the completion of the licence transfer and legislation for further development of the system ? would completely relieve the Imperial revenue of its incongruous elements, and would furnish immediate additional resources for local purposes, with the possibility of considerable expansion. On the other hand, these changes would make it absolutely necessary to restore to the national finances the allocated portions of the spirit and beer duties, as also the similar part of the estate duty. By this course a sum of, roundly speaking, £4,000,000 would be withdrawn from “the local taxation account," which would, in fact, be reduced to a vacuum, so that it would disappear, and trouble the investigators of financial returns no more. But the alterations would at first press somewhat hardly on the local side of the account. Land tax and house duty at their present level would only supply £2,500,000; the Irish Excise licences would be small, and would only affect one of the three countries. In Great Britain there would be at first a loss of about £900,000. The recognition of the value of the redeemed land tax would meet this difficulty; though some localities would suffer in the process others would gain, and one part of the task of disentanglement would be over. A more difficult problem, and one due altogether to the action of the present Government, remains, viz., the treatment of the agricultural grant to Great Britain, together with its extended application to Ireland, as also the claim of clerical tithe owners on the local taxation account." These, taken together, represent a heavy

1 See Mr. Hirst's article, Economic JOURNAL, Sept. 1899.

2 The 51 and 52 Vict., § 20, provides for the transfer by Orders in Council of the excise licences to County Councils. This course has, however, not been taken. It is noticeable that the proceeds of the Irish licences have been retained by the Treasury.

charge on the national exchequer, and bring back the duplication of receipts and expenditure, that Mr. Goschen vainly sought to remove. A further peculiarity is the limitation of these operations to the cases in which rates have not exceptionally increased. Sir H. Fowler's report confirms the earlier one of Mr. Goschen that rural districts have not suffered from heavier rates.

But the actual conditions of the case make reform very difficult. It is true that the English grant was made for a period of only five years, coupled with a promise of full inquiry before the end of that period. In 1898, however, the similar Irish grant provided the financial basis of a new system of local government with its treatment of the interests of landlords and tenants in respect to rates. Its removal would reduce all the rural Irish districts to a condition approaching bankruptcy unless the system of division between owner and occupier were restored, and this would be unjust to the former, who are practically without any representation. Though the grant to the clerical receivers of tithe rent charge is comparatively small, it adds to the difficulties of the problem by its application to a special class from which it can hardly be withdrawn without producing a real grievance.

In addition there are a considerable number of special payments for particular purposes that appear as contributions from the exchequer. Some of these are clearly for national services, and may be laid aside ; but there remains an amount of charge which is certainly a dotation towards local revenues, and therefore to be placed along with the grants previously enumerated.

In dealing with this complicated matter several courses are presented for choice. One is the temporary retention of the existing payments to be regarded as a fixed and definite charge for which the Chancellor of the Exchequer would continue to provide funds. The amount so allocated would (roughly) be £3,000,000,- i.e., equivalent to an increase in Income Tax of 1}d. in the pound. Such would be the readiest mode of meeting the immediate difficulties, but it would leave a dangerous element

i See Sir E. W. Hamilton's Memorandum recently published, C. 9528, pp. 58-62.

£ 2 The items are :-English agricultural grant...

1,340,000 Scotch ditto

185,000 Grant to tithe rent charge..

87,000 Irish agricultural grant.

730,000 Miscellaneous contributions (about)





in the continued confusion of expenditure and receipts between the two great departments of the country's finances.

A better method is probably the transfer of parts of local administration to the central government. Police and Poor relief (hospitals and asylums being included under the latter head) appear to be in the main services to the community as a whole. Flexibility of management and economical administration are, perhaps, attained by delegation of such duties to Municipalities, County Councils and Unions, though on the other hand the police organisation would be more effective under a more centralised system. Still, there is a sufficiently large part of the poor law institutions suitable for transfer to allow of sensible benefit being given to the poorer districts, and, to a great extent, counterbalancing the loss of the Exchequer grants.

The essential condition in applying such a policy is rigid adherence to the principle that each class of authority shall administer and regulate the expenditure of its own funds. Payments from one account to another inevitably lead to waste and misapplication. The establishment of distinct funds for what are really identical purposes is nothing but the introduction of a series of misleading fictions, certain to be the cause of trouble in the future.

But though this partial readjustment of the spheres of local and central government is in accordance with precedent and likely to obtain a good deal of support, it is also open to the popular objection that it would further contract the area of selfgovernment in its most educative form. Greater devolution instead of less, is in some directions regarded as desirable. If this latter view be adopted another expedient remains, viz., the development of local “ surtaxes ” added to some of the imperial imposts. The actual structure of the British financial system at once indicates the only available forms for this purpose, and these are to be found in the first two schedules of the income tax. They have the special characters of being levied locally, and therefore being at once available as well as being distributed automatically amongst the recipients. This method is altogether different in its working from that introduced in 1888 by which revenue collected by the central government was earmarked to a special fund, the "fund” so created being divided on a supposed equitable scale to the different localities. There is no intermixture of receipts, and no duplication of accounts. To make the relief real, the surtax should be allowed to payers under Schedules A and B, in deduction of their general income tax

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