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Further light is shed on Bolshevist fiscal policies by the following summary representing budgetary estimates for 1918 and giving final results for 1917 (in thousand rubles): 1

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The fall in values consequent upon tremendously large issues of paper money reflects itself in the government budget of expenditures. This fact coupled with the new social policy on which the government is embarking, involving a prodigious outlay, explains the wide disparity between receipts and expenditures. Whereas the figures presented above by M. Krestinsky, Minister of Finance, are more or less true estimates as to the outgo, the income has been in all probability greatly overestimated. Witness the fact that the actual revenue for the first half of 1918 was only 539.6 million rubles, altho undue optimism produced an estimate of 2,852.7 million rubles, or nearly five times as much as was actually collected! Credit notes are issued to wipe out the deficit.

GERMANY

The financial policy of Germany stands in distinct contrast to that adopted by the allied countries. The outstanding feature of German war finance is the reliance placed on loans and advances to defray the

1 London Economist, January 25, 1919, pp. 103, 104.

prodigious expenses incurred since the beginning of the war. The theory that a reasonable share of war expenditures should be met by increased taxation had found no strong adherents in the statesmen and financiers of Germany until recently, and consequently not only have expenses directly incidental to war not been covered by revenue at all but even debt charges and other items of the ordinary civil budget have been met from the proceeds of loans.

There are two reasons of weight that have in all probability operated to keep this policy strongly intrenched. First, the lack of elasticity in sources of revenue has been an almost insurmountable obstacle to the imperial government. According to an understanding reached by the Empire and the individual states, the former reserved for itself primarily the field of indirect taxation and permitted the individual states to exploit the remaining sources. With the outbreak of the war, imperial revenues declined because commerce with Germany was interrupted, and import duties and stamp taxes which constituted important items in the budget fell off considerably. Gradually this condition became more and more accentuated until it was decided to raise the rates of the tax on beer, tobacco, etc., to cover part of the ever-increasing deficit in the ordinary budget. This relief was, however, ephemeral in nature, since the expansion of military operations and the inflation process set in motion by heavy borrowings caused expenditures to soar to prodigious heights, beyond all reasonable calculation.

Meanwhile, the war also imposed additional burdens on the individual state governments and their war obligations became heavy. Existing sources of revenue were used to aid in meeting these expenses. Prussia, for example, increased the rates of the income tax, ranging

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from 115 to 260 per cent of normal in respect to corporations and from 108 to 200 per cent of normal in respect to individuals, and the supplementary tax was increased by 50 per cent. Bavaria and Württemberg advanced the rates of all direct taxes by 30 per cent; Saxony, from 10 to 30 per cent in the case of the income tax, and Baden, 25 per cent in some grades. Hesse increased the income tax rates by 27 per cent and the property tax rates by 82 per cent.2

Late in 1916, however, the imperial government found no alternative but to invade the territory heretofore reserved for the states, if it wished to maintain some semblance of meeting its interest charges out of current revenue. A direct tax was introduced, designed to reach the increment in the value of property of every description, in the years 1915 and 1916, and estimated to yield 1300 million marks. Tobacco duties and postal and telegraph rates were increased and new stamp duties were put into force. The total yield was estimated at 1950 million marks. Again, in 1917, some of the existing stamp taxes were advanced further and a coal tax of 20 per cent ad valorem (10 per cent for domestic consumers) was levied, effective until July 31, 1920. The property tax rates were also increased by 20 per cent and the total receipts from the new taxes were estimated at 1250 million marks, making a total of 2550 million marks of war taxation during the year.

In spite of the large income anticipated from the new taxes, a deficit of 86 million marks was foreseen in the

1 Prussia which had no debt to speak of prior to the war, due to the large profits obtained from the operation of government-owned railroads, had accumulated a debt of approximately $1,450,000,000 by the end of March, 1919. The total war deficit to that date was $582,000,000. New York Times, April 8, 1919.

F. W. Zimmerman, Bank Archiv, August, 1917. The "defence " levy imposed in 1913 was not collected until early in the war. It amounted to 966,845,100 marks or 14.89 marks per capita, to which Prussia alone contributed 593,719,400 marks or about 61 per cent. Cf. London Economist, July 27, 1918, p. 111.

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Total Final results including subscriptions from abroad and battlefield

2448 23.0 3,809,976 100.0 10647 100.0

1,032

3145

25.2

10699

....

....

6,768,082 100.0 12979 100.0 12979

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Details:

In two forms, viz.:

(a) 4 per cent treasury bills at
95, due between 1923 and
1932; and

(b) 5 per cent loan at 98, not redeemable before Oct. 1, 1924.

In two forms, both at 98:

(a) 4 per cent bond, redeemable in drawings at 110 to 120; and

(b) 5 per cent bonds, not redeemable before Oct. 1, 1924.

Details same as sixth loan.

Sources: Reports of the Reichsbank, 1915 and 1916; Berliner Tageblatt, December 23, 1917; Frankfurter Zeitung, September 6, 1917; and London Economist, May 19, 1917. Full details not available in this country, as far as can be ascertained. Approximate figures as herein given are taken from Revue d'Economie Politique, JanvierFévrier. 1918, article by Charles Rist, p. 39. The total is the one officially announced. In addition to the seven war loans shown in this table, two further loans were issued, the full details of which have not been made public. The subscriptions to the 8th loan amounted to 14,500,000,000 m. (according to L'Economiste Européen, April, 26, 1918, p. 270) and the 9th loan, 10,433,959,700 m. (London Economist, December 14, 1918). The number of subscribers to the last loan was 2,717,657, of whom 2,297,143 subscribed for 1000 marks or less (ibid.). Savings banks contributed 3,302 million marks and other banks and bankers, 5,349 millions (L'Economiste Européen, December 13, 1918).

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