Chapter XII: The Economic Factor (3)

The financial duties of the Council are therefore twofold. It has the entire administration of the Loan in its hands, it provides for its apportionment among the different services, and it undertakes the payment of its charges. It has also to meet the administrative expenditure of the common departments intrusted to it, and for this purpose it receives the net profits of the chief revenue-producing asset of the two Governments. The first duty is comparatively simple. A body composed of official and unofficial representatives of the two parties to the Loan can allocate speedily and equitably without the constant strife and jealousy which would attend the interference of two different publics. But the second duty, which is concerned with the annual inter-colonial budget, constitutes the index or barometer of the new colony finances. The Budget for 1903-4 shows the following figures: on the revenue side, L2,350,000 from the net railway receipts; on the expenditure side, L1,441,000 for the service of the Guaranteed Loan,[23] L1,520,000 for the Constabulary, and about L70,000 for minor common services. This leaves a deficit of about L680,000, which, according to the term of the Order in Council, will be met by contributions from the Transvaal and the Orange River Colony in proportion to their customs receipts--roughly, L600,000 from the first, and L80,000 from the second.

Let us take the revenue side of the Budget first. The position of the railways is anomalous. They are virtually a taxing-machine, and in this respect the most effective of Government properties. The normal position of a Government railway should be that of an institution worked for the public benefit, the receipts being little in excess of the working costs plus a moderate interest on the capital involved. In this railway system the net profits, as we have seen, are estimated for next year, allowing for the half-million decrease from the reduction of rates, at L2,300,000. No doubt it is economically unsound to levy a tax of such magnitude on what is virtually a necessity of life and a constituent of production. But bad economics may be sound statesmanship, if they are recognised as unsound--a temporary expedient to obviate a more serious difficulty. Railway profits are the buttress of inter-colonial finance: without them there is no satisfactory provision for the debt charges, and some form of direct taxation, which would interfere far more effectively with nascent industries, would be the only resort. The rates have been already reduced so as to provide, along with the new customs tariff, for a very real decrease in the cost of living. They will be still further reduced, always keeping a limit in view which is calculated on fiscal needs. To so adjust the rates that industrial and rural development will not be hindered, and at the same time to provide an adequate revenue, presents a very pretty problem in railway finance. It is the problem in the customs; it is the problem in direct taxation; it is the essence of the economic problem of the country. But with all reductions there is a good chance of railway revenue increasing. The 5 millions of the Loan which go to development will in a year or two bear fruit. It is difficult to see how the net profits can ever fall below L2,100,000, while it is not unreasonable to hope that in a few years they may rise to L2,500,000 or L3,000,000.

But while the revenue side is likely to increase, the expenditure side of the Budget will inevitably decline. When the full loan is raised the annual charge will be L1,408,000, a stationary figure till the loan is redeemed. The Council is a genuine _Caisse de la Dette_; its revenues are charged in the first instance with the loan charges, and the liability of the separate colonies to make up any deficiency distributes the weight of the debt equitably among the parties to it. The danger of a _Caisse_, that it tends to check general prosperity by a too arbitrary appropriation of revenue, is avoided by the very strict conditions of the Council's power and the nature of its constitution. The minor common services will not increase, and they may very probably decrease, as such branches as surveys and permits shrink to normal limits. The large item of 1-1/2 million for the Constabulary will be lowered in future to about L1,200,000, which, on the present establishment, must be regarded as a final figure. We may, therefore, take L2,500,000 as the average expenditure in two years' time, which, if railway receipts increase to a like figure in the same time, would make the Inter-Colonial Budget balance.

In the meantime the Transvaal is able to pay any contribution which may be required from her. But in two years all or the greater part of the War Loan will have been raised, and she may have to face a maximum annual charge of L1,200,000, which contains no provision for any sinking fund. In these circumstances, on her present revenue she could pay nothing towards any inter-colonial deficit: she might even have to ask for a contribution. There is every probability that such help could be given, and an automatic system of adjustment might be framed by which any inter-colonial surplus could go to pay the charges or assist in the creation of a sinking fund for the War Loan. This is of course on the most unfavourable assumption,--that the War Loan has to be raised at 4 per cent, that the present industrial depression continues, and that the Transvaal gets no increase of revenue from that prosperity which she has a right to expect. It is far more probable that the Council will be free to devote any surplus it may show to the development of the common services, for which the Loan provision cannot in the long-run be found adequate.

[21] This figure does not cover the expense of repatriation.
There was a free gift for the purpose of L5,000,000 by
the Imperial Government.

[22] The Council is composed of the High Commissioner and
Governor (President), the two Lieutenant-Governors, the
Commissioner of Railways, the Inspector-General of the
South African Constabulary, two official members for
each colony, nominated by the Lieutenant-Governors, two
unofficial members for each colony, elected by the
unofficial members of the two legislatures, and two
members nominated by the Secretary of State.

[23] These figures require a word of explanation. Only 30
millions of the loan have been issued, so the charge for
interest and management should only be L1,208,000; but
as the loan year began in May and the financial year for
the budget began in July, interest and management
charges for fourteen months were included.

IV.

It is idle to deny that the present is a period of financial strain. The new colonies are solvent, but the margin is narrow. Like everything else in South Africa, their finances are on a needle-point, and require strenuous intelligence and constant economy. I have taken the railway profits and customs receipts as incapable of falling below their present level; but it is to be remembered that the past year is not a fair basis for prophecy, since the country has been in process of reconstruction, and the heavy importations for the purpose have swollen receipts in both departments. If industrial progress is still retarded, both figures will sink enormously, and the whole system of finance sketched in the preceding pages will require revision. If, on the other hand, progress is assured, both figures will increase largely, since, while this basis is high as compared with the present situation, it is low compared with any real prosperity. In this case the strain will be of short duration. _Ce n'est que le premier pas qui coute._ Industrial development lies at the root of all things. The Transvaal can only hope for a large permanent increase of revenue from the licences and profit tax paid by the mining industry and from Customs receipts drawn from a wider basis of population. Unless this increase comes she may be unable to meet her own war debt, or to contribute anything to an inter-colonial deficit. Inter-colonial revenues, too, can only expand from the same cause, for mining prosperity is at the bottom of railway profits. The State finances depend upon mining development, and mining development depends on labour: this is the true statement of the problem, and all others are involved in a vicious circle. And this is as it should be. On the great industry of the country the chief burden must lie.

There is, of course, the possibility of windfalls. From the Crown share of gold and diamond properties very large sums of money may from time to time flow to the Exchequer. But it is the part of a prudent finance minister to base his forecasts on the normal only, and to accept windfalls as gifts of Providence, to be used for special purposes. It may be necessary to draw upon this source of income to meet the debt charges; but, should this misfortune be spared us, then we have in such windfalls the nucleus of a reserve fund for development. There is need, as we have seen, of a capital outlay on development far beyond that provided for in the Guaranteed Loan. Railway extension alone, before we have done with it, will need not 5 millions, but 10, and, in cases where new lines are built by private companies, we shall have to face sooner or later a considerable expenditure on expropriation. Public works, when all the loan moneys have been spent, will still be badly provided for. It may be necessary, too, to spend money in expropriating land for public parks, for game preserves, for public buildings, for new townships,--expenditure which in the first instance will fall upon the Government. So, too, with other schemes,--irrigation, the search for artesian water, the establishment of colleges and technical schools, and all the thousand activities of government in a new country, which will grow quickly and develop early a multitude of needs. Lastly, land settlement in the two colonies, if it is to serve the social and political purpose which is its chief justification, demands more than the 3 millions allotted to it. Such expenditure is in the fullest sense an investment, since the bulk of it will be returned in time to the Exchequer with a reasonable interest. It is proposed that, in so far as repayments of capital from settlers are concerned, such repayments should form a special fund, which can go out again in fresh advances and further purchases of land. In this way a permanent fund for settlement will be created, and the project will not be dependent upon a share of any annual surplus.

The economic problem of the new colonies finds a parallel in Egyptian reconstruction in more ways than the analogy of the _Caisse de la Dette_. There is the same undeveloped wealth in the country, the same heavy bondage of debt, the same demand for reproductive expenditure. To cut down the cost of living and the restraints on production, and at the same time to provide money for development and for the charges of an unproductive debt, is the threefold South African problem, as it was the Egyptian. Solvency here, as there, is to be found in an equipoise, and requires a nice and discriminating statesmanship rather than any heroic cutting of knots. In most respects the Egyptian difficulty was far the greater, for there the cast-iron debt regulations and the endless European surveillance frustrated at every turn the efforts of her statesmen. But one danger was absent. In Egypt patience and diplomacy, faith in the country and in the work of time, were so obviously the only cards to play, that, while there were many temptations to lose heart and abandon the struggle, there was no inducement to try short cuts and forsake the true path of policy for those showy and unconsidered measures which in the rare event of their success are called heroic. In South Africa the amateur financier is so abroad in the land that we may look to find many odd nostrums advocated to ensure prosperity. The kind of discussion which arose over the labour difficulty is a guide to what we may expect in the realm of high finance. But in both the one and the other the real problem is plain once the obscuration caused by conflicting interests is cleared away by a little common-sense.

The great questions of economics in relation to state growth are always simple. If high finance means anything it is the power of adding two and two together. Complicated financial adjustments belong to a lower plane: the great financier may have no aptitude in reducing results to a decimal. But there is this distinction, that whereas in the intricate calculations of secondary finance the figures are mere counters, the elaboration of accepted data, in the higher and simpler finance they are symbols. To the statesman they are the gauge of prosperity or decline, and behind them stand the millions of workers, the miles of crops, the floods and droughts and pestilences, the rise and fall of industries, the ore in the mine, the web in the factory, the cattle in the stockyard. The yield of a land tax is to him not a figure but a symbol, and in using it he has regard not only to its formal place in estimates and returns, but to its political meaning. It is, if you like, the quality which in other spheres constitutes the distinction between statesmen and high permanent officials, between economists and statisticians, between all leaders and all subordinates. In the finance of a country which is still in process of reconstruction, this power, so uncommon and so inestimable, of getting behind figures to facts, and keeping the hand on the pulse of national progress, is the only guarantee of ultimate success. In this light the prospects of the new colonies give good reason for hope. The budget of to-day, formally regarded, shows a delicate equipoise, in which a pessimist might find material for dark forebodings; but it is only the symbol of that stress of re-creation which must precede an ample prosperity.