by John Buchan
A mere comparison of tariffs does not show the real cheapening of the necessaries of life; for to get at the practical effect, the abolition of the transit dues, the reduction of railway rates, amounting to at least £300,000 per annum, and the preference rate on British goods, must all be considered. Under the old tariff and railway rates every 100 lb. of flour from Port Elizabeth to the Transvaal paid 9d. to the Transvaal in duty. The freight was 6s. 2d., so that it paid altogether in charges 6s. 11d. Under the Convention the same quantity of flour will pay 2s. in duty and 3s. 9d. in railway rates, so that, in spite of the higher duty, the charge is only 5s. 9d., — a saving to the Transvaal consumer of 1s. 2d., and a gain to the Transvaal treasury of 1s. 3d. There are many instances of a similar kind. Ordinary groceries will be reduced by about 3 per cent, paraffin by 1s. 6d. a case, grease by 2s. 6d. per 100 lb., cement by 2s. 9d. a cask. Tea and coffee, on the other hand, show a slight increase. In one branch there is a very marked increase, and an exception to the inter-colonial free trade, which is the basis of the Convention. Each party to the Union is entitled to levy on the importation of spirits distilled in and from the produce of places within the Union a duty equal to any excise duty which it may levy on spirits made within its own borders. In the Transvaal there is no excise, for the manufacture of spirits is wholly forbidden. It is of the most urgent importance to keep fermented liquors out of reach of the native population, and to suppress all illicit traffic. The importation of Portuguese spirits has been stopped by treaty, and it was clearly impossible for the Transvaal to consent to the importation of spirits on easier terms from the other British colonies. The concluding paragraph of Article XVII., therefore, provides that “where a prohibition exists in any colony or territory of the Union against the manufacture of spirits for sale, it shall be lawful for such colony or territory to levy on spirits produced within the Union a custom duty not exceeding that levied on similar spirits produced outside the Union.” The duty in force is therefore from 15s. to £1 per imperial gallon in addition to the 10 per cent ad valorem rate; which, it has been calculated, is an increase on the former cost of from 4s. to 6s. per case.
The new Union is therefore almost wholly in the favour of the new colonies. The cost to the consumer is lessened, but the revenue does not lose appreciably, since charges, formerly diverted by the coast colonies, now go to its coffers. The coast colonies, in an admirable spirit of statesmanship, have consented to surrender a part of their revenue in order that the chief industrial market of South Africa might be open to their people — an example of that policy of foregoing certain revenues on a narrow basis for the sake of a possible revenue in a wider field which is of the essence of good government. The preference given to British goods, while still further reducing rates in favour of a large class of imports, is also a step towards federation, which does not, as such experiments are apt to do, militate in any serious way against local commerce. The one person who might complain is the farmer of the Transvaal, who sees his markets thrown open to the old grain-lands of Cape Colony; but if the long railway journey which his rivals have to face is not a sufficient handicap to enable him to hold his own, then we need not lament his fall. Vital as agricultural progress is, it cannot hope for protection at the expense of industrial prosperity.
The normal expenditure of the Transvaal may be taken roughly at £3,600,000. This figure is exclusive of debt charges, or any capital outlay on development which may be met out of revenue. It represents merely the day-to-day cost of the administrative machine. As revenue is enlarged the expenditure will follow suit; but it is unlikely that the proportion of costs to receipts, which is roughly three to four, will ever increase. On the contrary, it might be considerably reduced by a more complete administrative decentralisation. At present there are a number of isolated departments — Native Affairs, Lands, Mines — with local representatives wholly independent of each other, and responsible only to the heads of their departments. The resident magistrate, who is really an administrative official, since the legal work is done by the assistant magistrate, and who as a rule is not a lawyer, has a very narrow control over a few subjects like local government and public health. The system is wasteful both of money and energy, for the isolated departments often overlap unconsciously; and since there is no local check, the tendency is for the head of a department to increase his local staff and to vie with other heads in securing large estimates. It also means that a constant inspection has to be kept up from headquarters, and each department supports a force of travelling officials. The Indian precedent might be followed with advantage, and real heads of districts established, who would have a control, direct or indirect, over all administrative work. They should be responsible for the efficient and economic working of their district, prepare their local estimates and reports, and answer for their work only to the Governor and Council. The great departments would exist as before, but their local staffs would be much reduced in number, so far as such staffs were administrative and not intrusted with expert work. Experts, such as inspectors of machinery, customs officers, and veterinary surgeons, would remain directly responsible to their own departments, though over these also the district administrator would exercise a general supervision. In this way a very considerable saving would be effected in salaries, the unnecessarily large force of travelling inspectors could be reduced, and the friction which inevitably attends the working of isolated and independent officials in any district would be saved by the establishment of responsible heads, — deputy administrators, whose business it would be to supervise all district Government work, and control all local expenditure.
III.
The natural assets of the country and the existing fiscal system have been roughly sketched in the foregoing pages. It remains to consider what burden these two factors in collaboration are called upon to bear. In view of the peculiar situation of the new colonies, the necessity of a loan for development is sufficiently obvious. The country was desolated by war. Large sums were necessary for compensation to loyalists and for the repatriation of the Dutch inhabitants. The backward system of our predecessors had left public works ill provided for in most places, particularly in the country districts. If the wealth of the provinces, mineral and agricultural, was to be exploited, and the existing industries granted reasonable facilities for progress, a heavy expenditure was imperative for railway extension. If the rural parts were to be developed and their population leavened with our own countrymen, considerable sums must be expended on settlement, and on such reproductive schemes as forestry and irrigation. Finally, certain heavy liabilities awaited the incoming Government. To buy out the existing railways and repay certain military debts and advances from the Imperial Treasury, fully 14 millions were required. The old debt of the Transvaal, amounting to 2½ millions, which carried 4 per cent interest, must be paid off, and the capital required for the repayment made part of a new loan at an easier rate. The liabilities and needs of the country stood therefore as follows: An advance by the Imperial Government to cover the estimated Transvaal deficit of 1901-2, £1,500,000; the old debt of the Transvaal, £2,500,000; compensation to loyalists in Cape Colony and Natal, £2,000,000; the acquisition of the railways and the repayment of the existing railway debt, £14,000,000; repatriation and compensation in the new colonies, £5,000,000; railway extension, £5,000,000; land settlement, £3,000,000; various public works, £2,000,000, — a total of £35,000,000. This is the sum comprised in the famous Guaranteed Loan.
But this figure, large as it is, does not exhaust our burden. During the year 1901 and 1902 the question of the contribution of the new colonies to the imperial war debt was keenly discussed both in South Africa and in England. Some fixed the payment likely to be required at as much as £100,000,000; others argued that the new colonies were likely to have so many burdens of their own that they could not be called upon to contribute at all. Moderate men on both sides saw that some contribution was equitable, but asked that it should not be fixed so high as to cripple
development. There were various proposals, such as the ear-marking of certain sources of revenue and all windfalls, or the allocating of a certain proportion of any annual surplus; but such schemes were liable to the objection from the side of the Imperial Government that there was no certainty in the contribution, and from the side of the new colonies that there was no finality in the liability. The settlement which Mr Chamberlain announced in his speech at Johannesburg in January 1903 was, perhaps, the best possible in the circumstances. The contribution was fixed at £30,000,000, to be raised in three years by contributions of £10,000,000 per annum. The first 10 millions at 4 per cent were underwritten without commission by the great financial houses of the Rand, and there is no reason to doubt that if they are called to make good their guarantee, it will prove a profitable investment. It is difficult to overestimate the merit of an arrangement which tends to bind the great houses to a closer interest in the general development of the country. The War Loan was secured wholly upon the Transvaal, but there is a contingent liability on the Orange River Colony to pay a further sum of £5,000,000 out of the Government share of any discoveries of precious stones and metals.
We have, therefore, to face a total debt of £65,000,000, of which 35 millions at 3 per cent are a charge upon both colonies, and 30 millions at 4 per cent upon the Transvaal alone. It is a heavy responsibility for a white population of a few hundreds of thousands, face to face with a labour problem. That the world at large believes in the future of the country is shown by the way in which the Guaranteed Loan was taken up, the first 30 millions having been subscribed more than thirty times over. On this loan the interest charge, with 1 per cent sinking fund, will amount to an annual payment of £1,400,000: in three years time the War Loan, unless (which is probable) it can be issued at a lower rate than 4 per cent, will mean an annual charge of £1,200,000, with no sinking fund allowed. We have therefore in front of us a possible annual payment of £2,600,000, with a slight increase in the future when a sinking fund is provided. The payment, large in itself, was made more difficult by the circumstances of the two colonies. The larger loan is secured on both, but while the Orange River Colony had a fair claim to a considerable part of the proceeds, it was clearly impossible that she should pay a share of the charge proportionate to her receipts. If she shared in the loan only to the extent of the annual contribution which on her small revenue she could afford, many important public works both of land settlement and railway extension would have to be abandoned. Joined with this general administrative difficulty, there was a departmental one connected with the railways. The main line through the Orange River Colony had acquired, as one of the main feeders of the Transvaal, a purely fictitious value, and the Orange River Colony profited greatly by the receipts. But to have within one system two types of line, one a through line simply, the other connected directly with the great centres of production and consumption, and to have those two types of lines used as revenue-producing agents for two different administrations, was to make a consistent railway policy impossible. The country of the through line, whose fictitious value produced a very real revenue, would reclaim against reduction in rates for the benefit of the other.
Both difficulties have been met by a very ingenious scheme. The Inter-Colonial Council of the two colonies, created by Order in Council of 20th May 1903, is significant in many ways, notably as the first overt step towards federation; but for the present we may look upon it purely as a financial expedient. Two important departments, common to both colonies, were placed wholly under the administration of the Council — the Central South African Railways and the South African Constabulary; and a number of minor common services, such as surveys and education, were added, and power was given to the two legislatures to increase the number when they saw fit. A Railway Committee of Council forms the permanent controlling authority in all railway matters. All net profits of the railways in each year are assigned to Council to form its revenues. Out of these it has to meet the expenditure of the Constabulary and the minor common charges, as well as the annual charge and management costs of the Guaranteed Loan.
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, £2,350,000 from the net railway receipts; on the expenditure side, £1,441,000 for the service of the Guaranteed Loan, £1,520,000 for the Constabulary, and about £70,000 for minor common services. This leaves a deficit of about £680,000, 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, £600,000 from the first, and £80,000 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 £2,300,000. 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 £2,100,000, while it is not unreasonable to hope that in a few years they may rise to £2,500,000 or £3,000,000.
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 £1,408,000, 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 1½ million for the Constabulary will be lowered in futu
re to about £1,200,000, which, on the present establishment, must be regarded as a final figure. We may, therefore, take £2,500,000 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 £1,200,000, 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.
