§ There is one fallacy which seems to crop up almost every year when there is a Budget surplus. There is a belief amongst some people that a Budget surplus is like the declared profits of a company, and represents a fund available for distribution by way of remission of taxation. It is of course nothing of the kind. Any moneys that are not required during the year to discharge current liabilities on revenue account are used to meet capital liabilities or to pay off debt, and the allocation of these so-called surpluses to such purposes is an essential part of the financial policy laid down in the Budget.
§ Under the budgetary system which we follow we settle upon the remissions of taxation that we can afford at the beginning of the year, in the light of the needs not of the past but of the coming financial year. I hope, therefore, that no one will cast their covetous eyes upon last year's surplus, which has, in fact, been finally 64 spent and fully disposed of. We must look to the future and see what we can afford to do, in the light of the expenditure for which we must make provision in the coming 12 months.
§ I must repeat what I have often said before, that it is not our financial policy to run a perpetual budgetary surplus. We have said that such a surplus is essential in the present circumstances where there is a constant and imminent danger of inflation. But if and when those circumstances change we may well find ourselves in quite different conditions in which our fear is not of inflation but of deflation. Then in order to pursue our same policy we shall have to reduce the budgetary surplus or eliminate it altogether, or we may even want to budget for a deficit. When that time comes, some considerable remissions in taxation might be possible and, indeed, advisable. But we have certainly not yet reached that state of affairs.
§ Many of the critics of our present financial and economic situation, who would like to embark upon a tax remission spree, base their arguments upon an assumption that our present conditions are so hard that we cannot possibly continue without some large measure of relaxation. Our very favourable industrial results over the past year show conclusively that we are not, in fact, being crushed down by the weight of taxation. When production, productivity, exports, profits and all the rest of the indices of industrial activity are at the highest levels ever known in the country it is not good sense to argue that our industry is weighed down and rendered incapable of full performance.
§ In fact, the sense of fair shares and full participation in the national effort has easily overcome any disadvantages that might flow from the sort of controls that are necessary to ensure those fair shares and to maintain full employment. So for the present both our past experience and our future prospects point to a continuance of the same budgetary policy that we have followed for the last three years.