churches are under the control of municipal and shire councils. These councils are permitted to borrow up to 20 per cent of the unimproved value in municipalities, and the loans are guaranteed by the Government. Special local and loan rates are imposed on the improved or unimproved value as the council prefers. The rateable value of coal mines, for example, is fixed at 50 per cent of the gross value of the average annual output for the preceding three years, and other mines are assessed at 40 per cent for the same period. In the self-governing Dominions it is customary for the Central Government to subsidise the provinces, as, for example, in Australia, South Africa, and Canada. In India the reverse is the case. The Provincial Governments make a fixed annual assignment (which is a fixed prior charge on provincial revenues) to the Central Government. It is hoped that in a few years it will be feasible to wipe out such assignments completely, especially from the fact that the provincial revenues are less elastic than those of the Central Government, and also because the provinces must devote in the near future large sums for primary education and other nation-building activities. 4. What then should be the broad lines of the division between Central or Federal, Provincial or State, and local expenditure? A precise line of demarcation is of course impossible. It will be advisable to examine the Budgets of various countries and to draw from this examination the principle or principles on which the division has been made in practice. In all Federal Governments security is their primary function, and therefore expenditure on defence is retained by the supreme or Central Government. In the United States, India, and the self-governing Dominions, defence, a subject of the most vital and general interest to the country as a whole, is rightly a central subject. Customs, including tariffs, shipping, immigration, foreign relations, post offices, telegraphs, including wireless telegraphy, census and statistics, and the country's debt apart from the debt of State and local authorities are suitable subjects of federal or central expenditure. Other subjects which may conveniently fall within this category are the civil and criminal law of the land, together with central police organisation. It is in the long run a gain to a Federal constitution to have uniformity throughout the country in these matters. State or provincial items include education, the conservation of health1 and sanitation, law and justice, including prisons and police, public works such as irrigation works, roads, bridges, and provincial buildings, industries, labour, payments for interest and sinking funds in connection with State debt, and similar payments. Anything affecting local self-government, such as the constitution of municipalities, district boards or similar local bodies, is a fit subject of State or provincial expenditure. Local expenditure ordinarily should include expenditure on education, police, a fresh and adequate supply of water, sanitation, lighting, roads, tramways, cemeteries, crematoria or burning ghats, markets, parks, and similar works and services. Of the rate expenditure of local authorities in Great Britain for 1921-22, estimated at £192 millions, poor relief and education each accounted for £40 millions, police for £11 millions, and other expenditure for £101 millions. Poor relief, education, and police together accounted for 47 per cent of such expenditure. In India for the financial year ended 31st March 1920 the aggregate expenditure of municipalities (of which there were 739 with a population of over 17 millions) was Rs.2100 lakhs (£14 millions), including debt expenditure of Rs.11 lakhs (£73,000). The aggregate expenditure of district and sub-district boards in the same period (including debt items) was Rs.990 lakhs (£6.6 millions). During this period 23-8 per cent of the gross expenditure of municipalities, district and sub-district boards was spent on public works, including roads, 11.8 per cent on education, 15.0 per cent on sanitation, hospitals, etc., and 44.7 per cent on debt and miscellaneous expenditure. In New Zealand 72-3 per cent was devoted to public works, 12.5 per cent to loans, and 5.7 per cent to management. From the classifications given above it will be evident that there is no absolute uniformity between country and country, owing mainly to historical causes. In some cases, as in Canada, Australia, and South Africa, the Dominion or Federal Government had a later birth than that of the provinces or States. This is not an invariable rule, as, for example, in India, where there has been for long a powerful Central Government. The long list of Governors-General from Warren Hastings shows this 1 Including hospitals, dispensaries, asylums, and provision for medical education. to have been the case, and this supreme Government, with the acquisition of new territory and general economic progress, has gradually delegated powers to local administrations, especially where a high degree of co-ordination appears to be, in changed circumstances, unnecessary. No uniform division exists between central or federal, provincial or State, and local expenditure. Take, for example, education and police. Education is both State and local expenditure, since education is of general interest to the community (and therefore of importance to the State as a whole) and of special or local interest as in elementary education. In Prussia and other States of the Deutsches Reich, where education is compulsory for children from six to fourteen, the free elementary schools (Volksschulen) and the middle schools of the towns (Burgerschulen and Hohere Burgerschulen) are maintained by local rates with grants from the State. In addition to these the well-known gymnasien (which prepare in a nine years' course pupils for the universities) and technical and normal schools are also met from State and local resources. In the highest spheres of education it is not possible to expect local rates to bear a large proportion of their cost-at any rate in cases where such institutions are national or provincial in character, and therefore rightly a charge on national or provincial revenues. Expenditure on police is sometimes similarly partly State and partly local. While the State is vitally interested in the preservation of law and order, it cannot be doubted that local authorities, if animated by a real spirit of local selfgovernment, can supervise the control of the police, only general supervision being kept in the hands of Government. Thus in Great Britain local authorities possess a considerable control over their police, but the Home Office, Whitehall, exercises general supervision. In other cases the whole of the expenditure on police is State expenditure, on the principle laid down by John Stuart Mill in his Representative Government (1861) that “it would not be a matter personally indifferent to the rest of the country if any part of it became a nest of robbers or a focus of demoralisation, owing to the maladministration of the police ". 5. It is not the duty of State or provincial governments to relieve local authorities of expenditure that rightly pertains to local authorities. In some countries, notably in India, municipalities have been accustomed to look to Government for grants, and to shun improving the machinery of rating and valuation. In Ahmedabad, for example, with a population of 300,000 and no less than 64 cotton mills, it is very doubtful whether local rates should not bear the full cost of renewing, for example, machinery for pumping water, instead of seeking and obtaining in forma pauperis subventions for this and for other similar purposes such as hospitals and other local institutions. Grants have been given, notwithstanding a rise in recent years of at least tenfold in land values. In short, expenditure should have been met by increased local rates on real property in order to meet what is of particular value to the community. The example of the United States in this respect is of interest. The main expenditure in individual States is undertaken by the local authorities in counties, townships, or school districts. 6. To sum up, no clear line of demarcation is possible between central, provincial, and purely local expenditure. The differences that exist are largely, very largely, the result of historical conditions. As a general rule it may be stated that where the interests of the State as a whole are concerned (e.g. in defence), then the expenditure is undoubtedly central and not local. Where, too, in addition to the good of the whole community, there are advantages in uniform action, then the expenditure should be met from central (or State) sources. In cases where particular interests are paramount, or detailed local supervision required, local authorities should be the spending authority. CHAPTER XI EXPENDITURE CHARGEABLE TO CAPITAL 1. THE problem of expenditure chargeable to capital has received unusual prominence in recent years mainly, if not quite entirely, owing to the Great War. What expenditure on the part of public authorities should be incurred out of capital, and what expenditure should be incurred from revenue? What are the general principles on which capital expenditure is to be incurred? Should non-productive expenditure invariably be met out of revenue, and out of revenue only? For the present we shall attempt briefly to answer these interesting points of public expenditure. 2. The importance of the problem may be seen from the detailed tables (XXV.-XXVII.) in Appendix, showing the public debt of various countries before and after the War. The general results may be conveniently summarised thus: |