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ing income at 22,497 marks. This person, who before the war, after deduction of tax, had an income of about 45,000 marks (or say 2,250), had thus, in 1920, after deduction of taxes an income not merely reduced by half, but, in view of the depreciation of money, no better than that of an ordinary working-man.

The work of tax reform under the young German Republic was not exhausted by this extension of direct taxation. There was added a great extension of indirect and transport taxation. Its most important item was the tax on turnover. At first it consisted in a stamp duty of one per mille, rising in the last year of war to five per mille, but by the National Assembly's regulation of Dec. 24 1919, which came into force on Jan. i 1920, it was fixed at 15%. This turnover-tax is applied also to articles of luxury, specially mentioned, at a rate ten times "increased, namely 15%- Further it includes a restaurant-tax, advertise- ment-tax, cloakroom-tax, etc., etc., and covers certain kinds of service such as letting-out furnished rooms, taking in advertise- ments, holding in trust money, securities, valuables and furs, letting riding horses on hire, the rate of tax being 10%. It is to be noted that the normal rate of 15% does not represent the total amount, which really is very much higher on the average, and in the case of semi-manufactured and manufactured goods it has to be paid as many times as the commodity changes hands. The tax is therefore a real tax on consumption in the largest sense. Similarly, the coal-tax is collected at 20% on the value at the pit-head, and rises in proportion with the selling-rates. Various single taxes on tobacco, matches, playing-cards and sales of real property were also to be added, as well as repeated increases in the charges for letters, telegrams, postal-orders, trunk-telephone messages and railway rates.

A gigantic increase of the burden of taxation on the whole of German national economy was the result of these reforms, though even then they were not sufficient to balance the budget of the Reich.

Development of Reich Finance, 1919-21. The most significant feature of the financial position in these first years after the war was the rapid increase in the national debt. The figures each year were as follows, in milliards of marks:

Funded debt (Treasury bonds and interest- bearing Treasury notes)

Floating debt (Treasury notes without interest)

Total

March 31 1918 March 31 1919 March 31 1920 March 31 1921

71-9 92-4 92-0

78-3

33'3 63-7 91-5 176-6

105-2 156-1

I83-5 244-9

The reduction shown in the funded debt in 1921 arises from cancellation by means of collection of War-tax and " Reich need " levy, and by the sale of army property. Against this the in- crease in floating debt in 1921 includes a part of the purchase price paid by the Reich on taking over the railways from the individual states, whilst, on the other hand, a number of other obligations are not included. If these are taken into considera- tion, and the Reich and the individual states are taken together, there appears for Oct. i 1920 a total debt of 294-8 milliards of marks, compared with 22 milliards on March 31 1914. The large increase of debt was the result of slow returns from the new taxation, the depreciation of money which continually caused a greater expenditure on goods and services and repeatedly upset the budget estimates, the subsidies given on necessaries in order to adjust prices to the depreciation of money, the large rise in the interest charge on the debt, the deficits on the railways and post-office, and finally the beginning of large payments under the provisions of the Peace Treaty.

In the regular. budget for 1919 a revenue was shown of 12,753 million marks and expenditure of 15,087 millions (of which 8,389 millions was for debt alone). The deficit was covered for the most part through returns from the taxes on war profits. Not so the extraordinary budget, which showed a revenue of 4,154 millions of marks and an expenditure of 39,779 millions. The deficit of 35,625 millions had to be covered by loans. Very large items of arrears in war expenditure were included here, and it

seemed justifiable to hope that, with the closing of such expendi- ture, the deficit would be reduced. But the opposite came to pass. The estimate for 1920, in which for the first time larger returns from the new taxes were included, forecast in the ordinary budget a revenue and expenditure of 39,891 millions, or more than three times the revenue estimated for the previous year; and under the expenditure 12,693 millions was included for the service of the Reich debt, 3,967 millions for pensions and 9,405 millions for the states and local governments as their share in the new Reich taxes. The extraordinary expenditure was estimated at 52,579 millions, of which 3,955 millions was for the paying-off of the old army and 41,440 millions for the execution of the Peace Treaty, while losses on the postal, telegraph and railway management were put down at 19,221 millions, so that there remained to be covered by loans a total of about 70 milliards, besides 35 milliards representing deficits in the individual states. Unfortunately the event did not contradict these unfavourable estimates. The revenues from direct taxation, transport duty, customs, tax on consumption and other levies, brought in 46-10 milliards, or an excess of 37-70 milliards compared with the previous year and even an excess of 6-10 milliards over the estimate, largely as a result of the " Reich need " levy, by which 9-33 milliards was collected (the estimate having been 3^ milliards). From the new income-tax 9-59 milliards was received (estimated at 12 mil- liards), from the new tax on return of capital 909 millions (esti- mated 1,300 millions), from the newly extended tax on turnover 4-2 milliards (estimated 3-65 milliards). The coal-tax brought in 4-67 milliards, an increase of 3-32 milliards over the previous year; the new tobacco duty brought 1-76 milliards. But the total net revenue accruing to the Reich after deduction of the costs of collection and the amounts transferred to the states and local governments was only 27-7 milliards and the net expendi- ture was 73-7 milliards, in addition to 10-4 milliards for interest on debt and 18-2 milliards for subventions and for cost of manage- ment of railways and post-office. There resulted a deficit of 74-9 milliards which again could be covered only by an increase in the floating debt.

This disastrous picture was repeated in the 1921 budget. On March 26 the provisional estimate, passed in the Reichstag, provided for an expenditure of 46,945 millions in the ordinary budget and 43,667 millions in the extraordinary budget. Three months later a supplementary estimate entirely upset these figures. Expenditure in the ordinary budget was now put at 48,459 millions, the estimated deficit of 4,250 millions on the revenue side requiring to be covered by fresh tax proposals. The expenditure in the extraordinary budget was placed at 59,680 millions, against which there was an estimated revenue of 10,500 millions (of which 7,800 millions would come from the " Reich need " levy). The subventions for post-office and rail- ways were estimated at 18,383 millions. Here was a deficit, in round figures, of 50 milliards of marks, apart from one. of 4j milliards on the ordinary budget. No allowance is included here for the reparation payments to the Allies.

As in the accounts for 1920, the liabilities under the Peace Treaty made a considerable showing by themselves in the budget for 1921, the estimate being 26 \ milliards. The delivery of live animals involved three milliards; the costs of the settlement department for the liquidation of the pre-war debts between German subjects and those of former enemy countries were provisionally placed at two milliards; for reparation deliveries, apart from shipping, cables and cattle, 8,630 millions. The cost of Allied troops of occupation on the Rhine was put down at 7,266 millions, further augmented by 757 millions for the cost of land and buildings for their use, together with further incidental expenses. For the Rhineland Commission itself 109 millions was estimated, besides 1,220 millions for economic help for the occupied territory, to which the states and local governments had to contribute. Finally there came the reparation demand, which put before Germany economically and -financially a prob- lem of tragic magnitude.

The Reparation Demand. According to article 233 of the Versailles Peace Treaty the Reparation Commission fixed on