How to pay for expensive government projects by drinking beer

A little while back some guy on social media informed me for the umpteenth time that New Zealand couldn’t afford HMS New Zealand – a major warship that the government gave to Britain in late March 1909 – because (according to him) the colony was too small, in recession and had only minimal labour force.

He never cited numbers – though in point of fact, the data underlying such assertions (GDP and labour force figures) has had to be reverse-engineered. I was involved in various aspects of this work myself, and papers that emerged from my own contribution are here: https://www.rbnz.govt.nz/research-and-publications/reserve-bank-bulletin/2003/rbb2003-66-04-03 and here: https://www.rbnz.govt.nz/research-and-publications/reserve-bank-bulletin/2004/rbb2004-67-04-04 )

So what does this have to do with drinking beer? Let me explain. Other data, such as government income, was carefully recorded in the day. By contrast with today, income tax made up only a little over 3 percent of New Zealand government revenues in the 1908-09 financial year when the gift was made. Duties on beer, however, made up about 1.2 percent. Just to compare that with today, in the 2020-21 FY, tax made up 74.13 percent of New Zealand’s government income, and alcohol duties (not just beer) some 0.92 percent.

None of this was relevant to funding the gift ship, though, because the government of 1908-09 never funded capital projects from cash flows. It did so, instead, through a long-standing debt programme that included funding for railway, harbours, roads, and underwriting local-body infrastructure. Against this the warship was a drop in the bucket. What’s more, Cabinet judged affordability in terms of the expected impact of the debt on government cash flows, not its capital value. I calculated the figures for my book on the battlecruiser, discovering it represented an 0.66 percent additional annual burden on New Zealand’s state income as at 1908-09 FY when the gift was made.

It didn’t stay that way. The reverse-engineered GDP data shows that New Zealand’s economy had been booming since the mid-1890s, entered a brief recession in 1907-08, then boomed again up to the end of 1912. Annual government revenues alone ran to several times the going price for battleships. It was one of the largest growth periods in New Zealand’s economic history. And the growth from 1909 to 1912 meant that the added debt cost of the gift ship was more than swallowed in state income growth – I crunched the revenue numbers, from actual period data, for my book.

Still, it occurs to me there was a way the ship could have been paid for without borrowing, and without relying on income tax. The majority of New Zealand’s government income in the first years of the twentieth century came from customs duties and railway profits. Another big earner was land tax, reflecting policies the Liberal administration introduced in the 1890s to ‘bust up’ pastoral runs. Here is the New Zealand government’s actual income for the 1908-09 FY, as received in the Consolidated Account and as published in the official yearbook. But – and here’s the genius part – there was also beer duty.

Revenue.	£	£
Balance on 31st March, 1908	…	767,849
Customs duties	2,801,248
Beer duty	116,214
Stamps (including postal and telegraph cash receipts)	1,591,328
Land-tax	604,901
Income-tax	321,044
Railways	2,918,507
Registration and other fees	117,061
Marine dues	43,815
Miscellaneous	264,210
Territorial revenue	222,857
Other receipts—
Recoveries in respect of expenditure of previous years	800
		£9,769,834

You’ll notice that beer duties totalled £116,214. This followed an Act of 1880 that imposed duties over beer production at 3 pence per gallon. As there were 240 pence in a New Zealand pound, this means that in 1908-09, New Zealanders drank 9,297,120 gallons of beer. At the time the population was just under a million (the 1911 census put it at 1,058,312). Of course adults only made up a proportion of the total, and not every adult drank – this was the age of temperance. But it gives you the idea.

Beer duty stamp from 1883, engraved by Bock & Cousins. This was the age when there were 12 pennies to a shilling – hence the 90 pence duty became 7/6. Collection of Te Papa Tongarewa, Museum of New Zealand. Public domain.

The final cost of the gift ship to Britain came to £1.795 million, including loan management fees. This was, as it happens, within annual government income of the day. But it also equates to duties on 143.6 million gallons of beer, or – on that per-capita basis – about 135 gallons per person annually (about 600 litres). If we suppose (say) 25 percent of the entire population routinely drank, one way of funding the ship would have been to remind this 25 percent that the average Australian could easily out-drink them, and to keep the side up they would have to increase local beer consumption to 1.57 gallons (about 7 litres) each, daily. Thus the ship could have been paid for in a single year from government beer duty alone. And (admittedly based only on my personal experiences at a pub in Port Macquarie in 1988), the daily beer consumption of the average Kiwi would have surpassed that of Australians decades before it actually did. Possibly.

I have no idea why this wasn’t thought of when the Premier, Joseph Ward, made the offer in March 1909. I mean, the government gets its ship paid for, trans-Tasman honour is preserved; and meanwhile 25 percent of all Kiwis lurch drunkenly about the streets, spewing in gutters, belching, behaving like larrikins, and wrecking their livers. OK, there’s the question of whether they’d have had the disposable income to actually buy this staggering quantity of suds. But the duty figure has documented numbers behind it.

For the story of how this ship was actually paid for (a politically salacious tale if ever there was one) check out the book – it’s available on Amazon:

Copyright © Matthew Wright 2022

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