FINANCIAL POLICY IN THIRD REICH

By Fritz Reinhardt
Secretary of State in the National Ministry of Finance

I. THE MEASURES HITHERTO INTRODUCED AND THE SUCCESS ACHIEVED

The principal objects aimed at by the financial and fiscal policy of the new Reich are:

(1) The reduction of unemployment.

(2) The creation of the material conditions indispensable to the strengthening of the country’s defence forces.

(3) The adjustment of the rates of taxation to the principles underlying National Socialist population policy.

The reduction of unemployment is a sine qua non to the restoration of satisfactory conditions in the social, economic and financial domains, and without it the material conditions indispensable to the strengthening of our defence forces could not be created. The strengthening of our defence forces is essential to the maintenance of peace and to the protection of the nation’s vital rights. The adjustment of taxes to the principles underlying National Socialist population policy is, in the main, a demand of social justice.

The principal measures hitherto applied to the struggle against unemployment have been the following:

(1) The placing of a charge on future revenue by the issuance of bills under the scheme for the provision of work, and by the granting of cash advances, interest certificates, loans, and tax facilities.

(2) The granting of loans to couples intending to marry, and allowances in respect of children.

(3) General exemption from taxation payments, and measures for the lowering and adjustment of taxes.

(4) The conversion of municipal issues, and measures for lowering the rates of interest and modifying the regulations governing credits.

The immediate object intended to be attained by these measures, more especially by those enumerated under (1), (2) and (3), has been to stimulate the demands for goods and for services rendered. Whenever there is a rise in these demands, the following effects will be produced:

(a) Increased employment and therefore a decrease in public expenditure on unemployment benefits.

(b) Increased turnovers, increased wage payments, and increased consumption, and therefore an increase in the yield of taxation.

(c) A general improvement in the position of public finances.

The above measures have proved a complete success, as may be inferred from the following facts:

(1) Large-scale unemployment has ceased to exist.   When Herr Hitler assumed office, the number of registered unemployed was just over 6,000,000. The present number is in the neighbourhood of 1,000,000; but even that figure is not a correct index of the actual amount of unemployment. It happens in every national economy that a certain percentage of employed persons constantly transfer their services from one place of employment to another and thus become temporarily unemployed. These persons, therefore, are not a charge on the public funds. A sufficient number of them must always be immediately available in order to satisfy any sudden demand for their labour. It is estimated that their present number amounts to some 500,000. The remaining 500,000 unemployed are either totally or partly unemployable. There are several trades in which an actual shortage of labour has already made itself felt, and it has thus become necessary to make use, in some instances, of persons only partly suitable for the work concerned. The permanent unemployment of fully employable workers has been eradicated in Germany and will never recur to the extent reached in the past.

In 1932, there were about 26,000,000 unemployed throughout the world. At present the figure stands at about 19,000,000, a decrease of 7,000,000. Out of this decrease, 5,000,000 persons fall to the share of Germany. During the same period in which the rest of the world succeeded in reducing the number of its unemployed from 30,000,000 to 18,000,000, i.e., by 2,000,000, National Socialist Germany was able to provide work for 5,000,000 of her unemployed population. When National Socialism came into power, mass unemployment was higher in Germany than anywhere else, the number of unemployed being 94 per 1,000. To-day, Germany no longer ranks among the countries in which mass unemployment exists.

The above figures prove that Germany’s fight against the scourge of unemployment has actually been a complete success. Without the elimination of the exaggerated party system by the Hitler Government, and without the resulting substitution of National Socialist discipline for the Liberalistic absence of systematic efforts, such success would have been unthinkable.

(2) The general index of industrial production was three times as high in 1936 as it was in 1932. As regards the production of goods for consumption, too, the rise in the index figure is taking place at an increasing rate.

(3) The proceeds derived from the sale of agricultural products and from the retail sale of commodities generally have considerably increased.

(4) In 1936, the money paid by way of wages and salaries exceeded by 9,000,000,000 reichsmarks the corresponding amount paid in 1932. During the same period, the total national income went up by 17,000,000,000 reichsmarks. Everything indicates that the upward movement will continue for a long time to come. In 1937 the national income will amount to 68,500,000,000 reichsmarks, or 50 per cent. more than it was in 1932.

(5) Between 1933 and July 31st, 1937, savings-bank deposits increased by some 5,000,000,000 reichsmarks, or 40 per cent., and the deposits with agricultural co-operative societies by some 400,000,000 reichsmarks, or 25 per cent.

(6) There has been a considerable increase in social-insurance contributions. The net assets of the social-insurance institutions increased by 1,000,000,000 reichsmarks.

(7) The number of bankruptcies and composition proceedings is now one-eighth of what it was in 1932.

(8) The expenditure of public money on unemployment benefit decreased from 2,800,000,000 reichsmarks in 1932 to 1,000,000,000 reichsmarks in 1936.

(9) The yield of National taxes, notwithstanding various reductions, remissions, etc., underwent the following development:

            1932    .           .    6,600,000,000             reichsmarks.
1933    .           .    6,800,000,000      “
1934    .           .    8,200,000,000      “
1935    .           .    9,600,000,000      “
1936    .           .  11,500,000,000      “
1937 (estimate) 14,000,000,000   “

The figure for 1937 was more than twice as large as that for 1932, and there is every probability that the upward movement has not yet come to an end and that it will not do so in 1938 either. The turnover tax and the general income tax, more particularly, are constantly yielding larger amounts.

(10) Thanks to the drop in the number of unemployed and to the resulting increase in economic activity, it has been possible to restore healthy conditions in the field of municipal finance. Municipal budgets are again balanced. Many municipalities have already earned budgetary surpluses and are now able to accumulate reserves. The share of the municipalities in the yield of national taxation has been reduced in favour of the Reich, because their own tax yield has increased. The conversion of municipal indebtedness in 1933-4 and the lowering of the rates of interest have contributed towards the restoration of sound financial conditions.

II. THE CHARGE ON FUTURE REVENUE

It has been found that the placing of a charge on future revenue has had no adverse consequences. The financial and fiscal measures thus introduced have resulted in a very considerable economic revival, which-in turn-has so greatly augmented the yield of taxation that the policy adopted has been an unqualified success.

Thanks to the steps taken, additional economic assets have been created which are of lasting value and will enable the body economic largely to increase its productive efficiency. In addition, existing economic assets have been modernised or otherwise improved in value. From the very start of the National Socialist revolution, the party had proclaimed that it was its aim to prevent economic assets from deteriorating in value, to create additional ones, and to increase the remunerativeness of all of them for the benefit of the nation as a whole.

The charges placed on future revenue are partly of short and partly of medium currency; but a certain percentage is now converted into long-term loans issued by the Reich. The object of the conversion is to place at the disposal of the Government, within the framework of the ordinary budget, the funds that will be required to finance the strengthening of the country’s defence forces and other important projects.

The short and medium-term indebtedness and the provision of the money needed for the redemption of the long-term loans and for the payment of interest on them are more than covered by the additional yield of taxation. In view of the extent and the productive efficiency of Germany’s national economy, the amount of long-term loans issued so far can only be described as small.

The continued financing of the important projects named can be effected in the same manner as hitherto provided that the amounts which cannot yet be provided by the budget can be raised in the capital market and that the service of the long-term issues can be maintained by means of the increased taxation yield. Everything will be done, now and in future, to preserve the balance of the current budget and to prevent the accumulation of short and medium-term indebtedness. The extent of such indebtedness will never exceed the limits set by the rate at which the yield of taxation continues to increase or by the possibility of converting it into long-term loans.

III. GRANTS OF LOANS TO COUPLES INTENDING TO MARRY
AND CHILDREN’S ALLOWANCES

The principal measure introduced to combat unemployment was the Act passed on June 1st, 1933, Section VIII of which provided for the granting of loans to couples intending to marry. This provision has been in force since August 1st, 1933. In order to qualify for such a loan, the prospective wife must have been in some sort of paid employment for nine months out of the two years immediately preceding the marriage. Prior to October 1st, 1937, the prospective wife was also required to give up her paid employment (if any), but this undertaking is now no longer insisted upon. Women already married are permitted to take up paid employment for the duration of the second Four Year Plan.

Between August 1933 and December 1936, we granted 650,000 such loans, the average amount of each being 600 reichsmarks. We shall continue to grant from 15,000 to 20,000 similar loans each month until there are no longer any candidates for them.

The effects so far produced by this policy may be summarised as follows:

(1) The labour market has been relieved to the extent of 650,000 persons. Assuming that, out of the 650,000 recipients of the grants, about 150,000 young couples would have married in any case, the fact still remains that some 500,000 more marriages were concluded during those three years and 500,000 more households were established than would have been the case without the loans.

(2) The labour market has been relieved by at least another 150,000 persons owing to increased employment in the furniture industry, the industries turning out household requisites, and similar ones.

(3) An expenditure of about 400,000,000 reichsmarks has been saved per annum in respect of unemployment relief.

(4) The major part of the sum of about 400,000,000 reichsmarks hitherto paid by way of grants has been spent on purchases, thus increasing – directly or indirectly – industrial output, and causing a corresponding increase in the tax yield.

(5) The number of marriages has considerably increased and the birth-rate has gone up.

No interest is payable on the loans. They are to be repaid at the rate of 3 per cent. per month so long as the wife is in paid employment, and at the rate of 1 per cent. per month thereafter, but a reduction of 25 per cent. is made from the total amount in respect of each child (excluding still-born children). If desired, the monthly payments of I per cent. (or 3 per cent.) may be deferred for a period of twelve months after the birth of each child. Applications to that effect are regularly granted by the Revenue Offices. When payment has to be resumed after the lapse of that period, the monthly amount on which it is calculated is no longer the sum originally advanced, but only that part of it which is still left after deducting the allowance made in respect of the child. The object aimed at by these provisions is to enable the young couples to spread the repayment instalments over a longer term and to obtain larger reductions consequent upon the birth of more children.

Up to the present, more than 450,000 reductions have been thus granted, corresponding to an equal number of children born. Their value exceeds already the sum of 65,000,000 reichsmarks, and the total amount in respect of which repayment is deferred exceeds 25,000,000 reichsmarks.

The payment of the grants will be continued, as already stated, so long as there are any candidates for them, and that presumably will always be the case. This measure will therefore constitute a permanent feature of the National Socialist State. It has originated from the desire to fight unemployment and to improve the social, economic and financial position of the country. Beyond that, it is inspired by the conviction that proper steps have to be taken to safeguard the continued existence of the German people.

The funds required by the Government to grant these loans are obtained by raising the rates of income tax payable by unmarried persons.

The proceeds derived from the repayment of the loans are used in the form of allowances paid to poor persons with a large number of children.

Between October 1935 and December 1936, nearly 300,000 families received such allowances, the average amount in each case being 370 reichsmarks. Applications are only considered if they are made by persons whose household includes not less than four children below 16. In addition, applicants must prove that their income does not exceed the limit fixed for the purpose of these allowances.

Since August 1936, recurring allowances have been paid besides the non-recurring ones. They are restricted to families with a large number of children and amount to 10 reichsmarks per month in respect of each child above 16 except the first four. Applicants must be in receipt of monthly incomes not exceeding 200 (prior to October 1937, 185) reichsmarks gross. If, for instance, the weekly wages of a worker are 40 reichsmarks and if he has seven children below 16, the sum of 30 reichsmarks per month is paid to him by the Revenue Office so long as the above conditions obtain.

Children’s allowances differ from wages and salaries in that they are exempted from taxes and social insurance payments. Thus, in the case just cited, the purchasing capacity of the family concerned has gone up by nearly 20 per cent. since August 1936.

At present, recurring allowances are paid in respect of about 400,000 children.

No other financial aid from the public funds to which the persons concerned may be entitled, such as unemployment relief, etc., is in any way curtailed or discontinued on the ground that they are in receipt of recurring children’s allowances. These latter are intended to improve the social position of families with a large number of children.

Children’s allowances are not regarded as charity payments, but as the necessary outcome of a policy whose aim it is to alleviate social inequalities. The justification for granting them lies in the fact that persons with a large number of children have to pay larger amounts in respect of turnover tax, taxes on consumption, and inland revenue than others, and it is these amounts which are refunded to them. In like manner, the allowances compensate them – either wholly or partly – for the amount paid by them in respect of social insurance, and (when the number of children exceeds six) for part of their rent. Thus, the allowance made for the fifth child in a family is equivalent to exemption from the taxes and duties named, that made for the sixth and seventh child to exemption from social insurance payments and part of the rent, and that made for any additional child to exemption from a further part of the rent. It is intended that the facilities thus accorded shall be applied to the improvement of the children’s standard of living.

Recurring allowances in respect of children and the measure described in Section IV of this article are the first fruits of a policy aiming at an adjustment of family burdens. The system of allowances will be extended according as the necessary funds will become available, the ultimate aim being to create a national fund large enough to make it possible to pay them to all persons working for their living irrespective of the nature of their work. The first step in this direction was taken in October 1937, when the number of persons entitled to benefit from them was enlarged by the inclusion of handicraftsmen, small tradesmen, etc., whose annual income does not exceed 2,100 reichsmarks, whilst the income limit will be gradually increased in subsequent years.

All these measures naturally tend to increase the purchasing capacity and therefore the standards of living of the persons concerned. Thus, certain principles underlying the country’s economic, social and population policy have been uniformly applied to serve a practical purpose.

IV. GENERAL TAX EXEMPTIONS, REDUCTIONS AND ADJUSTMENTS

The chief measures here concerned are the following:

(1) Exemption from the motor-car tax in respect of all passenger cars licensed subsequent to March 31st, 1933. The effect has been a considerable rise in the demand for passenger cars.

(2) Reduction of the turnover tax and real estate tax (the former by 50 per cent.) payable by farmers, the former having become effective as from October 1st, 1933, and the latter as from April 1st, 1934. The effect has been an increase in agricultural production.

(3) Lowering of the rate of contributions in respect of unemployment assistance, effective April 1st, 1934, and January 1st, 1935. The effect has been an improvement in the purchasing capacity of wage earners.

(4) Lowering of the tax on inhabited house property, effective April 1st, 1936. The effect has been to make it easier for house-owners to spend money on the upkeep and repair of their property.

V. THE LEGISLATION GOVERNING TAX REFORM

The Acts providing for the reform of the taxation laws, passed October 16th, 1934, represent another aspect of the legislation intended to stimulate the demand for commodities and services and to raise the nation’s purchasing capacity.

They provide, among other matters, that enhanced regard is to be paid to the family status of income-tax payers, that the family status is also to be taken into account when assessing the poll tax and the tax on assets, that the tax-free income is to be raised in respect of the poll tax, and that certain exemptions are to be introduced in favour of children and grandchildren in connection with the legacy duties.

Married wage-earners are completely exempt from income tax when their monthly income does not exceed the following amounts, and when the number of their children is as stated: 260 reichsmarks – four children; 351 reichsmarks – five children; 793 reichsmarks – six children; 910 reichsmarks – seven children; 1,027 reichsmarks – eight children, and so on. If their income exceeds these amounts, the tax then payable is extremely low. In the case of a married man with six children and an income of 800 reichsmarks, for example, it is as low as 1.04 reichsmarks per month.

As regards the poll tax, no regard was paid in previous years to the family status; but this is no longer the case now. The change became effective on January 1st, 1935. Before that date, a married workman with four children and an income of 50 reichsmarks a week had to pay (in Berlin) 42 reichsmarks per annum by way of poll tax. Now, however, he is completely exempt from that tax, thanks to the provision by which he is entitled to a reduction in respect of every child except the first. As, in addition, the tax-free income (in so far as the poll tax is concerned) has also been materially increased, the number of persons liable to that tax has correspondingly decreased.

As regards the tax on assets, a change was made (effective in 1936) by which 10,000 reichsmarks is exempt from it in respect of the husband, the wife, and each child under age. If, for instance, a married man with three children owns capital to the value of 40,000 reichsmarks he has no tax whatever to pay on it, whilst he had to pay 200 reichsmarks per annum before the change was introduced.

Since January 1st, 1935, exemptions have also been in force in respect of legacy duty, amounting to 30,000 reichsmarks in the case of each child and 10,000 reichsmarks in the case of each grandchild. Prior to 1935, a child inheriting 25,000 reichsmarks from his or her father, had part of it deducted therefrom on account of the duty; now, however, no duty whatever is payable on such a legacy.

We have already begun to adjust our fiscal system to National Socialist principles. The greater regard now paid to the family status is not only due to reasons in the domains of social and population policy, but is also prompted by the conviction that such a policy is bound to increase the purchasing capacity of the families affected by it.

VI. THE REFORM OF THE LEGISLATION GOVERNING TAXES
ON INDUSTRY AND REAL ESTATE

The reform of fiscal legislation introduced on October 16th, 1934, constituted, in effect, an important step forward in the direction of simplification. The same remark holds good for the further reform introduced on December 1st, 1936, and made applicable to the tax on industry and to that on real estate, which, until recently, were levied by the federal States, the municipalities, and the municipal federations.

Although these two taxes were payable throughout the country, there was no uniform legislation concerning them. Each of the sixteen federal States had its own rules and regulations, so that there were thirty-two different laws governing them.

The Act that came into force on December 1st, 1936, has simplified all this. The previously existing thirty¬two laws have been abolished, and two new ones – valid throughout the country – have taken their place, one dealing with the tax on industry and one with that on real estate.

A notable feature of the new legislation is that the two taxes here concerned have been converted into municipal taxes pure and simple, so that the proceeds derived from them will no longer flow into the coffers of the federal States. This change will make it necessary to arrive at a new financial adjustment between the Reich, the States, the municipal federations, and the municipalities.

When the simplifications and alterations introduced by the new Act have become practically effective, the time will have arrived for the structural reorganisation of the Reich and for the constitutional changes necessitated thereby.

VII. IMPROVED METHODS OF ENSURING THE PAYMENT OF TAXES

Although, thanks to the continued economic improvement, the tax yield is always rising, regulations have been issued for the purpose of ensuring the due payment of all taxes. Their effect has been-apart from a not inconsiderable rise in the tax yield – a better application of the principle of equal justice for all. Since the substitution of the National Socialist regime for that based upon a multiplicity of political parties, there has been a marked improvement in what might be called” fiscal honesty” and in every taxpayer’s willingness to “render unto Cæsar” what is due to him, and to comply with the date limits set for payment.

VIII. GERMANY’S FINANCIAL STATUS IS THOROUGHLY SOUND

Unemployment has practically disappeared in Germany. There is great activity in trade and industry. The public budgets have been balanced. The proceeds derived from taxation are sufficient to ensure that the capital and interest service of the loans issued will always be promptly effected and that, in addition, funds will be available for the capital and interest service of further issues should these be required.

We have no intention of being satisfied with the successes already achieved. Whilst continuing to finance the great projects and the other tasks entrusted to the German people by the Leader and to translate into practice the principles of National Socialism in the domain of its population policy, we shall also continue to make social, economic and financial progress. Our financial status is thoroughly sound; and all the financial conditions indispensable to the strengthening of our national defences, to the carrying-out of the Four-Year Plan, and to the successful working of every other measure intended to safeguard our vital rights, have been provided.