RURAL FINANCE

Ashburton Guardian, Volume 55, Issue 135, 20 March 1935, Page 3

RURAL FINANCE

FINAL ADJUSTMENT BILL. EXCESSIVE CAPITAL LIABILITY, A CHANGE PROPOSED. (Per Press Association). WELLINGTON, March 19. In moving the second reading of the Rural Mortgagors Final Adjustment I Bill in the House of Representatives to-day the Rt. Hon, J. G. Coates said that the Mortgage Corporation Bill tvouldl play a large part in the rehabilitation of farm finance, but it left untouched the problem of excessive capital liability. That problem the present Bill was designed to solve. Measures taken by the Government luring the last four or five years had considerably alleviated the crisis in the farming industries and had provided some shelter from the unprecedented fall in overseas prices. So long as there was a reasonable hope of any substantial recovery in overseas prices it was regarded as unfair to creditors for the Government to suggest writing down excessive capital liabilities. Mortgagor relief legislation now in force had worked! well and had prevented chaos and social friction which would have been inevitable if creditors had been permitted to exercise their contractual rights to the full. However, it offered no permanent solution; in fact, in some cases it hindered permanent refinancing arrangements, and the Government was convinced that the fime had now arrived when something had to be done to bring about a readjustment of capital indebtedness. While the future course of prices could not be forecasted with complete certainty, there seemed little prospect of a rise substantial enough to make the writing down of capital unnecessary. In those circumstances it was useless continuing on the basis of temporary relief and postponement and some general scheme of permanent reconstruction seemed wise.

Impossible Obligations. “We have received indisputable evidence that a large number of farmers are losing heart under the present conditions of uncertainty,” continued Mr Coates. “Many farmers are going hack andi necessary finance is frequent,ly difficult to obtain. If production is ,to be maintained, if farmers are to pursue their operations with self reliance and hope for the future, there must be opened up for -them a prospect of haying a satisfactory income and enjoying a reasonable measure of economic security. The depressing burden of impossible capital obligations must be lifted. This is necessary both in the interests of the farmer and the community as a whole. It has been argued in some quarters that there is Uo necessity for the Government to take action in the direction of reducing excessive debt because comparatively few fai’mers are in need of such assistance or because the problem $ could settle itself. Neither of these views is acceptable to the Government. The present relief legislation will not suffice to bring about a permanent settlement. To repeal the existing legislation and leave the adjustment to voluntary action is to precipitate chaos. The evidence of the Dairy Commission, the opinion of the chairmen of the Adjustment Commissions, and my own observations in various parts of New Zealand convince me of the necessity for actio®. I am sure that theie is no need for me to convince the House that the problem of excessive debt is not confined to a handful of farmer mortgagor's; it applies generally to thousands of farmers throughout New Zealand.” Variation of Contracts.

Mr Coates said the Government fully realised that it was a serious matteto interfere with contracts, and it did not propose such a step lightly or without cai’eful thought, hut it took the view that there were considerations which outweighed even the objections to interfere with contractual rights. If, through the force of economic' events, the letter of the contract imposed an intolerable burden on a large mass of the people, if it resulted in serious injustice to large numbers and if it impeded progress, then the letter of the contract had to be varied in the interests of the. people as a %vhole. It had long been lecognised by the highest judicial authorities to he the inherent power of the Legislature to relieve the public of pressure and acute distress by inteiference with rights under private contracts. There were several reasons why the legislation was confined to rural mortgagors. AVhile there was no doubt that many urban mortgagors were in difficulties, the problem in urban areas was not so devastating in its nation?# repercussions as that which affected the rural industries. Furthermore, the problem of adjustment in the cities was much more complicated than in the farming industries. The earning capacity of a farm furnished a reasonably approximate guide to the debt it could carry, but such a criterion did not apply anything like so generally in respect of urban securities. In the case of a large number of town properties the capacity of the mortgagor to meet his obligations was independent of the property itself, because the property was not a source of income to the mortgagor or was not the only income. It was hoped that the excessive mortgage indebtedness in urban areas would be gradually liquidated by improved economic conditions and by voluntary adjustment which it was felt could be induced by an extension indefinitely of the existing legislation but the Government had not lost sight of the problem as it affected urban areas and would sympathetica! y consider any practical schemes to facilitate readjustment. In announcing that the Government, in deference to objections, had decided to withdraw the clause providing that in certain cases the farmer he granted an equity of up to 20 per cent., All Coates said that there were contemplated amendments which had not yet been finally drafted. He desired that there should be no misunderstanding as to his views on the question. He

considered the proposal as embodied in the Bill was wise and reasonable, and that on the balance it would react to the advantage of the mortgagees. “I feel that both the intention of this proposal and the purpose behind it has been misunderstood,” said Mr Coates. “The provision is permissive and indicates the maximum amount which may be granted if all 'the circumstances warrant it. In certain cases, especially where the investment of the farmer in the property has been substantial, it is not unreasonable -that his position should have consideration.” It was claimed by Mr Coates that the equity as proposed merely brought the land in closer accord with its productive value by providing the farmer with an income which more closely approximated a reasonable return for good work and good management. It had to be remembered that living expenses would fall far short of a reasonable return for farmers. Moreover, the provision of equity offered an incentive to a farmer to increase his efforts, and if the productive value of land were accordingly increased it- lyould tend to benefit the mortgagee whose security was likely to be better preserved if there were prospects of an equity for good work at the end of the budgetary period. It was intended by the State to abide by the provision of the Bill as at present drafted 'in respect of the equity of mortgagors to State Departments. If compulsory adjustments were fair to the farmer and his creditors and would bring his liability to within his capacity to pay, the basis of adjustment must be determined with every possible care, therefore it was proposed that budgetary control should operate, lho charge that thai system placed him m a state of peonage was 'both unreasonable and exaggerated. Far from putting a farmer in a state of peonage budgetary control was introduced to free him from the bondage of excessive liabilities. No reasonable farmer would object to the obligation to keep proper records and be subjected to a budget for a limited period if that were a step in the process of freeing him from excess liability.

Relationship of Bills. Describing briefly the relationship between the Mortgage Corporation and the present Bill, the Minister said that under the new measure the amount of the mortgage as reduced would become repayable after five years, and the Mortgage Corporation was empowered to advance up to 80 per cent, of the 'value of the security behind the existing mortgages over land, the State guaranteeing 18 1-3 per cent, of the value of the security. It was hoped that this provision would enable the Mortgage Corporation to offer material assistance to farmer mortgagors and both directly and indirectly facilitate refinancing on reasonable terms. It was proposed to abandon the proposal lor the appointment of supervisors. Save in very few cases it was expected that the appointment of supervisors would not be required, because farmer mortgagors would be competent to farm without supervision. Where the appointment of supervisors was deemed necessary, the adjustment commissions were able to make such arrangements for supervision as were considered necessary without any special provisions being embodied in the Bill, thus it was thought desirable to leave the matter to the discretion of the adjustment commissions. Measure Assailed. Mr M. J. Savage (Leader of the Opposition) said the object - of the Bill might be quite legitimate, but the method suggested in the Bill was another stoi-y. When it was realised that those in need of relief must serve for a probationary period of five years under various forms of supervision", including budgetary control and then be kept for another indefinite period before getting a clearance, the outlook was not encouraging. The involved nature of the Bill left the way open for endless trouble, and costly administration, and the average mortgagor would not be able to call his soul his own while he was subject to its provisions. The principles outlined in the amendment moved by the Leader of the Labour Party when the Mortgages Final Extension Bill was under consideration in 1924 might be made the basis of legislation to deal with the present position. The present Bill looked like a measure that was meant to postpone action and the approaching general election lent colour to that suggestion. Mr Savage said that budgetary control was not a new principle; it was being applied to relief workers who were forced to disclose in the form of returns the nature of all their possessions that looked like the comforts of life and which must be done without so long as the worker was an applicant for relief work. A farmer mortgagor was to be put under similar regulations, and it was reasonable to assume that he would be forced down to the bare means of subsistence. On completion of the budgetary position the Court was to determine the mortgagor’s equity in his farm and make consequential adjustments in the amount of his mortgages. The Court might fix the value of the mortgagor’s equity at anything up to 20 per cent., but could not exceed that to the detriment of the creditors. , It appeared that although the mortgagor’s equity might not amount to 20 per cent., the &mrt could fix it at that notwithstanding the fact that the creditors had to suffer. "Was there any substantial reason why the Government should not face up to the problem of restoring equities that it had assisted in destroying? The average farmer had not failed. iHJe had rapidly increased his output over a great number of years, but the Government, in common with the Governments of other countries, had by a policy of deflation destroyed his returns. It was a money problem more than anything elsS. Measured in production the country was well able to restore the equities that the Government had helped to destroy. If they were unable to produce goods and services in sufficient quantities to enable them to restore equities to the average of wholesale prices over the last seven or ten years, how did they propose to pay the public debt of something like £300,000,000? When workers were employed at productive work and were paid sufficient to enable them to buy the equivalent of what they produced, the country would he able to pay its way, but not until then. Unless fundamental changes were made in the money system, including taxation, the problem they were discussing would reappear in future, and in the intervening periods

the speculator in land and property would grow rich at the expense of farmers and home builders. Mr W. J. (Poison (Ind., Stratford) said the Bill was an attempt to extend protection to the farming community. The farmer had to be kept on iiis farm and reasonable steps had to he taken to do that. The Bill itself appeared to him to have been written without any vision, without any sympathy for the farmer who was up against it and without any real understanding of the position. It was an insult to the farming community and to the rest of the people. He was prepared to say that no farmer wanted the Bill and iie did not know who asked for it. What section of the community was able to exert sufficient pressure to say to the Government “put this Bill through’ and they did it. AV hat . was necesSary was to reduce the rate of interest to the world parity and to extend the power of the Mortgage Adjustment Commission. The farmer was anxious to be fair to all sections of the community and all ho askod was a fair and reasonable adjustment. The farmer must be given sufficient reward for his industry to enable him to carry on. If the farmer was losing heart, surely it was the duty of the Government to consider means of giving him a reward to make his work remunerative. Subsidies were given in various countries, including Britain. He would urge any farmer not to accept the conditions of the Bill. The Government had not risen to the occasion as it should have done.

Mr F. Langstone (Lab., Waimarino) said the farmer might just as well he in durance vile as on the land and he predicted that many men would walk off the land rather than accept the conditions laid down in that Bill.

Better Times Predicted. The Hon. E. A. Ransom said that they had every reason to believe that the* next five ’ years would be better than the last five and he said the farmer under the budgetary system would have enough to enable him and his family to live in comfort. Mr Savage had said the problem was a. money one, but it could not he solved in the way suggested by him. Mr Savage had said that the Government should face up to the position. That was exactly what the Government was doing, and the Opposition did not like it. It would rather see the Government run away from it. Mr A. M. Samuel (Ind. Thames) asked if it was the intention of the Government to put the Bill through its third reading. Mr Forbes: Yes. Mr Samuel said that if they did not the House was engaging in a sham fight. 'lf it did propose to put it through the third reading, they , were going to impose further hardship on an already struggling and hard hit community. The farmer who needed assistance was the man who had battled along through the depression, but under the Bill he would not receive assistance if his financial resources were ended and prices remained at the present low level. Mr Samuel added that many other countries had tackled the problem of the primary producer, he believed successfully, by endeavouring to keep prices from going below certain minimums. The only way to assist the farmer was to give him a fixed price, the same as they gave other sections of the community. Country v. Town. Mr W. E. Parry (Lab., Auckland Central) said the Government had been running away from the position for 11 years. Farmers under the budgetary system would he hauled ever the coals for incidental items of expenditure, and farmers knew it, yet the farmers in Parliament were prepared to vote their fellows into a state of bondage. He did not doubt the Government’s sincerity in the matter, but he doubted if it would work out as they expected. The Bill would be taken in the Dominion as putting country against town. It was legislating for one section of the community. He contended that the urban dweller living in an average home had practically the same outlay in interest and rates as any' farmer. If the Bill was going to achieve all it was intended to achieve, it should apply to the urban dweller as well as the farmer. Mr W. J. llroadfoot (€’., AVaitomo) said the legislation was frankly experimental and it was a genuine endeavour to face up to the position. Personally he thought it would be helpful to the farming community. If the policy of Mr W. E. Elliot obtained control in Britain t the present legislation was mild compared with what would have to he brought down later, and he hoped that the policy would not rule. He favoured the budgetary system which, he said, had been working satisfactorily in many cases. He suggested 1 that instead of paying a man a wage he should he put on a percentage basis. He regretted that the Minister intended to drop the 20 per cent, equity, as he thought it gave a man an incentive to keep his land in good heart.

Class Legislation. Air A. Harris (C., AVaitemata) said the Bill was another evidence of the class legislation for which the Government was becoming notorious. The primary producers were not the only persons suffering in New Zealand today. The average farmer in difficulties was' better off to-day than the man in the town who was experiencing difficulties. The prices of farm produce generally were steadily rising, and the man in the city had to pay higher prices for these goods. The legislation should he extended to take in all sections. He was satisfied that too much was made of farmers’ difficulties which were being’’greatly exaggerated and a wrong impression was being created in the public mind. The farmer was not short of food as were people in the towns. Many urban dwellers were over-mortgaged, yet it was .not suggested that their liabilities should be written down. The main trouble m New Zealand to-day was the neglect of the State Advances Department and other State lending institutions to meet mortgagors and adjust mortgages. There was not the legislation to enable them to meet, the position as private mortgagees had done. The Hon. Downie Stewart (C., Dunedin AVest) said if part 5 were removed from the Bill it would practically be the effect of the. amendments suggested by the Minister. . It left the Bill just where the existing legislation took the position and there was no reason for rushing the _ Bill through as there was grave ineasiness in the country as to what the effect of the Bill would he. He suggested that the Bill should be held over till next session, as world conditions were in a very unsettled state. Air AV. A. A r eitcli (Ind., AVanganui) said the effect of the Government legislation was to increase land values at the cost of all the now land owning

interests of New Zealand The legislation had created a bad feeling ovei sens It had created an anti-New; Zealand feeling instead of one ot goodwill. The Government policy ot maintaining the high price of land was keeping many farmers walking the footpaths of the cities instead of getting them back on to the land. He contended that the Governments policy was unjust and inequitable. Air A. E. Jull (0., AVaipawa) said he thought the Mortgagors Relief Commissions should be altered. At piesenp the mortgagors’ element was too prominent and the Commissions should have the confidence of all sections of the community. The debate was adjourned and the House rose at midnight.