LOCAL BODIES AND LOANS.

Auckland Star, Volume XLIV, Issue 186, 6 August 1913, Page 7

LOCAL BODIES AND LOANS.

THE GOVERNMENT PROPOSALS.

A STATE-GUARANTEED SCHEME.

(By Telegraph.—Parliamentary Reporter.)

WELLINGTON, Tuesday

Various opinions on the Local Bodies Loans Bill were given at the second reading this afternoon. The Hon. Mr. Allen pointed out, as he did in introducing the measure, that the bill wa3 largely a machinery measure. Among other things, he expressed Jiis willingness to take out the restriction so as to enable local bodies to raise loans within New Zealand for small amounts, say up to £20,000. Local bodies, under the same guarantee, would probably be able to raise money in London as well as the Government could raise it for them. He assured the House, however, that the Government would have to be very careful regarding the guarantee, as, if the local bodies launched out with very large amounts, the loans might have a serious effect for Government loans. (Every proposed loan would be very carefully considered first by the Advances Board, the approval of which would be necessary. The bill was really an effort on the part of the Government to assist local bodies to fret their loan requirements without calling upon the State itself to rake the money in London. SOWING DISSATISFACTION. Mr. Russell expressed a doubt whether in preparing the bill tfie Minister was aware of the magnitude of borrowing by local bodies: In 1910 the loans of local bodies amounted to £10.000.000, yet he understood by thn bill that a limit of £500,000 was to be placed on the guaranteed borrowing. Why, what would such bodies as, say, the Auckland HarboTir Board, do with its share of such a sum? The Minister had admitted, rather under compulsion, that the one source the Government looked to as a borrowing source for loams to local bodies had rather dismally failed since the Government attained office.

The Prime Minister: It failed before we came in.

Mr. Rnssell: Before the present Government came into office the deposits in the Post Office Savings Bank largely exceeded the withdrawals. Since the' Reform Government came in the withdrawals have largely exceeded the deposits. The Prime Minister: Not thia quarter. Mr. Russell (smiling): Well, they most have changed eince June, so that I am proud to hear that confidence is becoming restored. DEPLETING LOCAL SCiPPLIES. Mr. Russell went on to express the opinion that in the matter of loarje. local bodies in towns had as -much right to consideration as country local bodies. In his opinion better provision would haw to be made for local bodies who wanted to raise say £50.000 to £100,000, bnt which were not able to go on the London market. If the borrowing of local bodies was to be limited it meant limiting the wages fund of the country, and would produce embarrassment through stoppage of public works. The Ward Government prevented the depletion of the money market in New Zealand by raising tho money in London. If a Local <iovernTnent Board were constituted to consider loan proposals, an immense amount of good would result in this country. He agreed that the idea o£ a State fruo.roof.ee. I'elrlnd thjse !oc-is was a good one, but hr> hoped every facility -would be afforded needy local bodies to borrow money for development purposes. RAISE THEIR OWN LOANS. The Prime Minister said that the most important departure in the bill was the Government guarantee to a local body, or to groups of local bodies. Ho pointed out the divergence of the proposal, aleo, whereby a llocal body could borrow again to repair work for which a loan hud previously bppn raised, to discuss the old scheme, he argued that fjhe loane to local bixlics had become, so enormous that the Government were unable to deal wftli them. In his opinion the prime reason for the financial stringency was the fact that large local bodies like city councils and harbour boards were, getting loans through the Government instead of going on to the London market themselves. The Auckland Ha-rbour Board, for instance, couJd borrowTnoney if notion terma as good a* the Government, y<»t at a comparatively low Tate of interest.

DEPOSITS AND WITHDRAWALS. Speaking of the remarks made by the member for Avon, 'Mr. Maaeey said it was true that, for several months the withdrawals exceeded the deposits, but for tlrc past two months the deposits showed, sin excess.

Mr. Myers: That is because you raised the interest

The Prime Minister: Yce, tile interest wae raised; but the fact remains that deposits have been very satisfactory for two months past.

The Premier went on to quote from a statement that for the year ended December 31, 1912. the deposits in the Post Office Savings Bank totalled £11,725.1 S3. which was higher than in any previous year, and that deposits actaallv showed an increase of £787,007. Aβ "for withdrawals, it was only natural bhat a man would place hvs money elsewhere if he could get higher interest.

WHENCE THE OUATtAOTEED MONEY.

Sir Joseph Ward, wh o> spoke nctt. expressed the opinitra that the £500,000 proposed as the limit in the bill, considering the increasing nnmber of public bodies and the great demands being made upon them, was quite inadequate. The Prime Minister pointed out that fflie IGoven-nmcnt would continue <thfi loans to local bodies, the £500.000 beiror in addition. 6

Sγ Joseph Ward: That is the limit of guarantee outaide the ordinary lending but where is the £500,000 State ffuartee going to come from? As certain _as we are alive, it is going to withdraw £500,000 from the local money market. Provision should be insisted upon that this Guarantee is not to apply to money raised in New Zealand that will give a protection.

A WARNING NOTE. Sir Joseph went on to say, in reference to loans to public bodies in the days of the Liberal Administration, that he wished to correct a statement ho had seen credited to the Prime Minister to the effect that during his (Sir Joseph's) time money had been lent vi local public bodies at a lower rate of interest thu.ii <Jie ( IOV . err.mnnt paid for it. Thni was quite incorrect. The country lost 1:0 money ; n interest from local bodies during "his term. He went on to remark ih.it the Government had reverted to the old system to a limited extent, but. no matter what was done it would be imposjible to enablf all the local bodip,? to obtain anvtbinfr like what they required. Sir Joseph oonc*lud*»rl by sounding a warning to the Reflect Uiat il any local public body, he-

lieved that it would be able to raise a h>an in London, State guaranteed, under £100,000. it would be bitterly disappointed. A LIKELY EMBARRASSMENT. Mr Myers agreed that it was highly undesirable to attempt to float small loans on the London market. He also pointed out to the Minister in charge the embarrassment which might result to the flotation of a Government loan of. say, 3i per cent if at the same time local body paper State guaranteed was floating about al 5 per cent. It would be inadvisable in the best interests of the Dominion, he thought, to have paper floating about like that at a higher rate of interest than Government paper. Several speakers who followed urged the same point, the argument being stressed by members on both sides of the House. CRITICISMS ANSWERED. The Minister in reply explained that the bill wont v step further than the method inaugurated last year. He desired it to be distinctly understood that the £1,000,000 fixed fast year for loans to local bodies would suffer no reduction. The State guaranteed loans would be in addition to it, but of the million he pointed out that £250,000 was set aside for hackblocks. The legislation last year made provision for the most needy local bodies, the Government assisting them to pay interest and sinking fund. He wiehed it clearly understood that the million per annum was cumulative —if not borrowed in one year il could be borrowed the next. Be agreed that precautions had to be taken ajruinst flooding the market with State guaranteed loans to the detriment of the Government's operations. The bill gave the Minister and the Advances Board control over local guarantees. It was quite true that one or two big local bodies might utilise all the guarantee for one year, but there must be a safe limit, and the bill wp.s only a beginning. There was no danger in having the paper guarantee about so long as it was judiciously handled. There was no Teason why the money should not be borrowed in New Zealand, though it was always desirable not to deplete the local market. He could not include hospital authorities within the scope of the bill, because they had no direct rating powers. However, the contributory authorities had that power. As for the stringency, of course it existed, and existed in every developing country. New Zealand was a great deal better off than other places. The rates of interest were lower than was the case four or five months ago.

Mr Isitt asked why private borrowers still had to pay 8 per cent on first class security.

The Minister replied that everything depended on the security," and the individual who borrowed. He doubted if 8 per cent had to be paid now. The bill was read a second time.