LOWER INTEREST.

Auckland Star, Volume LXIX, Issue 3, 5 January 1938, Page 9

LOWER INTEREST.

LOCAL BODY DEBTS.

CONVERSIONS COMPLETED.

ENS or FIVE-YEAR TASK. At the end of a complex series of operations spread over more than four years, local bodies in Xew Zealand to-day find themselves comparatively free of debt complications, and investors appear likely to enjoy a respite from major conversions for manv vears.

During the period from March. 19":?. when the conversion policy was launched for local bodies, to the end of March, 1930, when well over 00 per cent of the convertible debt had been dealt with, the annual charges to local authorities for interest, sinking fund and repayment of principal were permanently reduced by over £.->OO.OOO annually, or from £3 4/ to £2 lti/ per head of population. At the same time the total debt—aggregating £72.47(5,000 internal a.id external —was reduced by the liquidator, f sinking funds to the extent of £2/ j.OOO. Internal and External Rates. Actually, about £>0.000.000 has been put through the conversion machine, the balance being the external debt, held in the 1- nited Kingdom and Australia, which has been outride the range of the Dominions interest-reduction policy. '1 lie average rate of interest on the locally-held debt had been reduced from 5.51 per cent five years ago to 4.19 per cent to-day. and is now appreciably below the basic rate of 4} per cent which the Government established for local bodies by the 1933 legislation. Formerly higher than the interest on the debt owed by New Zealand local bodies to debenture holders overseas, the ' interest on the loans domiciled within the Dominion is now lowest by a substantial margin. The present averages are: New Zealand portion. 4.19 per cent; 1 nited Kingdom portion. 5.15 per cent; Australian portion. 5.28 per cent.

• On top of the difference in interest there is, in the case of the United Kingdom debt, the additional effect of the rate of exchange, which adds 25 per cent to the amount in New Zealand currency which the local authorities are compelled to pay in meeting interest charges in London. As the debt domi ciled at Home amounts to £16.000,000. a considerable part of the saving by the Xew Zealand conversion is thus absorbed. For some of the larger authorities, which have done much of their borrowing abroad, the reduction locally and the increase overseas have almost cancelled each other out. ' but smaller bodies, which have relied entirely on Xew Zealand sources of capital, have reaped appreciable benefitsMagnitude of Conversion. In magnitude the conversion ranks second only to that of the internal national debt, when a total of £115,000.000 was dealt with early in 1933. and in the actual amount of work involved for scores of local authorities it has far exceeded the task of the Government. To-day the interest range of from 3 per cent to 6J per cent compares with a range of from 4 per cent to 7 per cent five years ago, and over £48,600,000 out of the of loans owed by local bodies within Xew Zealand is on or below the basic rate of 4i per cent fixed by the 1933 Act.

| Another and important effect of the I conversion has been to extend the maturity dates of the loans and to reduce the amounts to be redeemed within the next few rears. Compared with at least £26,000,000 formerly falling due, locally and overseas, within the next ten years, the total is now less than £21,000,000, and the position generally has been smoothed out in such a way as to assist all local bodies in future financing. Loans Board Applies Brake. Most of the new borrowing in the ten iyears ended March, 1936, has been done not by boroughs or counties, but by electric power boards (£4.739,000), urban transport districts (£3,140.600) and urban drainage districts (£2.646.670). Over this period the total debt of the boroughs increased only slightly, and that of the counties was reduced. Town and road districts also reduced their debts. '

Ihe period of greatest borrowing bv local bodies was between 1919 and 1927. when vigorous efforts were being made to develop electric power and road works. In eight years the debt mounted by nearly £36.000.000, at an average annual rate of £4,500,000. It was at the end of this period that the Local (government Loans Board, established in 1927, took control, and under its supervision borrowing has since been on a much lower scale. The recent vearlv average increase has been only a" fraction of what it was in the'post-war years.