The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News The Echo and The Sun. TUESDAY, MAY 16, 1939. THE LOAN PROPOSAL.

Auckland Star, Volume LXX, Issue 113, 16 May 1939, Page 8

The Auckland Star: WITH WHICH ARE INCORPORATED The Evening News, Morning News The Echo and The Sun.

TUESDAY, MAY 16, 1939. THE LOAN PROPOSAL.

/"or ffc« cause that lacks assistance, For the wrong that reeds resistance. For the future in the distance, And the good that ire can do.

The issue of the prospectus o£ a loan of JC4,000,000, at an interest rate giving a yield of £4 7/5 per cent over a Ion"; term, is an obvious symptom of a change in the Government's thinking, and whether it be considered that the change was dictated by prudence or by necessity its importance is the .sf.iiK-. In his lirst Budget Air. Nash wns able to say that the money required for the expanded programme of public works was available without borrowing from the public. In its second and third years the Government again drew on Departmental balances —in this following precedent—and also on Ileserve Bank credit, for housing and public works as well as for the purposes of the Marketing Department. Revenue meanwhile continued buoyant and production high. But when the price of wool fell, when production dropped, when imports had to be checked because sterling funds were disappearing, and when, by cheeking imports the prospects of revenue from at least two lucrative sources were narrowed, the (iovcrnment's difficulties became obvious. The question has been what the Government would do to meet those difficulties. The decision to go to the public for money is an important part of the answer.

As to the terms of the. loan, opinions are iiliiio>t unanimously favourable. The Government, through its agent, the Reserve Bank, has obviously considered with gmtt care the interests and preferences of investors. Most notable of the conditions i.s the novel one intended to ensure that i£ the market price of the loan falls below the issue price there will always be a buyer— the Government—for 5 per cent of- it. This should have a stabilising effect. The provisions enabling the use of the stuck in payment of death duties, and making it exempt from stamp duties on transfer are also welcome. The imposition of stamp duty is burdensome to small holders. Though the time in which applications will be received rs short, there is reason to expect that the Government's first internal loan will be readily and quickly subscribed. A prompt subscription would be of the greatest value to Mr. Nash when he is negotiating for a renewal of the seventeen millions falling due in London in January and for the raising of additional funds in London for defence purposes.. It should also remove a great deal of the uncertainty which has beset the money market for months past As the Prime Minister has indicated already, local bodies arc now to be enabled to offer terms which will be attractive to investors.

In feeling satisfaction with these terms investors and the public generally -hould also feel glad that the Government. lia.s resisted the temptation to embark on currency experiments which would have damaged its own prestige in New Zen land and New Zealand's prestige abroad. The temptation, to at least a section of the Government's followers, was strongly alluring. The Government had made the Reserve Bank a State-owned and controlled institution* and had obtained from it, in accommodation for various purposes, nearly twenty million pounds. If twenty millions, why not, say, forty millions ? So rnri the argument. The reply, which was given, by Mr. Nash at the Labour Conference, was that too much use of Keservc Hank credit would increase the country's difficulties " l>y increasinjr the pressure of purchasing power; on the Hiiiount of gm>ds coming forward for sale, and thus tending to raise their prices." The Government, in fact, appears to have renlised that the rise in the cost of living is not unconnected with the amount of accommodation it lias had from the Reserve Hank to date. It is now attempting to break the wages-costs circle, or spiral, by means of a price-regulating tribunal. The borrowing decision may be much more efficacious, provided production is maintained.