INTEREST-FREE LOANS

Auckland Star, Volume LXXV, Issue 284, 30 November 1944, Page 4

INTEREST-FREE LOANS

Mr. Nash's explanation of the effect of interest-free loans to local bodies is likely to mislead the public. He said if the money is Dorrowed in the usual way at interest it merely goes from one set of people to another and does not cause inflation. But if it is advanced direct from the Reserve Bank it is newmoney (he said) and is inflationary. This is not at all a fair statement If the various local bodies borrow £100,000,000 in this usual way from the State Advances Corporation on a 30 years' table mortgage at 4| per cent, the Corporation (the Government) will get the money from the Reserve Bank (the Government) and make the local bodies repay the £100,000,000 in addition to £70,000,000 as interest to the Corporation (the Government). If, instead, as the Waitemata Council asked, the loan comes direct from the Reserve Bank free of interest, the repayment of the bare amount borrowed would extinguish the debt. This could be done in, say, 10 annual instalments. In either way the sum borrowed would go to the intended purpose (rehabilitation work) and in either way it would ultimately come out of the pockets of the ratepayers of the various local "bodies. The only difference is the Government's rakeoff — the £70,000,000 — which also would come out of the ratepayer's pockets, but would not go to the soldiers. ARTHUR SAINSBURY.