The Press FRIDAY, AUGUST 14, 1936. Borrowing From Government Departments

Press, Volume LXXII, Issue 21861, 14 August 1936, Page 10

The Press FRIDAY, AUGUST 14, 1936. Borrowing From Government Departments

For once it is possible to regret the shortening of a Parliamentary debate. The unexpecte. collapse of the debate on the budget left unasked many questions which should have been asked and gave the Minister for Finance a comparatively easy task in his reply. As we have suggested elsewhere, a more vigorous attempt should have been made to induce the Minister to state more definitely the fundamental principles of the guaranteed prices scheme. It is also desirable that more should be known about the method by which the Government proposes to raise the credit necessary for financing its programme of capital expenditure. The Minis ter, it is true, had much to say about the use of credit; but this part of his speech was more an exposition of economic principles than a discussion of the Government’s intentions. To the extent that it revealed the Minister as an opponent of social credit doctrines it was useful and reassuring. But it should not have been left to a private member, Mr J. G. Barclay, to offer an explanation of the statement in the budget that, although about £6,000,000 is to be borrowed for public works, the Government does not propose to float public loans overseas or in New Zealand. According to Mr Barclay the money . will be borrowed from State departments, presumably the Post Office Savings Bank, the Public Trust Office, and the Government Ihsurance Department. There seems to be some idea that this procedure will avert a rise in interest rates such as has taken place in Australia in the last six months. An examination of the investments and present financial position of the departments mentioned suggests, however, that such a method of borrowing will require to be used with the utmost caution if it is not to disturb the investment market. According to the latest report of the Government Insurance Commissioner the assets of his department, amounting to about £10,000,000, are invested as follows:- Percentage of total assets. Mortgages of freehold property .. 37.8 Government securities, including rural advances .bonds .. • • 24.9 Local body debentures .. • • |2.4 Loans on policies .. • • • • Miscellaneous assets .. • • Landed and house property .. 1-7

Of the £25,000,000 comprising the common fund of the Public Trust Office, £3,360,000 is invested in government securities, £7,350,000 in local body debentures, and £ 12,540,000 in mortgages. The Post Office Savings Bank Fund amounts to about £47.000,000, of which more than £42,000,000 is invested in New Zealand Government securities. It is fairly clear from these figures that more extensive use by the Government of these funds might easily restrict the amount .of money available to two important classes of borrowers —local authorities and owners of land. It is also clear that State departments, particularly the Post Office Savings Bank, already contribute substantially to the financing of government undertakings. They contribute, however, on the same terms as private investors in government securities. The present Government, apparently, proposes to borrow from its departments without any public issue of securities. It is a little difficult to see the advantages of this arrangement and very easy to see its dangers. If the Post Office Savings Bank and the Government Insurance Department are compelled to lend to the Government at lower than the market rate, they will find some difficulty in competing witn similar undertakings which are free to invest as they please. If they are to lend at the market rate, the Government has gained nothing by the change. The danger of borrowing direct from State departments is obvious. The success of savings banks, insurance offices, and trust concerns depends on the wisdom with which their funds are invested; it follows that those who manage such concerns should be unfettered in their discretion.