£20,000,000 LOAN

Press, Volume LXXXVI, Issue 26124, 29 May 1950, Page 8

£20,000,000 LOAN

Capital Works Programme PRIME MINISTER’S ANNOUNCEMENT From Our Own Reporter WELLINGTON, May 28. A National Development Loan of £20,000,000 will open on Monday. Details of this new internal loan, as announced by the Prime Minister (Mr Holland) in a national broadcast last night, are:— (1) Investors will have the choice of two classes of stock:— (a) Three per cent, stock issued at £99 10s and maturing August 15. 1959-61; (b) 21 per cent, stock at par maturing August 15, 1954. Thus, investors will have the choice between long and shortterm stock, and may also apply for either death duty or ordinary stock. (2) The loan will be open for four weeks from to-morrow (Monday). Payment may be made over the next six months. This loan will replace the existing “tap issue.” Its term has been reduced from 17 to 11 years. Already £2,250.000 has been subscribed. The loan will be used to finance capital works. National savings, amounting to £ 10.500,000, also will be used. In his broadcast. Mr Holland recalled previous statements and broadcasts on financial matters. He described this talk as a further instalment of the Government’s plans to explain things to the people in the simplest possible language and to take the people fully into the Government’s confidence. He repeated his warnings about inflation—the most insidious means of reducing living standards. It affected people most who received the lowest incomes. “If we do nothing else during our term of office than reduce, and possibly stop, these inflationary processes, we will have achieved something worthwhile,” said Mr Holland. “Of course, we are going to deal with many other problems. New Zealand has a great future, but we must be careful that our future progress is accompanied by a system of sensible and sound management of our finances. Otherwise, it could easily be like trying to climb a steep sand hill—when you go up with one foot and slip back with the other. “Steady Progress and Sound Finance”

“The theme of my. talk is steady progress and sound finance. I feel that if the people are told fairly and honestly why the National Development Loan money is needed and on what it will be spent, they will see that it is provided.

“New Zealand is a young country, and has made wonderful progress in a short period, but there is still considerable development work to be done,” Mr Holland continued. “Many of the works come necessarily within the sphere of the central Government. Local authorities play their part in their field and, together with private activity, all pave the way for increased productivity and real prosperity. “In the Government sphere we must be careful that we do not travel too fast and absorb more than our share of the resources available—manpower, money, and materials. Real and lasting progress depends on a fair allocation between Government and private expenditure. Works Programme

“There is plenty of work for everyone, and we must ensure that those conditions continue. At the same time, we must watch that we do not commence Government works—beyond vitally urgent works —at a time when industry is unable to obtain the labour it needs.

“When the present Government took office in December, there was a considerable programme of works under action, and much more was in contemplation. It was proposed to spend about £38,000,000 of borrowed money on capital works during the year just closed, with larger totals in subsequent years.

“With 30,000 vacancies in various branches of industry, it was evident that Government works and services were drawing too heavily on the manpower available. Our immediate aim, therefore, is to arrest the rising tide of Government expenditure. “Many essential works were under construction when we assumed office, and our efforts are concentrated on completing these as early as possible. That applies particularly in the case of hydro-electrical development and land settlement productive works that react favourably on the country’s economy and bring increased prosperity for all. Other works, though not immediately productive, are very necessary.

“More school buildings, for example, are required for the growing population. These are just some of the items the Government considered the public required and would be prepared to pay for. “Having conducted a searching review of the works that should be done, we then studied the financial aspect. Last year. £26,000,000 of new paper money was created, £15,000,000 of which was to assist in carrying out the works programme. This tended to reduce the purchasing power of the money already in circulation. That is the inescapable consequence of inflation. £37,000,000 Needed “After eliminating non-essentials we have been able to restrict a dangerously expanding development programme to within the money voted last year, that is. to about £37,000,000 for capital works. “The question is where to obtain this £37,000,000. For this year we propose to use the surplus of slightly over £4,000,000 in the Consolidated Fund. That, with moneys already in hand, will reduce the amount required to £30.500.000. That is well within the capacity of this country to raise for Government works 'if everybody is given the opportunity to help. We anticipate this can be financed by National Savings. £10,500,000 and a public loan of £20.000.000. “The biggest section of the people who will benefit from these capital works are those with small incomes, and their savings can make a material contribution to the cost. Last year the amount saved, or ‘invested.’ through National Savings was more than £10.000,000, a record since this form of saving was inaugurated as a war measure in 1940. As from April 1, these moneys, as received, are being applied toward the works programme. “People who in this way are setting aside part of their earnings for some particular purpose—building or furnishing a home—know that in the meantime the money is serving an essential purpose in building hydro-electric stations, schools, etc. When they require repayment, the money will be repaid out of the sum set aside regularly each year out of taxation for debt repayment. “On the basis of last year’s investment of small savings, it is assumed that £10,500,000 will be received this year.

“nre immediate problem' is to raise the balance of £20.000.000. This will be done not by having a loan open for an indefinite period, in a ‘tap issue.’ but by inviting subscriptions for a fixed period of four weeks. The amount required is definite and we must know early in the year that the money required is available. All members of the public who have £5O or more can invest, as well as big financial institutions. Reduced Term for Loan

“It is evident that recent Government loans have not met with a ready response from the public as the terms have not been in line with what the public considered reasonable. At present it appears that people will not tie up money for 17 years, which was the maximum term for the last loan. The new loan has been fixed at 11 years for the main classes of stock. “We considered it would not be advisable to depart from the present basic interest rate of 3 per cent., as this would affect all other classes of investments, local body loans, mortgages, etc. It would be a kind of fin-

ancial dog chasing its own tail. It is [ necessary to consider the existing market rate and the new loan will be on that basis.

“Although the loan will be open for only four weeks, it is not necessary for the full amount to be paid in at once. Provided apnlication is made in that period, payment may be spread over the next six months. Either the full amount can be paid on application, or 10 per cent, of the amount applied for can be paid, followed by 40 per cent, on August 15 and the balance on December 1.

“Since my preliminary announcement of the loan was made five weeks ago, £2,250.000 has been received in advance subscriptions. Those concerned will have the option of deciding within seven days whether they will accept the terms or require immediate repayment. The amount so far invested, I believe, gives a good indication that the public will support a sound financial policy. “I confidently submit this loan to the people,” concluded Mr Holland. “I ask for the most generous support you feel you can afford. By avoiding inflation we will stop the main cause of higher living costs. If it had not been for past inflation, living costs would not be where they are to-day. If we inflate in the future living costs will be higher. It is much better to save and lend, than it is to print and spend.”

SATISFACTORY TYPE OF LOAN MR W. S. DAWSON’S VIEWS (New Zealand Press Association) DUNEDIN, May 28. “The Prime Minister’s explanation of the necessity for the loan and of his reasons for asking the public to subscribe to it, were so comprehensive and lucid that there seems very little left for me to say,” said Mr W. S. Dawson, of Dunedin, president of the New Zealand Stock Exchange Association to-night, when invited to comment on Mr Holland s announcement. “The fact that the money subscribed is to be used for certain specific purposes, designed for the ultimate benefit of the whole community, should give the public confidence to invest in the loan and thus play its part in helping the country to progress in these directions.” Mr Dawson said. It is a much more satisfactory type of loan than the indeterminate “tap loans” which have been served up year by year for some time past.

EXPENDITURE OF £37,000,000 COMMENT BY MR NASH “ £2,000,000 MORE THAN SUM SPENT LAST YEAR’’ (New Zealand Press Association) DUNEDIN, May 28. “The sum asked for by Mr Holland is similar to that asked for by the previous Government last year,” said the former Minister of Finance (Mr Nash) commenting to-night on the announcement by the Prime Minister (Mr Holland). The programme of proposed expenditure of £37.000,000 announced exceeded bv more than £2.000,000 the sum actuallv expended last year and was £2.000.000 greater than the expenditure estimated by Mr Holland in a previous statement. Mr Nash said. It seemed strange to ask for this larger sum. Referring to the bonus of 10s per cent., Mr Nash said that while the difference in yield was very slight, it did not seem reasonable to increase the interest rate for Government stock above 3 per cent.

“The bonus looks to be exclusively for the benefit of the larger investors.” said Mr Nash, “as there is no statement that those investing for shorter terms will get it.” It could be emphasised, Mr Nash said, that the paper money referred to by Mr Holland had brought an asset into being when money spent by the Reserve Bank had been spent exclusively in the creation of assets. In reference to the standard of living, Mr Holland would do well to give thought to a recent statement of his own. Mr Nash said. The statement had probably had the greatest ill effect on the standard of living of the lower paid workers of any single statement made by a Prime Minister in the history of the country. The arithmetic which suggested the using of a surplus of £4.000.000 in the Consolidated Fund for last year seems strange. Mr Nash said, when compared with the statement by Mr Holland last week in which he said that that surplus was required to balance the alleged deficiency in the Social Security Fund and the War Expenses Account. In connexion with the supertax, Mr Nash said Mr Holland could have reasonably been expected to advise the public that the first £2OO of unearned taxable income was already not subject to any supertax. It would certainly be interesting. Mr Nash said, to hear of further statements by Mr Holland when or before presenting the Budget. When in Parliament, both parties could be heard on the radio.