£20,000,000 LOAN FOR DEVELOPMENT

Press, Volume LXXXIX, Issue 27048, 25 May 1953, Page 8

£20,000,000 LOAN FOR DEVELOPMENT

Issue At £9B 10/-; 3| Per Cent. Interest • * REBATE OF TAX ON INTEREST ' (New Zealand Press Association) WELLINGTON, May 24. A national development loan of £20,000,000 with a term of nine years will be opened for subscription oh Tuesday. The issue price of the stock will be £9B 10s, and the rate of interest will be 3| per cent., which, with the capital gain of £1 10s over the loan period, will bring the interest return up to £3 19s per cent., a rate in line with current market returns. The loan will be open for five weeks, closing on June 30. The maturity date is May 15, 1962.

Details of the loan were announced tonight by the Associate Minister of Finance (Mr C. M. Bowden). Subscriptions to the loan may be either for ordinary or death duty stock. New provisions included in the prospectus allow for a rebate of tax on interest derived from the loan, so that a tax-paid return of not less than £2 per cent, is assured. There is also provision for the acceptance at par of death duty stock in payment of income tax and social security charge on a deceased investor’s estate, as well as for the payment of death duties.

The loan will include a conversion offer to holders of the 2f per cent, stock maturing on October, 1, 1953.

Announcing the terms, Mr Bowden said that the Government had an urgent, necessary and carefully selected works programme providing for the future supply of electricity, for schools and houses, extensive land development, flood control, telephone services and improved transport facilities.'

“This loan seeks to provide the capital for better utilisation of our resources of manpower, equipment and materials, to increase production both from the land and from our industries, and we will all benefit from the filling of it,” said Mr Bowden. “The last national development loan offered by the Government in 1951 for £10,000,000 was over-subscribed,” continued the Minister. “The Government has kept off the loan market for two years, but now is inviting public subscriptions, and is confident that the people will support the Administration in financing its programme by sound financial methods. Subscription may be made in full at the time of application, or by spread payments of 10 per cent, at the time of application, 40 per cent on August 3 and the balance on October 1. The first payment of interest will be made on November 15, 1953.”

New Provisions Explaining the new provisions in the loan conditions, the Minister said the Government wished to ensure that investors should receive a net return of at least 2 per cent, a year on the nominal value of their subscriptions after payment of income tax and social security charge on the interest derived. Any subscriber to the loan who was paying income tax at the rate of more than 7s lOd in the £, and the Is 6d social security charge would receive a rebate of income tax on the interest derived from his stock. For the purpose of calculating the rebate, the interest on the stock would be regarded as the final increment of the investor’s income.

The Minister said that if before the maturity date of the loan, a subscriber to that stock should die, such stock would be accepted at par, not only for death duty payable in his estate, but also for payment for income tax and the social security charge up to the date of death.

An undertaking was also given that death duty stock could be converted on maturity into other stock carrying similar rights.

Conversion of War Loan Stock

Mr Bowden said that holders of 2j per cent, stock of the compulsory war loan of 1940, which would mature on October 1, could tender that stock in payment for stock of the new issue at the rate of £9B 10s of old stock for £lOO of the new. If that were done, interest on the old loan at per cent, would be paid up to May 31 and the new rate of 3$ per cent, from then on. Of £14,000,000 of the old stock outstanding, more than £4,000,000 had already been converted and a promise had also been received for the conversion of another holding of nearly £3,000,000 into the new loan. “It is very satisfactory that we have already received conversion of half the old stock before the new loan is opened,” said Mr Bowden. “It would be in the country’s interest and to their own benefit if other investors in the old compulsory war loan converted their holdings to the new loan. By so doing, they would lessen the need to use funds for debt repayment and thereby aid the State by allowing it the use of that money for another term.” >

The Minister added that while the new loan was for £20,000,000 he had reserved the right to accept applications in excess of that amount. “The need for funds to carry on the programme of national development is great, the purposes are important, and the money will be well spent on productive enterprises,” he concluded. “The whole-hearted support of the public is sought.”

STOCK EXCHANGE COMMENT

LOAN NOT THOUGHT EXCESSIVE

- (New Zealand Press Association)

AUCKLAND, May 24. “The terms of the loan show that an earnest endeavour has been made to make the issue attractive to various classes of investors.” said the president of the Stock Exchange Association of New Zealand (Mr S. C. Hay) tonight. Only time would prove, he said, whether the conditions were acceptable to the market Some investors, said Mr Hay, might be disappointed with the return of £3 19s per cent, on redemption, but it must be remembered that interest paid by the Treasury was in the first instance collected in some form of tax from the taxpayers, some of whom would be those who sought a higher rate. By fixing the nominal rate at 3f per cent, it appeared to be the obvious wish of the Government to maintain the local body rate at 4 per cent.

The amount of £20,000,000 was not excessive when it was remembered that the holders of the 2j per cent, stock maturing on October 1 of this year were being offered conversion on attractive terms. Large amounts of that stock had gravitated into the hands of large institutions to whom the low-interest-bearing stock at a discount on the market had been attractive.

The fixing of a minimum 2 per cent, return after deduction of income and social security taxes would encourage these institutional holders to convert, said Mr Hay, and might do something to recapture the interest o* die private lenders in the higher income group, who in recent years had been taxed out of this class of investment.

“I am disappointed,” said Mr Hay, “that the Government has not found

it possible to include some provision or concession which would stimulate a greater incentive to save. The reward for investment in savings banks or Government stock is so small after payment of tax that many are discouraged. A provision that, say, £25 to £5O of interest was free of income tax would attract subscriptions in amounts of up to £lOOO from a wide field to such an extent that it could affect favourably the rate of interest of future loans.”