Premium Savings Bonds

Press, Volume XCIV, Issue 28128, 17 November 1956, Page 10

Premium Savings Bonds

The results of Britain’s premium savings bonds scheme, launched last week, will be watched with close interest in New Zealand. If the scheme achieves even a modest degree of success the suggestion will probably be made that it should be introduced in New Zealand, where the need to increase savings is at least as much a matter for concern as it is in Britain. The essence of tfie scheme is that for the investor there is no loss of capital; the bonds do not earn any interest but may win £ 1000 tax-free prizes at quarterly draws. The prize money, according to one calculation, will amount to 4 per cent, of the money invested. The scheme was announced in April, when the Chancellor of the Exchequer (Mr Harold Macmillan), in presenting his Budget, said that to get the balance of payments “ out of the red ” the most urgent need was “ to restore “the habit of saving among all “ classes of people Thus, the success or failure of the scheme (and of the less spectacular encouragements to saving announced in the Budget) depends on its effect on the total level of saving. It will not be sufficient to point to the amount invested in the bonds within, say, a year, as the criterion of success or failure, for some investors may divert their savings from other forms, of investment (such as National Savings) into the new bonds. The scheme will have proved itself only if the total of savings over an appreciable period substantially exceeds what could have been expected in the normal course of things. That the bonds will prove popular appears to be taken for granted in many quarters in Britain. Certainly, the huge turnover of the football pools shows the wide appeal of a scheme which offers a large return for a very small outlay, hovuever heavily the odds are weighted against* the individual. Whether the bonds will actually reduce consumer spending (on football pools, for instance) or whether they wjll merely divert savings from other channels cannot even be guessed at now. The Government and the monetary authorities in New Zealand will, no doubt, examine the British scheme closely. By and large, the problems confronting the two countries are similar; they are typically the problems of inflation, and, in particular, the tendencies to spend too much on current consumption and too little on renewing the resources of the land and the factories, and to import too much and export too little. But the two economies, one Tnainly a manufacturing and the other mainly a primary-producing economy, differ as sharply as their customs and There is in Britain,.

for instance, a well-developed money market; in New Zealand only a rudimentary money market. The gambling instinct—on which the success of the savings bonds scheme depends—is well developed in each country, but shows itself in different forms. Millions of Britons patronise the football pools, the nearest equivalent of which in New Zealand is the Totalisator Agency Board. A vital distinction between these two institutions, in this context, is that whereas the T.A.B. is Governmentoperated, the.football pools are run by private enterprise, and the Government’s financial interest—though still considerable—is confined to taxation of the profits and (less certainly) the winnings of the fortunate few.

With the establishment of the T.A.B. the New Zealand Government virtually conceded, with the backing of public opinion as expressed in a referendum, the broad principle of State sponsorship of gambling. This issue is still being debated in Britain. Objection on principle to premium savings bonds might be less determined in New Zealand than it has been in Britain, though that is not to say that religious or ethical objections to the proposal should be disregarded. In

New Zealand, as in Great Britain, the scheme would be attended by the danger foreseen by the “ Finan- “ cial Times ” —that it “ may offend “some without attracting the large “ number of people who spend con- “ siderable sums on various forms “of gambling