INDUSTRIAL FINANCE Minister Predicts Success For Move

Press, Volume CIII, Issue 30603, 20 November 1964, Page 3

INDUSTRIAL FINANCE Minister Predicts Success For Move

(From Our Parliamentary Reporter) WELLINGTON, November 19. The Minister of Industries and Commerce (Mr Marshall) forecast in Parliament tonight that the Development Finance Corporation to assist new and expanding industries would be a well-established and thriving institution well before the next General Election. Replying to Opposition objections to the Government’s proposals in the bill to set up the corporation which was given a second reading tonight, Mr Marshall denied the Government had been prompted to introduce the bill because the Opposition had introduced its own bill.

The Government, he said, had changed its mind about delaying the establishment of the corporation before the Deputy-Leader of the Opposition (Mr Watt) had given notice of his intention to introduce a similar measure.

The economic statement of the Prime Minister, in which the delay had at first been proposed, had been altered and issued to the press before Mr Watt gave notice, he said.

The Opposition attacked the Government bill because, as Mr Watt said during the debate, the inclusion of a bulk of private enterprise capital would inevitably mean the corporation's main motive would be profit. Its only motive should be the assistance of New Zealand industry. He said the capitalisation of the corporation was far too low, that it should be a completely non-profit organisation, that it should be implemented at once and that its lending rates should be as low as possible. Mr Watt moved that before the Government's bill was read a second time his own Industrial Finance Corporation Bill should be given a second reading. Members should have a full opportunity to have a full appreciation of the problems involved, he said. Thi_ proposal was defeated by 34 votes to 30. Replying to other Opposition questions, Mr Marshall said the interest rate to be charged on loans would be fixed by the board of the corporation, but could be between 6 and 8 per cent, though, in some cases, it might be less according to the nature and risk of the proposals. Not Competitive (Mr Watt’s bill is item 22 on the Order Paper at present, among other measures brought forward by the Opposition, and will not proceed the first reading which it has been accorded.) Mr Marshall said the corporation would be an entirely new financial service, though it would not compete with existing institutions. Its two main objects were to promote industries which were in the national interest because they were developing resources or saving exchange, and to provide technical advice and assistance which would continue even after the repayment of loans. That aspect would be a new feature in borrower-lender relations in New Zealand. “The corporation will see that overseas ■ capital is brought into a suitable relationship with domestic capital. It is the view of the Government that it is highly desirable that New Zealand industry should develop under New’ Zealand control.

“The supply of medium and long-term capital to established industries and farming can be considered adequate. But i* appears new industries fail to attract medium and long-te. i capital at reasonable rates. The risk associated with their expansion is higher and their size may also limit them in obtaining funds through the share market.” The Tariff and Development Board had indicated the need for a special agency to pool overseas and domestic resources, he said. Overseas capital was available from the Commonwealth Development Finance Corporation, the World Bank and the International Finance Corporation. “The whole of the capital of the development finance corporation will be raised in New Zealand,” said Mr Marshall. “We will not be looking for equity capital overseas. Once established, the corporation will be able to raise loan capital overseas.” Mr Watt said there was an urgent need for the type of

financing envisaged in the bill. The Opposition agreed with this, but thought Mr Marshall could have been more explicit on several important points. “He neglected to explain to the House the statement he is reported to have made after the introduction of the bill—that it was the Government’s intention to pass the bill, but not to set up the corporation for some time,” Mr Watt said. “This has appeared in print. The Minister should have taken the opportunity to deny it, if it is not true.”

Mr Marshall had also neglected to inform the House why it had taken the Government four years to set up the corporation, which had been recommended by the 1960 Industrial Conference, by the Monetary and Economic Council in 1962, and by the Tariff and Development Board last year. This year the bill was introduced only because the Opposition had given notice of introducing a similar measure, Mr Watt said. The Government’s bill had been prepared, but the original draft of the Prime Minister’s economic statement revealed the Government’s intentions at that stage. It had said: “This proposal was highly desirable for long-term development, but an expansionary move of this nature at this stage would add to present inflationary pressures.” Capital Queried The Labour action had influenced the Government to abandon this position. The inflationary pressures did not alter, but the legislation was introduced to save the Government’s political face. “We do not object to this,” Mr Watt said. “But we do object to the statement made by the Minister that there is no intention of setting up the corporation immediately.” The establishment of a development finance corporation was not a new thing, Mr Watt said. It appeared, however, that the approach of the Government to the problem was such that it was unlikely that the corporation could be operated efficiently. In Australia, a total of £25.6 million was set aside by 1962 for a similar purpose The Australian Government had made an original grant of £10.6 million, had gained £5 million by other means, and had then added £lO million. The New Zealand Government proposed an outlay of £2 million. “Discussion on the introduction of the Industrial Finance Corporation Bill indicated that the sum of £lO million was required to deal with the situation in New Zealand,” Mr Watt said. Question Of Profit Referring to a clause which provides for the Reserve Bank having the right to own 30 per cent of the share capital of the corporation, Mr Watt said there was nothing to ensure that the Reserve Bank did so. It was merely a provision that that amount of capital was available to the Reserve Bank. “The Minister has said he hopes insurance companies, banks and stock t.nd station agents will take part in this

corporation,” Mr Watt said. “If they do, they will participtae for one reason only—to make a profit. “I submit the reason for the establishment of this type of organisation is not to make a profit, but to encourage productivity and to build up our natural resources. The success of the enterprise should not be measured in terms of profit.” Mr Watt moved an amendment that the bill be read a second time after the Opposition’s bill had been read a second time.” Mr D. Maclntyre (Govt., Hastings), said the Government plan would not only admit private institutional capital, but would allow individual New Zealanders themselves to invest with the corporation. Mr A. J. Faulkner (Opp., Roskill): But doesn’t the Government represent all New Zealanders? Labour’s Idea The Labour Party’s idea, said Mr M. A. Connelly (Opp., Riccarton), was that the State should create conditions for maximum production, whether this was by private enterprise, public action or a combination of the two. “We are married to no particular way, except the best and fastest way possible.” The Government proposal over shareholding would leave the corporation exposed to economic forces which could starve it of capital, said Mr Connelly. The people who would take up the capital would obviously be those the Government had consulted when it drew up the bill, the banks and financial interests, in the main owned by foreign investors. Since the directorate would be predominantly from private shareholders, they would put their private interests first and would have divided loyalties. They could refuse assistance for an enterprise which might compete with one in which they had investments. The corporation could be used to frustrate the interests of this country, said Mr Connelly. “Tedious Repetition” The Under-Secretary for Finance (Mr Muldoon) said the Opposition was obstructing legislation by tedious repetition on matters which would normally cause only a fraction of the discussion. The other night, an Opposition member had said after speaking: “I went nineteen and a half minutes. I did a good job.” Mr Muldoon said the Government was determined that legislation would be debated reasonably and without pressure. Mr H. G. R. Mason (Opp., New Lynn): I wonder what we are to say to the members for Tamaki’s contribution to putting this bill through and towards the end of the session. His silence would have contributed more to that end.” Mr Mason recalled that Mr Muldoon had complained of speeches by Dunedin members who urged the establishment of industry there by calling their speeches “the Dunedin bleat.” “Is it only in Government seats' that industry can be asked for?” Dr. A. M. Finlay (Opp., Waitakere) said the bill betrayed caution when adventure was needed. Firms seeking assistance from the corporation would first have to go to such institutions as the Finance Corporation of New Zealand, Ltd., and a would-be borrower would have to take into account the possibility of being submerged by a takeover. Mr Marshall said the major difference between the bills was that the Government measure was a private enterprise one. Mr Watt: For profits. Mr Marshall: I believe in profits. Governments depend on profits for their income. Profits come from development and the Government encourages development to make profits and the Government gets half of them.