Govt move ‘inflationary’

Press, 12 April 1983, Page 23

Govt move ‘inflationary’

PA Tauranga The move by the Government to encourage investment in local-body loans, announced earlier this week by the Minister of Finance, Mr Muldoon, was criticised by the Mayor of Tauranga, Mr R. F. Dillon. The move would be inflationary and of dubious real benefit, he said. “It could encourage some financial institutions to place more of their public sector portfolio stock into local-body loans,” he said. “However, the extra interest must come from somewhere, and the end result will be that the local authorities must pay a higher rate of interest for borrowing. That means less money is available for actual works. “This year alone the interest charges on Taurange City Council loans have in-

creased $250,000. “While local bodies may be able to raise loans slightly more easily, they will be able to do less with the money. It is a guaranteed way to boost inflation,” Mr Dillon said. The chairman of the Tauranga County Council, Mr E. K. Barnett, said that any move which made it easier for local authorities to raise loans for major capital works had to be regarded as a positive step, but he was cautions about higher effective interest rates. “The authorities must carefully weigh up the concept of financing projects from loans today,” he said. “There are some projects where there is no choice but to use loan money. “If the work is of sufficient importance they will have to live with the prevailing interest rate.”