Life offices must reduce mortgage rates before Budget

Press, 2 May 1984, Page 27

Life offices must reduce mortgage rates before Budget

PA Wellington Life assurance offices had until the Budget to bring down interest rates on farm and commercial mortgages, the Prime Minister (Sir Robert Muldoon) said yesterday. If they did not lower the rates, the Government would look seriously at ending tax concessions for new life insurance policy premiums, Sir Robert Muldoon told reporters. Sir Robert said that the British Government had already set a precedent for removing tax concessions from life insurance. “We would not alter the tax concession on existing contracts of life insurance but we would certainly look seriously at saying any new contracts of life insurance will not attract the tax concession on premiums.

“What would happen of course is that the life offices would sell less life insurance so that’s where the thing would pinch,” Sir Robert said.

“They’ve either got to be responsible and bring down their mortgage rates on existing farms and commercial loans as other lending institutions are doing or we

will certainly consider this option in this year’s Budget.”

Sir Robert said the tax concession change would have to be a budgetary move. Budget date has not been set yet, and it is expected that the date is still several months away. The Prime Minister said on Monday that assurance offices were operating counter to Government policy by charging interest rates “in the high teens” for farm and commercial mortgages.

He criticised the life offices for contending there should be an interest rate gap between house mortgages and those for farms and commercial property. “That is certainly not Government policy,” he told reporters. “The Government policy is 11 per cent for first mortgages and 14 per cent for second mortgages, regardless of the type of property.”

Sir Robert said he was “certainly not happy to see the life companies with farming mortgages up in the high teens even though they may be bringing down the house mortgages.” He also said new regulations for interest rates were

being prepared, but were not finished.

Sir Robert noted yesterday that the life offices had suggested they meet him over the issue.

But he said they were “pretending to the news media they don’t know what the issue is” and he would only meet them “as soon as they are prepared to admit they know what it is about.”

Mr lan Stanwell, the New Zealand manager of the AMP Society, said on Monday that he was unaware of any “fundamental changes in circumstance that would warrant any change (to tax concessions).”

He said it was important to view the interest rates and tax deduction issues separately, and in proportion.

The individual — especially the young or low earner — was the chief beneficiary of the deductions, followed by the New Zealand economy, Mr Stanwell said.

“Lastly comes any benefit that there may be to the life offices themselves.

“The tax exemption system encourages individuals to get into long-term savings and stay with it.

“New Zealand cannot maintain its economic momentum without longterm savings.”