NATIONAL DEBT

Dominion, Volume 17, Issue 292, 27 August 1923, Page 6

NATIONAL DEBT

TO BE WIPED OUT IN SIXTY YEARS PURCHASE OF SECURITIES PROPOSED AMENDING LEGISLATION INTRODUCED During the lifetime of the present generation of school children, the National Debt of the Dominion of New Zealand will be wiped out altogether, if a 8111 introduced by the Prime Minister on Saturday becomes the law of the land. As forecasted by the Prime Minister in his Budget, the new method of annual reduction of the Public Debt was explained on Saturday, in the provisions of the Repayment of the Public Debt Bill. Early last month, when Mr. Massey made his Financial Statement, he referred to the public debt sinking funds, and the desirability, in view of increased indebtedness, of establishing a systematic process of debt reduction, in place of the present method of accumulating sinking funds that are not available for redemption purposes when required. He indicated then that the House would be asked to provide facilities for the purchase or : edemption and cancellation of suitable securities before or at maturity out of a debtrepayment fund account. By this means he said be expected to effect not only a saving in interest and sinking fund charges, but at the same time an annual reduction of the debt. There would, said Mr. Massey, be no interference with the sinking funds already accrued. These, he proposed, should be capitalised, and the interest thereon, together witn the annual contribution, applied directly to tho reduction of the debt. Terms of the Bill. The Bill proposes to substitute for the long-term sinking fund system a method whereby the Dominion debt reduction resources may be available to purchase and cancel Government securities as the market price is advantageous, or pay them off at maturity, ana so ensure an actual reduction in the public debt annually. For this purpose there will be issued annually out of tho Consolidated Fund a sum equal to f per cent, of the debt affected by this Bill (at present shown as £173,000,000 above). To this will be added a sum equal to interest at 3J per cent, per annum on the debt paid off under this scheme. By this means a portion of the savings in interest on debt paid off will be applied to further repayments cf debt, and tho whole debt will be liquidated in about sixty years. A capital fund termed '“Tho Public Debt Redemption Fund” will be created, consisting of (1) the present accumulation of sinking funds, amounting to £9,834,512 (leaving aside tho State Advances, Westport Harbour Board, and State Mines Funds); (2) the amount advanced for discharged soldiers’ settlement, £13,560,000. lhe capital of this fund will be hold intact. The earnings therefrom will be credited to the Consolidated Fund and applied towards meeting the annual charge against the Consolidated Fund created by this Bill. The Bill provides for an annual reduction in the amount of the public debt, the amount of reduction increasing from year to year. There will be an" annual saving to the Consolidated Fund, consisting of that portion of the interest in excess of 3) per cent., which would have been payable had the loans not been redeemed under the provisions of the Bill. Provisions for Reducing Debt. The gross public debt at March 31, 1923, amounted to £218,953,324, of which £12,562,950 was State Advances and £7,400,000 raised for electric power. State coal, Westport Harbour Board, Nauru and Ocean Islands, etc., which accounts have special sinking fund provisions. In addition, £26,000,000 c.i Imperial war debt has been funded leaving the net present debt affected by the Bill £173,000,000. The present provisions for reduction of the public debt are briefly as follows -.—

(1) The Public Debt Extinction Act, 1910, whereby an amount is set aside annually to accumulate at compound interest, so that in 75 years tbe accumulated fund will equal the debt. For the purposes of that Act the debt does not include any debt in which provision is made for any other sinking fund. (2) Tho War Loans Sinking Fund under tbe Finance Act, 1918 (No. 2), whereby a sinking fund of 1 per cent, of the outstanding war debt is paid annually out of the consolidated fund to the Public Trustee.' If invested at 2| per cent., this sinking fund should equal the amount of the war debt in about 40 years. (3) The Naval Defence Act, 1909, whereby a sinking fund of 4 per cant, on the total cost of the battleship New Zealand (£1,795,166) was paid annually to the Public Trustee.. In view of funding operations no further amounts are payable to the Public Trustee. (4) Other accounts (such as State coal-mines, Westport Harbour Board, electric supply, and State Advances) have special sinking funds which are not affected by this Bill.

The funding operations concluded last year with the Imperial Government dealt with £26,000,000 of the war debt; a portion of tbe amount borrowed under the Naval Defence Act, 1909, amounting to £960,000; and other advances amounting to £230,000; these sums being repayable by halfyearly instalments. These loans, therefore, are now separated from the New Zealand sinking funds, and will not be affected by tbe present Bill.

Last Year's Funding Scheme. There aro other sinking funds e.g., local bodies’ loans, and old war and defence loans —which had accumulated with the Public Trustee up to 1910, when the Public Debt Extinction Act was passed. No further contributions to these sinking funds have been made, and the interest on them has since been paid to the consolidated fund by the Public Trustee.