MORTGAGE BILL

Dominion, Volume 28, Issue 122, 16 February 1935, Page 8

MORTGAGE BILL

Criticism By Leader of Opposition PAYMENT OF DEBTS “Farmers Turned Into Serfs” "After a period of deflation the Minister of Finance is now proposing to destroy portion of the equities, not only of mortgagors but also of mortgagees, unless something turns up in the meantime,” said the Leader of the Opposition, Mr. M. J. Savage, in a general criticism of the Mortgage Corporation Bill in the second reading debate in the House of Representatives yestrday. ‘‘The Labour Party says that instead of destroying equips attention should be directed to making it possible for people to pay their debts.” Mr. Savage, at the end of an hour’s speech, summarised his points of criticism under the following eight headings :— (1) The proposals in the Bill are involved; they will turn farmer-mort-gagors into serfs; and they will take the full-time attention of any army of inspectors, valuers and other State officers in their administration. (2) State lending institutions are to be superseded by a semi-private lending institution which, without the authority to issue money, must continue to rely upon borrowing. (3) For the purposes of the Bill money must be raised upon securities of second-class importance and, as a consequence, will carry higher rates of interest, which will be passed on to the borrowers. (4) Money for the purposes of the State Advances has always been raised on the first-class security of State revenues, and the benefit has been passed on to the borrowers. (5) The weakness of the present system is due to the inability of; the State lending institutions to utilise by direct means the credit of the State. This is also the main fundamental weakness of the proposed Mortgage Corporation. (6) Reduced interest charges, although desirable, will not bridge the gap between the purchasing power of the people and production, and do not, therefore, solve the problem arising out of falling prices. , (7) The solution of the problems arising out of the present mortgage system can be solved (a) by a readjustment of mortgages under State control, and (b) by guaranteed prices for products and services, which will enable the producers to meet their obligations on the new basis. (8) The Government’s proposals mean in effect that after a period of deflation, which was deliberately undertaken, a substantial portion of the equities of all parties to mortgage contracts is to be destroyed—that is, unless something turns up to raise prices. The Minister says that is not likely to happen. The aim should be to reestablish the equities of all concerned, including home-builders. Rehabilitation of Fanners. In opening his speech Mr. Savage said it was a pity the House had not before it the second Bill for the rehabilitation of farmers’ finance, because both measures were fundamentally related, and if the contents of the second Bill were known members would be in a better position to discuss the whole problem. Mr. Coates was a lightning-change Minister, and those who had studied the scheme outlined in his pamphlet found that changes had been made by the Bill. Existing legislation, plus pending legislation, would, in Mr. Savage’s opinion, reduce farmers to the position of serfs. The Minister had said it was becoming more and more evident that it was idle to look for a return to the level of prices ruling prior to 1930. Mr. Savage disagreed with that. After all, price was only a relative thing and depended mainly on the people’s power to buy at economic prices the things they created. The power to buy the whole or any part of their products was undoubtedly the prerogative of the people. All the wage-reducing legislation of recent years was based on the cry that costs must be reduced, continued Mr. Savage, and farmers and all others were worse off than ever. Must reductions of the Standard of- living be continued in order that New Zealand should qualify as a successful competitor In overseas markets? Let there be lower rates of Interest by all

’ means until New Zealand was intelligent enough to do its own banking, but let there be no delusion- that by destroying people’s monetary Incomes the relative cost of production was being reduced. No Power to Issue Money. Mr. Savage asked what other industries obtained money cheaper by selling shares, bonds and debentures on the Stock Exchange than did those farmers who obtained money from the Advances to Settlers Department. The trouble with the department was that It was always short of money, as, like the present proposal, it had no power to issue money. If the Bill became law the position wctild be worse than before. While tte Mortgage Corporation would have ho power to issue money and must depend on other sources it mast guarantee a substantial rate of interest to shareholders whose contributions to the financial requirements of the corporation would be infinitesimal. When a farmer required £3OOO from the corporation he would probably be offered £l5OO or £2OOO because the corporation would always be short of money. The Minister considered substantial objections could be raised to the State taking over an ever-increasing amount of mortgages. Mr. Savage thought the State should take over-the lot and should not pay tribute to any third party. Shareholders were to provide £500,000 in the way of capital, while the State was to find £500,000 and over £50,000,000 represented in mortgages. The mere bagatelle in the way of capital supplied by shareholders was to be made the excuse for them to elect three members of the board of management. Margin of Security. Loans were not to exceed two-thirds of the value of the securities offered unless guaranteed, and in all cases the securities were to be revalued for that purpose. It was probable that the new values would be at least 25 per cent, below the original values, and therefore the cash available would not exceed 45 per cent of the original value. It seemed to Mr. Savage that the cream of the securities held by Government lending institutions were to be handed over to the corporation while the State would accept responsibility for the remainder. Criticism was also made by Mr. Savage that Mr. Coates refused, o face up to real issues in considering the rehabilitation of farmers’ finance. According to the Minister an average of recent years’ prices was unsound for the purpose of valuation, and it was not possible to forecast prices during the next few years. A more hopeless outlook it would be impossible -0 imagine. “How Is it we can fix the incomes of tens of thousands of our citizens and we cannot fix a reasonable income for our farmers?” asked Mr. Savage. “The incomes of the citizens of a nation should and could be based upon the whole of the production of that nation. It is true that this would Involve the nation in the complete control of its money system, but why should that not be our immediate objective? It seems as if both parties to a mortgage contract are ’to be left swinging between heaven and earth for some years in the hope that something might turn up. The way out of the trouble is to control the money system and establish a system of guaranteed prices based on a readjustment of overhead charges.” AIM OF. CORPORATION System Advantageous to Borrower MINISTER OF LANDS SPEAKS The Minister of Lands, Hon. E. A. ' Ransom, said the arguments of the Leader of the Opposition were interesting, even if they were not convincing. I At the same time they should be given consideration. Some of the points made by Mr. Savage, he considered weak in the extreme. The aim of the corporation would be to establish a system fair to the lender and advantageous to the borrower. He could visualise the Labour Party busy with the printing press turning out notes as fast as they could be absorbed, but the creation of credit by using the printing press would not solve the country’s problems. This country had to be run on sound financial lines, and not on the imaginary ones mentioned by Mr. Savage. The Government would not give the corporation power to issue money. The matter would get-entirely out of hand in times of stress if that power were

given. The Labour Party wanted political control of currency, but that was not the opinion of the Government, nor was it provided for in the Bill. The Labour Party said that money cost little or nothing to print, and in Mr. Ransom’s opinion, under its administration that was as much as it would be worth. Surely the Leader of the Opposition and his colleagues had not forgotten the warnings of other countries that had tried such a system of finance. Guaranteed Prices. Referring to the question of guaranteed prices Mr. Ransom said he had noticed that members of the Labour Party, in travelling around the country, were gradually modifying their speeches. Last session the Labour Party was advocating a guarantee of a shilling a pound for the dairyfarmer, but economic conditions had advanced the price to almost that figure. Labour he supposed, would now fix the guarantee at 1/3, and arrange the price so that it was always a little ahead of the market value. That was a weakness of the whole scheme. During the depression much had been done by the present Government to keep the farmer on his land so that he would be there to take advantage of improved prices as they came along. The Government was criticised on some occasions that it did nothing, on others that it did too much. Its was charged with being a farmers’ Government and with doing nothing for the other sections of the community. The two Bills formulated by the Minister of Finance would go a long; way toward rehabilitating the primary producers of the Dominie”, Money for Investment. Mr. Ransom denied the statement that the State Advances Ofiice was short of money, and said that, office had ample funds available for advances on securities provided for under the State Advances legislation. The Mortgage Corporation would be based on sound financial principles recognised the world over. • To suggest that the local consumption of our products was going to overcome the difficulties of the primary producers was a fallacy. Only a very small proportion of primary produce was in this country. He agreed -with those who said more should be consumed here, but that could be achieved only by having more people by immigration. He had no objection to an immigration policy provided there was an assured market for the goods that would be produced. If there were more people in the country they would be able to share the burden of taxation. He regarded Mr. Savage’s speech as one of theory opposed to practice, and w'hile the Government had something practical to put before the House, Labour did not seem inclined to give support to it. If this country attempt ed to take over the whole of the mortgages as suggested by Mr. Savage, then our credit overseas would be damageu and it would be next to impossible to raise money overseas. Mr. T. H. Armstrong (Lab., ChrlstchurQh East): What do you want to raise money overseas for when there is plenty, of it here? Capital in Dominion. Mr. Ransom: There is plenty of money in New Zealand at present, but that might not always be the position. Continuing, Mr. Ransom said that as Minister in charge of the Valuation Department he had been asked why the lands of the Dominion had. not been revalued, but what was the use of revaluing land if it were not possible also to deal with mortgages on land? He thought that the way many mortgagees had treated, mortgagors was a matter for congratulation, and should be placed on record. It had been said that if the Bill became law there would be a flight of capital from the Dominion, but that, he thought, was an extraordinary statement, in view of the large amount of money that had been lying in the banks in recent years. Now that a sound investment was offered, why should that money fly overseas? If better investments were available overseas why had that money not gone years ago?

OTHER VIEWPOINTS

Attitude of Farmers Air. AV. Nash (Lab., Hutt) invited the Aiinister of Lands to reconcile his statement about the Labour Party and the printing press with Air. Coates’s announcement that “if at any time the corporation was short of lending money, then the State would hurry more securities into the corporation in order to keep an ample amount of capital available for lending.” What was the difference, he asked, between the issue of securities with nothing behind them and the issue of money in the sense Air. Ransom had referred to. Mr. Savage had never on any occasion stated he would dream of issuing any credit or money in excess in value, as far as that could be measured, of the goods that were in being. He had built his case round the question of guaranteed prices, the production of goods, and the utilisation of services. “Unless we have men capable of linking the amount of credit that is required to the goods and services that are required, then we are going into worse conditions,” said Air. Nash. “As I see it, the issue of money and 'he borrowing of money in itself means that a section of the community is to. have access to the services and goods that ha ve been brought into being prior to the issue or lending of that money. No case can be made out for giving to somebody who has not saved.’’ Air. Nash said that up to 1925 the Government was advancing money at 1 per cent, less interest than could be got anywhere else, and was showing a profit of £3,000,000. No mortgage corporation could show a finer record. The ■ idea that any private organisation could borrow at a cheaper rate than the State would not bear examination. If there was a lack of interdepartment co-operation then it was the fault of the Ministry and not of tlie officers iu charge. Air. Coates: I did not say there was.

Air. Nash said he was referring to a statement by tlie Minister of Lands that under the new corporation interdepartmental competition would be cut out. He was quite confident that the activities of the Public Trust Office would be menaced.

Mr. Coates: I should say that the Public Trust would be iu the same position as other people who are lending money. Mr. Nash: There doesn’t seem to be the slightest need for this corporation. Mr. Coates: Oh, don’t let us shift our ground. Mr. Nash: There is need for a readjustment of mortgages, but to suggest we ought to have a new private corporation brought into being with private capital, and backed by the State is not, I submit, in the interests of the whole of the people. The farmer should not be starved to pay interest, and that .does not deny, the right of those who have saved money by the exercise of their muscles and brain After that should come the rates and

then the interest factor and payment for the use of money. Mr. Coates: Would you lay that down dogmatically? Mr. Nash: Absolutely.

Mr. Coates: Well, you would get into extraordinary difficulty with a number of very good citizens. Very often the local body can effect an ad justment of rates much better than the mortgagee. Mr. Nash: If the rates levelled on any property are "or such a sum as is rendered necessary for carrying out the work of that local body, then they ought to be paid as a second charge on that property. It, however, the sum levelled by way of rates is an excess of the money required, then the rates ought toibe reduced. Chained to Vested Interests. “The farming community has been too long chained to vested interests not to desire some form of relief which will give some hope for the future,” declared Mr. W. J. Polson (Govt., Stratford). “The farmer wants to know when rhe Government will approve a plan to rid him forever of complete domination by financial Mr. Polson said that the farmers were up against such conditions to-day that they could not possibly carry on without immediate assistance. They could not pay the rate of interest with which they had been faced for the last few years and their most urgent requirement was to have interest rates reduced. The farmer wanted to know how he was going to square his accounts at the end of the year, and also what interest and principal reductions were to be made within the next tew months.

If this problem had been fairly met in the past the country might have escaped some of the proposals in the present Bill. For instance, the powers of the Mortgagors’ Relief Commissions might have been extended. But many farmers were now glad of the Government’s plan, provided it gave them immediate and urgent interest relief and principal readjustment. “But the farmer,” added Mr. Polson, “is also concerned with the attitude of the State and his prospects for the future. The proposed corporation will dictate interest rates, and, if it succeeds, it will occupy the position of the enormous bond loan associations on the Continent —in Germany and Denmark —which actually determine the price of land. So it is onlj’ natural that the farmer, and particularly the young farmer, should feel anxious about tlie corporation.” Not a Socialist. Mr. Polson said that tlie farmer was not a' Socialist. His calling made him' believe in individual effort and convinced him that tlie competitive, system gave him the best opportunities. But he considered that the system needed improvement, and that it should apportion its rewards more justly. The farmer wanted to see the Government’s plan ni\ utged by the Mortgage Corporation io keep interest down and not to raise it. In tlie past, he added, the farmer had pinupd his faith to cooperative principles. .A Labour voice: Is that individualism ? Mr. Polson : Oh, yes. Co-operation and individualism go well together, and are by no means mutually exclusive. But, of late, the farmer nas begun to realise that co-operation has received a bodyblow —almost a death-knock —in this Bilf, and he is now prepared to support the principle of State aid.

Mr. Polson said the co-operative plan did not antagonise any other section of the copiinunity. It was said the aim of the corporation would be service arid not T>rpti.t. but that was not generally the object with which financial people entered into such concerns. Surely the fact tiiat the dividend was to be one per cent, above pond rate was an incentive to keep no the rate. Air. Coates: Would you prefer a fixed interest rate? Mr. Polson: I am merely discussing the Bill and not exploring the question of a fixed interest rate. Responsibility for Bonds. “If the State has a majority of the directors on this organisation, how can the State escape responsibility and step back and say it is not behind the bonds?” asked Mr. Polson. Some years ago the Government repudiated responsibility for rural credit bonds, which were State bonds Issued by the Treasury, with the result that they went on the market at a one per cent, higher 'rate of interest. Because of that action the farmer had to pay an extra one per cent. He did not want to see that state of affairs happen again but it was bound to if the State were not behind the present plan.

Mr. Polson pointed out that the Dairy Industry Commission had shown that 3J per cent, was the maximum that the farmer could pay. Even then the commission admitted that the accounts it had investigated were those of farmers on better land than many other'producers. The mutual guarantee fund of £2,500,000 ultimately subscribed by the borrowers would undoubtedly be the property of the shareholders; they would use it to protect their own share capital, and the £2.500,000 would stand between them and loss. Although the borrowers were to subscribe five times the £500,000 share capital found by the shareholders, they were to be given no representation. The £2,500,000 found by the borrowers' would take the first risk of loss. Mr. Polson said that if instead of share capital being Issued, the State were to provide a further three pet cent, on top of the mutual guarantee of two per cent., bringing it to live per cent., it would result in cheaper money being available and would prevent powerful interests from gaining control of the affairs of the corporation. As the Bill stood it appeared to represent a skilful twisting of machinery to tit a capitalistic plan. Official View of Fanners. Speaking of the plan to combine in the mortgage corporation the operations of several Government departments, Mr. Polson emphasised that other departments were being left out —departments in- which there was over £23,000,000 of Government securities. Why, he asked, should persons who were mortgaged to those departments—the Public Trust, the Government Life Insurance and others —not receive the same treatment as those who were to benefit from the operations of the corporation? Mr. Coates: Are you opposing the Bill? Mr. Polson: I am not going to vote against it on the second reading, but will criticise various aspects of it, and move amendments when it is in the committee stage. I have a perfect right to express the view officially expressed by the farmers, and will do what I think is my duty. Mr. Coates: I don’t see how you can support the principle of the Bill in the light of your remarks. Mr. H. T. Armstrong (Lab., Christchurch East) said that the farmer had never let the country down, and he suggested that before he could possibly have any security of tenure some of bis actual debt itself must be written off. They were farming just as efficiently as they had in the past, and were producing more, and were, therefore deserving of every assistance. But he did not think that the Mortgage

Corporation as proposed could provide that assistance. Mr. W.> J. Broadfoot (Govt., Waitoino) claimed that, interest rates had been held at too high a rate for twenty years. He though- it would be desirable to pin the rate down at .somewhere about 3i or 4 per cent. The Mortgage Corporation was carrying out the principle of the long-dated mortgage. No farm business could be run on shortdated finance. He was glad that the corporation was to have, the right to handle I he stock side of the problem. The debate was adjourned on the motion of Mr. C. A. Wilkinson ' (Ind., Egmont).