STATE LENDING

Dominion, Volume 29, Issue 208, 30 May 1936, Page 12

STATE LENDING

Reorganisation Plan Discussed MORTGAGE LOANS Bill Criticised as Move Backward A reorganisation of State lending as proposed in the Government’s State Advances Corporation Bill was discussed in the House of Representatives yesterday. The first speaker was the Leader of the Opposition, Rt. Hon. G. W. Forbes, who admitted that the Opposition had no serious complaints to make against the measure. Throughout the subsequent discussions Opposition criticism was restricted generally to individual clauses rather than to the Bill as a whole. Mr. Forbes said it came as something of a surprise, apparently, that the Opposition was able to find a word of praise for Government legislation. During the last Parliament, when the present Government was in opposition, its members, far from giving a word of praise, used to condemn every measure brought down. "In the matter of State lending, the last Government felt it could give more efficient service through a carefully designed Mortgage Corporation than through the State Advances Department,” said Mr. Forbes. "The new Government now says that it is unable to work the machine which we provided. That is Quite possible. You may have the most perfect machine ever built, but after all it is a question of the men behind the machine. The men to-day say they want a different machine and we cannot take any serious objection to that.” A Speculative People, Mr. Forbes referred at length to the second reading speech on the Bill made on Thursday night by the Prime Minister, Rt. Hon. M. J. Savage, lhe Prime Minister had stated that lie was going to prevent speculation. Mr. Forbes said, but I hat was likely to prove one of the most difficult problems which any Government could face. New Zealanders were at heart a speculative people. Tile fact that the Dominion had more race meetings than any other country was proof of that, and it was hard to see how speculation in other directions could be. prevented. The Prime Minister had also stated that the Government would check rises in prices, but it was difficult to see how prices could be kept from rising when conditions were improving. Personally he would advise people to get in now and buy every tiling before prices rose. It was inevitable that industry must be allowed to make provision for added costs. The Prime Minister had said that all the country's troubles had resulted from a reduction in purchasing power by the last Government. Actually the last Government had sol out to reduce costs,, with the result that the purchasing power of the pound was materially improved. Mr. Forbes was called to order by the Speaker, Hon. AY. E. Barnard, who said that, although Hie Bill was wide in its scope, the debate could not bo allowed to become too general in lone. A certain amount of latitude had been allowed on Thursday night because the speeches were being broadcast. Prices Rising To-day. "I am only replying to points made by the Prime Minister in his speech,” Mr. Forbes said. “I should think that there might be more liberty to-day because the debate is not being broadcast. The point I wanted to make was that prices are rising to-day and costs must also rise. During tlie term of office of the last Government prices fell disastrously and costs had to be reduced.” The Minister of Public Works, Hon. R. Semple: The last Government was in a rut. Mr. Forbes: I hardly think I need reply to the Minister. He will find himself not in a rut but in the mud. Tho Bill might work satisfactorily, Mr. Forties continued, so long as experimental financial principles were not introduced. Everyone knew what was happening in Alberta and what had happened in Germany. Mr. J. Thorn (Government, Thames) : What about Russia? Mr. Forbes: I will admit that as far as Russia is concerned I cannot speak with the same degree of authority as members on the Government benches. Brief comments on the main provisions of the Bill were made by Mr. Forbes, who said the Government would be well advised to carry out intensive research into housing schemes. He hoped the new lending machinery which it was proposed to set up would work efficiently. The Christian Ideal Nearer. The view that the Bill would serve in some meivure to bring a little nearer the t'liristinn ideal of Hie abolition of usury was expressed by Mr. C. M. Williams (Government. Kniapoi). He said there were always those who were ready to cry “It can’t lie done," and if that was the only criticism the Opposition could produce against the Bill there could not be much wrong wit!i it. He had heard many tilings described as impossible in tho past, but nevertheless they had come to pass ami were to-day accepted facts. "In these days w<< need above ail tilings ideals.” said Mr. Williams, ‘‘and if it is considered an impossible ideal that the burden of usury should be lifted from the people. Hie fact remains (lint Hie same ideal lias been sought by mnn right down the years. Tlie hitman mind Ims always revolted against usury, mid the teaching of (he Christian churches Ims always been against it.” Mr. It. A. Wright ( Independent, Wellington Suburbs) : What is usury? Mr. Williams: You know all right. Interest in Hie past lias always been looked mi as usury. "It was prohibited Io lhe early Christians to practise usury,” he continued. "mid flic Jews got in on them. The Jews were not allowed Io charge interest to other Jews, so they put it on to Hie Egyptians, and thus established themselves as usurers. If we cannot abolish usury we can at least reduce the burden somewhat, ami tbiBill will assist in bringing about that end." Control of Finance. The Bill would greatly extend the control of the Government over finance. Mr. Williams continued, and it would enable flic Government, if it thought fit. to discriminate in Hie interest charges on different loans. The Bill would greatly improve the security to the investor, and it was only reasonable that the investor should be satis-

fied with a lower rate of interest. There was undoubtedly also a case for the lowering of interest charges on private mortgages.

‘‘This Bill gives power for interest to be varied according Io Hie public necessity,” said Mr. Williams, "wliere:i,s it usually happens that the borrower who needs Hie money most lias to pay the highest rate of interest. The Government is also given power to direct the investment of capital where it is most necessary mid where it will give the greatest benefit to Hie public.” “A perusal of the Bill ami the remarks of earlier speakers emphasise that there is nothing original or new in the measure,” said the Hon. Sir Alfred Ransom (Opposition, Pahintua). Me stated that after policy announcements by the Government, the country certainly expected some new phases in finance to be introduced, but Hie Bill was simply a hybrid of tin? State Advances Department amt the Mortgage Corporation.

“The Bill is simply an endorsement of the measures brought down by the last Government mid Hie Government previous to it,” said Sir Alfred. "The only change is that it represents a backward rather than a forward movement, in spite of the fact that the country had been led to believe that the progress of the Labour Government would be ‘onward mid upward.’ Weakness in Measure. "The greatest weakness in the Bill is that, it is retrograde. It is a retrograde step to place a business department directly under political control. It is true to the policy of Labour, which has determined to place every department of State under direct political control. But we. as an Opposition, look on that as a wrong step, and not in the interests of the country.” Sir Alfred emphasised his view that the policy enunciated in the Bill indicated a change of outlook by the Government, since its other economic measures were brought down. Startling innovations had been expected in the Bill before the House, he-said. but none had taken place. It was evident that the Government in this measure had departed from the principles laid down in previous legislation and had moved away from a policy of "frenzied finance” and was doing away with the idea of costless credit, recognising the value of sound finance as it had been practised by tho last Government. In tho Bill provision was made for financing tho corporation along sound linos, and Hie Government was resorting to traditional finance. "If; there was any weakness in the Mortgage Corporation it. was on account of its conservative policy of lending." Sir Alfred added. "The original Bill was intended to lend assistance to farmers ami others who had passed through a difficult period and needed to be able to obtain loans at low rates which would allow both the principal and interest to lie repaid at a rate not higher than 5 per cent. But the corporation was more or less conservative in its interpretation of its powers in that direction. Now this Bill is oven more conservative, and it is regrettable that any weaknesses in Hie old legislation are not put right in this new Bill." Mortgagors’ Adjustment Act. Objection to the statement by the Prime Minister Hint the Mortgagors’ Final Adjustment Act had put the farmers in chains for five years was taken by Sir Alfred. "Any member of tills House who makes such a claim against the Act can never have investigated tile working of the legislation and the operations of the adjustment commissions.” lie said. He quoted one decision of a commission to illustrate his argument that the farmer had by no means been placed in chains. One farmer who applied for relief, lie said, had been granted £2OO a year for household expenses, bad been allowed a car for the use of his family, a telephone, wages for two boys in ills family and one daughter who worked on the farm, with their keep. All that had come out of the returns from the farm as a first consideration, and in addition tbe payment of hire instalments on electric equipment and other debt charges of that sort. The farmer also had free food from Hie farm and the farm had to be mainlai '. After these considerations, tin- ...st and second mortgagees received some attention. If that farmer's position amounted to being in chains, said Sir Alfred, then there were many who would like to be in the same situation. Rates of Interest, The opinion Hint with sympathetic administration there was no limit to the possibilities of Hie Bill was expressed by Mr. .1. G. Barclay (Government, .Marsden). The measure, lie saiii, would assist the farmers and also Hie workers in Hie towns to obtain money at a reasonable rate of interest for the building of homes. Rates of interest were rising in other parts of tbe world, and if the Bill did nothing more than hold the rate down it would accomplish something. Had the Government not taken control of the credit and currency in this country the rate of interest here would have been rising in sympathy with the rising rate in Australia. The Hon. A. Hamilton (Opposition. Wallace) : Our position is sounder than that in Australia. The Mortgage Corporation, said Air. Barclay, had been lending on a conservative basis. Tim corporation would have eventually been used in such a way as to enable private lending institutions to obtain the cream of securities. Reaction Overseas. The reaction of overseas investors to the financial policy of the Government was the subject of comment by Mr. W. J, Broadfoot (Opposition, Waitomo), who said that some of the provisions in the Bill might have an unfavourable influence on the Government’s financial transactions overseas. "The State is to guarantee the bonds issued by lhe corporation.” Mr. Broadfoot said. "In view of this it is worth while to consider bow far the Government's policy lias affected New Zealand's financial standing overseas. In about three years’ time there will be a loan of £17.00(1,001) or £18,000.000 falling due in London. The only way will be to renew the loan—so far the Government has not suggested anything to tbe contrary—and if there is lack of confidence in the financial stability of this country on the part of the overseas investor, (lie rate of interest will come into the picture and we shall have to pay more for our accommodation.

"We have had a slight taste ot Hint quite recently. A conversion loan was negotiated in London last year by the last Government. Although it was at 98. wilh interest at 3J per cent., it was very substantially oversubscribed and immediately afterward went to a slight premium, which was proof of confidence in the stability of the conntry at that time. The present Government undertook a conversion a few weeks ago and tbe loan was substantially undersubscribed. Actually about 34 tier cent, was loft on the hands of (lie underwriters and shortly afterward the issue went to a discount.”

In the case of lhe corporation's bonds. Mr. Broadfoot continued, it was

necessary to be satisfied about the guarantee to he given. The Government in Hie past had talked about social credit, and debt-free credit and it was surprising that no steps had been taken in the present Bill to abolish the payment of interest altogether. However, it was found Hint the Government had gone back to the old way of raising money by bonds before lending it out to tbe community. It was the duty of Parliament to lay down a policy and leave it to lie carried out by experts. However, under the present Bill responsibility would be east on the Ministei of 1 inanee in such a fashion that a lot of trouble might: result. The position would arise when the Minister would b e the arbiter in the case of every man who was disappointed in the result of his application and untold difficulties might well follow. Collective Operations. The opinion that misdirected investments had contributed in great measure to the conditions prevailing during the depression was expressed bv Mr. D. Barnes (Government, Waitakii. ' The policy of State lending institutions, lie admitted, had led to high prices for land, but Hie private lenders had had an even greater effect in that direction. The financial institutions had done a great deal for the farmers but owing to anomalies in the system they had done the farmers for a great deal more. "investors in the great majority ot cases lent theii' money in good faith,” continued Mr. Barnes, "but suddenly, owing to factors over which they have had no control, they have found themselves without any visible means of support. Investors have been left high and dry by financial anarchy. 'The late Government had made some attempt to make farms the gilt-edged security they should be, but had not gone the right way about it. That end could be reached by mobilising mortgages in an investment board or by the State guaranteeing the bonds. In that way it would be possible to have collective security.” Mr. H. G. Dickie (Opposition, Paten) : Would there be no private mortgages at all? Mr. Barnes: I would prefer to have them invested in that board through the State Advances Corporation. In that way. Mr. Barnes added, it would be possible to have collective borrowing and collective lending, which would minimise the risk. Must Inspire Confidence. "The methods of lending money outlined in the Bill are almost identical with those of the Mortgage Corporation.” said Mr. W. A. Bodkin (Opposition. Central Otago). "The Minister of Finance, in his speed), went out of his way to show that the policy of the Mortgage Corporation was a sound one and that the management was good. The best testimony of all is that he lias decided to adopt that management in every particular. "The Minister said that, the policy of the State Advances would be generous but conservative. I take it from that that t.he corporation will be conservative in its advances, but generous in its treatment of the mortgagors. That lias been the policy in the past. It is provided in the Bill that any loss experienced shall be paid out of the Consolidated Fund, and the only way in which that can be recouped is by taxation.” ’The money for financing Hie work of the corporation was to lie borrowed. Mr. Bodkin continued, and it could only lie borrowed at the market rate. The rate of interest and the price that would have to lie paid would be determined by the degree of confidence possessed by the man witli the money. The Government would have to inspire confidence, and he thought from Hie speech of Hie Minister of Finance that lie was going to endeavour to do so. Mr. Bodkin referred to the fact that Now Zealand bad a debt of about £280.000.000, which would have to lie renewed from time to lime, and the rate of interest to lie paid was a very material consideration. It was no use trying to repudiate, for everyone knew what had happened when the Irish Free State tried to do that a few years ago. The position was one that the Government would have to face up to. Reference to the recent New Zealand loan conversion in London was also made by Mr. Bodkin. It appeared. he said, that New Zealand securities were at a discount, and he had never known that to happen before. Consolidation Desirable. Tbe advisability of a consolidation of State lending activities was stressed by Mr. 11. M. Christie (Government, Waipawa). There had been, he said, considerable overlapping in the lending' operations of the State Advances Department, the Lands Department, and the Rural Intermediate Credit Board, and the Bill provided the opportunity for a remedy for that state of affairs. The State Advances lending for housing had been very beneficial. The fact that there was a shortage of over 12,000 houses in tbs Dominion to-day was the best answer to those who talked of the value of private enterprise. Certain unscrupulous solicitors handled contributory loans. These solicitors held certain funds for investment and those were pooled and lent on substantial mortgages. The methods adopted to secure a valuation were entirely unsatisfactory. By control of the’ State lending institutions it would be possible lor people to get money without having to go to that class of people. He was quite prepared to admit that some private lending, such as that of insurance companies. was quite satisfactory, but there were other lenders who were parasites. The guaranteed price would enable people to meet their inortgagf commitments and that in turn would obviate the possibility of any loss in State lending activities. The Bill would make it possible for the farmer to carry on in a satisfactory manner and for the workers to obtain money for homes. Advances for Houses. Cariosity as to whether there was to be any limit on loans for houses, whether priority was to be given people with a certain income and when the advances were to be made was expressed by Mr. 11. G. Dickie (Opposition, Palea). "1 think some limit should be placed on loans for the building of houses,” he said. "If that is done tbe money will go further, and it will be possible for more people to obtain assistance. Tbe proposals In the Bill will be an enormous help to those who want to obtain homes.” Mr. Dickie said that during the term of its existence there had been frequent occasions when (lie State Ad vancos Department was short of money. It had been necessary for the department to give as high as 5) per cent Hi 1 hoped it would lie possible to lend money al the same rate as tile Mortgage Corporation. He knew the Minister of Finance would make every effort o do so. but there was no guarantee that be could. Tbe State Advances account, in common with other lending accounts, must have materi ally improved during the past year as a result of the better prices obtained for primary produce. "The danse in I lie Slate Advances Corporation Bill providing for a mortgagor to effect a policy of life insurance as an additional security is not

mandatory and does not aim at taking anything away from the mortgagor,” said tho Minister of Finance, Hon. W. Nash, when replying to the second reading debate on Hie Bill. "This provision is meant as a security for the widow, who might need protection in the event of tile death of a husband, and there is no intention at all to take anything away from the mortgagor. 'The clause is not mandatory but will provide a wife with the necessary freedom from tlie encumbrance of a mortgage shotihl her husband die.” Mr. Nash stated |hat in the remarks of Mr. Hamilton there had been the suggestion of tbe alienation of the proceeds of the policy. There was no intention in the clause to create hardship in the slightest degree. Tlie Minister also referred to the remarks made by Mr. Hamilton about Hie danger "f political interference witli tlie corporation. Nothing would destroy a State activity of that type more than if it was possible for a member of Parliament to use his political influence as a member to obtain better advantages than would otherwise be possible, said Mr. Nash. That would be harmful and it had been done, in the past. He could not see any justification for barring a member from seeing someone on the staff of a corporation about an application, merely to place the case before the corporation, but if there was any suggestion that a member was going to get special consideration then it ought to be barred. Any pressure of any typo was wrong. The Minister emphasised his belief, however, that political influence was not confined to State institutions. References to Conservatism.

"There have been references by the Opposition to this legislation being conservative,” said the Minister. "I will be glad if in 12 months’ time the Opposition will be thinking that what we are doing is conservative. There is no warning about that. But whatever is necessary to do inside the monetary system along the procedure we have laid down, which will be helpful to the country, will be done.” Mr. Nash denied that he had stated that the administration of the corporation was going to be "conservative in principle.” His remark had been that the administration of tlie corporation would be generous in principle, conservative in operation and efficient in supervision. To suggest that his remarks had the element of ordinary conservatism. as tlie word was usually applied. was not just. The Minister, replying to specific points of inquiry, stated that while there would have to bo certain limits placed in some fields of operation on the value of a home built under a corporation loan, he would not like to see the mortgagor given any lower standard of comfort than ho himself was used to. When it was suggested to Mr. Nash that some salary limit would have Io he placed on borrowers-, as was done in tho Housing Act, tlie Minister replied that something of that type would be done. Every facility would he given for reasonable transfers of property under the corporation, where the circumstances warranted it.

A reference by Mr. Bodkin to the concern which lie felt over the result, of the flotation of the recent New Zealand Loan in London was strongly criticised by the Minister. "The member for Central Otago has stated that lhe last loan which this Government floated is now being quoted at a discount, and that this indicates that our financial standing is not good in London.” said the Minister, '‘lint I wonder whether people who talk like that really are anxious about the goodwill of the London market. Ido not think that they are. It seems to me that people of that type are willing to use that argument to discredit the Government, and that they put the political advantage which they might get momentarily from those arguments in front of tlie goodwill of tlie country at large.

"To show the element of confidence which there is in London in the credit of t'nis country, it is only necessary to note that the underwriters in London gave us exactly the same terms that they gave the idaii issued by the last Government. The arguments which have been used about this are wrong m their entirety, and are hartni'ul in their effects. They are wrong because there is evidence that the astute people in London gave us the rate they did. The test is that those underwriters had confidence, and if there is any tar-seeing section of the financial community in London it is those very underwriters.” The Bill was read a second time on Hie voices.