“RETROGRADE STEP”

Dominion, Volume 29, Issue 209, 1 June 1936, Page 8

“RETROGRADE STEP”

Legislation For State Advances Criticised

/ STATEMENT TO MINISTER

“In the view of the business community there was a distinct advantage iu having the lending operations of the Government directed and controlled by an independent board not subject to political pressure,” says a memorandum on the State Advances Corporation Bill submitted to the Minister of Finance, Hon. W. Nash, by the Associated Chambers of Commerce.

“We feel that it is a retrograde step to revert to the old system under which it was possible for a borrower from the Government (who was not necessarily deserving) to make use of his local member of Parliament to approach the Minister for concessions,” says the memorandum. “In the course of our interviews with your predecessor we gathered that this habit ou the part of certain mortgagors to the State had become a grave embarrassment in that requests for the reversal of departmental decisions was a matter of daily occurrence. “One of the advantages to the Domminion as a whole gained under the Mortgage Corporation of New Zealand Act was the fact that future borrowings for the purpose of reloading were to be by the Mortgage Corporation and not by the Dominion. In the earlier days of the State Advances Department moneys borrowed by that department formed part of the national debt. Under the Mortgage Corporation, moneys borrowed for relending did not form part of the national debt. You now propose to continue the system of borrowing in the name of a separate corporation, but to give a guarantee by the State. We appreciate that this is done in order to secure that all future moneys borrowed for State advances purposes shall be obtained at the lowest possible rate, but it appears to us that the inevitable consequence will be in the eyes of lenders to the Dominion, that the public debt is increased by the amount of the guarantee, so that they will, in respect of overseas loans at least/—if not in the case of local loans — require higher interest rates than would otherwise be the case. “Subject to Grave Exception.’’ “One clause repeals the restriction on the borrowing powers of the corporation. We regret to see that you now propose to permit the corporation to borrow without limit and without reference to Parliament. As the securities issued by'’the corporation rank pari passu, it seems to us that this extension of the power of the’corporation is a serious breach of the letter of the contract which the corporation has entered into with those persons who have already advanced money to it. We appreciate that your answer to this will be that the guarantee of the State is an adequate quid pro quo, but we consider the giving of this guarantee is subject to grave exception. Not only so, but we feel that statutory variations in the contract between them and the Mortgage Corporation or the State, as the case may be, have a disturbing effect on those who are subscribers to loans raised by the corporation or the State. Assistance For Industry. “We doubt whether it is necessary or advisable in the interests of the Dominion as a whole that the corporation should be given power to make advances for the development of industries or the establishment of new industries. We think that past experience has shown that any proposed new industry which has a reasonable prospect of success succeeds in obtaining sufficient capital from the investing public. “In any event, should it be desirable or necessary for the State, through the Advances Corporation, to come to the assistance of any industry, we are definitely of opinion that the State’s assistance should be given as a mortgagee and not as a shareholder or partner, and that the moneys advanced should be as fully secured as possible. Insurance Policy Security. “The principle of taking collateral security over a life policy is, in our opinion, an excellent one. May we, however, suggest that the scope of this clause might with advantage to the corporation be definitely widened. “There are many prospective borrowers from the corporation who at present have their lives insured not necessarily with the Government Insurance Commissioner. In some cases those policies have been running for a number of years, and have acquired a considerable surrender value, with the consequence that they are a more satisfactory and ample collateral security than any policy taken out contemporaneously with the granting of the loan. It may quite well be that a prospective borrower finds himself unable to face the additional expenditure necessitated by his taking out a further policy. “While we appreciate that borrowers from the State might reasonably be expected to give preference, in respect of life insurance, to the State's own department, we think that policies issued by reputable life insurance societies and companies should be acceptable to, and accepted by, the corporation.”