STATE AND LOANS

Evening Post, Volume LXXXIV, Issue 32, 15 October 1912, Page 7

STATE AND LOANS

ADVANCES TO LOCAL BODIES PARLIAMENTARY ENQUIRY : the aummTENDßmcs i EVIDENCE *'"» POST OFFICE MONEYS. The enquiry by the' Public Aooounti Committee into the allocation of loans to local bodies under the Stftte-gUM-wv teed Advances Act was continued today. Mr. J. W. Poynton Superintendent ol the Department, was further examined. He produced various returns, including one showing' the average amount paid over per year from February, 1910, to 30th September, 1912, under the Stateguaranteed Advances Act. The figures were as under:— - £ Borough Councils ,„ 319,030 County Councils «. 164,428 Road Boards ... ... £9,332 Town Boards ... ... 29,694 Drainage Boards ... 18,604 River Boards ... ... 932 Harbour Boards ... 18,300 LOSS TO THE STATE. Witness also presented a return showing approximate loss to the State on- moneys lent by the Government ' under the various Local Bodies' Loans Acts:— -Amount of inscribed debt (i.e., of moneys lent to local bodies. At 4j petcent., £1,161,329; amount at 4 per cent., £104,443 j amount at 3i per cent., £1,720,235, On each £100 lent at <ty per cent, the local body will pay 4£ per cent, for twenty-six years, when its liability ceases, both as to payment of principal and interest. The State meanwhile pays 3i per cent, on the moneys, and at the end of the twentysix years must continue to pay interest and ultimately the principal too. Ab the local body will for twenty-six yewa pay 1 per cent, more than the interest paid by the State, this must be allowed in calculating the loss. £1 per annum invested for twenty-six years at 34 per cent, compound interest will amount to £41 6s fyd. Therefore the loss to the State, ,apart from the interest to be paid after the twenty -six years, will be* on each £100: —£100 (£4l 6s 44d). £58 13s 7|d, and on £1,161,329. £681,560. On the £1v)4,443 lent at 4 per cent, for thirty-two years the local body pays, for thirty-two years 4 per cent, per annum, when its liability for principal and interest ceases. The loss to the State on each £100 will be lessened by the amount of 10s per Cent, invested each year for thirty-two years, 10s being the difference between 3i per cent., the interest paid by the State ror the moneys borrowed by it, and 4 per cent, received by the local body. This, accumulated as before stated, will amount to £28 11s 4id for each £100. Therefore the loss on the £104,443 will be: — £104,443 (£99,940), £74,603. "As the interest*," added witness, "paid by the local bodies on the £1,730,236, lent at 34 per cent, for forty-one years, is only the same as that paid by the State for the moneys lent to them,' nothing can be allowed for excess inter* est as in the other cases, and the loss to the State will be the whole sum bo lent. The total losses on this basis will be :— £ On £1.161,329, at <% p.o. ... 681,550 On £104,443, at 4 p.e. „, 74,503 On £1,720,235, at 3£ p.c. ... 1,720/235 £2,476,288 But money was not always lent at present mtes. The first loans w»r« for twenty-six years only, and the rate was 5 per cent. In iB6O the terms were made twentystXy. thirty-two, and forty-one years, at the option of the local body borrowing, and the rate 44, 4, and ' 34 per cent. In 1600 the rate of interest on the old twenty-six years' loans was reduced from 5 per cent to 44 per cent. In 1903 rates were raised to 5 per cent., 4| per cent., and 4 iper cent, lor twenty-, six, thirty-two, and forty-one years. In 1907 rates were reduced to 44 per cent., 4 per cent., and 34 per cent., as at present. It is difficult to say how much was lent at these varying rates and for how long. Until the figures are obtained the exact loss cannot be given, but the reduction in loss through this jfrcreased interest would not be more than, say, £176,000. This would make the loss £2,300,000 at least. RATE OF INTEREST. Witness, was further, examined by the Bon, J. Allen. Witness read a letter which he wrote to the Minister of finance in October, 1011, in which h» said that the provision that all loans should be made at the r*te at which the money was borrowed was unwise. H» also eatd in that letter that future applications for loans should be at &| instead of 34 per cent., and that kmite for purchase of Native lands and opening-up of lands for settlement be at i per cent. ; and that there be a limit of £6000. Large public bodies could go outside for their loans, and they were getting too much of the Department* funds and some limit wm needed. The Minister (Sir Joseph Ward) cent that letter k> the Secretary of the Post Office, who replied that 3A P** <!eh^ wa * ho* b P tK> ' fitable rate of interest to the Post Office. If future loans were at 3| or 4 per cent, the position would be fully met. It was absolutely necessary that the Post Ofnce should have at least a proportion ol it* money invested at as high a rate a& po*-' Bible consistent with safety. The Hon. J. Allen oskea if it was not a fact that the correspondence that took place showed that the lact of the Treasury taking so much money from the Po&t Office prevented the Poet Office investing its funds outside at a higher rate of interest? Witness replied that for year* the cu»> torn hod been tnat investments from the Poet Office should be offered to the Treat* ury first. The Minister: And sine* that policy was pur/sued has not the Post Office begnft to feel the effect of It? Wrfcn«» agreed that that was so. Witness added (that since the correspondence nil loans approved at 34 per cent, were either finally granted, l&pAed, or paid over. There were now no 3J P&* cent, loons not finally approved. Hon. J. Allen : I'm very glad to heat h Witness also read correspondence between the department, the Post Office, and the Minister, showing that th« Secretary of the Post Office expressed himself as of opinion that an all-rouna rate of 3| per cent, would be acceptable, and that the Minister of Finance agreed. That was in January, 1912. In February the Secretary to the Post Office complained of the Treasury renewing a 34 per cent, loan at 34 per cent., which he regarded as a breach of the agreement that had been entered into. Witness recommended that 3J tier cent. b» charged on renewals, ana the Minister (Sir Joseph Ward) approved of the recommendation. In March the question arose as to whether the difference between the 34 .per cent, and 3| per cent, interest should not be made up out 0! the Consolidated Fund. LOANS AND NO MONEYS Hon. J. Allen: Did yon think thatwas a reasonable proposal? Witness! Yes. Hon. J. Allen: Wh«& I came into

qffice I found a large number of loans finally approved, for which no money had been provided? Witness: Yet. 1 Hon. J. Allen: At 3£ per cent.^ Witness : • Yes. Hon. J. Allen: What provision was i made to get that money except from %ha Poet Office? '^Witness: No' provision. -J> Hon. J. Allen : What assurance had fou that th« Post Office would lend money at 3^ per cent.? * Witness *. "It all depended on the Post Office being able to find the money." In June of this year, he added, the Post Office intimated to the then Minister (Mr. Myers) that it would let the department have two millions this year. Later it stated, that only a million and aVhalf was available. - Hon. J. Allen : Did you think it a , i mse policy to commit for loans at 3£ •pfer Cent.? - Witness : I think ' so. You have authorised the purchase of land settlement without having the money available. Hem. J. Alien: This is an officer of >my department making a, charge against Ills Minister! Witness: It is a question of policy. ■ , Hon. J. Allen : Have I plenty of authority for money for land for settlements? . Witness: Any amount. *• Hon. J. Allen : Why do you make a fchar|e? Witness J 1 don't mako a charge. 1 cay it's a question whether the money should be kept there awaiting investment or make engagements ahead. Hon. J. Allen : Isn't there power to make investments temporarily. Witness: Yes, but you can't always do it, Honi J. Allen : Did you borrow all you can borrow each year? Witness: Noj we borrowed as much fcg the Post Office could give us. Hon. J. Allen t Have ,you in any one year borrowed the full amount you ;were authorised to borrow? ; Witness : "I couldn't say. We havenJt borrowed all the money we could because we couldn't get it.'' He added, in answer to another question, that since October, 1911, loans to county councils had been refused because there was ho money available. The boroughs applied earlier and got the money they required. Hon. J. Allen: Did you consider it good policy to commit two or three years ahead at 3^ per cent. V Witness : I don't know whether it was good or bad. We couldn't keep the money there uninvested. That was when the money was coming' in. They wanted it ahead and we couldn't hold it. , Hon. J. Allen: Did you think it a good thing to commit the country to these loans so far ahead? Witness j I don't, know that we ever considered the question. THE LEGAL ASPECT. Boil. J. Allen : Did you ever consider the legality of it? Witness: Yes. -Hon. J. Allen : Did you get an opinion? , Witness: No. Hon. J. Allen: Are you sure it in legal V Witrtees: I am pretty cure it's legal. I wouldn't have done it if I had thought it illegal. "Hon. J. Alien-: I put in the opinion pf the Soiicitor-Qeneral. I found I was iv considerable difficulties and I took the .opinion of the Solicitor-General. Thd derk read the opinion , which was based on an enquiry from the Minister £i to whether the board had power to commit the ' country to expenditure beyond the year in which the loan was being' dealt with. The Solicitor-General *aid he was of opinion that such a practice was illegal and considered that it should be discontinued. It was provided by section 7 of the Act that the rate of interest charged to the local authority shall be the rates of interest at which the money was raised by the Government. The regulations and the practice of the board should be altered to conform to that requirement. The rate of interest should be determined from time to trrne on receipt of the loan for each successive instalment. The risk of increase in the rate would He upon the local body instead of upon the Qovem ment. It might be advisable to make uecessary provision by which the local authority might make arrangements for an increase of interest without going again to the ratepayers. He was further of opinion that the contracts already made, by the board were valid and enforceable by the local authorities. The disregard by the board of the provisions of the Act would not deprive the local authorities of the right to enforce those contracts. • The witness added that it was rather late for the Crown Law Office to raise that point, as it had issued the regulations which enabled the board to spread payments over four years. If the Department could not get money from the Post Office it would have to get the money elsewhere. The committee, at this stage, after a brief deliberation in private, adjourAsd jintil 10.30 a.m. to-morrow.