LOCAL MONEY MARKET

Evening Post, Volume CII, Issue 49, 26 August 1921, Page 8

LOCAL MONEY MARKET

DISCHARGED SOLDIERS' LOAN

DEMAND FOR SUBSCRIPTIONS. ':

DIFFICULTIES OF LOCAL BODIES.

What ia the price of money in New Zealand to-day? It is one of the most! difficult questions 'to answer. The minimum rate for bank overdrafts is 7 per cent., -and that on such security as debentures. The bank deposit rates are from 3^ to i^ per cent, (for 24 .months); building and investment companies, up to 5 per cent (for 12 months). Some local bodies are offering (in vain) debentures <a : t Sj p<* cent; and recent loan flotations have gone off at 7j per cent., free of income, tax or free of debenture tax; the' Post' Office Savings Bank assesses the .value ;of money on deposit up to £500 as t per cent. ; and first mortgages are anything from 65 to 7 per cent, or more. It is clear, then, that ready-money is still in keen request in, New Zealand, but it is difficult to ascertain what it is worth. The Government, through the Commissioner for Taxes, is sharply reminding those taxpayers who have not taken up their full quota of the last loan for discharged < soldiers' settlement that they must now complete their obligations. ' The loan was for £6,000,000 and £4,500,000 was subscribed. There is £1,500,000 to come, and the (iovernment wants, the money. Official assurances are given that where subscriptions would causo embarrassment or, at least, serious inconvenience, the fullest consideration will be given to every case by the board appointed for the purpose. All the same; the reminders to subscribe have probably been received in many cases with something like concern.

The Post learns that a company, typical o£, many others, was compelled to take up a large block of the Dia; charged Soldiers' Settlement Loan at par, i.e., £100, and to sell it again ab £91 10s. The loss on this transaction van £8 10s in every £100. The loss was debited to the revenue account of the company, bat this loss was not allowable as a loss for the ■purposes of deduction of income tax, the Income Tax Department regarding 'it as a loss of -capital.' ■: ■ ■

BUYING AT PAR, SELLING AT LOSS."... . Of course, if the: company had not sold the stock, it would bg drawing interest on each £100 (less income tax) ; but it could hot, as, indeed, many other trading concerns cannot, afford tc lock up its funds in Government stock. It needs the ready money. It is nbw.'Tn common with many other companies, and individuals perhaps, called upon to buy under , compulsion more Government stock at £100, and sell it at a loss of £8 10s in every £100—if, it will be worth £91 10s at the time it is taken up. The Wellington Stock Exchange average quotation for discharged soldiers' stock and bonds for the month ending 15th August was £92 5s seller. To-day sellers, are £91 12s 6d. "

A director of a Wellington company, which was called up to make a further subscription to the above-mentioned loan, was asked ■. "Supposing you have not the funds available for taking up your further tjuota and are not in, a position to sustain further lossety by buying at par and selling at a discount of 81 per cent?" ■ ; .

The answer was that in some cases, no doubt, recourse would have to be had to . the banks. Although the banks had promised to assist in'thisM\'ay; J.'th6r;«-'was' no blinking the fact that their advances, ■as shown in the June returns, were not in need of amplification. On the con.trary, so necessary was it that as much "ready money as possible should be 1 got in ;that the banks could "not be expected to give a sympathetic reception to applications for advances for meeting compulsory .subscriptions to Government loans.. "In fact," it was added, "the banks are carrying plenty on their backs already: In any case, if they make advances the rate of interest will not^ bt less than 7 per cent., while the subscribers receive Si ; per oent. from the Government for the Discharged Soldiers Loan, and that; vnot free of income tax." BETTfeR TERMS FOR OUTSIDE. "The Government," it was added, ■ "was most careful 'to see that local bodies did not pay more than a Legislature rate of interest in New Zealand ; but they were permitted to go outside of New Zealand, and "engage- to pay principal and interest in other countries, (borrowing at a rate of 7 per cent., or more if they could not get' it at 7. They must not pay that rate in New Zealand, and yet the Government itself is paying 6 per cent, on debentures issued through ■the Post Office. While private concerns ■can come into the local market and offer ,7i per cent, to 8 per cent, debentures, local bodies are bound.down by-law not to offer -such, a rate in New Zealand, but they can do so. in i Australia. It ie abaurd that payment of this interest and principal should be forced out of. New .Zealand." '" ' ' '

It was farther ascertained that the'call for -compulsory subscription to the balance of £1,500,000 of the Discharged Soldiers Loan came extremely hard just now, as many firms had been working for all, they were worth since; November to get their bank overdrafts, reduced, selling out their stocks at heavy losses. JustasHhere was a little financial relief in sight along came the -demand for further subscription to. Government -loan, making an immediate loss, levying at. par, and- selling at a heavy discount.'.',. Compulsory subscription to the SolIdiers' Loan was described by a banker as confiscation. True, permission had been made for people showing cause why they should not be compelled to take up the debentures; but even so, why should they be compelled to subscribe at all, especially at a specified rate of interest, and tha^ lower than the present-day price of money justified? There was no other country in the British Dominions that compelled subscription to its loans in this way, and at the same time tried by artificial means to depress the price of money—at any rate in New Zealand. LOCAL BODIES' LOAN. It was also found that the debenture tax "on local body debentures, to say nothing of the legal restriction of the rate of interest they are empowered to pay in New • Zealand, operated adversely. Money was required for certain works, harbour or municipal, but it could not bj borrowed locally at a rate well under what the money market justified ; although, if permission! were obtained, any quantity at 7 per cent, or more could be asked for in the overseas money markets. Further, the debenture tax _of 2s 6d in the £1 (not chargeable on Government debentures, by the way) tended to malfft local bodies' debentures unpopular in New Zealsnd. The treatment of debenture-holders as 1 "absentees," because they may go to live out of New Zealand, and the principal and interest of tile debentures payable in New Zealand, again, militated against the successful issue of local bodies' debentures in New Zeoland.

■ The points emphasised in the interviews obtained by The Post were: (1) The pressure exerted by the Government lo get in the remaining £1.500,000 of the £6,000,000 is most inopportune, and (2) the restriction of local bodies'- borrowing in" New Zealand are such as to hamper f'lem in obtaining- money here, forcing them in go outsidn and pay a higher rate, and thus denude New Zea land of its monetary resources, -which should be induced as much as possible lo remain in the Dominion.