BORROWING POLICY

Evening Post, Volume CXIII, Issue 32, 8 February 1932, Page 8

BORROWING POLICY

The loan policy of New Zealand cannot be settled by crying outr "Stop borrowing." This fact was made clear by the discussion of the subject by the New Zealand Farmers' Union. Obligations have been undertaken which cannot be set aside, and works are in progress which it would be foolish to close down. To• complete such works out of revenuewould entail much heavier taxation at a time when the national burden should not be further increased. Spartan severity in the cessation of all borrowing would hinder industrial recovery. Some capital expenditure is still justifiable, and especially so where the prospects of a return are favourable. This is the test which should be applied: what return will the'works give when they are completed? If the completed wot-ks will be only a liability, then it is obviously unsound policy to ffarry on with them and make the liability more costly. But where the works are necessary and valuable a complete stoppage is not warranted. New Zealand has borrowed and spent imprudently; but that will not be atoned for by jamming on all .the brakes so thai the machine stops with a disastrous jolt. . . Under existing conditions overseas borrowing at a reasonable rate is impossible. Our needs must therefore be met from the local market. But should this continue if the London market again becomes favourable? If the Government and local bodies all apply to the local market it is inevitable that the rate of interest will harden. This will be to the disadvantage principally of the private borrowers who cannot offer the gilt-edged securities of public stocks. One of the speakers at the Farmers' Union spoke as if this would be a desirable corrective. No doubt, as he said, a higher rate of interest in the past would have compelled closer scrutiny of loan expenditure; but private borrowers, who complain of difficulty in meeting the interest charges already incurred, will not welcome heroic measures which make those charges heavier still. We believe that the sound and prudent course lies between the extremes. All. loan proposals should be examined closely and sanction given only for those which are fully justifiable. If. the local market can supply the funds without : forcing the interest rate to a penalising height so much the better. But we should not make a hard-and-fast rule against overseas loans purely as a disciplinary measure.