LOCAL LOANS CONVERSION

Evening Post, Volume CXVII, Issue 112, 14 May 1934, Page 8

LOCAL LOANS CONVERSION

The progress made in the conver-! sion of local body loans was set out in a report issued by the Local Government Loans Board last week. Out of £43,023,734, of convertible debt, 64 per cent., equal to-£27,526,578, has been dealt with by the board. This has involved the preparation and approval of numerous separate conversion schemes'submitted by oven 130 local bodies. In some of thesft schemes the loans converted have made a long schedule. For example, the Palmerston North City Council scheme advertised on Saturday deals with over fifty separate loans. When the whole,of New Zealand is considered the loans must be a bewildering mass .of thousands of different issues, '. Conversion will reduce the number very considerably. If the plan of the Government conversion is followed; there will be four maturity dates for each local body. This will bring order and system into local body.finance, and, as new sinking fund conditions are being prescribed, the. redemption of existing debt will be greatly simplified. This, in itself, should improve the security of the local bodies: —if due precautions are taken to guard against the greater security being an encouragement to _a new borrowing orgy. It must riot^be forgotten, however, that these gains for local bodies for the relief of their ratepayers are secured at the expense of the lenders by methods which "The Post" has never been able to approve as equitable. In the first place the local bodies loan conversion, is compulsion, plain and unveneered. The bondholders. who refuse to convert have their interest reduced to twothirds of the original amount. The reduction is not even presented (as in the Government conversion) as a penal tax—a euphemism which may have salved the Government conscience but meant- nothing to the bondholder. Secondly, maturitydates are rearranged, and the new arfangement may prove most inconvenient to lenders. In the Government scheme, the splitting of small parcels into four different issues, with eight interest payments annually instead of two, and four parcels to deal with instead of one, has been distinctly inconvenient to the small investor. As the conversion is also extension of the period of the loan (under compulsion) the borrower has matters all his own way. It is argued that the conversion, judged by the market price of new securities, has really left the investors in a good position. New money is fetching less than the money in converted securities. But.this would not be so if the compulsory conversion had not been carried out. Moreover, it may not be so in a few years time. Rates of interest may rise again and then the investor, with his money tied up in long-term loans, will be the loser. Investors have, in fact, made a great sacrifice. A heavy blow has been dealt to the thrifty providers of capital. . They have been made to pay for the extravagance of the national and local governments. The least that should now be done is to.relieve them of the penal taxa-tion-on investment income which was previously imposed in place of compulsory reduction.