PUBLIC DEBT

Evening Post, Volume CXXII, Issue 31, 5 August 1936, Page 7

PUBLIC DEBT

GOVERNMENT POLICY

NO OVERSEAS LOAN

REDUCING BURDEN

An announcement that it was the Government's policy not only to refrain from further borrowing abroad apart from' conversion operations designed to lighten the interest burden on the existing debt, but to endeavour to steadily reduce the amount of overseas indebtedness, was made by the Minister, when dealing with the position of the Public Debt of the Dominion.

The Minister said that J.he long-term public debt showed an increase of £1,979,881 as a result of operations during the year. Additional debt to the amount of. £3,836,591 was incurred for the following purposes:— . ' ■ .-'•-.-' ■' ' £• Expenditure on public works 2,-lfli1 300Cost, charges, and expenses of dealing with £10,135,800 of London debt last year 835,0.15 Premiums on conversions In New Zealand 3«,0<0 Greymoutli Harbour Board guarauteed debt takcu over 200,000 Total £3,836,501 "Concerning the- item for cost,, charges, and expenses of the.London 1935 conversion, the particulars of this operation are contained in last year's Budget," said the Minister. "The conversion issue was at a discount of H per cent., but the largest item in these expenses was £523,270 for exchange on remitting £2,135,800 to London for redemption purposes, the amount converted in London being £8.000,000 only, I may add that the £836,000 referred &

to did not represent a net increase in the public debt, as approximately £1,250,000 out of the Public Debt Repayment Account was used for recTemptions.

"Concerning the next item—premiums on conversion in New Zealand £340,575 —this is the result of convey sion to a lower rate of interest at par of 4 per cent, securities purchased by Government Departments from time to time at market prices above par. No increase in debt charges was involved.

"The Greymouth Harbour Board debt of £260,000 was guaranteed by the State, but was taken over and became part of. the public debt as the result of the passing of the Greymouth Harbour Board Amendment Act, 1935, which provided for a readjustment of the finances of the board pursuant, to an agreement entered into with the Government, whereby the subsidy formerly payable to the board ceased and the Crown became entitled to the revenue from.the special coal rate applicable to coal shipped from the Port of Greymouth.

"Against the gross increase of £3,836,591 referred to must be set redemptions to the amount of £1,856,710, funds for the purpose being derived from the following sources:— Public Debt Repayment Account .. 1,11iT.215 Keparations and war credits 3,330 liepayments of capital by other accounts ■ •113,105 -' £1,530,710 "Of the debt redeemed, £187,900 was held in Australia, £1,261,615 in London, and £407,195 in New Zealand. FUTURE POLICY. "As already indicated,, the net effect of the year's operations was an increase in the debt of :£ 1,979,881, bringing the debt as at March 31, 1936, to £282,561,098. There were, however, other movements in the debt which 'arc worthy of note. The debt held in London decreased by £2,260,300, and in Australia by £590,900. This means that the external debt of the Dominion to be proy-ided for out of. our exports has fallen by £2,851,200. The debt domiciled in New Zealand increased by £4,831,081, but behind this is a decrease of £2,995,770 in the debt, held by the public, and an increase of £7,826,851 in the debt held by Government Departments. 'These movements represent a considerable improvement in the debt position as a whole. Any particular reduction in the debt held abroad- represents a lightening of the: debt burden upon the Dominion. While it involves a redistribution of income, the debt held internally involves, no net burden on the Dominion as a whole, but the charges.on the debt held abroad mean so much less available for the purchase of goods for consumption in New Zealand. * • : ; ' ' ' .

"I may add that ■it is the Government's policy riot only to refrain from further borrowing abroad apart from conversion operations designed to lighten.the interest burden on the existing debt, but to endeavour to steadily reduce the amount of overseas indebtedness. .

"The position in regard to the domi- ; cile of the total public debt of the Do : [ minion as at March 31. 1936," is as ! under:— ' - £ London 135.711.930 . Australia 1,592,050 New Zealand ■ 122,250,518 Total." £252.5G1.098 CONVERSION OPERATIONS. "As far as conversion operations are concerned, members are already aware that arrangements have been made for dealing with £5,869,989 of 6 per cent, stock in respect of which there was a right to repay on or after August 1. Notice was given of the Government's intention to repay-on this date, and applications for conversion and cash subscriptions were invited in London for a total of £4,000,000 3 per cent, stock at' an issue price.of £98 10s per cent. Applications were received for conversion £1,558,000 and cash subscriptions £1,238,000, leaving £1,204,000 to. be subscribed by the underwriters. The complete .success of the issue was unfortunatelyl marred by the reaction from the world affairs at the time, but, allowing for this, the;issue was a satisfactory one, and the Dominion was congratulated upon it by leading financial opinion in London. The return to "investors over the tefm of the new loan is £3 2s Id, while the cost to th. Government, after allowing for the redemption of the discount on issue and other expenses, will be £3 4s lOd pei\ cent. The balance of the 6 per cent stock, £1,869,989; is to be redeemed from funds to be provided from-Neu-Zealand. The amount in question, to gether with the cost of remitting the : same to London, £458,147, will be pros videdto the extent of £1,690,000 from : the Public Debt Repayment Account. I and the balance borrowed internally. No public issue .in New Zealand will be necessary. .The net result of the conversion to a,, lo^er rate ol interest and ' the.debt repaid is a saving in interest of ; £208,000 per annum."/