WAR LOANS

Evening Post, Volume CXXXIV, Issue 42, 18 August 1942, Page 4

WAR LOANS

THE INTEREST RATE

MR. POWNIE STEWARDS VIEW

(CO DUNEDIN, August .17. The Hon. W. Downie Stewart commented today on the recent announcement that a new war loan 01 £10,000,000 would shortly be issued to the public, and the terms, of the_loan would be made known later. When, the last loan of £25,000,000 was raised it was over-subscribed, but this result, Mr Stewart said, was obtained/-only after much urgent pleading, cooling, and begging by means of the radio-and other forms of publicity or by inducing large investors to d9Uble or increase their first applications. y "Is' there not," Mr., Stewart;. asked, "a lesson to be learned from the experience in floating 'that loan—for there still is plenty of money awaiting, investment, and there is a keen patriotic desire to supply the Government with the funds necessary to carry on the war? The obvious emanation is that the Government is not willing to bay the market price for money._lts last loan is already at a discount This means, in effect, a capital levy on aIL those investors who for one reason or another have to sell war bonds in the market. The Government pays the market price for all other war material, such as steel, cement, and^foodstuffs. Why should it set a .different standard when it sets out to lure money? • , .. ',•",. "The market prices show that the public expects Government loans^ to yield 3J per cent., whereas the Government so far is only willing to pay 3 per cent. I am not thinking of the large investors whose income tax and social' security tax reduce the yield of their 3 per cent, investments to perhaps 15s for each £100. The addition of i per cent, on Government loans is little help to them in any case, but the small, thrifty investor, dependent on a slender income for a livelihood, is deeply concerned. No doubt this thrifty person will respond on. patriotic grounds as far as he can, even though he knows he will lose some of his capital owing to depreciation of the loan, but he cannot continue to do so for further loans- indefinitely., • • „' : / "This investor," Mr. Stewart continued, "is of immense value to the Government, though a few years ago his habits of thrift were jeered at as out of date and mischievous. If Australia, which is a larger and wealthier country than New Zealand, finds it possible and advisable to offer 3J: per cent, can New Zealand expect to payonly 3 per cent? Much of the moneyawaiting investment is held by- trustees, who must do the best they cart for their clients. It is surely ,unwise to force them to seek trust investments that yield more than Government Bonds. To encourage thrift the bonds should yield such a rate of interest as will keep them at par or as near par as possible. It is in the Government's interest to secure this result. Otherwise the flotation of future loans is prejudiced and Government credit is depreciated." ■