SINKING FUNDS

Evening Star, Issue 21232, 13 October 1932, Page 3

SINKING FUNDS

LOCAL BODY WITHDRAWALS PROHIBITED MUST REMAIN IN COMMON FUND LEGISLATION INTRODUCED [l'Roii Oue Parliamentary Reporter.] 'WELLINGTON, October ]-. Legislation to prevent local bodies Iron) withdrawing their sinking funds from the common fund of the Public Trust until April 1, 1935, when the mortgagors' relief legislation expires, is contained in the Local Authorities’ Sinking Funds Pill, introduced by Governors’ .Message to-night. Tito present position is that the Public Trustee is the sinking fund commissioner for a large number of local body loans, and he has been giving local bodies the benefit of the common fund rate of interest, which up to a little while ago was oi per cent. The common fund rate of interest was recently reduced to -1 per cent., and the result lias been a desire on the part of local authorities to withdraw their sinking funds from the Public Trustee. The Public Trustee pays interest to local bodies from the time the investment is made, whereas in the event of the funds being placed elsewhere local bodies would have to wait for a suitable investment, especially whore small amounts were concerned.

The placing of sinking funds in a common fund gives a local body the benefit of a regular rate of interest, irrespective of the securities in which the common fund is invested. At the present time losses on mortgage investments arc met out of the common fund, but local bodies do not lose their principal. They only suffer a reduction in the rate of interest. The Public Trustee has arranged for the sinking funds to be released at the date of the maturity of the loans they secure. The action of the local bodies in asking for sinking funds to he released at the present time means that the Public Trustee has to realise his investments in order to accede to the demand. At the present time, however, he cannot realise these investments on account of the provisions in the Alertgagers’ Relief Act and the National Expenditure Adjustment Act. The object of the Bill, therefore, is to enable him to refuse to pay out sinking funds until the expiry of the relief legislation in April, 1935. The Bill provides also for temporary restriction of the rights of local bodies to withdraw their sinking funds from the common fund ; for the appointment by a local authority of the Public Trustee as the commissioner of any sinking fund may be declared to bo irrevocable, states another section. At present a local body can apply for an Order in Council to have its securities taken out of the common fund. The section provides that no such Order in Council shall he granted at any time prior to April 1, 1935. There was some discussion in the House on the introduction of the measure.

Mr Lee asked if, in the event of a local body wanting to withdraw its sinking fund, it would bo necessary for the Government to take steps to create credit to make the trustees solvent. Since the Government obviously did not intend to do that it was apparent that the Government was socking to set the law aside.

Air Forbes said the sinking funds had been invested in rural securities. Some of the local authorities claimed that they could get a higher rate of interest if they could withdraw their funds from the common fund. The action of the Public Trustee was circumscribed by the fact that lie was unable to realise on these securities. Air Nash (Palmerston North) : Will there he any increase in the rate of interest ?

Air Forbes: There will be no increase in the interest rate. Air R. Alason said Air Forbes’s explanation added a great deal of obscurity to the position. He saw no reason for the Bill upon the explanation that had been given. It seemed to him that any local body that was seeking to change its sinking fund commissioners was essentially looking to the future. Whv should a local body not do that? Under the Bill it appeared that a local body was compelled to invest future sums with the Public Trustee. Why should the Public Trustee he niven that preference? It appeared to him that the Public Trustee was out to make extra profit. The whole thing was going; too far. Air Sullivan suggested that the Bill should he referred to the Local Bills Committee. The matter was of great importance to local bodies. Air Lee: A moratorium for one firm. Air Sullivan said it seemed only fair that local bodies dissatisfied with the proposed legislation should have the right to state their case before the committee. ■ Air Forbes pointed out that the Hill was only being introduced, and local bodies would have ample opportunity of stating their case. There were those who asked why the Government should interfere with' local body investments, hut it had to he remembered that as soon as local bodies got into ti on ole they came to the Government for j " ance from the common fund. The Pnblie Trust had the guarantee ot the Government behind it. Air Laugstonc: Like the superannuation funds. The Bill was read a first time.