LOAN CORPORATION

Evening Star, Issue 22351, 29 May 1936, Page 6

LOAN CORPORATION

Third Step in Government Plan

Second Reading of Measure

“Cautiqus Approval” by Opposition

[From Oub Parliamentary Reporter.]

WELLINGTON, May 28

The third of what are described as “the three steps ” of the Government was taken by the introduction of the State Advances Corporation Bill, the second reading of which Mr Nash moved in the House to-night.

The other steps, he said, were first taking control of the credit and monetary system; then, secondly, putting the farmer in a position so that if he worked the land he would be assured of some reasonable return, while the workers would be provided with the necessary houses, because it was only a house which made a home possible. The Opposition attitude, as first expressed by Mr Hamilton, former Minister of Labour, was one of cautious approval. “ I am not going to say,” he declared, “ that we are opposed to the Bill. From our viewpoint it is not far astray, although we believe the present system is better.”

JUST AGENT OF GOVERNMENT NEW PRINCIPLES IN BILL Discussing the Mortgage Corporation Board, which will go out of office on July 1, Mr Nash, Minister of Finance, declared that its chairman, Sir William Hunt, had given excellent service. His knowledge of the mortgage position and land conditions was probably unequalled, and certainly not surpassed by any person in the Dominion. He had talked the matter over with Sir William Hunt, and was satisfied that the view taken by the former Opposition was correct —that it was impossible for Sir William Hunt, with his unsurpassed knowledge and undoubted integrity, no matter how he tried, to be a success both as chairman of the A.M.P., probably the next largest lending institution in the Dominion, and also managing director of the Mortgage Corporation. He was not questioning his integrity, but sooner or later it must happen that there would be a conflict of interest. The other directors were competent men and the managing directors were particularly able, and the feeling of the Government was such that it proposed to continue them as managing directors. What exactly the Government would do a little later in respect to another director was undetermined. They might take someone from outside or they might appoint a Civil servant competent in regard to mortgage and land questions. “ The corporation will go out of being on July 1,” said Mr Nash, “ and the procedure will be slightly different in future. The Government will direct the policy of the corporation through the Minister, and it will be the Government’s policy which will be carried out all the time. The board will administer as agent of the Government. The Minister will control, but will not interfere; but if there is a point at which the Government feels its policy is not being given effect to it will interfere. Its objective is to find competent men who will interpret its policy, and when these are found they will be given the freedom which should be given to such men.”

The Minister did not directly answer questions regarding the future rate of interest, but ho discussed the margin of security, pointing out that while 66 2-3 per cent, was the commercial loan basis, higher proportions could be advanced, but the larger proportion beyond the commercial margin wmuld he guaranteed by the Government. These guarantees would be mainly for rehabilitation of the farmers and-the building of homes, and he considered that guaranteed prices of dairy produce would he a sounder basis of valuation than in the past in determining the producing capacity of the land.

He was satisfied, ho declared in reply to an interjector, who reminded him that this aspect was confined to dairying land, that when the advantages of guaranteed prices were realised every other farmer would want to get the same stability and link up his income with the productive capacity of his land. Wherever farmers could legitimately present a case for a higher advance than 66 2-3 per cent, they would get it. NEW PRINCIPLE. An interesting new principle in respect to Advances Corporation loans was explained. It will be possible to apply tho usual repayment provisions on half-yearly instalments to only half the loan which would relieve mortgagors of heavy payments, 73 in number, during tho term of tho mortgage. This system was optional, but if applied half the loan would be repaid at the end of the term and there would be no difficulty in renewing the unpaid balance. Another new principle was that the corporation could require a mortgagor to safeguard his wife, if anything happened to him, by insuring his life, enabling the principal to be repaid in the case of his death, and the security to be handed to his widow. Power was also taken to require weekly or other periodical payments in respect of rates, insurance, and maintenance, as many mortgagors found it difficult to provide these amounts in a lump sum after paying interest. QUALIFIED APPROVAL. Mr Hamilton (Wallace), who followed, declared that he appreciated the moderate tone of the Minister’s speech. Ho was pleased to hear expressions of confidence in the existing board, which was thoroughly competent, though he did not agree that Sir William Hunt was incapable of impartial judgment in varied capacities. Perhaps the Go-

vernment mind could not realise it, but it was quite possible for big men to fill many responsible positions without conflict of interest. He had' never thought interest rates would ever be down again below 4£ per cent, in his lifetime, but it had happened, and was a tribute to the former Government’s measures. The only question of doubt was whether it was wise bringing all the lending operations under the control of the State. Though making drastic, far-reaching alterations, the Bill only returned halfway towards the old State Advances Department. It was a kind of coalition between the latter and the Mortgage Corporation. Here was a Bill regarded by the Minister as most important, introduced at 11 o’clock one evening, while the Opposition had to discuss it next night. They hoped to have more time for consideration.

“ Although _it involves radical changes,” continued Mr Hamilton, “ it is still an orthodox Bill which does not give expression to social credit ideas. It follows the line of normal finance, if in some cases the safety valve has been lifted rather higher, and in some cases taken oft altogether.” In a democratic country they were rather apt to favour the borrower more than the lender, and he was glad to realise that the Dominion was very free from extortionate lenders or careless borrowers. He was not confident that there was any better monetary system than the present, with its borrowing and lending. The original idea of State Advances to develop land had largely been exhausted, with the result that it simply became a huge lending institution, lending large loans to private borrowers, and competing with commercial enterprise. The Mortgage Corporation was designed to give service to borrowers without undue competition against private lenders. It also removed political influence, and included the element of private management, which was a useful blend of principles. Now it was intended to revert to State ownership and control. “I am not going to say we are opposed to the Bill,” added Mr Hamilton. “ From our viewpoint it is not far astray, although we believe the present system is better.”

NEW PRINCIPLE MIXTURE OF TABLE AND FLAT MORTGAGE Mr Nash moved the second reading of the State Advances Corporation Bill. He outlined the principles of the Bill, and said it was proposed to allow exactly one to elapse as far as the closing down of private shares were concerned, and the shares would be cancelled from June 15, though the new corporation would take over as from June 1. Shareholders would receive £ll2 10s of stock for every £IOO invested, to compensate for the reduction of interest from 4J per cent, to 4 per cent. The cost to the Government would be roughly £281,000. The stock would have a currency of 10 years, but could be redeemed earlier if the stockholder desired. He thought the treatment by the Government was generous, but the object was to place the shareholder in the same position as if the Government had not taken over the shares.

The Government would be responsible for the acts of the corporation. Tho Minister would not interfere, but would control; but its objective was to find men to put in charge who would administer the corporation in accordance with the Government’s policy. Employees who wore previously with the State Advances Department would go back under tho old terms, with a certain proviso regarding superannuation.

Farmers would be financed on a sounder principle than in the past, and the guaranteed price for dairy produce would assist. He predicted that as soon as the farmers saw the benefits to the dairy farmers of the guaranteed price scheme they would want to come under the procedure that would operate in connection with dairy produce. TABLE AND FLAT COMBINATION. Mr Nash said there would be a departure from the old procedure regarding loans, in that the borrowers could have half on table mortgage and half on a flat basis. They could also cover themselves with a life insurance policy, so that if a man died within the currency of the loan the insurance policy would free it for the widow and family. INTEREST RATE. Regarding interest rates, Mr Nash said the endeavour of the Government would bo to find ways and means to have the interest rate controlled. The

British Government had managed to keep rates down, and lie thought the New Zealand Government could do even better. The lending departments would be co-ordinated.

Mr Nash also said that at a later stage a Bill or appropriation would be placed before the House under which tho Government would build houses to overcome tho somewhat extraordinary shortage. At the present time he could not say what the rate of interest would be, but it would not be higher than that at present charged, 4J per cent.

The rural intermediate credit mortgages would be transferred to the Corporation later. The Government’s idea was to give the same advantages to the farmers as to those in urban areas. He thought many people did not realise tho seriousness of fjhe housing shortage. Of recent years the construction of houses had been 75 per cent, below what it should have been; 1,700 to 2,500 bouses had been constructed, whereas New Zealand required 5,000 houses, or more like 6,000 new houses every year to house the people properly. Sixteen to twenty thousand families were not properly housed, and the reaction was harmful from every point of view; and members knew how the position was being exploited by some people at present. The Government was taking the steps proposed in the Bill, because it believed the Government could do the work better than any private or semi-private or semi-public organisation. TRIBUTES TO FORMER LEGISLATORS. Ho referred to the early history of the State Advances Department, and the benefit it had conferred on the people. Mr Nash paid a tribute to Sir Joseph Ward for his part in establishing the department, and also paid a tribute to Mr W. F. Massey for increasing the margin to 95 per cent., as that action had meant the building of thousands of homes, and it was worth while doing again if it meant building homes. The Government had to find a way to prevent land-grabbers and others from reaping the benefit of the advantages and facilities provided by the State, but whatever steps were necessary to stop it would be taken. Mr Nash said the purpose of the Bill was to provide homes and to enable the farmers to develop their land. He claimed that tho farmers were looking to that and subsequent legislation to free them from the hell they had suffered_ in recent years, and all that it was intended to do for the fanner would be done in the best possible way.

GENEROUS YET CONSERVATIVE. The principles of the Corporation would be generous, but they would be conservative. The money to be advanced would be to enable people to build homes or improve land for themselves, not to sell. Mr Hamilton complimented Mr Nash on the moderate tone of his speech. He agreed that the losses anticipated ■when the Mortgage Corporation took over from the - State Advances would not bo as great as was thought. He was sure the two managing directors would administer the Corporation in accordance with the policy of the Government. He did not agree that it would not have been impossible for Sir William Hunt to have administered the policy of the Government. After all, Sir William Hunt was just the chairman of the board. Mr Hamilton said it would be interesting to learn the personnel of the new board, and he thought outside independent thought was desirable. He thought interest rates had been fairly well controlled in the last two years, and now they were as low as they had been for a very long time. That the Government could do the work proposed better than private organisations was debatable, and there was the question whether the Government was not going too far in what was not a State function. The Minister had referred to the establishment of the State Advances Department, but there could be no comparison between the position today and the position in the ’nineties. The Bill, though making far-reaching and drastic alterations in the Mortgage Corporation, did not go right back to the old State Advances Department, but went half way. It was a coalition. Mr Hamilton thought it was a pity to see the Mortgage Corporation go out so soon. He thought it should have been left for a few years, as it was managing its business quite well. He regretted he had not had longer to consider the measure, and suggested that in future the Prime Minister should allow a longer period between the introduction of a Bill and the second reading. The Bill followed fairly orthodox lines, but he thought the present corporation was doing very well. It was lending money at 4£ per cent. Borrowing had been the practice for many years, and he thought they paid more attention to borrowing than to repaying. Greater attention was, he thought, paid to the borrower than to the lender. The State Advanes Department, no doubt, had been very successful, but it was most successful as a lender for development purposes. It was not so successful when it was handling large sums of money at high rates of interest. The development idea had been lost, and the departmen became a huge lending institution, which was not the State’s function. He believed in divorcing departments from political control, and that was the idea behind the establishment of the Mortgage Corporation. The purpose behind it was to give the cheapest money possible, and the best management possible. This Bill reverted to State ownership and State control. He would not say he opposed the Bill as the new system was not far astray, and lie believed going back halfway was better than going right back to the State Advances Department. country housing, too. Mr Hamilton thought every encouragement should be given the borrowers to repay the money, and the Bill should entice them to do that. Tho housing shortage was a problem in some places, such as Wellington, but it was not a problem in other parts. People seemed to bo drifting to tho cities, and he thought some attention should be given to the housing of the people in the country. Although they had housing provision, there was no housing policy. He thought it was better for the State to assist in building a home than to assist an industry or an investor, or oven to assist the farmer. He considered the provision to lend up to 100 per cent, should be confined to housing, and not made general, but to let industry and farming find some basis of equity. TOO LARGE A MORTGAGEE. He thought the Minister would have to watch rising costs, and if ho could keep costs from rising he would have a hard task. Ho considered it inadvisable for the State to become foo large a mortgagee, and said it would bo better for tho State to leave it to private people. Ho contended it would be better that the State should give industries a hand to start rather than enter into partnership with them. Ho thought the Government would bo well advised to keep clear of tho stock and chattel business, which was a risky movable business. He did not altogether hold