BRITAIN’S TRADE,

Gisborne Times, Volume LVI, Issue 6320, 24 February 1922, Page 6

BRITAIN’S TRADE,

UPWARD TREND OF GOVERNMENT STOCKS,

Fears were expressed by some having knowledge of the financial capacity of the Dominion, as to whether it could absorb the first £8,000,000 of 'the local war-loans, says the Wellington Post. It has done more: It has taken over £55,000,000 —some of the money, it is true, has been lent under compulsion, but the market has taken it and is now turning it over. The compulsory subscriptions came rather hard upon many people and concerns, who were foi cod to pay £IOO for stock or bonds that nobody was prepared to buy for more than £B2 to £B3—but they had to be sold at a discount of 17 per cent, or more as the ready money was more valuable at the time and was wanted. Beside,' the payment or income tax synchronised. (sales ot Government 4£ per cent, war loan inscribed stock were down in June last to as low. as £B2 10s, and war bonds to £B2 ss. The loss fell heavily upon someone. However, the New Zealand market for the Goveminent’s w<ir loan securities lias been steadily appreciating since the New Year. ‘The Stock Exchange opened on January 9 with buyers of vi.e 4,V per cent, inscribed stock of 1938 --which mav bo taken as the basis—at £BS 12s (id. This was an advance of 2s Gd on the buying rate ruling when the exchange shut for the Christmas holidays. The month ot January closed with buyers at _ £bb 15s; sellers £B7 5s for the 1938 s. The* current month opened with buyers £BO 17s (id, and sellers £B7 12s (id. The price has been steadily rising since, until to-day tho market price is approximately £BB. The chief attraction of the Government 4 V per cent, stock and bonds maturing in 1938 and 1939, appears to be that the income derived therefrom is free of income tax. Jnteiest shown in these investments in Wellington is also shown in Auckland, Christchurch and Dunedin. Insofar as the investment market goes, any one of these exchanges reflects the others, so that the movement to acquire holdings of the securities m question may be taken to he geneial throughout the Dominion. As the matter stands, a'person or corporation with an income of £IO,OOO per annum pays £4400 of it in income tax, the remainder of the £lO 000 is for himself or itself, being £5600. If the income he earned, then a deduction of 10 per cent, up to £2OOO must be allowed for. On the other hand, if the person or corporation has an income of £IO,OOO coming from the -IV per cent. 193 S or 1939 war loan stock or bonds, it is not subiect to income tax, and there- | fore the whole £IO,OOO income is retained. At the present enhanced j price of £BB, the return to the in- . vesting person or corporation is more than 41 per cent. It is about 5J- per ; cent, actual interest, or, including redemption, 5 5-8 per cent, and free of income tax. In these circumstances the interest in these Government securities is obvious. I

But there is another reason why they are increasingly asked for. As mortgages fall due, and not everyone is taking advantage of the moratorium. much of the money so coming in is' going into these Government securities and not being lent' out again on mortgages. It may be that money is worth to-day 7 per cent, for mortgages, but if 7 per cent is subject to possibly Ss 9d in the £1 income tax, it gives the lender but a net return of approximately £3 ISs 9d per cent., a manifestly inferior result to that obtainable from investment in the 1938 and 1939 giltedged Government investments. . It may be reducing the supply of capital available for mortgages and other purposes, but it is evidently greatly to the advantage of investors, especially those subjected to income taxation on the higher scale.