Grey River Argus MONDAY, January 14, 1929. THE NEW BORROWING POLICY.

Grey River Argus, 14 January 1929, Page 4

Grey River Argus MONDAY, January 14, 1929. THE NEW BORROWING POLICY.

The news that the seven million cash loan for which Sir Joseph Ward has just gone to the London market shbuld have been over-subscribed on terms 3s 4d per cent, better tor the Dominion than the cash loan last year raised by his predecessor in office, is hailed by the Finance Minister with evident gratification. A ; leading Reform journal, the ; Auckland “Herald,” remarks ! that the London money market has apparently acquiesced in a change of policy, from one of economy promised by the Reform Party, and “has even apparently been persuaded to accommodate itself to Sir Joseph Ward’s prescription of the terms on which New Zealand stock should be issued.” The net result of the change from Reform to United borrowing has so far been that whilst Mr Downie Stewart proposed to raise this month fifteen millions, his successor at the Trea- . sury has gone for nineteen millions. Of this, twelve millions is a conversion, and before the end of the year a further twelve millions of debt falling due has likewise to be met, so that probably greater interest will attach to the negotiation of the present conversion than to the raising of the eash loan. The latter, according to Sir Joseph Ward, is the bare minimum required for his policy of putting in hand at once four important railway lines, providing money for State advances, and carrying on hydro-eleetrie and other public works. Mr Downie Stewart, during the late session, expressed the opinion that authority already existed for the raising of sufficient money to carry on, and he had the intention, after raising £5,000,000 of new money this month, to borrow no more cash until after March of next year. It had been suggested that this intention was in accord with the views of the moneylenders. Sir Joseph Ward suggests that the fact of two thousand millions of Imperial loan having to be converted this year emphasises the height of New Zealand’s credit. The cash 41 per cent, loan of £7,000,000, issued at £95, returns £4 IGs 4d per cent, to the investors, compared with £4 19s 8d being obtained by those who lent the Dominion £5,000,000 last year. At the same time, it is pointed out that the present tendency is for interest to rise on the London market. The holders of the £12,000,000 now being converted are offered £lO4 5s per £lOO of old 41 per cent, stock, giving the return of £4 15s 3d per cent., or Is 7d per cent, less than is being paid the holders of the 4J per cent, stock converted last year by the. late Government. No doubt, margins, however small, are important when they affect millions of money, but sight must not be lost of the fact tjiat the conversions mean an addition to that portion of the national debt affected. The effect of the conversion operation now in progress will be to increase the public debt by over £500,000. Last November, £17,562 10s was required as extra interest on last year’s conversion, and in the coming ll

financial year provision will have to be made for £76,500 additional interest, being the actual increase on the 1928 conversion, plus half of that on the present conversion. The conversion of the remaining twelve millions falling due next November may be so arranged that the interest increase will not have to be paid before the end of the coming financial year, but after that the annual Increase in interest will have reached no less than £200,000, without any increase of capital. Thus the conversions will have increased the nominal debt by £1,245,000, and the extra interest will be equal to the interest payable on a debt of over four millions. It is no wonder that the moneylenders are anxious to be as aceomiiiodating as possible when their actual returns are on the increase. The early impression, however, that seventy millions would be raised in a single year made them sit up and think! The question is being raised in New Zealand as to whether the Government can now afford to tackle schemes promising a return of less than 5 per cent, with borrowed money. At the same time, new development is calculated to render the interest-pay-ing capacity of the country greater, provided, however, that those deriving the greatest wealth from such development are taxed adequately. Sir Joseph Ward has promised that the money advanced by the State will not increase taxation at all. As a matter of fact, it is going to be a very difficult point to determine, but there is some evidence that the prospect of fresh capital for settlement and housing, coupled with that of more employment upon public works, is having a tonic effect on the economic life of the country. The necessity, nevertheless, to steer a course towards a greater’ degree of selfdependence is well indicated by the consequences of the loan conversions. The increases cannot continue indefinitely. The country cannot eat its cake and have it too. The counterpart of present borrowing must be an eventual increase of taxation in the aggregate. There must come a day when it will be necessary not only to stop increasing, but to begin reducing the national debt.