DEBT REDUCTION.

Hawera Star, Volume XLVI, 19 August 1927, Page 10

DEBT REDUCTION.

OPERATIONS IN NFAY ZEALAND. FINANCE MINISTER EXPLAINS. IBY TEIjKOBAPU —PIiiSSS ASSOCIATION . I •* WELLINGTON, Aug. lb. Replying to the debate on tbe Budget iiT the House of Representa-. tivesT to-night, the Hon. AN . Dow me {atewart, Minister of f iiiunce, saicl Su .Joseph Ward had (suggested that Aost rail a was maning a Better enort to pav oil x.er debt tnan we were, and no' had mentioned the tact tnat she Had arranged a sinking lund on a Uvil.OoJ 1 cent. As a matter oi iaet her sinking fund was on more than xaOUjUW, >»„<), as it covered ah the commonwealth ileht; hut lor some reason Sir .Joseph \\ aid had suggested that we were not carrying out a similar scheme, and, in fact, at one stage lie nad suggested tnat we had no suikiiin fund. Tne position had been ireqi!ently explained, hut a brief restatement might be necessary. Under the Public Debt Extinction Vet of 1910 provision was made lor the repayment of the public debt bv a sinking fund which has to accumulate at compound interest »«r to years. This scheme was regarded a.s satisfactory at the time, hut experience nad snown certain disadvantages attachec to it. ft meant that a huge sinking fund was accumulating which would all fall due at a specilied date, and

would involve a vast scheme ol realisation Moreover, apart from the suip* us revenue, there was no money available to redeem loans that matured in the interim. So as to enable the Treasury to take advantage of any favourable offers of buying stock belou par before maturity, the loans had to he renewed from time to time, although there were actually sinking funds in existence to redeem them. Tins meant a loss through unnecessarily loading loans with two or three charges. The problem of debt reduction had, of course, been greatly accentuated bv the big increase in the national debt during and since the war period. While the usual .(slinking fund was ouite a suitable and sound method ot repaying a relatively small and specine loan, it was now clearly seen to be impracticable as a method lor reducing the public debt. Tlie Repayment of “the Public Debt Act of 1920 was designed to overcome these difficulties and obviate the weaknesses of the 1 üblic Debt Extinction Act It was modelled exactly on the British sc.stem, and was almost an exact oopt o'- the Australian National Debt linking Fund Act of 1923. ••In a speech made last November in London, the Prime Minister of Australia explained the working or then .sinking fund, which provides, as ours does, for a half per cent, every year out of tbe Consolidated Fund on the debt whic h falls under this scheme. The sinking fund is used to re-purchase loans on the market; and the stock is then cancelled, hut the interest on the cancelled stock is continued at fixed rates and paid into the sinking fund to represent the accumulated interest that would have accrued had no reclucion taken place. , “A,s in Australia, so in New Zealand the fund has chiefly been use! for the redemption of the war debt, as a debt against which no tangible assets had hren created. The accumulated smkirm fund was thus included in the redemption fund, amounting to 000. and also, an amount of £I3,oOd,UOU was advanced out of the Consolidated Fund ‘or the settlement of discharged soldiers, and the interest earned on these capital sums enables us to redeem tbe debt with a lesser charge on taxpayers than in Australia. “Under our mesent system the debt would he redeemed i.n 60 years from its inception, instead of at the expiry of 75 years under the old system. In effect, the new system Omen ns that the debt will be repaid under tlie annuity plan after the manner of a table mortgage. The annual charges w ill he practically the same, but there will be less interest and more principal paid or repaid each year. This is the essence of the new scheme. “It may be of interest to note that the States of Australia in transferring their debts to the Commonwealth have agreed that these will also come under a "similar system of debt reduction. ’ iMr. Stewart quoted authorities to show that financial experts were of the ouinhm that the present practice was the best, and he felt sure tha if Sir Joseph Ward had the opportunity of examining the new system he would find that there was very much to commend it. .