GUARDING SINKING FUNDS

Hawera Star, Volume LII, 13 October 1932, Page 6

GUARDING SINKING FUNDS

PUBLIC TRUST INVESTMENTS LOANS BY LOCAL BODIES. NO WITHDRAWAL TILL 1935. HILL READ IN HOUSE.

(By Telegraph—Press Association.) WELLINGTON, Oct. 12. The Local Authorities Sinking Funds Bill was introduced by Govern orgciieral’s message in the House ox Representatives to-night. . The Rt. Hon. G. W. Forbes said the Bill -was brought down to protect the Public- Trustee in relation to tun (is invested by him for local bodies'. Owing to previous legislation brought down by the Government preventing the liquidation of these securities the Bril proposed, that no alteration should_ be made in the investments until 19,m. Mr J. A. Lee (Lab., Grey Lynn) asked if in the event of a local body wishino- to withdraw its funds would the Government have to take steps to create credit to enable the Public Trustee to- remain solvent. Mr Forbes said that under certain Acts the Public Trustee had invested the sinking funds of local bodies m rural securities. Some local bodies now claimed they could get higher ir jtci es ■ if they could withdraw these funds, but the Public Trustee was not m a position to repay them. The Bill would not cause any increase in interest; it would only place the Public Trustee m the same position as a mortgagor. Mr 11. G. R. Mason (Lab., Auckland Suburbs) said the Prime Minister’s explanation of the Bill made an obscure position more obscure. He could s 0 reason for the Bill; it would prevent any change being made. That was to say, the local bodies must invest then money with the Public Trustee. Why should the local bodies be placed m a position of servitude? , Mr Forbes said they could not make any change until 1935. Mr Mason: Why should that be the case? No one wishes to see the Public Trustee circumscribed, but. when, it comes to compulsion I think it is goin to *°Mr D. G. Sullivan (Lab., Avon) suggested the Bill .should be sent to the Local Bills Committee. He was not prepared to say it was not justified, but he thought it wa.s a fair thing that the local bodies should have an opportunity to put their side before the committee. Mr D. W. Coleman (Lab., Gisborne) supported this view. . . The Leader of the Opposition also agreed and said if Mr Forbes would allow the Bill to be read a second time pro forma it could then be sent direct to the committee. Mr Forbes said the Bill was only beinio* introduced and the lo'cal bodies would have ample opportunity to see what was in it when, it was printed. The Government had tied up the. investments of the Public Trustee by its legislation, and all that the Bill proposed to do was to safeguard his position until 1935. If there was a tendency on the part of local bodies to withd-aw inonev from the Public Trustee to invest "it at a higher rate of interest elsewhere the Bill would prevent that. The Bill was read a first time.

DESIGN OF THE MEASURE.

OFFICIAL EXPLANATION GUV EN

\n official explanation of the Local Authorities’ Sinking Funds Bill given after the first, reading last evening stated that the Public Trustee was the sinking fund commissioner for a Inigo number of local body loans, and he had been giving them the benefit of the Common Fund rate of interest which, up to recently, had been 5f per cent, reports the "Dominion.” The Common Fund rate of interest had been reduced to 4 per cent, some time ago,, and the result was that some local bodies wanted to withdraw their funds from the Public Trustee. . . In receiving instalments of sinking funds, the Public Trustee allowed interest from thc time the sums were paid to him. This meant they commenced to/ earn interest immediately, whereas if the sinking fund commissioners invested them themselves they would have to wait for a suitable investment, especially if the sinking fund were a small one. REGULAR INTEREST RATE. The placing of sinking funds in the Common Fund gave local bodies the benefit of a regular rate, of interest irrespective of the securities in which the Common Fund moneys were invested. At the present time the losses on mortgage investments were met out of the Common Fund, but . the local bodies did not lose the principal. They were onlv suffering the reduction in the rate of interest, whereas if their own sinking fund commissioners had invested in mortgages’, their losses would probably have been heavier. The Public Trustee had arranged for sinking funds 'to bo released at the date of the maturity of loans. Thc action of local bodies in asking for the release of sinking funds at the present time meant that the Public Trustee had to realise on liis investments in order to aceedc to their demands. At the present time, however, he could not realise on these investments on account of legislation in the Mortgagors Relief Acts and the National Expenditure Adjustment Act.

The present Bill was therefore designed to enable him to refuse to pay out sinking funds until the expiry of the relief legisation on April 1, 1935. Two principal questions arc dealt with in the Bill. Clause 3 imposes the temporary restriction on the rights of local bodies to withdraw sinking funds from the control of the Public Trustee. Clause 4 states that whore any local body has appointed or appoints the Public Trustee ns the commissioner of any sinking fund, and the appointment lms been expressed by deed or resolution to be irrevocable, or to be revocable only on certain specified’ conditions, the appointment shall be irrevocable except in accordance with any specific conditions provided for. Clause 5 relates to the changing of securities. At the present time a local body can apply for an Order-in-Couneil to have its securities taken out of the Common Fund and separately invested. The clause provides that no such Order-in -Council shall bo gran lo<l at any time before April 1, 10-id.

“ Conscience' 1 money and gifts received bv* the British Chancelloi of the Exchequer have amounted to as much as £IO,OOO in one year.