REDUCTION OF INTEREST

Hawera Star, Volume LII, 27 February 1933, Page 6

REDUCTION OF INTEREST

LOAN CONVERSION PLAN FINANCES OP NEW ZEALAND DOMINION INTERNAL DEBT. RELIEF FOR. THE BUDGET. In acordance with the suggestion made by the Minister of Finance, the R-t. Hon. J. G. Coates, in the statement which he delivered upon the resumption of Parliament this year, the New Zealand Government is about to embark on a conversion scheme comparable, in more limited scope, with that recently brought to such a successful conclusion in Great Britain (reports the “Dominion”). .

The introduction of the Finance Bill into the House of Representatives tomorrow night will, it is understood, be the first step in an attempt to secure the voluntary conversion to a lower rate of interest of the greater part of the Government debt domiciled in New Zealand. In this respect the British scheme was different, for there only maturing loans were converted.

The suggestion has been made that the Government’s interest reduction proposals would amount merely to a further 10 per cent, reduction from State and local body interest payments in the. form of additional stamp duty or by some other means. Actually, it is understood, the intention is to convert the debt which bears interest varying from three to six per cent, to a uniform flat rate of interest.

CONVERSION AUTHORITY. Under the New Zealand Loans Act, which was passed before the House adjourned at Christmas, the* .Government took power to convert existing securities and to offer any premium or bonus that was considered necessary to secure a conversion. For some time past, it is believed, negotiations have been proceeding with some of the principal baiulholders in New Zealand in the hope that they will give a lead to the majority of smaller holders. In most cases the Government’s representations appear to have been well received, and it is fairly confident that its proposals will be as enthusiastically received in New Zealand as the similar proposals were in Great Britain. At the same time, extensive propaganda will be undertaken to popularise the scheme, and every avenue will be used for advertisement and appeal. The Government anticipates that the conversion of its securities will induce a general reduction in interest rates throughout New Zealand. In his statement to the House .on January 27 Mr. Coates pointed out that in London interest rates on the short-term market had fallen to a very low level, and that following the recent British, conversion, long-term rates were also coming down fairly rapidly. The Minister left no doubt of his opinion that similar results would follow in New Zealand. He mentioned also that if “the more comprehensive proposals” could be sucessfully arranged the present 10 per cent, stamp duty, which had been somewhat irksome to bondholders, would be abolished.

INDUCING REDUCTIONS. Even if it takes no other steps to reduce local body interest rates, and so give rating relief, the Government considers that the conversion of its own debt would quickly reduce reductions in this field. Further statutory interference with mortgage rates is not contemplated, since the existing powers for the assistance of individual cases are already extensive and have lately been increased by the passing by the Lower House of the Mortgagors and Tenants Relief Amendment Bill.

It is considered that a lowering of interest rates on gilt-edged securities must make mortgage investments relatively more attractive than they are at present, and at the same time as it induces this result the Government does not wish to disturb the confidence of investors by a further statutory interest reduction.

: New Zealand’s national debt at March 31, 1932, was £281,942,800. 01 this, £118,386,395 was owing in New Zealand, £159,641,855 in London, and £3,914,550 in Australia. The average rate of interest on the debt held by the public is 41 per cent., and that held by Government departments about 4) per cent.