THE H.B. TRIBUNE WEDNESDAY, FEBRUARY 27, 1935. A FALSE DOCTRINE.

Hawke's Bay Tribune, Volume XXV, Issue 64, 27 February 1935, Page 6

THE H.B. TRIBUNE WEDNESDAY, FEBRUARY 27, 1935. A FALSE DOCTRINE.

The report, appearing on another page, of yesterday’s continued debate on the Mortgage Corporation Bill drew forth some reference by the Finance Minister to a subject that has for long been a sore point with rating bodies throughout the Dominion. That is the exemption which State lending departments, and more especially the State Advances Office, claim from liability as mortgagees for the payment of local rates. It is in the first place to be noted that the responsibility of private mortgagees in this respect is of purely statutory creation and is, we believe, peculiar to this country alone. On the other hand, the exemption which the State departments claim is based solely upon the old doctrine of Crown privilege, which should long since have been abolished so far as it is* applicable in cases where the Government is concerned as a competitor in commercial and financial undertakings. When, in connection with its lending activities, the Government takes shelter beliind this archaic principle, it inflicts a grave injustice tipoil the general body ol ratepayers, for it is manifest that they will have to make up any deficiency arising from the Government failing to meet demands that, would be enforceable against a private mortgagee. It is, of course, only since the depression lias fallen upon us and default on the part of owners or other jiecupants has been widespread that the position has become really acute. With between 50 and 60 million invested on mortgage, almost the whole of it in the shape of loans to farmers and workers, both hard hit by the hard times, it will be readily understood what this exemption means to local bodies at a time when their other ratepayers are most of them badly put to it to meet their engagements. There can be no possible denial of the fact that, from both the moral and the economic points of view, the attitude adopted by the. Government departments is radically unsound. If mortgagees are made directly and personally responsible for payment of local rates upon the securities they hold, then the law should be made applicable to State as weli as 1o private investments, other wise nothing but flagrant, injustice can be worked. However, having once asserted the right—and it is a good few years now since this was firs! done —it would perhaps be a little uniT'iisoiiiible to expect any Government to surrender it altogether when itself hardly pressed in matters of finance. That, on the other band, is only an argument of political expediency and does not make the doctrine ol Crown privilege any the less fa!s<’ when invoked in any such relation of the State to the people. An other point is this. It is prett,'. well established that the genera! body of the country’s taxpayers

will in the end have to shoulder a good many millions of loss arising from the State’s mortgage investments. It is a little bit difficult to understand why there should not be included in those losses rates paid by the State lending departments under the moral obligation that undoubtedly sits upon them. Only in that way can the liability be equitably spread and justice be done to the local bodies, among which those hardest up are suffering most from the State exemption. The occasion for the question coming into prominence just now is the proposal to transfer to the contemplated Mortgage Corporation practically the whole of the securities held by the State lending departments. In this connection the Bill, at any rate as originally circulated, provides that even in the hands of the Corporation the right of exemption from liability for rates is to continue. Having once accepted the doctrine of Crown privilege as being applicable, there is really nothing very much out of the way about that. Since the Government is virtually set to indemnify the Corporation against loss on these securities, the Corporation will, with regard to them, virtually be a nursing trustee for the Government and so entitled to the same immunity. At the same time, however, it means a prepetuation of a manifest injustice. The Minister seems to anticipate that the borrowers thus handed over to the Corporation will be eager to take advantage of the new lending provisions of the Bill and change their present indebtedness to the State for one direct to the Corporation, which will then be under the customary mortgagee’s liability regarding rates. But the trouble is that this transformation will probably be longest delayed with respect to borrowers who are the most likely rate-defaulters. The Minister speaks of a possible liability of half a million a year being assumed should the Government accede to the representations that are being made on behalf of local bodies. That, however, as covering the whole body of securities, is surely an exaggerated way of putting it and, one may suggest, does not. offer any extra inducement for subscription to either the share or the bond capital of the Corporation.