WHY INTEREST RATES ARE RAISED.

Manawatu Standard, Volume XLVI, Issue 106, 5 April 1926, Page 6

WHY INTEREST RATES ARE RAISED.

Attempts are being made in the Eden electorate contest to gain votes for the labour Party candidate by alleging that the Government has unnecessarily raised the rate of interest on loans to settlers and workers from 44 to 5£ per cent. Sir James Gunson, the Government candidate, referring to these attempts has charged the Labour Party with not playing the game, in that it has failed to recognise, or rather has suppressed the fact that the Government itself is unable to secure loan moneys at the easier rate, and that, consequently, it is compelled to charge the higher, in order to properly finance the business. With more daring than wisdom, one member of the party prominent in Labour circles in Auckland has endeavoured to show that the Government has a sufficiency of moneys available, upon which the interest payable is only from 3 to 4£ per cent., to enable it to continue making advances at the old rate. The public accounts have been quoted in support of the allegation that loans are outstanding to the amount of £12,646,794, at rates ranging between the 3 and 44 per cent., and it is further alleged that “against the total of these loans, most of which were not repayable for several years there arc sinking funds amounting to £1,931,834 which would more than meet the amount (£1,265,000), due for repayment within the next three years.” The report before us (that contained in the New Zealand Herald) fails to make clear the nature of the loans referred to, or the purposes for which they were raised, but the statements covered are clearly at fault. The State Advances Department lent out no less than £5,238,880 during the financial year ended 31st March, 1925, at the old rate of interest, although the loans raised in London during the five years ended on the same date, amounting to £26,000,000, were actually costing the Government on an average £5 6s lid per cent., and £5 2s 4d per cent, on the average payable for interest alone. Of the £7,000,000 loan raised during 1925, £2,000,000 was handed over to the State Advances Department, that money costing the Government £4 17s 6d per cent, for interest alone, or for interest and redemption £5 2s 4d per cent. What possible justification can there be for the Government lending money at £4 10s per cent, that is costing it 12s 4d per cent, more than it would be receiving at the 44 per cent. rate. Labour financiers apparently consider, or at least pretend to think it can be done, and they might conceivably make the attempt were they given the opportunity, but the taxpayer would have to make good the ditference. The £26,000,000 or so, comprising the capital (that is the advances made) of the State Advances Department is all out at interest. The amounts falling due on mortgages, year by year, are wholly inadequate to meet the demands of borrowers and, to discriminate between the several classes of borrowers by charging one section a lower rate of interest than the others, would be foolish. The point was sought to be made in Auckland that the £1,275,000 repaid on mortgages and instalment of principal last year should have been lent out at 44 per cent. That counts for very little against the fact that the new money advanced (obtained as we hav r e stated at a cost of £5 2s 4d per cent.) was greater by nearly four millions. What justice would there be in saddling the taxpayer with the 12s 4d per cent., representing the difference between the old rate, and the actual cost of the money advanced for interest alone, without any allowance being made for office or other overhead charges ?