LUNCHEON CLUB

Manawatu Standard, Volume XLVII, Issue 221, 16 August 1927, Page 2

LUNCHEON CLUB

4 P.M. EDITION

“FARMERS’ FINANCE.” “There is probably no more important problem confronting the Government and people of New Zealand today than the problem of farmers’ finance, and in traversing its various aspects in the limited time at my disposal, I can only briefly touch on the causes, effects, and, possible remedies of the farmers’ present precarious position,” stated Mr 0. W., Williams, when addressing the Citizens’ Luncheon Club this afternoon upon the presnt- financial position as. it effects the farming community. Mr M. H. Oram presided. “Assuming that the main effects aro land inflation, heavy mortgage indebtedness, high cost of production, unemployment, and a general depression, it is necessary to go back a number of years to trace the main causes,” continued, the speaker. The seed of the farmers’ present troubles was sown' with the instituting of the moratorium which, as in most other countries, was enacted in New Zealand shortly after the commencement of the war. The false security of tenure created by the immunity from mortgage liability was the real beginning of land inflation, while the ever-rising prices of our primary exports up to 1919 helped -to keep up the pace, eventually raising land values to unprecedented levels. Further, the increase in land prices was contemporaneous with the increase in mortgages, and as there was not sufficient capital available to finance the enormous number of land sales (for capital was required for war and other purposes) the complex of our mortgage system gradually underwent a complete change. Mr Williams then went on to deal with the source of mortgage capital in New Zealand, which he remarked was of a fourfold nature. The amount outstanding in 1914 had been £106,000,000 while in 1921 it had nearly doubled itself, the total since then reaching £283,000,000. Then private investors had withdrawn a large portion of the investments causing the increase to fall on the shoulders of the farmers. “In 1914 the capital value, that is tile value of land and improvements according to Government valuation, was £365,000i000, and the outstanding mortgages totalled £106,000,000,” continued the speaker. “By 1925 capital values had increased to £587,000,000, and outstanding i mortgages to £269,000,000. In 1914, 29 per cent of the value of our land was mortgaged, while in 1925 46 per cent was mortgaged. It is also interesting to note that, while capital values during this period rose by 60 per cent, mortgages increased by 153 per cent. The worst fature, however, of this huge increase is that the inflation exists by way of paper mortgages as between buyers and sellers, and just as an inflated paper currency has a deprecating effect on its value and stability, so have for the time being the inflated mortgages deprecated New Zealand land values from an investor’s point of view.” CAUSES OF SHORTAGE.

Discussing the causes of the shortage of farmers’ : capital, the speaker held it was primarily brought about, or at least greatly aggravated by the mistaken borrowing policy as pursued by the Government since the cessation of the war. Prior to 1914, nearly the whole of Government borrowing was done in London and to a very small extent in Australia; so much so that in 1914, out of the' total public debt of £100,000,000, less than £17,000,000 had been borrowed in New Zealand. From 1914 to 1918 our public indcotedness increased from £100,000,000 to £151,000,000 and out- of this £51,000,000 no less than £42,000,000 was borrowed in New Zealand.

“Nobody, however, will blame the Government for borrowing money during this period in -New Zealand as it was tlie only possible course to pursue, and 1 simply give the figures to show the serious depletion of 'capital which had already taken place in New Zealand by 1918, particularly in view of the fact that practically the whole of this increased indebtedness was for war purposes, and so had been irretrievably lost.”

The speaker then at length discussed the moratorium (stating that the farmer at that time required no moratorium and would be much better off to-day had he never known its meaning) and the Government’s borrowing policy, adding that, during the last 12 years, the people of New Zealand had supplied the Government with capital at the rate of 7i millions a year, and, taken on a per capita basis, there was hardly another country in the world that could have done it. “But even New Zealand could not entirely escape the penalty,” added the speaker. “It is obvious that such a complete reversal of borrowing policy in one decade must have had a revolutionising effect on the economic position of the country, and so acute had the financial shortage among primary producers become in 1924 that, during that year, no less than 11,731 farmers applied for financial assistance to the Advances to Settlers Department for the aggregate sum of £15,384,109, of which the Government was able to supply less than £4,000,000 during that period. ’ ’ REMEDIES SUGGESTED. After touching on land inflation the speaker discussed remedies to meet the situation. In his opinion it was absolutely esential that a halt bo made in the Government’s policy, ol borrowing money in New Zealand for Government purposes. “It must be obvious that a country with a population of slightly over If- millions, when there should be (and eventually will be) five or six millions, is still in its infancy as regards development,” he said. “If the Dominion is to progress and prosper, it is absolutely essential that, for many years to come, outside capital be brought into the Dominion. Under pre6ont conditions, £1,000,000 borrowed in London will be of more use than £3,000,000 borrowed in New Zealand as far as the farmer is concerned. One way of relieving the position without adding to our public indebtedness would be to repay loans maturing in Now Zealand with new loan money raised in London. If the productive powers of the Dominion that have as yet hardly been touched are to be fully developed, then the New Zealand Government, for many years to come, will have to provide the necessary capital, and the bulk of this capital, to be effective, must come from outside sources.

“Next in importance is the system under which money is being advanced to primary producers, viz., the mortgage system. One cannot too strongly condemn a system whereby the producer is compelled once in every three, four or five years to go through the costly procedure of repaying or renewing a heavy mortgage debt. It is not exaggerating to say that this costly and cumbersome system adds anything' from. £ to 2 per cent, to Bis rate or

interest■ and makes him a slave to the vagaries and' whims of the money market. But, apart from the costliness of the procedure, the short-dated mortgage system robs the farmer of a security oh tenure which is one of. the most important essentials to good farming and increased production. » hat would help the average New Zealand farmer more than anything else to-day is a long-dated mortgage system whereby he could'borrow on first- mortgage a* reasonable amount at a reasonable rate of interest, repayable on the amortisation principle ' spread over twenty or thirty years.’ ...... : “Lastly it is essential to assist the farmer by placing the primary industries on a sound basis by bringing about general economy and reduced taxation, Few people still realise the tremendous increase in public expenditure and taxation that has taken place during the last ten or twelve years. Taxation increased from £6,000,000 in 1914 to £17,000,000 in 1927. On a per capita basis the increase is from approximately £5 per head in 1914 to £l2 in 1927. GOVERNMENT COMPETITION, *

Concluding the speaker said: “Every man, woman and child for the past decade has contributed out of their own personal saving something like £l9 every year towards Government expenditure. The Government itself has thus become the greatest competitor in the New Zealand money market, and the farmer has right and justice on his side when he asks for a rectification of such a‘ state of affairs, and a restitution and re-diversion of capital into former channels. Such a policy combined with a more equitable mortgage system and reduction in taxation is, to my mind, the essence of the remedy of the farmers’ present precarious position and for the depression that overshadows the country generally.’’ The chairman, remarked that they had listened to a most carefully thought out and lucid address. Mr R. Dick moved a vote of thanks and expressed the opinion that the difficulties would only be solved by increased population. He felt that New Zealand would not always depend on the farmers as the backbone of the country, for our land had great possibilities as a manufacturing centre and this would probably be developed in the future.