Manawatu Evening Standard. WEDNESDAY, APRIL 9, 1930. THE LOAN POLICY.

Manawatu Standard, Volume L, Issue 113, 9 April 1930, Page 8

Manawatu Evening Standard. WEDNESDAY, APRIL 9, 1930. THE LOAN POLICY.

There is a fairly general agreement on the part of business men that the Dominion has been borrowing too freely and that, with a national debt amounting' on the 31st March, 1929, to £264,191,983, as disclosed in last year’s Budget, the brake should be applied heavily to further borrowings abroad. As far back as 1919' Sir Joseph Ward, in the course of his .election manifesto, drew attention to the fact that the public debt of the Dominion then stood at £172,778,469, and he then said:

This is a large sum of money for a country with a population of a million and a-quarter, and, as a matter of common prudence, a strong policy for the reduction of the indebtedness should be carried out.

On more than one occasion, while in Opposition to the Reform Government, Sir Joseph expressed his concern at the growth of the public debt; but, instead of supporting the tapering off policy in respect of borrowing adopted by Hon. W. Downie Stewart, as Minister of Finance, he falsified the expectations of those who had been looking to him as an advocate of reduced borrowing, by springing his ,£70,000,000 loan policy ■ upon the country. The Reform Government in 1928 had floated a five million loan in London at 4£ per cent., the scrip being sold at £94 10s, which meant a return to investors of £4 19s Bd, and an actual cost to the State of £5 3s 5d per cent., the terms thus secured being the cheapest and most favourable of any loans placed on the market by the other Dominions since the war, while the moneys offering were 100 per cent, in excess of the loan requirements. In September, 1928, Mr Downie Stewart was advised from London that monetary conditions would become more stringent in 1929, and that, if the New Zealand Government intended to place a further,loan on the London market that year, it would be wise for them to do so early in January. With a general election pending, and the possibility of a change of Government, Mr Downie Stewart deferred action in the matter, and, when the Government had been obviously defeated at the polls, he very properly left the acceptance, or otherwise, of the advice he had received in the hands of his successor at the Treasury, Sir Joseph Ward. It is not necessary to do other than briefly refer to the mistake made by Sir Joseph Ward in attributing to. Mr Downie Stewart his inability,

after floating his £7,000,000 loan, to go on the London market for another 18 months, the fact being that Sir Joseph had merely floated the loan in January that he would have placed on the market in May to meet his requirements for the ensuing financial year (1929-30). According to his own statement, the £7,000,000 borrowed in advance was temporarily placed out at interest in London, while moneys obtained in New Zealand by the sale of Government debentures were utilised for advances purposes. In connection with the redemption and conversion of New Zealand Government stock falling duo during 1929, some six or seven millions of the twenty-nine were paid off, so that any increase in the public debt during the year ended March 31st of this year will have, for the most part, arisen from the purchase of Government debentures held locally in New Zealand. But the public indebtedness of the country at the close of the financial year 1929-30 is not likely to be less than £270,000,000, or, approximately, £100,000,000 greater than when Sir Joseph Ward made his 1919 pronouncement that “as a matter of common prudence- a strong policy for the reduction of the indebtedness should be carried out.”

WHY BORROW ABROAD?

It avas one of the self imposed conditions of the loan floated in January, 1929, that New Zealand would refrain from further borrowing in London until the close of the financial year 1929-30. Under the Finance Act of last session, the Government has obtained authority to raise a further loan of £5,500,000 for public works purposes, and it also holds unexhausted authorities for the raising of loans up to £27,000,000. It has already been suggested that the five and a-half million loan should be placed on the London market either towards the end of this month or during May. Assuming that the money is obtainable at 4£ per cent., it will add not less than £247,500 to the interest bill which has to be met in London, and it seems very undesirable that we should be sending that additional money out of the Dominion every year. The money woul<| be far better expeuded within the Dominion, where some, portion at least would be available for investment in industrial enterprises, or could be employed in other ways for the benefit of the country. The time has arrived when New Zealand should not merely restrict its borrowings abroad, but should raise any moneys needed for public works, or other purposes, within the Dominion. It is a mistake to go on the London market for moneys which could be obtained in New Zealand. Greater sums could, and would, be subscribed locally if the terms were attractive enough without doing the country harm, and definite advantages would accrue from the flotation of local loans, even if slightly higher rates of interest had to be paid to those taking up the Government debentures. The interest would be kept within the country cud the Government could levy income tax upon it. Approximately £0,000,000 is payable in London on the public debt as it stands at the present time. Had it been possible to so arrange matters that ‘the loans on which that amount is payable could have been raised within the Dominion, not only would a very considerable proportion of that £6,000,000 have been paying income tax, but the whole of the money would have been available for circulation within the Dominion. The £7,000,000 raised last year, and the £5,500,000 proposed to be raised this year, ■would, in twelve months, yield the investors at 4£ per cent, some £562,500 in the shape of interest. What a welcome addition that would make to moneys in circulation within the Dominion, if the loans were raised locally. The more New Zealanders are encouraged to invest their, surplus moneys in New Zealand stock, the more we may expect to find a better type df citizen entering upon the public life of the country, and the greater economy we may look for in the administration of the country’s affairs; for, with an additional stake m the country as its. creditors, the citizens generally will seek to return a better type of candidate to Parliament than we have, offering wilder existing conditions. With monetary conditions favourable, it should be possible for the Government to raise all the moneys it requires for development purposes locally; not perhaps all at once, but at intervals of mree or six months, and thus keep off the London. market. It is certainly undesirable that we should continue to increase our London indebtedness, although New Zealand’s credit still stands high in the money market there.