Manawatu Evening Standard. WEDNESDAY, AUG. 13, 1930. LOCAL BORROWING.

Manawatu Standard, Volume L, Issue 220, 13 August 1930, Page 6

Manawatu Evening Standard. WEDNESDAY, AUG. 13, 1930. LOCAL BORROWING.

The impression that local borrowing' renders it difficult for private individuals to secure loans for development purposes is very largely a fallacy; it is, also, a mistaken idea that the Government of the day inflates interest rates by borrowing- locally at current rates of interest. Extravagant borrowing and lavish expenditure of loan money raised overseas has impressed many leaders of thought in Australia with the fact that overseas borrowing can, very definitely, add to the difficulties of the Commonwealth and State Governments and the people of the Commonwealth. It has, during the past year, been impressed on responsible people in our sister State that there is a limit to overseas borrowing and a point beyond which they cannot go. London financiers made it clear to them that further loan money could not be obtained there for a time and, so our Australian friends went to America for their requirements; and the Americans having found the desired loans, at their price, proceeded to unload them —according to overseas commercial writers—on the London market. The Americans took their profits and unloaded part if not all these loans on London. The cost to Australians must have been considerable. It is now realised, at the other side of the Tasman, that overseas borrowing can reach a point beyond which it is unsafe and improper to go. At times it is necessary to borrow in London to meet obligations there; but beyond that it is preferable to borrow locally. Thanks | to the Reform Government, New

Zealand credit was protected and so far we have to some extent avoided undue reliance on London for our requirements. But it must be remembered London advised, a little over a year ago, that in the case of loans for certain purposes New Zealand should rely on her own resources. This rendered it necessary for the Dominion Government to float portions of their loans in New Zealand; and, to get the necessary money, lenders had to be paid ruling rates of interest. It is just possible that if New Zealand had gone to London for more money it would not have been obtainable; but if it were advanced it is more than doubtful if it could have been obtained at less than 51 per cent, when the discounts, commissions and other charges are taken into account —it might have cost more. And there is no certainty local authorities would have obtained their loan requirements any cheaper than at present. We have it on the authority of a Minister that ten millions of New Zealand’s money went to Australia last year for investment for the reason that better rates of interest are obtainable there than in New Zealand; the Australian Government are paying up to 6 per cent, for accommodation. In these circumstances is it reasonable to say the New Zealand Government were in error in paying 51 per cent, to our people for their requirements ? As this interest becomes available increased resources are created in the Dominion and both private persons and local authorities should be able to secure such money as they require without difficulty at ruling rates of interest, which are influenced by the world’s economic conditions and the world’s demand for credit. The Government of the day cannot, in reality, fix the rate of interest that shall be paid by lenders —that has been discovered by the United Government—unless compulsion were resorted to and in that event people with money to lend would soon drift from the Dominion to overseas countries. There is still a considerable amount of loanable money available in this Dominion. This is evidenced by the bank balances —including those in the Dost Office; and it is also emphasised by the frequent transactions in investment snares, if money tor investment was not readily available it would not be so easy to sell these shares. It is a lacii of confidence which makes it difficult for some individuals to borrow money. Where the security is good and the margin of safety is attractive little or no difficulty is experienced in borrowing. And local authorities should have no difficulty in borrowing at the same rate as the Government —51- per cent, at present —providing they make their needs known to local people with money to invest. Modern methods of placing requirements before the public are, of course, necessary to secure support to local loans. Next to lending to the national Government no form of security is more safe than lending to local authorities which have the security of rates on landed property. So long as land owners are able to continue in occupation of their lands, so long is money lent to local authorities safe and interest payments regular. The liability is spread over many people, it has been said, and, m effect, with some degree of correctness, that the Government holds a first mortgage on land as a security for land tax and local authorities a second mortgage as security for the payment of general and special rates. The ordinary mortgagee who holds what is generally understood to be a first mortgage is, in law, responsible to the State or local authority for land tax or local rates; therefore, it will be recognised that anyone lending to the State or local authority is in a better position than the investor lending directly to the land owners.

A handicap placed on lenders to the national Government or local authority—or anyone else for that matter —is the nigh rate of graduated income tax levied on those with taxable incomes. The rate of income tax does not affect those with incomes under dffiUO a year; but those with the incomes of, say, £SUU a year and upwards feel tne pinch —a pinch that forces them to seek investments in companies where net incomes are taxed at their source and, in the case of the larger taxpayers, in Government tax free loans which were issued at 4b per cent, during the war period. It is largely the heavy income tax rate that is rendering local authority loans at per cent, unattractive to the ordinary local investors ; but in addition to this barrier many of them know little or nothing about local authority loans which are too often issued in blocks that are over large for individuals and, consequently, are only available to lending institutions. Local authorities would be well advised to place their requirements before their own people and ask for support to their loans in denominations of £IOO and upwards in order to make them attractive to people with small means as well as to large lending institutions. It is in the interests of both borrowers and lenders that local requirements be raised locally and those seized with the responsibility of controlling public affairs —both national and local—would be acting in the best interests of the people if they were to revise some of their ideas in this respect and

exploit the local market for their requirements. The security they have to offer is the best procurable and the money is available —the supply only requires tapping- in the proper way. By adopting- this policy they should be able to secure all the money required at 5i per cent.—enterprise is the. first essential to success.