MONEY AND BUSINESS AFFAIRS.

Manawatu Standard, Volume LX, Issue 261, 2 October 1940, Page 12

MONEY AND BUSINESS AFFAIRS.

THE COMPULSORY LOAN. (% “H.J.K.”) The terms and conditions of the compulsory war loan have been subject to severe criticism, for they show that the whole matter has been ill-considered, and because of that it is calculated to cause far i reaching economic disturbances. The terms arc harsh and quite unfair. It is expected that the loan will bring in about £8,000,000 of which about £2,500,000 is already in. hand in contributions from the Bank of New Zealand and the public, free of interest and for a period after the war.

The issue price is par, the period of the loan is thirteen years, but no interest is paid during the first three years, and after that per cent, is payable. The compulsory part is that. individuals and companies must subscribe —less a small sum—up to the amount of the income-tax paid in February, that is on the income of 1939, Individuals are allowed an exemption of £SO, so that any person who has paid that amount or less in income-tax need not subscribe to the loan. In the case of companies the exemption is the absurdly small amount of £7O. This will fall very hard on a great many companies. The profits earned in 1939 were satisfactory, and therefore the amount [jaid in income-tax was correspondingly large. Since then the costs of business have increased through the arbitrary rise in wages, and while the turnover in most cases has been larger the net profits have been smaller. To subscribe the quota many companies will have to borrow from their bankers, which means paying .interest at 4 per cent, or more. For three years the company will receive nothing but will bo paying its bank 4 per cent, and that means an additional income-tax. After throe years, if the loan from the bank is'still in force, the company will receive per cent, from the Government and will still have to find I 4 per cent, to pay the bank. Where does the fairness or justice come in ? This new tax will have to be recovered from the public in increased prices.

This compulsory free loan for three years 6ets up a very vicious precedent. If for three years, why not six cr ten'or oven for all' time; 'There ie no outside precedent for such a loan as far as Can be ascertained. The British Government needs many millions a day for war purposes, and is relying upon free subscriptions. At present it is selling over the counter bonds which carry 2| per cent interest, and national savings certificates which also carry a small rate of interest. A big loan will have to be floated and that too will be at a reasonable rate, the British authorities are keenly anxious not to cause any serious disturbance to the economics of the country, while the New Zealand authorities appear not to care how much economic 'trouble they cause, 60 long as they get the credit for this innovation in loan flotation. All who take up the loan will, in the long run, sufTer heavy losses, because when the war ends there will be a strong and pressing world demand for money, and rates must advance. . v9P money rises Stock Exchange securities fall. The writer believes it would have been better if the Government bad offered 2 per cent, during the first three years, 2 2 per cent, during the following six years, and 3 per cent in the final four years. There would have been more satisfaction. This kind of compulsion, besides rudc.y disturbing the economics of the country, will tend- to paralyse the patriotism of the people. There will be leas free donations to the war funds. TRADING BANKS. The return of the trading banks for the four weeks to August 26 show some marked changes compared with the, previous month. The demand or free deposits total £48.831,125, as compared with £48,422.650 at the end of July, an increase of over £403.000, and this is probably due to the receipt of late returns for produce sold overseas The fixed deposits amounted to £30,369,671, as against £30,745.294, showing the 6matl increase of about • £124.000. Both classes of deposits totalled £79.700.796, as compared with £79.167,944 an increase of about £533.000. The banks hold plenty of loanable credit, but the demand for accommodation is .contracting. This is due to import restrictions and to war conditions, the. disturbance in shipping and other minor difficulties impeding the delivery of overseas goods. ADVANCES AND DISCOUNTS.

The advances on August 26 amounted to £45,378,588, compared with £46,101,507 at the end of July, a decrease of £722,000. The amount of' the advances is smaller than at any time this year, and is very much smaller than in anv end of the quarter of 1939 or 1938. This k by no moans a satisfactory feature of the returns, and indicates a lack of enterprise which perhaps is to be expected at the present time.

OVERSEAS FUNDS. The overseas funds of the trading banks at Hie end of August amounted to £15,521,890 as compared with £15,540,214. In June, July, and August the overseas funds remained fairly steady and were well over £15.500,000 in each of the three months. The London funds amounted to £l3 394,842 as compared with £16,7ff,422 at the end of July, showing a small shrinkage which may be due to the difficulty of importing. The funds elsewhere than in London mcrcascd from £1,762,792 to £2,127,048. On the whole the returns are satisfactory, bearing in mind the disturbed state of the world.

RESERVE'BANK. The Reserve Bank roturn for the- week ended September 23 shows very little movement. The advances to the State for other purposes were unchanged on _ the previous week at £24,040,000. This is a large amount and must be borrowed in anticipation of revenue. But the major part of the advance is for home building, which many are of the opinion should be suspended during the war. The note issue continues to > increase and at £20,099.247 shows an advance of £70.750 on the pluvious week. Till; note issue may go higher for the expenditure of the Government is on a big scale. But this very expenditure is leading to inflation which the import restrictions may check, but that remains to bo seen. LONDON BUSINESS.

The air raids on London must be disturbing business, but that great city cannot afford to shut down. This is particularly the case with the banks and discount houses. London is the financial centre of tho world and if anything happened to London there would be chaos .in world finance. But Londoners have a wonderful way of adjusting themselves to circumstances and therefore bueincts will bo carried on just as usual. After the war Europe will want the help, of British banks.