Twenty Per Cent Equity Provision Withdrawn

Manawatu Times, Volume 60, Issue 66, 20 March 1935, Page 7

Twenty Per Cent Equity Provision Withdrawn

Government Acts in Deference to Objections

Mortgage Corporation Bill Further Discussed

Per Press Association

WELLINGTON, Last Night. 1 In moving tho second reading of the Rural Mortgagors’ Final Adjustment Bill in the House of Representatives this afternoon, Hon. J. G. Coates said tho Mortgage Corporation Bill would play a large part in the rehabilitation of farm finance, but it left untouched the problem of excessive capital liability. That problem the present Bill was designed to solve. The measures taken by the Government during the past four or five years had considerably alleviated the crisis in farming industries and had provided some shelter front the unprecedented fall in overseas prices. As long as there was a reasonable hope of any substantial' recovery in overseas prices, it was regarded as unfair to creditors for the Government to suggest writing down excessive capital liabilities. The mortgagors’ relief legislation now in force had worked well and had prevented chaos and social friction, which would have been inevitable if creditors had been permitted to exercise their contractual rights to tho full. However, it offered no permanent solution; in fact, in some cases it hindered permanent refinancing arrangements, and the Government was convinced the time had now arrived when something had to be done to bring about a readjustment of capital' indebtedness.

"While the future course of prices could not be forecast with complete certainty, there seemed little prospect of a rise substantial enough to make the writing down of capital unnecessary. In those circumstances, it was useless continuing on a basis of temporary relief and postponement, and some general scheme of permanent reconstruction seemed -wise.

“We have received indisputable evidence that a large number of farmers are losing heart under the present conditions of uncertainty,’’ continued Mr Coates. "Many farmers are going back and the ncccsasry finance is frequently difficult to obtain. If production is to be maintained —if the farmers are to pursue their operations with self-reliance and hope for tho future — there must bo opened up for them the prospect of having a satisfactory income and enjoying a reasonable measure of economic security. The depressing burden of impossible capital obligations must be lifted. This is necessary both in the interests of the farmer and the community as a whole. It had been argued in some quarters that there is no necessity for the Government to take action in the direction of reducing the excessive debt, because comparatively few farmers are in need of such assistance, or because the problem could settle itself. Neither of these views is acceptable to the Government. Necessity for Action "The present relief legislation will not suffice to bring about a permanent settlement. To repeal the existing legislation and to leave the adjustment to be a voluntary action, is to precipitate chaos. The evidence before the Dairy Commission, tho opinion of the chairmen of the Adjustment Commissions and my own observations in various parts of New Zealand convince me of the necessity for action. I am sure there is no need for me to convince tho House that the problem of excessive debt is not confined to a handful of farmer mortgagors; it applies generally to thousands of farmers throughout New Zealand.”

Supervisors Not Required.

Mr Contes said the Government fully realised it was a serious matter to interfere with contracts and it did not propose such a step lightly or without careful thought, but it took the view there were considerations which outweighed even the objections. It had long been recognised by the highest judicial authorities to be an inherent power of the Legislature to relieve the public of the pressure of acute distress by interference with rights under private contracts. There were several reasons why the legislation was confined to rural mortgages. While there was no doubt that many urban mortgagors were in difficulties, the problem of the urban areas was not so devastating in its national' repercussions as that which affected the rural industries. Furthermore, the problem of adjustment in tlia cities was much more complicated than in the farming industries. The. earning capacity of a farm furnished a reasonably approximate guide to the debt it could carry, but such a criterion did not apply anything like so generally in respect of urban securities. In tho case of a large number of town properties, the capacity of a mortgagor to meet his obligations was independent of the property itself, becaues the property was not a source of income to the mortgagor or was not tho only income. It was hoped that excessive mortgage indebtedness in urban areas would be gradually liquidated by improved economic conditions and voluntary adjustment, which, it was felt, could be induced by an extension indefinitely of the existing legislation, but the Government had not lost sight of the problem as it affected urban areas and would sympathetically consider any practicable schemes to facilitate readjustment. Equity Provision Withdrawn

In announcing that the Government, in deference to objections, had decided to withdraw the clause providing that, in certain cases, tho farmer would be granted an equity of up to 20 per cent., Mr Coates said there were contemplated amendments which had not yet

been iiuaily drafted. He desired that there should bo no misunderstanding as to his views on tho question. He considered that the proposal as embodied in the Bill was wise and reasonable, and that, on the balance, it would react to the advantage ofqiortgagees.

“I feel that both the intention of this proposal and the purpose behind it has been misunderstood,” said Mr Coates. “The provision is permissive and indicates the maximum amount which may be granted if all the circumstances warrant it in certain cases. Especially where the investment of a farmer in a property has been substantial, it is not unreasonable that his position should have consideration.”

It was claimed by Mr Coates that the equity as projioscd merely brought the land in closer accord with the productive value, by providing the farmer with an income which more closely approximated a reasonable return for good work and good management. It had to be remembered that living expenses would fall Inr short of a reasonable return .for farmers. Moreover, the provision of an equity offered an incentive to the farmer to increase his efforts, and if tho productive value of the land were accordingly increased, it would tend to benefit the mortgagee, whose security was likely to be better preserved if there were prospects of an equity for good work at the end of a budgetary period.

It was intended that the State should abide by the provisions of the Bill, as at present drafted, in respect of the equity of mortgagors to State Departments.

The Minister said that, if compulsory adjustments tvere fair to a farmer’s creditors and tvould bring his liability to within his capacity to pay, the basis of adjustment must be determined with every possible care. Therefore, it was proposed that the budgetary control should operate. The charge that that system placed him in a state of peonage was both unreasonable and exaggerated; far from putting the farmer \u a state of peonage, budgetary control was introduced to free him from the bondage of excessive liabilities. No reasonable farmer would object to the obligation to keep proper records and be subjected to a budget for a limited period if that were a step in the process of freeing him from excess liability. Describing briefly the relationship between the Mortgago Corporation and the present Bill, the Minister said that, under the new measure, the amount of a mortgage as reduced would become repayable after live years and the Mortgage Corporation was empowered to advance up to SO per cent, of the value of the security behind existing mortgages over the land, the State guaranteeing 13 1-3 per cent, of the value of the security. It was hoped that provision would enable the Mortgage Corporation to offer material assistance to farmer mortgagors and both directly and indirectly facilitate refinancing on reasonable terms.

It was proposed to abandon tLie proposal for the appointment of supervisors. Save in a very few eases it was expected, that the appointment of supervisors would not be required, because farmer mortgagors would be competent to farm without supervision. Where the appointment of supervisors was deemed necessary, the Adjustment Commissions were able to make such arrangements for supervision as were considered necessary without any special provisions being embodied in the Bill. Thus it was thought desirable to leave the matter to the discretion of the Adjustment Commissions. Mr. Savage Criticises the Method. Mr. M. J. Savage said the object of the Bill might be quite legitimate, but the method suggested in the Bill was another story. When it was realised that those in need of relief must serve for a probationary period live years under various forms of supervision, including budgetary control, and then be kept for another indefinite period before getting a clearance, the outlook was not encouraging. The involved nature of tho Bill left the way open for endless trouble and costly administration, and tho average mortgagor would not be able to call his soul his own while lie was subject to its provisions. Tho principles outlined in the amendment moved by tho leader of the Labour Party when the Mortgages' Pinal Extension Bill was under consideration in 1934 might be made the basis of legislation to deal with the present position. The present Bill looked like a measure that was meant to postpone action, and the approaching general election lent colour to that suggestion.

Mr. Savage said budgetary control was not a new principle; it was being applied to relief workers, who were forced to disclose in the form of returns the nature of all their possessions that looked like comforts of life and which, must be done without so long as the worker was an applicant for relief work. The farmer mortgagor was to be put under similar regulations and it was reasonable to assume he would be forced down to bare means of subsistence. On the completion of the budgetary period, a Court was to determine the mortgagor's equity in his farm and mako consequential adjustments in the amount of his mortgages. The Court might lix the value of tho mortgagor’s equity at anything up to 20 per cent.,

but could not exceed that to the detriment of creditors. It appeared that, although the mortgagor’s equity might not amount to 20 per cent., the Court could fix it at that, notwithstanding he fact that the creditors had to suffer. Was there any subsantial reason why the Government should not face up to the problem of restoring equities that it assisted in destroying 7 Deflation Policy Criticised. The average farmer had not failed. He had rapidly increased his output over a great number of years, but the Government, in common with the Governments of other countries, had by a policy of deflation destroyed his returns. It -was a money problem more than any thing else. Measured in production, the country was well able to restore the equities that the Government had nelped to destroy. If they were unable to produce goods and services in sufficient quantities to enable them to restore equities to the average of wholesale prices over the last seven or eight years, how did they propose to pay a public debt of something like £300,000,000? When workers were employed at productive work and were paid sufficient to enable them to buy the equivalent of what they produced, the country would be able to pay its way, but not until then. Unless fundamental changes were made in the money system, including taxation, the problem they were discussing would reappear in the future, added Mr. Savage, and in the intervening period the speculator in land and property would grow rich at the expense of the farmers and liome-builders. Mr. Poison Critical. Mr. W. J. Poison said the Bill was an attempt to extend protection to the farming community. The farmer had to be kept in form and reasonable steps had to be taken to do that. The Bill itself appeared to him to have been written without any vision, without any sympathy for the farmer who was up against it, and without any real understanding of the position. It was an insult to the farming community and to the rest of the people. He was prepared to say that no farmer wanted the Bill and he did not know who asked for it. What section of the community was able to exert sufficient pressure to tell the Government to put this Bill through? What was necessary was to reduce the rate of interest to the world parity and to extend the power, of the Mortgage Adjustment Commissions. The farmer was anxious to bo fair to all sections of the community and all he asked was a fair and reasonable adjustment. The farmer must be given sufficient reward for his industry to enable him to carry on. If the farmer was losing heart, surely it was the duty of the Government to consider means of giving him a reward to make his work, remunerative. Subsidies were given in various countries, including Britain. He would urge any fanner not to accept the conditions of the Bill. The Government had not risen to the occasion as it should have done.

Mr. P. Langstone said the farmer might just as well be in durance vile as on the land, and he predicted that many men would walk off the land rather than accept the conditions Jaid down in that Bill. Hon. E. A. Ransom said that they had every reason to believe the next five years would bo better than the last five, and lie said a farmer under the budgetary system would have enough to enable him and his family to live in comfort. Mr Savage had said the problem was a money one, but it would not be solved in the way suggested by him. Mr Savage had said the Government should face up to the position. That was exactly what the Government was doing and the Opposition did not like it. It would rather see the Government run away from it. Mr A. M. Samuel asked if it was the intention of the Government .to put the Bill through the third reading. Rt, Hon. G. W. Forbes; Yes. The debate was adjourned and the House rose at midnight.