THE COST OF MONEY.

Northern Advocate, 28 May 1921, Page 2

THE COST OF MONEY.

At the beginning of April an Auckland city loan was floated in London, and the success of the flotation v?as rightly regarded a* a testimony to the high standing of New Zealand's largest and most progressive centre. Auckland was able to obtain half a million sterling at a nominal cost'of 6i per cent; and in these 'lavs that mu*t lie accounted very successful finance. When all the conditions are considered, however, it is obvious that the borrower who goes to the London money market nowadays receives very different treatment from that which lie enjoyed before the war. The Auckland loan, issued in the form of debentures, is unconditionally guaranteed by the State, and its currency is twenty-one years, a sinking fund In'ing maintained to provide for its redemption. The debentures were isstied at par, and the loan was over-subscribed before the due dote. The prospectus stipulated for the closing of the application lists, on April 6, and they were actually closed two days earlier. According to the London "Times," the larger applicants were allotted only 50 per cent, of the amounts for which they had applied. One of the conditions of the loan is that the debentures are to be I free of New Zealand taxation throughout their currency, unless they are held by persons domiciled in New Zealand. This means that the English investor is to receive the full £6/109 for every £100 invested, but it does not absolve the borrower from the payment of the debenture tax imposed in New Zealand. Presumably the Auckland municipality will have to pay this tax in respect of all the money ?ent out of the Dominion to meet the interest charges. The debenture tax is 2/6 in the pound, and if this is paid by the municipality the rate of interest on the debentures, from the borrower's point of view, will be actually. £7 6s 3d per cent. Even at this price the loan will, no doubt, prove a profitable investment for the city, but it is significant of the change in the money market that charges should have become so heavy. We understand that the last Auckland loan floated in London before the war carried interest at the rate of 4J per cent, only, and that loan was not reinforced by a State guarantee.