SINKING FUNDS

Nelson Evening Mail, Volume LXVI, 13 October 1932, Page 7

SINKING FUNDS

OF LOCAL AUTHORITIES WITHDRAWAL FROM PUBLIC TRUST BILL FOR PREVENTION (From “The Mail’s” Parliamentary Reporter). WELLINGTON; 12th October. Legislation to prevent local bodies from withdrawing their sinking funds from the common fund of the Public Trustee until Ist April, 1935, when the mortgagors’ relief legislation expires, is proposed in the Local Authorities Sinking Funds Bill introduced by GovernorGeneral’s message to-night. The present position is that the Public Trustee is Sinking Fund Commissioner for a large number of local body loans, and he has been giving local bodies the benefit of the common fund rate of interest which up to a little while ago was per cent. The common fund rate of interest was recently reduced to 4 per cent., and the result has been a desire on the part of local authorities to withdraw their sinking funds from the Public Trustee. The Public Trustee pays interest to local bodies from the time the investment is made, whereas in the event of the funds being placed elsewhere the local bodies would have to wait for a suitable investment, especially where small amounts were concerned.

The placing of the sinking fund in a common fund gives the local body the benefit of a regular rate of interest, irrespective of the securities in which the common fund is invested. At the present time the losses*, of mortgage investments are met out of the common fund, but local bodies do not lose, their princinal; they only suffer a reduction in the rate of interest.

The Public Trustee has arranged for the sinking funds to be released at the date of maturity of the loans. The action of local bodies in asking for the sinking funds to be released at the present time means that the Public Trustee has to realise on his investments in order to accede to the demand. At the present time, however, he cannot realise these investments on account of the provisions in the Mortgagors Relief Act, and the National Expenditure Adjustment Act. The object of .the Bill therefore is to enable him to refuse to pay out sinking funds until the expiry of the relief legislation on April, 1935. The Bill provides also for a temporary restriction of the rights of local bodies to withdraw their sinking funds from the common fund for the appointment by a local authoi-lty of the Public Trustee as commissioner of any sinking fund may be declared to be irrevocable. Another section relates to the change of securities. At the present a local body can apply for am Orderdn-Council to have its securities taken out .of the common fund but a section provides that no such Order-in-Council shall be granted at any time prior to Ist April, 1935. DISCUSSION IN HOUSE The Local Authorities Sinking Funds Bill was introduced into the House tonight by Governor-General’s message. Mr Forbes said the Bill was brought down to protect the Public Trustee in relation to funds invested by him for local bodies. Owing to previous legislation brought down, by the Government preventing liquidation of these securities, the Bill proposed that no alteration should be made in investments until 1935.

Mr J. A. Lee (Labour, Grey Lynn), asked if,a local body wished to withdraw its funds would the Government take steps to create a credit to enable the Public Trustee to remaipnsolvent. , Mr Forbes said under certain Acts the Public Trustee had invested the sinking funds of local bodies in rural securities. Some local bodies now claimed they could get higher interest if they could withdraw these funds, buT the Public Trustee was not .in a position to repay them. The Bill would not cause any increase in interest. It would only place the Public Trustee in the same position as a mortgagor. Mr H. G. Mason (Labour, Auckland Suburbs) said the Prime Minister’s explanation of the Bill made an obscure position more obscure. He could see no reason for the Bill. A change of trusteeship would not make the mortgagor repay his loan. To substitute someone else, as the holder of security would ont change the security. The Bill would prevent any change being made. That was to say, local bodies must invest their money with the Public Trustee. Why should local bodies be placed in a position of servitude?

Mr .Forbes said’they could not make any change until 1935. Mr Mason: “Why should that be the case. No one wishes to see the Public Trustee circumscribed, but when it comes to compulsion I think it is going too far.”

Mr D. G: Sullivan (Labour, Avon) suggested that the Bill be sent to the Local Bills Committee. He we not prepared to say it was not justified, but he thought it a fair thing that local bodies should have an opportunity to put their side before the committee.

Mr D. W. Coleman (Labour, Gisborne) supported this view. The Leader of the Opposition (Mr H. E. Holland) also agreed and said if Mr Forbes would allow' the Bill to be read a second time pro forma it could then be sent direct to the committee.

Mr Forbes said the Bill was only being introduced, and local bodies would have ample opportunity to see what was in it when it was printed. The Government had tied .up the investments of the Public Trustee by its legislation, and all that the Bill proposed to do was to safeguard the position until 1935. If there was a tendency on the part of local bodies to withdraw money from the Public Trustee •to invest at a higher rate of interest elsewhere the Bill would prevent that. The Bill was read a first time.