THE MINISTRY AND THE BANK OF NEW ZEALAND.

New Zealand Herald, Volume XXVII, Issue 8355, 8 September 1890, Page 11

THE MINISTRY AND THE BANK OF NEW ZEALAND.

MR. HUTCHISON'S CHARGES.

THE GOVERNMENT'S REPLY. Tiik following important memorandum from the Colonial Treasurer (Sir Harry Atkinson), relative to Mr. Hutchisons charges against the Government, was laid on tho table of the House on August '20 by the Hon. Mr. Hislop. Apart from its connection with the accusations against the Ministry the memorandum gives a very interesting account of the finances of the colony [or the past three years. The Colonial Treasurer says :—Tho government had, amongst other charges, eon accused of having, during the period between the Bth October, IS!)/, am the 3 st March 1888, issued some £840,000 of den,lf, the proceeds into -"i f'J" & 'V«La hr itS the f l.i. and not for the purpose private benefit, aiM tun. iu p k of meeting the requirement, of the colony, and also of having kept at various times I u suallv large balances, arising principally from'the' North Island mam trunk railway 1 ' ... in , he same hank, not bearing interest, ™' the colony. In this Memorandum I propose to deal only with he*,, two main charges, and I shall show their absolute untruth by giving a history of the financial transactions of the Govern, meat from Bth October, 1887, to the 31st October. 1888, when tho whole of the proceeds" of the two 0110 million loans had pa—ed out of the public account, and by affording some other information which will throw light upon the subject. W itha view, however, not to adverse criticism of the administration of the previous Government, with which I find no fault, but to a proper understanding of the whole matter it is necessary that I should first state what was the financial position in which tho present Government found the Treasury on coining into office 011 the Bth October, 'L>s7. For reasons which need not be gone into here, the North Island Main Trunk K.iilwav ban of one million had not then been floated. The late Colonial Treasurer, Julius Vogel had apparently relied 011 it to provide the cash for meeting temporarily the heavy engagements of tho colony in London during October, 1887, as almost at the last moment he found himself compelled through the postponement in raising tho loan to nvke special arrangements to meet those engagements. The cash at the disposal of the Agent-General on the 30th September, I>B7, was only £3i>Of>, while the payments to be made for interest and other charges in October was in round numbers £."93,000. The advances which had been obtained by the late Government upon Imperial guaranteed debentures, amounting to £080,000, had all been expended, and it appears to have been more than doubtful whether it would have been prudent to ask tor further advances in London 011 the remaining £120,000. The late Colonial Treasurer, therefore, in the last days of September, 1 >7, entered into an agreement with the Bank of New Zealand lor a balance of £600,000 repayable at the end of six months, the collateral security given being short dated debentures of the North Island Main Trunk Railway Loan for £500, and deficiency bills for £100,000. The amount advanced was placed to the credit of the Government account in London on the following dates :—lst October, £75,000 ; JOr h October, £75.000; 15 th October, £450,000 ; and on the 31st October, after withdrawals during the month to the amount of £592,942, nearly all of which was for interest and sinking fund, the balance left was £32,419. The state of the consolidated fund at the same time was also very discouraging. A large deficiency had already accrued. Parliamentary authority obtained by the preceding Government) existed for the issue of deficiency bills in temporary aid of the consolidated fund up to £995,000. Under that authority bills to the amount of £675.000 had been issued by the late Govern merit, and twodaysatter we came into office, namely, on the 10th October, £25.000 more had to bo issued in order to complete tho agreement already referred to for the advances of £600,000 from the Bank of New Zealand, making the amount of deficiency bills then outstanding £700,000. On the 17th October at the instance of the present Government, Parliament granted authority for the issue of an additional £50,000, making £1,015,000 of deficiency bills in all then authorised, ib being t-sti-mated that pending arrangements for meeting the large deficit anticipated in the Consolidated Fund, additional aid to that extent would be temporarily required. On the 20th October there being only £140,994 available in the Consolidated Fund with a

charge of £443,905 for interest due in London the following clay, it became necessary to aid the fund by the issue of bills for £295,000 Upon the issue of these bills the total amount outstanding became £995,000, leaving unexercised the power to issuo a further Rim of £50,000. Between the Bth October, the date of our coming into oliice, and the 21st of the same month, the present Government had thus to issue deficiency bills to the amount of £320, the whole of the proceed" of which «ere required, and were immediately used to enable the Consolidated Fund to meet the current charges upon it, including the interest £449,905 mentioned as due in London on the '21st October. On the '21st January, 1388, the moneys in the Consolidated Fund being all but exhausted, there being a balance of only £1819 8s 7d, the authority granted by Parliament on the 17th October, 1887, to issue £50,000 of deficiency bills was exercised to the extent of £25,000. On the tii February following the remaining bills for £25,000 were disposed of and the proceeds credited to tho consolidated fund, thus completely exhaustin:: the power to issue deficiency bills. From this statement it is quite clear that tin- i— .io of deficiency bills was made entirely in consequence of the consolidated fund illing short of the requirements of the public service. But it may be said that after their first issue they were subsequently disposed of in such a way as to enable unnecessarily large balances to bo retained at the Bank. Let us see whether this was so or not. On the 30th of September, 18S7, the amount at the credit of the Public Works fund was £298,807, the whole of which was in Government securities, including the Imperial guaranteed debentures left unpledged—that is, there was no cash, but there remained to be raised the North Island Alain Trunk Kailway loan of £1,000,000 on debentures of which the Bank of New Zealand had agreed to advance £.300,000 to the late 'treasurer, as state! above. It is clear from what has preceded that the present Government, very shortly after they took oliice, found the Treasury in straits un* desirably, if not dangerously narrow, especially in view of the early necessity to i-sue further loans, with the possibility of being forced to go upon the market whether the time for borrowing was favourable or not. Not knowing when it might be advisable to place loans upon the market, the Treasury, to meet as far as possible the London requirements, obtained from the National Hank of New Zealand an advanco oi £100,000 on the security of deficiency bins, aad remitted to the Agent-General in toe beginning of December, 1887, drafts ° r . ~'*'o,<)oo at short dates. On the J;' 1 December Parliament, by the Public venues Act, 1887 (No. 3), authorised the » c f of short-dated debentures for £400,000 towards making temporary provision .or the estimated deficit of the consolidated fund sit the end of the year then current, and restricted the future issue of deficiency bill-, to £000,000, and on the same SSS fo '' U,e issue of » further loan of £1,000,000 from public works was granted. •Shortly after the close of the session, however, a flaw was detected in the Loan Act, which rendered .t impossible to borrow under it in England It then became a question whether the Homing of the North Is,and Main Trunk Railway loan should be proceeded with by it« o pending the reassembling of Parliament and correction of the error in the Act of 1887. But the loan agents finally advised against that course. It Wa / not however, until the 25th April, 1888. that they were able to announce to the Treasury that the Bank of England had agreed to ! bring out the two loans together upon j receiving advice that the flaw in the Act of > I**7 had been amended. The position of affairs on the 7th January, 1888, when the Agent-General was informed of the discovery of the flaw in the Loan Act, may be thus sunimai i.«er!. The colony had liabilities London to 10 end of April, to I '* l laoUllt of £814,900, for interest ami j it, ' " V

miscellaneous services, in addition to which there waS the repayment to the Bank of Slew Zealand of £'200,000 advanced in October in excess of the amount, £400,000, which under its contract the Bank is bound to advance. Cash had also to be provided in London, if possible, to meet the balance of the deficit of the Consolidated fund not yet provided for, then estimated as probably £200,000 or over, say £300,000, making a total of £1,314,900. This was exclusive of the advances of £795,900 obtained upon the security of the guaranteed debentures, which were repayable at short dates. They no doubt coula have been renewed, as indeed they partially were, but it would have been very poor finance to have allowed the whole of them to remain outstanding on the eve of issuing a new loan. Any such evidence of financial weakness would have had a most prejudicial effect on our credit. It was, therefore, necessary that an effort should be made to redeem as large an amount of these debentures as practicable, and otherwise to make our position in London as strong as it was possible to make it with the resources at our command. The means available to meet these large liabilities were cash at tho credit of the Government account at the Bank in London £'2569, cash in the public account in the colony £142,409, imperial guaranteed debentures unpledged £5000, Bank drafts transmitted in December £350,000, sinking funds to be released, etc., £155,600, and such revenue as might accrue in excess of requirements in time for transmission by cable, say about £ ISO,OOO, making a total of £835,578, being about £479,322 short of the liabilities to bo mot, and without maki • provision for redeeming any of the pledged £795.000 Imperial guaranteed debentures, or paying off £400,000 of the amount owing to the Bank of New Zealand. Such, then, was the position. Never before had the colony been so critically situated. It was absolutely necessary, as I have shown above, to obtain money to meet our engagements pending the issue of our loans. Our credit was at the lowest ebb in London : we were under obligations to our bankers for advances of half as much again as we were entitled to under our contract; the whole of the guaranteed debentures except £5000 had been pledged ; one of our largest financial institutions had passed its dividend, and great anxiety and distrust existed in money circles in consequence ; there was a large deficit in our consolidated fund, and our revenue was still falling or stationary. In these circumstances, the Treasury had to rely upon its own resources, and such help as could be obtained in the colony to strengthen its very precarious position. Ib became, therefore, my duty to obtain, if possible, the necessary assistance locally. This 1 succeeded in doing as follows : — In January the Auckland Savings Bank being in want of an investment, offered the Government £50,000, which was advanced on deficiency bills, and in the beginning of February the Government entered into an agreement with tho Colonial Bank for advances to the amount of £700,000, which were paid into the London account on tho following dates: 4th February, £150.000; 31st March, £350,000; 18th April, £150,000; 30th May, £25,000 ; sth July, £25.000. These sums, together with remittances from the colony, etc., were applied by the Agent-General as follows: —7th to 31st January, interest and other charges, £90,652; February, interest and other charges, £82,182; redemption of Imperial guaranteed debentures, £95,000: total, £177,152. March, interest and other charge?, £31,018 ; redemption of Imperial guaranteed debentures, £150,000 : total, £181,018 ; April, interest and other charges, £011,048 ; redemption of Imperial guaranteed debentures, £150,000: total, £761,048; and on the 30th April, there was left in the Bank of New Zealand in London £3043. It is interesting to note the effect upon our credit in London of these operations as gauged by the prico of New Zealand inscribed 4 per cents. In Westgarth's Circular of 3rd February, ISSS, the price is quoted at 98g, 98§, and in tho next issue of the same circular, 2nd March, the quotation is 100, 100J, and in his monthly report the editor remarks : —" The New Zealand loan of £2,000,000, which was to have concluded all borrowing for the next three years, and was expected to be issued here in a fortnight hence, has been postponed for some months with great advantage to the price in this market. The colony's financial needs have been for tho present all I supplied. The price of the inscribed fourI per cents has advanced to par, a position | which has been rare to this stock for tho ] last two years.' The financial position on j the 30th April, 1888, was—cash in London, ! £3043, and cash in Wellington Public Aci count £322,276 : total cash, £325,319, and ! Imperial guaranteed debentures redeemed i £100,000. This result was due to the adi vances received already motioned amounting J to £80,000, and to the renewal for three I months by the Bank of New Zealand of £500,000, being part of the £600,000 advanced in October, 1887. But for the aid of these advances and the renewal referred to, the Government would have been unable to meet the ordinary liabilities in London to the 30th April by £74.680, and would also have been unable to redeem Imperial guaranteed debentures to the extent of £395,000 out of the total amount of £795,000 at that time outstanding, and the treasury would have been left without any cash whatever in the public account, either in London or Wellington, until revenue had accrued or other advances were obtained. Of course such finance as this would have been utterly impossible to any Treasurer— in other words by borrowing as wo did the Treasury was enabled to meet its liabilities to redeem £395,000 of Imperial guaranteed debentures and to retain cash balances which could bo made available for the ordinary purposes of Government, and for public works services amounting to £425,319, including £100,000 which might have been borrowed from the Post Office Savings Bank, and upon the whole of this amount the Bank was paying interest as per agreement. But there was still outstanding £400,000 advanced at short dates on the Imperial guaranteed debentures, and the £500,000 advanced by the Bank of New Zealand, the £100,000 advanced on deficiency bills having been repaid in the colony in March, 1888. So far then, it is evident that 110 unduly large balances were maintained with the Bank, and that such balances as we had bore interest according to agreement. This brings me to the subject of the raising of the loans of two millions. They were floated in June, and realised £1,922,361 Is Id, being payable into the Bank of Eng 'land in rive instalments extending from the 7th June to the 2nd October. There was received into the public account in June £900,000, July £380,000, August £90,000, September £295,000, and October £197,801 Is Id. The following is a brief summary of the purposes to which the proceeds of the loan were with other moneys applied from time to time by the Agent-GeneralJune, Colonial Bank advance repaid, £200,000 ; interest and other charge?, £39,920 3s : total, £239,92035. July, Now Zealand Bank advances repaid, £500,000; Imperial guaranteed debentures redeemed, £200,000; interest, etc., £144,415 12* Id: total, £844,415 12s Id. August: Imperial guaranteed debentures redeemed, £200,000 ; interest, etc., £07,010 18s 9d : total, £267,010 18s 9d. September, interest, etc., £29,900 ; October, fixed deposits with Bank of New Zealand and Colonial Bank, £230,000 ; interest, etc., £625,331 12s : total, £865,331 12s; and on the 31st October, 1888, there was left in the account at the Bank of New Zealand, £30,891 9s 3d. It should be borne in mind that durincr tho whole of the anxious period between the Bth October, 1887, and the floating of the loans, the Government were under advances from the Bank of New Zealand to a large amount—from October to the middle of March, £600,000, and from March to July £500,000—being largely in excess of tho amount (£400,000) the Bank was bound to advance under its contract. It will be evident from what I have just said, and from the tables attached, that the balances left in the Bank of the proceeds of tho loan of two millions, were only so left for a very short time available to meet constantly-accruing liabilities, and were bearing interest as per agreement. There is no doubt that a difference of opinion may exist as to the amount of the balance it is prudent to maintain in the public account of tho colony ; but there can be no doubt in the mind of any reasonable man that, during the unsettled period to which I have been referring, I should have been greatly to blame if I had not end eavoured to keep theTieasuryasstrongaspossihle in cash and in securities ordinarily negotiable in London. It is well known that tho late Colonial Treasurer, who had large experience in London, always endeavoured' to have good balances. He was in the habit of retaining considerably larger average ' balances during his last term of office than [

the present Government had retained. I have had tables prepared to show this. I wish it to be distinctly understood that I do not take any credit to myself for our balance in the Bank being much smaller than the balances of tho lato Government. I should have had a far less anxious time than I have gone through could I have retained larger balances than I did, but when I am accused of maintaining large unproductive balances for the benefit of the Bank, and my predecessor is held up as a model to follow, I naturally turn to see what was tho practice of the lato Government as compared with my own, and I find tho following results during the two years and a-half in which the present Government have been in office. From the Bth October, 1887, to the 31st March, 1890, the daily avorago balance in the London public account was £134,800, tho daily average balance of the late Government for the thrco years they were in office being £254,000, almost doublo. Of the moneys at credit of all tho Government accounts at Wellington our average daily balance was £378,573, theirs £428,357, and of such moneys in oxcees of the limit of £400,000, and on which no interest was allowed by the Bank, tho excess in our case was for 299 days with a daily average of £51,363; in theirs it was for 008 days with a daily average of £133,880, more than two and a-half times greater than ours in amount, and doublo the length of time; and I may add that from January to Juno, ISBB, when it is alleged that deficiency bills were being issued to pour gold in tho coffers of the Bank of New Zealand for its private benefit, the average daily balance of the Government account as a whole in Wellington and in London during a time when it was necessary, as I have shown, to make the Treasury as strong as possible, was £618,000, while the daily average balance during the whole term of office of the late Government was £682,000. I do not propose to continue tho financial history of the Government further in this memo, having carried it over the critical period when we were raising large sums, but a reference to the tables appended will show that at no time during our term of office have our balances been unduly large • r left unproductive. Now that through the stoppage of public works expenditure we have to remit the largest portion of "ur interest payable in Lonnon, it is clear that we must always have a largo amount in drafts on the way, and that largo balances will necessarily begin to accumulate in London towards April and Octoberin fact before long further and special provision will have to be made to enable us to remit the moneys to meet our interest payable there. I have now shown, first, that the deficiency bills were nob issued for the purpose of putting money into the Bank of New Zealand for its own private benefit at the cost of the colony, but as a necessary aid to the consolidated fund; secondly, that after they were issued they were never used, except for the purpose of providing the necessary cash to carry 011 the services of the colony; thirdly, that although it may be a matter of opinion as to what is a reasonable and sufficient balance to maintain in the Bank, judged by the requirements during the last two years and a-half, and by the practice of our predecessors, the balances that re retained were comparatively small; fourthly, that the balances during our term of office remaining unproductive were as a matter of fact two and a-half times less than similar balances retained by our predecessors. I attach to this memo, tables and statements in support of my contentions, and it is, I think, unnecessary for mo now to say more, further than to ask a careful study of what I have said, and of the tables attached, as the matter is somewhat complicated, and requires close attention to details to master it thoroughly. —11. A. Atkinson."