BORROWING JUSTIFIED.

New Zealand Herald, Volume XLVIII, Issue 14589, 27 January 1911, Page 6

BORROWING JUSTIFIED.

THE FIVE M ILL TON LOAN.

PRIME MINISTERS REVIEW.

A REPLY TO CRITICS.

[fir TET/EGHAITL —Owv COE.IUISPONDENT.]

Stratford, Thursday. "We are to day in a- distinctly strong position financially, and I think I can claim without egotism that I have always kept the financial condition very sound indeed." This was the keynote of the most important portion of the speech delivered here to-night by the Prime Minister (Sir Joseph Ward) before an audience which filled the Town Hall in all parts. Sir Joseph Ward dealt with financial matters at considerable length, and made special reference to the flotation of the £5,000,000 loan. ,

The Prime Minister recalled the recent announcement that the revenue for the year showed an increase of £848,923, and mentioned that the purposes for which the £5,000,000 loan had been raised were as follows:- defence account £1,250,000, Aid to Public Works and Lands Settlement Account £1,750,000, Advances to Settlers £1,675,000, Advances to . Workers £325,000. He asked those critics who had been busily attempting to discount the flotation of _ the loan which portion of the five millions they would have omitted. Had there been any talk of omitting the £1,250, raised to strengthen the navy, people would have held up their hands in holy horror. The Leader of the Opposition and his party had regularly voted for the general loan, and so, of course, could not consistently object to the item of £1,750,000. It would also be interesting to know who would have liked to strike out the item for the Advances Departments, which did such an enormous amount of good to the country directly and indirectly. He thought he would bo pretty safe by saying it was nothing more or less than pure political hyprocrisy to suggest that any portion of the five millions was not essential for tho purposes for which Parliament set it aside. FLOTATION OF THE LOAN. ■ The Prime Minister, proceeding, said the responsibility for the flotation of the loan - it was * quite true rested upon his shoulders, but the veriest tyro in finance must recognise that lie had to be. guided by those whom the Government trusted in England to advise them, and who recommended > the time at which the loan , should be put upon the market. It was, indeed, regrettable in the interests of the Dominion that the policy of the Opposition for many years past had been to try and gain office by deliberately discounting the financial position. He'would draw attention to the fact that of the £1,850,000 loan issued by New Zealand on March' 31, 1910, the issue being upon almost similar terms to those of tho £5,000,000 loan, the underwriters were required to take only 17: per cent. Two months earlier, in January, an Indian per cent, loan of £7,000,000, at £96, resulted in the underwriters having to take 50 per cent, while in the case of a Ceylon 3j per cent, loan issued in December, 1909, at £96 10s, the underwriters: had to take 90 per cent. It would thus be seen that New Zealand came out splendidly in comparison with other countries, and yet some critics had done nothing else but perform against the issue. Half of the £1,850,000 loan was converted within a fortnight, and the latest advice from London was that £1,601,800 of it had been Converted to the date of writing. It was net many years since they and other countries would have been required to pay 4 per cent., with a considerable discount as well as an underwriting fee, to have got such a loan off at all. The £5,000,0u0 lean was issued on November 11 and closed on the 16th, the time being fixed by the representatives of the underwriters.. The conditions as to conversion, etc., were quite common ones. The agreement that the loan should be floated by the underwriters at 1 per cent, was implicitly carried out, and to show the value of some of the criticisms passed upon the transaction tho latest advice from the High Commissioner intimated that although half of the loan remained in the hands of the underwriters, who were holding it voluntarily for investment, it was also advised that up to December 31 £768,200 of tho loan should be converted, and that tho conversions were still proceeding. Further intimation was to the effect that some of the. underwriters had earned a profit upon the portions of the loan that had to bo sold to the public. There were loans giving a wider margin of profit to investors than the New Zealand loan, and where tho underwriters- had taken the greater proportion, but one never heard cries of stinking fish and declarations of impending ruin in order to make political capital. In tho case of New Zealand there was absolutely nothing whatever to justify the pessimistic condemnatory speeches and articles which had been made and written. '■ ENGLISH OPINIONS. As far 'as he had been able to see there had been no statement published in England regarding the discredit the loan was supposed to have brought to New Zealand. None of the underwriters who had taken tho loan up had found fault with the stability of the country, "arid no paper seemed to have questioned the financial position of New Zealand. The Leader of the Opposition and his supporters had quoted isolated sentences from Home papers suggesting that the credit of New Zealand had been seriously shaken, and it was only a- matter of fairness that he should give somo of tho statements he had found, and which evinced the utmost confidence in the position. The papers he had seen all said that tho position was excellent, and that the financial stability of the Dominion war, undoubted. None appeared to have done other than say that New Zealand was most successful in obtaining its £5,000,000 loan from the underwriters by paying only one rier cent-, commission, and that it was beyond all question that tho causes which led to the public not relieving the underwriters, were not connected with the credit of New Zealand at all. They said it was largely due to the operations of large investors who wanted the stock to hold for investment, who came in as underwriters, and consequently did not require to go upon the open market. None had attributed it to default on the part of the Government. It had been left to the Government's political opponents here to do that. THE BORROWING QUESTION. Speaking on financial matters generally, Sir Joseph Ward said that for New Zealand to do without borrowing would involve either the abandonment of tho present policy of development, or taking steps' to provide for our public works expenditure by imposing fresh taxation to the extent of £1,500,000 or £2,000,000 per annum. The proper and wisest policy was to borrow what was reasonably required for development purposes, and spread the repayment over two or three generations. The present generation should not have to pay for all requirements in tho way of roads, bridges, telegraph lines, and so on, and hand them on free of all liability to its successors. Neither should the liability be passed on with accumulations to tho third generation from now, but each should pay its share towards what was being done for the permanent benefit of the country. , A DIRE RESULT. If, asked Sir Joseph Ward, we were to ! discontinue borrowing altogether, and yet at the same time were unwilling to carry • on development by taxation, what would ' be the result? It could only ho -a, state j

of stagnation.. Land would be- unroaded and risers.•.tmßrrdgedu" Within the next few yours thousands of settlers must be given roads, bridges, telephones.- and so on, and for 15 or 20 years to com© railway and other development must continue to take place., 'Die Australian States were borrowing" to develop their natural resources, and if New Zealand did not continue to follow its present policy it would be left behind in the race; it would lose the most valuable members of its population, as it did in the early 'BO'S. Anyone who took a practical view of the position must come to the conclusion that there was an enormous amount of work still to be done .during the next two decades. ACTIVITY IN ADVANCES. Tli© Advances to Settlers and Workers Offices were now well in funds, said the Prime Minister, and during the past year had lent £1,329,000 to settlors arid £408,000 to workers. Since the inception of tho system the Department had lent £10,254,000 to settlers altogether and £1.152,000 to workers. Ttlie full amount of £3000 was now hoi lent on country properties, and at the last meeting of tho Board, on Tuesday, it had been decided to raise the limit for town properties to £2000. ■ In connection with loans to local bodies, £195,000 was the amount dealt with at the last meeting of the Board, wliilo the total amount so lent since the Department started had been £1,562,190.