BONDS INSTEAD OF LOANS.

New Zealand Herald, Volume LXII, Issue 19156, 23 October 1925, Page 10

BONDS INSTEAD OF LOANS.

Adopting the attitude of a kindly and helpful critic, Sir Joseph "Ward has warned the Government that it cannot continue "galloping along spending money" on public works, and has advised it to change its methods of finance. His plan was illustrated by a theoretical application to the construction of railways in the following passage from his opening address in Invercargill: — There were four railways that ought to be pushed on by the Government without delay: Gisborne to Napier, Parnassus to Picton, Westland to Nelson and Rotorua to the seaboard. These lines ought to be completed within three years without going to London or anywhere else or even on the local market' for the necessary money. Let the Government call for tenders for the completion, say, of the Gisborne-Napier railway within three years, and stipulate that it would pay in Government stock at 5 per cent. The Government would get contractors from the Old Land who would readily tender for the work on the same basis. The system could be followed with the other lines, and as a result no burden would be imposed on the people. This is exactly the same bonds scheme, which Sir Joseph Ward expounded in the Tauranga electorate two years ago, except that he now allows only three instead of five years to complete the railways. The fallacy of the proposal was then so completely demonstrated that it is astounding to find it revived as a cure for borrowing. To say that no burden would be imposed on the people if contractors were paid with bonds instead of the cash proceeds of loans is simply nonsense, and unless Sir Joseph Ward has forgotten all he ever learnt in his long experience at the Treasury, none knows it better than he does. ]f a contractor undertook to complete the Gisborne-Napier railway in three years for £3,000,000 of 5 per cent, bonds, there would be an addition of £.3,000,000 to the public debt and of £150,000 to the annual interest bill, and neither Sir Joseph Ward nor anyone else can remove that burden from the people. Nor is the matter as simple as it appears in the illustration. If the scheme has any merit, it should be applied to all capital expenditure, with a corresponding increase in the rate of construction. During the Tauranga campaign, Sir Joseph Ward envisaged an expenditure of £10,000,000 a year, all financed with his 5 per cent, bonds, for live years. That involves something more than a single philanthropic capitalist from England, who would be prepared to lend the Dominion a million a year without charging anything more than bare interest for the accommodation. Contractors with so much idle money are not easily found. What would actually happen is that tenders would be inflated by provision for the loss on realising the bonds, since the contractor must have cash to pay wages and buy materials, and as the issue of bonds

would be at the rate of millions annually, the allowance would be liberal. Where then is the advantage over the present system? To pay for public works, the Government issues bonds, but instead of handing them to contractors or cooperative workers, who must sell them at once for whatever the market offers, it acts upon the advice of expert financiers in selecting the most favourable opportunity to sell them direct to people with money to invest. Having access to temporary finance, the Government can await its opportunity, and both intelligent consideration and actual experience prove that it can raise money more cheaply itself than through the intermediary of railway contractors. Certainly, when Sir Joseph Ward was Minister for Finance, he did not make any experiments with Tauranga bonds.