LOCAL BODY DEBTS.

New Zealand Herald, Volume LXVI, Issue 20343, 26 August 1929, Page 13

LOCAL BODY DEBTS.

<' A PRODIGIOUS. INCREASED

HUGE BURDEN ASSUMED*

INVESTIGATION BY ECONOMISTS. AUCKLAND COMMITTEE'S REPORT The pronounced expansion of local body indebtedness in New Zealand during recent years has been the subject during the past 12 months of an investigation by the research committee of the Auckland branch of the Economic Society, and its conclusions, set forth in a report, were announced at the last- meeting of the society. In the main they constitute an expression of concern at the growing .magnitude of the debt, and urge caution upon local bodies in respect of borrowing in the future. The committee consisted of Professor H. Helshaw (chairman), Dr. Is.P. Neale and Messrs. T. Blood worth, W.H. Cocker, H. P., Rod well and M. Stewart.

Local body indebtedness, the report states, has increased steadily and at a more rapid rate than population. Ths most striking feature is the "prodigious" increase since the war, the per capita indebtedness being 92' per cent, higher, of nearly double what it was in 1919. The gross debt of local body districts and the annual charge involved at 10-vear intervals during the last 30 years are set, out as under:— Rat« oK Lobn loan charge Year. Debt. charce. per head. 1698 . £7,783,415 £142/,76 lis Sd J9OS .. £ 14.9.11,551 £752.949 15s 3d 191S .. £ 27,053,051 £1,459.000 £1 5s Ud. 1929 ..£00,404.172 £4.255.469 £2 15s Gd During the entire period, the report comments, ihe rate of increase of local body indebtedness was much more rapid than'that of the State. In 1923 local body indebtedness was about 120 per cent, greater than in 1920, while the indebtedness of the centra] government was about 36 per cent, greater. When Indebtedness is Justified. It is broadly true that public expenditure is justified if it results in a net increase in the sum total of economic welfare, states the report. This may arise in cases when* the public authority can give the same service as private .enterprise, but at a lower cost, or when it, can provide a useful service at reasonable cost which would not be undertaken by private enterprise. In general, the distribution of expenditure by a public authority will not be the same as hv private individuals acting independently, the most important point of divergence being in the distribution between present and future needs, the individual being likely to discount the future, and particularly the distant future, to a greater extent than the public authority. In considering the wisdom of local body expenditure it has to l>e borne in mind that indebtedness of a local authority involves not only a redistiibution af th# objects on which the national income is expended, but it occasions a redistribution of the benefit accruing to the different classes of the community, the burden of raising the necessary funds obtained by taxation or the imposition of fees not beinc evenly distributed over the community. In general, an increased per capita expenditure consequent upon capital investment is justified when the per capita income of the community increases.

There is little doubt that the per capita income in New Zealand increased appreciably from 1896 to ISI6 and on this ground an appreciable increase in iocal body indebtedness was justified. But since 1916 tiie, rate of increase has not been maintained, the real per capita income of the community being probably little, if any, greater than in the year* immediately prior to the war. Yet in-

rlebtedness and annual loan charges have increased enormously. "Debt Out of All Proportion." "The committee is of the opinion that the increase in local body indebtedness and the aggregate of annual expenditure consequent ypon it is out of all proportion to the increase which would be justified by changes in the real national' income per head," states the report. The committee adds, however, that a very considerable proportion of the increase in indebtedness of recent years is accounted for by electrical service and improved roads and bridges, all of which open up new opportunities for expenditure that, will yield large benefits. Out of a total increase in local body indebtedness amounting to £58.330.000 during the last nine yeai-s £18.000.000. or nearly one-half, was accounted for by borough*;. £10.000.000 by electric-power boards. '£4.000.000 by counties and £3.000.000 by harbour' boards. • _ . During the years 1923-1928 boroughs expended over £11.250,000 on new works out of loan money, the main items beir.g:— P.O. of £ Total. Streets and footpaths .. 3,951 ,GSS 85 ■Water supply .. .. 1.G55.537 15 Electric supply .. .. 1,615,293 14 Drainage and sewerare . 1.514.45.1 13 Tramways and buses 1,011,869 9 The committee asserts that during * period of rising prices the amount of indebtedness which may be incurred to strike a proper balance will be greater than when prices are stable, the converse holding true when prices arc falling. This is because the annual loan charges and sinking fund, although stable in terms of money, are steadily falling in terms of purchasing power as prices rise. "Hence, with rising prices, a given benefit accruing from such expenditure will be offset by a diminishing damage to private expenditure and the net benefit tends to increase." says the report. . Alternatives Before Local Bodies.

"Since 1920 prices have been falling considerably and the consensus of opinion among economists is (hat they will continue to fall for some time," the report continues. "For this reason the rapid increase in local body indebtedness of recent years is a matter for grave concern. In respect of some public works, as, for example, roads, the controlling authority has the alternatives of a more permanent and expensive type of investment involving low maintenance charges and a less permanent type involving higher maintenance charges. In view of the considerations advanced and of the fact that maintenance costs will tend to fall as prices fall, the argument in favour of the latter alternative is strengthened and local authorities should give very careful thought to all aspects of the matter, including indirect benefits to users resulting from smoother surface of roads, etc., before deciding which alternative to adopt." In a concluding section the committee says:—"We feel that waste due to unnecessary overhead has been particularly prevalent in the matter of road construction. It is the opinion of town-planning experts that the majority of urban and suburban by roads are "much wider than is necessary to provide adequate service. Not only is there waste through excessive capital cost and maintenance involved, but also through the. greater area over which a city is spread in consequence, necessitating longer distances for transport to cover."