MATURING DEBT.

New Zealand Herald, Volume LXVII, Issue 20475, 29 January 1930, Page 12

MATURING DEBT.

The maturity of nearly £30,000,000 of debt in London last November constituted a major problem in financial management. That difficulty was overcome and for seven or eight years loan transactions in London will be confined to the raising of new money, as the bulk of the debts falling due in that period are domiciled in New Zealand, with only comparatively small amounts in Australia. Within the next 12 months, arrangements will have to be made for the renewal of nearly £27,000,000 of internal debt. This amount includes £5,333.635 in the next two months and £21.639,186 in the new financial year. The latter sum is the largest amount of local debt that has ever matured in one year. It comprises about £14,000,000 of civil debt, borrowed or renewed six or seven years ago, and about £7.500,000 of war dubt, chiefly the 1916 and 1917 issues. The magnitude of tfio debt to be renewed and the fact that it includes a large sum distributed among private* investors constitute a domestic conversion operation comparable in importance with the recent transactions in London. It is, of course, simplified by the distribution of the maturity dates between next month and the following February, but it is complicated'by the fact that large blocks of debt now carrying ih per cent, intci-est free of income tax are included. Approximately £13,000,000 carry 4 per cent, interest, including £2,000.000 of 1918 war loan due on April 20. There are nearly £5,500,000 at 4A per cent., including £4,925,000 of war, loan due on Septomber 1: about £1,900,000 at 5 per cent and

£875,000 at per cent., the balance carrying higher rates. Hence, the maturing debt of 1930-31 primarily a problem of renewing a large amount on which only 4 per cent, is now being paid and of con-: verting nearly £5,000,000 of tax-free war loan stock. The balance of £1(5,500,000 is probably almost entirely the investments of State departments, the renewal of which may not present any serious difficulty. But the prospect of the first considerable block of local war debt attaining maturity should have warned the Government of the need for scrupulous prudence in its financial operations. No consideration need be given to the aspect of taxexemption : whatever proposals are made, the conversion stock will certainly be taxable. But "the terms will necessarily correspond with general monetary conditions, so that it is the more remarkable that the Government should have deliberately set so high a standard as 5| per cent. No explanation has yet been given of the circumstances by which it was compelled to raise the rate so drastically, and no effort has been made to refute the conclusion that its action was the direct consequence of extravagant expenditure of recent loans. By draining local resources now, the Government is aggravating the difficulties of converting the large amount of debt maturing in the next twelve months and destroying any possibility of accomplishing the task without a serious addition to the burden of interest.