INTERNAL DEBT.

New Zealand Herald, Volume LXVII, Issue 20713, 5 November 1930, Page 10

INTERNAL DEBT.

The delay in announcing the result of this year's internal debt conversion operations is explained by the acting-Prime Minister's announcement. Three blocks of stock, amounting to £6,124,460, fell due for repayment, and the holders were invited to accept 5Jr per cent, stock in exchange. The operation was not a brilliant success,; indeed, it was so unsatisfactory that the Government has concealed its disappointment as long as possible. Only £1,700,000, or less than 28 per cent., was covered by renewals, and the Government has had to strain all available resources to meet the demand for the repayment in cash of the bulk of the debt. Of the appropriations from ordinary revenue for debt redemption, £1,186,000 was used, this being within £38,500 of the total provision this year: £290,000 of reparation money was used, this also being the greater part, if not all, that will be derived from that source this year; and £191,000 of capital moneys was drawn from other accounts The continuous issue of 5j per cent, securities provided only £490,000, so that no less than £2,880,000 had to be "provided temporarily from various Treasury accounts.'' the depletion of which the Government hopee to repair by further internal borrow-

ing. The major cause of the failure was manifestly the proposal to convert from 4$ per cent, free of income tax into 5j per cent. Bubject to tax. There was no question of the necessity of abolishing the tax exemption and, under favourable conditions, holders might have been persuaded to accept a reduction in the net return, where the maximum rate applied, to £4 4s 3d per cent. But a fortnight before announcing the conversion terms, the Government destroyed its prospects by adding 10 per cent, to the income tax, and automatically reducing tho return to £4 1s 8d per cent. The present Administration cannot claim much credit for its management of maturing debt. A year ago it became deeply involved by undertaking to pay off debt in London without previously assembling the necessary funds and was forced to issue Treasury bills to cover the deficiency. Now it has been similarly embarrassed through its indifference to the effect of increasing taxation on its pending conversion operation. Not only has tho Government been forced to drain the Treasury, but the appropriation of nearly the whole provision for debt redemption will prevent its fulfilling the undertaking, given in 1928, to allocate not less than 50 per cent, of the annual amount to redemptions in London. That undertaking was certainly conditional, but even a good reason is not a convincing excuse for failure ; to fulfil a pledge in a matter touching the national credit.