REDUCTION OF INTEREST.

New Zealand Herald, Volume LXIX, Issue 21131, 14 March 1932, Page 12

REDUCTION OF INTEREST.

Sir, —A compulsory reduction in the rate of interest on Government and local body debentures would destroy the only reason why investors accept these low rates of interest in so-called gilt-edged securities, when they could easily get 50 to 75 per cent, more by investments which are not gilt-edged, and which cannot offer the security which the investors understood they were receiving in compensation for the small interest. The highest praise that a foreigner thinks he can bestow upon our Empire is that "an Englishman's word is his bond," but this compliment would become cf doubtful value if the written bond could be varied to suit the borrower, whereas the lender has never asked that his interest should be raised to the new rate when 1 or 2 percent. more was being offered. A revenue stamp duty on the coupons or interest warrants avoids the ugly charge of repudiation, especially as it would be only temporary, but the difference is so minute as to be negligible. On the other hand, a proportionate rise in the rate of income tax involves no repudiation, for everyone knows that this is varied from year to year, according to circumstances, and cannot expect differential treatment for debenture interest, except where it is expressly stipulated as tax-free. Even the exemption limit could be further lowered without breaking any contract, as this is also admittedly variable and still allows the income tax to be graduated according to the taxpayer's income. Economy.