REDUCTION OF INTEREST

New Zealand Herald, Volume LXX, Issue 21404, 31 January 1933, Page 7

REDUCTION OF INTEREST

GOVERNMENT'S PROPOSALS

THE AUSTRALIAN PRECEDENT COMPULSORY CONVERSION A statement that it is the intention of tho Government to secure a reduction' in the rate:; of interest on Government, and local body securities has been made by the lit. Hon. J. G. Coates, Minister of Finance, but no details of the Governincut's proposals are available. Mr.Coates states simply that the schema should be "as far as possible on a voluntary basis." 'lhose in touch with the money market claim that the Government is itself largely responsible for the present high rate of interest in New Zealand in comparison with other countries, owing to its policy of making available almost continuously during recent years,' stock bearing interest at 5 per cent. The Government is credited with having pegged a fairly high rate. Attention has been directed once more to the methods by which Australia reduced fixed charges. Conditions adopted by the Premiers' Conference for conversion of internal loans with reduction of interest were announced in June, 1931,, and tho Commonwealth Debt Conversion: l Act took effect on July 31. Rates ol Interest The Act invited "holders of all securities to convert their holdings into new stock, conversion to apply to all securities, the holders of which do not dissent." All existing securities were subject to a general reduction of 22£ per cent in tho interest but the interest on tho 3, 3.j and 3} per cent stocks acquired prior to August 4, 1914, was not reduced below 3 per cent, New securities were restricted to three flat rates of interest, 4, 3'| and 3 per cent, and the Act provided that they should be spread over 10 fixed maturity dates as follows:—Seven years, 4 and 3 per cent; 10 years, 4 per cent; 13 years, 4 and 3 per cent : 16 and 35 per cent; 19, 22, 24, 26 and 28 years, ali 4 per cent; 30 years, 4 and 3 per cent. I lie interest on the new securities issued under thi Act was made free from the Commonwealth super-tax of 7i per cent, and from any further taxation which might be imposed by the Commonwealth or by any .State, but to be subject to other existing Commonwealth and State taxes. Most of securities were 4 per cents, into which existing securities at more than 5 per cent were converted; those at 5 per cent were converted into new 3J per cent securities; and tnose at less than 5 per cent into ne\y 3 per cent securities. Taxfrce securities were subject under thai Act to special provisions, which them into line with the other securities, making them tax-free only until tho thea existing date of maturity. Compulsory Aspect

Tn effect, the Commonwealth scheme, which commenced on a voluntary conversion basis, became a compulsory one. On September 5, tho total amount of conversions' was £437,078,169 and the amounfk held by dissentients, £18.293.259. The> Premiers' Conference then decided thai< dissentients should be compelled to coti-r vert.

If the Now Zealand Government follows closely the. Australian precedent, the question of voluntary or compulsory conversion will become important. Judging by the Australian result, Mr. Coates' statement that conversion should, as far as poss ble, be voluntary might need some modification. The Australian Act) made no provision for repayment at par to dissentients.

In New Zealand, steps already taken taf reduce income from fixed interest gecurities were embodied mainly in the National Expenditure Adjustment Act, 1932., The stamp duty of 10 per cent on Gov-i eminent bonds and local body securities' is applicable for only three years, until March 31, 1935, whereas tha periods of the new Australian securities range front seven to 30 years.