INTEREST REDUCTIONS

New Zealand Herald, Volume LXX, Issue 21463, 10 April 1933, Page 11

INTEREST REDUCTIONS

DIFFICULT PBOBLEMS BANK LENDS ASSISTANCE ! PUZZLES IN ARITHMETIC The replacement on April 1 of the 10 per cent stamp duty on interest on local body securities by a straight-out reduction of 20 per cent is providing local authorities with a number of arithmetical problems for solution. In computing the interest to be paid on debentures during the overlapping period, which embraces partly the 10 per cent and partly the 20 per cent'reductions, special calculations have to be made. In this matter the Bank of New Zealand has endeavoured to assist the local bodies by calculating the amounts at which interest coupons may be negotiated during the period March 31October 1. The coupons in connection with every local body loan, from 4 per cents to 6 per cents, negotiable from April 1 to September 30, have been tabulated, showing the exact amount of interest payable after deduction of the correct proportions of stamp duty and interest reduction. These tables, which are of considerable value to the local bodies have been circulated among all the local authorities in the Auckland district for confirmation. When approved they will show at a glance the exact amount of interest payable on a great variety of loans during the next six months. Instance of Complication The calculations are complicated by the statutory limit of per cent, bplow which the interest reduction of 20 per cent does not apply. There was no such limit under the 10 per cent stamp duty, so that holders of low-priced local body debentures reap an advantage under the Government's latest legislation. Thus, although a coupon worth nominally £2, being the half-yearly interest payable on a 4 per cent loan, and negotiable on June 8, nominally carries 2s 9d stamp duty on that por- 1 tion of the interest that accrued to March 31, nothing will be deducted, as no interest reduction under the new legislation can apply to a 4 per cent loan. .A similar position rules in regard to a 4i per cent loan, the half-yearly coupons of which are negotiable on June 4. Ordinarily, 3s stamp duty would have to be paid on the interest accruing to March 31, together with 20 per cent on the balance, but as a reduction below 4-j per cent is prohibited, only lid will be deducted. Curious Point Arises A curious point arises in connection with those coupons which are negotiable late in the overlapping period, say, in September. Of the £2 15s interest payable on September 30 under a 5% per cent loan, 4d represents the interest accruing to March 31 on which stamp duty has to be paid. The amount of duty actually payable will be 3d, "which represents a "cut" of 75 per cent instead of 10 por cent. The apparent anomaly occurs because the stamp duty is paid on fractions, the rate being 3d on every 2s Gd or fraction thereof. On these particular coupons the bulk of the interest reduction will be computed at the 20 per cent rate, the coupon being actually worth £2 4s Id on September 30. The table is naturally of use only during the next six months. After September 30 there will be no coupons carrying a proportion of stamp duty and the 20 per cent reduction will apply without modification. POSITION IN CANTERBURY AX ADVISORY COMMITTEE The Christchurch Stock Exchange has set up an advisory committee to help local bodies in • considering problems arising out of the Local Authorities Interest Reduction and Loans Conversion Act, 1932-33. The committee will give free advice on all questions arising out of the Act and also in the flotation and renewal of loans. It has circularised 66 local bodies in the Canterbury district.