THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, MAY 29, 1936 STATE ADVANCES

New Zealand Herald, Volume LXXIII, Issue 22431, 29 May 1936, Page 10

THE New Zealand Herald AND DAILY SOUTHERN CROSS FRIDAY, MAY 29, 1936 STATE ADVANCES

The general effect of the bill reconstituting the Mortgage Corporation as the State Advances Corporation is to restore direct political control of State lending and remove many of the brakes on the existing machinery. That is in complete conformity with the Government's policy as already applied to central banking, railways and transport. Even the Arbitration Court has been superseded in many important respects by Government legislation. In the present case, the corporate form has been rdtained although its purpose has been nullified by the wide and decisive powers vested in the Minister of Finance. The board of management will lose all independence of policy and judgment. Just as the corporation is to be State-owned, the private interest being bought out, so the directors will be solely nominated by the Government, holding office during its pleasure. Similarly the joint managingdirectors are to be Government appointees, holding office for a period unspecified except as to the maximum. The Minister is to appoint one of them chaii'man and the other deputy-chairman, but may revoke his own appointment at board meetings, which he is entitled to attend. The status of these executive officers becomes little if any better than that of civil servants. They and the directors will be concerned only with the smaller details of administration and management. the effective decisions resting with the Minister. He fixes and may change the rate of interest to be charged on loans and also the percentage of refund for prompt payment." The board is also required to give effect to the policy of the Government as conveyed to it by the Minister, his directions in writing being binding on it. Thus the checks on State lending, imposed because of the lessons taught by costly experience, have been completely removed. Control of the business is back in political hands. The margin on loans, which prudence had reduced to 66| per cent of the security, has been abolished, except in the case of commercial borrowing. "If advances to 100 per cent are necessary," asserts the Minister, " they will be made." In their salad days New Zealanders welcomed every loosening of State lending policy. They know now, however, that cheap and easy money is a very mixed blessing for the State and for the borrower. The further the State reduces the margin of security, the greater the risk of losses*to be made good by the taxpayer. On the other hand the borrower is often tempted to assume obligations he cannot comfortably discharge. With the expansion of credit comes an inflation of values and the inevitable reaction State mortgagors have bitter experience of the process values dropping faster than they could increase their equities until they, settlers, workers and returned soldiers, were forced to vacate their properties, to renounce their savings and the efforts begun in hope. Thousands of properties back on the State's hands are mute witnesses of these human tragedies, all of them avoidable had the Government held to a sound lending policy and many of them likely to be repeated now that the brakes are off once again. In addition the limit placed on the corporation s borrowing, at present 15 times its capital and reserves, is to be repealed. In future its bonds will carry the State guarantee, which may keep down the rate of interest imt will certainly enlarge the total of the national debt. Hence it appears that, in respect of both borrowing and lending policies, the appropriate title for the corporation would be State Advances Unlimited. Much will depend, of course, on the direction of the Minister of Finance. If he exercises his great powers according to sound principles, all should be well. There can be no objection to " exploiting the public credit" for the benefit of small borrowers so long as the business is prudently managed. Given that condition, State advances should confer real social and economic benefits. The trouble is that the Minister administering such a fund is bound to be subjected to extreme political pressure and the bill leaves him with no defences except his own single will and judgment. The statutory limits placed on the Mortgage Corporation and its independent constitutions were safeguards for the State, the borrower and the taxpayer, and should not be abolished. The bill's provisions and the Minister's comments thereon show that the new corporation will have a strong bias toward housing. Formerly the weight of emphasis was on land settlement. Apart from loans to individuals, the corporation is to launch housing schemes on its own account, a move which will bewatched with the more interest because of the failure of State and municipal housing schemes in the past. Another innovation is provision for the grant of loans to industries. This is not entirely new, loans to specified industries having been made by statutory authority since 1913. Apparently the intiative in this case is to come from the Bureau of Industries. Some of the implications of these commercial loans are discussed in an interview published this morning. The general conclusion on the bill, as on the Reserve Bank Amendment Act, is that it confers very wide powers on the Minister of Finance, everything depending upon how he discharges his grave responsibilities.