BORROWING POWERS

New Zealand Herald, Volume LXXIII, Issue 22544, 8 October 1936, Page 10

BORROWING POWERS

Extensive borrowing powers are being taken by the Government in the Finance Bill just introduced. Authority to raise £13,000,000 for public works, highways and housing would be a very considerable financial proposal if it stood alone. But it is only part of what the bill includes. Earlier this year the Reserve Bank was authorised to grant the Treasury accommodation up to the full amount of estimated revenue for the year, there having previously been a limit of one-half the revenue. Now the bank is being permitted to lend to lo6al authorities and other public bodies in the same way though there is no mention of terms. Finally, the power the bank was recently given to underwrite Government loans is extended >to include loans by the State Advances Corporation. It is no part of the true functions of a central bank to underwrite any loans, since being left with any considerable part of an issue which the investing public has not taken in full impairs the necessary liquidity of the bank's resources. However, the provision is evidently intended to clear the way for the proposed internal borrowing. The question the Government has frequently been asked —where is the money coming from I—is answered to a considerable extent by this bill. The requirements for capital expenditure are to be borrowed, and, so far as the evidence shows, the Government will apply to the investment market for funds in the ordinary and orthodox way. Heavy borrowing is indicated, but as the Government has committed itself to heavy expenditure this is simply a natural consequence. The declared intention is to create assets of value to the community. Value may be measured in various ways, but there is not much prospect that most of the assets indicated will pay interest on their capital cost. Thus further burdens for the taxpayer are the most likely result of the borrowing policy.