N.Z. MAIL PUBLISHED WEEKLY FRIDAY, NOVEMBER 2, 1888.

New Zealand Mail, Issue 870, 2 November 1888, Page 16

N.Z. MAIL PUBLISHED WEEKLY FRIDAY, NOVEMBER 2, 1888.

Nothing- is easier than to decry as fallacious or impracticable a scheme such as that mooted by Mr T. KMacdonald for the consolidation of municipal loans. It is infinitely easier to deride such a scheme than to carry it out. There is always a temptation to shirk the onus of undertaking a large measure of reform by declaring it a mere myth or fad. History shows that numberless reforms have in the past been thus cayalierly treated on being first mooted, only to be hailed later as great public boons. Nor iB it at all uncommon for proposals of this type to be discountenanced because they have emanated from a certain political party, or from a particular person against whom some political feeling or personal aninus may exist. "We do not say that Mr Macdonald’s’ proposal is going to be opposed for reasons such as these —that is to say, because it is the proposal of Mr Macdonald—we simply desire to deprecate in good time any such mode of treatment. We care not whether the scheme be proposed by Mr Macdonald or Mr Duthie, or Mr Fisher, or Mr Ames, or Mr Anybodyelse whose name has come before the public in connection with the ap-

proaching mayoral election. If the plan be a good One; let it be tried on its own merits* irrespective of the merits or demerits, from the critics’ viewpoint, of its introducer. The proposal as placed before the public is one of large importance. Not only does it directly involve a financial operation of considerable magnitude with respect to the debt of the city of Wellington, but it assuredly will also, if proved feasible in this case, be extended to the great bulk of the debts of the New Zealand local governing bodies —City Councils, Borough Councils, County Councils, Harbour Boards, &c. All these bodies have had to borrow at a rate of interest materially exceeding that at which it appears theoretically possible to place tbeir debentures at the present time. Their debts amount in the aggregate to several millions, and the interest—the rate of which is, as a rule, from 5 per cent upward — is found to be a very heavy and constant burden on their revenues. If, then, the ; metropolitan city of New Zealand can effect a consolidation under which the annual charges would be diminished by from one-fourth to one-third, there is little doubt that the example would be extensively followed, and that what is as yet a merely local movement would soon assume a far wider character.

But it is unquestionably essential that, in limine , the advantages accruing from such a consolidatiou should be clearly and fully set forth. And by this we mean that there should be the utmost precision and fullness of detail. We hope that Mr Macdonald will yet supplement his Monday’s sketch with a statement fully worked out in all its details, showing exactly what would be gained and what lost under his pro posals, so that the citizens may be abletoconsiderthe matterintelligentlv, insteadof dealingwithaquestion which, so far as the majority are concerned, might as well be expressed in hieroglyph as in the technical language of professional financiers. Exception has, we notice, been already taken to the scheme as applied to £200,000 of the city debts, which has only 19 years to run, on the ground that, as at the end of that period the loan could presumably be re-issued at par, at 4 per cent or less, the city by now giving £125 debentures at 4 per cent with a fifty vears’ currency in lieu of £IOO debentures at G per cent, having 19 years’ currency, would save £2OOO a year for 19 years, only to lose a like sum for the remaining 31 years of the 50, through having to pay 4 percent interest ontheextra£so,ooo of principal. But this objection would only apply if it were proposed to convert merely that £200,000 loan which has 19 years to run, and not the other £230,000 which has 41 years to go before maturity. It must be recollected that the proposal is one of general consolidation of the city loans, and not only of the conversion of a single loan. This makes all the difference in the world. The scheme must necessarily be regarded as a whole. "We are not disposed to take into account the element of compound interest on which Mr Macdonald laid so much stress. It was no doubt an irresistible temptation to an expert in accounts and finance to show in vivid colouring the vast potentialities of compound interest in .connection with such " a scheme, and he painted the glowing picture with much rhetorical skill. But it appears to us that compound interest ie, in this connection, a guantite negligeable, because it does not enter into the practical issue It would only do so if the Corporation were likely to invest on such terms the annual savings as they accrued. This, we need hardly say. is not remotely probable, and so it can hardly se»ve any practical purpose to take into account what might be realised under a theoretical process, analogous to the problem of the doubling of the nails in a Worse’s shoes, which is so often propounded for the astonishment of ingenious youth. We dismiss then the consideration that the proposed savings would represent in 50 years at compound interest a sum almost equal to the whole debt, and confine our- ’ selves to the actual tangible saving in yearly outgoings. Here, as we have already pointed out, we must look at the proposal as a whole. It is a fair way of testing the objection under notice to consider whether it would be worth while to forego the saving practicable on the 41 years’ loan, because that on the 19 years’ loan may be neutralised to a greater or less extent. It is indeed quite arguable that even taking the most unfavourable view of the former transaction, a present saving might be profitably purchased by a future loss. For it must be remem-

bered that this prbcess is the converse of another one that has already been Undertaken for the futtire benefit of the city. On the one hand the citizens have voluntarily burdened themselves with interest on the cost of cortain reclamations which will give them in the future a magnificent estate. On the other hand, it is now proposed to reduce that present burden by discounting the future —by voluntarily sacrificing a part of the benefits to accrue in the future from the citizens’ investment. Here, then, we have a perfectly reasonable and intelligible idea : The citizens have said “We will pay so much a year interest for the sake of acquiring a great estate, which in the future will repay us manifold they may now quite consistently say —“ We will forego part of the future value of our estate for the 3ake of relief in the present burdens which its acquisition has placed on us.” That, we take it, is in plain term 3 what the proposal means. i Its feasibility ig another matter upon which only experts can give an opinion that is worth anything at all. But there is enough to be gathered from English papers as to the strong preference exhibited by investors for consolidated municipal loans having a long and settled currency, to warrant the expectation that the proposed operations would be practicable if judiciously, timed aud skilfully conducted. At «11 events the experiment is well worth trying. The question, however, which suggests itself to us is whether it would not be worth while, and also possible, to try it on a much larger scale. If all New Zealand municipal loans could be consolidated under a single scheme, and converted into uniform stock, bearing interest at 4 or even 3£ per cent, a very appreciable pecuniary benefit would accrue to the respective localities, while the Colony itself would derive an advantage in its credit through getting rid of the multiplicity of little local .loans. Such a scheme might profitably be taken into consideration by some of our leading politicians, and we believe it would find very ready acceptance at the hands of the public.