NEW ZEALAND FINANCE

Otago Daily Times, Issue 21406, 6 August 1931, Page 13

NEW ZEALAND FINANCE

SEVERE CRITICISM. , (From Our Own Correspondent.) LONDON, June. 25. The Investors' Review publishes in its number of June 20 an article “ From a Correspondent ” criticising the financial situation in New Zealand.’ The correspondent finds his inspiration in the prospectus offering the 5 per cent, bonds. “The underlying foundations of New Zealand finance are unsound,’’ he eays. “ So unsound indeed that the credit structure* of the country will for some time to come always be subject to the risk of a financial earthquake. “ In the first place that disease of overborrowing, to which in various degrees all young and undeveloped countries are liable, has made, in New Zealand larly rapid strides. 1 The Bank of England prospectus gives the amount of the Dominion debt as £276„030,000. This works out approximately at £IBO per head, a figure which compares quite creditably with the £166 per head of the British National Debt. Real financial students, however, will add on to the New Zealand figure the extra £70,000,000 of . indebtedness contracted by the. local bodies. They will also remember with grave misgiving that of recent years the rate of borrowing has increased extremely fast in relation to” both the population and the income of the country; and that out of. tne British external loans to the Dominion no less than £88.000,000 has been floated in the last 10 years. .. . “Nor is it even the case as if this vast sum had been prudently invested in profitable enterprises. Of /the total public debt of the Dominion only ££82.000,000 or less than one-third (if one takes the figures of three years ago) purports to have been made for directly productive purposes, or if one includes advances for land settlement and forests, £107,000,000. “The largest item of directly reproductive expenditure is the £64,000,000, more or less, spent on the railways. For the present, however, and from a cold financial view, the railways must be regarded as a liability rather than an asset, “ Those acquainted with recent developments in New Zealand public life,” the writer continues, “ know how sheer is the waste on public works in general, although the affair of the tramway tunnel is perhaps the most notorious. DOLE FINANCE.

In these circumstances the pious claim to grace set out in the prospectus by reason of the fact that the Dominion is reducing the annual rate of its Rake s Progress on capital expenditure by 40 per cent, is somewhat refreshing, and to make matters even worse the New Zealand Government has just embarked on an expenditure in . dole finance compared to which our system, with all its muddle and with all its fraud, is the last word of conservatism. The dole is fixed .by the Unemployment Act of 1930 at 21e for every man, 17s fid for his wife and 4s for every child. And how, to be sure, is the State to find the money necessary to provide this salary for its proletariat? By. a flat levy of £1 10a on every ? taxpayer, by a State’subsidy, and by allocations by Parliament. “It is to be presumed that the subsidising of the unemployed is not one of the ‘other public works’ referred _to in the prospectus, but it would be interesting to know what remedy would be open to the bondholders if by stress of circumstances the Government found themselves forced to divert part of the proceeds of the loan to defraying the subsidy. THE EXCHANGE

“ One final consideration of some moment. Strange though it may seem to the majority of readers at this end New Zealand is and has been feeling the repercussion of the Australian crisis, particularly in its exchange. “ The reason is that the credit system of both dominions has tended to be regu-_ lated by the amount of credit balances in London standing to the credit of the colonial banks. “ Now if New Zealand and Australia were two financial watertight compartments. it would no doubt be perfectly possible for the Australia exchange to develop acute anaemia, while the New Zealand exchange continued to manifest the flush of health. “In fact, however, four of the six banks which finance New Zealand’s foreign trade are Australian, and the balances in London which are required to finance the trade of the two dominions have frequently tended in practice to be merged into one fund. At presefit, of course, the Australian exchange stands at 1303 and the New Zealand at 1.11 J, but we doubt if the New Zealand position alone would be sufficient to cause this fall in the external value of its currency. “These are the facts and figures which make one tepid with regard to the new issue, and definitely pessimistic as to the more long-dated Securities of the Dominion of New Zealand.”