FARM FINANCE

Otago Daily Times, Issue 22498, 16 February 1935, Page 14

FARM FINANCE

MORTGAGE CORPORATION LABOUR LEADER’S CRITICISM PRESENT EQUITIES ENDANGERED (FlOJf Out PABLIAMEimtT REPOITCT.) WELLINGTON. February 15. “After a period of deflation the Minister of Finance is now proposing to destroy portion of the equities not only of the mortgagors but also of the mortgagees unless something turns up in the meantime,” said the Leader of the Opposition, Mr M. J. Savage, in a general criticism of the Mortgage Corporation Bill during the second-reading debate in the House of Representatives to-day, “The Labour Party says that instead of destroying the equities attention should be directed to making it possible for people to pay their debts.” Mr Savage at the end of an hour's speech summarised his points ofvcriticism under the following eight headings:— 1. The proposals in the Bill are involved, They will turn farmer mortgagors into serfs and they will take the full-time attention of an army of inspectors, valuers, and other State officers In their administration. 2. The State lending institutions are to be superseded by a semi-private lending Institution, which, without the authority to issue money, must continue to rely upon borrowing. - .8. For the purposes of the Bill money must be raised upon securities of secondclass importance and as a consequence will carry higher lates of interest which will be passed on to the borrowers. 4. Money for the purposes of State advances has always been raised on the first-class security of the State revenues and the benefit has been passed on to the borrowers.

5. The weakness of the present system U duetto the inability of the State lending institutions to utilise by direct means the credit of State. This is also the main fundamental weakness of the proposed mortgage corporation. 6; Reduced interest charges, although desirable, will not bridge the gap between the purchasing power of the people and production, and vrill not therefore aolve the problem arising out of falling prices, } - „y > !' 7. The problems arising out of the present mortgage system can be solved — ; <a) by a readjustment of the mortgages under State control; and (b) by guaranteed prices for products and services which will enable the producers to meet their obligations on a new basis. -8. ; The Government’s , proposals - mean, in effect, that after a period of deflation, which was deliberately undertaken, a substantial portion of the equities of all parties to mortgage contracts is to be destroyed—that is, unless something turns up to raise prices. The Minister says that is not likely to happen. The aim should be to re-establish the equities of all concerned, including home builders. Mr Savage; opening his speech, said it was a pity the House had not before it the second Bill, for the rehabilitation of farmers* finance, because both measures were fundamentally related, and if the contents of the second Bill were known members would be in a. better position to discuss the whole problem. Mr Coates was a lightning change Minister, and'those who had studied the scheme, outlined in his pamphlet found that* changes had been made by the Bill. The existing legislation, plus the pending legislation, worfld, in Mr Ravage’s opinion, reduce the farmers to the position- of serfs. 'The Minister had said it was becoming more and more evident that it was idle to look for a return to the level of-prices ruling prior to 1030. Mr Savage said he. disagreed with that. After all, price was only a relative thing and. depended. mainly on the people’s power to buy at economic prices the things they created. Power to buy the whole or any part of their products was undoubtedly the prerogative of the people. All the wage-reducing legislation of recent years was based on the cry that costs must he reduced, continued Mr Savage, and the farmers and all others were still worse off than ever. Must reductions of the standard of living he continued in * order that New Zealand should qualify as a successful competitor in the overseas markets? Let there be lower rates of interest by all means until New Zealand was intelligent enough to do its own banking, but let there ho, no delusion that by destroying the people’s monetary incomes l the relative cost of production was being reduced.

Mr Savage asked what other industries obtained money cheaper by the selling of shares, bonds and debentures on the Stock Exchange than did those farmers who obtained money from the Advances to .Settlers Department. The trouble with that department was that it was always short of money because, like the present proposal, it had no power to issue money.. If the Bill became law, the position would be worse than before. While the Mortgage Corporation would have no power to issue money and must depend on other sources, it must guarantee a substantial rate of interest to the shareholders whose contributions to the financial requirements of the corporation would be infinitesimal. When a farmer required £3OOO from the corporation, he would probably be offered £ISOO or £2OOO because the corporation -would always be short of money. The Minister considered that no substantial objections could be raised to- the -State taking over an ever-increasing amount of mortgages. Mr Savage said he thought the State should take over the lot and should not pay tribute to any third party. The shareholders were to provide £500,000 in the way of capital, while the State was to find £500,000, while over £50,000,000 would be represented in mortgages. The mere bagatelle in the way of capital supplied by the shareholders was to be made an excuse for them to elect three members of the Board of Management. The loans were not to exceed two-thirds of the value of the securities offered unless they were guaranteed, and in all cases the securities were to be revalued for that purpose. It was probable that the new values would be at least 25 per cent, below the original values, and therefore the cash available would not exceed 45 per cent, of the original value. It seemed to Mr Savage that the cream of the securities held by the Government lending institutions were to he handed over to the corporation, while the State would accept responsibility for the remainder.

Criticism was also made by Mr Savage that Mr Coates refused to face the real issues in considering that the average of recent years’ prices was unsound for the purpose of valuation, and that it was not possible to forecast prices during the next few years. A more hopeless outlook it would be impossible to imagine. “ How is it that we can fix the income of tens of thousands of our citizens and we cannot fix a reasonable income for our farmers ? ” asked Mr Savage. “The incomes of the citizens of a nation should and could be based upon the whole of the production of that nation. It is true that this would involve the

nation im complete control of its money system, but why should that not be? Our immediate objective seems as if both parties to a mortgage contract are to be left swinging between heaven and earth for some years in the hope that something might turn up. The way out of the trouble is to control the money system and establish a system of guaranteed prices based on a real readjustment of overhead charges.” SECOND READING DEBATE DIVERGENT OPINIONS MINISTER’S REPLY TO LABOUR (From Ock Parliamentary Reporter) ' WELLINGTON, February 15. Divergent opinions on the Government’s proposal to establish a National Mortgage Corporation were heard during the debate on the second reading of the Mortgage Corporation of New Zealand Bill in the House of Representatives tp-day. Referring, to the speech made by the .Leader of 'the Opposition (Mr M. J. Savage), the Minister of Lands (Mr E. A. Ransom) said that Mr Savage’s arguments were interesting, even if they were not convincing. At the same time, they should be given consideration. Some of the points made by Mr Savage he considered weak in the extreme. The aim of the corporation would be to establish a system fair to the lender and advantageous to the borrower. He could visualise the Labour Party busy with the\ printing press, but the creation of credit by using the printing press would not solve the country’s problems. This country had to be run on sound financial lines and not on the imaginary lines mentioned by Mr Savage. The Government would not give the corporation power to issue money. The matter would get entirely out of hand in times of stress if that power were given. The Labour Party wanted political control of currency, but that was not the opinion of the Governor, nor was it provided for in the Bill. The Labour Party said that money cost little or nothing to print, and in Mr Ransom’s opinion under its administration that was as much as it would be worth. Surely the Leader of the Opposition and his colleagues had not forgotten the warning of other countries that had tried such a system of finance. Mr Walter Nash (Hutt) invited the Minister of Lands to reconcile his statement about the Labour Party and the printing press with Mr Coates’s announcement that, “ if at any time the corporation was short of lending money, then the State would hurry more securities into the corporation in order to keep an ample amount of capital available for lending.” What was the difference, he asked, between the issue of securities with nothing behind them and the issue of money in the sense that Mr Ransom had referred to? Mr Savage had never on any occasion stated that he would dream of issuing any credit or money in excess of the value, as far as that could be measured, of the goods that were in being. He had built his case round the question of guaranteed prices, the production of goods, and the utilisation of services.

GREATEST EXPLOITING INTEREST. Mr H. T. Armstrong (Christchurch East) declared that the farmer had never let the country down, and he suggested that before ho could possibly have any security of tenure some of his actual debt itself must be written off. Mr Armstrong criticised the number of boards that would have to be set up for the working of the corporation. At present, he said, there were 76 people on boards doing the same work as the corporation was designed to do, and he supposed that, if that organisation came into being, there would be twice as many people engaged in the work. Criticising the proposal that private enterprise should contribute half of the share capital of the corporation, Mr Armstrong said the Government would he limited to the same amount unless private investors did not take up the full £500,000 that was to be allotted to them, and would private persons put their money into the concern on the strict understanding that, as the Minis-, ter of Finance had said, there was to be no profit? Service without profit was how he had described the objects of the corporation. Mr Armstrong expressed the opinion that , the corporation would develop into one of the greatest exploiting interests that this country had ever seen. LOCAL BODY RATES f; LIABILITY FOR PAYMENT EXPLANATION BY MINISTER (From Our Parliamentary Reporterj WELLINGTON, February 15. A further explanation was given by the Minister of Finance (Mr J. G. Coates) in the House ,of Representatives to-day ‘concerning the relation of the proposed Mortgage Corporation to the payment of local body rates. The Minister made it clear that the corporation would be liable for rates on new mortgages, but the position in relation to existing State mortgages taken over would remain as at present. Mr E. J. Howard: Which,is very unfair. Mr Coates: If it were otherwise the extra charge would fall on the corporation. which would be in no way responsible for the position.

The Minister added that it would cost £500,000 a year to meet the charges of local bodies in this direction. Mr W. Hash: That means that local bodies are losing £500,000 a year. Mr Coates: Whichever way you may put it. Under the rehabilitation proposals to be submitted to the House next week, the rates would he placed in the first category of the liabilities to fall on the receipts of the farmers. Mr W. Nash: Before interest? Mr Coates: Alongside interest.

The Minister also explained that the introduction of private shareholder capital into the scheme was a method of giving investors security stronger and more attractive than by any other method. Some had suggested that there should he a State guarantee, hut it was not possible for New Zealand, if it wished to preserve, the value of existing and future securities, to give a genera] blank guarantee, but by the Crown providing half the capital and putting in the reserves Mr Coates believed that it would be possible to borrow money at a gilt-edged rate and give borrowers finance at the cheapest possible rate.