THE OTAGO DAILY TIMES WEDNESDAY, December 21, 1938. MONEY AND INTEREST

Otago Daily Times, Issue 23688, 21 December 1938, Page 10

THE OTAGO DAILY TIMES WEDNESDAY, December 21, 1938. MONEY AND INTEREST

The difficulty which public bodies are experiencing in obtaining funds on loan at 3£ per cent.—the limit imposed by the Local Government Loans Board in accordance with the policy of the Government—is a matter of common knowledge. The decision of the Government itself, which the Minister of Finance has announced, to place on the local market a loan, allegedly “to meet capital expenditure in connection with railway and electrical equipment and other public works,” suggests that the sources that have been relied upon by it for meeting its financial demands are no longer as accessible as they have been. The extent to which it is proposed by it to seek funds by an internal loan has not been disclosed. An indication of its probable requirements was afforded, however, in the Financial Statement last year. In this document the Minister of Finance informed the country that the estimated expenditure on public works in the current year would be £20,719,700. “Of this total,” he said, “ it is anticipated that £ 14,263,000 will require to be raised by loans, the balance being available from taxation, electricity sales, disposals of farm and forest produce, transfers from the Employment Promotion Fund, and from miscellaneous revenue sources." On the principle expressed in the homely objection to making two bites at a cherry, it may be surmised that an effort will be made to raise this sum in one loan. This is rendered the more likely by the fact that the Government’s overdraft at the Reserve Bank for purposes other than the financing of the dairy produce marketing scheme is over £9,000,000, and by the probability that this may be regarded as an excessive degree of accommodation on this account. The Government has been borrowing freely from the Post Office Savings Bank for the purpose of prosecuting the public works programme, incurring on it that heavy expenditure which is one of the causes of the embarrassment that has necessitated the adoption of the so-called insulation plan. But it is essential that the Savings Bank should possess liquid resources in large quantities, and the demands of the depositors have latterly been making substantial inroads upon them. For the seven months of the financial year, ended on October 31, the withdrawals from the bank exceeded the deposits by £873,963, whereas in the corresponding period of the preceding year there was an excess of deposits of £2,483,241; and the withdrawals at this season of the year are normally heavy. It is

probable tfiiat, in these circumstances, recourse ta> other means of financing the public works programme, such as by public loan, is being forced on the. Government. But, even if any expectation on the part of the Government t|iat a loan of £14,000,000 can be successfully floated on the local marlj;et is completely realised, it is by nq means clear that there is a sound foundation for the easy assumption jof Dr McMillan, to which he gave utterance at the meeting of the City Council on Monday night, that, “ ndw that the leaks have been stopjied by exchange control,” there will I in a little while be plenty of money! for local body loans as well as Jor Government requirements. The market will have to be tested befo re there can be any assurance on that point. And the test may reveal that, even though plenty of money I may have accumulated, it may not pe readily available at the rate of iipterest which the .Government is djesirous of maintaining.