Effort to Ease the Interest Burden.

Otaki Mail, 14 December 1932, Page 3

Effort to Ease the Interest Burden.

CONVERSION OF EXPIRING LOANS ADVOCATED. NEED FOR OVERHAUL OF ENTIRE BORROWING SYSTEM. The Otago Power ■'Board's circular advocating the consolidation and conversion of local bodies' loans at a lower rate of interest, was before the Horowhenua County Council on Saturday, and support was accorded the proposal.

The chairman (Mr. G..A. Monk) said he was quite in accord with the suggestion that consolidation, if" interest rates could be reduced, was quite a desirable thing. However, the Council had loan contracts made; and unless there was a general reduction of interest, both public and private, by Act cf Parliament, then only the loans that were falling due immediately could bo included in a loan for the purposes of conversion. There had been one Act which" had reduced —temporarily, perhaps—the rate of interest. The time had arrived when the whole question of a reduction of interest, should bo dealt with; and if the interest were cut in half, the reduction would not be too great. Councillors: Hear, hear! Continuing-, the chairman said that a great deal of support could not bo given to the proposal now before the meeting, because this Council had made contracts and unless these wore broken by Act of Parliament the Council had to.adhere to them. ; Cr. Best said it seemed that if the. problem of interest (rates /wore not tackled by Parliament, there was going to be a breakdown, not only of local bodies, but among the public generally. The interest rates should be reduced 50 per cent. i Cr. Gimblott,* while favouring interest reduction, did not approve of tno Government's methods. It had told the private lender to cut his rate, but was itself paying 5 per cent "over the counter" to-day and. was giving permission to certain borrowers to pay even more than 5 per cont. As funds were 'accumulating in New Zealand, the Government should not hesitate to tackle the question from its own end first. The people had looked to the Public Trustee to set the rate of interest first, and to the insurance companies and other lending institutions to follow. What hope had the man on the land to-day if the Government was setting a rate which was worth over 5 per cent? No hope at all. The Government would first have to realise that, and then set' the machinery in motion. The Labour Party had suggested sending a note to Britain asking for the suspension of the Dominion's payments for the time being. It was to be hoped that that step would not be necessary, but the que.stion was, Could that time be stayed? The farmers were roalising that they could not pay—and when they could not do so, who could?

"Cr. Gimblott has put his finger on the sore point—Government first," said Cr. Ryder. "The whole thing is in a state of muddle, and I don't think we have very far to go before the commercial system of the world is go ing to breakdown. War debts, public loans and private debts are in the melting pot." The.chairman: A reduction can probably be brought about by a conversion, but -we 'are bound by tho four corners of the law, and wo are not talking repudiation. Those people are asking for something that has a legal standing. The dearest thing to-day is. money; everything else is down. But while money remains dear, the work that has been done by the use of that money remains dear. Cr. Jensen moved that tl}e Council support tho request to the Government to legislate for tho raising of a conversion loan for local bodies' debts.

Cr. Gimblett thought that the raising of a conversion loan would be .like putting the cart before the horse. They were taking it for granted that there -was going to be a reduction in the rate of interest. If they were to suggest that the Government put into practical shape a reduction of' interest and then follow that up with a conversion loan, they would be proceeding on more correct lines. "It looks to me," remarked the chairman, "us if ,w.e are going to have State interference and a conversion loan raised to embrace all public debts in the country r The first aspect l to consider is, Who is going to become responsible? If the State comes in, it looks as if we are going to have iState-guarauteed loans. I don't think we will get that, because it is then counted as a State debt."' Another side of tho question was presented by the fact that the County-had borrowed money on which tho interest rate was only 3} per cent; and he did not think it could ask for a i , eiluctioD,„on that rate.

Cr. Gimb'.ett considered that if the" interest on the rest of the money borrowed by the Counr.y could bo lowered to 3}' per cent, a reduction could be made in the County rates. The chairman: An enormous amount has"been raised by local bodies which bears • interest at 5$ to 6 per cent. That is 14 to 2 per cent too high—there is no .question ■ about that. The Otago Board is anxious, I think, that a conversion loan at about 4 per cent should be raised to wipe those loans •off. If the Government can convert, they should first convert the national loans; then, where we have borrowed from State institutions, they can pass it on. They are still paying the same rate of interest for the money they have~borrow3d to find to us. In this case it is suggested that a conversion loan be rawed, with a lower rate of interest, for local body loans.' Lots of those' loans have many years to Tun. Whether the idea is for the local bodies to cioalgamate and raise this loan, or to let the Government do it, I do not know. We can support the view that the time has arrived—seeing the • enormous fall in every other cos t when . interest must become lower. , - Cr. Jenssn withdrew his motion.

Cr. Atfcns asked if the mission oil the Minister of Finance to London had not been, more or less, with the object of arranging a conversion. Prom statements that had .been made by the Minister, Cr. Atkins thought there was very little that, could be converted in London at present, and that the money market at Home was not inclined to view a conversion of New Zealand loans very favourably. The chairman: He conveyed that they said "All right" for a convef-. sion of loans falling due, "but you must take your time, and there is a lot in front of you." Or. Atkins: *fcot meant that there j was. not sufficient money available to I .'.. r -.-... '■'.'- -. .

I meet the needs of world conversion. We are all agreed that it is vital that overhead.ios'ts. be reduced if the' country is-to carry on; otherwise thoro will be' a collapse, and that very shortly. But' for the Government' to reduce its, interest is only to pass the burden of taxation on to us which we connot pay. To'wha,t extent the Government is working with the banks is an aspect which, I think, bears largely on tho rate .of interest to-day. If the Government extracts 3 per cent - taxation from' all money going in and out of the bank, it makes it impossible for the rate of interest to come down in that respect. Having borrowed from the New Zealand banks, the Government is in an awkward position in tospect to them. I- think the request from Otago could bo met by the Government being asked to legislate for conversion of local bodies loans at a stipulated rate of interest — 4 per cent. The chairman: Then it would be left', to the local bodies to-go on the market and raise money at 4 per cent if they oould. It was agreed to support the request contained in the circular, provid ,ed that the general question of inter- , est reduction >s dealt with as soon as possible.