EXTINCTION OF THE NATIONAL DEBT

Otago Witness, Issue 2949, 21 September 1910, Page 90

EXTINCTION OF THE NATIONAL DEBT

By William Bbown.

In a previous letter I presented some comments on the Prime Minister's explanation of the sinking' fund proposed to be established on the basis of 4 per oent. for a term of 75 years, and amongst other points showed that the annual amount with which he dealt as necessary on the basis referred to could nofcprovide funds to meet loans maturing at any earlier data without destroying the contemplated provsion for the later maturities, and consequently for the whole of the debt. The annual amount stated to be needed i 3 £140,500, which, however, only provides for an amount of debt 12 millions short of the present total of 75 millions, but this annual payment appears to include certain I contributions already being provided under ' former acts, and therefore involves a comparatively small additional provision. Since writing the subject has again been .... before the House, and the bill has paased its third reading. During.the debate your report includes the following worde from the Prime Minister:—" There was no reason why from time to time the payment of our indebtedness should not be made after thex act had been in operation for a few yeaTS. In less than 10 years from now many of the smaller loans could be paid out of the accumulated sinking fund. It was wrong to suppose the funds would go on accumulating for 75 yearns." For such operations the bill, of course, provides. The following is the effect of any such withdrawals from the general fund: —As stated in the previous article, the annual payment of sinking fund required to meet 75 millions in 75 years at 4 per oent. is £167,175, and in five years this will amount to £905,474, which, of course, is not su£cient to extinguish a loan of a single mil- . lion. But ire 10 years the fund shouldi stand at £2,007,123. Supposiirg that at I that stage, one million is withdrawn, and a loan of that amount extinguished, tho total debt would be reduced to 74 millions, and the funds in hand to £1,007,125. This operation therefore thus wipes out 49.8 per oent. of the whole accumulation. Now, the balance thus left in hand has no longer 75 years to run, but 75- minus 10 or 65 years, and in that time it would reach £12,889,902. But the annual payment of £167,175 being continued for the remainder of the tarm, it would be on the same footing from that point as if it had been calculated on a basis of 65 years; and if not again depleted for 65 years, it should amount to £49,311,545. If, then, at the end of the whole term these two accumulations be merged into one amount, it will be found that they fall short of the remaining debt of 74 millions by no less than £11,798,738. | Thus:— _ ' Balance of depleted fund in- „,„„„„ n „_ creased to ;•• : •• £12,889,900 Accumulation of 65 years' sinking fund 49,311,345 Deficiency on balance of debt 11,798,755 £74,000,000 J In a similar manner it can be shown • that if one million were withdrawn to pay off a loan due 10 years hence and a million and a-half five years later, the ultimate shortage would bo no less than £26,078,194. These figures seem hardly credible, but they can readily be verified, for the deficit in the first case is the amount of interest lost to the fund by the withdrawal of one million prematurely, and the deficit in the second case is tho interest for 60 years whioh should have accrued on the two and a-half millions withdrawn. The withdrawals are the lost chords which disturb the harmony of the whole. To compensate for these large deficiencies the annual sinking fund must, in the first case, be increased to £207,175 for the last 65 years—the result of „ depleting the fund at the end of the tenth year, or practically gathering fruit before it is ripe; and in the second case to £276,751 for the last 60 years of the term projected. Without the application of such a remedy repayment of loans muss be deferred till the amount now proposed, with its accretions, equals the whole of the debt; otherwise the scheme will fall a long way short of extinguishing the national debt. Another feature of this measure will be that, whatever board of management may be set up, withdrawals for the payment of early maturities, and the consequent necessity of adding largely to the annual i>aymonts, and, of course, to the resulting taxation, will not be under the control of future Parliaments, but will have to follow tho acts, precedent or otherwise, of tho few individuals Into whose hands the administration of the fund may be committed.