THE FINANCE OF THE DOMINION.

Otago Witness, Issue 3614, 19 June 1923, Page 30

THE FINANCE OF THE DOMINION.

THE MORATORIUM. Sir George Elliot, chairman of directors of the Bank of New Zealand, speaking at the annual meeting of that institution on the 15th, observed that since June last there had been a marked improvement in financial conditions in the dominion, brought about especially by a greater demand for wool, with a consequent advance in its puce, and by a largely increased output of milk products. The imports into New Zealand during the year aI J increase over the figures for 1921-22, but the exports showed a still larger increase of £1,746,374, so that, on the whole, the balance of external trade is in favour of New Zealand to the amount of £8,576,117. The substantial surplus of £1,315,683 in the dominion’s revenue over expenditure Was also a matter for congratulation. Notwithstanding this, the people of the country should not be misled into supposing that the necessity for a maximum of economy in both public and private expenditure had passed away. The recovery from the severe depression of two years ago had been too rapid to be altogether wholesome, and it would be unfortunate if the lessons of that period were too quickly forgotten. Notwithstanding the optimistic reports which had recently been published, and the splendid increase in the value of wool, conditions all the world over were far too unsettled to warrant the assumption that the present price of commodities would be maintained. The number of bankruptcies during last year had been larger than usual, and the published figures by no means represented all who had failed. Numbers of farmers —many of them returned soldiers deserving the best of fortune —had been obliged to surrender their holdings, thus losing all their hard-won savings. In other cases, vendors had cancelled a proportion of the purchase money to induce purchasers to carry on. Most branches of wholesale trade were now on the high road to recovery from the over-importations of 1920-1921, and were giving promise of steady progress. It was a tribute to the sound financial standing of the community as a whole that such an exceedingly large proportion of our traders had successfully emerged from so severe a crisis. Heavy losses had been made, but, for the most part, they had been faced with a surprising equanimity and with a determination to profit by the lesson. The financial storm passed lightly over the retail traders. There has been more money available for investment than during the previous two years. Government and local bodies debentures and shares —both in bapks and in first-class joint stock companies—have been the favoured investments. Money had also been available for mortgage purposes when the security offered had Deen satisfactory and afforded an ample margin. Very little new money had been lent on mortgage at lower than 6-j, per cent., which might be regarded as the current rate for the best securities, though renewals had in some instances been arranged at a somewhat lower figure. The country was carrying a great burden of debt, much of which was unproductive, largely due to war expenditure. It was of paramount importance that the unproductive portion should be steadily reduced. Although all desired to see lower taxation, they ought at the same time to regard the present high rate as part of a price paid to escape German domination. This view of the matter should be an antidote to undue complaint. They heard from time to time of demands made upon the Government to open unoccupied lands. At this juncture any further opening up of unoccupied land would be unwise, for there was already far more land in occupation than ..could be profitably used by the holders. Sub-division of large holdings into reasonably sized areas would permit of a large increase in the number of nroducers vrithout expenditure by the Government on additional roads, bridges, and railways. , • ■ n i Whatever might have originally been its advantages—and it had advantages—the moratorium outlived its usefulness, as it was generally recognised that its continued existence bud an unsettling influence on land values in the dominion and on financial conditions generally. Before and alter 3914 land was selling at prices which were not warranted by financial results; and larger sums were borrowed than the actual values of the land warranted. It was understood that a number of mortgagors who were sheltering under the moratorium had made no provision whatever for the repayment of their loans when the Act expired, as the prospect of an extension had lulled them into a false sense of security. As a consequence, they took the risk of holding all their land in the hope of realising at a price somewhat near cost, instead of gelling rid of the whole or part, even at a loss. It was to be hoped, in the best interests of the dominion, that no further extension of the Act was contemplated by the Legislature. ll was true that a number of mortgagors would inevitably have to face the result of ill-advised land purchases undertaken with inadequate capital; but, in the great majority of cases, mortgagees might he relied upon.to renew the mortgages at rates of interest proportionate to the security offered. In New Zealand it was estimated that well over two hundred millions are lent on mortgage, a great proportion of this being loaned by persons of moderate means. It was fortunate that little of this iavge amount had been obtained outside the dominion, for, whenever it was repaid it must naturally he reinvested here. ’

Without a doubt, the passing of the Mortgages Moratorium Act in New Zealand, necessary as it lvas at the time, dried up to a large extent the source from which moneys for mortgage investments sprung and drove investors to look in other directions for an ouliet for their savings. Jt'rovided there was no further risk of legislative interference, and provided the margin of safety w'as sufficient, mortgages on freehold lands must again become as popular as they were in the past, for they offer many advantages; they ensured repayment in a given period, and, in ordinary circumstances, there was little loss if reasonable precautions were taken. The Act providing for a moratorium on deposits was passed in 1921. when the financial depression set in. Unquestionably it was the salvation of many companies and firms which had been taking deposits from their shareholders, customers, and the public generally. It was estimated on the passing of the Moratorium Act that in New Zealand the total deposits with firms and companies, other than banking institutions, amounted to not less than 10 millions. Many depositors in these concerns believed that, in the event of liquidation, they had a preferential claim on the assets. This, of course, was not so, as depositors ranked in common with all other unsecured creditors for liquidation dividends. Others, who know the position, took the risk involved for the sake of the half or one per cent, more than they could obtain from banking institutions proper. There bad been cases of trustees placing trust funds on deposit with trading concerns, ignoring the fact that they themselves would require to make good any loss that might be sustained on such transactions. These were, of course, exceptional cases, but. speaking generally, the system was pernicious. It was dangerous to the lender as well as to the borrower.

If business firms and depositors are prepared to take the risk, there is no reason why _ the system should be discontinued, provided that traders who did a banking business were pul: on exactly the same footing as banks, and compelled by Statute to keep a certain proportion of their assets in a liquid state in order to provide for the demands which might l>e made upon them, and compelled also to pay exactly the same scale of taxation on the banking side of their business, as a bank pays. The Act expired on 30lh inst., and one could not help hoping that" its existence will not he extended.