LABOUR’S VIEW

Southland Times, Issue 22508, 16 February 1935, Page 6

LABOUR’S VIEW

MORTGAGE PROPOSALS

BILL DISCUSSED BY MR SAVAGE

EIGHT MAIN POINTS

(From Our Parliamentary Reporter). Wellington, February 15. Labour’s view of the proposals of the Mortgage Corporation of New Zealand Bill were explained to the House of Representatives to-day by the Leader of the Opposition, Mr M. J. Savage. He discussed the provisions of the Bill in detail, replying to statements made by the Minister of Finance, the Rt. Hon. J. G. Coates, in his pamphlet and in his speech in the House last night, and summarized his contentions by making eight main points. Mr Savage’s eight points were: — (1): The proposals are involved. They will turn the 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(2) State lending institutions are to be superseded by a semi-private lending institution which, without authority to issue money, must continue to rely upon borrowing. (3) For the purposes of the Bill the money must be raised upon securities of second class importance, and as a consequence will carry higher rates of interest which will be passed on to borrowers.

(4): Money for the purposes of State advances has always been raised on first-class security to State revenues, and the benefit has been passed on to the borrowers.

(5) : The weakness of the present system is due to inability of State lending institutions to utilize, by direct means, the credit of the State. This is also the main fundamental weakness of the proposed National Mortgage Corporation. (6) Reduced interest charges, although desirable, will not bridge the gap between the purchasing power of the people and production and is therefore not a solution of the problems due to falling prices. (7) A solution to the problems arising out of the present mortgage system can be solved by (a) readjustment of mortgages under State control and (b) guaranteed prices for products and services which will enable 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 proportion of the equities of all parties to mortgage contracts is to be destroyed, that is unless something turns up to raise prices. The aim should be to re-establish the equities of all concerned, including homebuilders.

Mr Savage said that if the provisions of the Bill were added to the legislation already on the statute book dealing with primary production, the average farmer would be little better off than the serf of bygone days. With the Agriculture (Emergency Powers) Act and provisions of the present Bill added, the last remnants of freedom would vanish. The Minister’s statement that it was becoming more and more evident that it was idle to look for a return to the level of prices ruling prior to 1930 was questionable. After all, the price was only a relative thing and it 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 through their representatives in Parliament. “If this Bill becomes law in its present form, the position will be worse than ever before,” said Mr Savage. “While the National Mortgage Corporation will have no power to issue money and must therefore depend on other sources of supply, it must guarantee a substantial rate of interest to shareholders whose contributions to the financial requirements of the Corporation will be infinitesimal. As has always been the case with the State Advances, money for lending purposes will, in the case of the National Mortgage Corporation, always be in short supply. When a farmer requires £3OOO, he will be offered £l5OO. The present is an electioneering stunt, nothing more or less.” Security Question. Mr Savage asked if the Minister of Finance would say that there was any more substantial security in the country than the security of public revenues? Was there any reason for thinking that the securities of a semi-private-ly controlled mortgage corporation would be then equal to the securities of the State unless they would be guaranteed by the State. In that case they would be as much a State liability as if the loans had been raised by the State Advances. It seemed as if the Minister had let the cat out of the bag when he said “Substantial objections can be raised to the State taking over an ever increasing amount of mortgages.” That was a definite attempt to destroy the State lending institutions. The Minister said there was no intention of abolishing State Advances. What else could the Bill mean? The Minister himself had stated that “As a sound investment they will undoubtedly rank immediately after Government Securities, more or less on a par with the best of local body securities.” That in itself was an admission that the proposed National Mortgage Corporation, as a borrowing institution, would be inferior to State Advances and therefore must be inferior as a lender.

The Leader of the Opposition said the whole question of making loans was covered by existing legislation. The machinery which was set up by the State lacked nothing but the power to use the people’s credit by direct means. The proposals of the Government had the same fatal weakness. While the National Mortgage Corporation was dependent upon other sources for the supply of credit and currency, those who controlled those other sources would continue to be masters. They would say what the rate of interest was to be. The loans were not to exceed two-thirds of the value of the security offered, unless guaranteed, and in all cases the securities were to be revalued for that purpose. In view of that, it would probably not be an exaggeration to say that the new values would be at least 25 per cent, lower that the original values, and therefore the amount of cash that would be available would not exceed 45 percent, of the original values of the securities. Safeguard Against Loss. It appeared that the cream of securities held by the Government was to be handed over to the Mortgage Corporation while the State was to accept the responsibility for the remainder, said Mr Savage. The investments of the local authorities branch of the State Advances Department were to be used to safeguard the bondholders against loss. It appeared as if the bondholders were to receive a guaranteed profit without incurring any liability. The same process was to be adopted in transferring the assets of the Rural Intermediate Credit Board, the assets of which amounted to £465,000. These were to be used as a reserve to protect bondholders against risk in lending on escurity of stock and chattels. “How is it that we can fix the incomes of tens of thousands of our citizens and we cannot fix a rea-

sonable income for our farmers?” asked Mr Savage. “The incomes of citizens of the nation should, and could be based on the whole of the production of that nation. It is true that this would involve the nation in complete control of its money system, but why should that not be our immediate objective? The Minister says that while mortgagors must be temporarily relieved of the charges which they cannot possibly meet to-day, any final settlement other than by voluntary arrangement must be postponed long enough to make reasonably sure that the mortgagee suffers no avoidable loss. It seems from that as if both parties to the 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 readjustment of overhead charges.”