High Local-Body Debt

Sun (Auckland), Volume III, Issue 749, 23 August 1929, Page 8

High Local-Body Debt

Concern Shown by Economists FEELINGS of misgiving have been aroused in the minds of a committee of economists because of the enormous volume of local body indebtedness in New Zealand oyer the past decade, and in an exhaustive analysis of the position before the Auckland Branch of the Economic Society, the committee clearly outlines its reasons for its concern. Local-body debt, it is shown, has increased more rapidly than population over a long period reviewed.

The Research Committee which conducted the investigation, comprised Mr. T. Bloodworth, Mr. W. H. Cocker, Mr. H. R. Rodwell, Mr. M. Stewart, Dr. E. P. Neale and Dr. H. Belshaw, and the review covered the period from 1897 to 1927, and in some cases up to March 31, 1928. In illustrating the relativity of State and local-body debt, the report explains that while State expenditure has declined during the past seven years, local-body expenditure has increased by nearly 80 per cent.; State taxation has declined, but local-body taxation has increased by 70 per cent.; gross State indebtedness has increased by about 25 per cent, and gross localbody indebtedness by over 100 per cent. It was during the period since 1920, the investigators found, the greatest abnormality of debt increase, and to this period they devoted much of their analysis. In 1920, when the population was 1,236,915, the local-body debt was just over £30,100,000, and the rate per head £24 8s Id. Seven years later the population had risen to 1,437,980, and the debt to just over £64,000,000, a per capita rate of £44 10s 4d. Thus, in the seven years, the local-body indebtedness swelled by about 112 per cent., while the indebtedness of central government rose by about 34 per cent, (from £206,000,000 to £251,000,000). ELECTRIC DEVELOPMENT The proper test of expenditure, as the report announces, is not its nature but its effect upon economic welfare, and in dealing with this phase of the position, the committee goes thoroughly into the soundness of internal and external borrowings, the reactions upon private expenditure and problems of distribution, claiming that a per capita increase in expenditure consequent upon capital investment is justified only when the per capita income of the community increases—provided that the balance of private and public expenditure is reasonable to begin with. Figures quoted show that out of the total increase in local-body indebtedness of £34,000,000 in the period 1919-27, £15,900,000, or nearly one-half, is accounted for by boroughs, £10,000,090 by electric-power boards, £3,000,000 by counties, and nearly £3,000,000 by harbour boards; but it

is pointed out that a great deal of this money has been spent upon developmental work, such as roads and electric services. For example, in the four years 1923-27, boroughs spent £11,000,000 on new works out of loan money. The outstanding purposes of loan indebtedness as at March 31, 1927, are given as: —Electric supply and lighting, £14,800,000; reals, streets, footways and bridges, £13,500,000; drainage, sewerage and water-supply, £12,900,000; and harbour works, £10,300,000. “It would appear,” the report adds, “that an uncertain but very considerable proportion of the indebtedness of recent years is accounted for by electrical services and improved roads and bridges. “Since 1920, prices have been falling considerably, and the consensus of opinion among economists is that they will continue to fall for some time. For this reason the rapid increase in local-body indebtedness of recent years is a matter for grave concern. FALLING PRICES INDICATED “In respect of some public works —roads for example—the controlling authority has the alternatives of a more permanent and expensive type of investment involving low maintenance charges, and a less permanent type involving high maintenance charges. “In view of the considerations advanced, and of the fact that maintenance costs will themselves tend to fall as prices fall, the balance of argument in favour of the latter alternative is strengthened, and local authorities should give very careful thought to the matter before deciding which alternative to adopt.” Finally, on the problem of waste, the committee deals with the capital expenditure of today as it will benefit future generations, and adds:—“We feel that waste due to unnecessary overhead has been particularly prevalent in the matter of road construction. It is the opinion of town-planning experts that the majority of urban and suburban by-roads are much wider than is necessary to provide adequate service. Not only is there waste through excessive capital cost and maintenance involved, but also through the greater area over which the city is spread in consequence, necessitating longer distances for transport to cover.”