LOCAL BODIES’ LIABILITIES.

Taranaki Daily News, 27 October 1921, Page 4

LOCAL BODIES’ LIABILITIES.

Whatever may be the condition of the (national finances, it would seem that J the Government has decided to prevent local bodies from continuing to carry on by means of bank overdraft. Though this decision will entail on these bodies the necessity for adjusting their annual income and expenditure on sound lines, it will certainly face them with a problem the solution of which will cause considerable difficulty that can only be overcome by increased demands on the ratepayers, for not only must the present liabilities be liquidated, but the local authorities will practically be compelled to live within their income. The soundness of this principle is beyond question, though it is evident that it may lead to much work that is now undertaken out of revenue being the subject of loans sanctioned by polls of the ratepayers. The system of borrowing by wav of overdraft an amount equal to the previous year’s revenue has proved a great convenience, especially in view of the fact that a large proportion of the ratepayers postpone the payment of rates as long as they can do so without incurring the extra ten per cent, penalty, but there can be no doubt that sueh a course is neither economically sound nor conducive to good business results. It. is simply living on credit, from year to year, always being twelve months in arrear. Obviously, in the future, rates will have to be paid within a reasonable time of being etruck, and when once this is done the financial affairs of local bodies will be on a sound basis. It is not proposed to abolish borrowing on overdraft altogether, but to restrict the amount to two-thirds of the previous year’s revenue, and even then the advance may be called in by the bankers. To meet the difficulty of this overdraft question, the local bodies may borrow, without a poll sufficient to cover the amount advanced by the banks and thus extinguish the liability, or may pay off the amount by seven yearly instalments out of revenue, though it is improbable this latter course will be adopted, notwithstanding the power to impose a special rate for the purpose. With regard to receiving money on deposit, this can only be done in future under the authority of a special Act or such Acts as are mentioned in the Bill. Whether the main factor that has prompted this legislation is that more money shall be available for national or industrial purposes is matter for conjecture, but it has been plainly evident for some time past that some !steps would have to be taken in the dir'ect’ion of stabilising the finances of local 'bodies and putting an end to undue leaning on the banks, and following the line of least resistance. Even the limit of two-thirds of the previous year’s revenue is larger than is prudent for borrowing, but the ratepayers, by paying up promptly, can save sufficient in interest ’ to reduce the rates and obviate the necessity to borrow. It would certainly be beneficial to clear off the whole of the !existing overdraft liabilities by way of 'special loan, at a lower rate of interest than is being paid on the overdrafts, obtain a clean slate, and start afresh without recourse to the banks’ aid; in other words, to pay as they go and live within their incomes, and the same principle might well be adopted by the Government. What the Dominion needs is sound, economical financial methods in all public affairs. The reform may press hardly on the community at first, though not necessarily so if wise administration takes the place of slipshod methods. The Bill may need some amending in details, but in the main it is on the right lines.