LOANS AND PUBLIC DEBT

Taranaki Daily News, 25 July 1930, Page 13

LOANS AND PUBLIC DEBT

SUCCESS OF LAST ISSUE REDEMPTION TRANSACTIONS. MINISTRY’S FUTURE POLICY. Referring to the Government’s loan transactions and the public debt, the Minister of Finance stated in his Budget last night that to enable the Government to pursue its public works programme during tho ensuing year, a loan of £5,500,000, bearing interest at 5 per cent, per annum, was issued in London on May 5, 1930. The issue price was £99 per cent., and tho loan is repayable at par on December 15, 1949. Including redemption of the discount over the period of the loan, .the return to investors is £5 Is Sd per cent,, and the cost to the State £5 5s 2d per cent. This cost is about £ per cent, higher than that of the £7,000,000 loan of January, 1929, but. in the interval • the financial world had been much disturbed .by the boom and collapse on the New York Stock Exchange, the “Hatry” crisis Jin London, and the demand for-gold, by European countries, while the supply of capital for longterm investments was also affected by the almost* world-wide depression in business resulting from falling prices. The loan was over-subscribed on the day of issue and this, in conjunction with the terms of issue, which were substantially better than those of recent issues by other Dominions, is a striking proof of our credit abroad. In terms of the prospectus, the pro ceeds of the loan will be expended on the following purposes:— : £ Public works—general purposes 4,500,000 Development, of hydro-electric power works, 500,000 Construction of and additions to railways and rolling-stock 500,000 £5,500,000

DETAILS OF THE PUBLIC DEBT. SOME REPAYMENT MADE. The Public Debt' as at March 31, 1930, amounted to £207,383,343, the net increase for the last financial year being £3,191,360.' This net increase is much smaller than usual, owing to the fact that £5,379,105 of the £7,000,000 loan of January, 1929, was received during the previous financial year. It may be explained that this £7,000,000 loan wisely raised by the late Sir Joseph Ward much earlier than was customary, waft not drawn upon to meet requirements in 1928-29, but the proceeds were carried forward intact into last, financial year. The last instalment of the loan, amounting to £1,620,895, was not 'received until April, 1929, and thus came into last year’s debt figures. The real increase in the public debt on account of. las,t financial, year was thus the actual -net -increase of £3,191,360, plus £5,379,105 carried forward, a total of £8,570,465. Apart from conversion operations no loan was floated in London during 1929-30. Including the portion of the £7,000,000 added to the debt during the previous financial year, ‘the aggregate of additions to the debt on account of the year was £11,099,325. This amount was raised for the following purposes;— ; ’ £ Public Works 7,988,250 State advances . 2,144,075 Land settlement 615,000 State forests 352,000 £11,099,325 As a partial set-off against the new loans raised, debt to, the amount- of £2,528,860 was repaid- during the year, f 1,301,897 of which debt was domiciled in London and £!;?>&,963 in New Zealand. After describing the loan conversion transactions the Minister proceeded:— One result of all these operations is that our external debt was reduced by £6,400,000, which economically . means that the Dominion has discharged its obligations to that extent. The redemption of such a large amount of London debt, necessitating the transfer of over £7,000,000 of cash from New Zealand over the period of the transactions, was very favourably commented upon in that financial centre. Public debt. —The transactions during 1929-30 may therefore be summarised as follows:—

Debt as at April 1929 *454,191,983 Add news loans raised— Ordinary .... 3,576,145 State advances 2,144,075 • 5,720,220 269,912,203 Less redemptions— Ordinary .... .766.850 War 1,097,744 Discharged sol- ... diers ' 425,770 State advances 238,990 2,528,860 Debt as at Mar. 31, •1930 267,383,343 CLASSIFICATION OF DEBT. Ordinary 154,297,847 War 69,783,525 Discharged soldiers 7,861,886 State advances 35,440,085 £267,383,343 I’UTURE BOBBOWINC. MUST BE DIRECTLY PRODUCTIVE. ‘‘While the Government will not hesitate to borrow the necessary capital for purposes considered. to be essential for the economic development of the country,” said Mr. Forbes, “I consider that, having regard to the definite tendency for a world-wide decline in price-levels, coupled with the probability that the weight of the debt’ charges will be further increased through having to renew maturing loans at higher interestrates, we have now -reached a stage when great care must be exercised in 1 determining what additional works i should be undertaken with borrowed I capital. 'Loan-money used for. State ad- ' Vances., and . other purposesi that are

earning full interest obviously imposes no burden on the taxpayers as such. On other items of capital expenditure, where there is only partial recovery of interest, and in some cases no direct recovery • whatever, the expenditure may be really productive, in that the •wealth and earning-capacity of the community may be increased as a result of such capital expenditure by more than sufficient io offset the relative burden on taxation for loan charges, Still, such indirect returns are very difficult te measure, and in order that the relative burden on the taxpayer may not be unduly increased to the detriment of the Dominion generally new works of this class should henceforth be undertaken very sparingly and only after very careful consideration of the likely financial results. In other words, further capital expenditure must be restricted as far as is feasible to directly productive purposes. This will give greater point to tho somewliat involved question of what should be provided out of capital and what out of revenue. Even in the commercial world this question is on. occasions the subject of diverse opinions,, but in State finance, where the public interest —and not profits—is the broad aim, the problem is much more difficult of solution. One aspect of the matter is that some things which may quite legitimately be provided for out of loan capital up to a certain stage of development should later be Ixorne as a charge against revenue. In this connection it would, appear that we have about reached the stage when a start should be made in the direction of providing out of revenue for the cost of , financially unproductive works. Of course, additional burdens cannot be placed upon the Consolidated Fund in a year like Jhe present one, but, as finances permit, I consider that a move should be made in the direction indicated. In short, so far as borrowing is concerned, the Government will endeavour to arrange its programme of development in such a way that the debt charges on the loans raised for the various purposes will be absorbed without causing any financial embarrassment. At the same time every effort will be made-to ensure that 20s of value materialises for every £1 expended.”