The Daily News WEDNESDAY, MARCH 9, 1932. REDUCTION OF INTEREST.

Taranaki Daily News, 9 March 1932, Page 6

The Daily News WEDNESDAY, MARCH 9, 1932. REDUCTION OF INTEREST.

A very interesting section of the report of the economists who have discussed the economic and budgetary position of the Dominion is that relating to what the committee calls fixed charges, namely, interest and rent. “The rigidity of fixed charges during a period of falling prices,” states the report, “both hampers industry and prevents the smooth and equitable distribution of the loss over the population.” The committee suggests that “fixed incomes” might be adjusted by a special duty, the extension of the Mortgagors Relief Act, or, in the case of the public debt, by further ''income tax# or by conver* sion operations, and adds that a reduction of 20 per cent, in “fixed money claims” would make “a substantial and equitable contribution towards bridging the gap between costs and selling prices.” It appears that the committee’s outlook in respect of “fixed charges” has been more academic than practical, as indeed the report shows it to have been throughout. “The rigidity of fixed charges” is, no doubt, a resounding text book phrase, but it does not fit the facts of the present day. The committee should know that the characteristic most conspicuously lacked by fixed charges under the existing conditions is rigidity. Records of the transactions of the past year and more in relation to private loans are not, of course, available, but if the economists had had the assistance of a banker, one or two commercial men and one or two solicitors they would have been able to obtain information as to what has been going on. Such men would know of very numerous instances in which interest payments have been remitted or postponed—in nine cases out of ten the lenders know they will eventually have to write off the postponed amounts—interest has been reduced, and even capital has been written down. Landlords also have had to reduce rents, and in a good many cases by more than the 20 per cent, suggested- by the committee. The “fixed charges” have been, in actual fact, exceedingly flexible, and the recipients of what the committee calls “fixed incomes” probably are, in a very large majority of cases at any rate, experiencing no little difficulty in adjusting their personal affairs to meet their dwindling receipts. Moreover, lenders not only have made substantial concessions to borrowers but also have had to meet increased demands foi* taxation. The mortgagee who has a large income from investments is paying taxation at the rate of 6s in the pound; that is to say, if his capital is earning the comparatively high rate of 7| per cent, income tax reduces his return to a fraction over 5 per cent. Even the small investor has been caught by ,

the lowering of the exemption and the imposition of a special tax on unearned income. It is by no means improbable that the Minister of Finance in his search for revenue during the coming year will consider the possibility of ex-, tracting a little more frqjn the recipients of fixed incomes, and when he is doing so it will be surprising if he does not adjust the levies so as to equalise demands upon holders of bonds and debentures with those made upon mortgagees and landlords. Obviously he would not welcome an arbitrary reduction of “fixed charges,” for he will need all the revenue he can obtain. And there would be another question for his consideration. If an all round reduction in interest and rent were decreed what would be the effect on the Government’s various lending operations? The capital of the State Advances Office, for instance, is borrowed money, and the office lends at rates which only just cover its own administrative costs and the interest it has to meet. Without repudiation, which is unthinkable, the State cannot expect any reduction of the charges on its overseas borrowing. Reduction of interest on the money lent by the State Advances Office would mean a direct loss to the Treasury, which would have to make up the difference by taking from the public’s pockets thrqugh another channel the money it had put into them by cutting charges. In the long run the process would prove costly and unsatisfactory. The Advances Office, of course, is making losses at the present time just as private lenders are. Both the G-overnment and individual investors are forced by circumstances to make the best terms they can. with mortgagors, and in many cases their only hope is to nurse the borrowers. Men who are being carried on through the generosity of the mortgagees would be worse off if all they had to expect was an all round reduction of interest by 20 per cent. To a "great many of the sheep farmers, who are by far the hardest hit among the primary producers, a mere scaling down of interest charges would be futile. They are entirely dependent, not upon a general rule, but upon individual action, and up to the present the process of adjustment by individuals, with a little friendly help from third parties, has worked successfully. That fact will, no doubt, he taken into account by every practical man who considers the' economists’ views on the question of fixed charges. /