LOCAL BODY LOANS

Taranaki Daily News, 19 April 1933, Page 12

LOCAL BODY LOANS

INTERNAL CONVERSION. t CONSOLIDATION POSSIBLE. (From Our Own Correspondent.) Wellington, April 17. Now that the national loan conversion scheme is out of the way, the stage is practically set for the conversion of the internal local body loans for which legis-

lation was provided last session. The legislation was designed to have a double object. Not only was it intended to bring about a general reduction in the interest rate, the minimum according to statute being 4| per cent, but it also aimed at reducing the innumerable classes of securities of a diverse character by means of consolidation schemes. While the Treasury Department will no doubt assist local bodies in connection with their financial plans, it is expected that the initiative must come from the local authorities themselves.

They are required to formulate their own conversion schemes, submitting their proposals to the Local Government Loans Board which meets periodically in Wellington. The approval of this body is required, though there is recourse to the Minister of Finance by way of appeal if the board’s decisions are not acceptable.

No fewer than 440 local body loans are on the market, and they are not only

for varying rates of interest and terms of maturity, but are secured against special areas. There is a strong objection both in New Zealand and on the London market to small loans,, and the opportunity, it is hoped, will be taken of consolidation schemes of the locally held debt as a preliminary to a conversion at a lower rate of interest. This will be one of the points regarded as important by the Local Government Loans Board. It will'involve alterations in the maturity dates, so that larger sums will come to redemption at a particular date.

Administrators of local bodies have before them the task of working out the possible savings by consolidation and conversion, in comparison. with the 20 per cent which, after April 1, they are entitled to retain from their interest payments within the Dominion. The object of the conversion legislation, as officially expressed is “to effect a reduction in interest on local body loans to the extent of 20 per cent on all securities within the scope of the Act, with a minimum of 4i per cent, and to endeavour to stabilise future interest rates in New Zealand on that basis.” The interest remission of 20 per cent may satisfy a number of local bodies, but where there are large loan totals, a further prospective benefit may be anticipated, as substantial, and- wellsecured consolidated loans will appeal so strongly to investors that renewals should take place on attractive terms to the borrowing authority. As for the' posible savings under the interest-reduction and conversion legislation, loans totalling over £1,500,000 but of the £38,000,000 domiciled in New Zealand can be ruled out, as they bear interest at or lower than 41 per cent. But the great bulk of the debt stands at a much higher rate, as shown in the following table: —

Over 4| and under 5- per cent. 2,975,867 5 per cent to 5£ inclusive 17,483,807 5$ per cent. 5,601.771 6 per cent. ... 10,441,445 Over 6 per cent. .......\. 845,719 In late years the local bodies of the Dominion have shown a tendency *to raise money within New Zealand rather than make an appeal to investors abroad. Approximately 60 per cent of the local body debt is domiciled in the pominion, as against about 42 per cent of the Government debt. This is only natural, as the smaller local bodies would naturally obtain more advantageous terms in an appeal to the internal money mai'ket. It is impossible, owing to the rriany complications, to forecast the probable savings to local bodies who take advantage of the legislation, but it is safe to* say that in many cases fairly substantial relief will, result, and may mean the difference between a deficit and a balanced budget. . .

SMALL RELIEF FARMS. The desire of many of the unemployed to take up farming occupations is illustrated, by the applications for assistance under the Small Farms (Relief of Unemployment) Act, which was successfully sponsored by the Minister of Finance (The Right Hon. J. G. Coates) last session.. .Up to date something like 12,000 applications have been received, and a special committee has been set up to deal with .the legislation. The problem of administering the Act is a biggerone than was generally anticipated. It gives the Crown the right to acquire or lease land that is not being fully utilised and place new settlers on it, but fairly

, elaborate machinery has to be devised ■ before the Act can be put into practice, and already, it is stated, . difficulties, though not insuperable, are being met. It is not likely that many men will be settled under the Act before the winter, and the Unemployment Board seems to realise this as it is conserving its funds in anticipation of heavier demands for relief during the coming winter. MR. BITCHENER’S APPOINTMENT. The appointment of Mr. J. Bitchener to the Portfolio of Public Works caused surprise in political circles. This is the ’ second time that Mr. Coates has taken lobbyists unawares, as few expected the elevation of the Hon. C. E. Macmillan to ministerial rank when a Cabinet vacancy was caused previously through the defeat of Mr. D. Jones at the last General Election. Mr. Bitchener’s appointment was evidently the reward of long and faithful service to his party, because in actual ability it was generally. considered that Mr. A. E. Ansell (Chalmers) and Mr. W. P. Endean (Parnell) had prior claims. As the Cabinet stands at present the Hon. J. A. Young, who holds the portfolios of Health and Internal Affairs, is the only member who can claim that he represents an urban constituency. His seat is Hamilton which is dominated in voting strength by the town of Hamilton. THE TRANSPORT PROBLEM. . One of the reasons which brought Mr. Ansell’s name into prominence was his interest in transport matters. The legislation covering this problem is fairly complicated, and, although much of its administration is in the hands of local and central tribunals, it requires a good deal of ministerial attention which Mr. ; Coates, as Minister of Finance and Cus- i toms, is not able to give. It has been ’ stated that there is more scope for i national economy in transport than in ] any other field of activity and that a i start only has been inade in a policy i which will rationalise transport services < in a way which will eliminate waste and 1 overlapping. So far Mr. Coates has I retained transport, and Mr. Bitchener has c only one portfolio, Public Works, in c which activities have been severely cur- < tailed and which requires practically no 1 decisions of policy. It is stated that there I is to be a reshuffling of portfolios before < long, and this would appear necessary as I some ministers are being over-worked < while others are carrying a comparative- c ly light load. The Prime Minister (the s Right Hon. G. W. Forbes), for instance, s does not seem to be over-burdened when t one compares his departments with those usually carried by the head of the Gov- v emment. He is principally Minister of c Railways and Minister of External Af-

fairs, but since the railways have been placed under the administration of a board the minister’s position is a sinecure. It can justly be said that Mr. Forbes at the present time is not carrying a major portfolio, and his task is a light one compared with that which he shouldered himself when he was head of the United Government and compared with those of the late Sir Joseph Ward and Mr. Coates when they held the Prime Ministership. THE PAST YEAR’S FIGURES. The figures for the financial year ended March 31 last should be available shortly. In a statement to the House on January 27 last, Mr. Coates estimated the deficit at approximately £700,000, but whether this amount will be adversely affected by the raising of the exchange rate will depend on the terms of the agreement between the banks and the Government. So far these terms have not been disclosed and it will be unlikely that the information will be available until the Budget is presented next session.. If the banks will carry surplus exchanges for short periods only, it will mean the the Government may have to find a greater amount of short term money. At the end of the export season, for example, there is always a large surplus of exchanges, which in normal circumstances is gradually bought up by importers and those wishing to pay debts abroad. If the Government, under the new arrangement, has to take over the surplus at the end of the export season it will have to finance the transaction with Treasury Bills, and before they are absorbed by persons requiring money overseas interest will have to be paid on them.