I.—7b.

145. Mr. T. Mackenzie.] What would be the extent to which it would be necessary to curtail the luxuries of the people if the operation had not gone on?— Manifestly to the extent of £85,000 for this year. 146. Mr. Montgomery.] You say that the Controller and Auditor-General and the Assistant Controller and Auditor appeared to have held diverse opinions on the subject; does that mean that one of them was of opinion that it was illegal to issue debentures against these sinking funds ?— One of them held that opinion. 147. Which one? —The Assistant Controller and Auditor. 148. Mr. Tanner.] I would like to ask whether, in your opinion, the Audit Office in the past has, kept copies of accounts they certified to as correct before they sent them back to the department ? —No. My opinion is that they would not keep copies—they are always available at the Treasury. 149. You mean to say that in the past they have never kept copies of the accounts they have certified to as correct? —I think not. 150. Hon. Mr. Seddon.] This transaction, Mr. Heywood, was authorised by me ?—Yes. 151. Before instructions were given for this, the matter was referred to the Controller and Auditor-General ?—Yes. 152. The matter was questioned by the Assistant Controller and Auditor? —Yes. 153. Subsequently, under the advice of the Law Officers, the transaction was authorised ?— It was. 154. And the account certified to by the Controller and Auditor-General ?—lt was. 155. The Controller and Auditor-General was of opinion that it was legal ?—Yes, that was his opinion. 156. Because the question was raised by the Assistant Controller, that was the reason why the Law Officers advised ? —Yes. 157. After the advice had been taken, the transaction was completed on the certificate of the Controller and Auditor-General? —Yes. 158.. This has been treated in like manner to all other sinking funds and under the same law ?—■ Yes. ' 159. The total amount this year is £145,000 ?—£145,400. 160. What was the amount last year ?—£117,800. 161. During the terms of the Stout-Vogel and Atkinson Governments have you known the amount to be as high as £250,000 ?—Over £250,000. 162. Then, this £145,400 this year is a small amount, as compared with the transactions of past years ? —Quite so. 163. These amounts have always gone in aid of revenue ? —Yes. 164. In past years, had it not been for the issue of these debentures issued against accretions of sinking funds, there would have been large deficits?— Yes. 165. Or there would have been the alternative that the previous Governments would have had to borrow, or reduce expenditure in a corresponding amount to the issue of debentures against the sinking funds ?—I think so. 166. There is nothing new in this transaction?— Nothing new except the introduction of the new loan. 167. You have stated that, during the time of the Ballance Treasurership, there was a loan of £500,000 converted, and you pointed out to him the absurdity of issuing a sinking fund against the loan converted ?—Yes, £449,000 of this particular loan—the Government loan to local bodies—was converted into consolidated stock, and I did point out to Mr. Ballance what I thought was a peculiarity, to continue a sinking fund upon a loan which had no existence. 168. Well, now, next year there will be a further conversion, will there not?— Yes. 169. What will be the amount next year —that is, upon the conversion ?•• -In round figures at present it is £480,000. It may increase to £580,000 by next year. 170. What is the total amount outstanding, as against these loans to local bodies; will that £580,000 cover practically the whole amount of Government local bodies' loans outstanding?— That would cover the whole amount outstanding against the loans to local bodies. 171. In Mr. Ballance's time there was absolutely converted £449,000? —Yes. 172. And four years afterwards the amount of £580,000 has to be converted. It was practically, then, only a sinking fund for one-half the loan for three years ?—The further amount borrowed in the interval will require to be converted or otherwise arranged for. 173. Then I may put it plainly to you, that, as a financial transaction, it is at least farcical to issue sinking fund against a loan to be converted four years afterwards ? —The policy of the Government at that time was to maintain the sinking fund, and what they will do with the sinking fund I cannot say. 174. Is it not altogether against the tenets to say that you convert a loan and then issue a sinking fund against the loan that has been converted ? Does not the converting of a loan do away with sinking funds?— The conversion has the effect of doing away with the sinking fund. 175. You say there is a balance for loan conversion of over £500,000 for next year ?—The amount outstanding this year was £480,000, and will probably be increased by £100,000. 176. What is the first thing done with accrued sinking funds after a loan is converted ?—The accrued sinking fund, after being set free, is used to redeem the debentures (if any) which were issued against the sinking fund of such loan. 177. Then, next year, on the loan being converted, the money we have raised this year—this £85,000 —will be the first thing paid off by the sinking fund under conversion ?—That is so. 178. Is this in accordance with what has been done in past years ?—Strictly. 11 . 179. Dr. Newman.] Did Mr. Gavin give in writing any reasons for dissent ?—He did.

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