8.—6

The first item results from normal operations under the statutory debt repayment scheme. The £6,250,000 applied from the War Expenses Account was utilized in reduction of indebtedness under the Memorandum of Security Agreement. Funds for the unusually large redemptions from Loans Redemption Account came mostly from, the lump-sum payments received from the United Kingdom under a financial arrangement associated with the long-term contracts for the sale of our exportable surplus of dairy produce and meat. The agreement reached was announced last year, and honourable members will recollect the provision for the payment of a lump sum of £12,000,000 sterling and £4,000,000 sterling annually for four years to be made by the United Kingdom on account of benefits derived from our stabilization scheme and as compensation for the substantial increase in prices of goods imported from the United Kingdom. Actual production costs on the farm or in the factory payable by the farmer are covered in the prices arranged for the produce, but the United Kingdom recognized that direct production costs would have been much higher if wages and the cost of living and all the other main items in our economic structure had not been held under our stabilization scheme at a heavy cost in subsidies, mostly to offset higher prices of imported commodities. An important aspect of the matter was that since the original war contracts for our produce were arranged United Kingdom prices for our imports had risen substantially. As the real price we receive for exports is the volume of imports obtainable in exchange, some readjustment was necessary to protect our external position and this was provided in the lump sum payments. As borrowing for War Expenses Account had been increased by payment of stabilization subsidies out of that account and also by the increased prices for war stores bought overseas, the readjustment in New Zealand was made by crediting the lump-sum payment of £12,000,000 sterling, and the first payment of £4,000,000 sterling received prior to 31st March last to Loans Redemption Account for repayment of war debt. The whole community will benefit from relief from taxation to the extent it would otherwise be necessary to provide interest and repayment charges on the amount of debt involved. Of the £20,000,000 in New Zealand currency received, £17,473,000 was used for repayment of war debt and the balance was carried forward in Loans Redemption Account on 31st March and will be utilized this year for further redemptions. The remainder of the redemptions for last year were made with funds received from various trading accounts and separate sinking funds. As regards the " floating debt" or short-term debt represented by Treasury bills, this has been reduced from £55,615,000 at 31st March, 1944, to £47,000,000 at 31st March, 1945, and, with the exception of three small amounts totalling £60,000, is held by Government Departments and by the Reserve Bank. The two final instalments due in July, 1944, and January, 1945, totalling £2,800,300, of the £16,000,000 London loan were disposed of during the year, conversion offers being made as at the half-yearly dates. The final result of the conversion operations which, have taken place each half-year over the past five years is that £4,605,300 of the £16,000,000 has been converted on the London register and £.11,394,700 repaid, the funds for redemption being found in part from moneys available in New Zealand for debt redemption and in part from the proceeds of issues in renewal in New Zealand. A further conversion offer was made in London affecting debt totalling £17,238,187 sterling, of which £7,580,907, with interest at 4| per cent, was due for repayment on the Ist March, .1945, and £9,657,280, with interest at 3 per cent., on tlie Ist April, 1945. The first loan only, therefore, comes into the accounts for the year under review, but as the conversion offer was made at the same time in respect of the total involved I will deal with the matter as one operation. The conversion was made on the basis of 3j per cent, interest, the new stock maturing on the Ist September, 1962-65, the offer including a cash payment of 10s. per cent, to holders who converted. Applications for conversion totalling £14,904,247 were received, the balance of £2,333,940 being taken up by the Reserve Bank. The results were satisfactory and had the effect of reducing our overseas interest payments by £70,618 sterling per annum.

Conversion operations.

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