TOO DRASTIC

Auckland Star, Volume LXXIV, Issue 229, 26 September 1940, Page 9

TOO DRASTIC

WAR LOAN TERMS.

EFFECT ON BUSINESS.

SACRIFICES INEVITABLE.

"The introduction of compulsion in the Dominion's first .war loan will have an adverse psychological effect and will result in considerable hardship on business and industry," said Mr. J. \V. Frater, chairman of the Auckland Stock Exchange, in commenting this morning 011 the provisions of the £8,000,000 loan issue. He declared that compulsion at this stage was unnecessary, and would create an entirely erroneous impression abroad that the Government was unable to raise money by voluntary appeal. "There is 110 other part of the Empire where compulsion lias yet been resorted to," Mr. Frater continued, "and New Zealanders have been as ready to play their full part in the war effort as the people of the other Dominions. There will be a feeling of shame in many quar-

ters in consequence of the Government's action. If the war was prolonged there might probably be justification later for taking compulsory measures, but there is no need for it in the initial loan. We have seen how every class of the community in Australia has been subscribing to the Commonwealth war loans, and a similar response would have been assured here under a voluntary appeal." Blow at Patriotic Incentive. Compulsion luid destroyed at one blow the patriotic incentive which was strong in the hearts of New Zealand people, he said. A section of the community had been virtually exempted from supporting the loan, and the burden had been placed on a limited number, and on companies, which in many instances would have difficulty in subscribing the 1 amounts apportioned to them. A considerable number of people in business would not find it easy to meet their heavy income tax demands, and the forced loan, coining on top of their tax liability, would inevitably militate against business prosperity and expansion, with possible repercussions on employment.

"A tremendous proportion of business people will have to go to their bankers and endeavour to arrange for accommodation," said Mr. Frater, "and it appears that many may be placed in the unfortunate position of having to sacrifice their holdings within a short time on a weak market. If the whole of t'he scrip retained its right for the payment of death duties it would have been much more attractive, but the right to use it for this purpose is confined to the original purchaser, which destroys part of its transfer value. This is a definite weakness."

Mr. Frater pointed out that the total interest cost of a loan of £8,000,000 at 2£ per cent would be £200,000 annually, or £600,000 for the three years which the issue was to be interest-free. If the issue had been made on a straight-out 2i per cent basis, it would have been well received, and a great deal of hardship would have been obviated.

Loss of Capital Threatened. Judging by the experience of the .">1 per cent'soldiers' settlement loan issued after the last war, on a. compulsory basis, which was depressed as low as £87, Mr. Frater estimated that the coming loan might fall to about £75 on the market. - " If half of those contributing were forced to realise on their securities in such circumstances, they would experience a total loss of £1,000,000 in capital. A loan issue of this kind should make provision for a right of appeal in cases of severe hardship, he said. Another point was that some of those liable to contribute might be men who had gone overseas on active service or were in training or waiting to be called up. Were they also to be mulcted of a portion of the capital?

Referring particularly to the position] of companies, Mr. Frater said the death duty clause would be of no use to them, yet they would be among the largest subscribers. Many of them would, be unable to retain their scrip, and would therefore be placed in a very invidious position.

"Everyone must feel that the Government has been too eager to adopt compulsion and has made a major mistake in choosing its present course," lie concluded. "It does not appreciate the spirit of the peqple, and has made no attempt to give them a proper lead. One cannot but contrast this position with the remarkable co-oper Aon which has been aroused in Britain under the leadership of Mr. Churchill. There is, unfortunately, a real danger that forced borrowing on such' drastic terms will immediately discourage the public from giving generously to patriotic appeals."