THE PUBLIC TRUST OFFICE.

Press, Volume LX, Issue 18232, 17 November 1924, Page 9

THE PUBLIC TRUST OFFICE.

THE DEFENCE ANALYSED.

(By J. W. Dowling, M.A.)

[On Saturday wo printed a statement issued by tho Prime Minister, as Minister in charge of the Public Trust Office, in reply to tho criiicisnw of tho office which commenced in "The Press*' in » series ot articles by the R-t. Fathsr Dowling. The following is Father Dowling"* comments upon tho Ministerial defence.—Ed. "The Press."! Before making any observations upon the reply made by the Primo Minister to tho criticism of the administration of the Public Trust Office, I should like to state that my interost in tho matter ia purely academic. I have never had any dealings with the Public Trust Office, and have no grudge whatever against it. Since I had written a thesis on the subjoct, scvoral gentlemen who were interested in tho Department as an experiment in State enterprise asked me to write a few articles embodying the results of the investigation which I had made. A thesis in economics is intended to bo not merely of theoretical • interest. It may, and generally does, have a practical bearing upon somo problem of the day. Hence my compliance with thoir request.

In my articles published in "Tho Press" I did not deny that the Common Fund principle adopted by the Department possesses many advantages and enables it to confer many benefits on small estates and to perform many gratuitous and non-paying services. My criticism was that a largo part of the eost of theso gratuitous and nonpaying services is met out of surplus interest from the investment of Govornment funds which do not securo the benefit of those services. Government Sinking Funds provido about half of the total funds of which the Common Fund is comprised. Theso funds earn .iust as much in interest as do the balance at credit of ostatcs. In the reply given by tho Ministor in chargo, it is stated that the Public Trustee is now lending.at 6 per cent. Is it not a fact that ho is receiving as much as 7 per cent, for some loans mado at tho present time, even in cases where the security is first-class? On such funds the Public Trustee retains over 28 per cent, of tho interest. A large portion of tho Common Fund must cam about 6 per cent, in interest. On such sums ho retains at least 20 per cent, of tho interest. The highest rate at whicli ho credits interest to estates or funds in tho Common Fund is 5 per cent. On a large portion he pays only 4 J per cent. If he earns 6 per cent, and pays out only 4$ per cent,, then he retains 25 per cent, of the interest. On a portion .of the Common Fund, invested some years ago,, no doubt interest is earned at a lower rate, perhaps as low as 5 per cent., or oven lower. On this portion a lesser percentage of the interest is rotained. On some loans . thero may be a loss either because tho investments have turned out badly or because the funds have been lent at a rate lower than 5 per cent. One may be permitted to ask why funds invested at tho high rates | ruling at present should have to make up for, fund's invested at lower rates several years ago. Tho Common Fund presents many undoubted advantages. The facts related above seem to show that it lias also some serious defects. I did not stnto in my articles that local bodies were being victimised in regard to their sinking funds. I repeated the criticism given by the Royal Commission of 1912 that the interest on these funds, and particularly on the { Sinking Fund of the Central Government is paying tod large a portion of the expenses of gratuitous and nonpaying work. I hold strongly to the view that the/ Department should retain less of the interest on theso funds than, of that arising from moneys at credit of estates. Why did not the Department follow the recommendation of the Koyal Comndssion of 1912 that thoro should be. a distinct Common Fund for sinking funds, etc., and a suitable charge made to cover the expenses of investing and managing those funds? They would thus get all the interest they earned without deduction for maintaining: other services of the State, and the cost of these services would become more manifest* It seems to me that tho suggestion was not followed because tho Department would have to revise its scale of charges, .perform fewer gratuitous services or take even more from the interest on estates. t • J

It may be the case that local bodies prefer Common Fund investments to specials, investments, apart from the Common Fundi I wonder why Civil servants have the opposite preference Those in charge of the Public Service Superannuation Fund and Teachers' Superannuation Fund insisted upon Trithdrawing these . funds from the Common Fund and haying them invested specially. I did not hold the view, as was erroneously stated in the reply published by the Minister in charge of the Department, that the Public Service Superannuation Fund forms part of the Common Fund. I was of the opinion that the Eailways and. Local Bodies' Superannuation Funds were in the Common Fund. The Eailways Superannuation Fund was not withdrawn until April Ist of this, year. Tho Local Bodies' Superannuation Fund still forms part of .the Common Fund. ■ ;

It is alleged that I failed to give credit for tho bonuses granted to estates by the Department. I made special mention of thoso bonuses, and was fully aware that,( allowing for them, the percentage of interest taken by the Department was considerably diminished. The point is, however, that the powero and privileges conferred upon the Public Trustee were such as to enable him to retain the higher percentage, if he so willed. It does not alter the case a great deal if, as an afterthought, the Publle Trustee returns a part of hs3 surplus by 'Way of a bonus.

In support of my contention that an unduly high percentage of the interest earned by tho Common Fund is retained by the Office, I quoted, in my articles, the following table:—

Interest Interest Credited Eetained to Estates, by tho Dept. Tear. £ £ 1918 .. 317,633 116,310 1919 .. 352,783 137,260 1920 .., 420,525 158,226 1921 .. 537,890 144,056

Even allowing for the fact that much of the interest retained was the surplus frpm funds outside' the Common Fund, surely the proportion indicated by theso figures is unduly large Tho surrounding faets, of which I*" 1 supposed to be ignorant; and it iB alleged, make toy roneous, do not mai* the **£*%£ the Department suggests, and do, n» materially alter the terest taken The -J*-^ [ Cgo have us infer that ninety profit on deposits. . fSa the ComJcrcent of won Fund, ami reewve. w . remi i n dcr specially invested c0w*,,....

difference of mora than two or three .thousand pounds in the earn of istercst retained as quoted in the above table. Interest on the reserve in the Common Fund would not amount to much more than £IO,OOO in the years covered by tabic—perhaps a good deal less. Even allowing for all tho means bv which t:;e ti>tal of interest retained the Department U enhanced, the proft on the Cossmoa Fund seems unduly large. It is stated in one part of the reply to criticism that interest on Conausoa Fund investments amounts to over £1,000,000 per annum. la another part it is stated that the average rat* of interest on th© Gammon Fund in 1923 was £5 10s 4d. It is not easy to reconcile these figures. I presume that the total of £1,000,000 has been reached dnrins the last two years at least. In 1923 tho Common Fund did not txcted £15,000,000. Now, if £1,000,000 vrore earned on this sum, the average rat© would appear to have been approximately 6 2-3 per cent. There seem to fee surrounding facts here also of which I am ignorant. Tho average rate at which interest is earned cannot be obtained by obtaining an average of the rates at which loans arc made. It all depends upon how much is lent at each rate.

When it is stated that the average rate for 1920, for instance, was £5 fcj 7d, and that estates in the Common Fund were credited with interest at the rato of 5 per cent., we are expected to infer that the Department retained only 6s 7d out of every £5 6s 7d earned on tho Common Fund, or about 6 per cent. If that wore the case, thea the Department should have retained about £40,000. According to its accounts it retained about £124,000 in that year, even allowing for the bonus given. * The Department in reality does not credit interest to all estates and moneys making up the Common Fund at the rate of o per cent. On a large portion it pays only 4i per cent., which, if £S 6a 7<A be tho average rate, enables the Department to retain about 15.6 of the interest earned.

Once again I wish it clearly understood that I am not leading % crusade again st tho Public Trust Office, nor do I wish to undermine public confides*© in the Office. My aim is to defend abatements made in iny articles published in "The Prose." To prove the accuracy or inaccuracy of those statements the Department should compile a table, covering several recent years, showing: (a) Amount at credit of. estates ia Common Fund. (b) Amount at credit of Goveranreat funds in the Common Fond. (c) Total interest earned by the Com* men Fond. (d) Interest credited to ©states ia Common Fund. (e) Interest credited to Government funds in the Common Fund. (f) Interest retained by the Department. This information cannot be obtaicetl with any high degree of accuracy from the reports and accounts published by the Department. to thb mrroß o» '*rax nußss." Sir, —White we do not wish in cay way to enter into tbe pros and eon* of tl*e above controversy, wo would Is© pleased if you would allow vs a few linea to refer to tho statement tnado iu a letter published in your paper of November 6th, under the name of «. H. Hcnning, to the effect that private trustee companies fire mostly run m* ■connexion with legal firms. This statement is a ridiculous caw* so far as this company is concerned, and the statement really amounts to [ a slur tin tbe character and integrity I of tho legal profession as a whole.— Yours, etc., P. B„ FOOTE, District Perpetual Trustees Estate and Agency Co. of New Zealand, Ltd. Timr.ru. Nov. 11th.